I. INTRODUCTION
The Federal Banking Agencies have adopted a final rule that establishes a national registry of residential mortgage loan originators (MLOs) at federally regulated depository institutions. The registry is required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).
The SAFE Act was designed to improve the accountability and tracking of residential MLOs, enhance consumer protection, reduce fraud, and provide consumers with easily accessible information regarding the professional background of MLOs. The final rule will apply to federally regulated depository institutions, their subsidiaries and employees of such institutions or subsidiaries who act as MLOs. The SAFE Act requires an employee of a bank or savings association and certain of their subsidiaries that are regulated by a Federal banking agency (agency-regulated institutions) who acts as a residential MLO to register with the Nationwide Mortgage Licensing System and Registry (NMLSR), obtain a unique identifier, and maintain this registration. The final rule further provides that Agency-regulated institutions must: (1) require their employees who act as residential MLOs to comply with the SAFE Act’s requirements to register and obtain a unique identifier, and (2) adopt and follow written policies and procedures designed to assure compliance with these requirements.
In connection with the Federal registration, the Registry must be furnished with information concerning the MLO’s identity, including: (1) fingerprints for submission to the Federal Bureau of Investigation (FBI) and any other relevant governmental agency for a State and national criminal history background check; and (2) personal history and experience, including authorization for the Registry to obtain information related to any administrative, civil, or criminal finding by any governmental jurisdiction.
The federal banking agencies announced that the Nationwide Mortgage Licensing System and Registry began accepting federal registrations of financial institution mortgage loan originators on January 31, 2011. The 180-day initial registration period expired on July 29, 2011, and any employee of an agency-regulated institution who is subject to the registration requirements is prohibited from originating residential mortgage loans without first meeting these requirements.
II. DEFINITIONS
The agencies have clarified that a MLO’s failure to register as required does not affect the validity or enforceability of any mortgage loan contract made by the institution that employs the originator. Some of the important definitions contained within the final rule are as follows:
(A) Annual Renewal Period means November 1 through December 31 of each year;
(B) Mortgage Loan Originator means an individual who
(1) takes a residential mortgage loan application; and
(2) offers or negotiates terms of a residential mortgage loan for compensation or gain.
The term mortgage loan originator does not include:
(1) an individual who performs purely administrative or clerical tasks on behalf of a MLO;
(2) an individual who only performs real estate brokerage activities and is licensed or registered as a real estate broker in accordance with applicable state law, unless the individual is compensated by a lender, a mortgage broker, or other MLO or by any agent of such lender, mortgage broker, or other MLO and meets the definition of MLO; or
(3) an individual or entity solely involved in extension of credit related to time share plans;
(C) Administrative or Clerical Tasks means the receipt, collection, and distribution of information common for the processing or underwriting of a loan in the residential mortgage industry and communication with a consumer to obtain information necessary for the processing or underwriting of a residential mortgage loan;
(D) Registered MLO or Registrant means any individual who:
(1) meets the definition of MLO and is an employee of an insured depository institution; and
(2) is registered pursuant to the final rule of, and maintains a unique identifier through, the Registry.
(E) Residential Mortgage Loan 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 or residential real estate upon which is constructed or intended to be constructed a dwelling, and includes refinancings, reverse mortgages, home equity lines of credit and other first and second lien loans that meet the qualifications listed in this definition.
(F) Unique Identifier means a number or other identifier that:
(1) permanently identifies a registered MLO;
(2) is assigned by protocols established by the Nationwide Mortgage Licensing System and Registry, and the federal banking agencies to facilitate electronic tracking of MLOs; uniform identification of, and public access to, the employment history of and the publicly adjudicated disciplinary and enforcement actions against MLOs; and
(3) must not be used for purposes other than those set forth in the SAFE Act.
