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Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference Coronado, CA May 4, 2010
Prepared by: Donald C. Lampe M. Elizabeth Collins Womble Carlyle Sandridge & Rice, PLLC 301 South College Street Suite 3500 Charlotte, NC 28202 (704) 350-6398

S.A.F.E. Act Federal enabling statute

S.A.F.E. Act passed in July 08 as part of comprehensive HERA bill

Strongly encouraged states to enact state laws that met minimum S.A.F.E. Act standards

Minimum standards established for mortgage loan originators for both state and federally regulated entities did not address entity licensing

Provided HUD backup authority to establish a system in any state that failed to do so in the required time period

S.A.F.E. Act CSBS/AARMR Move the Ball Forward CSBS and AARMR drafted a Model State Law to assist states with implementing the S.A.F.E. Act Model State Law cleaned up the S.A.F.E. Act inconsistencies and made it a pre-packaged ready to adopt law CSBS and AARMR worked with state regulators, industry groups and federal agencies in drafting the Model State Law Effort made to get it right so that states could adopt law and be confident in meeting the federal requirements

S.A.F.E. Act CSBS/AARMR Move the Ball Forward Key differences between S.A.F.E. Act and Model State Law:
Definition of MLO revised to mean individual who takes mortgage loan app OR offers or negotiates terms, as opposed to AND (which captures more individuals) Clarified licensing requirements for loan processors and underwriters, including independent contractors Adopted additional exemptions from MLO licensing, including for federally registered MLOs, licensed attorneys, and individuals acting on behalf of immediate family members Permitted delay of effective date of licensing, as long as S.A.F.E. Act compliant law in place

S.A.F.E. Act HUD blesses Model Law

Jan. 5 09 HUD blesses Model State Law State legislation that follows the provisions of the model state law will not be determined by HUD to be noncompliant with the S.A.F.E. Act HUD reminds states they can be more restrictive Set out the standards by which HUD would evaluate each individual state law

S.A.F.E. Act Model State Law Across the States

With HUDs blessing, states begin to adopt the Model State Law, with various tweaks Many states relied on Model State Law, but NOT ALL States with existing loan officer licensing schemes had to integrate S.A.F.E. Act requirements with existing licensing framework Had to harmonize entity level licensing requirements Numerous inconsistencies across the states still a patchwork of state laws 49 states plus D.C. passed laws (still waiting on Minnesota)

S.A.F.E. Act Model State Law Across the States

Model State Law serves as a floor and states are permitted to be more restrictive; for example: Expanded definitions of MLOs Minimum FICOs Criminal convictions Additional Continuing education requirements, etc.

S.A.F.E. Act Whats a Servicer to Do? Are mortgage servicer employees (AKA loss mitigation specialist) covered by S.A.F.E. Act? HUD says YES (as a preliminary answer), but still waiting to see Some states say YES Some states say YES, but not till 2011 Some states say NO Some states say Wait till HUD decides HUD says some loan mod negotiations are effectively negotiating the terms of a mortgage loan

S.A.F.E. Act Whats an Independent Contractor to Do? How are independent contractors treated under the S.A.F.E. Act? Loan processors and underwriters must be supervised by licensed MLO How can third party processors and underwriters comply? Entity level licensing? Individual licensing? Varies from state to state Collusion concerns about MLO overseeing processors and underwriters Its a conundrum!

HUD Proposed Rule

S.A.F.E. Act did not grant HUD rulemaking authority Nevertheless, HUD issued a Proposed Rule on Dec. 15 09 Expanded HUDs role from backup authority to arbiter and decider Numerous comments provided to HUD by industry and trade groups

HUD Proposed Rule

HUD expanded S.A.F.E. Act by adding key definitions application taking an application for compensation or gain offering or negotiating States with already enacted S.A.F.E. Acts must go back (through regulation or otherwise) and pick up these new definitions Laws that were thought be in compliance with S.A.F.E. no longer appear to be


Donald C. Lampe M. Elizabeth Collins Womble Carlyle Sandridge & Rice, PLLC 301 South College Street Suite 3500 Charlotte, NC 28202 (704) 350-6398 (704) 331-4945