SAFE Act and the Loan Originator

This article is intended to outline the requirements of the SAFE Act and its impact on the lending industry.

The SAFE Act is part of the Housing and Economic Recovery Act of 2008.  All states must have a loan originator licensing and registration system in place by August 1, 2009 or August 1, 2010 for legislatures that meet biennially.  If a state fails to meet the federally mandated minimums and the state is not participating in the Nationwide Mortgage Licensing System and Registry (NMLS&R), the U.S. Department of Housing and Urban Development (HUD) will step in and implement a licensing system for the state. 


The purpose of enacting the SAFE Act is to provide uniform licensing standards nationwide, create a comprehensive licensing database, improve accountability and tracking of loan originators and enhance consumer protection. 


All loan originators, whether working for a mortgage broker, lender or depository institution fall under this Act and will either need to be licensed or registered and provided with a Unique Identifier number. 

Loan originators are defined in the Act as “Any individual who takes a residential mortgage loan application, assists the consumer in obtaining or applying to obtain a residential mortgage loan or who offers and negotiates terms of a residential mortgage loan”.  However, an individual who performs administrative, clerical tasks or real estate brokerage activity is excluded from the definition. 


Whether a loan originator will be required to be licensed or be required to register will depend on whether his or her employer is a depository institution or not.  All loan originators who are employed by a mortgage broker or lender (non-depository institution) will be required to obtain a state license.  Loan originators employed by depository institutions will need to register as a registered loan originator. 


Regardless of the License type, all originators will be assigned a Unique Identifier number which will remain with the loan originator permanently.  The Unique Identifier will allow for the electronic tracking and uniform identification of the loan originator and all loans originated by that originator, regardless of who employs him or her.


The SAFE Act does not require an individual who is: (1) only performing clerical tasks for the lender, (2) acts solely as a real estate agent in the sale of the residence, and (3) those employees whose function is as a loan underwriter or loan processor. 


All applicants who are seeking to be state a loan originator must successfully complete a background check which includes providing fingerprints for submission to the FBI and any other governmental agency authorized to receive such information for the state.  An applicant must provide personal history, experience and authorization to the NMLS&R to pull credit on the applicant and obtain any other administrative, civil or criminal findings. 

Additionally, in order for the loan originator to obtain the license or registration, the loan originator must:

  1. not have had a loan originator license revoked from any jurisdiction;    
  2. not have any felonies within seven years of the application date;
  3. have no felonies related to fraud, dishonesty, breach of trust or money laundering;
  4. demonstrate financial responsibility, character and general fitness such as to command confidence in the community to show the loan originator will operate honestly, fairly, and efficiently under the SAFE Act;
  5. complete at least 20 hours of pre-licensing education;
  6. pass a written test with a score of 75 percent or better covering ethics, Federal & State Law & Regulations, fraud, consumer protection, nontraditional mortgages and fair lending;
  7. meet either a net worth or surety bond requirement or pay into a state fund.


In order to renew a loan originator license, the loan originator must maintain the minimum standards required to qualify for a license.  Additionally, the loan originator must successfully complete on an annual basis eight (8) hours of continuing education. Note: a continuing education course can only be used in the year in which it was taken and the same course cannot be taken in subsequent years for credit.  


The SAFE Act requires employees of depository institutions and their subsidiaries who meet the loan originator definition to be registered as loan originators. 

As a requirement for registration, a loan originator, at a minimum provide to the NMLS&R, fingerprints for submission to the FBI and any other governmental agency authorized to receive such information for the state for a background check.  Additionally an applicant must provide personal history, experience and authorization to the NMLS&R in order to obtain any administrative, civil or criminal findings. 


At a minimum, the states need to enact legislation to comply with the SAFE Act.  There are many states that already have some form of licensing requirement in place, but many don’t have all the requirements outlined in the SAFE Act such as net worth and surety bond requirements.  Thus, existing licensees may not be compliant and be subject to additional burdens.

As food for thought, the SAFE Act sets minimum standards that must be in each state’s licensing legislation.  There is nothing that would prohibit a state from creating requirements more restrictive then the minimum standards. 

George H. Marentis is President/CEO of Compliance Made Simple, LLC, a company that provides licensing and compliance related services to the mortgage lending industry nationwide. Mr. Marentis has a Juris Doctorate and over 15 years of mortgage and banking experience ranging from frontline operations, originations to regulatory and legislative compliance.  Information provided in this article is not intended to be legal advice and is informational only.