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By Brian Chappelle

RISMEDIA, October 2008-On July 30, President Bush signed into law the Secure and Fair Enforcement (S.A.F.E.) Mortgage Licensing Act of 2008 as part of the Housing and Economic Recovery Act. This provision sets forth procedures, requirements, education, testing, and standards, including mandatory registration and state licensing of mortgage loan originators through the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR). The goals NMLSR hopes to accomplish are:

• Helping ensure that loan originators be required to “act in the best interests of the consumer”
• Giving consumers easy access to a loan originator’s employment history and any disciplinary/enforcement actions taken
• Uniform education and licensing requirements
• Accountability and tracking of loan originators


There are two categories of loan originators in NMLSR-registered loan originators and state licensed loan originators. While all loan officers must be registered and obtain a permanent identifier, only loan officers not employed by federally-regulated institutions or their subsidiaries will be required to be licensed.

Loan originators working for a federally-regulated depository institution (or subsidiary) will be registered in the Registry by their employers (called “registered loan originator”) and licensing is not required. All other loan originators (not employed by a federally-regulated institution or subsidiary) will have to be licensed by a state and registered in the Registry (called “state-licensed loan originator”). This licensing process will require a background check, education (at least 20 hours), passing an examination, a net worth or surety bond or equivalent, and once licensed an annual renewal requirement to include at least eight hours of continuing education.

In addition, all loan originators will be assigned a “unique identifier” to permanently identify the loan originator. This will identify a loan originator in the System and will enable public access to the employment history and any enforcement actions taken against a loan originator. The States are encouraged to avoid using Social Security numbers for this purpose. S.A.F.E. encourages the States, through the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators, to establish the licensing systems and the Registry. CSBS is taking the lead on implementation while HUD has oversight authority.

Impact for Real Estate Firms

The implementation of the S.A.F.E. Act has two potential impacts for real estate firms. First, a real estate agent who is compensated by a mortgage lender or mortgage broker in a transaction must be licensed. In addition, depending on the structure of the mortgage subsidiary (i.e. owned by the real estate firm or a joint venture with financial institution), loan originators may have to be licensed as well as registered. For example, if a real estate firm owns 100% of a mortgage subsidiary, the loan originators will have to be registered and licensed.

Details of the S.A.F.E. Act

Below are the details of S.A.F.E. including definition of loan originator; what will be required of the loan originators including both those employed by lenders that are not federally-regulated and for loan originators working for a federally-regulated institution (or subsidiary); and timeline for implementation.

Who’s Covered

A loan originator is defined as a person who takes a mortgage loan application and offers or negotiates the terms of the mortgage and is compensated for doing so. It is a person who assists a consumer in obtaining or applying for a mortgage loan by advising on loan terms, collecting information on behalf of the consumer, or preparing the loan package. Additionally, a loan processor or underwriter acting as an independent contractor is covered and, therefore, is required to obtain a loan originator’s license. A real estate agent or broker who only performs sales/brokerage activities and receives any compensation from a lender or mortgage broker is covered and would therefore be required to be licensed as a loan originator. Persons not covered include:

• Loan processor (on staff) who only performs administrative or clerical tasks such as the collection of information (including communication with the consumer) for the processing and underwriting of the mortgage loan
• Loan processors and underwriters who do not represent to the public that they can or will perform any of the activities of a loan originator
• A real estate agent or broker who only performs sales/brokerage activities and receives no compensation from lender, mortgage broker or their agents
• All loan processors and underwriters who do not work at the direction of, and/or are supervised by, a loan originator.

State Licensing Requirements for Loan Originators/Requirements for Loan Originators

For loan originators that are employed by lenders that are not federally-regulated, a background check that includes fingerprinting, any criminal history and review of credit report is mandatory. Additionally, a review of education and work experience, a review of any administrative, civil or criminal findings by a governmental authority, and a demonstration of financial responsibility, character, and general fitness to ensure that the loan originator will operate honestly, fairly and efficiently is required. Moreover, at least 20 hours of educational courses approved by the Nationwide Mortgage Licensing System and Registry (NMLSR), a passing score on a test developed by NMLSR, and annual continuing education of at least eight hours is also included in the licensing. Other considerations include net worth or surety bond or payment to a state fund and an annual report from each licensed originator to the NMLSR containing info to be determined by the NMLSR. A license will not be issued to a person with a previous revocation of a loan originator’s license, a felony in the last seven years, or at any time in the past, a felony involving an act of fraud, dishonesty, a breach of trust or money laundering.

HUD will determine if the law and licensing program in a State meets the S.A.F.E. requirements. In doing so, HUD will look at the following: effective supervision and enforcement, including suspension, termination or non renewals of a license for violations; the registration of all state-licensed loan originators with NMLSR; the reporting of all enforcement actions to NMLSR; civil money penalties for persons acting as loan originators without a license; and a minimum net worth or surety bond requirement that reflects the loan originator’s business volume, or a recovery fund that is funded by loan originators.

Registration requirements for loan originators employed by lenders that are federally-regulated include: fingerprints, personal history and work experience information submitted to the NMLSR. Also built-in is authorization for NMLSR to conduct background checks.

Timeline for Implementation

The system to process Registered Loan Originators and provide information to the NMLSR is to be implemented by the Federal banking agencies (through the Federal Financial Institutions Examination Council) within one year of the enactment of the law (July 30, 2009). States have one year (two years for states with legislatures that meet biennially) to establish a loan originator licensing and registration system. If not done within that time, HUD is to implement. HUD may provide a State up to 24 additional months if it is determined that the State is making a good faith effort to establish a system. If HUD determines that the Nationwide Mortgage Licensing System and Registry is not performing as expected, HUD is to establish the system.

Brian Chappelle is a Partner with Potomac Partners, LLC and Senior Consultant for the National Association of REALTORS® Real Estate Services program. For more information on NAR’s Real Estate Services program, please visit