Final HUD Rule On SAFE Act

HUD has issued the final rule for the SAFE Act.  Click here: SAFE Act Final Rule

See attached, esp. the section beginning on p. 9, “D. Individuals Requiring Licensing Under the SAFE Act.”

Also note:

An individual who merely takes an
application, but never offers or
negotiates loan terms, is not required to
be subject to licensing by the SAFE Act.
Similarly, a person who makes an offer
of loan terms without ever receiving,
directly or indirectly, an application
from the borrower, is not required to be
covered by the SAFE Act.

HUD agrees that in general, the following activities
described by the commenter—(a) the
mere sharing of general information
about a financing source; (c) discussing
hypothetical financing options, i.e.,
options not related to a specific
financing source; (e) giving the
homebuyer a list of available financing
sources without recommending any of
the sources; (f) discussing a buyer’s
ability to afford a home; (h) presenting
or discussing generic facts or generic
rate sheets; and (i) closing personal
property transactions—would not be
covered under ‘‘offers or negotiates.’

III. Overview of Final Rule—Key
Clarifications
After reviewing issues raised by the
commenters, which are discussed in
Section IV of this preamble, and upon
HUD’s further consideration of issues
related to this final rule, the following
highlights key clarifications made by
this final rule.

An individual required to be licensed
under the SAFE Act is an individual
who is engaged in the ‘‘business of a
loan originator’’; that is, an individual
who acts as a residential mortgage loan
originator with respect to financing that
is provided in a commercial context and
with some degree of habitualness or
repetition. The SAFE Act defines ‘‘loan
originator’’ to mean ‘‘an individual who
takes a residential mortgage loan
application; and offers or negotiates the
terms of a residential mortgage loan for
compensation or gain.’’ Section 1504(a)
of the SAFE Act requires licensing of
those individuals who ‘‘engage in the
business’’ of a loan originator. It is
HUD’s view that the SAFE Act’s
distinction between individuals who
may meet the definition of ‘‘loan
originator’’ (because of the activities
they carry out) versus those individuals
who ‘‘engage in the business’’ of a loan
originator, means that not every
individual who acts as a loan originator
is necessarily subject to the SAFE Act’s
licensing and registration requirements.

A basic definition of ‘‘business’’ is ‘‘a
commercial enterprise carried on for
profit; a particular occupation or
employment habitually engaged in for
livelihood or gain.’’ (See Black’s Law
Dictionary 211 (8th ed. 2004).) It is
HUD’s view that to engage in the
‘‘business’’ of a loan originator and be
subject to licensing under the SAFE Act,
an individual must act or hold oneself
out as acting as a loan originator with
respect to mortgage loan origination
activities that are carried out in a
commercial context and with some
degree of habitualness or repetition. To
act in a commercial context, the
individual who acts as a loan originator
must do so for the purpose of obtaining
profit for an entity or individual for
which the individual acts (including,
e.g., a sole proprietorship or other entity
that includes only the individual),
rather than exclusively for public,
charitable, or family purposes. The
requisite habitualness or repetition of
the mortgage loan origination activities
may be met if either the individual who
acts as a loan originator does so with a
degree of habitualness or repetition, or
if the source of the prospective
financing provides such financing or
performs other phases of originations of
residential mortgage loans with a degree
of habitualness or repetition. The
absence of either a commercial context
or a degree of habitualness or repetition
means that the activity in which the
individual is engaged does not
constitute the ‘‘business’’ of a loan
originator. This final rule codifies this
distinction at § 3400.103(b)(1) and in an
appendix and identifies instances where
such absence indicates that an
individual is not subject to SAFE Act
licensing requirements.

As HUD stated in the proposed rule, the
frequency with which a particular seller
provides financing to a buyer to
facilitate the sale of the seller’s own
residence is so limited that Congress
could not have intended to require such
sellers to obtain loan originator licenses.
The final rule affirms this point by
adding the concept of habitualness or
repetition expressly into § 3400.103(b)
of the rule. HUD recognizes, as stated
earlier in this preamble, that the
difficulty for states is with a situation
raised by many commenters where a
property owner is providing seller
financing in conjunction with sales of
his or her own properties in such
numbers and perhaps at such frequency
that the owner appears to be engaged in
the business of a loan originator. While
the fact that the seller has not lived in
the properties being sold would make it
more likely that financing is provided in
order to obtain a profit, and would
therefore make it more likely that a
commercial context is present, the
infrequency with which a particular
seller undertakes such actions,
combined with the fact that it is the
individual who is providing the
financing (rather than a business entity
that regularly provides financing), may
mean that the requisite habitualness
needed to constitute engag[ing] in the
‘‘business’’ of a loan originator is absent.
On the other hand, for example, a
builder who repeatedly acts as a loan
originator in the course of selling homes
he or she has constructed would almost
certainly satisfy the requirements of a
commercial context and habitualness or
repetition and, accordingly, would be
subject to SAFE Act licensing
requirements.