Congress, as a remedial response to industry-wide malfeasance by residential mortgage brokers, enacted the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) in 2008. Along with the Truth-In-Lending Act (TILA), both pieces of legislation regulate, and thus affect, mortgage loan originators.
The SAFE Act requires that individuals “engaging in the business of loan originator” must satisfy requirements related to education, licensing, registration, and background checks. States are directed by the SAFE Act to establish licensing and registration systems that meet the requirements of the Act and federal Regulation H. As the SAFE Act preempts contradictory state law, states may impose requirements that exceed the minimum imposed by the Act but may not require fewer.
Under the Act, a “loan originator” is defined as someone who “takes a residential mortgage application and offers or negotiates terms of a residential mortgage loan for compensation or gain.” The Act excludes those who only perform real estate brokerage activities and are licensed as real estate brokers unless compensated. The Act also excludes those who perform purely administrative or clerical functions.
Loan originators who meet the above definition are divided into 1) registered loan originators, and 2) loan originators who require a state license. The former are those individuals that work for a bank, federally regulated subsidiary of a depository, or a lender regulated by the Farm Credit Administration. They are not subject to state regulation but, like all other loan originators who are required to be state-licensed, must be registered with the National Mortgage Licensing System (NMLS).
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