HUD’s Safe and Rebuttable Qualified Mortgages

The anxiously awaited Proposed Rule (“Rule”) outlining the Qualified Mortgage for FHA loans was published in the Federal Register on September 30, 2013. Given the bland, bureaucratic title Qualified Mortgage Definition for HUD Insured and Guaranteed Single Family Mortgages (“Issuance”), HUD is submitting for public comment its definition of a “qualified mortgage” for the types of loans that HUD insures, guarantees, or administers that align with the statutory ability-to-repay (“ATR”) criteria of the Truth-in-Lending Act (“TILA”) and the regulatory criteria of the definition given by the Consumer Financial Protection Bureau (“CFPB”), without departing from HUD’s statutory requirements. The expiration of the comment period is October 30, 2013.

A copy of the Proposed Rule is available in our Library.

In this article, I will provide an overview of the Rule with respect to Title II mortgages of the National Housing Act. I shall offer some practical insights relating to the potential consequences and implementation of the Rule for residential mortgage lenders and originators.*

Birthing HUD’s Proposed Rule

The Rule has its genesis in a foundational document, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which created the new section 129C in TILA, establishing minimum standards for considering a consumer’s repayment ability for creditors originating certain closed-end, dwelling-secured mortgages, and generally prohibiting a creditor from originating a residential mortgage loan unless the creditor makes a reasonable and good faith determination of a consumer’s ability to repay the loan according to its terms.

Briefly, Section 129C is meant to provide lenders a specific format to meet the ATR requirements when lenders make “qualified mortgages” (“QMs”). A new section 129C(b), added by section 1412 of Dodd-Frank, establishes the presumption that the ATR requirements of section 129C(a) are satisfied if a mortgage is a “qualified mortgage,’’ and authorizes the CFPB, to prescribe regulations that revise, add to, or subtract from the criteria in TILA that define a “qualified mortgage.’’ (Section 129C also provides for a reverse mortgage to be a qualified mortgage if the mortgage meets the CFPB’s standards for a qualified mortgage, except to the extent that reverse mortgages are statutorily exempted altogether from the ATR requirements. The CFPB’s regulations provide that the ATR requirements of section 129C(a) do not apply to reverse mortgages. Section 129C(a)(8) excludes reverse mortgages from the repayment ability requirements.)

As you may know, I have published and presented extensively on QMs and have dubbed the non-qualified mortgage with the acronym “NQM.” For some of my work on this subject, please visit HERE, and HERE, and HERE.

Section 129C authorizes the agency with responsibility for compliance with TILA, that is, the CFPB, to issue a rule implementing these requirements. The CFPB already set forth its Final Rule on ATR, QMs, and NQMs, as issued in the Federal Register on January 30, 2013. Along with certain other agencies, HUD was also later on charged by the CFPB, pursuant to Dodd-Frank, with prescribing regulations defining the types of loans that it would insure, guarantee, or administer, as applicable, that are qualified mortgages. In the Rule, HUD now proposes that any forward single family mortgage insured or guaranteed by HUD must meet the criteria of a qualified mortgage, as defined in the Rule.

HUD reviewed its mortgage insurance and loan guarantee programs and, in the Issuance, stated that all of the single family residential mortgage and loan products offered under HUD programs are qualified mortgages; that is, they “exclude risky features and are designed so that the borrower can repay the loan.” However, for certain of its mortgage products, HUD proposes its Rule for qualified mortgage standards similar to those established by the CFPB in its definition of “qualified mortgage.” 

Safe Harbor and Rebuttable Presumption of Compliance

Through its “qualified mortgage” rulemaking, the CFPB established both a “safe harbor” and a “rebuttable presumption of compliance” for transactions that are qualified mortgages. CFPB's label of safe harbor is applied to those mortgages that are not higher-priced covered transactions (i.e., the annual percentage rate (“APR”) does not exceed the average prime offer rate (“APOR”) by 1.5 percent). These are considered to be the least risky loans and presumed to have conclusively met the ATR requirements of TILA. The label of rebuttable presumption of compliance is applied to those mortgages that are higher-priced transactions.

TILA Section 129C(b)(2)(ix) provides that the term “qualified mortgage” may include a “residential mortgage loan” that is “a reverse mortgage which meets the standards for a qualified mortgage, as set by the Bureau in rules that are consistent with the purposes of this subsection.” But the Federal Reserve Board’s proposal, adopted by the CFPB, does not include reverse mortgages in the definition of a “qualified mortgage.” Indeed, the CFPB’s Final Rule does not define a “qualified” reverse mortgage.

HUD proposes to designate Title I (home improvement loans), Section 184 (Indian housing loans), and Section 184A (Native Hawaiian housing loans) insured mortgages and guaranteed loans covered by the Rule to be safe harbor qualified mortgages and HUD proposes no changes to the underwriting requirements of these mortgage and loan products.

The largest volume of HUD mortgage products - those insured under Title II of the National Housing Act – would be bifurcated into qualified mortgages similar to the two categories created in the CFPB final rule: a safe harbor qualified mortgage and a rebuttable presumption qualified mortgage.

Specifically, the Rule would define the safe harbor qualified mortgage as a mortgage insured under Title II of the National Housing Act (excepting reverse mortgages insured under section 255 of this act) that meets the points and fees limit adopted by the CFPB in its regulation at 12 CFR 1026.43(e)(3), and that has an APR for a first-lien mortgage relative to the APOR that is less than the sum of the annual mortgage insurance premium (“MIP”) and 1.15 percentage points. HUD would define a rebuttable presumption qualified mortgage as a single family mortgage insured under Title II of the National Housing Act (excepting reverse mortgages insured under section 255 of this act) that meets the points and fees limit adopted by the CFPB in its regulation at 12 CFR 1026.43(e)(3), but has an APR that exceeds the APOR for a comparable mortgage, as of the date the interest rate is set, by more than the sum of the annual MIP and 1.15 percentage points for a first-lien mortgage.

Therefore, under the Rule, HUD would require that all loans insured under Title II of the National Housing Act to be either a rebuttable presumption or safe harbor qualified mortgage, and, importantly, that they meet the CFPB’s points and fees limit at 12 CFR 1026.43(e)(3). The CFPB set a three (3%) percentage points and fees limit for its definition of qualified mortgage and allowed for adjustments of this limit to facilitate the presumption of compliance for smaller loans. 

