CFPB Issues S.A.F.E. ACT Examination Procedures

On March 7, 2012, the Consumer Financial Protection Bureau (CFPB) issued guidance regarding examination procedures pertaining to compliance with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act or SAFE) examination procedures. This issuance pertains to examinations relating to federally registered individuals and their employers.

The guidance largely reconfirms information included in the final rule promulgated by the various federal banking regulatory agencies during 2010. For instance, similarities include definitions, de minimis exemptions, steps and procedures to obtain and maintain federal registration, and policies and procedures. 
The examination procedures and criteria had been expected, and can be summarized, as follows:

Establish whether written policies and procedures have been adopted to assure compliance with the SAFE Act and applicable regulations.

Determine whether the annual independent testing of the institution's policies and procedures regarding compliance with the SAFE Act and applicable regulations has been conducted.

Evaluate whether any deficiencies identified during independent testing have been corrected and measures have been put into place to ensure that deficiencies do not recur.

In this newsletter, we will briefly outline the salient features of the SAFE examination for federally registered individuals and their employers.

IN THIS ARTICLE

Examination Objectives
Policy Statement
Policies and Procedures
Examination Procedures

Examination Objectives

The SAFE examination objectives (which reflect procedures approved by FFIEC), must include these determinations:

1) Whether the financial institution has adopted written policies and procedures designed to assure compliance with the SAFE Act regulation.

2) Whether the annual independent testing of the institution's policies and procedures for assuring compliance with the SAFE Act regulation has been conducted.

3) Whether any violations or deficiencies identified during the independent testing have been corrected and that steps have been taken to ensure they do not recur.

Policy Statement

As in many other areas of regulatory compliance, establishing written policy and procedures for SAFE compliance is essential.

So, the following outline provides the necessary criteria that must be contained in such a policy statement.

In the case of SAFE compliance, the policy statement affects all covered financial institutions that employ individual MLOs, where MLOs act within the scope of their employment, and regardless of the application of any de minimis exception to their employees.

Furthermore, it should contain a requirement to conduct annual independent compliance tests to ensure compliance with the regulation.

Policies and Procedures

The following requirements must be contained in the SAFE written policies and procedures:

• Establish a process for identifying which employees of covered financial institutions must be registered.

• Require that all employees who are MLOs be informed of the registration requirements of the SAFE Act and SAFE Act regulation and instructed on how to comply.

• Establish procedures to comply with the SAFE Act regulation's unique identifier requirements.

• Establish reasonable procedures for confirming the adequacy and accuracy of MLO employee registrations, including updates and renewals, by comparisons with its own records.

• Establish reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures.

• Provide for annual independent testing for compliance with the SAFE Act regulation by institution personnel or an outside party.

• Provide for appropriate action if an employee fails to comply with the registration requirements of the SAFE Act regulations or the institution's related policies and procedures, including prohibiting such employees from acting as MLOs or other appropriate disciplinary actions.

• Establish a process for reviewing employee criminal history background reports received pursuant to the regulation, taking appropriate action consistent with applicable federal law14 and implementing regulations with respect to the reports, and maintaining records of the reports and actions taken with respect to applicable employees.
  

NMLS: MLO Registration to Commence

In its first Financial Institution Letter of the year, the FDIC issued on January 4, 2011 its issuance FIL-1-2011 in which the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System,, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Farm Credit Administration, and the National Credit Union Administration, (collectively, Agencies) announced that they expect the system for federal registration of residential mortgage loan originators (MLOs) to begin operation on or around January 31, 2011.

The Agencies' rules implementing the SAFE Act require MLOs to register with the Nationwide Mortgage Licensing System and Registry (Registry) within 180 days of the date the Registry begins accepting federal registrations. The Agencies will confirm the opening date for federal registration closer to the actual date and will publish notice of that date in the Federal Register.

On July 28, 2010, the Agencies announced the Federal Register publication of rules implementing the SAFE Act through this joint press release.

In any event, the federal bank and thrift regulatory agencies have said that they expect to be ready to accept residential mortgage loan originator registrations by about January 31, 2011.

Under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act), loan originators must register with the Nationwide Mortgage Licensing System and Registry within 180 days of the date the Registry announces it can accept registrations. A precise date will be published in the Federal Register when it is determined, the agencies said.

A loan originator that does not register within the 180-day period will be prohibited from originating residential mortgage loans until it has completed its registration. There will be an exception for those who originated no more than five loans during the previous 12 months.

Rules adopted jointly by the agencies establish the registration requirements for loan originators employed by agency-regulated institutions and set the requirements for these institutions, which include the adoption of policies and procedures to ensure compliance with the S.A.F.E. Act and final rules.

The rules also require that each loan originator obtain a unique identifier through the Registry that will remain with that loan originator, regardless of changes in employment. This is intended to give consumers access to employment and other background information about loan originators. Registered mortgage loan originators and agency-regulated institutions will be required to provide these unique identifiers to consumers.

Compliance Effective: On or around January 31, 2011

OUTLINE OF MLO REGISTRATION TIMEFRAME

• The press release states that advance notice would be provided for the date the Registry would begin accepting federal registrations: the Agencies currently expect federal registration to begin on January 31, 2011.

• MLOs employed by Agency-regulated institutions will have 180 days from the date on which the Registry begins accepting federal registrations to complete initial registration. At present, the Agencies expect the initial registration period to expire on July 29, 2011.

• After the initial registration period expires, MLOs will be prohibited from originating residential mortgage loans until they successfully complete the federal registration process.

• The Agencies' rules provide a de minimis exception whereby MLOs that originated 5 or fewer mortgage loans during the previous 12 months are not required to complete the federal registration process.

• The Agencies will confirm the actual registration start date before the initial registration period begins and publish an announcement in the Federal Register.

Visit Library for Issuance SAFE Act - Update: Registration of Residential Mortgage Loan Originators, FIL-1-2011 January 4, 2011