secure and fair enforcement for mortgage licensing act of 2008

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Wednesday,

July 28, 2010

Part IV

Department of the TreasuryOffice of the Comptroller of the

Currency

Federal Reserve System

Federal Deposit InsuranceCorporation

Department of the TreasuryOffice of Thrift Supervision

Farm Credit AdministrationNational Credit UnionAdministration

12 CFR Part 34, 208, 211, et al.

Registration of Mortgage LoanOriginators; Final Rule

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44657Federal Register / Vol. 75, No. 144/ Wednesday, July 28, 2010/ Rules and Regulations

assist States in meeting the minimum requirementsof the S.A.F.E. Act and found it to meet theserequirements. See 74 FR 312 (Jan. 5, 2009) and

http://www.hud.gov/offices/hsg/ramh/safe/cmsl.cfm.1S.A.F.E. Act at section 1507(a) (12 U.S.C.

5106(a)).274 FR 27386 (June 9, 2009).3The NMLS system is owned and operated by the

State Regulatory Registry LLC (SRR), which is alimited-liability company established by CSBS andthe American Association of Residential MortgageRegulators as a subsidiary of CSBS to develop andoperate nationwide systems for State regulators inthe financial services industry. SRR has contractedwith the Financial Industry Regulatory Authority(FINRA) to build and maintain the system. FINRAoperates similar systems in the securities industry.More information about this system is available athttp://www.stateregulatoryregistry.org.

1The Agencies note that some employees ofAgency-regulated institutions also may be subject tothe State licensing and registration regime. Forexample, employees who act as mortgage loanoriginators for a bank and a nondepositorysubsidiary of a bank holding company that is nota subsidiary of a depository institution would besubject to both the Federal and State regimes.

1Pursuant to section 1503(11) of the S.A.F.E. Act(12 U.S.C. 5102(11)), Agency-regulated institutionsand their employees who are acting within thescope of their employment with the Agency-regulated institutions are not subject to Statelicensing or registration requirements for mortgageloan originators.

The S.A.F.E. Act requires that Federalregistration and State licensing andregistration must be accomplishedthrough the same online registrationsystem, the Nationwide MortgageLicensing System and Registry(Registry).

In connection with the Federalregistration, the Agencies at a minimum

must ensure that the Registry isfurnished with information concerningthe mortgage loan originators identity,including: (1) Fingerprints forsubmission to the Federal Bureau ofInvestigation (FBI) and any otherrelevant governmental agency for a Stateand national criminal history

background check; and (2) personalhistory and experience, includingauthorization for the Registry to obtaininformation related to anyadministrative, civil, or criminalfindings by any governmentaljurisdiction.1 On June 9, 2009, the

Agencies issued a notice of proposedrulemaking to implement theserequirements for Agency-regulatedinstitutions.2

B. Implementing the Requirements forFederal Registration

The Conference of State BankSupervisors (CSBS) and the AmericanAssociation of Residential MortgageRegulators (AARMR) have developedand maintain a Web-based system, theNationwide Mortgage Licensing System(NMLS), for the State licensing ofmortgage loan originators inparticipating States.3 Mortgage loan

originators in these States electronicallycomplete a single uniform form (theMU4 form). The data provided on theform is stored electronically in acentralized repository available to Stateregulators of mortgage companies, whouse it to process license applicationsand to authorize individuals to engagein mortgage loan origination, as well asfor other supervisory purposes.

The Federal banking agencies,through the FFIEC, and the FCA are

working with CSBS to modify the NMLSso that it can accept registrations frommortgage loan originators employed byAgency-regulated institutions. Thismodified registry will be renamed theNationwide Mortgage Licensing Systemand Registry. The existing NMLS wasnot designed to support the Federalregistration of Agency-regulated

institution employees, who are notrequired to obtain additionalauthorization from the appropriateFederal agency to engage in mortgageloan origination activities that arepermissible for an Agency-regulatedinstitution. Accordingly, the systemmust be modified to accommodate thedifferences between the requirementsfor State licensing/registration andFederal registration. It also must bemodified to accommodate the migrationof an individual between the Statelicensing/registration and the Federalregistration regimes or the dual

employment of an individual by both anAgency-regulated institution and a non-Agency-regulated institution.1Furthermore, the S.A.F.E. Act requiresnew enhancements to the currentsystem, such as the processing offingerprints and public access to certainmortgage loan originator data. Thesemodifications and enhancementsrequire careful analysis and raisecomplex legal and system developmentissues that the Agencies are addressing

both through this rulemaking andthrough consultation with the CSBS andthe SRR. The OCC, on behalf of theAgencies, has entered into an agreement

with the SRR that will provide forappropriate consultation between theAgencies and the Registry concerningFederal registrant informationrequirements and fees, systemfunctionality and security, and otheroperational matters. The issuance of thisfinal rule establishing the requirementsfor Federal registrants will enable theAgencies and SRR to completemodifications that will enable thesystem to accept Federal registrations.As described in the SUPPLEMENTARYINFORMATION section of the proposedrule, the Agencies will publicly

announce the date on which theRegistry will begin accepting Federalregistrations, which will mark the

beginning of the period during whichemployees of Agency-regulatedinstitutions must complete the initial

registration process. When fullyoperational, mortgage loan originatorsand their Agency-regulated institutionemployers are expected to have accessto the Registry, seven days a week, toestablish and maintain theirregistrations.1

II. Overview of the Proposal and Public

CommentsThe proposed rule required

individuals employed by Agency-regulated institutions who act asmortgage loan originators and who donot qualify for the de minimis exceptionset forth in the proposal to register withthe Registry, obtain unique identifiers,and maintain their registrations throughupdates and renewals. The proposalalso directed Agency-regulatedinstitutions to require compliance withthese requirements, and to adopt andfollow written policies and proceduresto assure such compliance. The S.A.F.E.Act does not require the Registry toscreen or approve registrations receivedfrom employees of Agency-regulatedinstitutions and the Registry will not doso. Instead, the Registry will be therepository of, and conduit for,information on those employees whoare mortgage loan originators at Agency-regulated institutions. Pursuant to__.104(d) and (h) of the proposedrule, it would be the responsibility ofeach Agency-regulated institution toestablish reasonable procedures forconfirming the adequacy and accuracyof employee registrations as well as toestablish a process for reviewing any

criminal history background reportsreceived from the Registry.

The proposal provided for a 180-dayperiod within which to complete initialregistrations after the Registry is capableof accepting registrations fromemployees of Agency-regulatedinstitutions. During this period,employees of Agency-regulatedinstitutions would not be subject tosanctions if they originate residentialmortgage loans without havingcompleted their registration.

The Agencies received over 140different comment letters from financial

institutions and holding companies,trade associations, Federal governmentagencies, a training company, andindividuals. A number of Agency-regulated institutions objected to theregistration requirement in general,suggesting that the registration

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1 In addition to the changes described in thisSupplementary Information section, the Agencieshave replaced the cites in the proposed rule tosections of the S.A.F.E. Act with cites to therelevant provisions in the U.S. Code.

2Because each Agencys proposed rule willamend a different part of the Code of FederalRegulations, but will have similar numbering,relevant sections are cited as __. followed by anumber, unless otherwise noted.

3The Board and the OCC note that the authorityin paragraph (a) of their respective rulessupplements their authority to implement theS.A.F.E. Act, for example, Section 11 of the FederalReserve Act (12 U.S.C. 248(a)) for the Board andsection 5239A of the Revised Statutes (12 U.S.C.93a) for the OCC.

1Agency-regulated institutions and theiremployees acting within the scope of theiremployment are subject only to the Federalregistration requirements of the S.A.F.E. Act asimplemented by the Agencies through thisrulemaking, even if registration in the State system

is available before Federal Registration. Inconsultation with the Agencies, CSBS/SRR aremodifying the Registry so that it can acceptregistrations from employees of Agency-regulatedinstitutions. An employee of an Agency-regulatedinstitution may be engaged in activities outside thescope of his or her employment at an Agency-regulated institution that subject that employee toState licensing and registration requirements, suchas dual employment at a non-Agency-regulatedinstitution.

2Section 3 of the FDI Act defines depositoryinstitution as any bank or savings association. Theterm bank in section 3 of the FDI Act means anynational bank, State bank, Federal branch, andinsured branch and includes any former savingsassociation. The term savings association meansany Federal savings association, State savingsassociation, and any corporation other than a bank

that the FDIC and the OTS jointly determine to beoperating in substantially the same manner as asavings association. 12 U.S.C. 1813.

