Secure and Fair Enforcement for Mortgage Licensing Act of 2008 – Final Rule Registration of Residential Mortgage Loan Originators (Part 365, Subpart B)

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 34

Docket ID OCC-2009-0005

RIN 1557-AD23

FEDERAL RESERVE SYSTEM

12 CFR Part 208

Docket No. R-1357

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 365

RIN 3064-AD43

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563

Docket No. 2009 - 0004

RIN 1550-AC33

FARM CREDIT ADMINISTRATION

12 CFR Part 610

RIN 3052-AC52

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 761

RIN 3133-AD59

Registration of Mortgage Loan Originators

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors

of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office

of Thrift Supervision, Treasury (OTS); Farm Credit Administration (FCA); and National Credit

Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The OCC, Board, FDIC, OTS, FCA, and NCUA (collectively, the Agencies) are

adopting final rules to implement the Secure and Fair Enforcement for Mortgage Licensing Act

(the S.A.F.E. Act). The S.A.F.E. Act requires an employee of a bank, savings association, credit

union or Farm Credit System (FCS) institution and certain of their subsidiaries that are regulated

by a Federal banking agency or the FCA (collectively, Agency-regulated institutions) who acts

as a residential mortgage loan originator to register with the Nationwide Mortgage Licensing

System and Registry, obtain a unique identifier, and maintain this registration. The final rule

further provides that Agency-regulated institutions must: (1) require their employees who act as

residential mortgage loan originators to comply with the S.A.F.E. Act’s requirements to register

and obtain a unique identifier, and (2) adopt and follow written policies and procedures designed

to assure compliance with these requirements

identifier, and maintain this registration. The final rule

further provides that Agency-regulated institutions must: (1) require their employees who act as

residential mortgage loan originators to comply with the S.A.F.E. Act’s requirements to register

and obtain a unique identifier, and (2) adopt and follow written policies and procedures designed

to assure compliance with these requirements.

DATES:

FOR FURTHER INFORMATION CONTACT:

OCC: Michele Meyer, Assistant Director, and Heidi Thomas, Special Counsel, Legislative and

Regulatory Activities, (202) 874-5090, and Nan Goulet, Senior Advisor, Large Bank

Supervision, (202) 874-5224, Office of the Comptroller of the Currency, 250 E Street SW.,

Washington, DC 20219.

BOARD: Anne Zorc, Counsel, Legal Division, (202) 452-3876, Virginia Gibbs, Senior

Supervisory Analyst, (202) 452-2521, and Stanley Rediger, Supervisory Financial Analyst, (202)

452-2629, Division of Banking Supervision and Regulation, Board of Governors of the Federal

Reserve System, 20th and C Streets, N.W., Washington , D.C. 20551

FDIC: Thomas F. Lyons, Examination Specialist, (202) 898-6850, Victoria Pawelski, Senior

Policy Analyst, (202) 898-3571, or John P. Kotsiras, Financial Analyst, (202) 898-6620,

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Division of Supervision and Consumer Protection; or Richard Foley, Counsel, (202) 898-3784,

or Kimberly A. Stock, Counsel, (202) 898-3815, Legal Division; Federal Deposit Insurance

Corporation, 550 17th Street, N.W., Washington, DC 20429.

OTS: Charlotte M. Bahin, Special Counsel (Special Projects), (202) 906-6452, Vicki Hawkins-

Jones, Special Counsel, Regulations and Legislation Division, (202) 906-7034, Debbie Merkle,

Project Manager, Credit Risk, (202) 906-5688, and Rhonda Daniels, Senior Compliance Program

Analyst, Consumer Regulations, (202) 906-7158, Office of Thrift Supervision, 1700 G Street,

NW., Washington, DC 20552.

FCA: Gary K

te M. Bahin, Special Counsel (Special Projects), (202) 906-6452, Vicki Hawkins-

Jones, Special Counsel, Regulations and Legislation Division, (202) 906-7034, Debbie Merkle,

Project Manager, Credit Risk, (202) 906-5688, and Rhonda Daniels, Senior Compliance Program

Analyst, Consumer Regulations, (202) 906-7158, Office of Thrift Supervision, 1700 G Street,

NW., Washington, DC 20552.

FCA: Gary K. Van Meter, Deputy Director, Office of Regulatory Policy, Farm Credit

Administration, 1501 Farm Credit Drive, McLean, VA, (703) 883-4414, TTY (703) 883-4434;

Richard A. Katz, Senior Counsel, Office of General Counsel, Farm Credit Administration,

McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020; or Jennifer Cohn, Senior

Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090,

(703) 883-4020, TTY (703) 883-4020.

NCUA: Regina Metz, Staff Attorney, Office of General Counsel, 703-518-6561; or Roger Blake,

Program Officer, Division of Supervision, Examination & Insurance, 703-518-6385, National

Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314-3428.

SUPPLEMENTARY INFORMATION:

I.

BACKGROUND

A. Statutory Requirements

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The S.A.F.E. Act,1 enacted on July 30, 2008, mandates a nationwide licensing and

registration system for mortgage loan originators. Specifically, the Act requires all States to

provide for a licensing regime for mortgage loan originators regulated by a State within one year

of enactment (or two years for States whose legislatures meet biennially). In addition, the

S.A.F.E. Act requires the OCC, Board, FDIC, OTS and NCUA,2 through the Federal Financial

Institutions Examination Council (FFIEC), and the FCA to develop and maintain a system for

registering mortgage loan originators employed by Agency-regulated institutions. The S.A.F.E

ed by a State within one year

of enactment (or two years for States whose legislatures meet biennially). In addition, the

S.A.F.E. Act requires the OCC, Board, FDIC, OTS and NCUA,2 through the Federal Financial

Institutions Examination Council (FFIEC), and the FCA to develop and maintain a system for

registering mortgage loan originators employed by Agency-regulated institutions. The S.A.F.E.

Act specifically prohibits an individual from engaging in the business of residential mortgage

loan origination without first obtaining and maintaining annually, 1) a registration as a registered

mortgage loan originator and obtaining a unique identifier if employed by an Agency-regulated

institution (Federal registration), or 2) a license and registration as a state-licensed loan

originator and obtaining a unique identifier.3 The S.A.F.E. Act requires that Federal registration

and State licensing and registration must be accomplished through the same online registration

system, the Nationwide Mortgage Licensing System and Registry (Registry).

In connection with the Federal registration, the Agencies at a minimum must ensure that

the Registry is furnished with information concerning the mortgage loan originator’s identity,

1 The S.A.F.E. Act was enacted as part of the Housing and Economic Recovery Act of 2008, Pub. L. 110-

289, Division A, Title V, sections 1501 – 1517, 122 Stat. 2654, 2810 – 2824 (July 30, 2008), codified at 12 U.S.C.

5101- 5116. Citations in this Supplementary Information section are to the “S.A.F.E. Act” by section number in the

public law.

2 The OCC, Board, FDIC, OTS, and NCUA are referred to both in the S.A.F.E. Act and in this rulemaking

as the “Federal banking agencies.”

3 If the Secretary of Housing and Urban Development (HUD) determines that any State fails, within the

statutorily prescribed timeframe, to establish a licensing regime that meets the requirements of the S.A.F.E

ct” by section number in the

public law.

2 The OCC, Board, FDIC, OTS, and NCUA are referred to both in the S.A.F.E. Act and in this rulemaking

as the “Federal banking agencies.”

3 If the Secretary of Housing and Urban Development (HUD) determines that any State fails, within the

statutorily prescribed timeframe, to establish a licensing regime that meets the requirements of the S.A.F.E. Act, the

Secretary is required to establish a system for the licensing and registration of mortgage loan originators in that

State. S.A.F.E. Act at section 1508. HUD has reviewed the model legislation developed by the Conference of State

Bank Supervisors and the American Association of Residential Mortgage Regulators to assist States in meeting the

minimum requirements of the S.A.F.E. Act and found it to meet these requirements. See 74 FR 312 (Jan. 5, 2009)

and http://www.hud.gov/offices/hsg/ramh/safe/cmsl.cfm.

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including: (1) fingerprints for submission to the Federal Bureau of Investigation (FBI) and any

other relevant governmental agency for a State and national criminal history background check;

and (2) personal history and experience, including authorization for the Registry to obtain

information related to any administrative, civil, or criminal findings by any governmental

jurisdiction.4 On June 9, 2009, the Agencies issued a notice of proposed rulemaking to

implement these requirements for Agency-regulated institutions.5

B. Implementing the Requirements for Federal Registration

The Conference of State Bank Supervisors (CSBS) and the American Association of

Residential Mortgage Regulators (AARMR) have developed and maintain a Web-based system,

the Nationwide Mortgage Licensing System (NMLS), for the State licensing of mortgage loan

originators in participating States.6 Mortgage loan originators in these States electronically

complete a single uniform form (the MU4 form)

Conference of State Bank Supervisors (CSBS) and the American Association of

Residential Mortgage Regulators (AARMR) have developed and maintain a Web-based system,

the Nationwide Mortgage Licensing System (NMLS), for the State licensing of mortgage loan

originators in participating States.6 Mortgage loan originators in these States electronically

complete a single uniform form (the MU4 form). The data provided on the form is stored

electronically in a centralized repository available to State regulators of mortgage companies,

who use it to process license applications and to authorize individuals to engage in mortgage

loan origination, as well as for other supervisory purposes.

The Federal banking agencies, through the FFIEC, and the FCA are working with CSBS

to modify the NMLS so that it can accept registrations from mortgage loan originators employed

by Agency-regulated institutions. This modified registry will be renamed the Nationwide

4 S.A.F.E. Act at section 1507(a) (12 U.S.C. 5106(a)).

5 74 FR 27386 (June 9, 2009).

6 As of the date of this final rule, 36 States and territories use the NMLS to manage the processing of their

mortgage licenses. This system is owned and operated by the State Regulatory Registry LLC (SRR), which is a

limited-liability company established by CSBS and the American Association of Residential Mortgage Regulators as

a subsidiary of CSBS to develop and operate nationwide systems for State regulators in the financial services

industry. SRR has contracted with the Financial Industry Regulatory Authority (FINRA) to build and maintain the

system. FINRA operates similar systems in the securities industry. More information about this system is available

at http://www.stateregulatoryregistry.org.

ulators as

a subsidiary of CSBS to develop and operate nationwide systems for State regulators in the financial services

industry. SRR has contracted with the Financial Industry Regulatory Authority (FINRA) to build and maintain the

system. FINRA operates similar systems in the securities industry. More information about this system is available

at http://www.stateregulatoryregistry.org.

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Mortgage Licensing System and Registry. The existing NMLS was not designed to support the

Federal registration of Agency-regulated institution employees, who are not required to obtain

additional authorization from the appropriate Federal agency to engage in mortgage loan

origination activities that are permissible for the Agency-regulated institution. Accordingly, the

system must be modified to accommodate the differences between the requirements for State

licensing/registration and Federal registration. It also must be modified to accommodate the

migration of an individual between the State licensing/registration and the Federal registration

regimes or the dual employment of an individual by both an Agency-regulated and non-Agency-

regulated institution.7 Furthermore, the S.A.F.E. Act requires new enhancements to the current

system, such as the processing of fingerprints and public access to certain mortgage loan

originator data. These modifications and enhancements require careful analysis and raise

complex legal and system development issues that the Agencies are addressing through both this

rulemaking and through consultation with the CSBS and the SRR. The OCC, on behalf of the

Agencies, [has entered into] an agreement with the SRR that will provide for appropriate

consultation between the Agencies and the Registry concerning Federal registrant information

requirements and fees, system functionality and security, and other operational matters

ies are addressing through both this

rulemaking and through consultation with the CSBS and the SRR. The OCC, on behalf of the

Agencies, [has entered into] an agreement with the SRR that will provide for appropriate

consultation between the Agencies and the Registry concerning Federal registrant information

requirements and fees, system functionality and security, and other operational matters. The

issuance of this final rule establishing the requirements for Federal registrants will enable the

Agencies and SRR to complete modifications that will enable the system to accept Federal

registrations. As described in the Supplementary Information section of the proposed rule, the

Agencies will publicly announce the date on which the Registry will begin accepting

registrations, which will mark the beginning of the period during which employees of Agency-

7The Agencies note that some employees of Agency-regulated institutions may also be subject to the State

licensing and registration regime. For example, employees who act as mortgage loan originators for a bank and a

nondepository subsidiary of a bank holding company would be subject to both the Federal and State regimes.

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regulated institutions complete the initial registration process.8 When fully operational,

mortgage loan originators and their Agency-regulated institution employers are expected to have

access to the Registry, seven days a week, to establish and maintain their registrations.

II.

OVERVIEW OF THE PROPOSAL AND PUBLIC COMMENTS

The proposed rule required individuals employed by Agency-regulated institutions who

act as mortgage loan originators and who do not qualify for the de minimis exception set forth in

the proposal to register with the Registry, obtain unique identifiers, and maintain their

registrations through updates and renewals

aintain their registrations.

II.

OVERVIEW OF THE PROPOSAL AND PUBLIC COMMENTS

The proposed rule required individuals employed by Agency-regulated institutions who

act as mortgage loan originators and who do not qualify for the de minimis exception set forth in

the proposal to register with the Registry, obtain unique identifiers, and maintain their

registrations through updates and renewals. The proposal also directed Agency-regulated

institutions to require compliance with these requirements, and to adopt and follow written

policies and procedures to assure such compliance. The S.A.F.E. Act does not require the

Registry to screen or approve registrations received from employees of Agency-regulated

institutions and the Registry will not do so. Instead, the Registry will be the repository of, and

conduit for, information on those employees who are mortgage loan originators at Agency-

regulated institutions. Pursuant to § ___.104(d) and (h) of the proposed rule, it would be the

responsibility of each Agency-regulated institution to establish reasonable procedures for

confirming the adequacy and accuracy of employee registrations as well as to establish a process

for reviewing any criminal history background reports received from the Registry.

The proposal provided for a 180-day period within which to complete initial registrations

after the Registry is capable of accepting registrations from employees of Agency-regulated

institutions. During this period, employees of Agency-regulated institutions would not be

8Pursuant to section 1503(11) of the S.A.F.E. Act (12 U.S.C. 5102(11), Agency-regulated institutions and

their employees who are acting within the scope of their employment with the Agency-regulated institutions are not

subject to State licensing or registration requirements for mortgage loan originators.

y-regulated institutions would not be

8Pursuant to section 1503(11) of the S.A.F.E. Act (12 U.S.C. 5102(11), Agency-regulated institutions and

their employees who are acting within the scope of their employment with the Agency-regulated institutions are not

subject to State licensing or registration requirements for mortgage loan originators.

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subject to sanctions if they originate residential mortgage loans without having completed their

registration.

