Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

Annual Renewal.  The SAFE Act renewal period, which began November 1st, will expire on December 31, 2012.  Remember that under the SAFE Act, all credit unions and their MLOs must renew their registration during the annual renewal period each year (there is an exception for MLOs registering for the first time less than six months prior to the end of the annual renewal period).  If a credit union and its MLOs do not renew their registration, they would be prohibited from originating residential mortgage loans until their status has been reactivated.

From 12 CFR 1007.103(a)(2):

Ҥ 1007.103   Registration of mortgage loan originators.

[…]

(2) Covered financial institution requirement —(i) In general. A covered financial institution that employs one or more individuals who act as a residential mortgage loan originator must require each such employee to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements of this part.

(ii) Prohibition. A covered financial institution must not permit an employee who is subject to the registration requirements of this part to act as a mortgage loan originator for the covered financial institution unless such employee is registered with the Registry pursuant to this part.”

If for some reason the institution’s MLO(s) misses the December 31 deadline for annual renewal, it doesn’t mean the MLO is forever banned from originating loans.  What it does mean is that the MLO’s status goes inactive.  During the period of inactivity, the MLO cannot originate loans, but as soon as the MLO renews his/her registration, he/she will go back to active status and may begin originating again.

Annual Independent Testing.  Independent testing for compliance with the SAFE Act and its implementing regulations must be conducted at least annually in accordance with section 1007.10(f).  The testing may be conducted by credit union staff or an outside party.

Below is a Q&A from the December 2012 NAFCU Compliance Monitor discussing the annual audit requirement:

Question: Is there a requirement to conduct an annual S.A.F.E. Act audit? We are a small credit union with only two employees registered as Mortgage Loan Originators. We thought we could tailor our S.A.F.E. Act policies and procedures to the size and complexity of our mortgage lending activity.

Answer. Yes, an annual S.A.F.E. Act audit is required. Although the general requirement under S.A.F.E. Act implementing regulations is to adopt policies and procedures appropriate to the nature, size, complexity and scope of the credit union’s mortgage lending activities, there are several minimum requirements that must be included in a covered institution’s policies and procedures. See, 12 C.F.R. § 1007.104. One of these minimum requirements is to “provide for independent testing for compliance with this part to be conducted at least annually by covered financial institution personnel or by an outside party.” See, 12 C.F.R. § 1007.104(f). Note, however, that the credit union is not necessarily required to engage outside auditors to conduct this annual testing. The testing can be conducted by credit union personnel, so long as the personnel performing the audit are independent from those responsible for establishing and maintaining the credit union’s S.A.F.E. Act policies and procedures.