[Federal Register Volume 74, Number 239 (Tuesday, December 15, 2009)]
[Proposed Rules]
[Pages 66548-66562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-29708]



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Part VI





Department of Housing and Urban Development





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24 CFR Parts 30 and 3400



SAFE Mortgage Licensing Act: HUD Responsibilities Under the SAFE Act; 
Proposed Rule

  Federal Register / Vol. 74, No. 239 / Tuesday, December 15, 2009 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 30 and 3400

[Docket No. FR-5271-P-01]
RIN 2502-A170


SAFE Mortgage Licensing Act: HUD Responsibilities Under the SAFE 
Act

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: The Secure and Fair Enforcement Mortgage Licensing Act of 2008 
(SAFE Act or Act) was enacted into law on July 30, 2008, as part of the 
Housing and Economic Recovery Act of 2008. This new law directs States 
to adopt licensing and registration requirements for loan originators 
that meet the minimum standards specified in the SAFE Act, in lieu of 
HUD establishing and maintaining a licensing system for loan 
originators. This new law also encourages the Conference of State Bank 
Supervisors (CSBS) and the American Association of Residential Mortgage 
Regulators (AARMR) to establish a nationwide mortgage licensing system 
and registry (NMLSR) for the residential mortgage industry for the 
purpose of providing: uniform State-licensing application and reporting 
requirements for residential mortgage loan originators, and a 
comprehensive database to find and track mortgage loan originators 
licensed by the States and mortgage loan originators that work for 
federally regulated banks. Loan originators who are employees of 
federally regulated depository institutions and their subsidiaries are 
required to register through the NMLSR, but are not subject to State 
licensing requirements.
    If HUD determines that a State's mortgage loan origination 
licensing standards do not meet the minimum requirements of the 
statute, HUD is charged with establishing and implementing a system for 
mortgage loan originators in that State. Additionally, if at any time 
HUD determines that the NMLSR is failing to meet the SAFE Act's 
requirements, HUD is charged with establishing and maintaining a 
licensing and tracking system for mortgage loan originators.
    This rule sets forth the minimum standards that the SAFE Act 
provides States to meet in licensing loan originators. Additionally, 
consistent with HUD's charge under the SAFE Act, this rule provides the 
following: the procedure that HUD will use to determine whether a 
State's licensing and registration system is SAFE Act compliant; the 
actions that HUD will take if HUD determines that a State has not 
established a SAFE Act-compliant licensing and registration system or 
that the NMLSR established by CSBS and AARMR is not SAFE Act compliant; 
the minimum requirements for the administration of the NMLSR; and HUD's 
enforcement authority if it operates a State licensing system.
    In addition to establishing HUD's responsibilities under the SAFE 
Act, through this rule, HUD proposes to clarify or interpret certain 
statutory provisions that pertain to the scope of the SAFE Act 
licensing requirements, and other requirements that pertain to the 
implementation, oversight, and enforcement responsibilities of the 
States. HUD solicits comment on the proposed clarifications and on the 
regulations proposed to be codified.

DATES: Comment due date: February 16, 2010.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
10276, Washington, DC 20410-0500. Communications must refer to the 
above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note:  To receive consideration as public comments, comments 
must be submitted through one of the two methods specified above. 
Again, all submissions must refer to the docket number and title of 
the rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-708-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339. Copies of all comments 
submitted are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: William W. Matchneer III, Associate 
Deputy Assistant Secretary for Regulatory Affairs and Manufactured 
Housing, Department of Housing and Urban Development, 451 7th Street, 
SW., Room 9164, Washington DC 20410; telephone number 202-708-6401 
(this is not a toll-free number). Persons with hearing or speech 
impairments may access this number through TTY by calling the toll-free 
Federal Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 
approved July 30, 2008) (HERA) constitutes a major new housing law that 
is designed to assist with the recovery and the revitalization of 
America's residential housing market--from modernization of the Federal 
Housing Administration, to foreclosure prevention, to enhancing 
consumer protections. The SAFE Act is a key component of HERA designed 
to improve accountability on the part of loan originators, combat 
fraud, and enhance consumer protections.
    The SAFE Act encourages States to establish minimum standards for 
the licensing and registration of State-licensed mortgage loan 
originators and encourages the Conference of State Bank Supervisors 
(CSBS) and the American Association of Residential Mortgage Regulators 
(AARMR) to establish and maintain the NMLSR for the residential 
mortgage industry for the purpose of achieving the following 
objectives:
    (1) Providing uniform license applications and reporting 
requirements for State licensed-loan originators;

[[Page 66549]]

    (2) Providing a comprehensive licensing and supervisory database;
    (3) Aggregating and improving the flow of information to and 
between regulators;
    (4) Providing increased accountability and tracking of loan 
originators;
    (5) Streamlining the licensing process and reducing regulatory 
burden;
    (6) Enhancing consumer protections and supporting anti-fraud 
measures;
    (7) Providing consumers with easily accessible information, offered 
at no charge, utilizing electronic media, including the Internet, 
regarding the employment history of, and publicly adjudicated 
disciplinary and enforcement actions against, loan originators;
    (8) Establishing a means by which residential mortgage loan 
originators would, to the greatest extent possible, be required to act 
in the best interests of the consumer;
    (9) Facilitating responsible behavior in the mortgage market place 
and providing comprehensive training and examination requirements 
related to mortgage lending;
    (10) Facilitating the collection and disbursement of consumer 
complaints on behalf of State mortgage regulators.
CSBS and AARMR have established this registry, and it can be found at 
http://www.Stateregulatoryregistry.org.
    The SAFE Act also encourages States to participate in the NMLSR and 
requires participating States to have in place, by law or regulation, a 
system for licensing and registering loan originators that meets the 
requirements of sections 1505, 1506, and 1508(d) of the SAFE Act. The 
SAFE Act requires the States to have the licensing and registration 
system in place by: (1) July 31, 2009, for States whose legislatures 
meet annually; and (2) July 31, 2010, for States whose legislatures 
meet biennially. HUD may grant an extension of not more than 24 months 
if HUD determines that a State is making a good-faith effort to 
establish a State licensing law that meets the minimum requirements of 
the SAFE Act.
    HUD is charged by the SAFE Act to establish and maintain a 
licensing and registration system for a State or territory that does 
not have in place a system for licensing loan originators that meets 
the requirements of the SAFE Act, or that fails to participate in the 
NMLSR. Specifically, section 1508 of the SAFE Act, entitled ``Secretary 
of Housing and Urban Development Backup Authority to Establish a Loan 
Originator Licensing System,'' provides that after the time periods for 
compliance allowed by the statute, if the ``Secretary determines that a 
State does not have in place by law or regulation a system for 
licensing and registering loan originators that meets the requirements 
of sections 1505 and 1506 and subsection (d) of this section [section 
1508], or does not participate in the Nationwide Mortgage Licensing 
System and Registry, the Secretary shall provide for the establishment 
and maintenance of a system for the licensing and registration by the 
Secretary of loan originators operating in such State as State-licensed 
loan originators.''
    For any State for which HUD must establish such licensing and 
registration system, a loan originator in such a State would have to 
comply with the requirements of HUD's SAFE Act-compliant licensing 
system for that State, as well as with any applicable State 
requirements. A HUD license for a State would be valid only for that 
State, even if HUD must implement licensing systems in multiple States. 
Additionally, if HUD determines that the NMLSR is failing to meet the 
requirements and purposes of the SAFE Act, HUD must establish a system 
that meets the requirements of the SAFE Act.
    As noted earlier, the SAFE Act encourages CSBS and AARMR to 
establish and maintain the NMLSR, and these organizations have 
development of the NMLSR under way. In addition to developing the 
NMLSR, CSBS and AARMR developed model legislation to aid and facilitate 
States' compliance with the requirements of the SAFE Act. Because 
overall responsibility for interpretation, implementation, and 
compliance with the SAFE Act rests with HUD, CSBS and AARMR requested 
that HUD review the model legislation, and advise of its sufficiency in 
meeting applicable minimum requirements of the SAFE Act. HUD reviewed 
the model legislation and advised the public that the model legislation 
offers an approach that meets the minimum requirements of the SAFE Act. 
States that adopt and implement a State licensing system that follows 
the provisions of the model legislation, whether by statute or 
regulation, will be presumed to have met the applicable minimum 
requirements of the SAFE Act.
    In advising the public of its assessment of the model legislation, 
HUD also presented its views and interpretations of certain statutory 
provisions that required consideration and analysis in determining that 
the model legislation meets the minimum requirements of the SAFE Act. 
These views and interpretations, referred to as HUD's Commentary (or 
Commentary) can be found at http://www.hud.gov/offices/hsg/sfh/reguprog.cfm. (See also HUD's Federal Register notice published on 
January 5, 2009, at 74 FR 312, advising of the availability of the 
model legislation and HUD's Commentary.) This rule proposes to 
incorporate the views and interpretations of the SAFE Act that HUD 
presented in its Commentary.
    More recently, HUD posted on its Web site responses to frequently 
asked questions about the SAFE Act. One of the questions asked 
concerned the applicability of the definition of loan originator to 
individuals who modify existing residential mortgage loans. As HUD's 
response to this question reflects, given the extent to which today's 
loan modifications can be virtually indistinguishable from refinances, 
HUD sees the reasonableness of covering these individuals under the 
definition of loan originator and has advised that it is inclined to 
require the licensing of individuals who perform loan modifications for 
servicers. In its response to the question, HUD also highlighted 
several issues related to loan modifications. Given the continued poor 
State of the housing situation and the importance of promoting loan 
modifications as a means of avoiding foreclosure, HUD seeks comment on 
this issue, as discussed later in this preamble.
    Related to HUD's rulemaking is regulatory action recently taken by 
the Office of the Comptroller of the Currency of the Department of the 
Treasury, the Federal Reserve System, the Federal Deposit Insurance 
Corporation, the Office of Thrift Supervision of the Department of the 
Treasury, the Farm Credit Administration (FCA), and the National Credit 
Union Administration (collectively, the agencies). The SAFE Act 
requires these agencies, through the Federal Financial Institutions 
Examination Council (FFIEC) and the FCA, to develop and maintain a 
Federal registration system for employees of an institution regulated 
by one (or more) of the agencies, and to implement this system by July 
29, 2009. The SAFE Act specifically prohibits an individual employed by 
an agency-regulated institution from engaging in the business of 
residential mortgage loan origination without first obtaining and 
maintaining annually a registration as a registered mortgage loan 
originator and obtaining a unique identifier. The agencies published 
their proposed rule to implement this registration system on June 9, 
2009, at 74 FR 27386. The agencies' proposed rule also seeks comment on 
the issue of coverage of individuals who perform loan

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modifications. (See 74 FR at 27391-27392.)
    With respect to the agencies' responsibilities under the SAFE Act, 
and the responsibilities of HUD, it is important to note that HUD's 
regulations, when promulgated, do not apply to individuals who are 
employees of agency-regulated institutions and are, accordingly, 
subject to the regulations to be promulgated by the agencies. 
Additionally, any action taken by HUD based on a determination that the 
NMLSR does not meet the requirements of the SAFE Act with respect to 
individuals subject to the State licensing and registration 
requirements of the SAFE Act, would not apply to individuals subject to 
the agencies' SAFE Act regulations.