FHA: Mortgagee Review Board - Administrative Actions

Periodically, we review with you the types of administrative actions taken by HUD's Mortgagee Review Board (MRB).

The review of the MRB's published administrative actions should be considered a teaching moment for all FHA approved mortgagees, inasmuch as the MRB is empowered to enforce its administrative sanctions through, among other things, reprimand, probation, suspension or withdrawal of approval and/or underwriting authority, cease-and-desist orders, and civil money penalties.

On April 11, 2013 HUD published the administrative actions taken by the Mortgagee Review Board (MRB) against certain FHA mortgagees. The period covered in the issuance is January 1, 2012 to September 30, 2012.

In this article, we provide an outline of the kinds of violations and respective sanctions that the MRB recently sustained.

_____________________________________________________

IN THIS ARTICLE

A Word to the Wise
Rule of Thumb
Administrative Actions

Library

_____________________________________________________

A Word to the Wise Word

In representing clients before the MRB, we can vouch for the exhaustive due diligence that is virtually mandated, the considerable costs involved, the experienced legal counsel and requisite regulatory compliance expertise that is needed, and the significant adverse impact on an FHA lender's ability to conduct or even continue in business.

It's easy to get lulled into a sense of false confidence by thinking that some violations are minor. But if the MRB gets involved, those minor violations will become a part of the causes for administrative action, and even in some instances the proximate cause of the administrative action.

Nothing should be considered a "minor" violation, when originating HUD/FHA mortgage loans.

It is instructive to note the causes for the administrative action brought against an FHA-approved mortgagee.

Ignorance is a futile defense, when it comes to the causes that can affirmatively contribute to disciplinary action.

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Rule of Thumb Rule

The MRB is not sympathetic to a mortgagee that violates HUD/FHA requirements which are, or are expected to be, within the mortgagee's control.

Violations that are not, or not expected to be, in the mortgagee's control provide the MRB with a more nuanced basis upon which to provide some leniency.

_____________________________________________________

Administrative Actions

VIOLATION:
Failed to notify the Department that it was the subject of multiple state regulatory actions and sanctions, and submitted false certifications to HUD in connection with its annual renewal of eligibility documentation for its fiscal years ending in 2009, 2010 and 2011.

ACTION: Civil money penalty in the amount of $75,000.

VIOLATION:
Failed to perform quality control functions in compliance with HUD/FHA requirements, failed to meet the requirements for participation in the FHA mortgage insurance program, failed to ensure the correct mortgagee identification number was used when originating FHA-insured mortgage loans, failed to adequately document the source of and/or adequacy of funds used for closing, failed to correctly calculate and document the mortgagor's income, failed to verify the stability of the mortgagor's income, failed to ensure the mortgagor was eligible for an FHA-insured mortgage loan, failed to ensure the property met HUD's eligibility requirements, failed to comply with TOTAL Scorecard requirements, failed to comply with HUD's property flipping requirements, failed to provide construction documents required for property eligibility and/or high ratio financing resulting in over-insured mortgages, failed to ensure that the maximum mortgage amount was correctly calculated, resulting in over-insured mortgages, failed to ensure that data submitted to HUD systems was accurate, and charged mortgagors unallowable fees.

ACTION:
Notice of Administrative Action immediately and permanently withdrawing the FHA approval.

VIOLATION: Failed to obtain adequate documentation of the income used to qualify a borrower, failed to resolve discrepancies and/or conflicting information before submitting loans for FHA mortgage approval, and failed to ensure mortgagors were not charged fees that were excessive and/or unreasonable for the services performed.

ACTION:
Settlement Agreement that required civil money penalties in the amount of $17,000, to indemnify HUD/FHA for its losses with respect to two FHA-insured loans, and to refund borrowers for excessive origination fees.

VIOLATION:
Submitted or caused to be submitted false information to HUD in relation to 63 mortgagee record changes, failed to reconcile its portfolio data and allowed HUD records to incorrectly identify the mortgagee as the holder of 97 FHA-insured mortgage loans, and submitted false information to HUD on 133 claims for FHA insurance benefits and, in 90 instances, claimed benefits for ineligible holders of record.

ACTION: Settlement Agreement that, among other things, required a civil money penalty in the amount of $1.2 million and to complete mortgage record changes to facilitate the payment of certain FHA insurance claims.

HUD: Causes of Administrative Actions

The Department of Housing and Urban Development (HUD) has published the Administrative Actions taken by the Mortgagee Review Board (MRB) against certain FHA mortgagees. The issuance, published in the Federal Register on September 10, 2012, covers administrative actions against mortgagees from August 1, 2011 to December 31, 2011.

The MRB has the authority to issue Settlement Agreements, Civil Money Penalties, Withdrawals of Federal Housing Administration (FHA) Approval, Suspensions, Probations, Reprimands, and Administrative Payments.

Or to put this in more modern parlance, the MRB is empowered to enforce administrative sanctions, including reprimand, probation, suspension or withdrawal of approval, cease-and-desist orders, and civil money penalties

Trust me - you don't want to go there!

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IN THIS ARTICLE

Preparation is Protection

47 Causes of Administrative Actions

Library

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Preparation is Protection

I have said repeatedly that preparation is protection. One way to always be prepared is to consider what other mortgagees did that got them into trouble in the first place.* Learning from the mistakes of others is a proactive way to ensure that we are following up on every aspect of our compliance requirements.

In representing clients before the MRB, I can vouch for the exhaustive due diligence that is virtually mandated, the considerable costs involved, the experienced legal counsel and requisite regulatory compliance expertise that is needed, and the significant adverse impact on an FHA lender's ability to conduct or even continue in business.

It's easy to get lulled into a sense of false confidence by thinking that some violations are minor. But if the MRB gets involved, those minor violations will become a part of the causes for administrative action, and even in some instances the proximate cause of the administrative action.

Nothing should be considered a "minor" violation, when originating HUD/FHA mortgage loans.

So it is instructive to take note of the causes for administrative action against a HUD-approved mortgagee. Ignorance is a futile defense, when it comes to the causes that can affirmatively contribute to disciplinary action. HUD's position has been consistently clear: actions taken or not taken, that are within our control, are a principal evaluator in determining a mortgagee's culpability.

As Benjamin Franklin said, "an ounce of prevention is worth a pound of cure!"

47 Causes of Administrative Actions

Below is a list of 47 causes that have led to the MRB taking administrative action.

