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The SAFE Act Revisited

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act) was enacted on July 20, 2008. The regulatory agencies enacted implementing regulations on June 1, 2009. The law and the regulations require that all mortgage loan originators (MLO) as defined under the SAFE Act register with the Nationwide Mortgage Licensing System and Registry (NMLS) and obtain a unique identification number. The NMLS became available for MLO registration on January 31, 2011 and all persons acting as MLOs at that time were required to register within a six month time period which ended on July 29, 2011. Subsequently, the Dodd Frank Act made some minor technical changes to the law and transferred the regulatory writing authority for its implementation to the Consumer Financial Protection Bureau (CFPB). The CFPB has published two interim final regulations implementing the Act. The first, Regulation G (12 CFR 1007), is for federally insured and examined financial institutions. The second, Regulation H (12 CFR 1008), is for mortgage brokers and everyone else. The major difference between the two regulations is that MLOs employed by a financial institution are not required to take a state test, while those who are not employed by a financial institution are.

The law and the regulations are fairly straight forward. However, there are some issues and pitfalls. The first is defining which employees of a financial institution are MLOs and, therefore, are required to register. Generally, an MLO is a person who (1) takes a residential mortgage loan application and (2) offers or negotiates terms of a residential mortgage loan for compensation or gain. Also, a residential mortgage loan is any loan for a consumer purpose that is secured by a dwelling, so the definition includes junior mortgages, home equity lines of credit, reverse mortgages and so forth. An employee, who performs clerical or administrative functions in regard to a loan, including the underwriting, is not an MLO just because of those functions. Generally, to be an MLO, an employee must have some contact with the customer whether during the application process or in the offering of the loan terms if the loan is approved. Appendix A to Regulation G contains a fairly extensive list of activities that cause a person to be an MLO and those that do not. There is also a de minimis exception for employees that do not act as an MLO or do more than five applications during a rolling 12- month period.

MLOs are required to register with the NMLS and renew their registration annually between November 1 and December 31. If a financial institution hires a new employee, that person may not act as an MLO until he or she has registered with the NMLS and obtained his or her unique identifying number. An MLO is required to update his or her information within 30 days of any change in name, reportable changes to legal or regulatory actions and employment termination. The financial institution must also report any MLO employment termination within 30 days. If an employment change is because of a merger, acquisition or reorganization the time to report is 60 days.

When a previously registered employee changes employment, there are streamlined registration requirements that the MLO must complete before working as an MLO at the new organization. The MLO must update certain information, provide required attestation and authorizations, and submit new fingerprints unless the employee has fingerprints on file with the Registry that are less than three (3) years old. There is no grace period in this situation; an employee must update his or her Registry record before acting as a loan originator for the new employer.

An MLO is required to provide his or her unique identifier to any potential residential mortgage loan customer upon request. It must also be on the first written communication from the MLO to the consumer whether that communication is a required disclosure, a commitment or otherwise. An MLO can put his or her unique identifier on other documents such as business cards, advertisements, stationery and other promotional items if he or she wishes, but it is not required. The financial institution must also make its MLOʼs unique identifiers available to the public. This can be accomplished by a notice in the lobby or by posting them on the financial institution’s website.

Importantly, the Act mandates that a financial institution have a policy and procedures for SAFE Act compliance. Among other things they must establish a process for identifying which employees are MLOs, informing those persons of their registration requirement, confirming the employee registration and the accuracy of the employee provided information and providing for appropriate action in the event of a violation. Finally, a financial institution must have an independent audit annually of its SAFE Act compliance. The audit does not need to be conducted by an independent firm, but it must be performed by persons that are independent of SAFE Act compliance responsibility.

The above article was provided to Andrews Hooper Pavlik PLC (AHP) courtesy of TriComply, the compliance arm of TriNovus. AHP does not guarantee accuracy of the information provided in the article and it should not be construed as professional advice. If you have any questions regarding this article, please contact Randy Morse, CPA, Partner and leader of AHP’s Financial Institution practice. AHP provides a broad range of accounting, auditing, tax, and consulting services to financial institutions throughout the state of Michigan and beyond.

TriComply compliance service offer banks a full compliance package that provides them with quality assistance at an affordable price. TriComply provides the TriComply knowledgebase, compliance manual, policy manual (written and reviewed), compliance newsletter (weekly), advertisement review, compliance calendar, helpful resources and an online training library of compliance webinars.

The CFPB now has control over certain consumer protection laws. As a result, TriComply has put out a product called CFPB Comparisons: What Really Changed. This produce allows you to see the changes firsthand versus going line by line on your own. Thus saving you hours of stress, anxiety and work. Please contact Starr Largin at 205.588.4316 or or Darryl Brasfield at to receive information regarding TriComply or to schedule a demo.