Monday, March 8, 2010

Mortgage Trade Groups Object to HUD Safe Act Rule

Original posted on the Housing Wire by Austin Kilgore:

A consortium of mortgage finance trade associations filed public commentary with the Department of Housing and Urban Development (HUD), voicing its objections to a number of policies in the government’s proposed rule for the enforcement of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act.

The Mortgage Bankers Association (MBA), the American Bankers Association (ABA) and the American Financial Services Association (AFSA), along with eleven state mortgage lender associations wrote in a letter to HUD (download here) that while the groups support uniform national standards for the registration of mortgage loan originators, they object to HUD’s proposed interpretation and enforcement of the law as exceeding its authority under the SAFE Act.

The SAFE Act required states to establish a loan originator registration system in place by August 1, 2009, but each state sets its own deadlines for when originators have to register. The Federal Deposit Insurance Corp. (FDIC), Treasury Department, the Federal Reserve, Farm Credit Administration and National Credit Union Administration all implemented the SAFE Act into the policies and procedures for the respective agencies.

There are a number of prerequisites originators must meet in order to get a license —fingerprint cards, criminal background and credit checks, pre-license education certificate and successful completion of the national and state mortgage test, all administered by the Nationwide Mortgage Licensing System and Registry (NMLSR) and surety bonds based on the amount of loans originated.

As HousingWire’s previously reported, numerous states have enacted legislation to bring state policy into compliance with the SAFE Act. The new law has also brought updates to mortgage software, including Fannie Mae’s (FNM: 1.005 -0.50%) Desktop Originator (DO) and Desktop Underwriter (DU) software platforms and new training programs.

HUD originally set a February 16 deadline to receive public comments on its proposed rule, but due to the extreme winter weather across the country, especially in Washington, DC, HUD extended the deadline until March 5, last Friday.

The trade groups argue that the definition of a ‘mortgage originator’—and therefore, who is required to register with the NMLS—is unclear at this point. The group called for the definitions in the proposed rule to be revised so the rules do not require states to regulate employees other than loan officers.

The SAFE Act legislation creates a “two-pronged” test the associations said, that defines mortgage originators required to register with the NMLS as an employee who “takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain.”

However, in HUD’s proposed rule, the department adds a provision that essentially creates a one-pronged test, and would require servicer employees to register as well. This language originally appeared in the legislation, but was subsequently removed before it was passed.

“Considering that Congress unambiguously spoke on this issue…it would contravene the express intent of Congress to reinsert this very same language in the regulation,” the letter said. “Because the Senate purposely changed the definition of a loan originator from what was introduced and removed virtually identical language from the enacted law, HUD, in our view, cannot add the language back as part of its minimum standards.”

The letter adds that “because the states have not implemented uniform licensing requirements and state and federal qualifications are inconsistent, well-qualified mortgage originators confront difficulties in moving among states and between state and federal institutions by virtue of divergent qualifications including those for credit scores, education and testing to name a few.”

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