3The S.A.F.E. Acts definition of depositoryinstitution includes Federal branches of foreignbanks but not Federal agencies of foreign banks.Federal agencies are authorized by sections 1(b)(1)and 4(b) of the International Banking Act of 1978(12 U.S.C. 3101(b)(1) and 3102(b)) and 12 CFR28.11(g) and 28.13(a)(1) of the OCCs regulations tolend money, which would include originatingmortgage loans, subject to the same duties,restrictions, penalties, liabilities, conditions, andlimitations that would apply to a national bank.Thus, the Federal registration requirements apply toFederal agencies of foreign banks to the extent theregistration requirements apply to national banks.

requirement should not be applied tothem because they were not involved inthe abuses that led to the enactment ofthe S.A.F.E. Act. In addition, many ofthese commenters found the registrationrequirement overly burdensome,especially as they are subject to regularexaminations by the Agencies and theyalready closely supervise the activities

of their employees.Many commenters raised concerns

related to the proposed de minimisexception from the registrationrequirement. Under the proposed deminimis exception, a mortgage loanoriginator would not have to register ifhe or she acted as a mortgage loanoriginator for five or fewer loans and theAgency-regulated institution employsmortgage loan originators who, whileexcepted from registration pursuant tothe individual exception, in theaggregate acted as mortgage loanoriginators in connection with 25 or

fewer residential mortgage loans.Commenters suggested raising themortgage loan originator and institutionloan limits or eliminating one of thelimits. Community bank tradeassociations were particularlyconcerned that the narrowness of theexception would exclude mostcommunity banks. Some commenterssuggested that the exception should betied to an asset-based threshold in therange of $250 million to $1 billion.

Most commenters objected to havingemployees who engage in loanmodifications or assumptions registerunder the rule, noting that these

activities are fundamentally differentthan the mortgage loan originationprocess in that loan modifications andassumptions: (1) Are loss mitigationactivities, not loan originations; (2)provide loan modification orassumption personnel little to nodiscretion in negotiating the terms andconditions of any changes; and (3) areoutside of the Congressional intent andthe plain language of the S.A.F.E. Act.

While some commenters found the180-day initial registration periodadequate, a number of commenterssuggested alternative periods ranging up

to one year. Some trade associations andinstitutions supported staggeringregistration periods in order to reducesystem demands and to tailor animplementation schedule to theparticular capacities of an institution orgroup of institutions, as long as theimplementation period would still be180 days for each institution.

A number of commenters also raisedissues related to the provision offingerprints to the Registry. Commentersasserted that it was not appropriate tohave an age limit on fingerprints as they

tend not to change; that the Registryshould be able to accept fingerprints ina variety of formats, such as paper andscanned digital prints; and that Agency-regulated institutions should bepermitted to use existing channels toprocess fingerprints.

Many commenters expressed privacyand security concerns regarding the

types of personal information thatmortgage loan originators would have toprovide to the Registry and the abilityof the public to have Internet access tosuch information.

Trade associations and large Agency-regulated institutions overwhelminglyrequested that the Registryaccommodate batch processing ofregistrations in order to reduce the costsand burden of data input, reduce errors,and efficiently register bank employees.

The Agencies have modified theproposal to take into account many ofthese comments. A detailed discussion

of these comment letters and theAgencies responses to them appears inthe section-by-section description of thefinal rule that follows.1

III. Section-By-Section Description ofthe Final Rule

Section__.101Authority, Purpose,and Scope

The Agencies adopt paragraphs (a)and (b) of __.101 as proposed.2Paragraph (a) identifies the authority forthis rule as the S.A.F.E. Act.3 Paragraph(b) states that this rule implements theS.A.F.E. Acts Federal registration

requirements, which apply toindividuals who originate residentialmortgage loans. This provision alsodescribes the objectives of the S.A.F.E.Act, which are derived from section1502 of the Act (12 U.S.C. 5101).

As in the proposal, paragraph (c)(1) of__.101 of the final rule identifies thespecific entities that employ individualmortgage loan originatorsentitiesreferred to in this SUPPLEMENTARYINFORMATION section as Agency-regulated institutionsand that also arecovered by this rule. Under the S.A.F.E.

Act, a mortgage loan originator must beFederally-registered if that individual isan employee of a depository institution,an employee of any subsidiary ownedand controlled by a depositoryinstitution and regulated by a Federal

banking agency, or an employee of aninstitution regulated by the FCA.1Section 1503(2) of the S.A.F.E. Act (12

U.S.C. 5102(2)) provides thatdepository institution has the samemeaning as in section 3 of the FederalDeposit Insurance Act (FDI Act),2 andincludes any credit union. As we notedin the proposal, the definition ofdepository institution in the FDI Actand in the S.A.F.E. Act does not include

bank or savings association holdingcompanies or their non-depositorysubsidiaries. Employees of these entitieswho act as mortgage loan originators arenot covered by the Federal registrationrequirement and, therefore, mustcomply with State licensing and

registration requirements.With respect to the OCC, this ruleapplies to national banks, Federal

branches and agencies of foreign banks,their operating subsidiaries, and theiremployees who are mortgage loanoriginators.3 For the Board, this ruleapplies to member banks of the FederalReserve System (other than national

banks); their respective subsidiaries that



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1The S.A.F.E. Act, by its terms, applies theFederal registration requirements to employees of asubsidiary that is owned and controlled by a Statemember bank and regulated by the Board. Forpurposes of the scope of the Boards rules, thesesubsidiaries are described as those that are notfunctionally regulated within the meaning ofsection 5(c)(5) of the Bank Holding Company Act.Subsidiary has the meaning given that term insection 2 of the Bank Holding Company Act (12U.S.C. 1841), as applied to State member banks.

2The Board notes that its final rule coversbranches and agencies of foreign banks (other thanFederal branches, Federal agencies, and insuredState branches of foreign banks) and commerciallending companies owned or controlled by foreignbanks pursuant to its authority under theInternational Banking Act (IBA) (Chapter 32 of Title12) to issue such rules it deems necessary in orderto perform its respective duties and functions underthe chapter and to administer and carry out theprovisions and purposes of the chapter and preventevasions thereof. 12 U.S.C. 3108(a). The Board notesthat the IBA provides, in relevant part, that theabove entities shall conduct their operations in theUnited States in full compliance with provisions ofany law of the United States which imposerequirements that protect the rights of consumers infinancial transactions, to the extent that the branch,agency, or commercial lending company engages in

activities that are subject to such laws, and applyto State-chartered banks, doing business in the Statein which such branch or agency or commerciallending company, as the case may be, is doingbusiness. 12 U.S.C. 3106a(1). Under the Boardsfinal rule, the above entities would be subject to thesame Federal registration requirements as Federalbranches, Federal agencies, and insured Statebranches of foreign banks, which are covered in theOCC and FDIC rules, respectively.

3Some FCS associations may not exercise theirstatutory authority to make residential mortgageloans, and FCS banks no longer engage inresidential mortgage origination activities becausethey have transferred their direct lending authorityto their affiliated associations. The FCA emphasizesthat employees of FCS banks and associations that

do not engage in residential mortgage loanorigination activities are not subject to theregistration requirements of the S.A.F.E. Act andthese regulations. The Federal AgriculturalMortgage Corporation (Farmer Mac) is an FCSinstitution that among other activities operates asecondary market for rural residential mortgageloans. The FCA determines that Farmer Macemployees are not subject to the registrationrequirements of the S.A.F.E. Act and theseimplementing regulations because Farmer Mac doesnot engage in mortgage loan origination activitiesfor rural residents. The Farmer Mac secondarymarket is modeled after Fannie Mae and FreddieMac, and the provisions of the S.A.F.E. Act do notexpressly apply to employees at Fannie Mae andFreddie Mac.

1Section 1503(7)(A)(ii) of the S.A.F.E. Act (12U.S.C. 5102(7)(A)(ii)).

212 CFR part 712.3 In April 2008, the NCUA Board issued a

proposed rule that would extend some provisionsof the CUSO rule to State-chartered institutions. See73 FR 23982 (May 1, 2008). The proposal has notyet been finalized.

4Sections 1507(a)(1) and 1503(1) and (2) of theS.A.F.E. Act (12 U.S.C. 5106(a)(1) and 5102(1) and(2)).

are not functionally regulated within themeaning of section 5(c)(5) of the BankHolding Company Act, as amended (12U.S.C. 1844(c)(5)); 1branches andagencies of foreign banks (other thanFederal branches, Federal agencies andinsured State branches of foreign banks);commercial lending companies ownedor controlled by foreign banks; 2 and

their employees who act as mortgageloan originators. For the FDIC, this ruleapplies to insured State nonmember

banks (including State-licensed insuredbranches of foreign banks) and theirsubsidiaries (except brokers, dealers,persons providing insurance,investment companies, and investmentadvisers) and their employees who aremortgage loan originators. For the OTS,this rule applies to savings associationsand their operating subsidiaries, andtheir employees who are mortgage loanoriginators. For the FCA, this ruleapplies to FCS institutions that originate

residential mortgage loans undersections 1.9(3), 1.11 and 2.4(a)(2) and (b)of the Farm Credit Act of 1971, asamended (12 U.S.C. 2017(3), 2019, and2075(a)(2) and (b)), and their employeeswho are mortgage loan originators.3 For

the NCUA, this rule applies to creditunions and their employees who aremortgage loan originators. Because non-Federally insured credit unionsgenerally are not Federally regulatedinstitutions, special registrationconditions apply to them as discussed

below.As discussed in Section II, a number

of commenters objected to theapplication of this registrationrequirement to employees of Agency-regulated depository institutions

because, in general, they are subject toregular examinations, would be overly

burdened by the registrationrequirement, and already closelysupervise the activities of theiremployees. Some commenters notedthat this registration requirement wouldpenalize them for the inappropriateactions of other lenders that led to theenactment of the S.A.F.E. Act.