In many cases, the civil money penalties were very large.

1. Falsified and/or conflicting information in the origination of HUD/FHA loans.

2. Failed to ensure loan applications were taken and processed by authorized employees.

3. Failed to ensure that documents were not handled by an interested third party.

4. Failed to adequately document the income used to qualify the borrower.

5. Failed to document the source of funds used for the down payment and/or closing costs; failed to perform quality control on all loans that went into default within the first six months.

6. Failed to timely submit audited financial statements and supplementary reports to HUD.

7. Failed to notify the Department that it had paid a fine to a state banking department.

8. Failed to ensure that only principal owners or corporate officers submit the annual certification report.

9. Submitted a false certification to HUD when it submitted its electronic annual certification for 2011.

10. Submitted false audited financial statements to HUD for Fiscal Year ending April 30, 2010, when it claimed ownership of a residential condominium unit.

11. Submitted audited financial statements to HUD that were not in conformity with Generally Accepted Accounting Principles due to the improper capitalization of a residential condominium unit.

12. Displayed the FHA/HUD logo on its Web site when promoting its FHA mortgage services.

13. Failed to timely submit or complete its audited financial statements for its fiscal year ending December 31, 2011.

14. Failed to pay its annual certification fee.

15. Failed to submit its annual certification for 2010.

16. Failed to notify HUD that it paid a fine to a state banking department to resolve allegations that it had violated the state's lenders licensing laws.

17. Failed to remit mortgage insurance premiums to HUD/FHA on its loans.

18. Failed to notify HUD/FHA within fifteen (15) days of the termination of contracts for mortgage insurance.

19. Failed to notify HUD that it voluntarily surrendered its license to a state banking department.

20. Originated FHA mortgages in a state while it was the subject of an order suspending its lending license in that state.

21. Permitted a non-FHA approved mortgage broker to perform loan origination services on its FHA loans.

22. Approved loans for borrowers who were ineligible for federally insured mortgages due to outstanding delinquent federal debt.

23. Approved FHA loans without adequately documenting the income used to qualify the borrowers.

24. Approved FHA loans without resolving discrepancies in the loan files relating to the borrowers’ income and employment.

24. Failed to document the source of gift funds on FHA loans.

25. Approved a loan when the borrower did not meet the minimum credit required.

26. Approved a loan where it omitted a liability of the borrower in the underwriting analysis.

27. Accepted loan applications from loan correspondents for which it was not an FHA approved Sponsor.

28. Failed to review FHA loans that went into early payment default within the first six (6) months of repayment.

29. Failed to comply with property preservation and protection requirements on HUD-insured homes following foreclosure.

30. Violated HUD/FHA requirements when it approved FHA loans without identifying irregularities and resolving discrepancies and conflicting information in the loan files.

31. Violated HUD/FHA requirements on FHA loans when it failed to adequately document the borrowers’ income.

32. Violated HUD/FHA requirements when it approved FHA loans after failing to ensure that documents were not handled by an interested third party.

33. Violated HUD/FHA requirements on FHA transactions when it failed to document the source of funds used for the borrowers’ down-payments and/or closing costs.

34. Violated HUD/FHA requirements when it approved FHA loans and omitted monthly debt obligations from its underwriting analysis.

35. Violated HUD/FHA requirements when it approved an FHA loan for a borrower who was ineligible because of an outstanding court-ordered judgment.

36. Violated HUD/FHA requirements when it approved a loan for FHA mortgage insurance without ensuring the borrower met the statutory 3.5% minimum investment requirement.

37. Violated HUD/FHA requirements when it approved a loan for a borrower that was over insured, because it had failed to consider the seller’s inducement to purchase.

38. Failed to timely remit mortgage insurance premiums.

39. Failed to notify HUD that the mortgagee and its President were issued a Complaint and Cease and Desist Order from a state banking department that required the mortgagee to pay fines, ordered it to permanently cease and desist from operating and engaging in the business of a lender in that state, required it to immediately surrender its lender's license, and barred its President from serving as an officer, director, or owner of any financial institution in the state.

40. Failed to comply with HUD’s quality control requirements.

41. Violated HUD’s mortgagee employee and staffing requirements.

42. Charged unallowable and unsupported fees.

43. Reproduced the official HUD seal on an advertisement or business solicitation, and disseminated a misrepresentative or misleading advertisement or business solicitation to the public.

44. Failed to ensure that the quality control reviews for early payment defaults were completed.

45. Used conflicting information in originating and obtaining HUD/FHA mortgage insurance.

46. Failed to adequately document the stability of income used to qualify the borrowers.

47. Failed to notify HUD/FHA within 15 calendar days of the termination, transfer or sale of mortgage insurance contracts.

Library

Department of Housing and Urban Development

Mortgagee Review Board: Administrative Actions

Federal Register: 77/175

September 10, 2012

_________________________________________________

*Jonathan Foxx is the President & Managing Director of Lenders Compliance Group

FHA: Avoiding the Mortgagee Review Board

Periodically, we review with you the types of administrative actions taken by HUD's Mortgagee Review Board (MRB).

The review of the MRB's published administrative actions should be considered a teaching moment for all FHA approved mortgagees, inasmuch as the MRB is empowered to enforce its administrative sanctions, through, among other things, reprimand, probation, suspension or withdrawal of approval and/or underwriting authority, cease-and-desist orders, and civil money penalties.

Trust me - you don't want to go there!

On February 24, 2012, HUD published the administrative actions taken by the Mortgagee Review Board (MRB) against certain FHA mortgagees. The period covered in the issuance is February 14, 2011, to July 20, 2011.

In this newsletter, I will provide an outline of the kinds of violations and respective sanctions that the MRB recently sustained.

Best wishes,
Jonathan Foxx*

IN THIS ARTICLE

A Word to the Wise

Rule of Thumb

Administrative Actions

_____________________

A Word to the Wise

In representing clients before the MRB, I can vouch for the exhaustive due diligence that is virtually mandated, the considerable costs involved, the experienced legal counsel and requisite regulatory compliance expertise that is needed, and the significant adverse impact on an FHA lender's ability to conduct or even continue in business.

It's easy to get lulled into a sense of false confidence by thinking that some violations are minor. But if the MRB gets involved, those minor violations will become a part of the causes for administrative action, and even in some instances the proximate cause of the administrative action.

Nothing should be considered a "minor" violation, when originating HUD/FHA mortgage loans.