II. This Proposed Rule

    This proposed rule addresses the criteria that HUD will use to 
determine whether a State has put in place a system for licensing and 
registering loan originators as required by the SAFE Act. The rule sets 
forth the statutorily imposed minimum requirements that a State would 
have to meet to be in compliance with the SAFE Act. Those minimum 
requirements are found in section 1505 of the SAFE Act, which governs 
State license and registration application and issuance, section 1506, 
which governs the standards for State license renewal, and section 
1508(d), which governs other standards that a State's law and licensing 
system must meet. This rule also sets forth clarifications and 
interpretations of the SAFE Act that HUD previously provided to the 
public through its Commentary. Among the important clarifications that 
this rule proposes to make are definitions of what activities are 
included in ``tak[ing] a residential mortgage loan application'' and 
``offer[ing] or negotiate[ing] terms of a residential mortgage loan,'' 
and what it means to do so ``for compensation or gain.'' The meanings 
of these terms largely determine whether or not a particular individual 
is subject to licensing requirements. HUD is aware of the great variety 
of business models that are utilized in the housing finance industry 
and proposes to provide definitions based on functions, rather than on 
job titles or labels, to further clarify whether an individual is 
subject to licensing requirements. HUD specifically seeks comment on 
whether the proposed definitions, which are further discussed below, 
are adequate and appropriate.
    This proposed rule would provide that the requirements that HUD 
would put in place if HUD must establish a licensing and registration 
system for a State are the same as the minimum requirements that States 
must implement, in accordance with section 1508 of the SAFE Act. This 
proposed rule would also provide the criteria that HUD will use to 
determine, in accordance with section 1509 of the SAFE Act, whether the 
NMLSR meets the requirements of the SAFE Act.
    This rule incorporates the provisions of section 1512 of the SAFE 
Act, pertaining to confidentiality of information, and of section 1513, 
pertaining to protection from liability for HUD or the administrator of 
the NMLSR by reason of good-faith action or omission of any officer or 
employee of HUD or the administrator while acting within the scope of 
office or employment, relating to the collection, furnishing or 
dissemination of information concerning persons who are loan 
originators or are applying for licensing or registration as loan 
originators.
    This rule also addresses the enforcement authority provided to HUD 
in section 1514 of the SAFE Act. Section 1514 of the SAFE Act provides 
HUD with: (1) Summons authority for information on any loan originator 
operating in any State that is subject to a licensing system 
established by HUD; (2) the authority to appoint examiners to assist 
HUD in its responsibilities in a State in which HUD established a 
licensing system; and (3) the authority to conduct cease-and-desist 
proceedings with respect to any person who is violating, has violated, 
or is about to violate any provision of the SAFE Act under a licensing 
system established by HUD, including the authority to issue temporary 
orders.
    Consistent with HUD's responsibility to oversee implementation and 
compliance with the SAFE Act, HUD would like to highlight for the 
public's attention, the following determinations that HUD has made and 
for which HUD specifically welcomes comment. Several of the 
determinations were presented in the Commentary which HUD issued in 
connection with its review of the CSBS/AARMR model legislation and are 
repeated here. To the extent that this rule would clarify and interpret 
minimum requirements that are ambiguous or undefined in the SAFE Act, 
HUD anticipates that States that have already enacted otherwise 
compliant systems will be able to comply with the clarified 
requirements through issuance of regulations or otherwise, rather than 
through legislative amendments.

A. Engaging in the Business of a Loan Originator and State of Licensure

    Section 1504(a) of the SAFE Act provides that, upon the 
establishment of a licensing or registry system, as applicable, in 
accordance with the SAFE Act, an individual ``may not engage in the 
business of a loan originator'' without first obtaining a registration 
or State license. Consistent with this statutory provision, this 
proposed rule would provide in Sec.  3400.103 that an individual must 
comply with a State's licensing and registry requirements in order to 
engage in the business of a loan originator with respect to any 
residential property in that State. Section 3400.103 of the rule would 
clarify that the individual must comply with a State's licensing and 
registry requirements regardless of whether the individual or the 
prospective borrower is located in the State. This clarification would 
ensure that each State is able to establish and enforce the provisions 
of its SAFE Act licensing system and would prevent an individual from 
circumventing a State's requirements simply by physically locating 
outside of the State and conducting business in that State by telephone 
or other means. The same regulatory section clarifies, consistent with 
section 1503(3)(A)(ii) of the SAFE Act, that a person who performs only 
``administrative and clerical tasks'' does not ``engage in the business 
of a loan originator.''

B. Taking an Application

    Section 1503(3)(A)(i) of the SAFE Act defines ``loan originator'' 
as ``an individual who: (I) takes a residential mortgage loan 
application; and (II) offers or negotiates terms of a residential 
mortgage loan for compensation or gain.'' This proposed rule would 
incorporate in Sec.  3400.23 the interpretation of ``application'' 
provided in HUD's Commentary. The Commentary Stated that 
``application'' includes any request from a borrower, however 
communicated, for an offer (or in response to a solicitation of an 
offer) of residential mortgage loan terms, as well as the information 
from the borrower that is typically required in order to make such an 
offer.
    The Commentary also provided that HUD views the phrase ``tak[ing] 
an application'' to mean receipt of an application for the purpose of 
deciding whether or not to extend the requested offer of a loan to the 
borrower, whether the application is received directly or indirectly 
from the borrower. Section 3400.103(c)(1) of the proposed rule would 
incorporate the language of the

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Commentary on ``taking an application''. The Commentary also provided 
that HUD interprets the term ``takes a residential mortgage loan 
application'' to exclude an individual whose only role with respect to 
the application is physically handling a completed application form or 
transmitting a completed form to a lender on behalf of a prospective 
borrower. This interpretation is consistent with the definition of 
``loan originator'' in section 1503(3)(A)(ii) of the SAFE Act.
    The Commentary also addressed the meaning of the term ``loan 
originator.'' The Commentary States that since it generally would not 
be possible for an individual to offer to or negotiate residential 
mortgage loan terms with a borrower without first receiving the request 
from the borrower (including a positive response to a solicitation of 
an offer), as well as the information typically contained in a 
borrower's application, HUD considers the definition of loan originator 
to encompass any individual who, for compensation or gain, offers or 
negotiates pursuant to a request from and based on the information 
provided by the borrower. This proposed rule would therefore provide in 
section 3400.103(c)(1) that such an individual would be included in the 
definition of loan originator, regardless of whether the individual 
takes the request from the borrower for an offer (or positive response 
to an offer) of residential mortgage loan terms directly or indirectly 
from the borrower.

C. Offering or Negotiating

    Similar to HUD's views on ``loan originator'', HUD views the terms 
``offers or negotiates'' broadly. HUD views these terms as encompassing 
interactions between an individual and a borrower where the individual 
is likely to seek to further his or her own interests or those of a 
third party. Accordingly, this rule would clarify in Sec.  
3400.103(c)(2) that the terms include interactions that are typical 
between two parties in an arm's length relationship prior to entering 
into a contract, such as presenting loan terms for acceptance by a 
prospective borrower and communicating with the borrower for the 
purpose of reaching an understanding about prospective loan terms.
    In addition, this proposed rule proposes to clarify that ``offers 
or negotiates'' includes actions by an individual that make a 
prospective borrower more likely to accept a particular set of loan 
terms or an offer from a particular lender, where the individual may be 
influenced by a duty to or incentive from any party other than the 
borrower. Such actions may have the same effect on the borrower's 
decision as overt negotiations, but without the borrower's knowledge or 
understanding that other options may be available. Examples include a 
contingent payment, a contractual duty to recommend one lender or 
product, or a pattern of steering to a lender that provides grant 
funding to the steering housing counselor. HUD specifically welcomes 
comment on the clarification that HUD offers through this rule.

D. For Compensation or Gain

    The terms ``for compensation or gain'' are proposed to be broadly 
defined in Sec.  3400.103(c)(2) and would include any circumstances in 
which an individual receives or expects to receive anything of value in 
connection with offering or negotiating terms of a residential mortgage 
loan. These terms would not be limited to payments that are contingent 
upon closing of a loan.

