What Is the SAFE Act of 2008?
Enacted on 7/30/2008, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) requires individuals who offer residential Mortgage Loan Originator (MLO) services to be state-licensed and federally registered with the Nationwide Mortgage Licensing System and Registry (NMLS). The SAFE Act is one piece of the Housing and Economic Recovery Act of 2008 (HERA), the financial reform legislation enacted in response to the housing bubble and resulting subprime mortgage crisis that affected U.S. real estate in the late 2000s.
The 2008 housing bubble was the result of high housing demand, low inventory, and an extreme increase in home prices.
Its origin can be traced back to the early 1990s when the U.S. government wanted to increase homeownership rates by lowering mortgage rates. The annual average mortgage rate decreased from 10.13% in 1990 to 6.03% in 2008. With an influx of people looking to become homebuyers, banks also loosened their lending requirements. Adjustable-rate mortgages were particularly popular because they offered low introductory interest rates, though they often led to homebuyers defaulting on their loans after the initial low-interest rate period ended. The Big Short, a movie about the mortgage crisis released in 2015, captured this issue beautifully:
Eventually, the demand for housing decreased, resulting in overbuilding and a sharp drop in housing prices. In other words, the bubble burst. People were buying homes for more than their worth, and mass mortgage defaults led to a record number of foreclosures. The SAFE Act was created largely to ensure this phenomenon couldn’t be repeated.
What Does the SAFE Act Include?
The SAFE Act was designed to protect consumers and reduce fraud by requiring all mortgage lending professionals to complete specific education to both earn and maintain their professional license. Title V of the SAFE Act states:
“In order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud, the States, through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, are hereby encouraged to establish a Nationwide Mortgage Licensing System and Registry for the residential mortgage industry that accomplishes all of the following objectives:
- Provides uniform license applications and reporting requirements for State-licensed Loan Originators.
- Provides a comprehensive licensing and supervisory database.
- Aggregates and improves the flow of information to and between regulators.
- Provides increased accountability and tracking of Loan Originators.
- Streamlines the licensing process and reduces the regulatory burden.
- Enhances consumer protections and supports anti-fraud measures.
- Provides consumers with easily accessible information, offered at no charge, utilizing electronic media, including the Internet, regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, Loan Originators.
- Establishes a means by which residential Mortgage Loan Originators would, to the greatest extent possible, be required to act in the best interests of the consumer.
- Facilitates the collection and disbursement of consumer complaints on behalf of State and Federal mortgage regulators.”
These objectives are in place to monitor and regulate Mortgage Loan Originators. But there are additional requirements that MLOs must meet as mortgage professionals.
MLO Requirements Under the SAFE Act
Aspiring MLOs must register with NMLS, receive a unique NMLS identifier, and complete the following tasks to obtain and maintain their license:
- Submit fingerprints and obtain a criminal background check
- Authorize NMLS to obtain a credit report
- Complete required Pre-Licensing education
- Pass the NMLS SAFE MLO Test
- Take Continuing Education annually
As an additional safety measure, individuals convicted of fraud or theft cannot become licensed MLOs.
Implemented to improve communication between states, standardize licensing requirements, and increase protections for borrowers, the SAFE Act of 2008 ensures MLOs meet specific standards of ethical behavior and training to keep them accountable and reduce mortgage fraud.
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