It is instructive to note the causes for the administrative action brought against an FHA-approved mortgagee.

Ignorance is a futile defense, when it comes to the causes that can affirmatively contribute to disciplinary action.

Rule of Thumb

The MRB is not sympathetic to a mortgagee that violates HUD/FHA requirements which are, or are expected to be, within the mortgagee's control.

Violations that are not, or not expected to be, in the mortgagee's control provide the MRB with a more nuanced basis upon which to provide some leniency.

Administrative Actions

VIOLATION:
Improperly entered incorrect information as "cash reserves'' into HUD's automated underwriting system in order to receive approvals for seven loans; failed to adequately document the stability of borrowers' employment or income and failed to adequately document other income used to qualify borrowers; failed to consider mortgage payment debt and liabilities when underwriting and approving FHA-insured loans; failed to adequately document the source of gift funds for one loan; and failed to obtain confirmation concerning cash saved at home with regard to two other loans.

ACTION:
Indemnify HUD for any future losses on six FHA-insured mortgage loans; reimburse HUD for losses in the amount of $496,727.53 for mortgage insurance claims paid by HUD; and pay a civil money penalty in the amount of $45,500.

VIOLATION:
Failed to notify HUD that the mortgagee, its principals, and its originators had entered into a consent order with a state, which required the payment of an $11,000 fine for originating mortgages in that state without originator licenses; failed to notify the HUD that it entered into a consent order with another state, which required the payment of a $1,500 penalty for failing to file its annual report; and falsely certified on its 2010 Yearly Verification Report that it had not been involved in a state proceeding that resulted in adverse action and had not relinquished a license in any jurisdiction in which it originates or services FHA-insured mortgages.

ACTION:
Mortgagee required to pay a civil money penalty in the amount of $12,500.

The Empire Strikes Back: HUD's Fair Lending Standards

On November 16, 2011, the Department of Housing and Urban Development (HUD) issued a proposal, entitled Implementation of the Fair Housing Act's Discriminatory Effects Standard. Comments from the public are due by January 17, 2012.

This announcement is much more involved than it seems, for HUD, to which Congress gave the authority and responsibility for administering the Fair Housing Act and the power to make rules implementing the Act. In HUD's proposal, a demonstration that a housing practice is supported by a legally sufficient justification may not be used as a defense against a claim of intentional discrimination.

The question of "disparate impact" (euphemistically linked to the "effects test") has deep roots in previous and on-going litigation, rising now to judicial review before the United States Supreme Court.

So, what's at stake? Let's take a closer look.

HUD's Preemptive Attack

It is rare, indeed, when a federal agency, such as HUD, seems to be issuing its position on a matter that is currently before the U. S. Supreme Court. But that is what appears to be happening. The case is Gallagher v. Magner, and on November 7, 2011, the Supremes granted a petition to review the Eighth Circuit's decision reversing summary judgment in the defendants' favor. Yet HUD is not filing an amicus curiae, the normative response expected by a federal agency, it is actually publishing its standards now - after the Supreme Court has decided to review the case.

To say HUD's tactic is unusual, is a considerable understatement!

Purpose of HUD's Proposal

So what is the basis of HUD's "preemptive strike," if I might be at liberty to use that term?

Here is HUD's stated purpose for its issuance:

"Although there has been some variation in the application of the discriminatory effects standard, neither HUD nor any Federal court has ever determined that liability under the Act requires a finding of discriminatory intent. The purpose of this proposed rule, therefore, is to establish uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act."

Now to make sense of that statement of purpose, we'll need to give some consideration to Gallagher v. Magner.

Gallagher v. Magner

Gallagher v. Magner (hereinafter Gallagher), is a claim by owners of rental properties against the City of St. Paul's alleged "practice" of "aggressively enforcing" its Housing Code.

The case arose when a group of landlords claimed that officials in the City of St. Paul, Minnesota, targeted rental properties for housing code violations, with a disparate impact on African-American tenants. Despite the lack of evidence showing intent, the Eighth Circuit Court of Appeals upheld a finding of Fair Housing Act violations.

The Route to the Supreme Court

Here is a brief outline of Gallagher v. Magner's route to the Supreme Court:

Phase 1:

The district court granted the defendants' motion for summary judgment.

Phase 2:

The Eighth Circuit reversed with respect to the plaintiffs' "disparate impact" claim under the Fair Housing Act (FHA), 42 U.S.C. § 3604(a)-(b). In so holding, the Eighth Circuit applied a three prong "burden-shifting" approach requiring: (a) a prima facie case of disparate impact on protected classes; (b) a showing by the defendant that the challenged policy or practice has a "manifest relationship" to a legitimate, non-discriminatory policy objective; and (c) a showing by the plaintiffs that there exists "a viable alternative means" to meet the legitimate objective without discriminatory effects. [619 F.3d at 833-34]

The Eighth Circuit described the "policy or practice" at issue as "the City's aggressive Housing Code Enforcement practices," including allegations that "the City issued false Housing Code violations and punished property owners without prior notification," invitations to "cooperate" with the enforcement authority, or adequate time to remedy Housing Code violations." [Idem 834]

The court held that the plaintiffs presented a prima facie case of disparate impact by presenting evidence that (1) the city had a shortage of affordable housing; (2) racial minorities were disproportionately represented in the pool of those requiring affordable housing; (3) the city's "aggressive enforcement" of its code made ownership of rental properties more expensive; and (4) these increased costs to owners resulted in less affordable housing in the city. [Idem 834-35]

The City of St. Paul's position, when seeking certiorari from the Supreme Court, stated that increased costs relating to enforcement of a housing code would always have a prima facie disparate impact in cities where there is insufficiently low income housing and, of course, minorities are disproportionately in need of such housing.

So, the court found that there was a prima facie case of disparate impact, and the City of St. Paul had demonstrated that the challenged "aggressive enforcement" of its Housing Code promoted legitimate objectives; however, the court also held that the plaintiffs had produced evidence of a viable alternative without discriminatory effect.

FHA Expands Lending Areas

We have received many inquiries from clients, colleagues, and the media regarding the Federal Housing Administration's (FHA) recently issued Mortgagee Letter 2011-34 (September 23, 2011), specifically with respect to single family lending areas.

In order to provide some details regarding this revision, we are offering the outline contained herein.