E. Independent Contractor Loan Processors or Underwriters

    Sections 1503(4) and 1504(b) of the SAFE Act provide that certain 
individuals who ``engage in residential mortgage loan origination 
activities as a loan processor or underwriter'' must have a loan 
originator license, even if their activities do not amount to 
``engag[ing] in the business of a loan originator'' under Sec.  
1504(a). The SAFE Act defines ``loan processor or underwriter'' as an 
individual who performs ``clerical or support duties'' at the direction 
of and subject to the supervision and instruction of a State-licensed 
loan originator or registered loan originator. ``Clerical or support 
duties'' are defined to include communicating with a consumer and third 
parties to collect and analyze information that is necessary to process 
an application or to underwrite the loan.
    Sections 1503(4) and 1504(b) provide that this licensing 
requirement does not apply to an individual who fully meets the 
definition of a loan processor or underwriter, in that he or she 
performs these clerical or support duties at the direction of and 
subject to the supervision and instruction of a State-licensed loan 
originator or registered loan originator. Sections 1503(4) and 1504(b) 
provide that this licensing requirement does apply to individuals who 
are ``independent contractors'' who perform these clerical or support 
duties, because, by definition, they do not perform their duties at the 
direction of and subject to the supervision and instruction of a State 
licensed loan originator or a registered loan originator. It is the 
lack of such supervision by individuals already licensed or registered 
as loan originators that subjects loan processors or underwriters to 
the SAFE Act licensing and registry requirements.
    This proposed rule would clarify in Sec.  3400.23 that an 
``independent contractor,'' for purposes of this provision, is an 
individual who performs these duties other than at the direction of and 
subject to the supervision of a State licensed loan originator or a 
registered loan originator. Accordingly, an individual who is an 
employee of some person or entity (i.e., the individual is not an 
independent contractor), but who is not subject to the direction, 
supervision, and instruction of a licensed or registered loan 
originator, would have to obtain a loan originator license. Such a 
person or entity could prevent its employees from having to obtain a 
State loan originator license simply by ensuring that they perform any 
``clerical or support duties'' at the direction of and subject to the 
supervision and instruction of a State-licensed loan originator or 
registered loan originator.

F. Individuals Not Subject to Licensing Requirements

    Notwithstanding the broad definition of ``loan originator'' in the 
SAFE Act, as noted in HUD's Commentary, there are some limited contexts 
where offering or negotiating residential mortgage loan terms would not 
make an individual a loan originator. The provision in the definition 
that loan originators are individuals who take an ``application'' 
implies a formality and commercial context that is wholly absent where 
an individual offers or negotiates terms of a residential mortgage loan 
with or on behalf of a member of his or her immediate family. 
Accordingly, this proposed rule would provide in Sec.  3400.103(e)(4) 
that such individuals are not subject to State licensing requirements.
    The commercial context implied by the taking of an ``application'' 
is also absent where an individual seller provides financing to a buyer 
pursuant to the sale of the seller's own residence. The frequency with 
which a particular seller provides financing is so limited that HUD's 
view is that Congress did not intend to require such sellers to obtain 
loan originator licenses. Accordingly, this rule would provide in Sec.  
3400.103(e)(5) that such individuals are not subject to State licensing 
requirements.
    Additionally, the definition generally would not apply to, for 
example, a

[[Page 66552]]

licensed attorney who negotiates terms of a residential mortgage loan 
with a prospective lender on behalf of a client as an ancillary matter 
to the attorney's representation of the client, unless the attorney is 
compensated by a lender, mortgage broker, or other mortgage loan 
originator or by an agent of such lender, mortgage broker, or other 
loan originator. In such cases, the attorney's duties of loyalty to the 
client require the attorney to seek to further only the client's 
interests, and the attorney does not negotiate with or make offers of 
loan terms to the client. Accordingly, such activities would not fall 
within the definition of ``offers or negotiates'' as proposed to be 
defined in Sec.  3400.103(c)(2) and discussed above, and would 
therefore not be engaging in the business of a loan originator. This 
rule would provide in Sec.  3400.103(e)(5) that such individuals are 
not subject to State licensing requirements.
    Finally, section 1503(7)(A) of the SAFE Act provides that employees 
of: (i) A depository institution, (ii) a subsidiary that is owned and 
controlled by a depository institution and that is regulated by a 
Federal banking agency, or (iii) an institution regulated by the Farm 
Credit Administration are not subject to State licensing requirements. 
The SAFE Act does not define the term ``employee'' and, in consultation 
with staff of the Federal banking agencies and the Farm Credit 
Administration, HUD was apprised that there is no general definition of 
``employee'' used by these Federal agencies. Accordingly, this proposed 
rule would clarify in Sec.  3400.23 that HUD interprets ``employee'' to 
mean only an individual who meets a common law definition of employee 
and whose income is required to be reported on a W-2 form, unless the 
Federal banking agencies provide another binding definition. (See 
Restatement (Third) of Agency Sec.  7.07(3) and comment f.)

G. Minimum Requirements for Licensing

    Section 1505 sets forth the minimum licensing requirements. Section 
1505(a) requires a background check on the applicant, which includes 
the submission of fingerprints, personal history and experience, an 
independent credit report, and information relating to any 
administrative, civil, or criminal findings by any governmental 
institution.
    Section 1505(b)(2) of the SAFE Act provides that, to be eligible 
for a license, an individual must not have been convicted of any felony 
within the preceding 7 years or convicted of certain types of felonies 
at any time prior to application. Since the provision is triggered by a 
conviction, rather than by an extant record of a conviction, this 
proposed rule would clarify in Sec.  3400.105(b)(2) that an individual 
is ineligible for a loan originator license even if the conviction is 
later expunged. Pardoned convictions, in contrast, are generally 
treated as legal nullities for all purposes under State law, and Sec.  
3400.105(b)(2) would provide that a pardoned conviction would not 
render an individual ineligible. Section 3400.105(b)(2) would also 
clarify that the law under which an individual is convicted, rather 
than the State where the individual applies for a license, determines 
whether a particular crime is classified as a felony.
    Section 1505(c) establishes pre-licensing education for loan 
originators. In order to meet the pre-licensing education requirement, 
the applicant must complete at least 20 hours of approved education, 
which shall include: (1) At least 3 hours of Federal law and 
regulation; (2) 3 hours of ethics, which shall include instruction on 
fraud, consumer protection, and fair lending issues; and (3) 2 hours of 
training related to lending standards for the nontraditional mortgage 
product marketplace.
    Section 1505(d) requires the applicant to meet a written test, 
developed by the NMLS, and administered by an approved test provider.
    Section 1505(e) requires each mortgagee licensee to submit to the 
NMLS reports of condition (or mortgage call reports). This requirement 
is further addressed in section I of this preamble and Sec.  
3400.111(f) of the proposed regulation.

H. Effective Date of Requirement To Obtain and Maintain a License

    Under the SAFE Act, HUD may determine the acceptability of States' 
licensing and registration systems and of their participation in the 
NMLS as early as July 31, 2009, or July 31, 2010, as applicable. HUD's 
position is that Congress did not intend for States to require all 
mortgage loan originators to meet the educational, testing, and 
background check requirements and to be licensed immediately upon 
enactment of the State's legislation or issuance of regulations. In 
addition, HUD is aware that some States already require licensure of 
loan originators, and that some individuals in those States will hold 
licenses that do not expire until as late as December 2010.
    Considering the education, testing, and background check standards 
that license applicants must meet, this proposed rule would provide in 
Sec.  3400.109(a) that an acceptable delay, with respect to individuals 
who do not already possess a valid loan originator license, is one 
which does not extend past July 31, 2010. Section 3400.109(b) would 
provide that for individuals who possess licenses granted under a 
system that was enacted prior to the SAFE Act-compliant system, a 
reasonable delay is one that does not extend past December 31, 2010. 
This effective date would accommodate individuals with 2-year licenses 
that were granted or renewed as late as December 2008, and would also 
synchronize with the NMLSR's uniform annual license expiration date of 
December 31. Section 3400.109(c) would provide for the possibility of 
further extensions in the case of unusual hardship faced by loan 
originators in a State. Finally, Sec.  3400.109(d) would permit States 
to extend the deadline for individuals who perform or facilitate only 
modifications or refinancing under the Federal government's Making Home 
Affordable program. HUD does not believe that SAFE Act licensing 
requirements should limit borrowers' access to the benefits and 
protections of the Making Home Affordable program.

I. Other Requirements

    Section 1508(d) of the SAFE Act provides additional requirements 
that a State's loan originator licensing law and system must meet, 
including the requirement that the State's loan originator supervisory 
authority be maintained ``to provide effective supervision and 
enforcement'' of the law. This proposed rule would provide in 
Sec. Sec.  3400.111 and 3400.113 a non-exhaustive list of minimum 
standards that a State supervisory authority must meet in order to 
provide effective supervision and enforcement, including enforcement 
authorities that approximate those that HUD would have in a State where 
it establishes a licensing system, in accordance with section 1514 of 
the SAFE Act. HUD specifically invites comment on whether its proposed 
enforcement authorities reflect effective supervision and enforcement 
of the Safe Act requirements.
    Section 3400.111(f) also incorporates the statutorily required 
submission of reports of condition (or mortgage call reports), and 
would clarify that it is the responsibility of the loan originator to 
ensure that all residential mortgage loans that close as a result of 
the loan originator's activities are included in such reports. This 
clarification would not prevent such reports from being submitted at an 
institutional level, but the responsibility for ensuring submission 
would remain that of the individual loan originator.

[[Page 66553]]

    This proposed rule would also provide that accreditation under 
CSBS's Mortgage Accreditation Program provides a supervisory authority 
a safe harbor, under which HUD will presume that the supervisory 
authority is providing ``effective supervision and enforcement.''

J. Determinations of Noncompliance by HUD

    This proposed rule would specify in Sec.  3400.115 the method HUD 
will use in making a final determination that a State is not in 
compliance with the SAFE Act's requirements. Section 3400.115 would 
provide that a State must provide evidence of its compliance upon 
request from HUD, and would provide that HUD will provide notice and 
the opportunity for comment of its initial determination of a State's 
noncompliance with the SAFE Act, and that HUD's final determination 
will be published in the Federal Register. This regulatory section 
would also provide that HUD may grant a good-faith extension of up to 
24 months from the date of HUD's determination of noncompliance. 
Finally, Sec.  3400.115 would provide the time frame for when HUD's 
implementation of a licensing system in a State becomes effective.

K. NMLSR Requirements.

    This rule provides in subpart D the requirements that apply to the 
NMLSR. Section 3400.303 proposes to provide financial reporting 
requirements that are necessary to determine whether fees charged by 
the NMLSR are reasonable and not excessive, in accordance with section 
1510 of the SAFE Act. This rule would also provide in Sec.  3400.305 
requirements that apply to the NMLSR's data security and integrity, 
which are necessary to achieve the confidentiality required under 
section 1512 of the SAFE Act and for HUD to determine that NMLSR is 
meeting the SAFE Act's requirements and purposes. HUD specifically 
invites comments on whether these provisions are adequate and 
appropriate.

