Are YOU Required to have a Mortgage Broker License?
Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E Act)
In response to the U.S. mortgage meltdown, Congress enacted the Secure and Fair Enforcement for Mortgage Licensing Act (the SAFE Mortgage Licensing Act of 2008).
The SAFE Act is designed to provide consumer protection and reduce fraud by ensuring minimum standards for the licensing and registration of mortgage loan originators.
Individual states are required to enact licensing standards that meet the requirements of the SAFE Act, although overall interpretation, compliance and implementation is the responsibility of the Department of Housing and Urban Development (HUD).
Individuals Requiring Licensing under the SAFE Act
Individual residential mortgage loan originators employed by Agency-regulated institutions must:
- Register with the Registry and maintain their registration.
- Obtain a unique identifier through the Registry that will remain with that originator, regardless of employment changes. Mortgage loan originators and their employing institutions must provide their unique identifiers to consumers.
Agency-regulated institutions must:
- Require their employees who are mortgage loan originators to comply with these requirements.
- Adopt and follow written policies and procedures to assure compliance with the registration requirements.
SAFE Act Final Rule
HUD issued a final rule on Wednesday June 29th 2011. The final rule outlines what criteria are used to determine the role of a mortgage originator for the purpose of state compliance and federal licensing laws.
What is key to this is the clarification around the meaning of “engaging in the business of a loan originator” which defines if an individual is required to be licensed and that certain activities do not amount to engaging in the business of a loan originator.
Q. What if you take an application but never negotiate or offer loan terms?
A. You are not required to be licensed by the SAFE Act.
Q. What if you are an employee of government agencies or employees at non profit organizations, who act as loan originators as part of their job description?
A. You are not required to be licensed by the SAFE Act.
Q. What if you make an offer of loan terms without receiving an application from the borrower directly or indirectly?
A. You are not required to be licensed by the SAFE Act.
Q. How is a “loan originator” defined?
A. The SAFE Act defines this as an individual who takes a residential mortgage loan application, offers or negotiates the terms of a residential mortgage loan for compensation or gain. If this applies to you and you actively engage in the business of a loan originator then you will need to be licensed.
Q. What does engaging in the “business of loan originator” mean?
A. An individual who acts as a residential mortgage loan originator with financing provided in a commercial context and with some regularity and habitualness.
Q. What’s the distinction between individuals who meet the definition of a loan originator vs those who engage in the business of a loan originator?
A. The distinction is that not everyone who acts as a loan originator is necessarily subject to the SAFE Act’s registration and licensing requirements.
Basically you don’t need a loan originators license unless you are in the habitual business of making loans in a commercial sense and you don’t constitute the business of a loan originator.
Thus someone taking back loans on properties they own on an occasional basis is not a “loan originator”. Whereas a builder who is in the business of building homes and then selling them with owner finance probably is.
Q. What if you ONLY make a few loans to private individuals to buy a home they live in and you don’t earn a fee or points?
A. You are probably not required to be licensed by the SAFE Act if the few loans you are making are non commercial.
Links to further reading
- Visit the HUD.gov website for detailed information on the SAFE Act.
- View pdf of the SAFE Mortgage Licensing Act Final Rule, effective as of October 1 2010.
DISCLAIMER: We are not attorneys and we cannot advise you regarding your particular circumstances. You must always obtain competent legal counsel and financial advice.