There are other significant changes in ML 2011-34. To learn more about other important changes and guidance given in ML 2011-34, please download and review this mortgagee letter from our Library.

Brief Synopsis

Briefly put, the significant change through this issuance is that lenders can now originate FHA loans nationwide without each branch being approved, but lenders must comply with local and state licensing and loan origination requirements.

The change to the single family lending area became effective on September 23, 2011.

Single Family Loan Origination Lending Area

FHA has expanded the single family origination lending area of each home office and registered branch office to include all HUD field office jurisdictions. This origination lending area is also known as a lender's Area Approved for Business (AAFB). It is maintained at the HUD field office jurisdiction level in FHA's system for implementation with any Credit Watch Terminations.

As stated above, lenders must meet each state's origination requirements.

In actuality, then, the "Single Family Originating Lending Areas" of HUD Handbook 4155.2 is rescinded.

Geographical Restrictions Removed

For purposes of any Credit Watch Terminations, the AAFB will be maintained at the HUD field office jurisdiction level.

Thus, this change eliminates the geographical restrictions previously imposed upon approved lenders, which limited an approved lender's FHA origination activity to the designated lending areas for each home office and registered branch office.

Before and After

Before this issuance:

A specific HUD approved office could only make loans in a geographically designated lending area, provided that the lender met the loan origination requirements of each state in which the loans were made.

After this issuance:

An FHA single-family lender may originate loans nationally from a home or branch office, provided that the lender meets the loan origination requirements of each state in which the loans are made.

LIBRARY

Department of Housing and Urban Development

Revised Lender Approval Requirements
Federal Housing Administration
Mortgagee Letter 2011-34

September 23, 2011

Trial Payment Plans for Loan Modifications and Partial Claims

On August 15, 2011, the U. S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter (2011-28), entitled Trial Payment Plan for Loan Modifications and Partial Claims under Federal Housing Administration's Loss Mitigation Program.

The purpose of the trial payment plan is to confirm a borrower's readiness and ability to make regular monthly mortgage payments and avoid re-default.

This Mortgagee Letter (ML) identifies circumstances under which borrowers must successfully complete a trial payment plan, prior to the lender executing a loan modification or a partial claim action under the Federal Housing Administration's (FHA) Loss Mitigation Program.

In addition, the ML announced the time requirements for lenders to complete permanent loan modification and partial claim documents in order to receive an incentive fee.

• Additionally, the ML provides Appendix A: Reporting Requirements for Type II Special Forbearance / Trial Payment Plans.

• This ML supersedes Mortgagee Letters 2000-05 and 2002-17 with respect to guidance pertaining to trial payment plans.

• Relevant Mortgagee Letters: 2000-05, 2002-17, 2003-19, 2006-15, 2008-21, and 2009-35.

Effective: October 1, 2011

PREREQUISITES

The ML requires successful completion of a trial payment plan as a prerequisite for a lender executing a permanent standard modification and/or partial claim in the following situations:

• If a borrower has been delinquent (30 or more days) twice or more in the preceding 12 months;
• If a borrower has been delinquent for 90 days or more (three or more consecutive payments past due) in the preceding 36 months;
• If a borrower has defaulted within 90 days of a previous loss mitigation retention option (special forbearance, loan modification, and partial claim) executed in the past 12 months;
• If the financial analysis reflects a borrower has a net surplus income of less than 20 percent of total net income;
• If less than 14 months have elapsed since the origination of the loan;
• If the amount added to the loan balance in a loan modification or the amount of the partial claim exceeds 10 percent of the unpaid principal balance;
• If the borrower failed a trial payment plan for FHA's Making Home Affordable Program (FHA-HAMP); or
• If the borrower determines that a trial payment plan is necessary to demonstrate the borrower's ability to sustain the modified payment.

TRIAL PAYMENT PLAN GUIDELINES

The trial payment plan should be for a minimum period of three (3) months and the borrower should make at least three (3) full, consecutive monthly payments prior to final execution of the loan modification or the partial claim.

Reporting requirements are outlined in Appendix A of the ML.

In addition, under no circumstances may a lender include language in any loss mitigation documents which requires borrowers to waive their rights to be considered or approved for a loss mitigation option.

Loan Modifications

The rate for the trial payment plan and the permanent modified mortgage must be in compliance with Mortgagee Letter 2009-35, which defines the Market Rate to be "no more than 50 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey Rate for 30-year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date the permanent modification is executed. The weekly survey results are published on the Freddie Mac website. The Federal Reserve Board includes the average 30-year survey rate in the list of Selected Interest Rates that it publishes weekly in its Statistical Release H.15 (See Here).

The final payment under the permanent modification must be the same or less than the trial mortgage payment.

Accordingly, this ML amends the aforementioned Mortgagee Letter 2009-35 by requiring the permanent rate to be established when the trial payment plan is approved by the servicer.

The approval date is the date the servicer offers the trial payment plan to the borrower.
In addition, mortgages in Ginnie Mae's Mortgage Backed Securities (MBS) must meet Ginnie Mae's repurchase requirement(s), prior to executing final modification documents. See Here.

Partial Claims

For partial claims, the monthly payment during the trial period must be the same as the regularly scheduled payment.

The lender must service the mortgage during the trial period in the same manner as it would service a mortgage in forbearance.

TRIAL PAYMENT PLAN FAILURE

Foreclosure action must be suspended during trial payment plans.

In the event a trial payment plan fails, an additional 90-day extension is provided in which the mortgagee must commence or recommence foreclosure or initiate another loss mitigation option.

If the trial payment plan fails, before commencing or continuing a foreclosure, the lender must re-evaluate the borrower's eligibility for other appropriate loss mitigation actions.
A trial payment plan is considered to have failed and is deemed broken when any of the following occurs:

• The mortgagor vacates or abandons the property; or
• The mortgagor does not make the scheduled trial plan payment within 15 days of the trial payment plan due date.

AUTOMATIC EXTENSIONS

If a borrower is unable to complete a trial payment plan within the initial six-month time limit from the date of default (see 24 CFR § 203.355), the lender is allowed a 90-day extension of the foreclosure deadline provided the initiation of a loss mitigation option (including a trial payment plan) was begun prior to the expiration of the initial six month period.

Therefore, if there have been no other intervening delays (such as bankruptcy) this "automatic" extension will extend the six (6) month deadline to initiate foreclosure by 90 days.