The Agencies received a total of 140 different comment letters from financial institutions

and holding companies, trade associations, Federal government agencies, a training company,

and individuals. A number of Agency-regulated institutions objected to the registration

requirement in general, suggesting that the registration requirement should not be applied to

them because they were not involved in the abuses that led to the enactment of the S.A.F.E. Act.

In addition, many of these commenters found the registration requirement overly burdensome,

especially as they are subject to regular examinations by the Agencies and they already closely

supervise the activities of their employees.

Many commenters raised concerns related to the proposed de minimis exception from the

registration requirement. Under the proposed de minimis exception, a mortgage loan originator

would not have to register if he or she acted as a mortgage loan originator for five or fewer loans

and the Agency-regulated institution employs mortgage loan originators who, while excepted

from registration pursuant to the individual exception, in the aggregate acted as mortgage loan

originators in connection with 25 or fewer residential mortgage loans. Commenters suggested

raising the mortgage loan originator and institution loan limits or eliminating one of the limits.

Community bank trade associations were particularly concerned that the narrowness of the

exception would exclude most community banks

to the individual exception, in the aggregate acted as mortgage loan

originators in connection with 25 or fewer residential mortgage loans. Commenters suggested

raising the mortgage loan originator and institution loan limits or eliminating one of the limits.

Community bank trade associations were particularly concerned that the narrowness of the

exception would exclude most community banks. Some commenters suggested that the

exception should be tied to an asset-based threshold in the range of $250 million to $1 billion.

Most commenters objected to having employees who engage in loan modifications or

assumptions register under the rule, noting that these activities are fundamentally different than

the mortgage loan origination process in that loan modifications and assumptions: (1) are loss

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mitigation activities, not loan originations; (2) provide loan modification or assumption

personnel little to no discretion in negotiating the terms and conditions of any changes; and (3)

are outside of the Congressional intent and the plain language of the S.A.F.E. Act.

While some commenters found the 180-day initial registration period adequate, a number

of commenters suggested alternative periods ranging up to one year. Some trade associations

and institutions supported staggering registration periods in order to reduce system demands and

to tailor an implementation schedule to the particular capacities of an institution or group of

institutions, as long as the implementation period would still be 180 days for each institution.

A number of commenters also raised issues related to the provision of fingerprints to the

Registry. Commenters asserted that it was not appropriate to have an age limit on fingerprints as

they tend not to change; that the Registry should be able to accept fingerprints in a variety of

formats, such as paper and scanned digital prints; and that Agency-regulated institutions should

be permitted to use existing channels to process fingerprints

d to the provision of fingerprints to the

Registry. Commenters asserted that it was not appropriate to have an age limit on fingerprints as

they tend not to change; that the Registry should be able to accept fingerprints in a variety of

formats, such as paper and scanned digital prints; and that Agency-regulated institutions should

be permitted to use existing channels to process fingerprints.

Many commenters expressed privacy and security concerns regarding the types of

personal information that mortgage loan originators would have to provide to the Registry and

the ability of the public to have Internet access to such information.

Trade associations and large Agency-regulated institutions overwhelmingly requested

that the Registry accommodate batch processing of registrations in order to reduce the costs and

burden of data input, reduce errors, and efficiently register bank employees.

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The Agencies have modified the proposal to take into account many of these comments.

A detailed discussion of these comment letters and the Agencies’ responses to them appears in

the section-by-section description of the final rule that follows.9

III.

SECTION-BY-SECTION DESRIPTION OF THE FINAL RULE

Section ___.101 – Authority, purpose, and scope

The Agencies adopt paragraphs (a) and (b) of § ____.101 as proposed.10 Paragraph (a)

identifies the authority for this rule as the S.A.F.E. Act.11 Paragraph (b) states that this rule

implements the S.A.F.E. Act’s Federal registration requirements, which apply to individuals who

originate residential mortgage loans. This provision also describes the objectives of the S.A.F.E.

Act, which are derived from section 1502 of the Act (12 U.S.C. 5101).

As in the proposal, paragraph (c)(1) of § ___.101 of the final rule identifies the specific

entities that employ individual mortgage loan originators – entities referred to in this

Supplementary Information section as Agency-regulated institutions – and that also are covered

by this rule

s the objectives of the S.A.F.E.

Act, which are derived from section 1502 of the Act (12 U.S.C. 5101).

As in the proposal, paragraph (c)(1) of § ___.101 of the final rule identifies the specific

entities that employ individual mortgage loan originators – entities referred to in this

Supplementary Information section as Agency-regulated institutions – and that also are covered

by this rule. Under the S.A.F.E. Act, a mortgage loan originator must be Federally-registered if

that individual is an employee of a depository institution, an employee of any subsidiary owned

and controlled by a depository institution and regulated by a Federal banking agency, or an

employee of an institution regulated by the FCA.12 Section 1503(2) of the S.A.F.E. Act (12

9In addition to the changes described in this Supplementary Information section, the Agencies have

replaced the cites in the proposed rule to sections of the S.A.F.E. Act with cites to the relevant provisions in the U.S.

Code.

10Because each Agency’s proposed rule will amend a different part of the Code of Federal Regulations, but

will have similar numbering, relevant sections are cited as “§ ___.” followed by a number, unless otherwise noted.

11 The Board notes that the authority in paragraph (a) of its rule supplements its authority to implement the

S.A.F.E. Act, for example, Section 11 of the Federal Reserve Act (12 U.S.C. 248(a)).

12Agency-regulated institutions and their employees acting within the scope of their employment are

subject only to the Federal registration requirements of the S.A.F.E. Act as implemented by the Agencies through

this rulemaking. In consultation with the Agencies, CSBS/SRR are modifying the Registry so that it can accept

example, Section 11 of the Federal Reserve Act (12 U.S.C. 248(a)).

12Agency-regulated institutions and their employees acting within the scope of their employment are

subject only to the Federal registration requirements of the S.A.F.E. Act as implemented by the Agencies through

this rulemaking. In consultation with the Agencies, CSBS/SRR are modifying the Registry so that it can accept

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U.S.C. 5102(2)) provides that “depository institution” has the same meaning as in section 3 of

the Federal Deposit Insurance Act (FDI Act),13 and includes any credit union. As we noted in

the proposal, the definition of “depository institution” in the FDI Act and in the S.A.F.E. Act

does not include bank or savings association holding companies or their non-depository

subsidiaries. Employees of these entities who act as mortgage loan originators are not covered

by the Federal registration requirement and, therefore, must comply with State licensing and

registration requirements.

With respect to the OCC, this rule applies to national banks, Federal branches and

agencies of foreign banks, their operating subsidiaries, and their employees who are mortgage

loan originators.14 For the Board, this rule applies to member banks of the Federal Reserve

System (other than national banks), their respective subsidiaries that are not functionally

regulated within the meaning of section 5(c)(5) of the Bank Holding Company Act, as amended

(12 U.S.C. 1844(c)(5)); 15 and branches and agencies of foreign banks (other than Federal

registrations from employees of Agency-regulated institutions

ulated within the meaning of section 5(c)(5) of the Bank Holding Company Act, as amended

(12 U.S.C. 1844(c)(5)); 15 and branches and agencies of foreign banks (other than Federal

registrations from employees of Agency-regulated institutions. An employee of an Agency-regulated institution

may be engaged in activities outside the scope of his or her employment at an Agency-regulated institution that

subject that employee to State licensing and registration requirements, such as dual employment at a non-Agency-

regulated institution.

13 Section 3 of the FDI Act defines “depository institution” as any bank or savings association. The term

“bank” in section 3 of the FDI Act means any national bank, State bank, Federal branch, and insured branch and

includes any former savings association. The term “savings association” means any Federal savings association,

state savings association, and any corporation other than a bank that the FDIC and the OTS jointly determine to be

operating in substantially the same manner as a savings association. 12 U.S.C. 1813.

14 The S.A.F.E. Act's definition of depository institution includes Federal branches of foreign banks but not

Federal agencies of foreign banks. Federal agencies are authorized by sections 1(b)(1) and 4(b) of the International

Banking Act of 1978 (12 U.S.C. 3101(b)(1) and 3102(b)) and 12 CFR 28.11(g) and 28.13(a)(1) of the OCC's

regulations to lend money, which would include originating mortgage loans, subject to the same duties, restrictions,

penalties, liabilities, conditions, and limitations that would apply to a national bank. Thus, the Federal registration

requirements apply to Federal agencies of foreign banks to the extent the registration requirements apply to national

banks.

15 The S.A.F.E

1) of the OCC's

regulations to lend money, which would include originating mortgage loans, subject to the same duties, restrictions,

penalties, liabilities, conditions, and limitations that would apply to a national bank. Thus, the Federal registration

requirements apply to Federal agencies of foreign banks to the extent the registration requirements apply to national

banks.

15 The S.A.F.E. Act, by its terms, applies the Federal registration requirements to employees of a subsidiary

that is owned and controlled by a State member bank and regulated by the Board. For purposes of the scope of the

Board’s rules, these subsidiaries are described as those that are not functionally regulated within the meaning of

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branches, Federal agencies and insured State branches of foreign banks) and commercial lending

companies owned or controlled by foreign banks16 and their employees who act as mortgage loan

originators. For the FDIC, this rule applies to insured State nonmember banks (including state-

licensed insured branches of foreign banks), their subsidiaries (except brokers, dealers, persons

providing insurance, investment companies, and investment advisers), and employees of such

banks or subsidiaries who act as mortgage loan originators. For the OTS, this rule applies to

savings associations and their operating subsidiaries, and their employees who are mortgage loan

originators. For the FCA, this rule applies to FCS institutions that originate residential mortgage

loans under sections 1.9(3), 1.11 and 2.4(a)(2) and (b) of the Farm Credit Act of 1971, as

amended (12 U.S.C. 2017(3), 2019, and 2075(a)(2) and (b)), and their employees who are

mortgage loan originators.17 For the NCUA, this rule applies to credit unions and their

employees who are mortgage loan originators.

section 5(c)(5) of the Bank Holding Company Act

9, and 2075(a)(2) and (b)), and their employees who are

mortgage loan originators.17 For the NCUA, this rule applies to credit unions and their

employees who are mortgage loan originators.

section 5(c)(5) of the Bank Holding Company Act. Subsidiary has the meaning given that term in section 2 of the

Bank Holding Company Act (12 U.S.C. 1841), as applied to State member banks.

16 The Board notes that its final rule covers branches and agencies of foreign banks (other than Federal

branches, Federal agencies and insured State branches of foreign banks); and commercial lending companies owned

or controlled by foreign banks pursuant to its authority under the International Banking Act (IBA) (Chapter 32 of

Title 12) to issue such rules it deems necessary in order to perform its respective duties and functions under the

chapter and to administer and carry out the provisions and purposes of the chapter and prevent evasions thereof.

12 U.S.C. 3108(a). The Board notes that the IBA provides, in relevant part, that the above entities shall conduct their

operations in the United States in full compliance with provisions of any law of the United States which impose

requirements that protect the rights of consumers in financial transactions, to the extent that the branch, agency, or

commercial lending company engages in activities that are subject to such laws, and apply to State-chartered banks,

doing business in the State in which such branch or agency or commercial lending company, as the case may be, is

doing business. 12 U.S.C. 3106a(b)(1). Under the Board’s final rule, the above entities would be subject to the

same Federal registration requirements as Federal branches, Federal agencies and insured State branches of foreign

banks, which are covered in the OCC and FDIC rules, respectively

iness in the State in which such branch or agency or commercial lending company, as the case may be, is

doing business. 12 U.S.C. 3106a(b)(1). Under the Board’s final rule, the above entities would be subject to the

same Federal registration requirements as Federal branches, Federal agencies and insured State branches of foreign

banks, which are covered in the OCC and FDIC rules, respectively.

17 Some FCS associations may not exercise their statutory authority to make residential mortgage loans,

and FCS banks no longer engage in residential mortgage origination activities because they have transferred their

direct lending authority to their affiliated associations. The FCA emphasizes that employees of FCS banks and

associations that do not engage in residential mortgage loan origination activities are not subject to the registration

requirements of the S.A.F.E. Act and these regulations. The Federal Agricultural Mortgage Corporation (Farmer

Mac) is an FCS institution that among other activities operates a secondary market for rural residential mortgage

loans. The FCA determines that Farmer Mac employees are not subject to the registration requirements of the

S.A.F.E. Act and these implementing regulations because Farmer Mac does not engage in mortgage loan origination

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As discussed in Section II, a number of commenters objected to the application of this

registration requirement to employees of Agency-regulated depository institutions because, in

general, they are subject to regular examinations, would be overly burdened by the registration

requirement, and already closely supervise the activities of their employees. Some commenters

noted that this registration requirement would penalize them for the inappropriate actions of

other lenders that led to the enactment of the S.A.F.E. Act.

The Agencies note that the registration of mortgage loan originators employed by

Agency-regulated institutions is explicitly required by the S.A.F.E. Act

nt, and already closely supervise the activities of their employees. Some commenters

noted that this registration requirement would penalize them for the inappropriate actions of

other lenders that led to the enactment of the S.A.F.E. Act.

The Agencies note that the registration of mortgage loan originators employed by

Agency-regulated institutions is explicitly required by the S.A.F.E. Act. The statute imposes a

registration requirement, rather than a licensing requirement, on the employees of Agency-

regulated institutions. The Agencies note that such institutions already are subject to a Federal

regime of examination and supervision. The S.A.F.E. Act does not authorize the Agencies to

create exceptions to the registration requirement other than the de minimis exception described

below.

Some credit union-related commenters discussed whether the final rule should apply to

credit union service organizations (CUSOs). The NCUA notes that it answered these questions

in a public legal opinion letter 08-0843, dated October 8, 2008, available on NCUA’s Web site,

www.ncua.gov. The S.A.F.E. Act treats employees of depository institution subsidiaries the

same as employees of the depository institution, if the subsidiary is owned and controlled by the

depository institution and regulated by a Federal banking agency.18 In the case of CUSOs,

however, NCUA does not have direct regulatory oversight or enforcement authority. Instead,

NCUA regulation permits federal credit unions to invest in or lend only to CUSOs that conform

activities for rural residents. The Farmer Mac secondary market is modeled after Fannie Mae and Freddie Mac, and

the provisions of the S.A.F.E. Act do not expressly apply to employees at Fannie Mae and Freddie Mac.

to CUSOs that conform

activities for rural residents. The Farmer Mac secondary market is modeled after Fannie Mae and Freddie Mac, and

the provisions of the S.A.F.E. Act do not expressly apply to employees at Fannie Mae and Freddie Mac.

14

to the limits specified in the CUSO rule, 12 CFR Part 712.19 NCUA has not, historically,

asserted that CUSOs or their employees are exempt from applicable State licensing regimes, and

the S.A.F.E. Act does not alter that approach. Nor do NCUA regulations have any applicability

to CUSOs owned by State-chartered credit unions.20 Accordingly, individuals employed by

CUSOs that engage in residential mortgage loan origination activities, whether the CUSO is

owned by a State or a federal credit union, would need to be licensed in accordance with

applicable State requirements.

