Congress passed the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) to address concerns about a lack of regulation and oversight in the mortgage industry. Under SAFE Act, all mortgage loan originators (MLOs) must be registered and licensed on a national database, providing consumers with protection from unscrupulous or fraudulent practices by mortgage professionals.
Under the SAFE Act, all mortgage loan originators (MLOs) employed by federally regulated depository institutions such as banks and credit unions must register with the Nationwide Mortgage Licensing System and Registry (NMLS). NMLS is an online database that enables state and federal regulators to track MLOs’ compliance with various laws and regulations.
The SAFE Act also established minimum standards for licensing and registration of mortgage loan originators (MLOs). MLOs must complete pre-licensing education, pass a written test, and undergo criminal background checks before being licensed. Furthermore, they must take annual continuing education courses to maintain their license as well as stay abreast of changes within the mortgage industry.
SAFE Act Statistics
- As of December 2021, there were over 475,000 mortgage loan originator (MLO) licenses registered in the Nationwide Multistate Licensing System & Registry (NMLS), established through the passage of the SAFE Act.
- Since 2008, the NMLS has processed more than 40 million license applications and 10 million renewals.
- According to a report released by the Consumer Financial Protection Bureau (CFPB), 42,911 mortgage-related complaints were filed with the agency in 2020 – many of which involved violations of SAFE Act and related regulations.
- According to a CFPB report, the most frequent complaint categories involved issues with the application process, communication with the lender, and issues during underwriting.
- According to a survey conducted by the National Association of Mortgage Brokers, 85% of respondents believed that passage of SAFE Act had increased professionalism within their industry.
- However, the same survey revealed that 61% of respondents felt the SAFE Act had made it more challenging for small businesses to operate within the mortgage industry due to its increased compliance requirements.
- A study conducted by the Mercatus Center at George Mason University revealed that the SAFE Act and related regulations had substantially raised compliance costs for small mortgage brokers by 50-100%, effectively decreasing their number of businesses operating within this industry.
- According to the same study, increased compliance costs had not necessarily resulted in improved consumer protection or reduced fraud, but instead created a barrier to entry for small firms while larger ones were better equipped to handle the additional regulatory burden.
The SAFE Act has had a profound effect on the mortgage industry. Prior to its passage, there was no national database or standard for licensing mortgage loan originators (MLOs). This void in regulation made it easy for unscrupulous mortgage professionals to prey upon consumers with weak credit or limited financial literacy, especially those with limited resources or access.
Since the passage of the SAFE Act, the number of licensed mortgage loan originators (MLOs) has grown substantially, providing greater transparency and accountability within the mortgage industry. Furthermore, consistent licensing requirements across states now make it easier for mortgage professionals to work across borders.
In addition to safeguarding consumers, the SAFE Act has had a beneficial effect on the mortgage industry as a whole. By setting minimum standards for licensing and registration, it has improved the standard of work among mortgage professionals, decreasing fraudulent loans and foreclosures – ultimately helping stabilize housing markets nationwide.
Overall, the SAFE Act has been a groundbreaking achievement in protecting consumers and raising the quality of mortgage professionals. While more work remains to be done to guarantee all MLOs adhere to strict standards, this landmark act provides a solid platform for future reforms within the mortgage industry.