III. MORTGAGE LOAN ORIGINATORS
An MLO must be Federally-registered if that individual is an employee of a depository institution, or an employee of any subsidiary owned and controlled by a depository institution and regulated by a Federal banking agency. The definition of “depository institution” does not include bank or savings association holding companies or their non-depository subsidiaries. Employees of these entities who act as MLOs are not covered by the Federal registration requirement and, therefore, must comply with State licensing and registration requirements. The definition of “mortgage loan originator” excludes employees who only assist in the loan process, as well as those engaged in loan modifications or assumptions.
IV. DE MINIMIS EXCEPTION
The SAFE Act requires the Federal banking agencies to make such de minimis exceptions “as may be appropriate” to the Act’s registration requirements. Under the final rule, the de minimis exception is structured so that it may be utilized by an individual who does not regularly or principally function as a MLO employed by any Agency-regulated institution, regardless of the size or loan volume of the institution. As a result, the final rule provides that the registration requirements do not apply to an employee of an Agency-regulated institution who has never been registered or licensed through the Registry as a MLO and who has acted as a MLO for five or fewer residential mortgage loans during the last twelve months. In order to prevent manipulation of the registration requirement by structuring this exception to apply to multiple employees who each would not meet the exception’s threshold for registration, the final rule prohibits any Agency-regulated institution from engaging in any act or practice to evade the limits of the de minimis exception. An employee must register with the Registry prior to engaging in mortgage loan origination activity that exceeds the de minimis exception limit. The de minimis exception contained in the final rule is voluntary, but it does not prevent a MLO who meets the criteria for the exemption from reregistering with the Registry if the originator chooses to do so or if his or her employer requires registration.
V. EMPLOYEE REGISTRATION REQUIREMENT
An employee of an Agency-regulated institution who acts as a MLO is required to register with the Registry, obtain a unique identifier, and maintain his or her registration. Any employee who is not in compliance with the registration and unique identifier requirements is in violation of the SAFE Act and the final rule, unless the employee qualifies for the de minimis exception.
VI. FINANCIAL INSTITUTION REQUIREMENT
An Agency-regulated institution must require its employees who are MLOs to register with the Registry, maintain this registration, and obtain a unique identifier in compliance with the final rule. The final rule also prohibits an Agency-regulated institution from permitting an employee who is acting within the scope of his or her employment at the institution from acting as a MLO unless registered with the Registry pursuant to the final rule.
VII. IMPLEMENTATION PERIOD FOR INITIAL REGISTRATION
An employee of an Agency-regulated institution who is a MLO must complete an initial registration with the Registry on or before July 29, 2011. An employee could continue to originate residential mortgage loans without complying with the rule’s registration requirement before and during this 180-day period. After July 29, 2011, any existing employee or newly-hired employee of an Agency-regulated institution who is subject to the Registration requirements would be prohibited from originating residential mortgage loans without first meeting such requirements.
VIII. SPECIAL RULE FOR PREVIOUSLY REGISTERED EMPLOYEES
Under the final rule, properly registered or licensed MLOs would not have to register again with the Registry when they change employment by moving from one Agency-regulated institution to another, regardless of whether the change in employment is made voluntarily, through an acquisition or merger of the employee’s prior employer, or through a reorganization where previously state-licensed MLOs become subject to the registration requirements of Agency-regulated institutions. Instead, the employee and employing institution need only update information in the Registry and complete the required authorizations and attestation.
In such cases, the registration requirements of the final rule are deemed to be met provided that: (1) the employee’s employment information in the Registry is updated and the employee has completed the required authorizations and attestation; (2) new fingerprints of the employee are provided to the Registry for a background check, except in the case of mergers, acquisitions or reorganizations; (3) information concerning the new employing institution is provided to the Registry, to the extent the institution has not previously met these requirements; and (4) the registration is maintained pursuant to the requirements of the final rule as of the date that the employee becomes employed by the institution.