To qualify for the automatic extension, the lender must have completed the loss mitigation evaluation required by 24 CFR § 203.605 and approved the appropriate loss mitigation action.

Documentation of this analysis must be maintained in the claim review file.

In addition, the loss mitigation initiative must be reported via the Single Family Default Monitoring System (SFDMS).

HUD: Administrative Actions - Avoiding the Mortgagee Review Board

Jonathan Foxx is the President and Managing Director of Lenders Compliance Group.

The Department of Housing and Urban Development (HUD) has published the Administrative Actions taken by the Mortgagee Review Board (MRB) against certain FHA mortgagees. The period covered in the issuance is October 23, 2009 to February 7, 2011.

The MRB has the authority to issue Settlement Agreements, Civil Money Penalties, Withdrawals of Federal Housing Administration (FHA) Approval, Suspensions, Probations, Reprimands, and Administrative Payments.

Or to put this in more modern parlance, the MRB is empowered to enforce administrative sanctions, including reprimand, probation, suspension or withdrawal of approval, cease-and-desist orders, and civil money penalties

Trust me - you don't want to go there!

What May Yet Happen

In representing clients before the MRB, I can vouch for the exhaustive due diligence that is virtually mandated, the considerable costs involved, the experienced legal counsel and requisite regulatory compliance expertise that is needed, and the significant adverse impact on an FHA lender's ability to conduct or even continue in business.

It's easy to get lulled into a sense of false confidence by thinking that some violations are minor. But if the MRB gets involved, those minor violations will become a part of the causes for administrative action, and even in some instances the proximate cause of the administrative action.

Nothing should be considered a "minor" violation, when originating HUD/FHA mortgage loans.

So it is instructive to take note of the causes for administrative action against a HUD-approved mortgagee. Ignorance is a futile defense, when it comes to the causes that can affirmatively contribute to disciplinary action.

It should also be noted that the MRB withdrew FHA approval from 123 mortgagees because those lenders were not in compliance with HUD's annual recertification requirements.

Below is a list of 50 causes upon which the MRB has taken administrative action. In many cases, the civil monetary penalties were very large.

50 Causes of Administrative Actions
A Very Partial List

1) Failed to maintain and implement a Quality Control Plan.

2) Failed to implement and follow HUD/FHA's Home Equity Conversion Mortgage (HECM) program requirements.

3) Charged borrowers excessive and duplicative fees.

4) Failed to disclose all charges to borrowers on the Good Faith Estimates.

5) Submitted a false certification to HUD on its Title II annual Verification Report.

6) Failed to timely notify HUD that one of its officers had been indicted for an offense that reflected upon AMC's responsibility and integrity and its ability to participate in HUD programs.

7) Failed to timely notify HUD that a state banking department suspended the mortgagee's mortgage origination license.

8) Failed to provide a disclosure of a Controlled Business Arrangement when a settlement service provider was involved in the loan transaction with whom the lender had an ownership or other beneficial interest.

9) Failed to report serious violations identified during a QC review.

10) Failed to ensure that HUD/FHA's Construction-Permanent Mortgage Program requirements were met.

11) Failed to ensure that maximum mortgage amounts were properly calculated, resulting in over-insured mortgages.

12) Failed to ensure that there were no discrepancies between disbursements and/or sales prices on HUD-1 settlement statements or documents used to calculate loan amounts.

13) Failed to ensure that appraisal report findings were consistent or otherwise acceptable; and failed to ensure that properties located in Special Flood Hazard Areas were properly covered with flood insurance.

14) Approved loans with debt-to-income ratios that exceeded HUD/FHA standards without significant compensating factors.

15) Failed to properly calculate and/or document the income used to qualify borrowers.

16) Improperly omitted recurring liabilities from underwriting analyses.

17) Failed to properly document the source of gift funds or assets; failed to ensure that the maximum insured mortgage amount was properly calculated, resulting in an over-insured mortgage.

18) Charged unallowable fees to mortgagors and collected processing fees from borrowers which it then paid directly to a contract processing company.

19) Failed to include mandatory elements in its adopted QC Plan.

20) Failed to conduct mandatory QC servicing reviews.

21) Failed to timely notify HUD of changes in the mortgagor and/or servicer of FHA-insured loans.

22) Failed to timely notify HUD and terminate insurance after FHA-insured loans were paid in full.

23) Failed to properly report loan statuses and reasons for default into HUD's Single Family Default Monitoring System.

24) Failed to notify HUD within ten days of its entrance into two consent orders with a state banking department.

25) Failed to notify HUD within ten days of changes affecting its standing as an approved institution.

26) Submitted false certifications to HUD in connection with transactions in which the mortgagee allowed non-employees to originate FHA loans.

27) Violated HUD/FHA minimum staffing requirements by allowing one of its branch offices to operate without a branch manager.

28) Implemented a written employee policy and executed contractual agreements that violated HUD/FHA requirements.

29) Processed a HECM loan prior to the borrower's receipt of HECM counseling.

30) Failed to file Home Mortgage Disclosure Act and Regulation C-compliant reports for calendar certain years.

31) Failed to ensure that loan applications were processed by authorized employees who worked exclusively for the mortgagee.

32) Distributed an advertisement that misrepresented HUD/FHA's HECM program requirements in a mailer envelope that simulated a government form.

33) Failed to notify HUD that the mortgagee had ceased its business operations.

34) Approved a loan that exceeded HUD's maximum mortgage amount.

35) Failed to comply with a condition of the mortgagee's FHA approval and submitted false and misleading information to HUD in connection with the mortgagee's application for FHA approval.

36) Failed to adequately document the income used to qualify the borrower.

37) Used conflicting information in originating and obtaining HUD/FHA mortgage insurance.

38) Failed to document the source of funds used for the down payment and/or closing costs.

39) Omitted liabilities from the underwriting analysis without adequate documentation.

40) Failed to analyze borrowers for loss mitigation in a timely manner.

41) Failed to perform management/foreclosure reviews.

42) Failed to input accurate codes into HUD/FHA's Single Family Default Monitoring System.

43) Failed to foreclose on properties in accordance with HUD/FHA guidelines.

44) Failed to ensure QC reviews were completed for early payment defaults.

45) Engaged in a prohibited branch arrangement by allowing a separate mortgage company to function as a branch office.

46) Failed to uphold its agreement with HUD to only originate direct mortgages through its direct lending branch.

47) Failed to register a branch office.

