Tuesday, August 9, 2011

HUD SAFE ACT

On June 30, 2011, HUD (The U.S. Department of Housing and Urban Development) enacted the "Final Rule" for Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE), which lays out the minimum requirements for states concerning licensing and registration of mortgage loan originators.

This is important to pay attention to as licensure requirements are necessary in order to qualify as a loan originator, however it is also important to note who is exempt from the same. Further inquiry must always be made into state laws as they are free to expand on the minimum requirements laid out by HUD. However, after the original passage, states regulated tax-exempt organizations as well, so part of the purpose of this new Act is to remove that power from the states to do that.

This primarily affects non-profit organizations and HUD agencies, which provide services in foreclosure defense and inability to procure housing of financially distressed individuals.

SAFE Act's new standard for licensure is whether one is "engaging in business of a loan originator" and "take a residential mortgage application and offer or negotiate terms of a residential mortgage loan for compensation or gain".

These requirements are not limited to first loans, but also refinances, as these are not modifications, but instead are actually new loans in law and fact.

The new standards, differentiated from the 2009 act, allow HUD agencies and non-profits as exceptions to the requirements by way of codifying their role as different from a loan originator and therefore not requiring licensure. HUD has made it clear that this determination will be made based on the substance of a position, and not on its name. Consequently, a nonprofit's status under 501(c)(3) does not end the inquiry. Further analysis is required regarding the nonprofit's purpose, structure, incentives, and loan options. In fact, 7 criteria are used in order to further qualify:

1. Maintains tax-exempt status under section 501(c)(3) of the Internal Revenue Code of 1986
2. Promotes affordable housing or provides homeownership education, or similar services
3. Conducts its activities in a manner that serves public or charitable purposes
4. Receives funding and revenue and charges fees in a manner that does not incentivize the organization or its employees to act other than in the best interests of its clients
5. Compensates employees in a manner that does not incentivize employees to act other
than in the best interests of its clients
6. Provides to or identifies for the borrower residential mortgage loans with terms that are favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs
7. Meets such other standards that the state determines appropriate

Also excluded from licensure requirements are government employees, bona fide nonprofit organizations that act as loan originators, although only in the course of their duties, and individuals who only engage in modifications or are 3rd party loan modification specialists. However the latter category could be subject to licensure under SAFE, but this is subject to determination of the Consumer Financial Protection Bureau (CFPB) as HUD has chosen not the regulate the same. Further, appendices of SAFE provide examples of the type of person not subject to the Act.