By Wendy Bernard
Under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, (SAFE Act)as amended by and Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), a person must be licensed before engaging in the business of a mortgage loan originator. The Dodd-Frank Act defines a Mortgage Loan Originator (MLO) as "an individual who (1) takes a residential mortgage loan application and (2) offers or negotiates terms of a residential mortgage loan for compensation or gain."
Under the banking law of Connecticut, Section 36a-489(13) '"Loan processor or underwriter" is a person who performs "clerical or support duties" defined in relevant part as "...the receipt, collection, distribution and analysis of information common for the processing or underwriting of a residential mortgage loan,...communication with a consumer to obtain the information necessary for the processing or underwriting of a loan to the extent that such communication does not include offering or negotiating loan rates or terms or counseling consumers about residential mortgage loan rates or terms;"
A processor or underwriter is exempted from the definition of MLO and licensing under the SAFE Act and Connecticut law, if the processor or underwriter performs "administrative or clerical tasks" only, and is a W2 employee subject to the supervision and control of a licensed mortgage originator [broker, correspondent lender or lender]. In addition, W2 employee processors and underwriters do not need to be licensed as long as they process or underwrite loans originated by the employer, and at the employer's direction and supervision.
In Connecticut, independent contractor underwriters and processors must be licensed and cannot engage in loan processing or underwriting activities unless they obtain and maintain a processor or underwriter license as required under Connecticut law. If a mortgage company elects to use an independent processor (1099 contractor), the company should verify that the contract processor has met his or her obligations for compliance with the SAFE Act and the banking laws of Connecticut.
In addition, the Consumer Financial Protection Bureau (CFPB) has issued reminders to financial institutions such as mortgage lenders and mortgage brokers, to establish procedures designed to ensure that any third party with which the institution has arrangements related to mortgage loan origination has policies and procedures to comply with the SAFE Act and SAFE Act regulation.
Wendy Bernard is counsel to the Conn. Mortgage Association and principal of Bernard Law Group based in Middlebury.