48) Posted the HUD seal on a website maintained by a loan officer.

49) Failed to notify HUD of reportable business changes.

50) Failed to ensure that documents were not signed in blank.

LIBRARY

Department of Housing and Urban Development

Mortgagee Review Board: Administrative Actions

Federal Register: 76/146

July 29, 2011

FRB: Mortgage Rulemaking Chart 2008 - 2011

Yesterday, we notified you about the testimony given by witnesses in the hearing held by the Insurance, Housing and Community Opportunity Subcommittee (Committee of Financial Services) held a hearing, entitled "Mortgage Origination: the Impact of Recent Changes on Homeowners And Businesses."

The overall purpose of the hearing was to evaluate recent changes to mortgage origination laws, with particular focus on the impact the new laws and regulations have on consumers and credit availability in the mortgage finance markets.

During the hearing, Sandra Braunstein, the FRB's Director of Division of Consumer and Community Affairs, provided written testimony containing a table entitled "Summary of Federal Reserve Board Mortgage Rulemakings - 2008 through 2011."

I have removed the table from the written testimony and featured it separately in our Library.

MORTGAGE RULEMAKINGS - 2008 THROUGH 2011

FINAL RULES

• Home Ownership and Equity Protection Act (HOEPA): Final Rule
• Mortgage Disclosure Improvement Act, Part I: Final Rule
• Mortgage Disclosure Improvement Act, Part II: Interim Final Rule
• Helping Families Save Their Homes Act - Mortgage Transfer Disclosure: Final Rule
• Loan Originator Compensation: Final Rule
• Dodd-Frank Act - Appraisal Independence: Interim Final Rule
• Dodd-Frank Act - Escrow Account: Final Rule

PROPOSED RULES

• Regulatory Review of Disclosure Rules for Closed-end Mortgages (Phase I)
• Regulatory Review of Disclosure Rules for Home Equity Lines of Credit (HELOCs) (Phase I)
• Regulatory Review of Mortgage Disclosure Rules (Phase II)
• Dodd-Frank Act - Escrow Account Disclosures
• Dodd-Frank Act - Ability to Repay/Qualified Mortgages

LIBRARY

Summary of Federal Reserve Board Mortgage Rulemakings
2008 through 2011
Statement of Sandra F. Braunstein, Director
Division of Consumer and Community Affairs, Federal Reserve System
Insurance, Housing, and Community Opportunity Subcommittee
(Committee on Financial Services)
July 13, 2011

Hearing: FRB Testimony on LO Compensation

On Wednesday, July 13, 2011, the Insurance, Housing and Community Opportunity Subcommittee (Committee of Financial Services) held a hearing, entitled "Mortgage Origination: the Impact of Recent Changes on Homeowners And Businesses."

The overall purpose of the hearing was to evaluate recent changes to mortgage origination laws, with particular focus on the impact the new laws and regulations have on consumers and credit availability in the mortgage finance markets. 

During the hearing, Sandra Braunstein, the FRB's Director of Division of Consumer and Community Affairs seemed to state that the loan officer employees of loan originators (i.e., brokers) would not be required to be paid only by a salary on consumer-paid transactions, but may also be paid "bonus" commissions.

Her testimony today actually supports my understanding of her statement to this Subcommittee.

[See page 8-9 of Director Braunstein's submitted testimony in our Library.]

Under the new TILA loan compensation rule, if a loan is brokered and the consumer is paying the broker fee, then the branch manager, the loan officer, and all the other employees may only be paid a salary or hourly wage.

Similarly, bonuses and referral fees to tellers, processors, and other staff are not be permitted for a brokered loan when the borrower pays broker fees or other origination fees to the broker.

Perhaps I did not understand fully Director Braunstein's remarks. But if that aspect of the Rule is changed, then this would be a significant relief to mortgage brokers. 

In any event, the details and facts must be considered. So further clarity will be needed to determine if this is actually a change in FRB policy.

 HEARING

The hearing consisted of two panels.

The full text of the testimony of each witness may be found in our Library.

 WITNESSES

Panel I

Sandra F. Braunstein, Director of Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System

Teresa Payne, Associate Deputy Assistant Secretary, Regulatory Affairs, Department of Housing and Urban Development

Kelly Cochran, Deputy Assistant Director for Regulations, Consumer Financial Protection Bureau , Department of Treasury

James R. Park, Executive Director, Appraisal Subcommittee, Federal Financial Institutions Examination Council

William B. Shear, Director of Financial Markets and Community Investment, Government Accountability Office

Anne Norton, Maryland Deputy Commissioner of Financial Regulation, on behalf of the Conference of State Bank Supervisors

Panel II

Steve A. Brown, Executive Vice President, Crye-Leike, on behalf of the National Association of Realtors

Henry V. Cunningham, Jr., CMB President, Cunningham & Company, on behalf of the Mortgage Bankers Association

Tim Wilson, President, Affiliated Businesses for Long & Foster Companies, on behalf of the Real Estate Services Providers Council, Inc.

Anne Anastasi, President, Genesis Abstract and President, American Land Title Association

Mike Anderson, President, Essential Mortgage, on behalf of the National Association of Mortgage Brokers

Marc Savitt, President, The Mortgage Center, on behalf of the National Association of Independent Housing Professionals

Sara Stephens, President Elect, Appraisal Institute

Don Kelly, Executive Director, Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform

Janis Bowdler, Director, Wealth-Building Policy Project Office of Research, Advocacy, and Legislation, on behalf of the National Council of La Raza

Ira Rheingold, Executive Director, National Association of Consumer Advocates

 Library

Insurance, Housing and Community Opportunity Subcommittee
(Committee of Financial Services)

"Mortgage Origination: the Impact of Recent Changes 
on Homeowners And Businesses"
 
Witness Testimony - Two Panels

July 13, 2011

HUD: Updates RESPA

On July 11, 2011, the Department of Housing and Urban Development (HUD) issued updates to the Real Estate Settlement Procedures Act (RESPA).

This is a final rule (Rule) which makes technical corrections and certain clarifying amendments to HUD's RESPA regulations promulgated by a final rule published on November 17, 2008.

The majority of the regulations promulgated by the November 17, 2008, and became applicable on January 1, 2010.

Effective Date: August 10, 2011.

SALIENT AMENDMENTS

Good Faith Estimate (GFE) and Intent to Proceed

The applicant borrower must express an intent to continue with the application process.

