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The SAFE Mortgage Licensing Act

The SAFE Mortgage Licensing Act

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Published by Mary Cochrane

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Published by: Mary Cochrane on Dec 08, 2012
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 The SAFE Mortgage Licensing Act (Title V of P.L. 110-289, the Secure and Fair Enforcementfor Mortgage Licensing Act of 2008) was signed into law in July 2008.
It requires every loan originator taking a residential mortgage loan applicationfrom a consumer to obtain a mortgage loan originator (MLO) license from theState Agency in which the subject property is located.
And the States are requiredto set certain minimum requirements for obtaining the MLO License. So what are theseminimum requirements? How does it affect loan originators in the mortgage business? And how are states implementing this federal mandate?
Education Twenty (20) hours of education is one of the major requirements. In order to get a license, a mortgage loan originator must complete 20 hours of pre-licensing education that is offered by an approved education provider. Completion of one 20 hour course complies with this requirement for all states. The course will usually cost around $299 to $399 
.
However, some states also require an additional 1to 5 hours of state-specific education in addition to the federally mandated 20 hour course.Always keep in mind when trying to understand these new requirements, that each state is under a federal mandate to meet certain minimum requirements for licensing MLOs, but the state always has the right to set their standards higher than the federal mandate 
.
Any states where you have done previous education to maintain a loan originator license prior to these new requirements may allow you to certify those past hours to meet this new requirement. Also,eight (8) hours of continuing education is required each year to renew your license. Completion of one 8 hour course complies with this requirement for all states. However, just like the pre- licensing education, some states require an additional 1 to 5 hours of state-specific education each year as well. Testing 
 
 
The SAFE Act also requires that MLOs complete a test toobtain a mortgage loan originator license
. To comply with this requirement, thestates have worked together to make a National Test that covers federal laws andregulations for mortgage origination.
This test is only required to be passed once forall states
. However, each state has also developed their own state-specific testcomponent. So the National Test and the State Test must be completed to obtain alicense.
Any states where you have done previous testing to obtain a loan originator license prior to these new requirements may allow you to certify those past tests to meet this new 
 
requirement. The National Test would still be required, but you could be exempt from having to take the state test. The National Test costs $92 and the State Tests cost $69 each. The tests only need to be passed once to obtain the license and never need to be taken again. And make sure to study for the tests. Only Sixty-Seven Percent (67%) of applicants are passing the National test 
. Criminal Background Check Each state is required under the SAFE Act tocomplete a criminal background check on MLO License applicants. To implement thisthere is a federal fingerprinting that can be paid for when you submit an MLO Licenseapplication. When fingerprints are taken, they are sent to the FBI and the FBI reviewsthem and puts together a report of any criminal convictions that match your record.These criminal background check reports are then sent to the state to review. Becausethe federal fingerprinting only checks the FBI database, some states have decided toalso require their own fingerprinting that would check their state criminal database. Soyou will definitely have to complete the Federal Fingerprinting once, but you also mayhave to complete a state fingerprinting requirement in some states. The federalfingerprinting costs $39 and the state fingerprinting ranges from $25 to $60.
Theminimum requirements under SAFE Act state that no one can obtain a MortgageLoan Originator (MLO) License if they have had any felonies in the last 7 years
or if they have ever had a felony that was financial services related, such as fraud, theft,bribery, check forgery, etc.
Credit Background Check Under the SAFE Act, eachstate is required to review a credit report
. Unfortunately, unlike the specific nature of the minimum criminal background requirements, the SAFE Act is not specific as to whatthe minimum credit requirements are. Mosts states have not released details on whatthey will be looking at on the credit reports and most states are not reviewing creditreports at this time. Every state that is currently requiring credit reports to be mailed tothem is setting different standards, but there are basically 3 different ways I am seeingstates handle it. 1. Some states are not telling applicants the minimum credit required,but are declining apps for credit issues (This is the worst situation, because you don'tknow if the state will accept the credit until you apply) 2. Some states are tellingapplicants the minimum credit required. For example they are saying any one with ascore lower than 580 must provide a letter of explanation about how they are fixing their credit issues and will be financially stable going forward. (This is still not good, but at
 
least you know if the LO will possibly have an issue if they apply) 3. Some states are just keeping a copy of the credit report in their file, but they are not looking at it. Myhope is that the federal government issues regulations that define what the states needto look at on the credit. Then we will know for sure whether someone meets thosestandards or not. At this time, most states have not issued any details on what they willbe looking at. Application States are required to obtain a license application with certainminimum information. All states have a license fee associated with the application thatranges from $50 to $500. Completion of the application is required to be completedthrough a system called the
Nationwide Mortgage Licensing System (NMLS),
whichnow takes us to the final question. How are the states implementing these newrequirements?
Nationwide Mortgage Licensing System (NMLS) This system is aprivately owned website that was created for the sole purpose of handling all ofthe states new mortgage licensing requirements all in one place.
 
Most stateshave also decided to handle company and branch license applications throughthis system along with the Mortgage Loan Originator (MLO) License applications.The system is just a website that the states use to receive applications andcomply with this new federal mandate under the SAFE Act.
The NMLS does notreview or approve license applications.
The system allows for submitting a licenseapplication to a state electronically, it has a function to pay for the National andState Tests, a function to pay for the federal fingerprinting, and will soon alsohave a function to pay for the credit report to be sent to each state you want toobtain a license in. It also tracks the status of each MLO License and shows wheneducation, test, and fingerprinting have been completed. And the states use thesystem to post deficiencies for a license when the state needs additionalinformation
. Conclusion Unfortunately, all of this new licensing iscosting companies and mortgage loan originators a lot of money. It iscreating a huge burden on mortgage companies that is then mostlybeing passed down to consumers.
 
The system has had many difficulties inworking with states existing laws to transition everyone onto the system. Hopefully,going forward, these new requirements will set
accountability in the mortgage

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