The Federal financial institution regulatory agencies, consisting of the OCC, the Federal Reserve, the FDIC, the OTS, the FCA and the NCUA (the “Agencies”), issued for public comment proposed rules requiring mortgage loan originators who are employees of Agency-regulated institutions to meet the registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “S.A.F.E. Act”). If adopted as proposed, the regulations would impose new regulatory compliance obligations on Agency-regulated institutions and the residential mortgage loan originators they employ.
The S.A.F.E. Act, enacted on July 30, 2008, is intended to establish uniform nationwide licensing standards for mortgage loan originators, to protect consumers and reduce fraud by providing increased accountability and tracking of mortgage loan originators. It also is intended to provide consumers with access to a public database containing information on the employment history of, and disciplinary and enforcement actions against, mortgage loan originators. The S.A.F.E. Act requires the Agencies jointly to develop and maintain a system for registering residential mortgage loan originators who are employees of Agency-regulated institutions and certain of their subsidiaries and to implement this system by July 31, 2009. These mortgage loan originators must be registered with the Nationwide Mortgage Licensing System and Registry (the “Registry”), a database established by the Conference of State Bank Supervisors (the “CSBS”) and the American Association of Residential Mortgage Regulators, to support the licensing of mortgage loan originators by the States. The S.A.F.E. Act generally prohibits employees of an Agency-regulated institution from originating residential mortgage loans without first registering with the Registry.
The Registry was launched in January 2008 for State licensing and registration purposes in participating States and was not designed to support the Federal registration of Agency-regulated institution employees, who currently do not need additional authorization from the appropriate Federal agency to engage in mortgage loan origination activities. The Federal banking agencies, through the FFEIC, currently are working with the the CSBS to modify the Registry so that it can accept registrations from mortgage loan originators employed by Agency-regulated institutions. The proposal further requires registered mortgage loan originators to provide their unique identifiers to consumers in certain circumstances and Agency-regulated institutions to make them available to consumers. When the system is fully operational, consumers will be able to use the unique identifiers to access employment and other background information of registered mortgage loan originators.
Under the proposed rules, both individual residential mortgage loan originators and their Agency-regulated employing institutions will have compliance responsibilities, and the Agencies will have the authority to take enforcement actions against their respective institutions and individual employees who violate the rules and the S.A.F.E. Act.
The Agencies’ proposed rule applies to banks, savings institutions, credit unions and institutions regulated by the FCA and their subsidiaries. Bank and savings association holding companies and their non-depository subsidiaries are not covered under the proposed rules so employees of these entities who act as mortgage loan originators are not covered by the Federal registration requirement and, therefore, must comply with any State registration and licensing requirements.
Under the proposed rules, mortgage loan originators must register with the Registry. A mortgage loan originator is defined as an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. The term does not include an individual who performs purely administrative or clerical tasks on behalf of a mortgage loan originator or an individual performing only real estate brokerage activities.
To register with the Registry, a mortgage loan originator will have to submit information regarding his or her identity, contact information, financial services-related employment and financial history for the past 10 years, criminal history, and history of financial services-related civil and disciplinary actions. The employee also must provide fingerprints for submission to the FBI for a criminal history background check and attest to the correctness of the information submitted. The proposed rules require that a mortgage loan originator renew his or her registration annually during the annual renewal period, which is November 1 through December 31 of each year. Each registered mortgage loan originator will obtain a unique identifier that will remain with that originator, regardless of changes in employment.
The Agency-regulated institution also must submit information to the Registry. Besides identifying information, each covered institution must confirm its employment of individual employee registrants and, within 30 days of termination of employment, provide notification that it no longer employs the registrant. The Agencies recognize that this will place burdens on institutions, particularly with respect to the initial volume of registrations, and is seeking comments on ways to reduce this burden. Agency-regulated institutions that employ mortgage loan originators are required to adopt and follow written policies and procedures designed to assure compliance with the requirements of the rules.
Because modification of the Registry to accept Federal registrations involves complex technical issues, the proposed rules provides for a delay in implementation of the registration requirements until 180 days after the Registry becomes operational and available for initial federal registrations. Comments on the proposed regulations are due by July 9, 2009