Some commenters also asked whether privately insured credit unions must register with

the Registry. NCUA’s proposed rule applied to federally insured credit unions and their

employees who are mortgage loan originators but commenters requested NCUA include

privately insured credit unions and their employees who are mortgage loan originators in the

scope of NCUA’s final rule. The S.A.F.E. Act requires the Agencies to develop and maintain a

system for registering employees of a depository institution, defined to include “any credit

union.”21 Consistent with the S.A.F.E. Act and in response to comments, NCUA’s final rule

applies to any credit union and its employees who are mortgage loan originators. Therefore,

privately insured credit unions’ employees who are mortgage loan originators may be eligible for

Federal registration provided certain conditions are met and formal agreements reached

fined to include “any credit

union.”21 Consistent with the S.A.F.E. Act and in response to comments, NCUA’s final rule

applies to any credit union and its employees who are mortgage loan originators. Therefore,

privately insured credit unions’ employees who are mortgage loan originators may be eligible for

Federal registration provided certain conditions are met and formal agreements reached.

18 Section 1503(7)(A)(ii) of the S.A.F.E. Act (12 U.S.C. 5102(7)(A)(ii)).

19 12 CFR Part 712.

20 In April 2008, the NCUA Board issued a proposed rule that would extend some provisions of the CUSO

rule to state chartered institutions. See 73 FR 23982 (May 1, 2008). The proposal has not yet been finalized.

21Sections 1507(a)(1) and 1503(1) and (2) of the S.A.F.E. Act (12 U.S.C. 5106(a)(1) and 5102(1) and (2)).

15

With the exception of privately insured credit unions, entities covered by the Federal

registration system are subject to Federal oversight. Entities subject to the Federal registration

system are labeled throughout the rule as “Agency-regulated institutions.” Privately insured

credit unions are not federally insured and not subject to NCUA’s oversight. In order for

privately insured credit unions and their employees who are mortgage loan originators to qualify

for Federal registration, they must be subject to oversight for purposes of compliance with

NCUA’s rule. Therefore, NCUA will work with the appropriate State supervisory authorities to

implement an oversight program in those States with privately insured credit unions.

The oversight program will require the appropriate State supervisory authorities to enter

into a memorandum of understanding (MOU) with NCUA

istration, they must be subject to oversight for purposes of compliance with

NCUA’s rule. Therefore, NCUA will work with the appropriate State supervisory authorities to

implement an oversight program in those States with privately insured credit unions.

The oversight program will require the appropriate State supervisory authorities to enter

into a memorandum of understanding (MOU) with NCUA. The MOU will need to address

various requirements such as, but not limited to: the requirement for an applicable State

supervisory authority to maintain such an MOU to allow privately insured credit unions and their

employees in its State to have continuous access to, and use of, the registry; examination of the

privately insured credit unions’ compliance with the rule by either the State supervisory authority

or NCUA; privately insured credit unions’ payment of examination fees and payment for any

necessary Registry modifications; and enforcement authority and penalties for privately insured

credit unions for noncompliance. Any information provided by the Registry to the public about

privately insured credit unions and their employees must include a clear and conspicuous

statement that the privately insured credit union is not insured by the National Credit Union

Share Insurance Fund. If any State supervisory authority where privately insured credit unions

are located fails to enter into or maintain an agreement with NCUA for this registration process

and oversight, the privately insured credit unions and their employees in that State cannot

register under the Federal system. They instead must use the appropriate State licensing and

nal Credit Union

Share Insurance Fund. If any State supervisory authority where privately insured credit unions

are located fails to enter into or maintain an agreement with NCUA for this registration process

and oversight, the privately insured credit unions and their employees in that State cannot

register under the Federal system. They instead must use the appropriate State licensing and

16

registration system, or if the State does not have such a system, the licensing and registration

system established by the Department of Housing and Urban Department (HUD) for mortgage

loan originators and their employees.

Section 1507 of the S.A.F.E. Act (12 U.S.C. 5106) requires the Federal banking agencies

to make such de minimis exceptions “as may be appropriate” to the Act’s registration

requirements.22 Paragraph (c)(2) of § ___.101 of the proposed rule provided a de minimis

exception based on an individual’s and, in the aggregate, an institution’s total number of

residential mortgage loans originated in a rolling 12-month period. Specifically, the proposal

provided that the registration requirements would not apply to an employee of an Agency-

regulated institution if, during the last 12 months: (1) the employee acted as a mortgage loan

originator for 5 or fewer residential mortgage loans; and (2) the Agency-regulated institution

employs mortgage loan originators who, while excepted from registration pursuant to this

section, in the aggregate, acted as a mortgage loan originator in connection with 25 or fewer

residential mortgage loans.

The Agencies received many, and varied, comments on this de minimis exception. Most

commenters supported an exception to the rule’s requirements. However, a majority of the

commenters did not agree with the proposal’s formulation of this exception, nor did they agree

on an alternative. Specifically, some commenters requested that the Agencies raise the threshold

22 See S.A.F.E

ed, comments on this de minimis exception. Most

commenters supported an exception to the rule’s requirements. However, a majority of the

commenters did not agree with the proposal’s formulation of this exception, nor did they agree

on an alternative. Specifically, some commenters requested that the Agencies raise the threshold

22 See S.A.F.E. Act at sections 1507(c) (12 U.S.C. 5106(c)) (de minimis exceptions), 1504(a)(1)(A) (12

U.S.C. 5103(a)(1)(A)) (requirement to register), 1504(a)(2) (12 U.S.C. 5103(a)(2)) (requirement to obtain a unique

identifier). As discussed in the Supplementary Information section of the proposed rule, the FCA has authority

under section 5.17(a)(11) of the Farm Credit Act of 1971, as amended, 12 U.S.C. 2252(a)(11), to apply the de

minimis exception to FCS institutions. Section 5.17(a)(11) of the Farm Credit Act authorizes the FCA to “exercise

such incidental powers as may be necessary or appropriate to fulfill its duties . . . .” In this case, the FCA is

exercising its incidental powers to fulfill the requirement in the S.A.F.E. Act that it work together with the Federal

banking agencies to develop and maintain a system for registering residential mortgage loan originators at Agency-

regulated institutions with the Registry. A coordinated and uniform approach to the de minimis exception among

the Agencies is appropriate because it best fulfills the objectives of the S.A.F.E. Act.

ll the requirement in the S.A.F.E. Act that it work together with the Federal

banking agencies to develop and maintain a system for registering residential mortgage loan originators at Agency-

regulated institutions with the Registry. A coordinated and uniform approach to the de minimis exception among

the Agencies is appropriate because it best fulfills the objectives of the S.A.F.E. Act.

17

number of loans originated by an individual mortgage loan originator and/or the institution so

that more low-volume originators would qualify for the exception. These commenters indicated

that, because of its narrowness, too few institutions would be able to use the exception as

proposed and others would unnecessarily register employees solely to avoid accidental non-

compliance with the rule. Some, however, thought that the proposed threshold numbers were too

high, and could cause an institution to spread its originations over numerous employees to avoid

registration. Still others said that the proposed de minimis exception would be fairer, and much

easier to apply, if the threshold limitation applied only to the employee or to the institution, but

not both. A Federal government agency commenter found that the proposed definition of de

minimis would make the rule unduly burdensome on small community banks.

A number of commenters also suggested that the final rule base a de minimis exception

on a percentage of total loans or the total loan volume made at each institution, instead of the

number of loans. Some trade associations and smaller institutions requested that the de minimis

exception be based on an institution’s asset-size, with suggestions ranging from the Home

Mortgage Disclosure Act23 threshold for institutions regulated by a Federal banking agency,

currently set by the Board at $39 million in assets,24 to $1 billion, which would be consistent

with exceptions for small institutions in other provisions of law

d smaller institutions requested that the de minimis

exception be based on an institution’s asset-size, with suggestions ranging from the Home

Mortgage Disclosure Act23 threshold for institutions regulated by a Federal banking agency,

currently set by the Board at $39 million in assets,24 to $1 billion, which would be consistent

with exceptions for small institutions in other provisions of law. Other commenters opposed an

asset-based approach, with larger Agency-regulated institutions noting that the exceptions should

not be structured to benefit only small institutions.

Other commenters wanted the exception to be applied to institutions with no prior history

of mortgage origination fraud or to institutions with good performance histories from previous

supervisory examinations, regardless of the number of loans originated. Some commenters also

23 12 U.S.C. 2801 et seq.

18

suggested that the exception should apply only to individuals who do not regularly or principally

function as a mortgage loan originator. Some commenters noted that the exception could instead

be based on the percentage of time an employee spends engaged in the origination of residential

mortgage loans.

The Agencies also received conflicting comments on whether to aggregate a subsidiary's

loans with the parent institution for determining de minimis qualification. One commenter

opposed such aggregation, while another stated that an institution should be required to

aggregate its loan data with that of its subsidiaries so that institutions could not “game” the

system by creating new subsidiaries each time a subsidiary approaches the de minimis limit.

Still other commenters pointed out that it would be very time consuming and burdensome to

game the de minimis limit – rendering gaming opportunities essentially unrealistic.

Many commenters noted the complexity of the proposed exception

at of its subsidiaries so that institutions could not “game” the

system by creating new subsidiaries each time a subsidiary approaches the de minimis limit.

Still other commenters pointed out that it would be very time consuming and burdensome to

game the de minimis limit – rendering gaming opportunities essentially unrealistic.

Many commenters noted the complexity of the proposed exception. One commenter

stated that the de minimis exception would not have any significant effect because the

complexity of complying with it would outweigh its benefits. Others noted that the proposed

exception would be difficult for an institution to monitor and maintain. Some commenters

appeared to misinterpret the proposed aggregate exception.

The Agencies agree that the de minimis exception should be simplified, and, in particular,

that it should be structured so that it may be utilized by an individual who does not regularly or

principally function as a mortgage loan originator employed by any Agency-regulated institution,

regardless of the size or loan volume of the institution. Therefore, the final rule eliminates the

aggregate exception and includes only the first prong of the proposed de minimis exception,

24 See 12 CFR 203.2 (Regulation C).

itution,

regardless of the size or loan volume of the institution. Therefore, the final rule eliminates the

aggregate exception and includes only the first prong of the proposed de minimis exception,

24 See 12 CFR 203.2 (Regulation C).

19

which applies only to individuals. The final rule also provides that this exception only applies if

the employee has never before been registered or license though the Registry.

Final § ___. 101(c)(2) thus provides that the registration requirements of this section do

not apply to an employee of an Agency-regulated institution who has never been registered or

licensed through the Registry as a mortgage loan originator and who has acted as a mortgage

loan originator for 5 or fewer residential mortgage loans during the last 12 months. In order to

prevent manipulation of the registration requirement by structuring this exception to apply to

multiple employees who each would not meet the exception’s threshold for registration, the final

rule prohibits any Agency-regulated institution from engaging in any act or practice to evade the

limits of the de minimis exception. The Agencies believe that replacing the proposed institution

limit with this anti-evasion prohibition is appropriate and will discourage circumvention of

registration requirements without increasing an institution’s administrative burden.

Monitoring compliance with the exception as revised should be less burdensome for

Agency-regulated institutions. In addition, in the Agencies’ view, this revised exception better

balances the usefulness of the exception to Agency-regulated institutions and their mortgage loan

originators with the consumer protection and fraud prevention purposes of the S.A.F.E. Act

’s administrative burden.

Monitoring compliance with the exception as revised should be less burdensome for

Agency-regulated institutions. In addition, in the Agencies’ view, this revised exception better

balances the usefulness of the exception to Agency-regulated institutions and their mortgage loan

originators with the consumer protection and fraud prevention purposes of the S.A.F.E. Act.

Although the final rule specifically applies this anti-evasion provision to the de minimis

exception, Agency-regulated institutions must not engage in any act or practice to evade any

other requirement of the S.A.F.E. Act or this final rule.

The Agencies note that, as with the proposal, an employee must register with the Registry

prior to engaging in mortgage loan origination activity that exceeds the exception limit. In

addition, the Agencies note that the de minimis exception contained in the final rule is voluntary;

it does not prevent a mortgage loan originator who meets the criteria for the exception from

20

registering with the Registry if the originator chooses to do so or if his or her employer requires

registration.

The Agencies note that the Federal Housing Finance Agency (FHFA) has directed Fannie

Mae and Freddie Mac to require all mortgage loan applications taken on and after July 1, 2010,

to include the mortgage loan originator’s unique identifier.25 Agency-regulated institutions

should be aware of this requirement and any future guidance that FHFA may issue to address the

Agencies’ implementation of the Federal registration process, including the de minimis

exception.

The Agencies received a comment from one large financial institution requesting that we

clarify whether the failure of a mortgage loan originator to register pursuant to this rulemaking

has any substantive impact on a mortgage loan made by an institution that employs that

originator. Neither the S.A.F.E

’ implementation of the Federal registration process, including the de minimis

exception.

The Agencies received a comment from one large financial institution requesting that we

clarify whether the failure of a mortgage loan originator to register pursuant to this rulemaking

has any substantive impact on a mortgage loan made by an institution that employs that

originator. Neither the S.A.F.E. Act nor this subpart provides that a mortgage loan originator’s

failure to register as required affects the validity or enforceability of any mortgage loan contract

made by the institution that employs the originator.

A few commenters suggested that in addition to the registration requirements, the final

rule should impose educational and testing requirements on mortgage loan originators, as the

S.A.F.E. Act does for State-licensed originators. The Agencies decline to impose such

requirements. The S.A.F.E. Act does not include educational or testing requirements for

mortgage loan originators employed by Agency-regulated institutions. In addition, as noted

previously, the statute imposes different requirements on mortgage loan originators employed by

Agency-regulated institutions. The Agencies note that these institutions already are subject to

25 See FNMA LL 02-2009: New Mortgage Loan Data Requirements (02/13/09). The Agencies, however,

expect that FHFA will provide some flexibility with this deadline, and perhaps establish a transition period to reflect

the readiness of the Registry to begin accepting Federal registrations and this final rule’s initial registration period.

ect to

25 See FNMA LL 02-2009: New Mortgage Loan Data Requirements (02/13/09). The Agencies, however,

expect that FHFA will provide some flexibility with this deadline, and perhaps establish a transition period to reflect

the readiness of the Registry to begin accepting Federal registrations and this final rule’s initial registration period.

21

extensive Federal oversight, including regular on-site examination of their mortgage lending

activities.

Section ___.102 - Definitions

Section ___.102 defines the terms used in the final rule. If a term is defined in the

S.A.F.E. Act, the Agencies generally have incorporated the same definition in the final rule. The

final rule also includes other definitions currently used by the NMLS in order to promote

consistency and comparability, insofar as is feasible, between Federal registration requirements

and the States’ licensing requirements.