The Agencies note that the

registration of mortgage loan originatorsemployed by Agency-regulatedinstitutions is explicitly required by theS.A.F.E. Act. The statute imposes aregistration requirement, rather than alicensing requirement, on the employeesof Agency-regulated institutions. TheAgencies note that such institutions(other than non-Federally insured creditunions) already are subject to a Federalregime of examination and supervision.The S.A.F.E. Act does not authorize theAgencies to create exceptions to theregistration requirement other than thede minimis exception described below.

Some credit union-relatedcommenters discussed whether the finalrule should apply to credit unionservice organizations (CUSOs). TheNCUA notes that it answered thesequestions in a public legal opinion letter080843, dated October 8, 2008,available on NCUAs Web site, http://www.ncua.gov.The S.A.F.E. Act treatsemployees of depository institutionsubsidiaries the same as employees ofthe depository institution, if thesubsidiary is owned and controlled bythe depository institution andregulated

by a Federal banking agency.1 In thecase of CUSOs, however, NCUA doesnot have direct regulatory oversight orenforcement authority. Instead, NCUAregulation permits Federal credit unionsto invest in or lend only to CUSOs thatconform to the limits specified in theCUSO rule, 12 CFR Part 712.2 NCUAhas not, historically, asserted that

CUSOs or their employees are exemptfrom applicable State licensing regimes,and the S.A.F.E. Act does not alter thatapproach. Nor do NCUA regulationshave any applicability to CUSOs owned

by State-chartered credit unions.3Accordingly, individuals employed byCUSOs that engage in residentialmortgage loan origination activities,whether the CUSO is owned by a Stateor a Federal credit union, would needto be licensed in accordance withapplicable State requirements.

Some commenters also asked whethernon-Federally insured credit unions

must register with the Registry. NCUAsproposed rule applied to Federallyinsured credit unions and theiremployees who are mortgage loanoriginators but commenters requestedNCUA include non-Federally insuredcredit unions and their employees whoare mortgage loan originators in thescope of NCUAs final rule. The S.A.F.E.Act requires the Agencies to developand maintain a system for registeringemployees of a depository institution,defined to include any credit union. 4Consistent with the S.A.F.E. Act and inresponse to comments, NCUAs final

rule provides for a system for registeringemployees of any credit union. NCUAsfinal rule applies to Federally insuredcredit unions and their employees whoare mortgage loan originators and non-Federally insured credit unions andtheir employees who are mortgage loanoriginators when certain conditions aremet and formal agreements reached.

When drafting its final rule, NCUAconsidered that, with the exception ofnon-Federally insured credit unions,entities covered by the Federalregistration system are subject toFederal oversight. Entities subject to theFederal registration system are labeledthroughout the rule as Agency-regulated institutions. Unlike Federalcredit unions and Federally insured

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1HUD published its proposed rule to establishthis system on December 15, 2009. See 74 FR66548.

1See S.A.F.E. Act at sections 1507(c) (12 U.S.C.5106(c)) (de minimis exceptions), 1504(a)(1)(A) (12U.S.C. 5103(a)(1)(A)) (requirement to register),1504(a)(2) (12 U.S.C. 5103(a)(2)) (requirement toobtain a unique identifier). As discussed in theSupplementary Information section of the proposed

rule, the FCA has authority under section5.17(a)(11) of the Farm Credit Act of 1971, asamended, 12 U.S.C. 2252(a)(11), to apply the deminimis exception to FCS institutions. Section5.17(a)(11) of the Farm Credit Act authorizes theFCA to exercise such incidental powers as may benecessary or appropriate to fulfill its duties. * * *In this case, the FCA is exercising its incidentalpowers to fulfill the requirement in the S.A.F.E. Actthat it work together with the Federal bankingagencies to develop and maintain a system forregistering residential mortgage loan originators atAgency-regulated institutions with the Registry. Acoordinated and uniform approach to the deminimis exception among the Agencies isappropriate because it best fulfills the objectives ofthe S.A.F.E. Act.

112 U.S.C. 2801 et seq.2See 12 CFR 203.2 (Regulation C).

State-chartered credit unions, non-Federally insured credit unions areneither Federally insured nor subject toNCUAs oversight. In order for non-Federally insured credit unions andtheir employees who are mortgage loanoriginators to qualify for Federalregistration, they must be subject tooversight for purposes of compliancewith NCUAs rule. Therefore, due to theunique nature of non-Federally insuredcredit unions compared with all othercredit unions, NCUA is working withState supervisory authorities in thoseStates with non-Federally insured creditunions to implement an oversightprogram to enable them to participate inthe Federal registration system.

The oversight program will require aState supervisory authority seeking toallow non-Federally insured creditunions in its State to participate in theFederal registration system to enter into

a memorandum of understanding(MOU) with NCUA. The MOU will needto address various requirements such as,

but not limited to: The requirement foran applicable State supervisoryauthority to maintain such an MOU toallow non-Federally insured creditunions and their employees in its Stateto have continuous access to, and use of,the registry; examination of the non-Federally insured credit unionscompliance with the rule by either theState supervisory authority or NCUA;non-Federally insured credit unionspayment of examination fees and

payment for any necessary Registrymodifications; and enforcementauthority and penalties for non-Federally insured credit unions fornoncompliance. Any informationprovided by the Registry to the publicabout a non-Federally insured creditunion and its employees must includea clear and conspicuous statement thatthe non-Federally insured credit unionis not insured by the National CreditUnion Share Insurance Fund.

If any State supervisory authoritywhere non-Federally insured creditunions are located fails to enter into or

maintain an agreement with NCUA forthis registration process and oversight,the non-Federally insured credit unionsand their employees in that State cannotregister or maintain an existingregistration under the Federal system.They instead must use the appropriateState licensing and registration system,or if the State does not have such asystem, the licensing and registrationsystem established by the Department ofHousing and Urban Department (HUD)for mortgage loan originators and their

employees.1 In addition, NCUAs finalrule requires that the State supervisoryauthorities who seek to have non-Federally insured credit unions in theirStates participate in the Federalregistration system enter into theapplicable agreement with NCUA on or

before the date the Agencies provide ina public notice that the Registry is

accepting initial registrations.Finally, NCUA acknowledges that,

while it is an added requirement fornon-Federally insured credit unions tohave their State supervisory authoritiesenter into an agreement with NCUA,this is necessary to have any oversightor enforcement authority at all overthese entities. Absent any agreement,non-Federally insured credit unionscannot participate in the Federalregistration system. They are not subjectto a Federal regime of examination andsupervision, and are unlike any otherAgency-regulated depository

institutions covered under this rule.Therefore, they are subject to a differentprocedure to participate in the sameFederal registration system.

Section 1507 of the S.A.F.E. Act (12U.S.C. 5106) requires the Federal

banking agencies to make such deminimis exceptions as may beappropriate to the Acts registrationrequirements.1 Paragraph (c)(2) of__.101 of the proposed rule provideda de minimis exception based on anindividuals and, in the aggregate, aninstitutions total number of residentialmortgage loans originated in a rolling12-month period. Specifically, the

proposal provided that the registrationrequirements would not apply to anemployee of an Agency-regulatedinstitution if, during the last 12 months:(1) The employee acted as a mortgageloan originator for 5 or fewer residentialmortgage loans; and (2) the Agency-

regulated institution employs mortgageloan originators who, while exceptedfrom registration pursuant to thissection, in the aggregate, acted as amortgage loan originator in connectionwith 25 or fewer residential mortgageloans.

The Agencies received many, andvaried, comments on this de minimis

exception. Most commenters supportedan exception to the rules requirements.However, a majority of the commentersdid not agree with the proposalsformulation of this exception, nor didthey agree on an alternative.Specifically, some commentersrequested that the Agencies raise thethreshold number of loans originated byan individual mortgage loan originatorand/or the institution so that more low-volume originators would qualify for theexception. These commenters indicatedthat, because of its narrowness, too fewinstitutions would be able to use the

exception as proposed and others wouldunnecessarily register employees solelyto avoid accidental non-compliancewith the rule. Some, however, thoughtthat the proposed threshold numberswere too high, and could cause aninstitution to spread its originationsover numerous employees to avoidregistration. Still others said that theproposed de minimis exception would

be fairer, and much easier to apply, ifthe threshold limitation applied only tothe employee or to the institution, butnot both. A Federal government agencycommenter found that the proposeddefinition ofde minimis would make

the rule unduly burdensome on smallcommunity banks.

