An Overview of the Licensing and Registration Requirements of the S.A.F.E. Mortgage Licensing Act

The following is an article reprinted with permission from the upcoming Winter 2009 edition of The WWR Letter:

An Overview of the Licensing and Registration Requirements of the S.A.F.E. Mortgage Licensing Act

By: Michael F. Schmitz, Associate

After the recent economic upheaval and questions regarding regulation of the mortgage industry, President Bush signed the Housing and Economic Recovery Act of 2008 (“HERA”) on July 30, 2008. As part of the Act, the Secure and Fair Enforcement (“S.A.F.E.”) Mortgage Licensing Act (Division A, Title V) was enacted. 

The S.A.F.E. Mortgage Licensing Act encourages all states, through the Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators (“AARMR”) to set forth standards for licensing and registration for residential loan originators. Among other things, the S.A.F.E. Mortgage Licensing Act is designed to enhance consumer protection and reduce fraud by establishing a uniform minimum standard for the licensing and registration of mortgage loan originators. The S.A.F.E. Mortgage Licensing Act:

• Encourages states to participate in the Nationwide Mortgage Licensing System and Registry (“NMLS”).  The NMLS has been in existence since 2004, when it was formed in response to increased volume and variety of loans and regulations;

• Preclude individuals from engaging in the business of loan origination without obtaining and annually maintaining a state license or a federal registration with the NMLS;

• Applies the same minimum licensing and registration standards for all residential mortgage loan originators, whether mortgage brokers, loan officers, mortgage banker loan originators, financial services companies and agents, or depository institution loan officers; and

• Provides minimum standards for licensing and registration of loan originators

The S.A.F.E. Mortgage Licensing Act mandates that each state’s system of licensing must meet certain national definitions and minimum standards for loan originators, including:

• Criminal history and credit background checks;

• Pre-licensure education;

• Pre-licensure testing;

• Continuing education; and

• Net worth, surety bond or recovery fund.

Among the new requirements, the S.A.F.E. Mortgage Licensing Act attempts to put in place safeguards and prevent mortgage brokers who have been previously found guilty of mortgage fraud from doing business. Each state’s system of licensing must meet national definitions and minimum standards. 

Some of the new requirements under the S.A.F.E. Mortgage Licensing Act include a prohibition on licensing originators who:

• Had a license previously revoked

• Pled guilty or been convicted of a felony during the seven year period prior to licensing

• Pled guilty or been convicted of a felony, during any time period, if it involved fraud, dishonesty, breach of trust or money laundering.

Additionally, originators must show that they have financial responsibility, meet a character and general fitness requirement, complete pre-licensing requirements, pass a written test, and either meet a set net worth or surety bond requirement or pay into a state Fund. 

The S.A.F.E. Mortgage Licensing Act applies to all states, the District of Columbia, and any territory of the United States, including Puerto Rico, Guam, American Samoa, and the U.S. Virgin Islands. The S.A.F.E. Mortgage Licensing Act will cover all people who take residential mortgage loan applications and offer or negotiate mortgage terms, except those who are purely acting in a clerical or administrative capacity. 

Although the S.A.F.E. Mortgage Licensing Act was signed in 2008, the deadlines for compliance are varied. States whose legislatures meet annually are required to have their licensing and registration systems in place by July 31, 2009. States whose legislatures meet biennially must have their system in place by July 31, 2010. The United States Department of Housing and Urban Development (“HUD”) may, at its discretion, extend these deadlines for 24 months, if it determines that a state is making a good faith effort to establish a state licensing law. 

CSBS and AARMR have proposed a Model State Law to assist states in adopting legislation or regulations which meet the minimum requirements of the S.A.F.E. Act. This Model State Law can be found at The Model State Law has been reviewed by HUD, which has determined that the model legislation meets the minimum requirements of the S.A.F.E. Mortgage Licensing Act.

The S.A.F.E. Mortgage Licensing Act and the Model State Law raise several issues and concerns. For example, the S.A.F.E. Mortgage Licensing Act and the Model State Law authorize the NMLS and the states’ commissioners to request a loan originator’s personal credit report. 

Further, the NMLS will create a massive database of publicly accessible information about individual licensees, which may include fingerprints, credit reports, criminal background checks and personal financial statements. As such, system security and privacy will be an ongoing concern.

The S.A.F.E. Mortgage Licensing Act will likely provide further safeguards for consumers, but it will also add further requirements for mortgage originators. As the deadlines for compliance approach, WWR will keep you advised regarding legislation in our footprint states.

Michael F. Schmitz is an Associate in the Litigation & Defense department of the Cleveland office. He can be reached at (216) 685-1106 or


5 thoughts on “An Overview of the Licensing and Registration Requirements of the S.A.F.E. Mortgage Licensing Act

  1. The requirements under the SAFE Mortgage Licensing Act are backgrounds checks using fingerprint cards, credit history checks using credit reports, pre-licensing education, passing a written test, and net worth, surety bond, or fee that goes into a state fund. The Background check will verify that the loan originator has not had a felony in the last 7 years, and it will verify that the loan origiantor has never had a felony involving an act of fraud, dishonesty, a breach of trust, or money laundering. The credit check will verify that the loan originator is financially responsible. That is fairly vague, so I would expect each state to come up with more specific regulations that may even include a minimum credit score or other similar criteria that would be reviewed when applying for a loan. The pre-licensing education will have to be a minimum of 20 hours of approved education. Many mortgage companies are hoping that this will allow for further cross-certification of education courses between the states. The written test will be required to cover state and federal mortgage origination law. The test will have to be passed with a 75% or higher, and if failed 3 times in a row, the loan originator will have to wait 6 months to retake the test.

    In addition to the new requirements for loan originators that each state must meet, every state must begin to use the nationwide mortgage licensing system. There are currently 15 or more states on the new system, and there have been even more states transitioning on to the system each month. It is expected that by 2010, every state will have transitioned on to the nationwide mortgage licensing system (NMLS). The hope is that this system will streamline the process, but until the states start to make their regulations similar, everyone will still need to supply each state with different items making the process very burdensome and far from streamline.

  2. That is correct, I am a mortgage broker, and many of my licensees are still going strong even in the down market, but with the smaller loan sizes (we are based in California), and the stricter underwriting guidelines, their average incomes have declined 40-70% from where they were 3 years ago, and some of them have credit card charge offs and some have mortgage lates (all employees took out full doc loans, but the income decline/loss of a spouse’s income proved to be insurmountable).

    I am hoping the “financially responsible” means that they are specifically trying to exclude persons with previous bankruptcies; it would be a shame for my loan officers to have fought so hard to make it through this down market only to have to fire them right after the worse has passed.

  3. Hi. I think everything you said in this write up is pretty much true. I am currently conducting a study about residential mortgage, right to buy mortgage, etc and somehow, Google led me to this. I think I’ll be visiting your blog more often from now on.

  4. The government will NOT change this in the long run no matter how hard they try.
    Nostradamus wrote about some sort of great disturbance, condition or unrest during the period of 2009 to 2012.
    The twelve people were brought together by one person that enabled our
    inner consciousness, ensuing in spiritual & worldly healing.

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