L. Loan Modifications

    As noted earlier in this preamble, HUD continues to seek comment on 
HUD's inclination to require licensing, as loan originators under the 
SAFE Act, of individuals who perform loan modifications that involve 
offering or negotiating of loan terms that are materially different 
from the original loan. HUD first addressed this issue in a frequently 
asked questions section on its Web site, concerning the SAFE Act. For 
the convenience of the reader, and to highlight the questions for which 
HUD specifically seeks comment, HUD reviews its consideration of this 
issue as set forth in the frequently asked questions section.
    HUD's consideration of this issue is based on HUD's recognition 
that servicers are increasingly taking applications for and negotiating 
the terms of loan modifications that materially alter the terms of 
existing mortgage loans. These types of loan servicing activities are 
often very different from what industry and the public viewed as 
typical loan servicing activities only a few years ago. Today's loan 
modifications may include an increase or decrease in the interest rate, 
a change to the type of interest rate (e.g., fixed rate versus 
adjustable rate), an extension of the loan term, an increase or a 
write-down of the principal, the addition of collateral, changes to 
provisions for prepayment penalties and balloon payments, and even a 
change in the parties to the loan through assumption or the addition of 
a co-signer. The activities of a loan servicer that result in 
modification of the terms of a residential mortgage loan can be 
virtually indistinguishable from the performance of a refinancing, 
which is unambiguously covered by the SAFE Act.
    Given the material alteration to the terms of a residential loan 
that are occurring through today's modifications, HUD is inclined to 
include in its definition of a loan originator, which is being 
developed through this rulemaking, an individual who performs a 
residential mortgage loan modification that involves offering or 
negotiating of loan terms that are materially different from the 
original loan. At least in some circumstances, when a borrower seeks 
modification of an existing loan, he or she is requesting an offer of 
terms that are different from those of his or her existing loan. The 
loan servicer responds to this request by requesting from the borrower 
much of the same, if not exactly the same, information necessary in an 
application to refinance a mortgage or obtain a new loan, and the loan 
servicer offers or negotiates the terms of the modification with the 
borrower.
    HUD understands the uncertainty within the residential mortgage 
industry about whether loan servicers are covered by the SAFE Act. The 
uncertainty stems from the fact that traditional loan servicer 
activities (e.g., sending monthly payment statements, collecting 
monthly payments, maintaining records of payments and balances, 
collecting and paying taxes and insurance, remitting funds to the note 
holder, and following up on delinquencies) do not constitute loan 
origination activities. However, given the housing crisis and as noted 
earlier, loan servicers today are engaged in modification activities 
that go beyond those that they traditionally performed and that 
constitute ``engag[ing] in the business of a loan originator,'' within 
the meaning of the SAFE Act. Furthermore, when a borrower seeks a loan 
modification from his or her loan servicer, the borrower may face the 
same risks that Congress sought to control through loan originator 
licensing. As a result, borrowers may be well served if individuals who 
negotiate the terms of loan modifications are required to have the same 
level of competency, integrity, and accountability that the SAFE Act 
requires of those originating new loans, including the refinancing of 
an existing mortgage.
    To assist with HUD's consideration and resolution of this issue, 
HUD specifically invites submission of views on any mandatory licensing 
provisions, quality controls, and training requirements that are 
already applicable to servicers, and on whether such measures provide 
protections for consumers that are equivalent to those under the SAFE 
Act. HUD also requests views on what, if any, characteristics of a 
modification should be used to classify the modification as so 
immaterial that it should not be covered by the SAFE Act. Finally, HUD 
requests views on whether, if SAFE Act licensing of loan servicers is 
required at HUD's final rule stage, the rule should provide for an 
extension of the licensing deadline for individuals performing 
modifications only under the Federal government's Making Home 
Affordable program. HUD is interested in whether, by granting an 
extension of time under this limited set of circumstances, States could 
be assured that consumers working with unlicensed individuals are still 
provided strong protections from fraud and abuse. Such an extension 
would be in addition to the reasonable delays that States may provide 
to all individuals, in accordance with the guidance provided in HUD's 
Commentary. The Commentary provided that States could give all 
individuals until July 31, 2010, to obtain a license, and could give 
all individuals who already hold licenses issued under a prior 
licensing system until December 31, 2010, to obtain a license.
    HUD understands that a number of States have expressly provided for 
coverage of individuals performing modifications for servicers through 
legislation or through administrative means. Several States have opted 
to

[[Page 66554]]

enact legislation defining a loan originator as an individual who takes 
a residential mortgage loan application or offers or negotiates the 
terms of a residential mortgage loan for compensation or gain. HUD has 
determined that the model State law developed by CSBS and AARMR, which 
contains this definition of loan originator, meets the minimum 
requirements of the SAFE Act. Therefore, since an individual performing 
a loan modification almost certainly offers or negotiates the terms of 
a residential mortgage loan, HUD's view is that such State legislation 
already covers individuals performing such modifications. Although HUD 
is requesting the submission of views on whether it will require States 
to cover such individuals, HUD's view is that the decisions of those 
States to cover such individuals are fully consistent with the SAFE Act 
and that, in any case, States are free to exceed the standards required 
by HUD.

M. Third-Party Loan Modification Specialists

    HUD has seen a substantial increase in the number of third-party 
actors (i.e., individuals other than lenders and loan servicers) 
offering their services as intermediaries to work putatively on behalf 
of borrowers to negotiate modifications of existing loan terms. In many 
cases the activities of these third-party actors closely resemble those 
of mortgage brokers, who act as intermediaries between lenders and 
borrowers to facilitate the origination of new residential mortgage 
loans and refinancing of existing mortgages. These third-party actors 
may advertise their services on television or through telemarketing, 
targeting homeowners who are having difficulty making their current 
mortgage payments. In other cases, third parties work with borrowers 
directly, under programs sponsored by governmental or nonprofit 
agencies, to advise or assist borrowers in obtaining loan 
modifications. It is HUD's view that third-party loan modification 
specialists should be covered by the licensing requirements of the SAFE 
Act.
    HUD specifically requests comment on whether third-party loan 
modification specialists should be covered by the definition of loan 
originator and, consequently, be subject to the licensing and 
registration requirements of the SAFE Act. HUD also requests comments 
on what specific functions performed by third-party loan modification 
specialists should be characterized as equivalent to the functions of a 
loan originator that are covered by the SAFE Act.

N. Grandfathering

    One issue that has arisen that HUD did not address in its 
Commentary on the model State law is that of grandfathering. 
Specifically, HUD has been asked whether a State may permanently waive 
certain SAFE Act requirements for individuals who have a certain amount 
of experience as loan originators. The SAFE Act is clear that to engage 
in the business of a loan originator, an individual must meet all of 
the licensing requirements. The SAFE Act makes no provision for waiver 
of these requirements by States. Accordingly, grandfathering is not 
authorized under the SAFE Act, and this proposed rule would not provide 
for grandfathering. However, individuals who were licensed under a 
previous licensing system may be afforded an extended period of time to 
comply with requirements, as discussed in part H of this preamble.

III. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866 (entitled, ``Regulatory Planning and Review''). 
This rule was determined to be a ``significant regulatory action'' as 
defined in section 3(f) of the Order, although not an economically 
significant regulatory action, as provided under section 3(f)(1) of the 
Order.
    HUD's determination that this rule is not an economically 
significant regulatory action is supported by the fact that the SAFE 
Act establishes the minimum licensing standards for loan originators, 
not HUD. While HUD has interpretive, oversight, and enforcement 
authority under the SAFE Act, HUD is not authorized to make only 
certain licensing standards applicable to loan originators, and not 
others. Accordingly, HUD is not able to alter costs that result from 
compliance with these statutorily imposed requirements either by States 
or individuals.
    This proposed rule is primarily directed to addressing HUD's 
oversight and enforcement responsibilities. The costs that result from 
these activities are therefore costs that will be borne by HUD in 
carrying out its oversight and enforcement responsibilities. While HUD 
recognizes that there are costs that will be incurred by States and 
individuals in complying with the SAFE Act requirements, the SAFE Act 
contemplates that balanced against these costs will be the benefits to 
which the SAFE Act strives to achieve, which include: uniform license 
applications and reporting requirements; increased accountability of 
loan originators; enhanced consumer protections; a streamlined 
licensing process; and reduced administrative burden through the 
uniformity provided by the nationwide standards, especially for those 
that originate loans in more than one State.
    The docket file for this rule is available for public inspection 
between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, Room 10276, 451 7th Street, SW., Washington, DC 20410-
0500. Due to security measures at the HUD Headquarters building, please 
schedule an appointment to review the docket file by calling the 
Regulations Division at 202-708-3055 (this is not a toll-free number). 
Persons with hearing or speech impairments may access the above 
telephone number via TTY by calling the toll-free Federal Information 
Relay Service at 800-877-8339.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements, unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. The SAFE Act, which 
establishes minimum licensing requirements for loan originators, is 
largely directed to individuals who are loan originators as defined by 
the SAFE Act. The SAFE Act requires each individual to be licensed and 
registered under the requirements of the SAFE Act. With respect to the 
SAFE Act licensing standards, HUD is not, through this rule, 
establishing or implementing these licensing requirements, because the 
SAFE Act made these requirements self-implementing. Rather, through 
this rule, HUD proposes to codify, in regulation, the SAFE Act minimum 
licensing standards, and to codify those clarifications and 
interpretations that HUD already has issued through Web site postings. 
HUD is proposing, however, to establish regulations reflecting its 
oversight responsibilities under the SAFE Act. The codification of the 
licensing standards, together with HUD's oversight regulations, will 
provide a convenient location for regulated parties and interested 
individuals to reference SAFE Act requirements. Because the SAFE Act is 
not directed to entities, large or small,

[[Page 66555]]

but individuals, and because this rule is directed to HUD's oversight 
responsibilities, the undersigned certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities.
    Notwithstanding HUD's determination that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Environmental Impact

    This proposed rule does not direct, provide for assistance or loan 
and mortgage insurance for, or otherwise govern or regulate, real 
property acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Therefore, this proposed rule is categorically 
excluded from the requirements of the National Environmental Policy Act 
(42 U.S.C. 4321 et seq.).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications if the rule either imposes 
substantial direct compliance costs on State and local governments and 
is not required by statute, or preempts State law, unless the relevant 
requirements of Section 6 of the Executive Order are met. This rule 
merely implements the statutory requirements of the SAFE Act and does 
not have federalism implications beyond those in the Act. This rule 
does not itself impose substantial direct compliance costs on State and 
local governments or preempt State law within the meaning of the 
Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 1531-1538) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments and the private sector. This rule does not impose 
any Federal mandate on any State, local, or tribal government or the 
private sector within the meaning of UMRA.

