SAFE Act Overview and Regulations

SAFE Act and State Regulatory Authority

• Housing and Economic Recovery Act (HERA) of 2008: Introduced to aid in the repair of the U.S. residential housing market. A key part is the SAFE Act.

• SAFE Act Purpose: Protect consumers from predatory lenders and other unfair practices in mortgage lending; reduce fraud.

• MLO Conduct Standards: Act in customer's best interest; make loans with reasonable expectation of repayment.

• Prohibited MLO Conduct:

  • Schemes to defraud, unfair/deceptive practices.
  • Obtaining property via fraud/misrepresentation
  • Soliciting fees for "best efforts" loan acquisition (regardless of success).
  • Soliciting, advertising, or entering contracts tied to specific interest rates, points, etc. unless those terms are available at the time of action.
  • Operating without a valid license.
  • Failing to disclose required information under the act.
  • Failure to comply with SAFE Act or state/federal regulations.
  • Making false/deceptive statements about loan terms.
  • Bait-and-switch advertising.
  • Negligently/knowingly making/omitting false material facts on reports/investigations
  • Paying/threatening/promising appraisers to influence their judgment on appraisal value/mortgage.
  • Collecting/charging/using prohibited fees
  • Requiring excessive property insurance coverage.
  • Failing to account for money in loan transactions.

• State Responsibilities: Licensing mortgage brokers, lenders, mortgage loan originators (MLOs); establishing minimum standards for MLO licensing.

• NMLS (National Mortgage Licensing System and Registry):

  • Centralized system to record MLO licensing and registration.
  • Developed by AARMR (American Association of Residential Mortgage Regulators) and CSBS (Conference of State Bank Supervisors).
  • Model State Law (MSL) provides guidance to states to establish needed legislation.

• CFPB (Consumer Financial Protection Bureau) Role:

  • Rulemaking authority for federal depository institutions.
  • Supervisory authority for SAFE Act.

State Regulatory Authority Requirements

• Six Minimum Requirements for State Agencies:

  • Effective Supervision/Enforcement: Investigating, examining, issuing subpoenas; reviewing, investigating, examining MLOs and mortgage entities (audit records). State licensing agencies can control access to documents of a examined licensee/person. They may retain outside professionals (attorneys, accountants, specialists). Requiring reports and information from MLOs & Individuals; accessing records. Lenders must make books and records available to state licensing.

  • MLO Registration with NMLS: Ensuring all state-licensed MLOs are registered with NMLS.

  • Reporting Violations: Regularly reporting violations and enforcement actions to NMLS.

  • Challenging NMLS Information: Providing a process for challenging information in the NMLS.

  • Civil Money Penalties: Assessing civil money penalties for unlicensed or unregistered MLOs.

  • Minimum Requirements: Establishing minimum net worth or surety bonding requirements, or an established recovery fund for MLOs to ensure monetary compensation for complainants.

• Prohibited State Agency Actions: Imposing prison sentences; requiring state licensure for employees of depository institutions.

• Enforcement Actions:

  • Issuing civil penalties for violations (maximum penalty as of January 15, 2022: $31,928).
  • Denying, suspending, revoking, conditioning, declining to renew licenses;
  • Ordering restitution for violations;
  • Imposing fines;
  • Issuing cease and desist orders (immediate temporary orders also possible);
  • Ordering any necessary action.

• Required reporting: Mortgage Call Reports (MCR) with Residential Mortgage Loan Activity (RMLA) and Financial Condition (FC) by mortgage entity licensees is required, submitted quarterly.

This quiz focuses on the SAFE Act, part of the Housing and Economic Recovery Act of 2008, and its role in protecting consumers in the mortgage lending process. It covers MLO conduct standards, prohibited actions, and the importance of regulatory compliance. Test your understanding of these critical mortgage regulations!