Federal banking agencies adopt final rules implementing the SAFE Act

Financial Crisis Response Alert (US)

The federal banking agencies, together with the Farm Credit Administration, have issued a final rule (the Final Rule) implementing the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Act) for registration of residential mortgage loan originators employed by banks and credit unions regulated by the federal banking agencies and Farm Credit System institutions regulated by the FCA (referred to collectively as banks).

The Final Rule was released on July 28, 2010 and registration of bank employees that originate mortgage loans could begin in January 2011.

The SAFE Act, enacted in 2008, requires mortgage loan originators to be registered on the Nationwide Mortgage Licensing System and Registry (the NMLS).  Since its enactment, the federal agencies have worked with the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators and the Federal Financial Institutions Examination Council to develop the processes by which the NMLS can begin to accept SAFE Act registrations.  The Final Rule becomes effective as of October 1, 2010, and compliance with originator registration requirements begins within 180 days after the agencies issue a public notice that the NMLS is available to begin taking SAFE Act registrations.

In their release of the Final Rule, the agencies stated that the NMLS could be available to begin accepting registrations as early as January 28, 2011.  This gives mortgage loan originators until late July 2011 to register.

A mortgage loan originator is any person, including a bank employee, who (i) takes a residential mortgage loan application; and (ii) offers or negotiates terms of a residential mortgage loan, for more than five residential mortgage loans in a 12-month period.  The term does not include a person involved in administrative or clerical tasks on behalf of a mortgage loan originator or a licensed real estate broker.  Registration must be renewed on an annual basis between November 1 and December 31 of each year, and each registered originator will receive a unique identifier from the NMLS for use in origination activities.  An unregistered mortgage loan originator is prohibited from engaging in residential mortgage loan origination activities on behalf of a bank; however, an employee who is registered to originate on behalf on a bank can also originate on behalf of the bank’s subsidiaries without registering again on behalf of the subsidiary.

We also note that the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law prior to the release of the Final Rule, transfers responsibility for rulemaking and administration of the NMLS to the newly created Consumer Financial Protection Bureau.  Once it is operational, the bureau could implement new rules and regulation regarding registration.

As part of the registration process, an originator must provide the NMLS with (i) identifying information (e.g., name, address, place of work, social security number); (ii) financial services-related employment information for the past 10 years; (iii) information regarding the originator’s criminal history and certain civil and administrative actions to which he or she has been a party; and (iv) fingerprints.  A bank that employs originators must also provide the NMLS with certain identifying and contact information and must also adopt policies and procedures to ensure compliance with the SAFE Act and the Final Rule.  These policies, which must be appropriate for the nature, size, complexity and scope of the bank’s mortgage operations, must include a discussion of the ways the bank will ensure that the originators it employs register and then annually renew their registration.

For additional information on the Final Rule and the SAFE Act, please contact:

Jeffrey L. Hare

Christopher N. Steelman