New SAFE Act Examination Guidelines for State Regulated Entities: Spring Cleaning May Be Required

By: Nanci L. Weissgold

The Multistate Mortgage Committee’s (“MMC”) new SAFE Act Examination Guidelines (“SEGs” or “Guidelines”) leave little doubt that nondepository institutions should expect more detailed and intrusive examinations of their mortgage loan originator (“MLO”) hires and policies by state regulators. The MMC, a 10 state representative body formed under the CSBS/AARMR Nationwide Cooperative Protocol and Agreement for Mortgage Supervision, is responsible for developing a process for multistate mortgage examinations. Although created under the guise of multistate examinations, the intent of the MMC is to provide state regulators with a uniform examination process to determine SAFE Act compliance and to provide those same tools to in-house compliance and audit departments.

The Guidelines’ primary purpose is to ensure that all individuals acting as MLOs are properly licensed under state law or otherwise registered. However, the main focus of the SEGs is not on the individual, but rather on the entity employing, contracting with, or sponsoring the MLO.

The SEGs include a standard template state regulators use to request institutions to provide pre-examination information and respond to a pre-examination questionnaire. These pre-examination requests have become common and institutions have come to understand their significance. Examiners scrutinize the companys’ responses to the questionnaire and compare information provided on NMLS filings and other data (such as policies, financial reports, websites, and social media). Regulators use this information to determine the size, type, and scope of the examination. Providing incomplete or inconsistent answers may lead to a more onerous examination.

Whether the institution is subject to an examination on-site or off-site, or full or limited scope, at a minimum the examiner should evaluate “whether the institution has adequate policies and procedures, and controls in place to ensure that MLOs are licensed as required and that the institution itself is in compliance with State law and NMLS licensing and reporting requirements.” To guide the examiner through its evaluation, the SEGs include a detailed Examiner’s Checklist divided into 8 sections with over 117 targeted questions. Topics cover pre-examination, human resource, operational and compliance management, financial condition review, mortgage call report review and employee interviews.

At the end of this process, examiners should be able to answer the following 7 questions:

• Are policies and procedures adequate?

• Are internal controls adequate?

• Are the audit and independent review functions adequate?

• Are information and communication systems adequate?

• Is management and oversight sufficient?

• Are recordkeeping controls adequate for determining compliance?

• In general, have the institution and its MLO complied with the SAFE Act?

While these Guidelines may be comprehensive, they do not address the vexing question of whether MLO licensing is required for a servicer’s loss mitigation personnel or the manner in which states apply the concept of “single point of contact.” They do, however, dig deep into the minutia of the institution’s business practices, and the “wrong” answers on an examination can have consequences.

Now may be the time to do some SAFE Act spring cleaning: Are your NMLS filings complete, accurate, and consistent with your policies? Are you sure only licensed MLOs are compensated to perform MLO activities? Are you familiar with your MLOs advertising and social media activities to ensure state law SAFE Act compliance? Start cleaning now – we’re pleased to lend a hand.


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