When a registered MLO becomes an employee of an Agency-regulated institution as a result of an acquisition, merger, or reorganization, the final rule provides a 60-day grace period from the effective date of the acquisition, merger, or reorganization, for the employee to comply with the final rule’s requirements for previously registered employees. In addition, in the case of an acquisition, merger or reorganization, the agencies have indicated that a process will be developed to permit an employer to submit one update concerning all affected employees, rather than having each individual employee submit what is largely identical information about their change in employer. The process to be developed for these types of transactions would allow the bulk transfer of business location and contact information for all MLOs from one institution to another. However, each individual employee still must complete the authorization and attestation for their own updated registration record.
The requirement to submit new fingerprints in connection with a change of employment will not apply if the registered loan originator has fingerprints on file with the Registry that are less than three years old.
The agencies note that the registration of a MLO who leaves any employer will be recorded as inactive in the Registry until he or she is hired by another entity, his or her record is updated in accordance with the final rule’s requirements, and the new employer acknowledges employing the MLO through the Registry. The individual will be prohibited from acting as a MLO at an Agency-regulated institution until such time as the registration is activated, unless covered by the 60-day grace period for acquisitions, mergers, and reorganizations.
IX. MAINTAINING REGISTRATION
Under the final rule, a registered MLO must renew his or her registration with the Registry during the annual renewal period, November 1 through December 31 of each year. To renew, the employee must confirm that the information previously submitted to the Registry remains accurate and complete, updating any information as appropriate. Any registration that is not renewed during this period will become inactive, and the individual will be prohibited from acting as a MLO at an Agency-regulated institution until such time as the registration requirements are met. However, an individual who fails to update information during this period may renew his or her registration at any time and does not need to wait until the start of the next annual renewal period. Inactive MLOs will not be assigned a unique identifier if they reactivate during their registration period. The annual registration requirement does not apply to a registered MLO who has completed his or her registration with the Registry less than six months prior to the end of the annual renewal period.
The final rule also requires a registration to be updated within 30 days of the occurrence of any of the following events: (1) a change in the employee’s name; (2) the registrant ceases to be an employee of the institution; or (3) any of the employee’s responses to the information required for registration become inaccurate.
Any employee who registers with the Registry is required to maintain his or her registration unless the employee is no longer a MLO. As a result of this provision, once an employee registers as a loan originator with the Registry, the employee will be required to continue this registration until he or she is no longer engaged in the activity of a MLO, even if, in any subsequent 12-month period, the employee originates fewer mortgage loans than the number specified in the de minimis exception provision.
X. EFFECTIVE DATES OF REGISTRATIONS AND RENEWALS
The final rule provides that a registration is effective on the date that the Registry transmits notification to the registrant that the registrant is registered and that a renewal or update of a registration is effective on the date the Registry transmits notification to the registrant that registration has been renewed or updated.
The employing institution will be responsible for reviewing the criminal history background report once it is completed, and taking any necessary action based on the findings of this report, pursuant to the institution’s policies and procedures, as required by the final rule.
The SAFE Act expressly authorizes the Registry to “charge reasonable fees to cover the costs of maintaining and providing access to information from the [Registry] to the extent that such fees are not charged to consumers for access to such [Registry].” As a result, it is anticipated that the Registry will charge fees for registration, change in employment, renewal, and fingerprint processing and background checks: however, the agencies are at this time unable to provide information regarding the anticipated costs associated with registering with the Registry, since the fees have yet to be established. It is anticipated that the banking industry will be provided with an opportunity to comment on any proposed fees, and any future adjustments to such fees, prior to their imposition on Federal registrants and/or their employing institutions.
