How Does the SAFE Mortgage Licensing Act Affect You?

The SAFE Mortgage Licensing Act (Title V of P.L.Credit Background Check
110-289, the Secure and Fair Enforcement forUnder the SAFE Act, each state is required to review
Mortgage Licensing Act of 2008) was signed into lawa credit report. Unfortunately, unlike the specific nature
in July 2008. It requires every loan originator taking aof the minimum criminal background requirements, the
residential mortgage loan application from a consumerSAFE Act is not specific as to what the minimum
to obtain a mortgage loan originator (MLO) licensecredit requirements are.
from the State Agency in which the subject propertyMosts states have not released details on what they
is located. And the States are required to set certainwill be looking at on the credit reports and most states
minimum requirements for obtaining the MLO License.are not reviewing credit reports at this time. Every
So what are these minimum requirements? How doesstate that is currently requiring credit reports to be
it affect loan originators in the mortgage business?mailed to them is setting different standards, but there
And how are states implementing this federalare basically 3 different ways I am seeing states
mandate?handle it.
Education
Twenty (20) hours of education is one of the major1. Some states are not telling applicants the minimum
requirements. In order to get a license, a mortgage loancredit required, but are declining apps for credit issues
originator must complete 20 hours of pre-licensing(This is the worst situation, because you don't know if
education that is offered by an approved educationthe state will accept the credit until you apply)
provider. Completion of one 20 hour course complies2. Some states are telling applicants the minimum credit
with this requirement for all states. The course willrequired. For example they are saying any one with a
usually cost around $299 to $399. However, somescore lower than 580 must provide a letter of
states also require an additional 1 to 5 hours ofexplanation about how they are fixing their credit
state-specific education in addition to the federallyissues and will be financially stable going forward. (This
mandated 20 hour course. Always keep in mind whenis still not good, but at least you know if the LO will
trying to understand these new requirements, thatpossibly have an issue if they apply)
each state is under a federal mandate to meet certain3. Some states are just keeping a copy of the credit
minimum requirements for licensing MLOs, but the statereport in their file, but they are not looking at it.
always has the right to set their standards higher thanMy hope is that the federal government issues
the federal mandate. Any states where you haveregulations that define what the states need to look at
done previous education to maintain a loan originatoron the credit. Then we will know for sure whether
license prior to these new requirements may allow yousomeone meets those standards or not. At this time,
to certify those past hours to meet this newmost states have not issued any details on what they
requirement.will be looking at.
Also, eight (8) hours of continuing education is requiredApplication
each year to renew your license. Completion of one 8States are required to obtain a license application with
hour course complies with this requirement for allcertain minimum information. All states have a license
states. However, just like the pre-licensing education,fee associated with the application that ranges from
some states require an additional 1 to 5 hours of$50 to $500. Completion of the application is required
state-specific education each year as well.to be completed through a system called the
TestingNationwide Mortgage Licensing System (NMLS), which
The SAFE Act also requires that MLOs complete anow takes us to the final question. How are the states
test to obtain a mortgage loan originator license. Toimplementing these new requirements?
comply with this requirement, the states have workedNationwide Mortgage Licensing System (NMLS)
together to make a National Test that covers federalThis system is a privately owned website that was
laws and regulations for mortgage origination. This testcreated for the sole purpose of handling all of the
is only required to be passed once for all states.states new mortgage licensing requirements all in one
However, each state has also developed their ownplace. Most states have also decided to handle
state-specific test component. So the National Testcompany and branch license applications through this
and the State Test must be completed to obtain asystem along with the Mortgage Loan Originator
license. Any states where you have done previous(MLO) License applications. The system is just a
testing to obtain a loan originator license prior to thesewebsite that the states use to receive applications and
new requirements may allow you to certify those pastcomply with this new federal mandate under the
tests to meet this new requirement. The National TestSAFE Act. The NMLS does not review or approve
would still be required, but you could be exempt fromlicense applications. The system allows for submitting a
having to take the state test. The National Test costslicense application to a state electronically, it has a
$92 and the State Tests cost $69 each. The testsfunction to pay for the National and State Tests, a
only need to be passed once to obtain the license andfunction to pay for the federal fingerprinting, and will
never need to be taken again. And make sure tosoon also have a function to pay for the credit report
study for the tests. Only Sixty-Seven Percent (67%)to be sent to each state you want to obtain a license
of applicants are passing the National test.in. It also tracks the status of each MLO License and
Criminal Background Checkshows when education, test, and fingerprinting have
Each state is required under the SAFE Act tobeen completed. And the states use the system to
complete a criminal background check on MLOpost deficiencies for a license when the state needs
License applicants. To implement this there is a federaladditional information.
fingerprinting that can be paid for when you submit anConclusion
MLO License application. When fingerprints are taken,Unfortunately, all of this new licensing is costing
they are sent to the FBI and the FBI reviews them andcompanies and mortgage loan originators a lot of
puts together a report of any criminal convictions thatmoney. It is creating a huge burden on mortgage
match your record. These criminal background checkcompanies that is then mostly being passed down to
reports are then sent to the state to review. Becauseconsumers. The system has had many difficulties in
the federal fingerprinting only checks the FBI database,working with states existing laws to transition
some states have decided to also require their owneveryone onto the system. Hopefully, going forward,
fingerprinting that would check their state criminalthese new requirements will set accountability in the
database. So you will definitely have to complete themortgage industry and benefit consumers. However,
Federal Fingerprinting once, but you also may have towe are more likely to see the cost of obtaining a
complete a state fingerprinting requirement in somemortgage go up and the amount of oversight by state
states. The federal fingerprinting costs $39 and theagencies diminish as the states now have less
state fingerprinting ranges from $25 to $60.resources to enforce state laws and instead must
The minimum requirements under SAFE Act state thatfocus their attention to all of the complexities of
no one can obtain a Mortgage Loan Originator (MLO)meeting these new licensing requirements. If you are in
License if they have had any felonies in the last 7the mortgage industry, do not wait start the steps to
years or if they have ever had a felony that wasmeet these new requirements. It is a long and
financial services related, such as fraud, theft, bribery,burdensome process, so start as soon as you can.
check forgery, etc.