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The Mortgage Bankers Association (MBA), American Bankers Association (ABA), and the American Financial Services Association (AFSA) joined with 11 state and local mortgage lending groups on Friday to send a letter to the U.S. Department of Housing and Urban Development expressing concerns about the way in which HUD is proposing to implement the 2008 SAFE Act. 

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing), was passed in July 2008 as part of the Housing and Economic Recovery Act.  It directs states to adopt licensing and registration requirements for loan originators that meet minimum standards established by the act in lieu of HUD establishing nationwide standards.  It also encourages the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to set up a nationwide residential mortgage licensing system and registry.

The letter from MBA and others expresses concern that HUD is proposing to exceed the authority granted to it by SAFE by establishing a backup system and determining whether individual state laws meet the minimum requirements established by SAFE.  The specific concern of the writers is that HUD may require persons, usually those employed by servicers, who undertake to perform loan modifications as though they were loan originators and thus subject to the licensing requirements of SAFE.  This, the letter stated, could "significantly curtail the ability of servicers to complete loan modifications until their employees are registered or licensed."

Although HUD indicates it is continuing to consider the matter of whether to require the states to treat servicer employees engaged in loan modifications as originators, the groundwork is laid by the proposed definitions for just such an outcome.

HUD's Proposed Rules for implementing the act, posted in the Federal Register on December 15, 2009 answered a question regarding the applicability of the definition of loan originators to individuals who modify existing residential loans, saying in part;

...given the extent to which today's loan modifications can be virtually indistinguishable from refinances, HUD sees the reasonableness of covering these individuals under the definition of loan originator and has advised that it is inclined to require the licensing of individuals who perform loan modifications for servicers."

The letter states that requiring additional licensing and registration under the SAFE Act for loan modification specialists would "unnecessarily lessen the availability of loan modification specialists and increase servicing costs"

The MBA et al letter said that the chief objective of SAFE is to establish uniform standards for loan originators of state-regulated lenders throughout the nation and that HUD can and should do considerably more to achieve the goal by, for example, "clearly indicating that the SAFE law does not preclude and should, in fact, encourage the recognition of out-of-state licenses and provisional licensing of federally registered and other originators pending licensure

The parties that joined MBA, ABA and AFSA in signing the letter are state and local mortga"ge lending organizations representing California, Colorado, Indiana, Michigan, Missouri, the Carolinas, Florida, Greater Washington (DC), Ohio, Texas and Virginia.

HERE is the letter

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