A number of commenters alsosuggested that the final rule base a deminimis exception on a percentage oftotal loans or the total loan volumemade at each institution, instead of thenumber of loans. Some tradeassociations and smaller institutionsrequested that the de minimis exception

be based on an institutions asset-size,with suggestions ranging from the HomeMortgage Disclosure Act 1 threshold forinstitutions regulated by a Federal

banking agency, currently set by the

Board at $39 million in assets,2

to $1billion, which would be consistent withexceptions for small institutions inother provisions of law. Othercommenters opposed an asset-basedapproach, with larger Agency-regulatedinstitutions noting that the exceptionsshould not be structured to benefit onlysmall institutions.

Other commenters wanted theexception to be applied to institutions



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1See FNMA LL 022009: New Mortgage LoanData Requirements (02/13/09); Fannie MaeAnnouncement 0911, Mortgage Loan DataRequirements Update (10/6/09) and Announcement0911, Mortgage Loan Data Requirements RelatedFAQs (2/4/10); and Freddie Mac Single-FamilySeller/Servicer Guide Bulletin, No: 200927 (12/4/09). The Agencies contemplate that the Registry

will provide aggregate public data on uniqueidentifier information stored in the system toFannie Mae and Freddie Mac for compliancepurposes.

with no prior history of mortgageorigination fraud or to institutions withgood performance histories fromprevious supervisory examinations,regardless of the number of loansoriginated. Some commenters alsosuggested that the exception shouldapply only to individuals who do notregularly or principally function as a

mortgage loan originator. Somecommenters noted that the exceptioncould instead be based on thepercentage of time an employee spendsengaged in the origination of residentialmortgage loans.

The Agencies also receivedconflicting comments on whether toaggregate a subsidiarys loans with theparent institution for determining deminimis qualification. One commenteropposed such aggregation, whileanother stated that an institution should

be required to aggregate its loan datawith that of its subsidiaries so that

institutions could not

game

the systemby creating new subsidiaries each timea subsidiary approaches the de minimislimit. Still other commenters pointedout that it would be very timeconsuming and burdensome to game thede minimis limitrendering gamingopportunities essentially unrealistic.

Many commenters noted thecomplexity of the proposed exception.One commenter stated that the deminimis exception would not have anysignificant effect because the complexityof complying with it would outweigh its

benefits. Others noted that the proposedexception would be difficult for an

institution to monitor and maintain.Some commenters appeared tomisinterpret the proposed aggregateexception.

The Agencies agree that the deminimis exception should be simplified,and, in particular, that it should bestructured so that it may be utilized byan individual who does not regularly orprincipally function as a mortgage loanoriginator employed by any Agency-regulated institution, regardless of thesize or loan volume of the institution.Therefore, the final rule eliminates theaggregate exception and includes only

the first prong of the proposed deminimis exception, which applies onlyto individuals. The final rule alsoprovides that this exception onlyapplies if the employee has never before

been registered or licensed through theRegistry.

Final __.101(c)(2) thus provides thatthe registration requirements of thissection do not apply to an employee ofan Agency-regulated institution who hasnever been registered or licensedthrough the Registry as a mortgage loanoriginator and who has acted as a

mortgage loan originator for 5 or fewerresidential mortgage loans during thelast 12 months. In order to preventmanipulation of the registrationrequirement by structuring thisexception to apply to multipleemployees who each would not meetthe exceptions threshold forregistration, the final rule prohibits any

Agency-regulated institution fromengaging in any act or practice to evadethe limits of the de minimis exception.The Agencies believe that replacing theproposed institution limit with this anti-evasion prohibition is appropriate andwill discourage circumvention ofregistration requirements withoutincreasing an institutionsadministrative burden.

Monitoring compliance with theexception as revised should be less

burdensome for Agency-regulatedinstitutions. In addition, in theAgencies view, this revised exception

better balances the usefulness of theexception to Agency-regulatedinstitutions and their mortgage loanoriginators with the consumerprotection and fraud preventionpurposes of the S.A.F.E. Act. Althoughthe final rule specifically applies thisanti-evasion provision to the de minimisexception, Agency-regulated institutionsmust not engage in any act or practiceto evade any other requirement of theS.A.F.E. Act or this final rule.

The Agencies note that, as with theproposal, an employee must registerwith the Registry prior to engaging inmortgage loan origination activity thatexceeds the exception limit. In addition,the Agencies note that the de minimisexception contained in the final rule isvoluntary; it does not prevent amortgage loan originator who meets thecriteria for the exception fromregistering with the Registry if theoriginator chooses to do so or if his orher employer requires registration.

The Agencies note that the FederalHousing Finance Agency (FHFA) hasdirected Fannie Mae and Freddie Mac torequire all mortgage loan applications toinclude the mortgage loan originatorsunique identifier. For Agency regulated

institutions, Fannie Mae and FreddieMac have announced that thisrequirement will apply to applicationsdated on or after the date the Agenciesrequire mortgage loan originators toobtain unique identifiers.1 Agency-

regulated institutions should be awareof this requirement and any futureguidance that FHFA may issue toaddress the Agencies implementationof the Federal registration process,including the de minimis exception.

The Agencies received a commentfrom one large financial institutionrequesting that we clarify whether the

failure of a mortgage loan originator toregister pursuant to this rulemaking hasany substantive impact on a mortgageloan made by an institution thatemploys that originator. Neither theS.A.F.E. Act nor this final rule providesthat a mortgage loan originators failureto register as required affects thevalidity or enforceability of anymortgage loan contract made by theinstitution that employs the originator.

A few commenters suggested that inaddition to the registrationrequirements, the final rule shouldimpose educational and testing

requirements on mortgage loanoriginators, as the S.A.F.E. Act does forState-licensed originators. The Agenciesdecline to impose such requirements.The S.A.F.E. Act does not includeeducational or testing requirements formortgage loan originators employed byAgency-regulated institutions. Inaddition, as noted previously, thestatute imposes different requirementson mortgage loan originators employed

by Agency-regulated institutions. TheAgencies note that these institutionsalready are subject to extensive Federaloversight, including regular on-site

examination of their mortgage lendingactivities.

Section__.102Definitions

Section__.102 defines the terms usedin the final rule. If a term is defined inthe S.A.F.E. Act, the Agencies generallyhave incorporated the same definitionin the final rule. The final rule alsoincludes other definitions currentlyused by the NMLS in order to promoteconsistency and comparability, insofaras is feasible, between Federalregistration requirements and the Stateslicensing requirements.

Annual renewal period. Proposed

__.102(a) required that a mortgage loanoriginator renew his or her registrationannually during the annual renewalperiod and defined this period asNovember 1 through December 31 ofeach year. This is the same annualrenewal period currently provided bythe NMLS to mortgage loan originatorsregulated by a State.



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1The S.A.F.E. Act defines real estate brokerageactivity to mean any activity that involves offering

or providing real estate brokerage services to thepublic, including: (i) Acting as a real estate agentor real estate broker for a buyer, seller, lessor, orlessee of real property; (ii) bringing together partiesinterested in the sale, purchase, lease, rental, orexchange of real property; (iii) negotiating, on

behalf of any party, any portion of a contractrelating to the sale, purchase, lease, rental, orexchange of real property (other than in connectionwith providing financing with respect to any suchtransaction); (iv) engaging in any activity for whicha person engaged in the activity is required to beregistered or licensed as a real estate agent or realestate broker under any applicable law; and (v)offering to engage in any activity, or act in anycapacity, described in clause (i), (ii), (iii), or (iv),above. S.A.F.E. Act at section 1503(3)(D) (12 U.S.C.5102(3)(D)). Nothing in this rule would constitutean authorization for Agency-regulated institutionsto engage in real estate brokerage, or any otheractivity, for which the institution does not haveindependent authority pursuant to Federal or Statelaw, as applicable.

1 Timeshare plan is defined in 11 U.S.C.101(53D) as an interest purchased in any

arrangement, plan, scheme, or similar device, butnot including exchange programs, whether bymembership, agreement, tenancy in common, sale,lease, deed, rental agreement, license, right to useagreement, or by any other means, whereby apurchaser, in exchange for consideration, receivesa right to use accommodations, facilities, orrecreational sites, whether improved orunimproved, for a specific period of time less thana full year during any given year, but notnecessarily for consecutive years, and whichextends for a period of more than three years. Atimeshare interest is that interest purchased in atimeshare plan which grants the purchaser the rightto use and occupy accommodations, facilities, orrecreational sites, whether improved orunimproved, pursuant to a timeshare plan.

