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Lenders Issue SAFE Warning

MBA, ABA and AFSA among 14 groups to send letter to HUD

March 8, 2010

By staff

Mortgage bankers claim the government is going too far by applying the Secure and Fair Enforcement for Mortgage Licensing Act to servicing employees who handle loan modifications. They are also concerned that federally insured institutions, which are not subject to the same requirements as state-licensed entities, will have an unfair advantage in attracting employees.

So their trade group, the Mortgage Bankers Association, has teamed up with 13 other associations in a letter voicing their concerns to the U.S. Department of Housing and Urban Development. The letter was dated Friday and addressed to HUD's office of general counsel. In addition to MBA, trade groups to sign the letter included the American Bankers Association, the American Financial Services Association and 11 state associations.

The groups warn that imposing SAFE requirements on servicing employees could impede their ability to complete loan modifications and increase servicing costs. They are calling for the elimination this portion of the proposed rule.

"We believe HUD has exceeded its authority under SAFE to establish a backup system and determine whether state laws meet SAFE's minimum requirements for purposes of determining whether imposition of a HUD-developed backup licensing system is required," the letter states. "There is no basis under SAFE or its history to require that mortgage servicer employees
be licensed and/or registered."

On Nov. 9, 2009, the Board of Governors of the Federal Reserve System -- as well as the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and the Federal Deposit Insurance Corporation -- concluded that loan originators as defined by SAFE generally excludes employees that handle loan modifications, the letter said. In addition, the Farm Credit Administration has concluded the same.

Another area of concern is how state-regulated lenders will be subjected to "the fractured nature of a 50-state approach to licensing and registering loan originators." Such a system could provide an incentive for successful loan originators to join federal institutions and avoid state licensing requirements such as required education, license testing and minimum credit scores -- which the groups called a "particular problem."

Originators at financial institutions are subject to the Federal Financial Institutions Examination Council and are required to register on the Nationwide Mortgage Licensing System and Registry.

The federal preemption enjoyed by financial institutions could also discourage loan modification specialists from being employed by state-licensed companies.

"The final rule should explicitly exclude employees and contractors involved in servicing, including loss mitigation functions, from the definition of 'loan originator,'" the letter said. "HUD should work to achieve uniform licensure and registration standards for loan originators across the nation taking into account the separate federal registration system."

The letter also recommended that HUD-approved housing counselors and servicing employees who handle loan assumptions be explicitly excluded from the term "loan originator." It also called for creating additional privacy protections for registrants and giving states discretion to determine originator eligibility for individuals whose record of a felony conviction has been expunged.

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