Processor and Underwriter Licensing Requirements Under HUD’s S.A.F.E. Act

Written By: Stacey Sprain

I’ve noticed a few recent questions and comments listed in chat rooms and blogs in regards to confusion and questions on HUD’s S.A.F.E. Act licensing requirements as they relate to the capacity of loan processors and underwriters. Because of my own curiosity, I’ve “dug in” and started doing a little reading up on the topic and here is the information I’ve found that may provide answers to the licensing question- “required to be licensed or not required to be licensed.”

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What exactly is the S.A.F.E. Act?

According to HUD’s explanation, the SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry for the purpose of achieving the following objectives:

(1) Providing uniform license applications and reporting requirements for state licensed-loan originators;
(2) Providing a comprehensive licensing and supervisory database;
(3) Aggregating and improving the flow of information to and between regulators;
(4) Providing increased accountability and tracking of loan originators;
(5) Streamlining the licensing process and reducing regulatory burden;
(6) Enhancing consumer protections and supporting anti-fraud measures;
(7) Providing consumers with easily accessible information, offered at no charge, utilizing electronic media, including the Internet, regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, loan originators;
(8) Establishing a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer;
(9) Facilitating responsible behavior in the subprime mortgage market place and providing comprehensive training and examination requirements related to subprime mortgage lending;
(10) Facilitating the collection and disbursement of consumer complaints on behalf of state mortgage regulators.

When does the Act become effective?

The SAFE Act encourages states to participate in the Nationwide Mortgage Licensing System and Registry, and requires states to have in place, by law or regulation, a system for licensing and registering loan originators that meets the requirements of sections 1505, 1506, and 1508(d) of the SAFE Act. The SAFE Act requires the states to have the licensing and registration system in place by: (1) July 31, 2009, for states whose legislatures meet annually; and (2) July 31, 2010, for states whose legislatures meet biennially. For both this 1-year period and 2-year period, HUD may extend the deadline, by not more than 24 months, if HUD determines that a state is making a good faith effort to establish a state licensing law that meets the minimum requirements of the SAFE Act.

While states are charged with enacting licensing standards that meet the requirements of the SAFE Act, overall responsibility for interpretation, implementation, and compliance with the SAFE Act rests with HUD. In this regard, CSBS and AARMR requested that HUD review the model legislation, and advise of its sufficiency in meeting applicable minimum requirements of the SAFE Act. State legislation that follows the provisions of the model legislation, whether by statute or regulation, will be determined to have met the applicable minimum requirements of the SAFE Act. You may review the Safe Act Model State Law by visitinghttp://www.hud.gov/offices/hsg/ramh/mps/modellaw.pdf.

Based on the review of the model, it would seem that HUD’s intention is for licensing requirements to apply to those persons who serve in the capacity of a loan originator, according to their extremely complex and complicated definition of “loan originator.”

It appears that HUD’s model definitions of a Loan Processor, Underwriter or Mortgage Loan Originator are as follows:

MSL XX.XXX.030 DEFINITIONS—For purposes of this Act, the following definitions shall apply:


(5) LOAN PROCESSOR OR UNDERWRITER—

(a) IN GENERAL—The term ‘‘loan processor or underwriter’’ means an individual who performs clerical or support duties as an employee at the direction of and subject to the supervision and instruction of a person licensed, or exempt from licensing under [reference appropriate state mortgage licensing laws here.

(b) CLERICAL OR SUPPORT DUTIES—For purposes of subsection (a), the term ‘‘clerical or support duties’’ may include subsequent to the receipt of an application—
(i) The receipt, collection, distribution, and analysis of information common for the processing or underwriting of a residential mortgage loan; and
(ii) Communicating with a consumer to obtain the information necessary for the processing or underwriting of a loan, to the extent that such communication does not include offering or negotiating loan rates or terms, or counseling consumers about residential mortgage loan rates or terms.

(c) REPRESENTATIONS TO THE PUBLIC—An individual engaging solely in loan processor or underwriter activities, shall not represent to the public, through advertising or other means of communicating or providing information including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that such individual can or will perform any of the activities of a mortgage loan originator.