XI. REQUIRED EMPLOYEE INFORMATION
For purposes of registration, the final rule requires an Agency-regulated institution to require each employee who is a MLO to submit to the Registry, or submit on behalf of the employee, the following categories of information to the extent this information is collected by the Registry:
(A) Identifying information, including the employee’s:
(1) Name and any other names used;
(2) Home address and contact information;
(3) Address of the employee’s principal business location and business contact information;
(4) Social security number;
(5) Gender; and
(6) Date and place of birth;
(B) Financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the bank;
(C) Convictions of any criminal offense involving dishonesty, breach of trust, or money laundering, or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offense, against the employee or organizations controlled by the employee;
(D) Civil judicial actions against the employee in connection with financial services- related activities, dismissals with settlements, or judicial findings that the employee violated financial services-related statutes or regulations, except for actions dismissed without a settlement agreement;
(E) Actions or orders by a State or Federal regulatory agency or foreign financial regulatory authority that:
(1) Found the employee to have made a false statement or omission or been dishonest, unfair or unethical; to have been involved in a violation of a financial services-related regulation or statute; or to have been a cause of a financial services-related business having its authorization to do business denied, suspended, revoked, or restricted;
(2) Are entered against the employee in connection with a financial services-related activity;
(3) Denied, suspended, or revoked the employee’s registration or license to engage in a financial services-related activity; disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee’s activities; or
(4) Barred the employee from association with an entity or its officers regulated by the agency or authority or from engaging in a financial services-related business;
(F) Final orders issued by a State or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct;
(G) Revocation or suspension of the employee’s authorization to act as an attorney, accountant, or State or Federal contractor;
(H) Customer-initiated financial services-related arbitration or civil action against the employee that required action, including settlements, or which resulted in a judgment; and
(I) Fingerprints of the employee, in digital form if practicable and any appropriate identifying information for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive such information in connection with a State and national criminal history background check; however, fingerprints provided to the Registry that are less than three years old may be used to satisfy this requirement.
XII. EMPLOYEE AUTHORIZATIONS AND ATTESTATIONS
An employee registering as a MLO or renewing his or her registration, and not the employing Agency-regulated institution or other employees of the Agency-regulated institution, must: (1) Authorize the Registry and the employing institution to obtain information related to sanctions or findings in any administrative, civil or criminal action, to which the employee is a party, made by any governmental jurisdiction; (2) Attest to the correctness of all information required by paragraph (d) of this section, whether submitted by the employee or on behalf of the employee by the employing bank; and (3) Authorize the Registry to make available to the public information required by the final rule.
A. Submission of Information.
An Agency-regulated institution may identify one or more employees of the institution who may submit the information required by paragraph (d)(1)(i) of this section to the registry on behalf of the institution’s employees provided that this individual, and any employee delegated such authority, does not act as a MLO. In addition, an Agency-regulated institution may submit to the Registry some or all of the information required by paragraphs (d)(1)(i) and (e)(2) of this section for multiple employees in bulk through batch processing in a format to be specified by the Registry, to the extent such batch processing is made available by the Registry.
B. Required Agency-Regulated Institution Information
An Agency-regulated institution must submit the following categories of information to the Registry:
(1) Bank record.
(a) In connection with the registration of one or more MLOs:
(i) Name, main office address, and business contact information;
(ii) Internal Revenue Service Employer Tax Identification Number (EIN);
(iii) Research Statistics Supervision and Discount (RSSD) number, as issued by the Board of Governors of the Federal Reserve System;
(iv) Identification of its primary Federal regulator;
(v) Name(s) and contact information of the individual(s) with authority to act as the bank’s primary point of contact for the Registry;
(vi) Name(s) and contact information of the individual(s) with authority to enter the information required to the Registry and who may delegate this authority to other individuals. For the purpose of providing information required, this individual and their delegates must not act as MLOs unless the bank has 10 or fewer full time or equivalent employees and is not a subsidiary; and
(vii) If a subsidiary of an insured state nonmember bank, indication that it is a subsidiary and the RSSD number of the parent bank.
(b) Attestation. The individual(s) identified in this section must comply with Registry protocols to verify their identity and must attest that they have the authority to enter data on behalf of the insured state nonmember bank, that the information provided to the Registry is correct, and that the insured state nonmember bank will keep the information required current and will file accurate supplementary information on a timely basis.
(c) An insured state nonmember bank must update the information within 30 days of the date that this information becomes inaccurate. An insured state nonmember bank must renew the information on an annual basis.
