Lesson One – Requirements


The Secure and Fair Enforcement Act (SAFE Act) of 2008

The Secure and Fair Enforcement Act of 2008 (the “SAFE Act”) requires national standards for the licensure of MLOs and is designed to enhance consumer protection and reduce fraud.

States have adopted the SAFE Act standard into their own laws, and now every mortgage loan originator, in the United States, must be either registered and/or be licensed and registered.

The objective of the SAFE Act is to provide for one source for registration and/or licensing and registration of residential mortgage originators as well as establish minimum standards to be met and maintained annually.  All mortgage loan originators, whether licensed or registered receive a unique identifier number which becomes your lifetime number.  This unique identifier number is required on all 1003’s and advertisement.

The SAFE Act is designed to enhance consumer protection and reduce fraud by establishing minimum standards for the licensing and registration of state licensed MLOs. MLOs who work for an insured depository, or its owned or controlled subsidiary, which is regulated by a federal banking agency, or for an institution regulated by the Farm Credit Administration, are registered. All other MLOs are licensed by the states.

The SAFE Act provides:

  • Uniformity in license applications, streamlining the licensing process
  • Improving the flow of information
  • Increased accountability to insure MLOs are acting in the best interest of the consumer
  • Enhanced consumer protection from fraud
  • Facilitation of responsible behavior
  • Collection and disbursement of consumer complaints

The Function of a Mortgage Loan Originator

Many individuals who purchase properties cannot or do not wish to pay for the property in full at the time of purchase.  As a result, they look for banking insti­tutions or individual mortgage loan originators who are willing to loan them the money to make the purchase of the home. Mortgage loan originators serve a vital function in the mortgage industry by bringing together borrowers and lenders. Typically, lenders include banks, credit unions, life insurance companies, and wholesale lenders who specifically target the mortgage market.

The process of finding a loan for most borrowers begins by contacting a mortgage loan originator who has experience in arranging loans for the type of property the borrower is purchasing. The job of a mortgage loan originator (MLO) is to find borrowers who meet the requirements of a specific loan program and find the best possible terms for the borrowers. Mortgage loan originators must keep abreast of all aspects of the mortgage business, including regulatory compliance, interest rates, fees that secondary market lenders charge, and the standards required to qualify for a loan.

Who does it apply to?

According to the SAFE Act, a mortgage loan origi­nator is “an individual who (I) takes a residential mortgage loan application; and (II) offers or negotiates terms of a residential mortgage loan for compensation or gain.”

The SAFE Act applies to all residential mortgage loan originators.  Depository institutions’ employees will be registered and non-depository companies’ employees and contractors will be licensed.

State Licensed vs. Registered

State-licensed Mortgage Loan Originator

  • Must register with NMLS
  • Receive Unique Identifier Number
  • Submit fingerprints to the Nationwide Mortgage Licensing System and Registry (NMLS) for submission to the FBI for a criminal background check
  • Provide authorization for NMLS to obtain an independent credit report. Applicant has demonstrated financial responsibility, character, and general fitness
  • Applicant has met either a net worth or surety bond requirement or paid into a State fund, as required by the State
  • Applicant has never had an LO license revoked and has no felony convictions from the last 7 years and no fraud convictions at all
  • Complete 20 Hours of Pre-License Education (PE) (State may require additional PE)
  • Successfully pass Federal and State tests with minimum 75% passing grade
  • Complete Federal requirement of 8 Hours of Annual Continuing Education (CE)
  • Each mortgage licensee must submit to NMLSR a Report of Condition
  • State-licensed MLOs must meet any additional state licensing requirements

Registered Mortgage Loan Originator

  • Must register with NMLS
  • Receive Unique Identifier Number
  • Submit fingerprints to the Nationwide Mortgage Licensing System and Registry (NMLS) for submission to the FBI for a criminal background check

Definition of Originator

The SAFE Act goes on to narrow the definition. The term mortgage loan originator does not include the following:

  • Any individual who is not otherwise described previously and who performs purely administrative or clerical tasks on behalf of a person who is described as a mortgage loan originator
  • A person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless the person or entity is compensated by a lender, a mortgage broker, or other loan originator or by any agent of such lender, mortgage broker, or other loan originator.
  • A person or entity solely involved in extensions of credit relating to time­ share plans.

Loan Processors

The SAFE Act defines loan processor or underwriter as “an individual who performs clerical or support duties at the direction of and subject to the supervision and instruction of—(i) a State-licensed loan originator; or (ii) a registered loan originator.” In this context, “‘clerical or support duties’ may include—(i) the receipt, collection, distribution, and analysis of information common for the processing or underwriting of a residential mortgage loan; and (ii) communicating with a consumer to obtain the information necessary for the processing or underwriting of a loan, to the extent that such communication does not include offering or negotiating loan rates or terms, or counseling consumers about residential mortgage loan rates or terms.”

Regarding the licensing of these individuals, Section 1504 states “(1) SUPER­VISED LOAN PROCESSORS AND UNDERWRITERS.—A loan processor or underwriter who does not represent to the public, through advertising or other means of communicating or providing information (including the use of busi­ness cards, stationery, brochures, signs, rate lists, or other promotional items), that such individual can or will perform any of the activities of a loan originator shall not be required to be a State-licensed loan originator. (2) INDEPENDENT CONTRACTORS.—an independent contractor may not engage in residential mortgage loan origination activities as a loan processor or underwriter unless such independent contractor is a State-licensed loan originator.”

Although each state has its own requirements for licensure as a mortgage loan originator, passage of the SAFE Act in 2008 created national standards for the licensing and registration process.