Breaking down the SAFE Act: How it Affects Aspiring Mortgage Loan Originators

In the world of finance and real estate, aspiring mortgage loan originators (MLOs) need to navigate various regulations to ensure their success. One such crucial piece of legislation is the SAFE Act.

In this article, you will learn about the SAFE Act, its intricacies, and its implications for those seeking careers as mortgage loan originators.

What Is the SAFE Act?

On July 30, 2008, the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE) was enacted, regulating residential mortgage lenders, brokers, and loan originators.

Prior to the SAFE Act, communication and consistency between regulators was lackadaisical at best.  This lack of transparency and regulatory symmetry resulted in laws, rules, and regulations going largely unenforced with little-to-no accountability for those who operated non-compliantly.  A robust economic environment fostered a ferocious appetite for risk, significantly based on the premise that the American homeowner would never default on his or her mortgage loan.  Further fueled by easy-to-access financing, investors, banks, and other lenders, especially mortgage lenders, unofficially adopted the “mirror test of mortgage financing” philosophy which basically boiled down to, as long as the applicant was breathing, they got the loan!  Financing was readily available to everyone and qualification was practically optional!

Mortgage loans were available for applicants desiring to simply state their income.  Others opted for loans through which their income and assets weren’t even discussed.  And all of this lunacy culminated in the big kahuna of alternative financing options, the “NINANE” – No Income, No Asset, No Employment!  Yeah, you read that right!  All that an applicant would need to qualify for the NINANE would be a credit score of no lower than 740 and a down payment of 20% or more.  No other questions were asked.

When all of the greed and recklessness eventually reached the brink of a worldwide economic collapse, highlighted by U.S. homeowners losing their homes to foreclosure in droves, the U.S. federal government was forced to act.  The mortgage industry had proven, beyond a shadow of a doubt, that it was unable and unwilling to police itself and operate responsibly.

One of Congress’ first responses was to rein in the mortgage investors, lenders, and loan originators responsible for creating an atmosphere that some referred to as the “wild, wild west.”  To do this, Congress enacted the SAFE Act.

Among other requirements, the SAFE Act establishes that all entities offering residential mortgage loans, as well as all of the residential Mortgage Loan Originators who originate them, must register through a nationwide database operated by the Nationwide Mortgage Licensing System & Registry (NMLS).  Once registered, the company or MLO is issued an NMLS identification number also referred to as the company’s or individual’s unique identifier.  This unique identifier is permanently assigned to the entity or individual.

Anyone may review a registered MLO’s employment status, employment history, activities, and even observe if they’ve been sanctioned or disciplined through the consumer access portal located on the NMLS’ website’s home page.

If an entity is a depository institution regulated by a federal banking regulator or the Farm Credit Administration (FCA), however, it, along with its mortgage loan originators, is only required to be registered through the NMLS.  If, however, an entity does not fall into this category, it, as well as its MLOs, must be licensed in addition to registering.

No individual who is required to be licensed as an MLO may act in the capacity of an MLO without being duly authorized and actively licensed to do so.  Temporary authority to act as an MLO, however, is available under certain conditions to individuals who change from employment through an exempt depository institution to a non-exempt entity as well as for licensed MLOs who have applied for licensure in a different state but have not yet received it.

Finally, to further protect the public, the SAFE Act requires all mortgage entities to maintain minimum net worth standings as well as active surety bonds covering all MLOs under their sponsorship that are payable to the states in which they are licensed.  Consumers whose injuries result from a company’s or its MLO’s negligence or incompetence may file a claim against the company’s surety bond in attempt to recover damages.  The required amount of the surety bond is contingent on the volume of business originated by the entity during the previous calendar year or fiscal quarter, depending on the state.

How Does the SAFE Act Protect?

