June 22, 2010

Credit Union Management magazine’s Web-only “Loan Zone” column runs the fourth Tuesday of each month.

On April 10, the National Credit Union Administration Board approved a final joint rule implementing the Secure and Fair Enforcement for Mortgage Licensing Act, commonly referred to as the SAFE Act. This joint rulemaking involved NCUA, the Federal Reserve, the Farm Credit Administration, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

On May 20, the NCUA Board was briefed on the particulars of the new rule. Importantly, the act prohibits an institution’s mortgage loan originators from engaging in loan origination activities, without first:

1. Registering with the Nationwide Mortgage Licensing System & Registry, created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, and owned and operated by the State Regulatory Registry LLC, a wholly owned subsidiary of CSBS. The system has been built and maintained by the Financial Industry Regulatory Authority.

2. Maintaining this registration annually; and

3. Obtaining a unique identifier through the registry that will remain with that originator, regardless of employment changes.

Additionally, NCUA’s final rule will require credit union employees, including volunteers, who act as residential mortgage loan originators and originate five or more mortgage loans in a year, to be included in this registry. It also provides that credit unions must (1) require their employees to comply with the provisions of the SAFE Act and (2) adopt and follow written policies and procedures for maintaining compliance.

NCUA’s final regulation contains additional provisions for credit union service organizations that wish to participate in the federal registry. By participation in the federal registry, CUSO employees engaged in mortgage loan origination activities are not subject to additional state licensing requirements set forth in the SAFE Act. Additional requirements for non-federally registered loan officers include:

1) 20 hours of pre-licensure education courses approved by the NMLSR,

2) Taking and passing state and national examinations,

3) 8 hours of continuing education annually, and

4) Demonstrated financial responsibility and credit fitness.

The ruling mentions that the appropriate state supervisory authority, in which a non-federally insured credit union is located, must enter into a memorandum of understanding (MOU) with NCUA. Furthermore, that any Nationwide Mortgage Licensing System and Registry listing of a non-federally insured credit union and it’s loan originating employees, must contain a clear and conspicuous statement that the non-federally insured credit union is not insured by the National Credit Union Share Insurance Fund.

Loan officers who do not work for a federally regulated institution or a CUSO that has entered into a memorandum of understanding with NCUA will not qualify to register federally under NMLSR and will have to register with NMLSR and meet any additional state licensing loan originator requirements.

While questions remain about what constitutes a “loan officer,” Appendix A to the final rule, provides examples of activities that include taking, and not taking, an application. Each employee of a credit union defined as a mortgage loan originator must submit fingerprints less than three years old and any additional background information necessary to complete the background check, including a 10-year employment history.

Mortgage loan originators who were previously registered in NMLS, obtained a unique identifier from that registry and maintained their registration before being hired at a new credit union are said to have met the SAFE Act requirements. Both the mortgage loan originator and the credit union are required to notify the registry within 30 days of a change in a loan officer’s employment or registration status.

A credit union must submit information in the following categories of information:

1. Credit union record: (a) name (b) main office address and contact information (c) Research Statistics Supervision and Discount (RSSD) number, as issued by the Board of Governors of the Federal Reserve System (d) identification of primary federal regulator (e) name of primary contact for registry. This information must be updated with the registry within 30 days of the date it becomes inaccurate.

2. Employee information: in connection with registration, the credit union must confirm that it employs the registered loan officer; and within 30 days that employment ceases, notify the registry that it no longer employs the loan officer and the date of the event.

Upon successful registration with the NMLSR, a mortgage originator will receive a lifetime identifying number that will remain with them as long as they originate mortgage loans. The requirements laid out in the SAFE Act require that this number be available to members 1) upon request 2) before acting as a mortgage originator and (3) through any written or electronic initial communication. The unique identifier will allow members to view certain public information about the loan officer, such as employment history and any legal disciplinary actions taken. It also provides a uniform identification record for electronic tracking of loan originators.

The final rule sets forth the minimum requirements that must be established and maintained for employees undertaking mortgage lending activities. All credit unions originating residential loans will have to adopt and follow written policies and procedures designed to assure compliance by all employees within the scope of the defined mortgage lending activities and should be reviewed for compliance on an annual basis.

While the NCUA Board has approved the final regulation, this is an interagency rule that has yet to be approved by all the agencies writing the regulation. If approved, the employee database is expected to be ready by 2011. The NMLSR indicates there is no action required by originators of federally regulated intuitions at this time; however, credit unions should begin reviewing the rule and defining policies and procedures for registering with the NMLSR.

Once the federal registration procedures are established and published, federally regulated institutions and their loan officers will have 180 days to register and comply with the SAFE Act.

Mark J. Miller is compliance consulting specialist with Wolters Kluwer Financial Services, Minneapolis, Minn.