This time period for renewalsgenerated many comments. A fewcommenters suggested that the renewalperiod for Agency-regulated institutionsshould be at a different time of year thanfor originators regulated by a State.Others stated that the renewal periodshould be based upon the originalregistration date or original hire date,

noting that a staggered registrationprocess would be less burdensome forthe Registry. Another commentersuggested that the employing institutiondetermine its own renewal period for itsemployees. Still other commentersrequested that this renewal period belengthened from 60 to 90 days.

The Agencies decline to change thedates for the annual renewal period. Asindicated above, the current system fororiginators regulated by a State isconfigured for an annual renewal periodfrom November 1 through December 31.A different renewal period for

originators employed by Agency-regulated institutions would involvefunctionality changes to the existingsystem, adding costs and lengtheningthe implementation time. In addition,the Agencies note that different renewalperiods could cause confusion andadded burden to those originators whomay work for both a State-regulated andAgency-regulated institution or whomay switch from a State-regulatedinstitution to an Agency-regulatedinstitution during the year, and toemployers of such originators, as well asfor institutions that control both State-and Agency-regulated institutions. For

these same reasons, the Agencies alsodecline to increase the renewal periodfrom 60 to 90 days. Therefore, the finalrule retains the proposed renewalperiod of November 1 throughDecember 31 of each year.

Mortgage loan originator. Theproposed definition ofmortgage loanoriginator was based on the definitionof the term loan originator included inthe S.A.F.E. Act at section 1503(3) (12U.S.C. 5102(3)). As defined by theS.A.F.E. Act, this term means anindividual who takes a residentialmortgage loan application and offers or

negotiates terms of a residentialmortgage loan for compensation or gain.The term does not include an individualwho is not a mortgage loan originatorand: (1) Performs purely administrativeor clerical tasks on behalf of anindividual who is a mortgage loanoriginator; (2) performs only real estate

brokerage activities (as defined insection 1503(3)(D) of the S.A.F.E. Act(12 U.S.C. 5102(3)(D)) 1 and is licensed

or registered as a real estate broker inaccordance with applicable State law,unless the individual is compensated bya lender, a mortgage broker, or otherloan originator or by any agent of suchlender, mortgage broker, or othermortgage loan originator; or (3) is solelyinvolved in extensions of credit relatedto timeshare plans, as that term is

defined in 11 U.S.C. 101(53D).1For purposes of the definition of

mortgage loan originator, section1503(3)(C) of the S.A.F.E. Act (12 U.S.C.5102(3)(C)) defines administrative orclerical tasks to mean: (1) The receipt,collection, and distribution ofinformation common for the processingor underwriting of a loan in themortgage industry; and (2)communication with a consumer toobtain information necessary for theprocessing or underwriting of aresidential mortgage loan. The proposalincluded this definition as well, with

one nonsubstantive differencetheproposal used the phrase residentialmortgage industry instead ofloan inthe mortgage industry in the first prongof the definition.

The Agencies included an appendixto the proposal that listed examples ofthe types of activities the Agenciesconsider to be both within and outsidethe scope of residential mortgage loan

origination activities. The final ruleretains this appendix with certainchanges as discussed in thisSUPPLEMENTARY INFORMATION section.Individuals who receive compensationor gain as used in the definition ofmortgage loan originator and describedin this appendix include individualswho earn salaries, commissions or other

incentive, or any combination thereof.The Agencies specifically requested

comment on whether the definition ofmortgage loan originator should coverindividuals who modify existingresidential mortgage loans, engage inapproving loan assumptions, or engagein refinancing transactions and, if so,whether these individuals should beexcluded from the definition. While afew commenters believed the Agenciesshould cover individuals engaged insuch transactions, the majority ofcommenters on this issue stated thatthis rulemaking should not cover these

individuals. In general, they indicatedthat mortgage loan modifications andassumptions are very different frommortgage loan originations, and thatemployees engaged in these transactionsdo not meet the S.A.F.E. Acts definitionof mortgage loan originator. Specifically,commenters indicated that theseemployees neither accept residentialmortgage loan applications nor negotiatethe terms of a new residential mortgageloan. Instead, they renegotiate anexisting loan with the goals ofmitigating any loss to the institutionand, in the case of modifications,providing the borrower with a more

affordable payment option or other typeof modification, or, in the case ofassumptions, replacing the partyresponsible for repaying the mortgageloan. Many commenters indicated thattheir employees who engage inmodifications and assumptions do notever originate mortgage loans, and thatmodifications and assumptions areperformed in different departments ofthe institution. Many commenters alsonoted that applying the S.A.F.E. Actsregistration requirements to employeesengaged in loan modifications andassumptions could significantly hamper

loan modification efforts.The determining factor in whether theS.A.F.E. Act applies to residentialmortgage loan-related transactions iswhether the employee engaged in thetransaction meets the definition ofmortgage loan originator. In general,neither modifications nor assumptionsresult in the extinguishment of anexisting loan and the replacement by anew loan, but rather the terms of anexisting loan are revised or the loan isassumed by a new obligor. Thus,Agency-regulated institution employees



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1Some commenters noted that the Agenciesshould require only one mortgage loan originatorfor each mortgage loan. The Agencies decline totake this approach because the S.A.F.E. Act definesa mortgage loan originator according to the two-prong test set forth in the statute.

1Section 107(5)(A)(x) of the Federal Credit UnionAct (12 U.S.C. 1757(5)(A)(x)) requires all loans tobe approved by a credit committee or loan officer.For all Federal credit unions, and to the extentState-chartered credit unions operate under asimilar State law or regulation, the statutory and

regulatory definition of mortgage loan originator ismet and the S.A.F.E Act does apply.

1See footnote 26.

engaged in these activities typically donot take loan applications, within themeaning of the S.A.F.E. Act. Therefore,the Agencies conclude that the S.A.F.E.Acts definition ofmortgage loanoriginator generally would not includeemployees engaged in loanmodifications or assumptions becausethey typically would not meet the two-

prong test of this definition. However, ifan employee engaged in a transactionlabeled a loan modification orassumption can be found to meet thedefinition ofmortgage loan originator,due to the nature of the specifictransaction in question, he or she would

be subject to the S.A.F.E. Act and thisfinal rule. The substance of atransaction, not the label attached to it,is determinative of whether the Agency-regulated institution employeeassociated with it is a mortgage loanoriginator for purposes of this rule. Forexample, the Agencies believe that

Agency-regulated institution employeesengaged solely in bona fide cost-freeloss mitigation efforts that result inreduced and sustainable payments forthe borrower generally would not meetthe definition ofmortgage loanoriginator. In this regard, it should benoted that third parties involved inforeclosure prevention activities forcompensation or gain, although outsidethe scope of this rulemaking, may besubject to licensing and registrationpursuant to State law.

The Agencies sought comment onwhether the individuals who engage in

certain refinancing transactions,specifically cash-out refinancing withthe same lender, should be excludedfrom the definition of residentialmortgage loan originator. Some industrycommenters did not believe that such anexclusion was appropriate primarily

because of the nature of a refinancing asa new loan and the potential forconsumer abuse in these transactions.Other commenters also requested thatwe exclude individuals engaged inrefinancings from the final rulesdefinition of mortgage loan originator,and that refinancings be excluded fromthe final rules definition of residentialmortgage loan, if the refinancinginvolves the same lender and the

borrower obtained no cash proceeds. Wedecline to make this change.Refinancings are new loans, regardlessof the lender, the loan terms, orproceeds, that involve a new applicationand an offer or negotiation of new loanterms. If an individual engaged in arefinancing transaction of a residentialmortgage loan meets the two prongs ofthe definition of mortgage loanoriginator, he or she must comply with

the requirements of the S.A.F.E. Act andthis final rule.1

Other commenters suggested that theAgencies exclude loan servicingpersonnel from the requirements of thisrulemaking. We decline to take thissuggested approach because the S.A.F.E.Act definition is based on the activitiesof mortgage loan origination, rather than

the job classification of the individual.An individual, regardless of job title, isa mortgage loan originator if he or sheengages in the activities of mortgageloan origination within the meaning ofthe S.A.F.E. Act. For example, if a loanservicing employee of an Agency-regulated institution mainly performsloan servicing activities but alsooccasionally engages in residentialmortgage loan origination, that person isa mortgage loan originator, regardless ofwhether he or she is called servicingpersonnel. On the other hand, forexample, as discussed above in

connection with loan modifications, aloan servicing employee engaged solelyin bona fide cost-free loss mitigationefforts which result in reduced andsustainable payments for the borrowergenerally would not meet the definitionofmortgage loan originator. Loanservicing employees of Agency-regulated institutions must comply withthe registration requirements of the finalrule if they meet both prongs of thedefinition ofmortgage loan originator,unless they qualify for the de minimisexception under __.101(c)(2) of thefinal rule. Some commenters requestedclarification that, when a servicing

employee of an Agency-regulatedinstitution works with a borrower tocollect unpaid taxes or other costspursuant to a repayment or collectionplan, the employee is not acting as amortgage loan originator under theAgencies rules. The Agencies agree thatsuch activities would generally not meetthe two-prong test of this definition.

