As reported in last month’s issue of Basis Points, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, more commonly known the “SAFE Act” requires states to enact legislation to establish licensing standards for loan originators and to license qualified loan originators through the web-based Nationwide Mortgage Licensing System and Registry. States whose legislatures meet annually must enact such legislation by July 31, 2009, while states whose legislatures meet biennially have until July 31, 2010. The United States Department of Housing and Urban Development (HUD) may extend the deadline by up to 24 months, if it determines that a state is making a good faith effort to establish a state licensing law that meets the minimum requirements of the SAFE Act.
While the SAFE Act defines “loan originator” to include an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain, the model legislation developed by HUD uses the disjunctive “or.” Under HUD’s model act, for the purpose of state-licensed loan originators, a “mortgage loan originator” means an individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain. To date, thirteen states have adopted the HUD model act definition or similar language, without addressing loss mitigation efforts. In these states, individuals employed by mortgage loan servicers who negotiate with the borrower to modify the terms of an existing residential mortgage loan may be surprised to discover that they require licensing to engage in these activities.
Six states that have enacted SAFE Act legislation have specifically recognized that loss mitigation efforts may trigger licensing. In these states, individuals engaged in loss mitigation efforts are either excluded from the definition of loan originator, subject to a delayed effective date, or otherwise provide HUD with opportunity to issue a written interpretation excluding loss mitigation efforts from the scope of the SAFE Act.
One state (Kansas) has strayed from the model language, and it appears that the new law will not cover servicers engaged in loss mitigation.
As Basis Points goes to press, twenty states have enacted state SAFE Act legislation. An overview of this legislation as it relates to loss mitigation activities is summarized on pages 14–16.
David Darland is a partner in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach David at 202.327.9707 or ddarland@hudco.com.