List of Subjects

24 CFR Part 30

    Administrative practice and procedure, Grant programs-housing and 
community development, Loan programs-housing and community development, 
Mortgages, and Penalties.

 24 CFR Part 3400

    Licensing, Mortgages, Registration, Reporting and recordkeeping 
requirements.

    For the reasons Stated in the preamble, HUD proposes to amend 24 
CFR part 30 and add a new 24 CFR part 3400, as follows:

PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT

    1. The authority citation for part 30 continues to read as follows:

    Authority:  12 U.S.C. 1701q-1, 1703, 1723i, 1735f-14, and 1735f-
15; 15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 1437z-1 and 
3535(d).

    2. Add Sec.  30.69 to subpart B to read as follows:


Sec.  30.69  SAFE Mortgage Licensing violations.

    (a) General. HUD may impose a civil penalty on a loan originator 
operating in any State which is subject to a licensing system 
established by HUD under 12 U.S.C. 5107 and in accordance with subpart 
C of 24 CFR part 3400, if HUD finds that such loan originator has 
violated or failed to comply with any requirement of the SAFE Act, the 
provisions of 24 CFR part 3400, or a provision of State law enacted or 
promulgated under the SAFE Act to which the person is subject and with 
respect to a State that is subject to a licensing system established by 
HUD under section 12 U.S.C. 5107 and in accordance with subpart C of 24 
CFR part 3400.
    (b) Maximum amount of penalty. The maximum amount of penalty for 
each act or omission described in paragraph (a) of this section shall 
be $25,000.
    3. Add part 3400, to read as follows:

PART 3400--SAFE MORTGAGE LICENSING ACT

Sec.
3400.1 Purpose.
3400.3 Confidentiality of information.
Subpart A--General
3400.20 Scope of this subpart.
3400.23 Definitions.
Subpart B--Determination of State Compliance with the SAFE Act
3400.101 Scope of this subpart.
3400.103 Individuals required to be licensed by States.
3400.105 Minimum loan originator license requirements.
3400.107 Minimum annual license renewal requirements.
3400.109 Effective date of State requirements imposed on 
individuals.
3400.111 Other minimum requirements for State licensing systems.
3400.113 Performance standards.
3400.115 Determination of noncompliance.
Subpart C--HUD's Loan Originator Licensing System and HUD's Nationwide 
Mortgage Licensing and Registry System
3400.201 Scope of this subpart.
3400.203 HUD's establishment of loan originator licensing system.
3400.205 HUD's establishment of nationwide mortgage licensing system 
and registry.
Subpart D--Minimum Requirements for Administration of the NMLSR
3400.301 Scope of this subpart.
3400.303 Financial reporting.
3400.305 Data security.
3400.307 Fees.
3400.309 Absence of liability for good-faith administration.
Subpart E--Enforcement of HUD Licensing System
3400.401 HUD's authority to examine loan originator records.
3400.403 Enforcement proceedings.
3400.405 Civil money penalties.

    Authority:  12 U.S.C. 5101-5113; 42 U.S.C. 3535(d).


Sec.  3400.1  Purpose.

    (a) This part implements HUD's responsibilities under the Secure 
and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) (12 
U.S.C. 5101-5113). The SAFE Act strives to enhance consumer protection 
and reduce fraud by directing States to adopt minimum uniform standards 
for the licensing and registration of residential mortgage loan 
originators and to participate in a nationwide mortgage licensing 
system and registry database of residential mortgage loan originators. 
Under the SAFE Act, if HUD determines that a State's loan origination 
licensing system does not meet the minimum requirements of the SAFE 
Act, HUD is charged with establishing and implementing a system for all 
loan originators in that State. Additionally, if at any time HUD 
determines that the nationwide mortgage licensing system and registry 
is failing to meet the SAFE Act's requirements, HUD is charged with 
establishing and maintaining a licensing and registry database for loan 
originators.
    (b) Subpart A establishes the definitions applicable to this part. 
Subpart B provides the minimum standards that a State must meet in 
licensing loan originators, including standards for whom a State must 
require to be licensed, and sets forth HUD's procedure for determining 
a State's

[[Page 66556]]

compliance with the minimum standards. Subpart C provides the 
requirements that HUD will apply in any State that HUD determines has 
not established a licensing and registration system in compliance with 
the minimum standards of the SAFE Act. Subpart D provides minimum 
requirements for the administration of the Nationwide Mortgage 
Licensing System and Registry. Subpart E clarifies HUD's enforcement 
authority in States in which it operates a State licensing system.


Sec.  3400.3  Confidentiality of information.

    (a) Except as otherwise provided in this part, any requirement 
under Federal or State law regarding the privacy or confidentiality of 
any information or material provided to the Nationwide Mortgage 
Licensing System and Registry or a system established by the Secretary 
under this part, and any privilege arising under Federal or State law 
(including the rules of any Federal or State court) with respect to 
such information or material, shall continue to apply to such 
information or material after the information or material has been 
disclosed to the system. Such information and material may be shared 
with all State and Federal regulatory officials with mortgage industry 
oversight authority without the loss of privilege or the loss of 
confidentiality protections provided by Federal and State laws.
    (b) Information or material that is subject to a privilege or 
confidentiality under paragraph (a) of this section shall not be 
subject to:
    (1) Disclosure under any Federal or State law governing the 
disclosure to the public of information held by an officer or an agency 
of the Federal Government or the respective State; or
    (2) Subpoena or discovery, or admission into evidence, in any 
private civil action or administrative process, unless with respect to 
any privilege held by the Nationwide Mortgage Licensing System and 
Registry or by the Secretary with respect to such information or 
material, the person to whom such information or material pertains 
waives, in whole or in part, in the discretion of such person, that 
privilege.
    (c) Any State law, including any State open record law, relating to 
the disclosure of confidential supervisory information or any 
information or material described in paragraph (a) of this section that 
is inconsistent with paragraph (a), shall be superseded by the 
requirements of such provision to the extent that State law provides 
less confidentiality or a weaker privilege.
    (d) This section shall not apply with respect to the information or 
material relating to the employment history of, and publicly 
adjudicated disciplinary and enforcement actions against, loan 
originators that is included in the Nationwide Mortgage Licensing 
System and Registry for access by the public.

Subpart A--General


Sec.  3400.20  Scope of this subpart.

    This subpart provides the definitions applicable to this part, and 
other general requirements applicable to this part.


Sec.  3400.23  Definitions.

    Terms that are defined in the SAFE Act and used in this part have 
the same meaning as in the SAFE Act, unless otherwise provided in this 
section.
    Administrative or clerical tasks means the receipt, collection, and 
distribution of information common for the processing or underwriting 
of a loan in the mortgage industry and communication with a consumer to 
obtain information necessary for the processing or underwriting of a 
residential mortgage loan.
    American Association of Residential Mortgage Regulators is the 
national association of executives and employees of the various States 
who are charged with the responsibility for administration and 
regulation of residential mortgage lending, servicing and brokering, 
and dedicated to the goals described at http://www.aarmr.org.
    Application means a request, in any form, for an offer (or a 
response to a solicitation of an offer) of residential mortgage loan 
terms and the information about the borrower or prospective borrower 
that is customary or necessary in a decision on whether to make such an 
offer.
    Clerical or support duties:
    (1) Include:
    (i) The receipt, collection, distribution, and analysis of 
information common for the processing or underwriting of a residential 
mortgage loan; and
    (ii) Communicating 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; and
    (2) Does not include:
    (i) Taking a residential mortgage loan application; or
    (ii) Offering or negotiating terms of a residential mortgage loan.
    Conference of State Bank Supervisors (CSBS) is the national 
organization composed of State bank supervisors dedicated to 
maintaining the State banking system and State regulation of financial 
services in accordance with the CSBS statement of principles described 
at http://www.csbs.org.
    Employee:
    (1) Subject to paragraph (2) of this definition, means:
    (i) An individual:
    (A) Whose manner and means of performance of work are subject to 
the right of control of, or are controlled by, a person, and
    (B) Whose compensation for Federal income tax purposes is reported, 
or required to be reported, on a W-2 form.
    (2) Has such binding definition as may be issued by the Federal 
banking agencies in connection with their implementation of their 
responsibilities under the SAFE Act.
    Farm Credit Administration means the independent Federal agency, 
authorized by the Farm Credit Act of 1971, to examine and regulate the 
Farm Credit System.
    Federal banking agencies means the Board of Governors of the 
Federal Reserve System, the Comptroller of the Currency, the Director 
of the Office of Thrift Supervision, the National Credit Union 
Administration, and the Federal Deposit Insurance Corporation.
    Independent contractor means an individual who performs his or her 
duties other than at the direction of and subject to the supervision 
and instruction of an individual who is licensed and registered in 
accordance with Sec.  3400.103(a), or is exempt under Sec.  
3400.103(e)(7).
    Loan originator. See Sec.  3400.103.
    Loan processor or underwriter, for purposes of this part, means an 
individual who, with respect to the origination of a residential 
mortgage loan, performs clerical or support duties at the direction of 
and subject to the supervision and instruction of:
    (1) A State-licensed loan originator, or
    (2) A registered loan originator.
    Nationwide Mortgage Licensing System and Registry or NMLSR means 
the mortgage licensing system developed and maintained by the 
Conference of State Bank Supervisors and the American Association of 
Residential Mortgage Regulators for licensing and registration of loan 
originators and the registration of registered loan originators or any 
system established by the Secretary of HUD, as provided in subpart D of 
this part.
    Nontraditional mortgage product means any mortgage product other 
than a 30-year fixed-rate mortgage.
    Real estate brokerage activities mean any activity that involves 
offering or