Some commenters asked the Agenciesto explain whether the S.A.F.E. Act andthis rule apply to residential mortgageloan originations made through anautomated underwriting system,whereby an applicant inquires about,

applies for, and/or receives a decisionon an application electronically throughan institutions Web site.1 Although

some institutions may choose toestablish an automated system to collectapplication information and make aninitial decision on a loan application,from a risk management and complianceperspective, an institution is expected toset the system parameters and monitorsystem output for compliance withvarious laws, regulations, and guidance

on an ongoing basis. Such institutionsare expected to register employeesinvolved in that process who meet thedefinition ofmortgage loan originator,as appropriate. As indicated above, theAgencies note that Fannie Mae andFreddie Mac are requiring all residentialmortgage loan applications dated on orafter the compliance date for the uniqueidentifier requirement to include themortgage loan originators uniqueidentifier.1 Institutions should keepapprised of any future guidance FHFAmay issue to address this requirement.

For the reasons discussed above, the

final rule includes the definition ofmortgage loan originator as proposed,with one technical change to thedefinition ofadministrative or clericaltasks to make it identical to thedefinition of this term in section1503(3)(C) of the S.A.F.E. Act (12 U.S.C.5102(3)(C)).

Nationwide Mortgage LicensingSystem and Registryor Registry. Section__.102(c) of the proposed rulesdefinition of these terms is based on thedefinition included in section 1503(5) ofthe S.A.F.E. Act (12 U.S.C. 5102(5)).Specifically, these terms mean thesystem developed and maintained by

CSBS and the AARMR for the Statelicensing and registration of State-licensed mortgage loan originators andthe registration of mortgage loanoriginators pursuant to section 1507 ofthe S.A.F.E. Act (12 U.S.C. 5106). Asexplained above, CSBS and the AARMRhave established an online system,NMLS, that currently supports thelicensing and registration of mortgageloan originators regulated by a State.The Agencies are working with CSBS tomodify the NMLS to support theregistration of mortgage loan originatorsemployed by Agency-regulated

institutions, and will rename thissystem the Nationwide MortgageLicensing System and Registry. TheAgencies received no comments on thisdefinition and adopt it as proposed.

Registered mortgage loan originator.Pursuant to section 1503(7) of theS.A.F.E. Act (12 U.S.C. 5102(7)), theproposed rule defined this term to meanany individual who meets the definition



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1TILA defines dwelling as a residentialstructure or mobile home which contains one-to-four family housing units, or individual units ofcondominiums or cooperatives. 15 U.S.C. 1602(v).Board regulations and commentary include in thisdefinition any residential structure that containsone to four units, whether or not that structure isattached to real property, and includes anindividual condominium unit, cooperative unit,mobile home, and trailer, if it is used as a residence.See 12 CFR 226.2(a)(19) (Regulation Z).

1The Registry currently defines control as the

power, directly or indirectly, to direct themanagement or policies of a company, whetherthrough ownership of securities, by contract, orotherwise. Anyperson that (i) is a general partneror executive officer, including Chief Executive,Chief Financial Officer, Chief Operations Officer,Chief Legal Officer, Chief Credit Officer, ChiefCompliance Officer, Director, and individualsoccupying similar positions or performing similarfunctions; (ii) directly or indirectly has the right tovote 10% or more of a class of a voting security orhas the power to sell or direct the sale of 10% ormore of a class of voting securities; or (iii) in thecase of a partnership, has the right to receive upondissolution, or has contributed, 10% or more of thecapital, is presumed to control that company. TheRegistrys current definition ofFinancial services-

related means pertaining to securities,commodities, banking, insurance, consumerlending, or real estate (including, but not limited to,acting as or being associated with a bank or savingsassociation, credit union, Farm Credit Systeminstitution, mortgage lender, mortgage broker, realestate salesperson or agent, appraiser, closing agent,title company, or escrow agent).

2See __.104(a).3Nationwide Mutual Ins. Co. v. Darden, 503 U.S.

318, 32223 (1992) (citing Community for CreativeNon-Violence v. Reid, 490 U.S. 730, 73940 (1989)(other citations omitted).

1Restatement (Third) of Agency 7.07(3)(a)(2006).

2 IRS Publication 1779; see also Form SS8,Determination of Worker Status for Purposes ofFederal Employment Taxes and Income TaxWithholding.

3Agency-regulated institutions that are creditunions sometimes rely upon volunteers to originatemortgage loans. The right-to-control test under thecommon law agency doctrine likewise applies tothese credit unions. Credit union management

of mortgage loan originator, is anemployee of an Agency-regulatedinstitution, and is registered pursuant tothe requirements of this rule with, andmaintains a unique identifier through,the Registry. This definition is the sameas that included in the S.A.F.E. Act,except that the Agencies have modifiedit to apply only to individuals registered

pursuant to regulations issued by theAgencies. The Agencies received nocomments on this definition and adoptit as proposed.

Residential mortgage loan. As insection 1503(8) of the S.A.F.E. Act, (12U.S.C. 5102(8)), the proposal definedresidential mortgage loan as any loanprimarily for personal, family, orhousehold use that is secured by amortgage, deed of trust, or otherequivalent consensual security intereston a dwelling (as defined in section103(v) of the Truth in Lending Act(TILA) (15 U.S.C. 1602(v)) 1 or

residential real estate upon which isconstructed or intended to beconstructed a dwelling. In addition, theproposal specifically includedrefinancings, reverse mortgages, homeequity lines of credit and other first andsecond lien loans secured by a dwellingin this definition in order to clarify thatoriginators of these types of loans arecovered by the rules requirements.

One commenter suggested thatancillary liens on an underlyingmortgage loan or liens taken to provideconsumers with potential taxadvantages should not be consideredresidential mortgage loans. In addition,

another commenter asked that thedefinition of residential mortgage loaninclude an exception to exclude seller-sponsored financing of the sale oflender-owned property. The Agenciesdecline to adopt these exclusions to thedefinition ofresidential mortgage loanand adopt this definition as proposed.These types of loans clearly fall withinthe statutory definition ofresidentialmortgage loans, and the S.A.F.E. Actmakes no exceptions for these twosituations. We do clarify, however, thatthis definition does not include loansfor business, commercial, or agricultural

purposes that use as collateral propertythat meets the definition of a dwelling.As indicated in the SUPPLEMENTARY

INFORMATION section to the proposed

rule, the FCA emphasizes that section1503(8) of the S.A.F.E. Act (12 U.S.C.5102(8)) and __.102(e) do not amendor supersede sections 1.11(b) and 2.4(b)of the Farm Credit Act of 1971, asamended (12 U.S.C. 2019(b) and2075(b)), and their implementingregulation, 12 CFR 613.3030(c), whichestablish the purposes for which FCS

institutions may originate residentialmortgage loans for eligible rural home

borrowers.Unique Identifier. The proposed rules

definition of this term was almostidentical to that in section 1503(12) ofthe S.A.F.E. Act (12 U.S.C. 5102(12)).The Agencies received no comments onthis definition and adopt it as proposed.Specifically, the final rule definesunique identifier to mean a number orother identifier that: (1) Permanentlyidentifies a registered mortgage loanoriginator; (2) is assigned by protocolsestablished by the Registry and the

Agencies to facilitate electronic trackingof mortgage loan originators, anduniform identification of, and publicaccess to, the employment history ofand the publicly adjudicateddisciplinary and enforcement actionsagainst mortgage loan originators; and(3) must not be used for purposes otherthan those set forth in the S.A.F.E. Act.