Annual renewal period. Proposed § __.102(a) required that a mortgage loan originator

renew his or her registration annually during the annual renewal period and defined this period as

November 1 through December 31 of each year. This is the same annual renewal period

currently provided by the NMLS to mortgage loan originators regulated by a State.

This time period for renewals generated many comments. A few commenters suggested

that the renewal period for Agency-regulated institutions should be at a different time of year

than for originators regulated by a State. Others stated that the renewal period should be based

upon the original registration date or original hire date, noting that a staggered registration

process would be less burdensome for the Registry. Another commenter suggested that the

employing institution determine its own renewal period for its employees. Still other

commenters requested that this renewal period be lengthened from 60 to 90 days.

The Agencies decline to change the dates for the annual renewal period

tion date or original hire date, noting that a staggered registration

process would be less burdensome for the Registry. Another commenter suggested that the

employing institution determine its own renewal period for its employees. Still other

commenters requested that this renewal period be lengthened from 60 to 90 days.

The Agencies decline to change the dates for the annual renewal period. As indicated

above, the current system for originators regulated by a State is configured for an annual renewal

period from November 1 through December 31. A different renewal period for originators

employed by Agency-regulated institutions would involve functionality changes to the existing

22

system, adding costs and lengthening the implementation time. In addition, the Agencies note

that different renewal periods could cause confusion and added burden to those originators who

may work for both a State-regulated and Agency-regulated institution or who may switch from a

State-regulated institution to an Agency-regulated institution during the year, and to employers

of such originators, as well as for institutions that control both State- and Agency-regulated

institutions. For these same reasons, the Agencies also decline to increase the renewal period

from 60 to 90 days. Therefore, the final rule retains the proposed renewal period of November 1

through December 31 of each year.

Mortgage loan originator. The proposed definition of “mortgage loan originator” was

based on the definition of the term “loan originator” included in the S.A.F.E. Act at section

1503(3) (12 U.S.C. 5102(3)). As defined by the S.A.F.E. Act, this term means an individual who

takes a residential mortgage loan application and offers or negotiates terms of a residential

mortgage loan for compensation or gain

an originator. The proposed definition of “mortgage loan originator” was

based on the definition of the term “loan originator” included in the S.A.F.E. Act at section

1503(3) (12 U.S.C. 5102(3)). As defined by the S.A.F.E. Act, this term means an individual who

takes a residential mortgage loan application and offers or negotiates terms of a residential

mortgage loan for compensation or gain. The term does not include an individual who is not a

mortgage loan originator and: (1) performs purely administrative or clerical tasks on behalf of an

individual who is a mortgage loan originator; (2) performs only real estate brokerage activities

(as defined in section 1503(3)(D) of the S.A.F.E. Act (12 U.S.C. 5102(3)(D))26 and is licensed or

registered as a real estate broker in accordance with applicable State law, unless the individual is

compensated by a lender, a mortgage broker, or other loan originator or by any agent of such

26 The S.A.F.E. Act defines “real estate brokerage activity” to mean any activity that involves offering or

providing real estate brokerage services to the public, including: (i) acting as a real estate agent or real estate broker

for a buyer, seller, lessor, or lessee of real property; (ii) bringing together parties interested in the sale, purchase,

lease, rental, or exchange of real property; (iii) negotiating, on behalf of any party, any portion of a contract relating

to the sale, purchase, lease, rental, or exchange of real property (other than in connection with providing financing

with respect to any such transaction); (iv) engaging in any activity for which a person engaged in the activity is

required to be registered or licensed as a real estate agent or real estate broker under any applicable law; and (v)

offering to engage in any activity, or act in any capacity, described in clause (i), (ii), (iii), or (iv), above . S.A.F.E.

Act at section 1503(3)(D) (12 U.S.C

ing

with respect to any such transaction); (iv) engaging in any activity for which a person engaged in the activity is

required to be registered or licensed as a real estate agent or real estate broker under any applicable law; and (v)

offering to engage in any activity, or act in any capacity, described in clause (i), (ii), (iii), or (iv), above . S.A.F.E.

Act at section 1503(3)(D) (12 U.S.C. 5102(3)(D)) Nothing in this rule would constitute an authorization for

Agency-regulated institutions to engage in real estate brokerage, or any other activity, for which the institution does

not have independent authority pursuant to Federal or State law, as applicable.

23

lender, mortgage broker, or other mortgage loan originator; or (3) is solely involved in

extensions of credit related to timeshare plans, as that term is defined in 11 U.S.C. 101(53D).27

For purposes of the definition of mortgage loan originator, section 1503(3)(C) of the

S.A.F.E. Act (12 U.S.C. 5102(3)(C)) defines “administrative or clerical tasks” to mean: (1) the

receipt, collection, and distribution of information common for the processing or underwriting of

a loan in the mortgage industry; and (2) communication with a consumer to obtain information

necessary for the processing or underwriting of a residential mortgage loan. The proposal

included this definition as well, with one nonsubstantive difference – the proposal used the

phrase “residential mortgage industry” instead of “loan in the mortgage industry” in the first

prong of the definition.

The Agencies included an appendix to the proposal that listed examples of the types of

activities the Agencies consider to be both within and outside the scope of residential mortgage

loan origination activities. The final rule retains this appendix with certain changes as discussed

in this Supplementary Information section

in the mortgage industry” in the first

prong of the definition.

The Agencies included an appendix to the proposal that listed examples of the types of

activities the Agencies consider to be both within and outside the scope of residential mortgage

loan origination activities. The final rule retains this appendix with certain changes as discussed

in this Supplementary Information section. Individuals who receive “compensation or gain” as

used in the definition of mortgage loan originator and described in this appendix include

individuals who earn salaries, commissions or other incentive, or any combination thereof.

The Agencies specifically requested comment on whether the definition of “mortgage

loan originator” should cover individuals who modify existing residential mortgage loans,

engage in approving loan assumptions, or engage in refinancing transactions and, if so, whether

27 “Timeshare plan” is defined in 11 U.S.C. 101(53D) as an interest purchased in any arrangement, plan,

scheme, or similar device, but not including exchange programs, whether by membership, agreement, tenancy in

common, sale, lease, deed, rental agreement, license, right to use agreement, or by any other means, whereby a

purchaser, in exchange for consideration, receives a right to use accommodations, facilities, or recreational sites,

whether improved or unimproved, for a specific period of time less than a full year during any given year, but not

necessarily for consecutive years, and which extends for a period of more than three years. A "timeshare interest" is

e agreement, or by any other means, whereby a

purchaser, in exchange for consideration, receives a right to use accommodations, facilities, or recreational sites,

whether improved or unimproved, for a specific period of time less than a full year during any given year, but not

necessarily for consecutive years, and which extends for a period of more than three years. A "timeshare interest" is

24

these individuals should be excluded from the definition. While a few commenters believed the

Agencies should cover individuals engaged in such transactions, the majority of commenters on

this issue stated that this rulemaking should not cover these individuals. In general, they

indicated that mortgage loan modifications and assumptions are very different from mortgage

loan originations, and that employees engaged in these transactions do not meet the S.A.F.E.

Act’s definition of mortgage loan originator. Specifically, commenters indicated that these

employees neither accept residential mortgage loan applications nor negotiate the terms of a new

residential mortgage loan. Instead, they renegotiate an existing loan with the goals of mitigating

any loss to the institution and, in the case of modifications, providing the borrower with a more

affordable payment option or other type of modification, or, in the case of assumptions, replacing

the party responsible for repaying the mortgage loan. Many commenters indicated that their

employees who engage in modifications and assumptions do not ever originate mortgage loans,

and that modifications and assumptions are performed in different departments of the institution.

Many commenters also noted that applying the S.A.F.E. Act’s registration requirements to

employees engaged in loan modifications and assumptions could significantly hamper loan

modification efforts.

The determining factor in whether the S.A.F.E

d assumptions do not ever originate mortgage loans,

and that modifications and assumptions are performed in different departments of the institution.

Many commenters also noted that applying the S.A.F.E. Act’s registration requirements to

employees engaged in loan modifications and assumptions could significantly hamper loan

modification efforts.

The determining factor in whether the S.A.F.E. Act applies to residential mortgage loan-

related transactions is whether the employee engaged in the transaction meets the definition of

“mortgage loan originator.” In general, neither modifications nor assumptions result in the

extinguishment of an existing loan and the replacement by a new loan, but rather the terms of an

existing loan are revised or the loan is assumed by a new obligor. Thus, Agency-regulated

institution employees engaged in these activities typically do not take loan applications, within

that interest purchased in a timeshare plan which grants the purchaser the right to use and occupy accommodations,

25

the meaning of the S.A.F.E. Act. Therefore, the Agencies conclude that the S.A.F.E. Act’s

definition of “mortgage loan originator” generally would not include employees engaged in loan

modifications or assumptions because they typically would not meet the two-prong test of this

definition. However, if an employee engaged in a transaction labeled a loan “modification” or

“assumption” can be found to meet the definition of “mortgage loan originator,” due to the

nature of the specific transaction in question, he or she would be subject to the S.A.F.E. Act and

this final rule. The substance of a transaction, not the label attached to it, is determinative of

whether the Agency-regulated institution employee associated with it is a mortgage loan

originator for purposes of this rule

e found to meet the definition of “mortgage loan originator,” due to the

nature of the specific transaction in question, he or she would be subject to the S.A.F.E. Act and

this final rule. The substance of a transaction, not the label attached to it, is determinative of

whether the Agency-regulated institution employee associated with it is a mortgage loan

originator for purposes of this rule. For example, the Agencies believe that Agency-regulated

institution employees engaged solely in bona fide cost-free loss mitigation efforts which result in

reduced and sustainable payments for the borrower generally would not meet the definition of

“mortgage loan originator.” In this regard, it should be noted that third parties involved in

foreclosure prevention activities for compensation or gain, although outside the scope of this

rulemaking, may be subject to licensing and registration pursuant to state law.

The Agencies sought comment on whether the individuals who engage in certain

refinancing transactions, specifically cash-out refinancing with the same lender, should be

excluded from the definition of residential mortgage loan originator. Some industry commenters

did not believe that such an exclusion was appropriate primarily because of the nature of a

refinancing as a new loan and the potential for consumer abuse in these transactions. Other

commenters also requested that we exclude individuals engaged in refinancings from the final

rule’s definition of mortgage loan originator, and that refinancings be excluded from the final

rule’s definition of residential mortgage loan, if the refinancing involves the same lender and the

facilities, or recreational sites, whether improved or unimproved, pursuant to a timeshare plan.

at refinancings be excluded from the final

rule’s definition of residential mortgage loan, if the refinancing involves the same lender and the

facilities, or recreational sites, whether improved or unimproved, pursuant to a timeshare plan.

26

borrower obtained no cash proceeds. We decline to make this change. Refinancings are new

loans, regardless of the lender, the loan terms, or proceeds, that involve a new application and an

offer or negotiation of new loan terms. If an individual engaged in a refinancing transaction of a

residential mortgage loan meets the two prongs of the definition of mortgage loan originator, he

or she must comply with the requirements of the S.A.F.E. Act and this final rule.28

Other commenters suggested that the Agencies exclude loan servicing personnel from the

requirements of this rulemaking. We decline to take this suggested approach because the

S.A.F.E. Act definition is based on the activities of mortgage loan origination, rather than the job

classification of the individual. An individual, regardless of job title, is a mortgage loan

originator if he or she engages in the activities of mortgage loan origination within the meaning

of the S.A.F.E. Act. For example, if a loan servicing employee of an Agency-regulated

institution mainly performs loan servicing activities but also occasionally engages in residential

mortgage loan origination, that person is a mortgage loan originator, regardless of whether he or

she is called “servicing personnel.” On the other hand, for example, as discussed above in

connection with loan modifications, a loan servicing employee engaged solely in bona fide cost-

free loss mitigation efforts which result in reduced and sustainable payments for the borrower

generally would not meet the definition of “mortgage loan originator.” Loan servicing

employees of Agency-re

or

she is called “servicing personnel.” On the other hand, for example, as discussed above in

connection with loan modifications, a loan servicing employee engaged solely in bona fide cost-

free loss mitigation efforts which result in reduced and sustainable payments for the borrower

generally would not meet the definition of “mortgage loan originator.” Loan servicing

employees of Agency-regulated institutions must comply with the registration requirements of

the final rule if they meet both prongs of the definition of “mortgage loan originator,” unless they

qualify for the de minimis exception under § ___.101(c)(2) of the final rule. Some commenters

requested clarification that, when a servicing employee of an Agency-regulated institution works

28 Some commenters noted that the Agencies should require only one mortgage loan originator for each

mortgage loan. The Agencies decline to take this approach because the S.A.F.E. Act defines a mortgage loan

originator according to the two-prong test set forth in the statute.

27

with a borrower to collect unpaid taxes or other costs pursuant to a repayment or collection plan,

the employee is not acting as a mortgage loan originator under the Agencies’ rules. The

Agencies agree that such activities would generally not meet the two-prong test of this definition.

Some commenters asked the Agencies to explain whether the S.A.F.E

t forth in the statute.

27

with a borrower to collect unpaid taxes or other costs pursuant to a repayment or collection plan,

the employee is not acting as a mortgage loan originator under the Agencies’ rules. The

Agencies agree that such activities would generally not meet the two-prong test of this definition.

Some commenters asked the Agencies to explain whether the S.A.F.E. Act and this rule

applied to residential mortgage loan originations made through an automated underwriting

system, whereby an applicant inquires about, applies for, and/or receives a decision on an

application electronically through an institution’s Web site.29 Although some institutions may

choose to establish an automated system to collect application information and make an initial

decision on a loan application, from a risk management and compliance perspective, an

institution is expected to set the system parameters and monitor system output for compliance

with various laws, regulations, and guidance on an ongoing basis. Such institutions are expected

to register employees involved in that process who meet the definition of “mortgage loan

originator,” as appropriate. The Agencies note, as indicated above, that the FHFA has directed

Fannie Mae and Freddie Mac to require all mortgage loan applications taken on and after July 1,

2010, to include the mortgage loan originator’s unique identifier.30 Institutions should keep

apprised of any future guidance FHFA may issue to address this requirement.

For the reasons discussed above, the final rule includes the definition of “mortgage loan

originator” as proposed, with one technical change to the definition of “administrative or clerical

29 Section 107(5)(A)(x) of the Federal Credit Union Act (12 U.S.C. 1757(5)(A)(x)) requires all loans to be

approved by a credit committee or loan officer

For the reasons discussed above, the final rule includes the definition of “mortgage loan

originator” as proposed, with one technical change to the definition of “administrative or clerical

29 Section 107(5)(A)(x) of the Federal Credit Union Act (12 U.S.C. 1757(5)(A)(x)) requires all loans to be

approved by a credit committee or loan officer. For all federal credit unions, and to the extent state chartered credit

unions operate under a similar State law or regulation, the statutory and regulatory definition of mortgage loan

originator is met and the S.A.F.E Act does apply.