[[Page 66557]]

providing real estate brokerage services to the public including--
    (1) Acting as a real estate agent or real estate broker for a 
buyer, seller, lessor, or lessee of real property;
    (2) Bringing together parties interested in the sale, purchase, 
lease, rental, or exchange of real property;
    (3) Negotiating, on behalf of any party, any portion of a contract 
relating to the sale, purchase, lease, rental, or exchange of real 
property (other than in connection with providing financing with 
respect to any such transaction);
    (4) Engaging in any activity for which a person engaged in the 
activity is required to be registered as a real estate agent or real 
estate broker under any applicable law; and
    (5) Offering to engage in any activity, or act in any capacity, 
described in paragraphs (1), (2), (3), or (4) of this definition.
    Residential mortgage loan means any loan primarily for personal, 
family, or household use that is secured by a mortgage, deed of trust, 
or other equivalent consensual security interest on a dwelling (as 
defined in section 103(v) of the Truth in Lending Act) or residential 
real estate upon which is constructed or intended to be constructed a 
dwelling (as so defined).
    Secretary means the Secretary of Housing and Urban Development.
    State means any State of the United States, the District of 
Columbia, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Trust Territory of the Pacific Islands, the Virgin 
Islands, and the Northern Mariana Islands.
    Unique identifier means a number or other identifier that:
    (1) Permanently identifies a loan originator;
    (2) Is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry and the Federal banking agencies to 
facilitate electronic tracking of loan originators and uniform 
identification of, and public access to, the employment history of and 
the publicly adjudicated disciplinary and enforcement actions against 
loan originators; and
    (3) Shall not be used for purposes other than those set forth under 
the SAFE Act.

Subpart B--Determination of State Compliance With the SAFE Act


Sec.  3400.101  Scope of this subpart.

    This subpart describes the minimum standards of the SAFE Act that 
apply to a State's licensing and registering of loan originators. This 
subpart also provides the procedures that HUD follows to determine that 
a State does not have in place a system for licensing and registering 
mortgage loan originators that complies with the minimum standards. 
Upon making such a determination, HUD will impose the requirements and 
exercise the enforcement authorities described in subparts C and E of 
this part.


Sec.  3400.103  Individuals required to be licensed by States.

    (a) Except as provided in paragraph (e) of this section, in order 
to operate a SAFE-compliant program, a State must prohibit an 
individual from engaging in the business of a loan originator with 
respect to any dwelling or residential real estate in the State, unless 
the individual first:
    (1) Registers as a loan originator through and obtains a unique 
identifier from the NMLSR, and
    (2) Obtains and maintains a valid loan originator license from the 
State.
    (b)(1) An individual engages in the business of a loan originator 
if the individual:
    (i)(A) Takes a residential mortgage loan application; and
    (B) Offers or negotiates terms of a residential mortgage loan for 
compensation or gain; or
    (ii) Represents to the public, through advertising or other means 
of communicating or providing information (including the use of 
business cards, stationary, brochures, signs, rate lists, or other 
promotional items), that such individual can or will provide any of the 
services or perform any of the activities described in paragraph 
(b)(1)(i) of this section.
    (2) An individual does not engage in the business of a loan 
originator merely by performing administrative or clerical tasks.
    (c)(1) An individual ``takes a residential mortgage loan 
application'' if the individual receives a residential mortgage loan 
application for the purpose of deciding (or influencing or soliciting 
the decision of another) whether to extend an offer of residential 
mortgage loan terms to a borrower or prospective borrower (or to accept 
the terms offered by a borrower or prospective borrower in response to 
a solicitation), whether the application is received directly or 
indirectly from the borrower or prospective borrower.
    (2) An individual ``offers or negotiates terms of a residential 
mortgage loan for compensation or gain'' if the individual:
    (i)(A) Presents for acceptance by a borrower or prospective 
borrower residential mortgage loan terms;
    (B) Communicates directly or indirectly with a borrower or 
prospective borrower for the purpose of reaching an understanding about 
prospective residential mortgage loan terms; or
    (C) Recommends, refers, or steers a borrower or prospective 
borrower to a particular lender or set of residential mortgage loan 
terms, in accordance with a duty to or incentive from any person other 
than the borrower or prospective borrower; and
    (ii) Receives or expects to receive payment of money or anything of 
value in connection with the activities described in paragraph 
(c)(2)(i) of this section or as a result of any residential mortgage 
loan terms entered into as a result of such activities.
    (d)(1) Except as provided in paragraph (e) of this section, a State 
must prohibit an individual who is an independent contractor from 
engaging in residential mortgage loan origination activities as a loan 
processor or underwriter with respect to any dwelling or residential 
real estate in the State, unless the individual first:
    (i) Registers as a loan originator through and obtains a unique 
identifier from the NMLSR, and
    (ii) Obtains and maintains a valid loan originator license from the 
State.
    (2) An individual engages in residential mortgage loan origination 
activities as a loan processor or underwriter if, with respect to a 
residential mortgage loan application, the individual performs clerical 
or support duties.
    (e) A State is not required to impose the prohibitions required 
under paragraphs (a) and (d) of this section on the following 
individuals:
    (1) An individual who performs only real estate brokerage 
activities and is licensed or registered in accordance with applicable 
State law, unless the individual is compensated directly or indirectly 
by a lender, mortgage broker, or other loan originator or by an agent 
of such lender, mortgage broker, or other loan originator;
    (2) An individual who is involved only in extensions of credit 
relating to timeshare plans, as that term is defined in 11 U.S.C. 
101(53D);
    (3) A loan processor or underwriter who performs only clerical or 
support duties and does so at the direction of and subject to the 
supervision and instruction of an individual who is licensed and 
registered in accordance with paragraph (a) of this section or who is 
exempt under paragraph (e)(7) of this section;
    (4) An individual who only offers or negotiates terms of a 
residential mortgage loan with or on behalf of an

[[Page 66558]]

immediate family member of the individual;
    (5) Any individual who only offers or negotiates terms of a 
residential mortgage loan secured by a dwelling that served as the 
individual's residence.
    (6) A licensed attorney who only negotiates the terms of a 
residential mortgage loan on behalf of a client as an ancillary matter 
to the attorney's representation of the client, unless the attorney is 
compensated by a lender, a mortgage broker, or other mortgage loan 
originator or by any agent of such lender, mortgage broker, or other 
mortgage loan originator; or
    (7) An individual who is registered with, and maintains a unique 
identifier through, the Nationwide Mortgage Licensing System and 
Registry, and who is an employee of--
    (i) A depository institution;
    (ii) A subsidiary that is:
    (A) Owned and controlled by a depository institution; and
    (B) Regulated by a Federal banking agency; or
    (iii) An institution regulated by the Farm Credit Administration.
    (f) A State must require an individual licensed in accordance with 
paragraphs (a) or (d) of this section to renew the loan originator 
license no less often than annually.


Sec.  3400.105  Minimum loan originator license requirements.

    For an individual to be eligible for a loan originator license 
required under Sec.  3400.103(a) and (d), a State must require and 
find, at a minimum, that an individual:

    (a) Has never had a loan originator license revoked in any 
governmental jurisdiction, except that a formally vacated revocation 
shall not be deemed a revocation;
    (b)(1) Has never been convicted of, or pled guilty or nolo 
contendere to, a felony in a domestic, foreign, or military court:
    (i) During the 7-year period preceding the date of the application 
for licensing; or
    (ii) At any time preceding such date of application, if such felony 
involved an act of fraud, dishonesty, a breach of trust, or money 
laundering.
    (2) For purposes of this paragraph (b):
    (i) Expungement of a conviction described in paragraph (b)(1) of 
this section does not affect the ineligibility of the convicted 
individual;
    (ii) Pardoned convictions do not render an individual ineligible; 
and
    (iii) Whether a particular crime is classified as a felony is 
determined by the law of the State in which an individual is convicted.
    (c) Has demonstrated financial responsibility, character, and 
general fitness, such as to command the confidence of the community and 
to warrant a determination that the loan originator will operate 
honestly, fairly, and efficiently, under reasonable standards 
established by the individual State.
    (d) Completed at least 20 hours of pre-licensing education that has 
been reviewed and approved by the Nationwide Licensing System and 
Registry. The pre-licensing education completed by the individual must 
include at least:
    (1) 3 hours of Federal law and regulations;
    (2) 3 hours of ethics, which must include instruction on fraud, 
consumer protection, and fair lending issues; and
    (3) 2 hours of training on lending standards for nontraditional 
mortgage product marketplace.
    (e)(1) Achieved a test score of not less than 75 percent correct 
answers on a written test developed by the NMLSR in accordance with 12 
U.S.C. 5105(d).
    (2) To satisfy the requirement under paragraph (a)(5)(i) of this 
section, an individual may take a test three consecutive times, with 
each retest occurring at least 30 days after the preceding test. If an 
individual fails three consecutive tests, the individual must wait at 
least 6 months before taking the test again.
    (3) If a State licensed loan originator fails to maintain a valid 
license for 5 years or longer, the individual must retake the test and 
achieve a test score of not less than 75 percent correct answers.
    (f) Be covered by either a net worth or surety bond requirement, or 
pays into a State fund, as required by the State loan originator 
supervisory authority.
    (g) Has submitted to the NMLSR fingerprints for submission to the 
Federal Bureau of Investigation and to any government agency for a 
State and national criminal history background check; and
    (h) Has submitted to the NMLSR personal history and experience, 
which must include:
    (1) Information related to any administrative, civil, or criminal 
findings by any governmental jurisdiction; and
    (2) An independent credit report.


Sec.  3400.107  Minimum annual license renewal requirements.