Other terms. The Agencies note that__.103(d) of the proposed and finalrule uses the terms control andfinancial services-related in thedescriptions of the information that isrequired of an employee who is amortgage loan originator. These termsare currently defined in the Web-basedMU4 form collecting information onState-licensed mortgage loan originators.In order to promote consistency of theinformation collected for Agency-regulated and State-licensed mortgageloan originators, the Agencies reiteratethat the MU4 forms definitions of thosetwo terms also will be used in the Web-

based form collecting information onAgency-regulated mortgage loanoriginators and, therefore have notdefined them in this rulemaking.1

A number of commenters requestedthat the Agencies define employee forpurposes of this rulemaking to providemore clarity regarding the individualscovered by the rule. Agency-regulatedinstitutions must have a process foridentifying which employees of theinstitution are required to be registeredmortgage loan originators.2 As the

Supreme Court has explained, whereCongress uses terms that haveaccumulated settled meaning under* * * the common law, a court mustinfer, unless the statute otherwisedictates, that Congress means toincorporate the established meaning ofthese terms * * *. In the past, whenCongress has used the term employeewithout defining it, we have concludedthat Congress intended to describe theconventional master-servantrelationship as understood by common-law agency doctrine. 3 Section7.07(3)(a) of the Restatement (Third) of

Agency explains thatan employee is anagent whose principal controls or has

the right to control the manner andmeans of the agents performance ofwork. 1 The Agencies thus intend thatthe meaning ofemployee under theS.A.F.E. Act and this rule is consistentwith the right-to-control test under thecommon law agency doctrine. TheAgencies note in this regard that the IRSuses the common law right-to-controltest as its basis for classification ofworkers as employees.2 The result ofthis test generally determines whetheran institution files a W2 or a 1099 foran individual. The Agencies therefore

expect an Agency-regulated institutionwould identify a mortgage loanoriginator as an individual subject tothis final rule if, following considerationof the relevant facts, the institutiondetermines that the individual is anemployee of the Agency-regulatedinstitution.3



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establishes the policies, procedures, and practicesthat volunteers use in performing their functions.Therefore, these volunteers qualify as employees ofthe Agency-regulated institution for purposes of theS.A.F.E. Act and this rule.

1The OCC, Board, FDIC, and OTS have the

authority to take enforcement actions against theirrespective Agency-regulated institutions andindividual employees of those institutions whoviolate the S.A.F.E. Act and this final rule, pursuantto 12 U.S.C. 1818. The FCA has authority to takeenforcement actions against Farm Credit Systeminstitutions and individual employees who violatethe S.A.F.E. Act and this final rule pursuant to TitleV, Part C of the Farm Credit Act of 1971, asamended, 12 U.S.C. 2261 et seq. The NCUA has theauthority to take enforcement actions againstFederally-insured credit unions and theiremployees who violate the S.A.F.E. Act and thisfinal rule under 12 U.S.C. 1786. For privatelyinsured credit unions, memoranda of understandingbetween NCUA and applicable State supervisoryauthorities will establish enforcement authority.

Section__.103Registration ofMortgage Loan Originators

Section 1504(a) of the S.A.F.E. Act (12U.S.C. 5103(a)) prohibits an individualwho is an employee of an Agency-regulated institution from engaging inthe business of a loan originator withoutregistering as a loan originator with theRegistry, maintaining annually suchregistration, and obtaining a uniqueidentifier through the Registry. As in theproposal and described morespecifically below, __.103 of the finalrule imposes the responsibility forcomplying with these requirements on

both the individual employee and theemploying institution. In addition, boththe employee and the employinginstitution must submit information tothe Registry for each registration to becomplete. The Agencies note that anemployee of an Agency-regulatedinstitution who is not actively engagedin residential mortgage loan activity is

not prohibited from registering with theRegistry.

Employee registration requirement. Ingeneral, __.103(a)(1) of the proposedrule required an employee of anAgency-regulated institution who actsas a mortgage loan originator to registerwith the Registry, obtain a uniqueidentifier, and maintain his or herregistration. This section furtherprovided that any employee who is notin compliance with the registration andunique identifier requirements set forthin the proposed rule is in violation ofthe S.A.F.E. Act and this rule.1 TheAgencies note that this registrationrequirement would not apply if theemployee qualifies for the de minimisexception.

The Agencies did not receivesubstantive comments specifically onthis section and therefore adopt it asproposed.

Institution requirement. Proposedparagraph (a)(2) of __.103 provided

that an Agency-regulated institutionmust require its employees who aremortgage loan originators to registerwith the Registry, maintain thisregistration, and obtain a uniqueidentifier in compliance with this finalrule. This provision also prohibited anAgency-regulated institution frompermitting its employees to act as

mortgage loan originators unlessregistered with the Registry pursuant tothis final rule, after the applicableimplementation periods specified in__.103(a)(3) and (a)(4)(ii) expire.

One commenter objected to thisrequirement as not being based onstatutory language. Although theS.A.F.E. Act does not contain the sameexpress prohibition as in the Agenciesproposed rule, determining the scope ofmortgage loan origination activities thatsubject an individual or institution tothe Acts requirements is well withinthe Agencies authority to implement

the statute. The imposition of thisrequirement on Agency-regulatedinstitutions implements the purposes ofthe S.A.F.E. Act and ensures Agency-regulated institutions and theiremployees comply with all applicablelaws. This commenter also stated thatthis requirement would be difficult toenforce because an employinginstitution may not know of theactivities of its employees outside oftheir scope of employment at thatinstitution. We agree with thiscommenter that the language in__103(a)(2)(ii) should be clarified so

that an institutions oversight of amortgage loan originator applies only tothe extent the originator is acting withinthe scope of his or her employment atthat institution. We therefore adopt__.103(a)(2)(ii) with this one change.

Implementation period for initialregistrations. Proposed __.103(a)(3)provided a 180-day implementationperiod for initial registrations beginningon the date the Agencies provide publicnotice that the Registry is acceptinginitial registrations. The Agencies haveadopted this provision as proposed withone minor change to clarify that the

implementation period begins on thedate that the Agencies provide in theirpublic notice, not the actual date of thepublic notice. Pursuant to the proposal,an employee could continue to originateresidential mortgage loans withoutcomplying with the rules registrationrequirement before and during this 180-day period. After this 180-day periodexpires, any existing employee ornewly-hired employee of an Agency-regulated institution who is subject tothe registration requirements would beprohibited from originating residential

mortgage loans without first meetingsuch requirements.

The Agencies specifically requestedcomment on whether this 180-dayimplementation period would provideAgency-regulated institutions and theiremployees with adequate time tocomplete the initial registration process.The Agencies also inquired as to

whether an alternative schedule forimplementation and initial registrationswould be appropriate, what such analternative schedule should be, andwhether, and how, a staggeredregistration process should bedeveloped.

The Agencies received manycomments on this implementationperiod. Some commenters supported a180-day period. Others supported theproposed 180-day implementationperiod provided that certain conditionsare met, such as excluding loanmodification and mitigation employeesfrom the registration requirements,allowing batch processing, simplifyingthe employer verification requirements,and immediate confirmation ofregistration without delay for fingerprintor background check results.

Other commenters, however, statedthat the proposed 180-dayimplementation period would notprovide sufficient time to register thelarge number of employees subject tothe registration requirement, properlytrain all employees, develop compliancepolicies, and program and implementsystem controls. Many noted that alonger period would prevent the

Registry from being overwhelmed withregistrations. Two commenters,including one Federal agency, statedthat additional time will particularly

benefit smaller financial institutions.Another commenter indicated that thetime, effort, and resources required tomeet new systems requirements can beextensive, and that a 180-dayimplementation period for such majorchanges would be extremely difficult forlarger institutions. These commenterssuggested an implementation period ofnine months to one year. Onecommenter stated that each Agency

should have the flexibility to grantadditional time to register in the eventthe Registry becomes backlogged orinundated with a large volume ofregistrations. No commenter requested ashorter implementation period.

The Agencies understand thatAgency-regulated institutions and theirmortgage loan originator employees willface certain implementation issues incomplying with the registrationrequirements established by thisrulemaking. However, as indicatedabove, due to various system



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1These provisions require: The institutionsname; main office address; IRS Employer TaxIdentification Number; Research StatisticsSupervision Discount (RSSD) number;identification of the institutions primary Federalregulator; contact information for individuals at theinstitution for Registry purposes; applicablesubsidiary information, and confirmation that itemploys the registrant. Information regarding aninstitutions RSSD number is available from theBoard.

modifications and enhancementsrequired to make the existing systemcapable of accepting Federal registrants,the system is not expected to beavailable to accept Federal registrations

before January 2011. The 180-dayimplementation period will not beginuntil the system is available to acceptFederal registrations. This in effect

provides institutions with animplementation period longer than 180days as institutions and their employeescan begin to implement the final rulesrequirements before the Registry isoperational, i.e., develop policies andprocedures, train employees, gatherinformation needed for registration, andprogram and implement system controls

before registration is required. Inaddition, CSBS and SRR will provideinformation to, and assist Agency-regulated institutions in preparation for,registration during this period. TheAgencies believe that this additional

time will provide mortgage loanoriginators, and the Agency-regulatedinstitutions that employ them, adequateopportunity to prepare for theregistration requirements. Anyextension of the 180-dayimplementation period provided in thefinal rule will only further delay theregistration of residential mortgage loanoriginators and, as a result, theconsumer protection benefits of theS.A.F.E. Act. In addition, as described

below, batch processing of at least someinformation likely will be available,which should make the registrationprocess more efficient for both the

institution and the registering employee.For these reasons, the Agencies declineto provide an implementation periodlonger than the proposed 180 days.