(2) Employee information. In connection with the registration of each employee who acts as a MLO:
(a) After the information required has been submitted to the Registry, confirmation that it employs the registrant; and
(b) Within 30 days of the date the registrant ceases to be an employee of the bank, notification that it no longer employs the registrant and the date the registrant ceased being an employee.
XIII. POLICIES AND PROCEDURES
An Agency-regulated institution that employs MLOs must adopt and follow written policies and procedures designed to assure compliance with the final rule. These policies and procedures must be appropriate to the nature, size, complexity, and scope of the mortgage lending activities of the institution, and apply only to those employees acting within the scope of their employment at the bank. At a minimum, these policies and procedures must:
(A) Establish a process for identifying which employees of the bank are required to be registered MLOs;
(B) Require that all employees of the insured state nonmember bank who are MLOs be informed of the registration requirements of the SAFE Act and this subpart and be instructed on how to comply with such requirements and procedures;
(C) Establish procedures to comply with the unique identifier requirements in section 365.105;
(D) Establish reasonable procedures for confirming the adequacy and accuracy of employee registrations, including updates and renewals, by comparisons with its own records;
(E) Establish reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures;
(F) Provide for independent testing for compliance with this subpart to be conducted at least annually by bank personnel or by an outside party;
(G) Provide for appropriate action in the case of any employee who fails to comply with the registration requirements of the SAFE Act, this subpart, or the bank’s related policies and procedures, including prohibiting such employees from acting as MLOs or other appropriate disciplinary actions;
(H) Establish a process for reviewing employee criminal history background reports received from the Registry, taking appropriate action consistent with applicable Federal law, including section 19 of the Federal Deposit Insurance Act and implementing regulations with respect to these reports, and maintaining records of these reports and actions taken with respect to applicable employees; and
(I) Establish procedures designed to ensure that any third party with which the bank has arrangements related to mortgage loan origination has policies and procedures to comply with the SAFE Act, including appropriate licensing and/or registration of individuals acting as MLOs.
XIV. USE OF UNIQUE IDENTIFIER
An Agency-regulated institution is required to make the unique identifier(s) of its registered MLO(s) available to consumers in a manner and method practicable to the institution. In satisfying this requirement, an institution may choose to direct consumers to a listing of registered MLOs and their unique identifiers on its Web site; post this information prominently in a publicly accessible place, such as a branch office lobby or lending office reception area; and/or establish a process to ensure that institution personnel provide the unique identifier of a registered MLO to consumers who request it from employees other than the MLO.
In addition, a registered MLO must provide his or her unique identifier to a consumer (1) upon request; (2) before acting as a MLO; and (3) through the originator’s initial written communication with a consumer, if any, whether on paper or electronically. In this regard, the agencies intend the rule to cover written communication from the originator specifically for his or her customers, such as a commitment letter, good faith estimate or disclosure statement, and not written materials or promotional items distributed by the Agency-regulated institution for general use by its customers.
While the foregoing provisions do not require institutions to include the unique identifier on loan program descriptions, advertisements, business cards, stationary, note pads and other similar materials, institutions are not prohibited from doing so.
XV. EXAMPLES OF MORTGAGE LOAN ORIGINATOR ACTIVITIES
Appendix A to the final rule provides a non-exclusive list of examples of activities that fall within or outside the SAFE Act’s definition of a MLO. The Appendix provides examples of activities that are, and are not, illustrative of taking an application, and offering or negotiating terms of a mortgage loan for compensation or gain. The agencies note that an employee of an Agency-regulated institution is only subject to the SAFE Act to the extent that both prongs of the two-part test for acting as a MLO are met, and that employees who take applications but do not offer or negotiate terms of a mortgage loan, or vica versa, do not meet the definition.
A. Taking a Loan Application
The following examples illustrate when an employee takes, or does not take, a loan application.
