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Posted over 13 years ago

The SAFE Act, NMLS and What it Means to the Mortgage Industry

Following the dramatic expansion in the United States housing market, default rates on subprime and adjustable rate mortgages (ARM’s) began to rise.  Credit tightened and refinancing became more difficult. Home prices fell. The foreclosure epidemic was a contributing factor in the global economic crisis, devastating consumers and forcing banking institutions to cut lending or even close their doors.

The public and Congress, seeking to discover causes for the crisis and create solutions, turned their attention to the mortgage lending industry. Many analysts felt that mortgage loan originators had been lax or even deceptive in qualifying buyers for loans. Congress responded and in July 2008 passed The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (called the SAFE Mortgage Licensing Act of 2008).

The goal of the legislation was to establish more government oversight of individual mortgage loan originators, with the outcome of increased consumer protection. Primarily, the law set forth objectives for a Nationwide Mortgage Licensing System and Registry (NMLSR) for the residential mortgage industry. The SAFE Act requires that all residential mortgage loan originators must be either federally registered or state-licensed. A mortgage loan originator employed by a federally insured depository institution or any credit union or an owned and controlled subsidiary that is federally supervised must be federally registered. All other mortgage loan originators, without exception, must be state licensed.

All state licensed and federally registered mortgage loan originators must be registered with the Nationwide Mortgage Licensing System & Registry maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.

Requirements for Licensure

The applicant as a state-licensed loan originator must furnish certain information to the NMLSR including fingerprints for a criminal background check and personal history and experience.

Minimum standards for license issuance includes:

  • Never having had a revocation of loan originator license;
  • Never having had a felony conviction involving an act of fraud, dishonesty, or a breach of trust, or money laundering (no other types of felonies seven years prior to application);
  • Demonstration of financial responsibility;
  • Completing pre-licensing education reviewed, and approved by the NMLSR (at least 20 hours);
  • Passing a written test developed and administered by the NMLSR (at least 75% correct answers out of minimum 100 questions).
  • States must include a minimum net worth requirement or surety bond requirement for applicants, or have had the applicant pay into a state fund.

At the time of the law’s passage, state systems varied greatly.  The SAFE Act required the states to have a licensing and registration system in place by either July 31, 2009 (for states whose legislatures meet annually) or July 31, 2010 (for states whose legislatures meet biennially). For either of these deadlines, the U.S. Department of Housing and Urban Development (HUD) offered to extend the deadline if HUD determined that a state is making a good faith effort to establish a state licensing law that meets the minimum requirements of the SAFE Act.

By January 2010, 43 states, the District of Columbia, and Puerto Rico had adopted NMLS. But HUD recognizes that in many states, individuals currently performing loan originations may not be able to meet the educational, testing, and background check requirements by the time required legislation or regulations become effective. In addition, HUD is aware that some states already require licensure of loan originators.

What should loan originators do? In those states which have adopted NMLS all individuals acting as a residential mortgage loan originator (RMLO) must create an account in NMLS, and have filed or file a Form MU4 through NMLS with the state regulatory agency. Filing deadlines depend on the type of license required.


Comments (6)

  1. without getting too political, I have a feeling this will be one of the first things repealed after the next election. There is no clear cut law with each state and person making different interpretations of the law. Its bad business by the government and its hurting the very people who are trying to help the economy.

  2. I have contacted Chairman,Spencer Bachus and decussed the issued of renewing Mortgage Brokers, in good standing,and licenses back to the state's department of financial regulations. I have also wrote to many of our senator's and congressmen. We Want the Dodd-Frank Repealed There are many of us that have lose our income and homes because of this unnessary regulation.

  3. I went to a TX meeting with the TDSML; there is a chance that since less than a percent of all their complaints come from seller financing, this part of the rule may be repealed. Also, the purpose of the rule is really to make sure the paperwork is compliant. This is the part that carries the weight. If you foreclose on a buyer 2 years from now and they try to sue you but your paperwork is in order, you'll be in good shape. Quoting an interest rate would be hard to prove.

  4. I don't mind the extra tax for a $500 bureaucrat to process my paperwork and assume the liability center for making sure that disclosures are made. What pisses me off is that there is no guidance for what is or isn't okay to do. I am not supposed to talk about specifics for the loan per TDSML. How the hell can that possibly work when I have an owner finance buyer on the phone ready to go? What difference does it make if I negotiate with them if I (!!!) am the one underwriting the file?! Fine...give them disclosures and make them sign paperwork so that they are well-informed. Passing them off to some MLO that doesn't understand owner financing is STUPID IMO and serves no meaningful purpose.

  5. Every state is supposed to come up with its own version, at least as onerous as HUD rujles and there are some interesting differences. In TX for example, an owner's carry-back note he takes when he sells IS covered by this obnoxious monstrosity, while in WA it appears it's not. Bill Mencarow, owner and publisher of is a long-time authority on buying & selling RE notes and he and a lot of others in the note business including me are fighting this Fed takeover of our private business. Since the Great Obomination has been in office with the Demo dominated Congress, there's been a huge increase in the rate of Fed takeover of our daily lives and this is way too Soviet-like to suit me. As a states-right guy I want LESS fed gummint, not more and I hope this thing is just one more nail in the Demos coffin.

  6. I don't like this rule. It doesn't fix the problem they are attempting to fix. Licensing people taking in applications does not solve the problems with giving mortgages to those who were unqualified. As is the case with capitalism, the banks have corrected (even over-corrected) the problem with having tighter lending standards. And I don't like how law this reached out to seller financing. It's regulation where regulation isn't needed and will ultimately hurt the housing industry. So I'm not sure why this was passed. Oh wait, licensing fees will raise money for the government while the govt looks like it's doing something to protect people.