Compliance Blog

Consumer Lending Nov 21, 2018

“A Year-end Reminder: SAFE Act Annual Audit”

Written by André B. Cotten, Regulatory Compliance Counsel, NAFCU

Happy Thanksgiving, Compliance Friends! As we close out the year, I wanted to give everyone a friendly reminder of a credit union’s requirement to complete its annual SAFE Act Audit. This blog will review the federal registration requirements for mortgage loan originators (MLOs) and serve as a resource as the credit union completes its annual SAFE Act Audit.



As background, the SAFE Act prohibits anyone from “engaging in the business of a loan originator” without meeting certain requirements, including licensing and registration, a background check, and educational requirements. The SAFE Act defines “loan originator” as an individual who both: takes a residential mortgage loan application; and offers or negotiates terms of a residential mortgage loan for compensation or gain.

Those meeting the SAFE Act’s definition of a loan originator are divided into two categories: loan originators who require a state license; and “registered” loan originators. A registered loan originator is one that works for a depository institution such as a credit union, a federally regulated subsidiary of a depository, or a lender regulated by the Farm Credit Administration. Registered loan originators are not subject to state regulation but must be registered with the National Mortgage Licensing System (NMLS). All other loan originators must be state licensed and registered with the NMLS.

The annual audit requirement is prescribed in section 1007.104(f), which states the following: “[p]rovide for independent testing for compliance with this part to be conducted at least annually by [credit union] personnel or by an outside party.” As I’m sure compliance professionals are aware, the rule does not provide any significant level of detail about what the audit should include. However, the purpose of the annual audit is to ensure that the credit union has sufficient policies and procedures to address SAFE Act requirements.

The remainder of this blog post will highlight sections of the SAFE Act and the Bureau’s SAFE Act Examination Procedures for the credit union’s guidance.

Registration Requirement

To begin, a credit union is responsible for ensuring that all employees who meet the definition of MLO are registered before performing as an MLO. Here, the credit union may want to review its method of determining who meets the definition of MLO. The Appendix to Part 1007 provides further guidance for determining who qualifies as an MLO. The credit union may also want to review its process for ensuring it has a MLO is registered before the employee begins originating residential mortgage loans. Section 1007.103(a) contains specific information the MLO must submit to the NMLS system.

According to the Bureau’s guidance, the MLO must attest to the correctness of the information submitted to the NMLS system. The MLO must also allow the NMLS system and the credit union to obtain information related to any administrative, civil, or criminal action to which the employee is a party. The MLO will also need to authorize the NMLS system to make certain information available to the public.

Maintaining Registration

For those MLOs that are already registered, section 1007.103(b) prescribes an annual registration renewal window from November 1st to December 31st of each year. This is a time for a credit union and its MLO employees to update any information required by the NMLS System that has become out-of-date, e.g. change in name, termination of employment, and any required information provided under 1007.103(a). Note, there is an exception for MLOs who complete initial registration between July 1 and December 31.

Special Registration Issues

Section 1007.101(c)(2) provides a de minimis exception to the MLO registration requirements for any employee of a credit union who has never been registered or licensed through the NMLS system as an MLO, if during the past 12 months the employee acted as an MLO for five or fewer residential mortgage loans. The credit union may want to review its policy to ensure that if an MLO relies on this exception there is a procedure for registering prior to originating their sixth residential mortgage loan within 12 months.

In addition, the Economic Growth, Regulatory Relief, and Consumer Protection Act passed in May of 2018 amending the SAFE Act. The amendment is intended to eliminate barrier to jobs for MLOs. The change describes an individual’s temporary authority to originate loans for a state-licensed loan originator, such as a credit union that is licensed or registered under state law to engage in residential mortgage loan originations and processing activities. This section applies indirectly to credit unions to the extent that it provides additional flexibility when hiring MLOs. The amendment is effective November 24, 2019. The Bureau has the authority to issue regulatory guidance about this change. To date, no guidance regarding the amendment to the SAFE Act has been released.

Use of Unique Identifier

The loan originator’s unique identifier, which is a series of numeric characters assigned for life, must be made available to a credit union’s members in a practicable method and manner. According to the Bureau’s SAFE Act Examination Procedures, MLOs “must provide the unique identifier upon request (orally or in writing), before acting as an MLO (orally or in writing), and in any initial written communication (paper or electronic) from the MLO to the [member] (such as a commitment letter, good faith estimate, or disclosure statement).” The Bureau also advises that unique identifiers may be used on written materials or promotional items, e.g. loan program descriptions, advertisements, business cards, stationary, notepads, and similar items.

Please see the Bureau’s SAFE Act Examination Procedures for additional guidance.

Policies and Procedures

Section 1007.104 directs the credit union to have in place written policies and procedures addressing the SAFE Act requirements.  While the NCUA does not have a similar section of its examiner’s guide, the Bureau’s examination procedures have guidance to help credit unions determine the adequacy of their SAFE Act policies and procedures. According to the Bureau, the requirement to adopt and follow policies and procedures applies to all covered financial institutions that employ individual MLOs, where MLOs act within the scope of their employment, and regardless of the application of any de minimis exception to their employees. “These policies and procedures must be appropriate to the nature, size, complexity, and scope of the mortgage lending activities of the credit union, and apply on to those employees acting within the scope of their employment at the credit union.”

As an additional reference, NCUA has also established a SAFE Act compliance landing page that may be helpful to the credit union.


Programming Note. NAFCU will close at noon on Wednesday, November 21st for the Thanksgiving holiday. The offices will reopen on Monday, November 26th.

Question: What’s the key to a great Thanksgiving dinner?

Answer: The turKEY!

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