30 See FNMA LL 02-2009: New Mortgage Loan Data Requirements (02/13/09). The Agencies, however,

expect that FHFA will provide some flexibility with this deadline, and perhaps establish a transition period to reflect

the readiness of the Registry to begin accepting Federal registrations and this final rule’s initial registration period.

28

tasks” to make it identical to the definition of this term in section 1503(3)(C) of the S.A.F.E. Act

(12 U.S.C. 5102(3)(C)).

Nationwide Mortgage Licensing System and Registry or Registry. Section ___.102(c) of

the proposed rule’s definition of these terms is based on the definition included in section

1503(5) of the S.A.F.E. Act (12 U.S.C. 5102(5)). Specifically, these terms mean the system

developed and maintained by CSBS and the AARMR for the State licensing and registration of

State-licensed mortgage loan originators and the registration of mortgage loan originators

pursuant to section 1507 of the S.A.F.E. Act (12 U.S.C. § 5106). As explained above, CSBS and

the AARMR have established an online system, NMLS, that currently supports the licensing and

registration of mortgage loan originators regulated by a State

the AARMR for the State licensing and registration of

State-licensed mortgage loan originators and the registration of mortgage loan originators

pursuant to section 1507 of the S.A.F.E. Act (12 U.S.C. § 5106). As explained above, CSBS and

the AARMR have established an online system, NMLS, that currently supports the licensing and

registration of mortgage loan originators regulated by a State. The Agencies are working with

CSBS to modify the NMLS to support the registration of mortgage loan originators employed by

Agency-regulated institutions, and will rename this system the Nationwide Mortgage Licensing

System and Registry. The Agencies received no comments on this definition and adopt it as

proposed.

Registered mortgage loan originator. Pursuant to section 1503(7) of the S.A.F.E. Act (12

U.S.C. 5102(7)), the proposed rule defined this term to mean any individual who meets the

definition of mortgage loan originator, is an employee of an Agency-regulated institution, and is

registered pursuant to the requirements of this rule with, and maintains a unique identifier

through, the Registry. This definition is the same as that included in the S.A.F.E. Act, except

that the Agencies have modified it to apply only to individuals registered pursuant to regulations

issued by the Agencies. The Agencies received no comments on this definition and adopt it as

proposed.

29

Residential mortgage loan. As in section 1503(8) of the S.A.F.E. Act, (12 U.S.C.

5102(8)), the proposal defined “residential mortgage loan” as any loan primarily for personal,

family, or household use that is secured by a mortgage, deed of trust, or other equivalent

consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending

Act (TILA) (15 U.S.C. 1602(v))31 or residential real estate upon which is constructed or intended

to be constructed a dwelling

proposal defined “residential mortgage loan” as any loan primarily for personal,

family, or household use that is secured by a mortgage, deed of trust, or other equivalent

consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending

Act (TILA) (15 U.S.C. 1602(v))31 or residential real estate upon which is constructed or intended

to be constructed a dwelling. In addition, the proposal specifically included refinancings, reverse

mortgages, home equity lines of credit and other first and second lien loans secured by a

dwelling in this definition in order to clarify that originators of these types of loans are covered

by the rule’s requirements.

One commenter suggested that ancillary liens on an underlying mortgage loan or liens

taken to provide consumers with potential tax advantages should not be considered residential

mortgage loans. In addition, another commenter asked that the definition of residential mortgage

loan include an exception to exclude seller-sponsored financing of the sale of lender-owned

property. The Agencies decline to adopt these exclusions to the definition of “residential

mortgage loan” and adopt this definition as proposed. These types of loans clearly fall within the

statutory definition of “residential mortgage loans,” and the S.A.F.E. Act makes no exceptions

for these two situations. We do clarify, however, that this definition does not include loans for

business, commercial, or agricultural purposes that use as collateral property that meets the

definition of a “dwelling.”

31 TILA defines “dwelling” as a residential structure or mobile home which contains one-to-four family

housing units, or individual units of condominiums or cooperatives. 15 U.S.C. 1602(v)

nition does not include loans for

business, commercial, or agricultural purposes that use as collateral property that meets the

definition of a “dwelling.”

31 TILA defines “dwelling” as a residential structure or mobile home which contains one-to-four family

housing units, or individual units of condominiums or cooperatives. 15 U.S.C. 1602(v). Board regulations and

commentary include in this definition any residential structure that contains one to four units, whether or not that

structure is attached to real property, and includes an individual condominium unit, cooperative unit, mobile home,

and trailer, if it is used as a residence. See 12 CFR 226.2(a)(19) (Regulation Z).

30

As indicated in the Supplementary Information section to the proposed rule, the FCA

emphasizes that section 1503(8) of the S.A.F.E. Act (12 U.S.C. 5102(8)) and § ___.102(e) do not

amend or supersede sections 1.11(b) and 2.4(b) of the Farm Credit Act of 1971, as amended (12

U.S.C. 2019(b) and 2075(b)), and their implementing regulation, 12 CFR 613.3030(c), which

establish the purposes for which FCS institutions may originate residential mortgage loans for

eligible rural home borrowers.

Unique Identifier. The proposed rule’s definition of this term was almost identical to that

in section 1503(12) of the S.A.F.E. Act (12 U.S.C. 5102(12)). The Agencies received no

comments on this definition and adopt it as proposed

ulation, 12 CFR 613.3030(c), which

establish the purposes for which FCS institutions may originate residential mortgage loans for

eligible rural home borrowers.

Unique Identifier. The proposed rule’s definition of this term was almost identical to that

in section 1503(12) of the S.A.F.E. Act (12 U.S.C. 5102(12)). The Agencies received no

comments on this definition and adopt it as proposed. Specifically, the final rule defines “unique

identifier” to mean a number or other identifier that: (1) permanently identifies a registered

mortgage loan originator; (2) is assigned by protocols established by the Registry and the

Agencies to facilitate electronic tracking of mortgage loan originators, and uniform identification

of, and public access to, the employment history of and the publicly adjudicated disciplinary and

enforcement actions against mortgage loan originators; and (3) must not be used for purposes

other than those set forth in the S.A.F.E. Act.

Other terms. The Agencies note that § ___.103(d) of the proposed and final rule uses the

terms “control” and “financial services-related” in the descriptions of the information that is

required of an employee who is a mortgage loan originator. These terms are currently defined in

the Web-based MU4 form collecting information on State-licensed mortgage loan originators. In

order to promote consistency of the information collected for Agency-regulated and State-

licensed mortgage loan originators, the Agencies reiterate that the MU4 form’s definitions of

information that is

required of an employee who is a mortgage loan originator. These terms are currently defined in

the Web-based MU4 form collecting information on State-licensed mortgage loan originators. In

order to promote consistency of the information collected for Agency-regulated and State-

licensed mortgage loan originators, the Agencies reiterate that the MU4 form’s definitions of

31

those two terms will also be used in the Web-based form collecting information on Agency-

regulated mortgage loan originators and, therefore have not defined them in this rulemaking.32

A number of commenters requested that the Agencies define “employee” for purposes of

this rulemaking to provide more clarity regarding the individuals covered by the rule. Agency-

regulated institutions must have a process for identifying which employees of the institution are

required to be registered mortgage loan originators.33 As the Supreme Court has explained,

“where Congress uses terms that have accumulated settled meaning under . . . the common law, a

court must infer, unless the statute otherwise dictates, that Congress means to incorporate the

established meaning of these terms . . . . In the past, when Congress has used the term

'employee' without defining it, we have concluded that Congress intended to describe the

conventional master-servant relationship as understood by common-law agency doctrine." 34

Section 7.07(3)(a) of the Restatement (Third) of Agency explains that “an employee is an agent

whose principal controls or has the right to control the manner and means of the agent’s

performance of work.”35 The Agencies thus intend that the meaning of employee under the

32 The Registry currently defines “control” as the power, directly or indirectly, to direct the management or

policies of a company or business, whether through ownership of securities, by contract, or otherwise

to control the manner and means of the agent’s

performance of work.”35 The Agencies thus intend that the meaning of employee under the

32 The Registry currently defines “control” as the power, directly or indirectly, to direct the management or

policies of a company or business, whether through ownership of securities, by contract, or otherwise. Any person

who is a general partner or executive officer, including Chief Executive Officer, Chief Financial Officer, Chief

Operations Officer, Chief Legal Officer, Chief Compliance Officer, Director and individuals with similar status or

functions; directly or indirectly has the right to vote 10 percent or more of a class of a voting security or has the

power to sell or direct the sale of 10 percent or more of a class of voting securities; or, in the case of a partnership,

has the right to receive upon dissolution, or has contributed, 10 percent or more of the capital, is presumed to control

that company. The Agencies have requested that this definition be revised to include “Chief Credit Officer.” The

Registry’s current definition of “Financial services-related” means pertaining to securities, commodities, banking,

insurance, consumer lending, or real estate (including, but not limited to, acting or being associated with a bank or

savings association, credit union, mortgage lender, mortgage broker, real estate salesperson or agent, closing agent,

title company, or escrow agent). The Agencies have requested that this definition be revised to include “Farm Credit

System institution” and “appraiser.” These changes are planned to take effect in January 2010.

33 See § ___.104(a).

34 Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992) (citing Community for Creative

Non-Violence v. Reid, 490 U.S. 730, 739-40 (1989) (other citations omitted).

35 RESTATEMENT (THIRD) OF AGENCY § 7.07(3)(a) (2006).

be revised to include “Farm Credit

System institution” and “appraiser.” These changes are planned to take effect in January 2010.

33 See § ___.104(a).

34 Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992) (citing Community for Creative

Non-Violence v. Reid, 490 U.S. 730, 739-40 (1989) (other citations omitted).

35 RESTATEMENT (THIRD) OF AGENCY § 7.07(3)(a) (2006).

32

S.A.F.E. Act and this rule is consistent with the right-to-control test under the common law

agency doctrine. The Agencies note in this regard that the IRS uses the common law right-to-

control test as its basis for classification of workers as employees.36 The result of this test

generally determines whether an institution files a W-2 or a 1099 for an individual. The

Agencies therefore expect an Agency-regulated institution would identify a mortgage loan

originator as an individual subject to this final rule if, following consideration of the relevant

facts, the institution determines that the individual is an employee of the Agency-regulated

institution.37

Section __.103 – Registration of mortgage loan originators

Section 1504(a) of the S.A.F.E. Act (12 U.S.C. 5103(a)) prohibits an individual who is

an employee of an Agency-regulated institution from engaging in the business of a loan

originator without registering as a loan originator with the Registry, maintaining annually such

registration, and obtaining a unique identifier through the Registry. As in the proposal and

described more specifically below, § ___.103 of the final rule imposes the responsibility for

complying with these requirements on both the individual employee and the employing

institution. In addition, both the employee and the employing institution must submit

information to the Registry for each registration to be complete

a unique identifier through the Registry. As in the proposal and

described more specifically below, § ___.103 of the final rule imposes the responsibility for

complying with these requirements on both the individual employee and the employing

institution. In addition, both the employee and the employing institution must submit

information to the Registry for each registration to be complete. The Agencies note that an

employee of an Agency-regulated institution who is not actively engaged in residential mortgage

loan activity is not prohibited from registering with the Registry.

36IRS Publication 1779; see also Form SS-8, Determination of Worker Status for Purposes of Federal

Employment Taxes and Income Tax Withholding.

37Agency-regulated institutions that are credit unions sometimes rely upon volunteers to originate mortgage

loans. The right-to-control test under the common law agency doctrine likewise applies to these credit unions.

Credit union management establishes the policies, procedures, and practices that volunteers use in performing their

functions. Therefore, these volunteers qualify as employees of the Agency-regulated institution for purposes of the

S.A.F.E. Act and this rule.

33

Employee registration requirement. In general, § ___.103(a)(1) of the proposed rule

required an employee of an Agency-regulated institution who acts as a mortgage loan originator

to register with the Registry, obtain a unique identifier, and maintain his or her registration. This

section further provided that any employee who is not in compliance with the registration and

unique identifier requirements set forth in the proposed rule is in violation of the S.A.F.E. Act

and this rule.38 The Agencies note that this registration requirement would not apply if the

employee qualifies for the de minimis exception

unique identifier, and maintain his or her registration. This

section further provided that any employee who is not in compliance with the registration and

unique identifier requirements set forth in the proposed rule is in violation of the S.A.F.E. Act

and this rule.38 The Agencies note that this registration requirement would not apply if the

employee qualifies for the de minimis exception.

The Agencies did not receive substantive comments specifically on this section and

therefore adopt it as proposed.

Institution requirement. Proposed paragraph (a)(2) of § _____.103 provided that an

Agency-regulated institution must require its employees who are mortgage loan originators to

register with the Registry, maintain this registration, and obtain a unique identifier in compliance

with this subpart. This provision also prohibited an Agency-regulated institution from permitting

its employees to act as mortgage loan originators unless registered with the Registry pursuant to

this subpart, after the applicable implementation periods specified in §§ ____.103(a)(3) and

(a)(4)(ii) expire.

One commenter objected to this requirement as not being based on statutory language.

Although the S.A.F.E. Act does not contain the same express prohibition as in the Agencies’

proposed rule, determining the scope of mortgage loan origination activities that subject an

38 The OCC, Board, FDIC, and OTS have the authority to take enforcement actions against their respective

Agency-regulated institutions and individual employees of those institutions who violate the S.A.F.E. Act and this

final rule, pursuant to 12 U.S.C. 1818. The FCA has authority to take enforcement actions against Farm Credit

System institutions and individual employees who violate the S.A.F.E

The OCC, Board, FDIC, and OTS have the authority to take enforcement actions against their respective

Agency-regulated institutions and individual employees of those institutions who violate the S.A.F.E. Act and this

final rule, pursuant to 12 U.S.C. 1818. The FCA has authority to take enforcement actions against Farm Credit

System institutions and individual employees who violate the S.A.F.E. Act and this final rule pursuant to Title V,

Part C of the Farm Credit Act of 1971, as amended, 12 U.S.C. 2261 et seq. The NCUA has the authority to take

enforcement actions against federally-insured credit unions and their employees who violate the S.A.F.E. Act and

this final rule under 12 U.S.C. 1786. For privately insured credit unions, memoranda of understanding between

NCUA and applicable State supervisory authorities will establish enforcement authority.

34

individual or institution to the Act’s requirements is well within the Agencies’ authority to

implement the statute. The imposition of this requirement on Agency-regulated institutions

implements the purposes of the S.A.F.E. Act and ensures Agency-regulated institutions and their

employees comply with all applicable laws. This commenter also stated that this requirement

would be difficult to enforce because an employing institution may not know of the activities of

its employees outside of their scope of employment at that institution. We agree with this

commenter that the language in § __103.(a)(2)(ii) should be clarified so that an institution’s

oversight of a mortgage loan originator applies only to the extent the originator is acting within

the scope of his or her employment at that institution. We therefore adopt § ___.103(a)(2) with

this one change.

Implementation period for initial registrations. Proposed § ___.103(a)(3) provided a 180-

day implementation period for initial registrations beginning on the date the Agencies provide

public notice that the Registry is accepting initial registrations

originator is acting within

the scope of his or her employment at that institution. We therefore adopt § ___.103(a)(2) with

this one change.

Implementation period for initial registrations. Proposed § ___.103(a)(3) provided a 180-

day implementation period for initial registrations beginning on the date the Agencies provide

public notice that the Registry is accepting initial registrations. The Agencies have adopted this

provision as proposed with one minor change to clarify that the implementation period begins on

the date that the Agencies provide in their public notice, not the actual date of the public notice.

Pursuant to the proposal, an employee could continue to originate residential mortgage loans

without complying with the rule’s registration requirement before and during this 180-day

period. After this 180-day period expires, any existing employee or newly-hired employee of an

Agency-regulated institution who is subject to the registration requirements would be prohibited

from originating residential mortgage loans without first meeting such requirements.

The Agencies specifically requested comment on whether this 180-day implementation

period would provide Agency-regulated institutions and their employees with adequate time to

tial mortgage loans without first meeting such requirements.

The Agencies specifically requested comment on whether this 180-day implementation

period would provide Agency-regulated institutions and their employees with adequate time to

35

complete the initial registration process. The Agencies also inquired as to whether an alternative

schedule for implementation and initial registrations would be appropriate, what such an

alternative schedule should be, and whether, and how, a staggered registration process should be

developed.

The Agencies received many comments on this implementation period. Some

commenters supported a 180-day period. Others supported the proposed 180-day

implementation period provided that certain conditions are met, such as excluding loan

modification and mitigation employees from the registration requirements, allowing batch

processing, simplifying the employer verification requirements, and immediate confirmation of

registration without delay for fingerprint or background check results.

Other commenters, however, stated that the proposed 180-day implementation period

would not provide sufficient time to register the large number of employees subject to the

registration requirement, properly train all employees, develop compliance policies, and program

and implement system controls. Many noted that a longer period would prevent the Registry

from being overwhelmed with registrations. Two commenters, including one Federal agency,

stated that additional time will particularly benefit smaller financial institutions. Another

commenter indicated that the time, effort, and resources required to meet new systems

requirements can be extensive, and that a 180-day implementation period for such major changes

would be extremely difficult for larger institutions

with registrations. Two commenters, including one Federal agency,

stated that additional time will particularly benefit smaller financial institutions. Another

commenter indicated that the time, effort, and resources required to meet new systems

requirements can be extensive, and that a 180-day implementation period for such major changes

would be extremely difficult for larger institutions. These commenters suggested an

implementation period of nine months to one year. One commenter stated that each Agency

should have the flexibility to grant additional time to register in the event the Registry becomes

backlogged or inundated with a large volume of registrations. No commenter requested a shorter

implementation period.

36

The Agencies understand that Agency-regulated institutions and their mortgage loan

originator employees will face certain implementation issues in complying with the registration

requirements established by this rulemaking. However, as indicated above, due to various

system modifications and enhancements required to make the existing system capable of

accepting Federal registrants, the system is not expected to be available to accept Federal

registrations until sometime in 2010. The 180-day implementation period will not begin until the

system is available to accept Federal registrations. This in effect provides institutions with an

implementation period longer than 180 days as institutions and their employees can begin to

implement the final rule’s requirements before the Registry is operational, i.e., develop policies

and procedures, train employees, gather information needed for registration, and program and

implement system controls. In addition, CSBS and SRR will provide information to, and assist

Agency-regulated institutions in preparation for, registration during this period

their employees can begin to

implement the final rule’s requirements before the Registry is operational, i.e., develop policies

and procedures, train employees, gather information needed for registration, and program and

implement system controls. In addition, CSBS and SRR will provide information to, and assist

Agency-regulated institutions in preparation for, registration during this period. The Agencies

believe that this additional time will provide mortgage loan originators, and the Agency-

regulated institutions that employ them, adequate opportunity to prepare for the registration

requirements. Any extension of the 180-day implementation period provided in the final rule

will only further delay the registration of residential mortgage loan originators and, as a result,

the consumer protection benefits of the S.A.F.E. Act. In addition, as described below, batch

processing of at least some information likely will be available, which should make the

registration process more efficient for both the institution and the registering employee. For

these reasons, the Agencies decline to provide an implementation period longer than the

proposed 180 days.

Many commenters indicated support for a staggered implementation period. Some noted

that this could be based on institution size, loan origination volume, or employee qualifiers (such

37

as birth date or last name). Some of these commenters, however, noted that they would support a

staggered schedule only if it would provide a registration period of equal length for all

registrants. Other commenters supported a staggered process that would give smaller institutions

or institutions that do not originate many residential mortgage loans the greatest amount of time

to comply with the requirements.

The Agencies agree that a staggered implementation process for those institutions that

prefer one would be useful

ovide a registration period of equal length for all

registrants. Other commenters supported a staggered process that would give smaller institutions

or institutions that do not originate many residential mortgage loans the greatest amount of time

to comply with the requirements.

The Agencies agree that a staggered implementation process for those institutions that

prefer one would be useful. Such a process would allow institutions to register their employees

within specific time periods during the implementation period with the assistance of dedicated

staff. Staggered registration would limit the number of originators registering at any one time

and spread the registration of originators throughout the implementation period. Although such a

schedule mostly would benefit those institutions with the largest number of mortgage loan

originators, it also should enable the Registry to accommodate all registrations in a more timely

and efficient manner, thereby benefiting all institutions. Accordingly, the Agencies will work

with CSBS and SRR to develop a staggered registration schedule for institutions, in particular

those that are estimated to have a large number of mortgage loan originators subject to Federal

registration, that request such a schedule. This staggered process would occur within the 180-

day implementation period in order not to delay the registration of mortgage loan originators and

the ability of consumers to fully utilize the Registry. Because institutions that request a

staggered registration process would have a dedicated period during which to register within the

180-day period, registration burdens may be eased for these institutions, lessening their need for

the full 180-day registration period. Details on this staggered approach will be provided to

applicable institutions when they have been finalized and may include the availability of this

dedicated staff prior to the start of the registration period.

d period during which to register within the

180-day period, registration burdens may be eased for these institutions, lessening their need for

the full 180-day registration period. Details on this staggered approach will be provided to

applicable institutions when they have been finalized and may include the availability of this

dedicated staff prior to the start of the registration period.

38

Special rule for previously registered employees. Under paragraph (a)(4) of § ___.103 of

the proposed and final rule, properly registered or licensed mortgage loan originators would not

have to register again with the Registry when they change employment by moving from one

Agency-regulated institution to another or from a State-regulated institution to an Agency-

regulated institution, regardless of whether the change in employment is made voluntarily,

through an acquisition or merger of the employee’s prior employer, or through a reorganization

where previously State-licensed mortgage loan originators become subject to the registration

requirements of Agency-regulated institutions. Instead, the employee and employing institution

need only update information in the Registry and complete the required authorizations and

attestation.

Specifically, proposed paragraph (a)(4) of § ___.103 provided that if a new employee of

an Agency-regulated institution had previously registered with, and obtained a unique identifier

from, the Registry prior to becoming an employee of that institution and has maintained that

registration (or license, if previously employed by a non-Agency-regulated institution), the

registration requirements of this subpart are deemed to be met provided that: (1) the employee’s

employment information in the Registry is updated and the employee has completed the required

authorizations and attestation; (2) new fingerprints of the employee are provided to the Registry

for a background check, except in the case of mergers, acquisitions or reorganizations; (3)

information concerni

tration requirements of this subpart are deemed to be met provided that: (1) the employee’s

employment information in the Registry is updated and the employee has completed the required

authorizations and attestation; (2) new fingerprints of the employee are provided to the Registry

for a background check, except in the case of mergers, acquisitions or reorganizations; (3)

information concerning the new employing institution is provided to the Registry pursuant to §

___.103(e)(1)(i), to the extent the institution has not previously met these requirements, and §

___.103(e)(2)(i);39 and (4) the registration is maintained pursuant to the requirements of

39 These provisions require: the institution’s name; main office address; IRS Employer Tax Identification

Number; Research Statistics Supervision Discount (RSSD) number; identification of the institution’s primary

Federal regulator; contact information for individuals at the institution for Registry purposes; applicable subsidiary

39

paragraphs § ___.103(b) and (e)(1)(ii) of this section as of the date that the employee becomes

employed by the institution.

Some commenters requested that the Agencies reduce these requirements in order to

further facilitate the movement of employees from one institution to another and prevent

unnecessary interruption of mortgage origination activity. However, the Agencies believe that

the current provision adequately reduces regulatory burden on Agency-regulated institutions as

well as the residential mortgage industry when registered mortgage loan originators change

employers and will allow a mortgage origination transaction in process at the time of the

employment change to proceed smoothly

interruption of mortgage origination activity. However, the Agencies believe that

the current provision adequately reduces regulatory burden on Agency-regulated institutions as

well as the residential mortgage industry when registered mortgage loan originators change

employers and will allow a mortgage origination transaction in process at the time of the

employment change to proceed smoothly. It requires less than what would be needed to

complete a new registration and requires only that information necessary to update the

employee’s registration and confirm the identity of the originator and the employer, thereby

preventing fraudulent information from being submitted to the Registry. However, we have

amended § ___.103(a)(4)(i)(B) to provide that new fingerprints are not required to be submitted,

pursuant to § ___.103(d)(1)(ix), if the registered loan originator has fingerprints on file with the

Registry that are less than three years old. The Registry will use these existing prints for

purposes of the background check. This three-year age limit is consistent with the procedures to

be used by SRR for mortgage loan originators licensed by a State. We note that, as proposed, the

final rule does not require fingerprints or a new background check when the change in employers

is due to an acquisition, merger, or reorganization because these transactions carry a lower risk

of fraud and identity theft. The Agencies note that institutions should still conduct prudent

screening of prospective employees to confirm their identities.

information, and confirmation that it employs the registrant. Information regarding an institution’s RSSD number is

available from the Board.

should still conduct prudent

screening of prospective employees to confirm their identities.

information, and confirmation that it employs the registrant. Information regarding an institution’s RSSD number is

available from the Board.

40

In response to a comment, the Agencies note that paragraph (a)(4) of § ___.103 applies

when an employee of an Agency-regulated institution becomes an employee of another Agency-

regulated institution, regardless of whether the entities are affiliated. Similarly, when an

employee of a subsidiary of an Agency-regulated institution becomes an employee of the

institution, the requirements of the § ___.103 apply.

In order to reduce regulatory burden and to prevent an interruption in mortgage

origination activity, the proposed § ___.103(a)(4)(ii) provided a 60-day grace period to comply

with the § ___.103(a)(4)(i) requirements when a registered mortgage loan originator becomes an

employee of an Agency-regulated institution as a result of an acquisition, merger, or

reorganization. Some commenters agreed that this 60-day grace period is appropriate and

provides the proper balance between implementing the purpose of the S.A.F.E. Act and

protecting consumers. Other commenters, however, requested that this period be extended to 90

or 180 days due to the complexity and protracted nature of the merger and acquisition process.

Some commenters also requested that a 60-day grace period apply to all changes in employment,

regardless of whether the change is the result of a merger or acquisition transaction.

Final § ___.103(a)(4)(ii) retains the proposed 60-day grace period for a change in

employers due to acquisitions, mergers or reorganizations

complexity and protracted nature of the merger and acquisition process.

Some commenters also requested that a 60-day grace period apply to all changes in employment,

regardless of whether the change is the result of a merger or acquisition transaction.

Final § ___.103(a)(4)(ii) retains the proposed 60-day grace period for a change in

employers due to acquisitions, mergers or reorganizations. The Agencies find that 60 days is an

adequate time for institutions and their employees to update registrations in the case of these

transactions and agree with the commenters who stated that this time period balances the

purposes of the S.A.F.E. Act and consumer protection.

Additionally, the Agencies find that a grace period is not necessary when a mortgage loan

originator changes employers for other reasons. This situation does not raise the same

compliance burden as does an acquisition, merger, or reorganization, in which a large number of

41

employees are switching employers at the same time. Therefore, as proposed, the final rule

requires that these registered mortgage loan originators comply with the requirements of

§ __.103(a)(4) before they may originate residential mortgage loans for their new employer.

Another commenter requested that the Agencies permit an employer to submit one update

concerning all affected employees in the case of an acquisition, merger, or reorganization, rather

than having each individual employee submit what is largely identical information about their

change in employer. The Agencies agree that this approach would reduce burden for the

employee, institution, and the Registry. We specifically have instructed CSBS and SRR to

develop a process for these transactions that would allow the bulk transfer of business location

and contact information for all mortgage loan originators from one institution to another.

However, each individual employee still must complete the authorization and attestation for their

own updated registration record

stitution, and the Registry. We specifically have instructed CSBS and SRR to

develop a process for these transactions that would allow the bulk transfer of business location

and contact information for all mortgage loan originators from one institution to another.

However, each individual employee still must complete the authorization and attestation for their

own updated registration record.

The Agencies adopt proposed § ___.103(a)(4) with the addition of the language discussed

above related to fingerprints in § ___.103(a)(4)(i)(B). The Agencies also have modified

§ ___.103(a)(4) to clarify that an employee of a bank who has been properly registered or

licensed as a mortgage loan originator need only update information in the Registry, and

complete the required authorizations and attestation, whether that employee is a new employee

of the Agency-regulated institution or becomes subject to this subpart while an employee of the

institution.

The Agencies note that the registration of a mortgage loan originator who leaves any

employer will be recorded as inactive in the Registry until he or she is hired by another entity,

his or her record is updated in accordance with the final rule’s requirements, and the new

employer acknowledges employing the mortgage loan originator through the Registry. The

42

individual will be prohibited from acting as a mortgage loan originator at an Agency-regulated

institution until such time as the registration is reactivated, unless covered by the 60-day grace

period for acquisitions, mergers, and reorganizations.

Maintaining Registration. Under proposed § ___.103(b)(1)(i), a registered mortgage loan

originator must renew his or her registration with the Registry during the annual renewal period,

November 1 through December 31 of each year. To renew, the employee must confirm that the

information previously submitted to the Registry remains accurate and complete, updating any

information as appropriate

aintaining Registration. Under proposed § ___.103(b)(1)(i), a registered mortgage loan

originator must renew his or her registration with the Registry during the annual renewal period,

November 1 through December 31 of each year. To renew, the employee must confirm that the

information previously submitted to the Registry remains accurate and complete, updating any

information as appropriate. Any registration that is not renewed during this period will become

inactive, and the individual will be prohibited from acting as a mortgage loan originator at an

Agency-regulated institution until such time as the registration requirements are met. However,

an individual who fails to update information during this period may renew his or her registration

at any time and does not need to wait until the start of the next annual renewal period. Inactive

mortgage loan originators will not be assigned a new unique identifier if they reactivate their

registration.

Some commenters opposed the requirement to renew registrations annually as overly

burdensome and unnecessary. Some suggested alternatively that a registration remain valid until

there is a change in employment status or other change that requires an update of database

information. Others recommended that the renewal be every two, three, or five years, or based

on the experience of the originator. The Agencies understand that an annual renewal process

requires an expenditure of time and resources by individual originators and their employing

Agency-regulated institutions. However, section 1504 of the S.A.F.E. Act (12 U.S.C. 5103),

requires that mortgage loan originators maintain their registration annually. Therefore, the

Agencies can not eliminate, or lengthen the time between, renewals. For this reason, the

t an annual renewal process

requires an expenditure of time and resources by individual originators and their employing

Agency-regulated institutions. However, section 1504 of the S.A.F.E. Act (12 U.S.C. 5103),

requires that mortgage loan originators maintain their registration annually. Therefore, the

Agencies can not eliminate, or lengthen the time between, renewals. For this reason, the

43

Agencies adopt § ___.103(b)(1)(i) as proposed without revision. We note that the automated

processing of annual renewals, as more fully described below, could lessen the impact on the

resources needed for these renewals.

One commenter suggested that the final rule not require a mortgage loan originator to

renew his or her registration during this annual renewal period if registration was made less than

six months prior to the end of the renewal period. The Agencies believe this change is

reasonable and within the scope of the S.A.F.E. Act. We have amended the final rule

accordingly by adding new paragraph (b)(3) to final § ___.103. However, a mortgage loan

originator still is required to update his or her registration during this six month period if any

information provided to the Registry at the time of registration changes, pursuant to § ___

.103(b)(1)(ii), described below.

In addition to the annual renewal, proposed § ___.103(b)(1)(ii) provided that a

registration must be updated within 30 days of the occurrence of any of the following events: (1)

a change in the employee’s name; (2) the registrant ceases to be an employee of the institution;

or (3) any of the employee’s responses to the information required for registration pursuant to

paragraphs (d)(1)(iii) through (viii) of § ___.103 become inaccurate.

A few commenters requested that the Agencies increase this 30-day period for updates to

60 or 90 days. The Agencies believe that the Registry should be updated as soon as possible and

therefore have not adopted this requested change

) any of the employee’s responses to the information required for registration pursuant to

paragraphs (d)(1)(iii) through (viii) of § ___.103 become inaccurate.

A few commenters requested that the Agencies increase this 30-day period for updates to

60 or 90 days. The Agencies believe that the Registry should be updated as soon as possible and

therefore have not adopted this requested change. Updates are needed on only a case-by-case

basis and therefore, unlike in the case of mergers and acquisitions, should not be burdensome to

registrants or employing institutions. In addition, the 30-day updating period is consistent with

what is required currently for State-licensed mortgage loan originators. Therefore, final

§ ___.103(b)(1)(ii) includes a 30-day update requirement, as proposed.

44

Proposed § ___.103(b) also requires any employee who registers with the Registry to

maintain his or her registration unless the employee is no longer a mortgage loan originator. As

a result of this provision, once an employee registers as a loan originator with the Registry, the

employee will be required to continue this registration until he or she is no longer engaged in the

activity of a mortgage loan originator, even if, in any subsequent 12-month period, the employee

originates fewer mortgage loans than the number specified in the de minimis exception

provision. The purpose of this requirement is to prevent the creation of a timing loophole that

could allow mortgage loan originators to avoid registration requirements.

As indicated in the proposal’s Supplementary Information section (74 FR 27391), the

Agencies have considered whether the rule should provide for a temporary waiver of the rule’s

registration requirements or for extension of the initial registration or renewal period, in case of

emergency, system malfunction, or other event beyond the control of the Agency-regulated

institution or the mortgage loan originator

the proposal’s Supplementary Information section (74 FR 27391), the

Agencies have considered whether the rule should provide for a temporary waiver of the rule’s

registration requirements or for extension of the initial registration or renewal period, in case of

emergency, system malfunction, or other event beyond the control of the Agency-regulated

institution or the mortgage loan originator. One commenter expressed support for this concept

but noted that such an exception should be narrowly drawn so as not to create a loophole in the

registration requirement and suggested that each Agency select an official who has authority to

designate an emergency deadline extension for good cause. Another commenter also supported a

waiver when events beyond the institution’s control made timely registration impossible.

The Agencies agree that on rare occasions there may be exigent circumstances or

situations when the Agencies may deem it appropriate to temporarily waive or suspend the

requirements of this rule or extend the initial registration or renewal periods. The Agencies do

not believe, however, that the final rule must include specific language to effectuate such

waivers, suspensions, or extensions. As is the Agencies’ practice in other supervisory contexts,

if a situation arises that warrants such an action, such as a serious interruption of communication,

45

computer, or fingerprint collection systems at one or more institution(s) caused by circumstances

beyond the institution’s control, or an extended interruption of Registry service, the Agencies

will announce the availability of waivers, suspensions, or extensions of time. In addition,

Agency-regulated institutions may contact their regulators to discuss possible relief on a case-by-

case basis.

Effective date of registrations and renewals

e or more institution(s) caused by circumstances

beyond the institution’s control, or an extended interruption of Registry service, the Agencies

will announce the availability of waivers, suspensions, or extensions of time. In addition,

Agency-regulated institutions may contact their regulators to discuss possible relief on a case-by-

case basis.

Effective date of registrations and renewals. Proposed § ____.103(c) provided that a

registration is effective on the date that the registrant receives notification from the Registry that

all employee and institution information required by paragraphs (d) and (e) of § __.103 has been

submitted and the registration is complete, and that a renewal or update of a registration is

effective on the date the registrant receives notification from the Registry that all applicable

information required by paragraphs (b) and (e) of § __.103 has been submitted and the renewal

or update is complete.

We have made two changes to this provision in the final rule. Because the Registry is not

technically capable of determining when a registrant actually receives its notification that the

registration is complete, we have amended this provision to indicate that a registration is

effective when the Registry transmits notification to the registrant that the registrant is registered.

In addition, we have streamlined this provision to clarify that this notification of registration

completes the registration process. We have made similar changes to § ___.103(c)(2) regarding

renewals and updates.

We note that, except as provided by the 180-day implementation period in

§ ___.103(a)(3) or the 60-day grace period provided in § ___.103(a)(4), an employee must not

engage in residential mortgage loan origination activity if his or her registration is not yet

effective or has not been renewed or updated pursuant to this rule.

imilar changes to § ___.103(c)(2) regarding

renewals and updates.

We note that, except as provided by the 180-day implementation period in

§ ___.103(a)(3) or the 60-day grace period provided in § ___.103(a)(4), an employee must not

engage in residential mortgage loan origination activity if his or her registration is not yet

effective or has not been renewed or updated pursuant to this rule.

46

A number of commenters requested further clarification of this effective date, and

specifically requested that the effectiveness of the registration not be delayed for the processing

of a registrant’s fingerprints or receipt of a criminal background check. The Agencies did not

intend to delay the effective date for fingerprint or criminal background check processing. There

is no requirement for the processing of these fingerprints or the completion of a background

check before a registration becomes effective. Nor, as indicated previously in this

Supplementary Information section, is the effectiveness of a registration contingent on Agency

or Registry review or approval of the information submitted to the Registry. Pursuant to the rule,

in order to register, the information required by §__.103(d) and (e) must be submitted, and, in

order to renew or update a registration, the information required by §__.103(b) must be

submitted. The Registry will conduct a completeness check of the information submitted by or

on behalf of the registrant. At the time the Registry determines all required information has been

submitted and all Registry requirements have been met, such as payment of applicable fees

charged by the Registry, it will transmit notification electronically to the registrant that he or she

is registered or that his or her registration is renewed or updated, as applicable

tion submitted by or

on behalf of the registrant. At the time the Registry determines all required information has been

submitted and all Registry requirements have been met, such as payment of applicable fees

charged by the Registry, it will transmit notification electronically to the registrant that he or she

is registered or that his or her registration is renewed or updated, as applicable. The employing

institution will be responsible for reviewing the criminal history background report once it is

completed, and taking any necessary action based on the findings of this report, pursuant to the

institution’s policies and procedures, as required by this final rule. We note that the registrant

will obtain a unique identifier during the registration process and not when the registration is

complete.

Section 1510 of the S.A.F.E. Act (12 U.S.C. 5109), expressly authorizes the Registry to

“charge reasonable fees to cover the costs of maintaining and providing access to information

from the [Registry], to the extent that such fees are not charged to consumers for access to such

47

[Registry].” We anticipate that the Registry will charge fees for registration, change in

employment, renewal, and fingerprint processing and background checks. Although some

commenters specifically requested information on the anticipated costs associated with

registering with the Registry, the Agencies are at this time unable to provide this information as

the fees have yet to be established by CSBS and SRR. The Agencies are consulting with the

CSBS and SRR regarding the fees that the Registry expects to impose. One commenter

specifically asked the Agencies to grant Agency-regulated institutions the opportunity to

comment on fees. CSBS has indicated that it intends to provide an opportunity for the public to

comment on these fees, and any future adjustments to such fees, before their imposition on

Federal registrants and/or their employing institutions.40

Required employee information

s to impose. One commenter

specifically asked the Agencies to grant Agency-regulated institutions the opportunity to

comment on fees. CSBS has indicated that it intends to provide an opportunity for the public to

comment on these fees, and any future adjustments to such fees, before their imposition on

Federal registrants and/or their employing institutions.40

Required employee information. Section 1507(a)(2) of the S.A.F.E. Act (12 U.S.C.

5106(a)(2) specifically requires, in connection with the registration of a mortgage loan

originator, the Agencies to furnish, or cause to be furnished, information concerning an

employee’s identity, including fingerprints and personal history and experience, to the Registry.

Final § ___.103(d) implements this requirement and lists the categories of information that

mortgage loan originators, or the employing Agency-regulated institution on behalf of the

mortgage loan originator, will be required to submit to the Registry. Agency-regulated

institutions may select one or more individuals to submit the employee information required by

this paragraph to the Registry on behalf of each of their mortgage loan originators to facilitate the

registration process. At the request of commenters, we have added a new paragraph (d)(3) to the

final rule that specifically permits institutions to select such individuals to submit employee

40 The agencies note that the NMLS currently charges fees for the licensing of State originators; however,

fees for Federal registrants and their employing Agency-regulated institutions may differ from those currently

imposed on State licensees. See the NMLS Web site at http://www.stateregulatoryregistry.org for information

regarding fees imposed on State originators.

40 The agencies note that the NMLS currently charges fees for the licensing of State originators; however,

fees for Federal registrants and their employing Agency-regulated institutions may differ from those currently

imposed on State licensees. See the NMLS Web site at http://www.stateregulatoryregistry.org for information

regarding fees imposed on State originators.

48

information on behalf of mortgage loan originators employed by the institution. The final rule

specifically prohibits these selected individuals from acting as mortgage loan originators. We

note that regardless of the manner that the information is provided to the Registry, the registering

employee, and not the employing institution or other employees, must complete the

authorizations and attestation required by § ___.103(d)(2), and described below, for the

registration to be complete.

Under proposed § ___.103.(d), the employing Agency-regulated institution would have

been required to have its registering employees submit, or to submit on behalf of its employees,

information regarding the employee’s identity (name and former names, social security number,

gender, and date and place of birth) and home and business contact information; date the

employee became an employee of the Agency-regulated institution; financial services-related

employment and financial history for the past 10 years; criminal history involving certain

felonies and misdemeanors; history of financial services-related civil actions, arbitrations and

regulatory and disciplinary actions or orders; financial services-related professional license

revocations or suspensions; voluntary or involuntary employment terminations based on

violations of law or industry standards of conduct; and certain actions listed above that are

pending against the employee. This information is similar to that required by the current NMLS

data collection form for mortgage loan originators regulated by a State, form MU4

services-related professional license

revocations or suspensions; voluntary or involuntary employment terminations based on

violations of law or industry standards of conduct; and certain actions listed above that are

pending against the employee. This information is similar to that required by the current NMLS

data collection form for mortgage loan originators regulated by a State, form MU4. The

information applies to employees but includes responsive information prior to their employment

at the Agency-regulated institution.

The Agencies received many comments on this provision. Although some supported the

proposed list of information to be submitted to the Registry, many others requested that the

49

Agencies narrow this list, stating that the extent of personal information required by the proposal

is overbroad, intrusive, and burdensome. Commenters also requested that we clarify the

information that is required to be submitted.

Based on the comments received, the Agencies have carefully reviewed this list and agree

that some of this information is more relevant for licensing purposes than for registration. In

particular, we found that the collection of some of this information, which would not be publicly

available to consumers, is not necessary to implement the purposes and requirements set forth in

section 1502 of the S.A.F.E. Act (12 U.S.C. 5101).

Based on this review, we have deleted proposed § ___.103(d)(1)(iii) from the final rule,

which would have required submission of the registrant’s financial history information (such as

bankruptcies, unsatisfied judgments, liens, paid-out bonds, etc.). This information would not be

available to consumers under this rulemaking and is not required for registration by the statute.

It therefore does not further the objectives of the S.A.F.E. Act

__.103(d)(1)(iii) from the final rule,

which would have required submission of the registrant’s financial history information (such as

bankruptcies, unsatisfied judgments, liens, paid-out bonds, etc.). This information would not be

available to consumers under this rulemaking and is not required for registration by the statute.

It therefore does not further the objectives of the S.A.F.E. Act.

In addition, the submission of employment termination information to the Registry is

more appropriate for the purpose of licensing, as a State regulator would use this information to

make a decision on licensure, conducting further inquiry, if appropriate. Because this sensitive

information would not be made public, we have deleted proposed § ___.103(d)(1)(x), which

required submission of information regarding employment terminations to the Registry, from the

final rule.

We also have not included in the final rule the requirement to provide information on

pending matters. Because these matters are not final actions, requiring this information would

effectively penalize mortgage loan originators before a decision had been rendered. We note that

50

if a pending action does become final, it must be reported to the Registry and made publicly

available within 30 days, pursuant to § ___.103(b)(1)(ii).

The Agencies also have revised the requirement in proposed § ___.103(d)(1)(iv) to

provide information on the mortgage loan originator’s felony and misdemeanor criminal history.

