Time to Get SAFE

Joe Brancucci
July 31, 2009 | COMMENTS

TARP, CU HARP, HASP, HVCC. Surely you've heard of each of these new plans, each designed to either stimulate the economy or make mortgage lending safer for borrowers, or both. The rate at which we've been subjected to new plans, programs, legislation, and regulations in the past 12 months is stunning. Trying to stay abreast of every change and how those changes affect our credit unions and our members has been challenging, especially in light of the lowest rates and highest volumes we've experienced in several years.

Heard of SAFE?

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 is Title V of the Housing and Economic Recovery Act that was signed into law on July 30, 2008. Amidst all else that was happening at the time, and all that has happened since, we thought it a good time to bring SAFE back to your attention as it applies to all individuals who originate mortgage loans, including credit union and CUSO staffs. In short, every originator must be registered and/or registered and licensed by July 31 or December 31, 2010, depending on the state.

“Originator,” in the context of the law, means anyone who assists a consumer in obtaining or applying to obtain a residential mortgage loan by, among other things, advising on loan terms (including rates, fees, other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan. Routine clerical tasks, defined as the receipt, collection, and distribution of information common for the processing or underwriting of a loan in the mortgage industry and communication with a consumer to obtain information necessary for the processing or underwriting of a residential mortgage loan, don't count.

“Residential mortgage loan,” in the context of the law, means any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending Act) or residential real estate upon which is constructed or intended to be constructed a dwelling.

Registration and Licensing under SAFE is the responsibility of the NCUA, in conjunction with the Federal Financial Institutions Examination Council (FFIEC). They are charged with developing and maintaining a system for registering bank and credit union employees, in coordination with the Conference of State Bank Supervisors (CSBS) and an affiliated group, the American Association of Residential Mortgage Regulators (AARMR), which started working on such a system in 2008. The program is to be in place by August 2009.

Registered? Licensed? What's the Difference?

Originators who work for a credit union, not a CUSO, must be registered. Registration involves the following:

• Provide fingerprints for submission to the FBI and other agencies for a state and national criminal history background check
• Provide personal history and experience, including authorization for the system to obtain information about any administrative, civil or criminal findings by any jurisdiction
• Be assigned a unique identifier that will facilitate electronic tracking and public access to his or her employment history and enforcement action record.

While this seems onerous, these requirements are not unlike registration and licensing requirements that have been in place in several states for a number of years. The difference, however, is credit unions were typically exempt since they are closely regulated and examined. While being regulated financial institutions helps in this case, it no longer gets us a free pass.

Licensing and registration are more involved, and applies to employees of CUSOs that originate mortgage loans. To be issued a license and to become registered, employees:

• Can never have had a loan originator license revoked in any part of the country
• Cannot have been convicted of, or pled guilty (or nolo contendere) to a felony in any court during the 7-year period preceding the date of application—or at any time if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering
• Must demonstrate financial responsibility, character, and general fitness to warrant a determination by the system that the person will operate honestly, fairly, and efficiently in handling mortgage loan applications
• Must complete the pre-licensing education requirements described in detail in the new law (with a continuing education requirement for licensing renewal)
• Must pass a written test described in the new law
• Must meet either a net worth or surety bond requirement, or pay into a state insurance fund, as required by the law
• Must be assigned a unique identifier number. CUSO loan originators will have to provide fingerprints which will be submitted to the FBI and other government agencies to receive a state and federal criminal history background check; and a personal history and experience, including authorization to obtain a credit report and information relating to any administrative, civil or criminal findings by any jurisdiction.

What's Next?

The process of becoming registered and/or licensed hasn't yet been defined or published. We do know that it is NCUA's opinion that registration applies to all credit union staff who perform more than routine clerical tasks. In the old days registration would have applied to everyone in the mortgage department but to no one else in the credit union. Today, however, it applies to everyone in the credit union who discusses rates, terms, loan programs and the like, which could mean member service representatives, tellers, call center staff, branch staff and others. We've moved mortgage lending off its island, which strategically makes sense. The proof, of course, is our industry is gaining market share, a trend we want to continue on its upward trajectory.

Watch carefully for more information on SAFE implementation in the next several months. This process will take time and will be time consuming. As difficult as this is, however, the upshot is this: this law creates a significant barrier to entry. Gone are the days anyone who knew mortgage is spelled with the letter “g” and owned a pencil and a calculator could become an originator, earn fast money, and then disappear before the chickens came home to roost.

Joe Brancucci is CEO of Prime Alliance Solutions, Inc. Contact him at 866-726- 5102.