In addition to holding mortgage professionals accountable, the SAFE Act ensures that the registration and licensing process for mortgage companies and personnel are consistent throughout the United States and its possessions.  To protect the public from unscrupulous activity committed by unscrupulous individuals, the SAFE Act establishes the following conditions which, if applicable, will render an individual ineligible for residential mortgage loan originator licensure:

  • LICENSE REVOCATION – No applicant may have ever had a mortgage loan originator license revoked in any governmental jurisdiction, except that a subsequent formal vacation of such revocation shall not be deemed a revocation;
  • FELONY CONVICTION – No applicant may have been convicted of, or pled guilty or nolo contendere to, a felony in a domestic, foreign, or military court during the 7-year period preceding the date of the application for licensing and registration or at any time preceding such date of application if such felony involved an act of fraud, dishonesty, a breach of trust, or money laundering (provided that any pardon of a conviction shall not constitute a conviction);
  • POOR CHARACTER AND FITNESS – No applicant may have demonstrated financial irresponsibility, poor character, and general lack of fitness to command the confidence of the community and to warrant a determination that the mortgage loan originator will operate honestly, fairly, and efficiently. A determination that an individual has not shown financial responsibility may include, but is not limited to, currently-outstanding judgments (except judgments solely as a result of medical expenses), currently-outstanding tax liens or other government liens and filings, foreclosures within the past three years, and a pattern of seriously-delinquent accounts within the past three years.

SAFE Act Requirements for Mortgage Loan Originators

Under the SAFE Act, all individuals desiring licensure as a state-licensed mortgage loan originator must:

  • Take and successfully complete all required NMLS-approved pre-licensing (PE) education through an NMLS-approved education provider (such as OnlineEd) consisting of a 20-hour national PE course and any state-specific PE as required by the state(s) in which the desired license(s) is/are sought;
  • Take and pass a 120-question, multiple choice, written national licensing examination;
  • Submit fingerprints and issue consent for an FBI criminal background check;
  • Consent to the NMLS acquiring a copy of the licensing candidate’s credit report;
  • Account for all residential and employment history for the previous ten years; and
  • Maintain compliance with all state and federal laws, rules, and regulations.

To maintain active licensure, the SAFE Act mandates that all licensed MLOs renew their licenses annually. To do so, licensees must complete no less than eight hours of NMLS-approved continuing education (CE) plus any required state-specific CE through an NMLS-approved education provider (such as OnlineEd), maintain compliance with all federal and state laws, rules, and regulations, maintain good standing in the mortgage industry, and apply for license renewal by remitting the annual renewal fee.  Any MLO who fails to renew his or her MLO license by midnight on December 31st will be prohibited from acting in the capacity of a licensed mortgage loan originator until such time that his or her license has been formally renewed.

SAFE Act Requirements for Mortgage Companies

As previously mentioned, certain mortgage companies, as well as the MLOs working for them, are exempt from licensing requirements.  These companies and individuals, however, are still required to register with the federal government through the NMLS and consist of:

  • Banks, credit unions, and other depository institutions subject to the regulation of federal banking regulators;
  • Incorporated subsidiaries of exempt depository institutions; and
  • Agricultural lending institutions regulated by the Farm Credit Administration (FCA).

Additionally, the SAFE Act requires all mortgage companies to:

  • Ensure that all employees acting as Mortgage Loan Originators are registered through the NMLS and maintain unique identifiers;
  • Ensure that all employees acting as Mortgage Loan Originators who are required to be licensed are actively licensed;
  • Implement written policies and procedures to ensure compliance;
  • Ensure that policies and procedures are independently tested on an annual basis;
  • Ensure that any third parties acting as Mortgage Loan Originators on behalf of that company adhere to the SAFE Act;
  • Ensure that any mortgage underwriter or processor acting in the capacity of a 1099 contractor is duly licensed as an MLO in each state in which the properties on which they work are located;
  • Ensure that consumers are able to access MLO identifiers in a practical manner; and
  • Maintain all applicable records, including records related to the employment of MLOs, and make those records readily available to State Commissioners upon request.

Lastly, when an individual leaves the sponsorship of a particular employer, that employer must forward the former employee’s license to the NMLS and both the former employer and former employee must inform the NMLS of the sponsorship’s termination.  Effective the moment of separation, the former employee’s license becomes inactive.  To reactivate his or her MLO license, the former licensee must secure new sponsorship.  While individuals are ultimately charged with the responsibility of managing the details of their own registration and licensure, a company can be held liable for allowing unregistered or unlicensed individuals to act as MLOs.


Mortgage industry efforts to maintain corporate professionalism, consumer protection, and consumer confidence are anchored in the SAFE Act. The SAFE Act’s requirements afford a level playing field for all while helping to foster an industry that is trustworthy and protective of the consumers who it serves.

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