The Safe Act and State Licensed Originators

by Gail Joyce - Business Development National Sales Manager, Byte Software

The Safe Act was signed into law in 2008. This wide-ranging legislation provides regulators better tools to control and track originators. The legislation had several goals related to mortgage originators:

• standardize originator education and licensing requirements
• create a national licensing system for originators (and related registry for originators employed by regulated entities)
• make it difficult for originators with criminal convictions (of certain types) to obtain an origination license
• make it possible to track consumer complaints against an originator across state lines
• create a freely available public database containing information on any licensed originator
• clearly identify the originator on loan documents by including the originator's unique license number on the documents

The establishment of a national licensing system was accomplished with the creation of the Nationwide Mortgage Licensing System (NMLS) in 2009. Since its inception, the NMLS has steadily added state licensed originators, as more states come on board with testing and licensing.

Originators who work for regulated institutions are not yet required to register with the NMLS.  The draft final rule compiled by the regulatory agencies governing the registration has been approved, and is expected to be published soon.  At that point, those originators working for banks, credit unions and other affected institutions will have 180 days to register with the NMLS.

The term 'mortgage loan originator' was redefined by the Safe Act. The new definition is fairly broad – it includes anyone who takes an application and offers loan terms for monetary gain. Anyone who 'advises or assists in the completion of a loan application beyond purely clerical or administrative tasks' may also be considered an originator and require state licensing.

Twenty hours of NMLS approved pre-licensure education are required, which needs to be completed only once, and can be applied to any state.  Some states have a path around the pre-licensure education for originators with current education credentials in the state. States may also require additional education hours on top of the mandated twenty hours, and many states also require state-specific education and testing.

The originator must be licensed in the state in which he or she will originate loans. The state license(s) the originator must obtain is determined by the state in which the subject property exists. The originator must be employed by a company licensed for origination in that state.  

The originator or the employer must create a base record for the originator in NMLS which also generates the originator’s unique NMLS number. The base record is used for the MU4 filing in NMLS for the originator’s state license application. When the originator changes employment, they must update their NMLS record in order to remain active. During a period of unemployment, the originator’s license is inactive and cannot be used to originate loans.

The Safe Act ties the originator to the NMLS record by requiring that business solicitations including the originator's name also include their NMLS number.  The originator is identified with their NMLS number on the loan application (1003).  

Consumers may use a freely available internet database to see when and where originators are licensed. In the future, they will be able to view enforcement actions against the originator, if any exist.

On July 1, 2010 Fannie Mae will require use of the new 1003 containing a field for the NMLS. Loan originations systems will automatically update their software prior to that date to ensure compliance.