United States: Staying SAFE And Out Of The SAFE Act

Although the ups and downs of the economic cycle and fluctuating real estate values are familiar to most of us, there is news every day to remind us that the current downturn is very different. While high unemployment and shrinking wealth are common when the economy contracts, the number of foreclosures are surely unprecedented. As we all know, home foreclosures hurt property owners, erode real estate values generally, and also shake consumer confidence.

In addition to its impact on real estate, the current downturn has also tarnished the banking system, which began with a collapse residential mortgage lending some time in 2006. Since that time, we have come to learn that much of the harm done was due to mortgage fraud and lax accountability in the residential mortgage industry. Mortgage fraud includes abuses by those who are employed in mortgage lending, but it also includes inflated property appraisals and borrower misrepresentation, much of which was based upon an overly optimistic view of future growth.

When the level of mortgage fraud which had taken place began to emerge, Congress was flooded with complaints from borrowers about mortgage lender practices, just as a tsunami of foreclosures began to take place. In an attempt to pull the housing market back from the brink of disaster, Congress adopted the Housing and Economic Recovery Act ("HERA") on July 30, 2008 within which the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ("SAFE Act") is embedded. The Act uses an exceptionally broad brush to address mortgage fraud and certain practices of mortgage lenders. Although the SAFE Act may be a classic example of every abuse being met with excessive regulatory reaction, it is the law.

The Act's implementation began with the requirement that each state adopt a licensing scheme for residential "mortgage loan originators." The Act defines a mortgage loan originator as an individual who takes a residential mortgage loan application and offers or negotiates the terms of a residential mortgage loan for compensation or gain. The federal statute elaborates on the meaning of "taking a loan application" to include " advising on loan terms (including rates, fees, other costs), preparing loan packages or collecting information on behalf of the consumer with regard to a residential mortgage loan." During its 2009 rulemaking, the U.S. Separtment of Housing and Urban Development, ("HUD"), extended the definition to include anyone who receives a residential loan application for the purpose of directly or indirectly influencing another (usually the lender) to extend a mortgage loan to a borrower. Bank regulatory agencies overseeing federal institutions that employ originators extended the definition of "taking an application" to include the collection of consumer data for input into an automated system and stated that no application fee need be collected to find an application has been "taken."

As to further guidance regarding the provision that reads "offers or negotiates the terms of a residential mortgage loan for compensation or gain," the federal statute is silent, but the bank regulatory agencies have determined that the following activities fall within that provision: (a) presenting mortgage loan terms; (b) discussing mortgage loan terms with a borrower; and (c) fulfilling a duty or incentive, recommending, referring, or steering a borrower to a specific mortgage lender, program, or set of terms. Clearly this interpretation goes beyond the plain meaning of these terms but to run afoul under the federal Act, one must satisfy both the "taking" and the "offer or negotiate" tests.

To implement the Act, the New Hampshire Banking Department ("Department") amended RSA 397-A to incorporate the Model Act prepared for use by the states. However, the Model Act used the term "or" between the 2 prongs of the test rather than the "and" used by the federal definition, which effectively expands the reach of the New Hampshire Act to require only one prong of the test to be satisfied to fall into the dreaded definition of "mortgage loan originator."

As a direct result of the New Hampshire Act expanding the number of individuals who fall under the Act, even beyond those that would have been swept up under the expansive federal agency interpretation, many professionals must now decline providing assistance to clients when questions arise regarding mortgage financing. For example, a mortgage loan originator license is now required to advise clients regarding refinancing, use of home equity loans for college tuition payments, or completing an overall debt restructuring secured by residential real estate. With few exceptions, all these activities require licensure. This is very unfortunate, especially during a time when more clients are requesting assistance with their finances, and that inability to provide advice is surely not the intended purpose of the Act.

While the SAFE Act does not apply to commercial real estate and exempts private financing associated with the sale of a primary residence or its sale to a family member, the latter exemptions are very narrow. Others caught in the Act's web include private mortgage lenders who finance residential properties for borrowers who do qualify under traditional mortgage lending guidelines. Private investors also often purchase deteriorated properties, renovate them, and offer financing as part of the selling package. Unless they are selling a primary residence, the Act requires these individuals to be licensed.

Others who often fall within the definition of mortgage loan originator include those who sell modular or mobile homes to consumers and offer financing packages; the security for which is the real estate on which these improvements are placed. These individuals and entities now require a mortgage originator license. Also included are developers who finance the construction of a new home for a prospective buyer and home improvement contractors who secure excess costs by taking a mortgage on the improved property to assure repayment.

In addition to those identified above, others who find themselves questioning whether they fall within the Act include financial planners, accountants, and those who assist borrowers with mortgage loan modifications. Worse still, many of these professionals are declining providing assistance to consumers because the federal Act's language is difficult to understand, federal agency interpretations of that language exceed the Act's plain meaning, and in New Hampshire, the state law has broadened the reach of the federal law. That result is ironic and regrettable, as the Act is intended to protect consumers. While noble in their goals, and some measure of regulation has been needed for a long time, both Congress and the New Hampshire Legislature must revisit the Safe Act to avoid chilling residential mortgage lending more than required and further delaying the slow recovery of the residential real estate market. Just as importantly, clarification of the Safe Act would relieve the uncertainty of professionals whose guidance is very much needed by consumers while the economy continues to recover.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions