The Secure and Fair Enforcement for Mortgage Licensing Act of 2008, more commonly known as the SAFE Act, directed states whose legislatures meet annually to enact legislation by July 31, 2009, that would establish licensing standards for residential mortgage loan originators. As this deadline approaches, it appears that one state will not enact such legislation—Minnesota.
Under Minnesota’s Residential Mortgage Originator and Servicer Licensing Act, a residential mortgage originator licensee must be a corporation, partnership, or other form of business organization. Individuals are not, and cannot be, licensed as originators. It appears that no attempt was even made this legislative session to change this approach and impose licensing requirements on individual mortgage loan originators.
This past session, Minnesota did enact legislation amending the Residential Mortgage Originator and Servicer Licensing Act to conform the Act’s education and testing requirements to the SAFE Act. Specifically, 2009 Minn. Chapter Law 37, amended the Residential Mortgage Originator and Servicer Licensing Act to provide that no individual may engage in residential mortgage origination or make residential mortgage loans, whether as an employee or independent contractor, before the completion of 20 hours of educational training which has been approved by the Department of Commerce, and covering state and federal laws concerning residential mortgage lending. Prior to the legislation, only 15 hours of training were required.
Minnesota’s legislation also added a new continuing education requirement. In addition to the above initial education requirements, each individual must also complete eight hours of continuing education annually. The education must include: (1) three hours of federal law and regulations; (2) two hours of ethics, which must include fraud, consumer protection, and fair lending; and (3) two hours of standards governing nontraditional mortgage lending.
Finally, the legislation provides that the Department of Commerce may by rule establish testing requirements for individuals subject to the above requirements. An individual must satisfy these new testing requirements before engaging in residential mortgage loan origination or making residential mortgage loans.
The new education and testing requirements become effective September 1, 2009, and will apply to business license applications and renewals made on or after that date.
Under the federal SAFE Act, a loan originator must be licensed if they both take an application and offer or negotiate loan terms. As a result of the failure by Minnesota to enact a state SAFE Act that complies with the licensing and registration requirements, it appears that mortgage loan originators in Minnesota will be required to obtain a federal license—if HUD has created one.
David Darland is a partner in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach David at 202-327-9707 or by email at ddarland@hudco.com.