Many commenters indicated supportfor a staggered implementation period.Some noted that this could be based oninstitution size, loan originationvolume, or employee qualifiers (such as

birth date or last name). Some of thesecommenters, however, noted that theywould support a staggered scheduleonly if it would provide a registrationperiod of equal length for all registrants.Other commenters supported a

staggered process that would givesmaller institutions or institutions thatdo not originate many residentialmortgage loans the greatest amount oftime to comply with the requirements.

The Agencies agree that a staggeredimplementation process for thoseinstitutions that prefer one would beuseful. Such a process would allowinstitutions to register their employeeswithin specific time periods during theimplementation period with theassistance of dedicated staff. Staggeredregistration would limit the number of

originators registering at any one timeand spread the registration of originatorsthroughout the implementation period.Although such a schedule mostly would

benefit those institutions with thelargest number of mortgage loanoriginators, it also should enable theRegistry to accommodate allregistrations in a more timely and

efficient manner, thereby benefiting allinstitutions. Accordingly, the Agencieswill work with CSBS and SRR todevelop a staggered registrationschedule for institutions, in particularthose that are estimated to have a largenumber of mortgage loan originatorssubject to Federal registration, thatrequest such a schedule. This staggeredprocess would occur within the 180-dayimplementation period in order not todelay the registration of mortgage loanoriginators and the ability of consumersto fully utilize the Registry. Becauseinstitutions that request a staggered

registration process would have adedicated period during which toregister within the 180-day period,registration burdens may be eased forthese institutions, lessening their needfor the full 180-day registration period.Details on this staggered approach will

be provided to applicable institutionswhen they have been finalized and mayinclude the availability of this dedicatedstaff prior to the start of the registrationperiod.

Special rule for previously registeredemployees. Under paragraph (a)(4) of__.103 of the proposed and final rule,properly registered or licensed mortgage

loan originators would not have toregister again with the Registry whenthey change employment by movingfrom one Agency-regulated institutionto another or from a State-regulatedinstitution to an Agency-regulatedinstitution, regardless of whether thechange in employment is madevoluntarily, through an acquisition ormerger of the employees prioremployer, or through a reorganizationwhere previously State-licensedmortgage loan originators becomesubject to the registration requirementsof Agency-regulated institutions.

Instead, the employee and employinginstitution need only updateinformation in the Registry andcomplete the required authorizationsand attestation.

Specifically, proposed paragraph(a)(4) of __.103 provided that if a newemployee of an Agency-regulatedinstitution had previously registeredwith, and obtained a unique identifierfrom, the Registry prior to becoming anemployee of that institution and hasmaintained that registration (or license,if previously employed by a non-

Agency-regulated institution), theregistration requirements of this finalrule are deemed to be met provided that:(1) The employees employmentinformation in the Registry is updatedand the employee has completed therequired authorizations and attestation;(2) new fingerprints of the employee areprovided to the Registry for a

background check, except in the case ofmergers, acquisitions or reorganizations;(3) information concerning the newemploying institution is provided to theRegistry pursuant to __.103(e)(1)(i), tothe extent the institution has notpreviously met these requirements, and__.103(e)(2)(i); 1 and (4) the registrationis maintained pursuant to therequirements of __.103(b) and(e)(1)(ii) as of the date that the employee

becomes employed by the institution.Some commenters requested that the

Agencies reduce these requirements inorder to further facilitate the movement

of employees from one institution toanother and prevent unnecessaryinterruption of mortgage originationactivity. However, the Agencies believethat the current provision adequatelyreduces regulatory burden on Agency-regulated institutions as well as theresidential mortgage industry whenregistered mortgage loan originatorschange employers and will allow amortgage origination transaction inprocess at the time of the employmentchange to proceed smoothly. It requiresless than what would be needed tocomplete a new registration andrequires only that information necessary

to update the employees registrationand confirm the identity of theoriginator and the employer, therebypreventing fraudulent information from

being submitted to the Registry.However, we have amended__.103(a)(4)(i)(B) to provide that newfingerprints are not required to besubmitted, pursuant to__.103(d)(1)(ix), if the registered loanoriginator has fingerprints on file withthe Registry that are less than threeyears old. The Registry will use theseexisting prints for purposes of the

background check. This three-year age

limit is consistent with the proceduresto be used by SRR for mortgage loanoriginators licensed by a State. We notethat, as proposed, the final rule does not



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require fingerprints or a newbackground check when the change inemployers is due to an acquisition,merger, or reorganization because thesetransactions carry a lower risk of fraudand identity theft. The Agencies notethat institutions should still conductprudent screening of prospectiveemployees to confirm their identities.

In response to a comment, theAgencies note that paragraph (a)(4) of__.103 applies when an employee ofan Agency-regulated institution

becomes an employee of anotherAgency-regulated institution, regardlessof whether the entities are affiliated.Similarly, when an employee of asubsidiary of an Agency-regulatedinstitution becomes an employee of theinstitution, the requirements of __.103apply.

In order to reduce regulatory burdenand to prevent an interruption inmortgage origination activity, theproposed __.103(a)(4)(ii) provided a60-day grace period to comply with the__.103(a)(4)(i) requirements when aregistered mortgage loan originator

becomes an employee of an Agency-regulated institution as a result of anacquisition, merger, or reorganization.Some commenters agreed that this 60-day grace period is appropriate andprovides the proper balance betweenimplementing the purpose of theS.A.F.E. Act and protecting consumers.Other commenters, however, requestedthat this period be extended to 90 or 180days due to the complexity andprotracted nature of the merger and

acquisition process. Some commentersalso requested that a 60-day graceperiod apply to all changes inemployment, regardless of whether thechange is the result of a merger oracquisition transaction.

Final __.103(a)(4)(ii) retains theproposed 60-day grace period for achange in employers due toacquisitions, mergers, orreorganizations. The Agencies find that60 days is an adequate time forinstitutions and their employees toupdate registrations in the case of thesetransactions and agree with the

commenters who stated that this timeperiod balances the purposes of theS.A.F.E. Act and consumer protection.

Additionally, the Agencies find that agrace period is not necessary when amortgage loan originator changesemployers for other reasons. Thissituation does not raise the samecompliance burden as does anacquisition, merger, or reorganization,in which a large number of employeesare switching employers at the sametime. Therefore, as proposed, the finalrule requires that these registered

mortgage loan originators comply withthe requirements of __.103(a)(4) beforethey may originate residential mortgageloans for their new employer.

Another commenter requested thatthe Agencies permit an employer tosubmit one update concerning allaffected employees in the case of anacquisition, merger, or reorganization,

rather than having each individualemployee submit what is largelyidentical information about their changein employer. The Agencies agree thatthis approach would reduce burden forthe employee, institution, and theRegistry. We specifically haveinstructed CSBS and SRR to develop aprocess for these transactions thatwould allow the bulk transfer of

business location and contactinformation for all mortgage loanoriginators from one institution toanother. However, each individualemployee still must complete the

authorization and attestation for theirown updated registration record.The Agencies adopt proposed

__.103(a)(4) with the addition of thelanguage discussed above related tofingerprints in __.103(a)(4)(i)(B). TheAgencies also have modified__.103(a)(4) to clarify that an employeeof a bank who has been properlyregistered or licensed as a mortgage loanoriginator need only update informationin the Registry, and complete therequired authorizations and attestation,whether that employee is a newemployee of the Agency-regulatedinstitution or becomes subject to this

final rule while an employee of theinstitution.

The Agencies note that theregistration of a mortgage loan originatorwho leaves any employer will berecorded as inactive in the Registry untilhe or she is hired by another entity, hisor her record is updated in accordancewith the final rules requirements, andthe new employer acknowledgesemploying the mortgage loan originatorthrough the Registry. The individualwill be prohibited from acting as amortgage loan originator at an Agency-regulated institution until such time as

the registration is reactivated, unlesscovered by the 60-day grace period foracquisitions, mergers, andreorganizations.

Maintaining Registration. Underproposed __.103(b)(1)(i), a registeredmortgage loan originator must renew hisor her registration with the Registryduring the annual renewal period,November 1 through December 31 ofeach year. To renew, the employee mustconfirm that the information previouslysubmitted to the Registry remainsaccurate and complete, updating any

information as appropriate. Anyregistration that is not renewed duringthis period will become inactive, andthe individual will be prohibited fromacting as a mortgage loan originator atan Agency-regulated institution untilsuch time as the registrationrequirements are met. However, anindividual who fails to update

information during this period mayrenew his or her registration at any timeand does not need to wait until the startof the next annual renewal period.Inactive mortgage loan originators willnot be assigned a new unique identifierif they reactivate their registration.

Some commenters opposed therequirement to renew registrationsannually as overly burdensome andunnecessary. Some suggestedalternatively that a registration remainvalid until there is a change inemployment status or other change thatrequires an update of database

information. Others recommended thatthe renewal

secure and fair enforcement for mortgage licensing act of 2008

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