The proposal provided that the registrant supply information regarding felony convictions or

other final criminal actions involving a felony against the employee or organizations controlled

by the employee; or misdemeanor convictions or other final misdemeanor actions against the

employee or organizations controlled by the employee involving financial services, a financial

services-related business, dishonesty, or breach of trust

rant supply information regarding felony convictions or

other final criminal actions involving a felony against the employee or organizations controlled

by the employee; or misdemeanor convictions or other final misdemeanor actions against the

employee or organizations controlled by the employee involving financial services, a financial

services-related business, dishonesty, or breach of trust. After further review, the Agencies

found the proposal’s language too broad, and as a result, would have required the registrant to

disclose convictions that are not directly relevant to his or her work as a mortgage loan

originator. As such, this information is not necessary to meet the purposes or requirements of the

S.A.F.E. Act.

Final and redesignated § ___.103(d)(1)(iii) removes the distinction between felonies and

misdemeanors and narrows the category of final actions an employee must disclose to the

Registry to final criminal actions that involve dishonesty or breach of trust or money laundering.

In addition, to fully encompass all relevant final criminal actions, the final rule amends this

category of information to include an agreement to enter into a pretrial diversion or similar

program in connection with the prosecution for such offense.41 This language derives from

section 19(a)(1) of the FDI Act (12 U.S.C. 1829), which, in general, prohibits the participation of

individuals convicted of such offenses from participating in the affairs of an insured depository

41 An agreement to enter into a pretrial diversion or similar program is defined by the FDIC as a suspension

or eventual dismissal of charges or criminal prosecution upon agreement of the accused to treatment, rehabilitation,

restitution, or other noncriminal or nonpunative alternatives. FDIC Statement of Policy for Section 19 of the FDIC

Act, 63 FR 66177 (Dec. 1, 1998).

41 An agreement to enter into a pretrial diversion or similar program is defined by the FDIC as a suspension

or eventual dismissal of charges or criminal prosecution upon agreement of the accused to treatment, rehabilitation,

restitution, or other noncriminal or nonpunative alternatives. FDIC Statement of Policy for Section 19 of the FDIC

Act, 63 FR 66177 (Dec. 1, 1998).

51

institution. The Agencies intend to rely on FDIC rules and guidance interpreting section 19(a)(1)

of the FDI Act with respect to the interpretation of criminal offenses covered under section 19 of

the FDI Act.42 Therefore, amending the proposal to include this language in the final rule

provides clearer guidance to originators and their Agency-regulated institution employers of the

types of criminal offenses required to be disclosed. For example, the FDIC excludes expunged,

sealed and juvenile offenses and, therefore, the Agencies would not expect this information to be

provided to the Registry.43 The final rule also would not require acquittals to be reported.

The Agencies find the remaining information required by the proposal to be submitted to

the Registry relevant to the registration process and the purposes and requirements of the

S.A.F.E. Act. Section 1507(a)(2) of the S.A.F.E. Act (12 U.S.C. 5106(a)(2)) specifically

requires that information regarding the registrant’s identity, including personal history and

experience, be furnished to the Registry. Identifying information, such as name (and any other

names used, such as a nickname, full legal name or maiden name), home address, address of

principal business location and business contact information (business phone number and email

address) and the registrant’s prior financial services-related employment history (not all of which

will be made public) is necessary to meet this requirement

Identifying information, such as name (and any other

names used, such as a nickname, full legal name or maiden name), home address, address of

principal business location and business contact information (business phone number and email

address) and the registrant’s prior financial services-related employment history (not all of which

will be made public) is necessary to meet this requirement. In addition to this information, the

registrant’s social security number, gender, and date and place of birth are necessary to conduct

the criminal history background check required by section 1507(a)(2)(A) of the S.A.F.E. Act (12

U.S.C. 5106(a)(2)(A)). Likewise, the required information concerning final criminal actions (as

amended), financial services-related civil judicial actions, publicly-adjudicated regulatory and

disciplinary actions or orders, financial services-related professional license revocations or

42 See Id. and 12 CFR 303.220 - 223.

43 Id.

52

suspensions, and financial services-related customer-initiated arbitration and civil actions will be

made public on the Registry, and, therefore, further the purpose of the S.A.F.E. Act to provide

consumers with easily accessible information on disciplinary and enforcement actions against the

originator. The Agencies therefore adopt the final rule with the requirement to provide this

information to the Registry.

Pursuant to section 1507(a)(2)(A) of the S.A.F.E. Act (12 U.S.C. 5106(a)(2)(A)),

proposed § ___.103(d)(xii) (redesignated as § ___.103(d)(ix) in the final rule) also required

employees to provide fingerprints, in digital form if practicable, to the Registry for submission to

the FBI and any governmental agency or entity authorized to receive such information for a State

and national criminal history background check

7(a)(2)(A) of the S.A.F.E. Act (12 U.S.C. 5106(a)(2)(A)),

proposed § ___.103(d)(xii) (redesignated as § ___.103(d)(ix) in the final rule) also required

employees to provide fingerprints, in digital form if practicable, to the Registry for submission to

the FBI and any governmental agency or entity authorized to receive such information for a State

and national criminal history background check. The proposal permitted the use of fingerprints

currently on file with the employing Agency-regulated institution if taken less than three years

prior to the employee’s registration with the Registry.

This requirement elicited many comments. Some commenters requested that the

Agencies permit institutions to continue accessing existing fingerprint channels recognized and

supported by existing relations with the FBI. Some commenters also suggested that the final rule

should deem background checks conducted by the institution during the hiring process as

compliant with the S.A.F.E. Act’s fingerprint and background check requirement. Commenters

also requested that the final rule permit the submission of fingerprints collected 10 or 15 years

prior to registration. Many of the commenters argued that an age limit is unnecessary as

fingerprints do not change over time. In addition, commenters noted that allowing the use of

existing fingerprints, no matter when collected, will reduce registration costs and delays.

enters argued that an age limit is unnecessary as

fingerprints do not change over time. In addition, commenters noted that allowing the use of

existing fingerprints, no matter when collected, will reduce registration costs and delays.

53

The S.A.F.E. Act specifically requires fingerprints to be furnished to the Registry for

purposes of submission to the FBI, and any governmental agency or entity authorized to receive

such information for a State and national criminal history background check.44 The S.A.F.E. Act

does not specifically require certain persons or entities to furnish these fingerprints, nor prohibit

other entities from furnishing fingerprints to the Registry. However, the FBI will only accept

fingerprints from entities authorized as channelers of this information.

In order to ensure that fingerprints are up-to-date, we have amended the redesignated §

___.103(d)(1)(ix) to provide that fingerprints that are less than three years old may be used to

satisfy the requirement to furnish fingerprints to the Registry. As indicated previously, this

three-year age limit is consistent with the procedures to be used by SRR for mortgage loan

originators licensed by a State. Institutions should consult their existing channelers regarding the

furnishing of fingerprints that are less than three years old to the Registry.

CSBS and SRR are currently modifying the NMLS to act as a channeler for fingerprints

of State license applicants, pursuant to the S.A.F.E. Act, and Federal registrants may use this

same fingerprinting process when the NMLS is modified to accept Federal registrations.45 The

Agencies anticipate that CSBS and SRR will provide guidance to Agency-regulated institutions

and their mortgage loan originators on the availability and details of this fingerprint process

for fingerprints

of State license applicants, pursuant to the S.A.F.E. Act, and Federal registrants may use this

same fingerprinting process when the NMLS is modified to accept Federal registrations.45 The

Agencies anticipate that CSBS and SRR will provide guidance to Agency-regulated institutions

and their mortgage loan originators on the availability and details of this fingerprint process.

44 Section 1507(a)(2)(A)) of the S.A.F.E. Act (12 U.S.C. 5106(a)(2)(A)). The Agencies note that, in the

event that a mortgage loan originator is unable to provide fingerprints due to a physical condition, he or she should

provide identifying information to the Registry consistent with FBI protocols.

45 Further information on the Registry’s fingerprint and background check procedures can be found on the

Registry’s Web site at www.stateregulatoryregistry.org/NMLS/.

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CSBS and SRR intend that this fingerprinting process will be convenient and efficient for both

State licensees and Federal registrants. 46

Some commenters asked the Agencies to clarify whether the Registry may collect

fingerprints and submit a request for a background check before the Agency-regulated institution

employs a mortgage loan originator rather than waiting until after that individual is hired to

submit fingerprints to the Registry. The Agencies have no objection to the Registry processing a

background check just prior to the employment of a mortgage loan originator, should the

Registry provide this service, and believe this could satisfy the requirements of the rule.

Some commenters also expressed the view that the Registry should have the capability to

accept fingerprints in both paper and digital form. As in the proposed rule, the final rule does not

require digital fingerprints, but does encourage the use of digital fingerprint submissions

riginator, should the

Registry provide this service, and believe this could satisfy the requirements of the rule.

Some commenters also expressed the view that the Registry should have the capability to

accept fingerprints in both paper and digital form. As in the proposed rule, the final rule does not

require digital fingerprints, but does encourage the use of digital fingerprint submissions. If

digital fingerprints are not available the Registry will accept fingerprint cards, and will convert

these cards to a digital format. The Agencies note that the rule’s authorization to submit

fingerprints in paper form is intended to assist smaller institutions for which compliance with a

digital fingerprint requirement may not be feasible.

Employee authorization and attestation. Paragraph (d)(2)(i) of § ___.103 requires the

employee to provide authorization for the Registry and the employing Agency-regulated

institution to obtain information related to sanctions or findings in any administrative, civil or

criminal action to which the employee is a party, and, in paragraph (d)(2)(ii) of this section, to

attest to the correctness of all information submitted to the Registry pursuant to paragraph (d) of

this section.

46 SRR plans to contract with a nationwide vendor to take the fingerprints and forward them to the Registry,

which will then obtain the criminal history background check based on these fingerprints. According to plans, this

vendor will have locations throughout the country, may be made available on-site at institutions, and will provide a

mail-in option for mortgage loan originators unable to provide their fingerprints in person.

wide vendor to take the fingerprints and forward them to the Registry,

which will then obtain the criminal history background check based on these fingerprints. According to plans, this

vendor will have locations throughout the country, may be made available on-site at institutions, and will provide a

mail-in option for mortgage loan originators unable to provide their fingerprints in person.

55

In order to provide relevant information to consumers and to implement the purposes of

the S.A.F.E. Act, paragraph (d)(2)(iii) requires the employee to authorize the Registry to make

available to the public the information required to be submitted to the Registry pursuant to

§ ___.103(d)(1)(i)(A) and (C), (d)(1)(ii), and (iii) – (viii) (his or her name; other names used;

name of current employer(s); current principal business location(s) and business contact

information; 10 years of relevant employment history; and publicly adjudicated disciplinary and

enforcement actions and arbitrations against the employee).

Although this rulemaking permits the employing institution or other institution

employees to submit the information required by § ___.103(d)(1) to the Registry on behalf of the

registering employee, the employee, and not the employing institution or its other employees,

must complete the attestation and authorizations required by § ___.103(d)(2) for the registration

to be complete. This task may not be delegated because it is necessary for the Registry to

authenticate the employee’s information.

The Registry plans to make this information available to the public in two phases. The

first phase, implemented at the time the Registry begins accepting Federal registrations, would

provide for public accessibility of the employee’s name; other names used; name of current

employer(s); current principal business location(s) and business contact information; and

employment history

ormation.

The Registry plans to make this information available to the public in two phases. The

first phase, implemented at the time the Registry begins accepting Federal registrations, would

provide for public accessibility of the employee’s name; other names used; name of current

employer(s); current principal business location(s) and business contact information; and

employment history. The remaining categories of information (publicly adjudicated disciplinary

and enforcement actions and arbitrations against the employee) would be made public at a later

date, once the Registry, in consultation with the Agencies, has designed and implemented a

system through which the registrant may provide additional explanatory information to

accompany a positive response to any of the disclosure questions regarding criminal history or

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the other information requested in paragraphs (d)(1)(iii) through (viii). The Agencies note that

once the Registry makes this enhancement, registered mortgage loan originators will be able to

provide this explanatory information at any time, including during the annual renewal process,

and that this explanatory language may be made public. Relevant nonpublic information

submitted to the Registry will only be accessible to the Agencies and State regulators of

mortgage originators, as appropriate.

The Agencies received many comments on the public availability of personal

information, particularly on how the Registry will store and prevent the unauthorized use of this

personal information, and how nonpublic personal information will be appropriately protected

n

submitted to the Registry will only be accessible to the Agencies and State regulators of

mortgage originators, as appropriate.

The Agencies received many comments on the public availability of personal

information, particularly on how the Registry will store and prevent the unauthorized use of this

personal information, and how nonpublic personal information will be appropriately protected.

One commenter specifically stated that the final rule should take appropriate measures to ensure

that the electronic submissions to the Registry are properly encrypted, authorized, and

authenticated, and that the Registry complies with the FBI Criminal Justice Information Services

Security Policy (CJIS Security Policy).47

The Agencies are well aware of the security concerns associated with providing personal

information to the Registry and are contracting with SRR to ensure appropriate data protection

elements are incorporated within the Registry to ensure compliance with the requirements of the

Federal Information Security Management Act (FISMA) of 2002, PL 107-347; the CJIS Security

Policy; and the related Security and Management Control Outsourcing Standard.48 FISMA

requires each Federal agency to develop, document, and implement an agency-wide program to

provide information security for the information and information systems that support the

operations and assets of the agency, including those provided or managed by another agency,

47 CJISD-ITS-DOC-08140-4.5, December 2008.

48 See http://www.fbi.gov/hq/cjisd/web%20page/pdf/05132009_outsourcing_standard.pdf.

ement an agency-wide program to

provide information security for the information and information systems that support the

operations and assets of the agency, including those provided or managed by another agency,

47 CJISD-ITS-DOC-08140-4.5, December 2008.

48 See http://www.fbi.gov/hq/cjisd/web%20page/pdf/05132009_outsourcing_standard.pdf.

57

contractor, or other source. Specifically, FISMA directed the promulgation of Federal standards

for: (1) the security categorization of Federal information and information systems based on the

objectives of providing appropriate levels of information security according to a range of risk

levels; and (2) minimum security requirements for information and information systems in each

such category.49

As a channeler and outsourcer of fingerprints, the FBI requires the Registry to comply

with its CJIS Security Policy. The CJIS provides the minimum level of information technology

security requirements determined acceptable for the transmission, processing, and storage of the

nation’s criminal justice information systems data. The purpose of this policy is to establish

uniformity and consistency in safeguarding criminal justice information security data which is

accessed via networks throughout the Federal, State, and local user community. However, this

policy does not prohibit more stringent security policies.

The requirements for protecting the privacy and security of the personal information

obtained from employees of Agency-regulated institutions, and the confidential information

obtained from the ins

This text is long and has been trimmed here. Open the source document for the complete record.