The Rule amends § 3500.7(a)(4) and (b)(4) to provide that the applicant borrower must indicate an intention to proceed with the loan covered by the GFE received by the applicant borrower from the lender or mortgage broker before the lender or mortgage broker may charge additional fees.

Good Faith Estimate (GFE)

Tolerances

Currently the applicable provision states that a loan originator is bound "within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a [revised] GFE is provided prior to settlement consistent with this paragraph (f)."

However, the introductory paragraph inadvertently omits that the GFE does not remain binding indefinitely but expires 10 business days after the GFE is provided to the borrower if the borrower does not express an intent to continue with an application provided by the loan originator that provided the GFE, or expires after such longer period as may be specified by the loan originator pursuant to § 3500.7(c).

Although the expiration period of the GFE is clearly stated in paragraph (f)(4) of § 3500.7(f), HUD finds that clarity is enhanced by also adding this language to the introductory paragraph of § 3500.7(f).

Changed Circumstances

Currently the applicable provision addresses changed circumstances affecting settlement costs, provides that the revised GFE may increase charges for services listed on the GFE but only to the extent that the changed circumstances actually resulted in higher charges.

However, the currently the applicable provision, which addresses borrower-requested changes, inadvertently omits that the revised GFE may increase charges listed on the GFE only to the extent that changed circumstances affecting the loan, or the borrower's requested change, actually increased those charges.

This rule therefore adds language that clarifies this limitation.

Locked Interest Rate

HUD clarifies that whenever the borrower's interest rate is locked, a revised GFE must be provided to the borrower showing the revised interest rate-dependent changes and terms within 3 business days.

Construction Loans

In revising § 3500.7(f)(6) of RESPA, HUD is adding the word "construction" to the phrase "new home purchases" so that it reads "new construction home purchases."

HUD believes that the content of this paragraph is clear that new home purchases refers to purchases of newly constructed homes, not simply any home that is new to a borrower. This interpretation is supported by the preamble to the November 17, 2008, final rule in which this regulatory provision was discussed.

While HUD believes the meaning of paragraph (f)(6) is clear, to remove any possibility of ambiguity the word "construction" is inserted between the words "new" and "home purchases."

HUD-1 or HUD-1A Settlement Statements

Appendix: HUD-1 Instructions for Page 3

The instructions for the HUD-1, found at 73 FR 68243 of the November 2008 final rule, provide that the HUD-1 form is to be used as a statement of the actual charges and adjustments. If the borrower, or a person acting on behalf of the borrower, does not purchase a settlement service that was listed on the GFE (e.g., owner's title insurance), there should be no amount entered for that service in the corresponding line on Page 2 of the HUD-1, and the estimate of the charge from the GFE should not appear on the comparison chart on Page 3 of the HUD-1.

HUD has determined that the current instructions are not sufficiently clear on this point. Allowing loan originators to include on Page 3 of the HUD-1 charges from the GFE for settlement services that were not purchased could both induce loan originators to discourage consumers from purchasing settlement services (e.g., owner's title insurance) in order to gain padding in the 10 percent tolerance categories, and encourage loan originators to pad the 10 percent tolerance categories on the GFE with estimates of services that the consumer will not need in the transaction. HUD has previously addressed and clarified this issue in informal guidance.

Therefore, HUD is revising the first paragraph of the instructions for Page 3 of the HUD-1 to clarify that the amounts to be inserted in the comparison chart are those for the services that were purchased or provided as part of the transaction, and that no amount should be included on Page 2 of the HUD-1 for any service that was listed on the GFE, but which was not obtained in connection with the transaction.

LIBRARY

HUD: Real Estate Settlement Procedures Act (RESPA)
Technical Corrections and Clarifying Amendments
Federal Register - Vol. 76, No. 132
Monday, July 11, 2011

S.A.F.E. ACT - Final Rule: Minimum Standards

On June 29, 2011, the Department of Housing and Urban Development (HUD) announced publication of a Final Rule setting the minimum standards that states must meet to comply with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE) in licensing mortgage loan originators. 

The Final Rule was published in the Federal Register on June 30, 2011 and is available in our library. (See below.)

The states and territories affected are: All 50 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands.

The Final Rule recognizes the legislation adopted by these states and territories in support of SAFE and it seeks to provide clarification of the minimum standards against which each state's laws and regulations will be evaluated.

Effective Date: August 29, 2011

AUTHORITIES

While states are charged with enacting licensing standards that meet the requirements of SAFE, overall responsibility for interpretation, implementation, and compliance was delegated to HUD. 

However, the SAFE Act was amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and the authorities and duties delegated to HUD, relating to SAFE, will be transferred on July 21, 2011, to the new Consumer Financial Protection Bureau (CFPB) established by the Dodd-Frank Act.

HIGHLIGHTS

The Final Rule:

Explains the criteria that will be used to determine whether a state has put in place a system for licensing and registering mortgage loan originators as required by the SAFE. The rule does so by clarifying the meaning of "engaging in the business of a loan originator," which determines whether an individual must be licensed, and the rule also provides that certain activities do not amount to engaging in the business of a loan originator. 

Further clarifies that employees of government agencies and bona fide nonprofit organizations who act as loan originators only as part of their duties do not engage in the business of a loan originator and do not require licensure by states. 

Does not define the terms of "loan originator" or "business of a mortgage loan originator" to include individuals who only engage in loan modifications or are third-party loan modification specialists.  HUD is deferring to the CFPB the issue of whether such individuals should be licensed under SAFE or should otherwise be regulated under other CFPB regulatory authority.

REGULATORY FRAMEWORK

SAFE also mandates the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR). All states are asked to provide for a licensing and regulatory regime for all residential mortgage loan originators.

VISIT THE NMLS USERS FORUM

FOR UP-TO-DATE INFORMATION

To comply with SAFE, states have put in place statutory and regulatory frameworks that require originators to take initial and continuing education courses, pass a test, and undergo civil, criminal and financial background checks.

In any State that fails to have in place a licensing system that meets the minimum requirements, mortgage loan originators may be required to be licensed under a federal program.

Though minimum standards have been established and clarified, States have the right to enact additional legislation and rules, and to take actions that exceed the federal SAFE Act minimum requirements.

LIBRARY

SAFE Mortgage Licensing Act:
Minimum Licensing Standards and Oversight Responsibilities
FR 76/126 - June 30, 2011