    For an individual to be eligible to renew a loan originator license 
as required under Sec.  3400.105(f), a State must require the 
individual:
    (a) To continue to meet the minimum standards for license issuance 
provided in Sec.  3400.105; and
    (2) To satisfy annual continuing education requirements, which must 
include at least 8 hours of education approved by the NMLSR. The 8 
hours of annual continuing education must include at least:
    (i) 3 hours of Federal law and regulations;
    (ii) 2 hours of ethics (including instruction on fraud, consumer 
protection, and fair lending issues); and
    (iii) 2 hours of training related to lending standards for the 
nontraditional mortgage product marketplace.
    (b) A State must provide that credit for a continuing education 
course is valid only for the year in which the course is taken and that 
an individual may not meet the annual requirements for continuing 
education by taking an approved course more than one time in the same 
year or in successive years.
    (c) An individual who is an instructor of an approved continuing 
education course may receive credit for the individual's own annual 
continuing education requirement at the rate of 2 hours credit for 
every one hour taught.


Sec.  3400.109  Effective date of State requirements imposed on 
individuals.

    (a) Except as provided in paragraphs (b), (c), and (d) of this 
section, a State must provide that the effective date for requirements 
it imposes in accordance with Sec. Sec.  3400.103, 3400.105, and 
3400.107 is no later than July 31, 2010.
    (b) For an individual who was permitted to perform residential 
mortgage loan originations under State legislation or regulations 
enacted or promulgated prior to the State's enactment or promulgation 
of a licensing system that complies with this subpart, a State may 
delay the effective date for requirements it imposes in accordance with 
Sec. Sec.  3400.103, 3400.105, and 3400.107 to no later than December 
31, 2010. For purposes of this paragraph (b), an individual was 
permitted to perform residential mortgage loan originations only if 
prior State law required the individual to be licensed, authorized, 
registered, or otherwise granted a form of affirmative and revocable 
government permission for individuals as a condition of performing 
residential mortgage loan originations.
    (c) HUD may approve a later effective date only upon a State's 
demonstration that substantial numbers of loan originators (or of a 
class of loan originators) who require a State license face unusual 
hardship, through no fault of their own or of the State government, in 
complying with the standards

[[Page 66559]]

required by the SAFE Act to be in the State legislation and in 
obtaining State licenses within one year.
    (d) For an individual who engages in the business of a loan 
originator solely by providing or facilitating residential mortgage 
loan modifications and refinancing under the Department of the 
Treasury's Making Home Affordable program, a State may delay the 
effective date for requirements it imposes in accordance with 
Sec. Sec.  3400.103, 3400.105, and 3400.107 until the date such program 
is terminated.


Sec.  3400.111  Other minimum requirements for State licensing systems.

    (a) General. A State must maintain a loan originator licensing, 
supervisory, and oversight authority (supervisory authority) that 
provides effective supervision and enforcement, in accordance with the 
minimum standards provided in this section and in Sec.  3400.113.
    (b) Authorities. A supervisory authority must have the legal 
authority and mechanisms:
    (1) To examine any books, papers, records, or other data of any 
loan originator operating in the State;
    (2) To summon any loan originator operating in the State, or any 
person having possession, custody, or care of the reports and records 
relating to such a loan originator, to appear before the supervisory 
authority at a time and place named in the summons and to produce such 
books, papers, records, or other data, and to give testimony, under 
oath, as may be relevant or material to an investigation of such loan 
originator for compliance with the requirements of the SAFE Act;
    (3) To administer oaths and affirmations and examine and take and 
preserve testimony under oath as to any matter in respect to the 
affairs of any such loan originator;
    (4) To enter an order requiring any individual or person that is, 
was, or would be a cause of a violation of the SAFE Act as implemented 
by the State, due to an act or omission the person knew or should have 
known would contribute to such violation, to cease and desist from 
committing or causing such violation and any future violation of the 
same requirement;
    (5) To suspend, terminate, and refuse renewal of a loan originator 
license for violation of State or Federal law; and
    (6) To impose civil money penalties for individuals acting as loan 
originators, or representing themselves to the public as loan 
originators, in the State without a valid license or registration.
    (c) A supervisory authority must have established processes in 
place to verify that individuals subject to the requirement described 
in Sec.  3400.103(a)(1) and (d)(1) are registered with the NMLSR.
    (d) The supervisory authority must be required under State law to 
regularly report violations of such law, as well as enforcement actions 
and other relevant information, to the NMLSR.
    (e) The supervisory authority must have a process in place for 
challenging information contained in the NMLSR.
    (f) The supervisory authority must require a loan originator to 
ensure that all residential mortgage loans that close as a result of 
the loan originator engaging in activities described in Sec.  
3400.103(b)(1) are included in reports of condition submitted to the 
NMLSR. Such reports of condition shall be in such form, shall contain 
such information, and shall be submitted with such frequency and by 
such dates as the NMLSR may reasonably require.


Sec.  3400.113  Performance standards.

    (a) For HUD to determine that a State is providing effective 
supervision and enforcement, a supervisory authority must meet the 
following performance standards:
    (1) The supervisory authority must participate in the NMLSR;
    (2) The supervisory authority must approve or deny loan originator 
license applications and must renew or refuse to renew existing loan 
originator licenses for violations of State or Federal law;
    (3) The supervisory authority must discipline loan originator 
licensees with appropriate enforcement actions, such as license 
suspensions or revocations, cease-and-desist orders, civil money 
penalties, and consumer refunds for violations of State or Federal law;
    (4) The supervisory authority must examine or investigate loan 
originator licensees in a systematic manner based on identified risk 
factors or on a periodic schedule.
    (b) A supervisory authority that is accredited under the Conference 
of State Bank Supervisors Mortgage Accreditation Program will be 
presumed by HUD to be compliant with the requirements of this section.


Sec.  3400.115  Determination of noncompliance.

    (a) Evidence of compliance. Any time a State enacts legislation 
that affects its compliance with the SAFE Act, it must notify HUD. Upon 
request from HUD, a State must provide evidence that it is in 
compliance with the requirements of the SAFE Act and this part, 
including citations to applicable State law, and regulations, 
descriptions of processes followed by the State's supervisory 
authority, and data concerning examination, investigation, and 
enforcement actions.
    (b) Initial determination of noncompliance. If HUD makes an initial 
determination that a State is not in compliance with the SAFE Act, HUD 
will notify the State and also publish, in the Federal Register, HUD's 
initial finding and presenting the opportunity for public comment for a 
period of no less than 30 days. This public comment period will allow 
the residents of the State and other interested members of the public 
to comment on HUD's initial determination.
    (c) Final determination of noncompliance. In making a final 
determination of noncompliance, HUD will review additional information 
that may be offered by a State and the comments submitted during the 
public comment period described in paragraph (b) of this section. If 
HUD makes a final determination that a State does not have in place by 
law or regulation a system that complies with the minimum requirements 
of the SAFE Act, as described in this part, HUD will publish that final 
determination in the Federal Register.
    (d) Good-faith effort to meet compliance. If HUD makes the final 
determination described in paragraph (c) of this section, but HUD finds 
that the State is making a good-faith effort to meet the requirements 
of 12 U.S.C. 5104, 5105, 5107(d), and this subpart, HUD may grant the 
State a period of not more than 24 months to comply with these 
requirements.
    (e) Effective date of subparts C and E. The provisions of subparts 
C and E of this part will become effective with respect to a State upon 
the latter of:
    (1) The effective date of HUD's final determination with respect to 
the State, pursuant to paragraph (c) of this section; or
    (2)(i) The expiration of the period of time granted pursuant to 
paragraph (c) of this section, and
    (ii) The effective date of HUD's subsequent final determination 
that the State does not have in place by law or regulation a system 
that complies with 12 U.S.C. 5104, 5105, 5107(d), and this part.

[[Page 66560]]

Subpart C--HUD's Loan Originator Licensing System and Nationwide 
Mortgage Licensing and Registry System


Sec.  3400.201  Scope of this subpart.

    The SAFE Act provides HUD with ``backup authority'' to establish a 
loan originator licensing system for any State that is determined by 
HUD not to be in compliance with the minimum standards of the SAFE Act. 
The SAFE Act also authorizes HUD to establish and maintain a nationwide 
mortgage licensing system and registry if HUD determines that the NMLSR 
is failing to meet the purposes and requirements of the SAFE Act for a 
comprehensive licensing, supervisory, and tracking system for loan 
originators. The provisions of this subpart become applicable to 
individuals in a State as provided in Sec.  3400.115(e).


Sec.  3400.203  HUD's establishment of loan originator licensing 
system.

    If HUD determines, in accordance with Sec.  3400.115(e), that a 
State has not established a licensing and registration system in 
compliance with the minimum standards of the SAFE Act, HUD shall apply 
to individuals in that State the minimum standards of the SAFE Act, as 
specified in subpart B, which provides the minimum requirements that a 
State must meet to be in compliance with the SAFE Act, and as may be 
further specified in this part.


Sec.  3400.205  HUD's establishment of nationwide mortgage licensing 
system and registry.

    If HUD determines that the NMLSR established by CSBS and AARMR does 
not meet the minimum requirements of subpart D of this part, HUD will 
establish and maintain a nationwide mortgage licensing system and 
registry.

Subpart D--Minimum Requirements for Administration of the NMLSR


Sec.  3400.301  Scope of this subpart.

    This subpart establishes minimum requirements that apply to 
administration of the NMLSR by the Conference of State Bank Supervisors 
or by HUD. The NMLSR must accomplish the following objectives:
    (a) Provides uniform license applications and reporting 
requirements for State-licensed loan originators.
    (b) Provides a comprehensive licensing and supervisory database.
    (c) Aggregates and improves the flow of information to and between 
regulators.
    (d) Provides increased accountability and tracking of loan 
originators.
    (e) Streamlines the licensing process and reduces the regulatory 
burden.
    (f) Enhances consumer protections and supports anti-fraud measures.
    (g) Provides consumers with easily accessible information, offered 
at no charge, utilizing electronic media, including the Internet, 
regarding the employment history of, and publicly adjudicated 
disciplinary and enforcement actions against, loan originators.
    (h) Establishes a means by which residential mortgage loan 
originators would, to the greatest extent possible, be required to act 
in the best interests of the consumer.
    (i) Facilitates responsible behavior in the mortgage marketplace 
and provides comprehensive training and examination requirements 
related to mortgage lending.
    (j) Facilitates the collection and disbursement of consumer 
complaints on behalf of State and Federal mortgage regulators.


