Today's Trends in Credit Regulation

Unlicensed Mortgage Servicer Employees Engaged in Loan Modifications are Not SAFE in Washington
By Catharine S. Andricos

On June 29, 2011, the U.S. Department of Housing and Urban Development released its final rule implementing the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. In the rule, HUD expressed an interim determination that the SAFE Act does not require individuals engaged in mortgage loan modifications to be licensed. Two days later, on July 1, 2011, Washington’s mortgage loan originator licensing requirement for individuals servicing mortgage loans became effective. That same day, the Washington Department of Financial Institutions published an announcement reaffirming its position that individuals engaged in mortgage loan modifications must be licensed as mortgage loan originators in Washington by October 1, 2011.

In 2010, Washington amended its Consumer Loan Act by expanding the definition of “mortgage loan originator” to expressly include an individual who for compensation or gain performs residential mortgage loan modification services or holds him/herself out as being able to perform such services. The CLA defines “residential mortgage loan modification services” to include negotiating, attempting to negotiate, arranging, attempting to arrange, or otherwise offering to perform a residential mortgage loan modification. “Residential mortgage loan modification services” also includes the collection of data for submission to an entity performing mortgage loan modification services. The CLA defines “residential mortgage loan modification” to mean a change in one or more of a residential mortgage loan’s terms or conditions. Changes to a residential mortgage loan’s terms or conditions include but are not limited to forbearances; repayment plans; changes in interest rates, loan terms, or loan types; capitalization of arrearages; or principal reductions. The definition of “residential mortgage loan modification services” does not include actions by any “individual servicing a mortgage loan” before July 1, 2011, which was the date the licensing provision for such individuals took effect.

The 2010 CLA amendments eliminated any doubt that individuals engaged in loan modification activities in Washington fall within the CLA’s definition of “mortgage loan originator.” The DFI’s July 1, 2011 announcement makes clear that the DFI intends for it to stay that way.

In the announcement, the DFI encourages loan servicers to continue to modify residential mortgage loans when possible, but reminds servicers that the CLA requires individuals employed by loan servicers to have a mortgage loan originator license before October 1, 2011. The DFI interprets the CLA as requiring each employee who negotiates loan terms or conditions with the borrower or the borrower’s representative to obtain an MLO license. The DFI’s announcement provides that this interpretation “applies regardless of a federal licensing determination under the SAFE Act as expressed in any final rules.”

So, although HUD’s final rule granted a reprieve to servicers concerned about their ability to have resources to modify mortgage loan, Washington law to the contrary remains in tact. Washington intends for those engaged in servicing residential mortgage loans to be licensed as mortgage loan originators.

Catharine S. Andricos is an associate in the Washington, D.C., office of Hudson Cook, LLP. Catharine can be reached at 202-327-9706 or by email at

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