(1) Taking an application includes: receiving information provided in connection with a request for a loan to be used to determine whether the consumer qualifies for a loan, even if the employee (i) has received the consumer’s information indirectly in order to make an offer or negotiate a loan; (ii) is not responsible for further verification of information; (iii) is inputting information into an online application or other automated system on behalf of the consumer; or (iv) is not engaged in approval of the loan, including determining whether the consumer qualifies for the loan.
(2) Taking an application does not include any of the following activities performed solely or in combination:
(a) Contacting a consumer to verify the information in the loan application by obtaining documentation, such as tax returns or payroll receipts;
(b) Receiving a loan application through the mail and forwarding it, without review, to loan approval personnel;
(c) Assisting a consumer who is filling out an application by clarifying what type of information is necessary for the application or otherwise explaining the qualifications or criteria necessary to obtain a loan product;
(d) Describing the steps that a consumer would need to take to provide information to be used to determine whether the consumer qualifies for a loan or otherwise explaining the loan application process;
(e) In response to an inquiry regarding a prequalified offer that a consumer has received from a bank, collecting only basic identifying information about the consumer and forwarding the consumer to a loan originator; or
(f) Receiving information in connection with a modification to the terms of an existing loan to a borrower as part of the bank’s loss mitigation efforts when the borrower is reasonably likely to default.
B. Offering or Negotiating Terms of a Loan
The following examples are designed to illustrate when an employee offers or negotiates terms of a loan, and conversely, what does not constitute offering or negotiating terms of a loan.
1. Offering or negotiating the terms of a loan includes:
(a) Presenting a loan offer to a consumer for acceptance, either verbally or in writing, including, but not limited to, providing a disclosure of the loan terms after application under the Truth in Lending Act, even if:
(i) further verification of information is necessary;
(ii) the offer is conditional;
(iii) other individuals must complete the loan process; or
(iv) only the rate approved by the bank’s loan approval mechanism function for a specific loan product is communicated without authority to negotiate the rate.
(b) Responding to a consumer’s request for a lower rate or lower points on a pending loan application by presenting to the consumer a revised loan offer, either verbally or in writing, that includes a lower interest rate or lower points than the original offer.
2. Offering or negotiating terms of a loan does not include solely or in combination:
(a) Providing general explanations or descriptions in response to consumer queries regarding qualification for a specific loan product, such as explaining loan terminology (i.e., debt-to-income ratio); lending policies (i.e., the loan-to-value ratio policy of the insured state nonmember bank); or product-related services;
(b) In response to a consumer’s request, informing a consumer of the loan rates that are publicly available, such as on the insured state nonmember bank’s Web site, for specific types of loan products without communicating to the consumer whether qualifications are met for that loan product;
(c) Collecting information about a consumer in order to provide the consumer with information on loan products for which the consumer generally may qualify, without presenting a specific loan offer to the consumer for acceptance, either verbally or in writing;
(d) Arranging the loan closing or other aspects of the loan process, including communicating with a consumer about those arrangements, provided that communication with the consumer only verifies loan terms already offered or negotiated;
(e) Providing a consumer with information unrelated to loan terms, such as the best days of the month for scheduling loan closings at the bank;
(f) Making an underwriting decision about whether the consumer qualifies for a loan;
(g) Explaining or describing the steps or process that a consumer would need to take in order to obtain a loan offer, including qualifications or criteria that would need to be met without providing guidance specific to that consumer’s circumstances; or
(h) Communicating on behalf of a MLO that a written offer, including disclosures provided pursuant to the Truth in Lending Act, has been sent to a consumer without providing any details of that offer.
3. The following examples illustrate when an employee does or does not offer or negotiate terms of a loan “for compensation or gain.”
(a) Offering or negotiating terms of a loan for compensation or gain includes engaging in any of the activities in paragraph (b)(1) of this Appendix in the course of carrying out employment duties, even if the employee does not receive a referral fee or commission or other special compensation for the loan.
(b) Offering or negotiating terms of a loan for compensation or gain does not include engaging in a seller-financed transaction for the employee’s personal property that does not involve the insured state nonmember bank.