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(6) MORTGAGE LOAN ORIGINATOR—

(a) IN GENERAL—The term ‘‘mortgage loan originator’’—
(i) Means an individual who for compensation or gain or in the expectation of compensation or gain—
(A) Takes a residential mortgage loan application; or
(B) Offers or negotiates terms of a residential mortgage loan;
(ii) Does not include an individual engaged solely as a loan processor or
underwriter except as otherwise provided in MSL XX.XXX.040(4);
(iii) Does not include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with [State] law, unless the person or entity is compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker, or other mortgage loan originator; and
(iv) Does not include a person or entity solely involved in extensions of credit relating to timeshare plans, as that term is defined in section 101(53D) of title 11, United States Code.…

(10) REGISTERED MORTGAGE LOAN ORIGINATOR—

The term ‘‘registered mortgage loan originator’’ means any individual who—

(a) Meets the definition of mortgage loan originator and is an employee of—
(i) A depository institution;
(ii) A subsidiary that is—
(A) Owned and controlled by a depository institution; and
(B) Regulated by a Federal banking agency; or
(iii) An institution regulated by the Farm Credit Administration; and

(b) Is registered with, and maintains a unique identifier through, the Nationwide Mortgage Licensing System and Registry.

As referenced above in (6)(B)(ii)… In the definition of MORTGAGE LOAN ORIGINATOR: (ii) Does not include an individual engaged solely as a loan processor or underwriter except as otherwise provided in MSL XX.XXX.040(4). Here is the verbiage of importance in XX.XXX.040(4);

(4) INDEPENDENT CONTRACTOR LOAN PROCESSORS OR UNDERWRITERS—

A loan processor or underwriter who is an independent contractor may not engage in the activities of a loan processor or underwriter unless such independent contractor loan processor or underwriter obtains and maintains a license under MSL XX.XXX.040(1). Each independent contractor loan processor or underwriter licensed as a mortgage loan originator must have and maintain a valid unique identifier issued by the Nationwide Mortgage Licensing System and Registry.

The following verbiage pertains to MSL XX.XXX.040(1) referenced above:

(1) IN GENERAL—An individual, unless specifically exempted from this Act
under subsection (3) of this section, shall not engage in the business of a mortgage loan originator with respect to any dwelling located in this State without first obtaining and maintaining annually a license under this Act. Each licensed mortgage loan originator must register with and maintain a valid unique identifier issued by the Nationwide Mortgage Licensing System and Registry.

The following verbiage pertains to subsection (3) as referenced above:

(3) EXEMPTION FROM THIS ACT—

http://www.hud.gov/offices/hsg/ramh/mps/modellaw.pdf

(a) Registered Mortgage Loan Originators, when acting for an entity described in MSL XX.XXX.030(10)(a)(i),(ii) or (iii) are exempt from this Act.

(b) Any individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of the individual.

(c) Any individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that served as the individual’s residence.

(d) A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker,
or other mortgage loan originator.

The following verbiage pertains to MSL XX.XXX.030(10)(a)(i),(ii) or (iii) as referenced above:

(10) REGISTERED MORTGAGE LOAN ORIGINATOR—

The term ‘‘registered mortgage loan originator’’ means any individual who—

(a) Meets the definition of mortgage loan originator and is an employee of—
(i) A depository institution;
(ii) A subsidiary that is—
(iii) An institution regulated by the Farm Credit Administration.

Now based on how I personally read all of the above, I drew the conclusion that HUD’s intent is to allow exemption of processors and underwriters if they are reporting to a licensed or registered person or entity. However, I also drew the conclusion that licensing is to be required of independent contracting processors and underwriters who are not W2 employees of an exempted entity. Though there is some conflicting language between HUD’s explanations given on their SAFE Act home page versus the model language, based on reading through the detailed back and forth referencing between all sections, it would certainly seem to me that non-W2 employed processors and underwriters are not considered to be under the direct supervision or reporting under a licensed or registered person or entity.

Whether or not my conclusions are 100% correct is simply another question. I am most definitely not an attorney nor do I wish to represent myself as a licensing expert by any means. But based on additional reading out on the web it would certainly seem as though my conclusions are shared with a number of high-ranking state agencies as well. I would certainly value any feedback from others of you out there who have had opportunity to research these licensing requirements and any added information you feel might be valuable to our dedicated readers.

Here are a few resources from which I gathered the information contained herein:

- HUD SAFE Mortgage Licensing Act Home Page:http://www.hud.gov/offices/hsg/ramh/safe/smlicact.cfm
- Safe Act Model State Law:http://www.hud.gov/offices/hsg/ramh/mps/modellaw.pdf
- HUD Safe Act FAQ:http://www.hud.gov/offices/hsg/ramh/safe/safeactfaq.pdf

For further information, Contact:
HUD
Office of Regulatory Affairs and Manufactured Housing
Department of Housing and Urban Development
451 Seventh Street, SW
Rm. 9162
Washington, DC 20410-8000
Telephone: (202) 708-6401
FAX: (202) 708-2678
Email: safeprogram@hud.gov

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About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.

 


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.