Sec.  3400.303  Financial reporting.

    To the extent that CSBS maintains the NMLSR, CSBS must annually 
provide to HUD, and HUD will annually collect and make available to the 
public, NMLSR financial statements, audited in accordance with 
Generally Accepted Accounting Principles (GAAP) promulgated by the 
Federal Accounting Standards Advisory Board, and other data. These 
financial statements and other data shall include, but not be limited 
to, the level and categories of funds received in relation to the NMLSR 
and how such funds are spent, including the aggregate total of funds 
paid for system development and improvements, the aggregate total of 
salaries and bonuses paid, the aggregate total of other administrative 
costs, and detail on other money spent, including money and interest 
paid to reimburse system investors or lenders, and a report of each 
State's activity with respect to the NMLSR, including the number of 
licensees, the State's financial commitment to the system, and the fees 
collected by the State through the NMLSR.


Sec.  3400.305  Data security.

    (a) To the extent that CSBS maintains the NMLSR, CSBS must complete 
a background check on its employees, contractors, or other persons who 
have access to loan originators' Social Security numbers, fingerprints, 
or any credit reports collected by the system.
    (b) To the extent that CSBS maintains the NMLSR, CSBS must keep and 
adhere to an appropriate information security and privacy policy. If 
the NMLSR forms a reasonable belief that a security breach has 
occurred, it shall notify affected parties in a reasonable amount of 
time, including any loan originators or registrants whose data may have 
been compromised, and the employer of the loan originator or 
registrant, if such employer is also licensed through the system.


Sec.  3400.307  Fees.

    CSBS or HUD, as applicable, may charge reasonable fees to cover the 
costs of maintaining and providing access to information from the 
Nationwide Mortgage Licensing System and Registry. Fees shall not be 
charged to consumers for access to such system and registry. If HUD 
determines to charge fees, the fees to be charged shall be issued by 
notice with the opportunity for comment prior to any fees being 
charged.


Sec.  3400.309  Absence of liability for good-faith administration.

    HUD or any organization serving as the administrator of the 
Nationwide Mortgage Licensing System and Registry or a system 
established by HUD under 12 U.S.C. 5108 and in accordance with subpart 
C, or any officer or employee of HUD or HUD's designee, shall not be 
subject to any civil action or proceeding for monetary damages by 
reason of the good faith action or omission of any officer or employee 
of any such entity, while acting within the scope of office or 
employment, relating to the collection, furnishing, or dissemination of 
information concerning persons who are loan originators or are applying 
for licensing or registration as loan originators.

Subpart E--Enforcement of HUD Licensing System.


Sec.  3400.401  HUD's authority to examine loan originator records.

    (a) Summons authority. HUD may:

    (1) Examine any books, papers, records, or other data of any loan 
originator operating in any State which is subject to a licensing 
system established by HUD under subpart C of this part; and
    (2) Summon any loan originator referred to in paragraph (a)(1) of 
this section or any person having possession, custody, or care of the 
reports and records relating to such loan originator, to appear before 
a HUD representative at a time and place named in the summons and to 
produce such books, papers, records, or other data, and to give 
testimony, under oath, as may be relevant or material to an 
investigation of such loan originator for

[[Page 66561]]

compliance with the requirements of the SAFE Act.
    (b) Examination authority. (1) In general. If HUD establishes a 
licensing system under 12 U.S.C. 5107 and in accordance with subpart C 
of this part for any State, HUD shall appoint examiners for the 
purposes of ensuring the appropriate administration of the HUD 
licensing system.
    (2) Power to examine. Any examiner appointed under paragraph (b)(1) 
of this section shall have power, on behalf of HUD, to make any 
examination of any loan originator operating in any State which is 
subject to a licensing system established by HUD under 12 U.S.C. 5107 
and in accordance with subpart C of this part, whenever HUD determines 
that an examination of any loan originator is necessary to determine 
the compliance by the originator with minimum requirements of the SAFE 
Act.
    (3) Report of examination. Each HUD examiner appointed under 
paragraph (b)(1) of this section shall make a full and detailed report 
to HUD of examination of any loan originator examined under this 
section.
    (4) Administration of oaths and affirmations; evidence. In 
connection with examinations of loan originators operating in any State 
which is subject to a licensing system established by HUD under 12 
U.S.C. 5107, and in accordance with subpart C of this part, or with 
other types of investigations to determine compliance with applicable 
law and regulations, HUD and the examiners appointed by HUD may 
administer oaths and affirmations and examine and take and preserve 
testimony under oath as to any matter in respect to the affairs of any 
such loan originator.
    (5) Assessments. The cost of conducting any examination of any loan 
originator operating in any State which is subject to a licensing 
system established by HUD under 12 U.S.C. 5107 and in accordance with 
subpart C of this part shall be assessed by HUD against the loan 
originator to meet the Secretary's expenses in carrying out such 
examination.


Sec.  3400.403  Enforcement proceedings.

    (a) Cease and desist proceeding. (1) If HUD finds, after notice and 
opportunity for hearing in accordance with subpart A of part 26, that 
any person is violating, has violated, or is about to violate any 
provision of the SAFE Act, the provisions of this part, or a provision 
of State law enacted or promulgated under the SAFE Act, to which the 
person is subject and with respect to a State that is subject to a 
licensing system established by HUD under 12 U.S.C. 5107 and in 
accordance with subpart C of this part, HUD may publish such findings 
and enter an order requiring such person, and any other person that is, 
was, or would be a cause of the violation, due to an act or omission 
the person knew or should have known would contribute to such 
violation, to cease and desist from committing or causing such 
violation and any future violation of the same provision, rule, or 
regulation.
    (2) The order authorized by paragraph (a)(1) of this section may, 
in addition to requiring a person to cease and desist from committing 
or causing a violation, require such person to comply, or to take steps 
to effect compliance, with such provision or regulation, upon such 
terms and conditions and within such time as HUD may specify in such 
order.
    (3) Any order issued under paragraph (a)(1) of this section may, as 
HUD determines appropriate, require future compliance or steps to 
effect future compliance, either permanently or for such period of time 
as HUD may specify, with such provision or regulation with respect to 
any loan originator.
    (b) Hearing. The notice instituting proceedings in accordance with 
paragraph (a) of this section shall establish a hearing date not 
earlier than 30 days nor later than 60 days after the date of service 
of the notice unless an earlier or a later date is set by HUD with the 
consent of any respondent so served.
    (c) Temporary order. (1) Issuance of a temporary order. Whenever 
HUD determines that the alleged violation or threatened violation 
specified in the notice instituting proceedings in accordance with 
paragraph (a) of this section, or the continuation thereof, is likely 
to result in significant dissipation or conversion of assets, 
significant harm to consumers, or substantial harm to the public 
interest prior to the completion of the proceedings, HUD may enter a 
temporary order requiring the respondent to cease and desist from the 
violation or threatened violation and to take such action to prevent 
the violation or threatened violation and to prevent dissipation or 
conversion of assets, significant harm to consumers, or substantial 
harm to the public interest as HUD determines appropriate pending 
completion of such proceedings.
    (i) The order authorized by paragraph (c)(1) of this section shall 
be entered only after notice and opportunity for a hearing, unless HUD 
determines that notice and hearing prior to entry would be 
impracticable or contrary to the public interest.
    (ii) The temporary order authorized by paragraph (c)(1) of this 
section shall become effective upon the date of service upon the 
respondent and, unless set aside, limited, or suspended by HUD or a 
court of competent jurisdiction, shall remain effective and enforceable 
pending the completion of the proceedings.
    (2) Review of temporary orders. (i) Review by HUD. At any time 
after the respondent has been served with a temporary cease-and-desist 
order pursuant to paragraph (c)(1) of this section, the respondent may 
apply to HUD to have the order set aside, limited, or suspended. If the 
respondent has been served with a temporary cease-and-desist order 
entered without a prior hearing before HUD, the respondent may, within 
10 days after the date on which the order was served, request a hearing 
on such application, and HUD shall hold a hearing and render a decision 
on such application at the earliest possible time.
    (ii) Judicial review. (A) Within 10 days after the date the 
respondent was served with a temporary cease-and-desist order entered 
with a prior hearing before HUD or within 10 days after HUD renders a 
decision on an application and hearing under paragraph (b) of this 
section, with respect to any temporary cease-and-desist order entered 
without a prior hearing before HUD, the respondent may apply to the 
United States district court for the district in which the respondent 
resides or has its principal place of business, or for the District of 
Columbia, for an order setting aside, limiting, or suspending the 
effectiveness or enforcement of the order, and the court shall have 
jurisdiction to enter such an order.
    (B) A respondent served with a temporary cease-and-desist order 
entered without a prior hearing before the Secretary may not apply to 
the court, except after a hearing and decision by HUD on the 
respondent's application under paragraph (c)(2)(i) of this section.
    (C) The commencement of proceedings under paragraph (b) of this 
section shall not, unless specifically ordered by the court, operate as 
a stay of HUD's order.
    (d) Authority of the secretary to prohibit persons from serving as 
loan originators. In any cease-and-desist proceeding under this 
section, HUD may issue an order to prohibit, conditionally or 
unconditionally, and permanently or for such period of time as HUD 
shall determine, any person who has violated this title or regulations 
thereunder, from acting as a loan originator if the conduct of that 
person

[[Page 66562]]

demonstrates unfitness to serve as a loan originator.


Sec.  3400.405  Civil money penalties.

    HUD may impose civil money penalties on a loan originator operating 
in any State which is subject to a licensing system established by HUD 
under 12 U.S.C. 5107 and in accordance with subpart C of this part, as 
provided in 24 CFR 30.69.

    Dated: November 11, 2009.
David H. Stevens,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. E9-29708 Filed 12-14-09; 8:45 am]
BILLING CODE 4210-67-P