Servicers Think SAFE Act Provision Doesn't Apply to Them

Albany, NY-Servicers are of the opinion that Congress did not intend to include them in the SAFE Act, part of the Home Economic Recovery Act passed last July, which allows states to enact their own requirements for granting a license to sell on top of what the federal law already dictates, according to Deborah Robertson, an attorney with the law firm of McGlinchey Stafford PPLC here.

So far, 26 states have put in place a licensing system for mortgage loan originators before the federal government's July 30 deadline under the Secure and Fair Enforcement for Mortgage Licensing Act. In order to assist the states to get these laws on their books quickly, HUD had approved a Model State Law to act as a template for SAFE, which is making lenders scratch their heads and say, "Who is covered under this law?"

It is not clear how broad the Model State Law intended to go to capture people who take applications, Ms. Roberts told Mortgage Servicing News. "It has upset the retailers of manufactured housing and it has also upset mortgage servicers. Many servicers are lobbying for exemptions. Some of the state laws that are enacted exclude employees of mortgage servicers."

The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators say full implementation of all SAFE requirements on loss mitigation specialists in the midst of a significant need for loan modifications could delay assistance to homeowners who are in trouble.

CSBS and AARMR have sent a letter to HUD requesting HUD's consideration to delay the effective date by which "loss mitigation specialists" employed by the mortgage servicers must be licensed to July 2011. They are requesting greater clarification of SAFE and say state exemptions from SAFE may inadvertently violate requirements and put states in noncompliance with the federal law.

"The concern is the loss of capacity of loss mitigation specialists as they take time to comply with testing and education. In addition, the expense to license servicers on financially strapped institutions is also a consideration," said Ms. Robertson.

Some states have taken the Model State Law and incorporated it into their own mortgage lender law and it's changing a lot of the definitions within their current law, she added.

"That has created confusion as to who now is covered under the mortgage lender laws. For example, a loan originator is someone who takes an application or offers or negotiates a residential mortgage loan application. This is defined to include the word 'dwelling.'"

This is where manufactured housing comes in, Robertson explains.

"What's happening is when the states are incorporating this definition of residential mortgage loan into their mortgage lending laws, they are now including manufactured homes without regard to real estate."

The manufactured housing industry is concerned that lawmakers are including potentially the retail sellers of manufactured homes within the mortgage loan originator licensing requirements, because of the use of the word "dwelling."

"If they took your application for credit and submitted it to a finance company and gave you the feedback from the company, that retailer is now a mortgage loan originator," said Ms. Robertson.

Under the SAFE Act, the definition of a loan originator is "someone who takes a residential mortgage loan application 'and' offers 'or' negotiates the term." The Model State Law took the "and" out and put the "or" in.

"That really opened the window and expanded the amount of people covered. What does take an application mean? Does that mean, you are just handing it to me and I physically receive it? The problem is there's no guidance on that."

The Model State Law has also upset servicers, she says, because their employees help in workouts to modify loans. Loss mitigation specialists might have to be covered under this law, because they take applications to make a credit decision on the best way to help borrowers in default.

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