CUNA Comment Letter
Notice of Proposed Rulemaking Part 761, Registration of Mortgage Loan Originators
July 9, 2009
Ms. Mary F. Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428
|RE:||CUNA Comments on Notice of Proposed Rulemaking Part 761, Registration of Mortgage Loan Originators|
Dear Ms. Rupp:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed rules issued by the National Credit Union Administration (NCUA) and the other Federal financial institution agencies (Agencies) that will implement the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act. The SAFE Act requires an employee of a financial institution and its subsidiaries that are regulated by an Agency who act as a residential loan originator to register with the Nationwide Mortgage Licensing System and Registry (Registry). The proposal implements these SAFE Act provisions and provides that financial institutions require its employees to comply with the SAFE Act provisions to the extent they are residential mortgage loan originators. The financial institution must also adopt and implement written policies and procedures that are intended to ensure compliance with these requirements. By way of background, CUNA is the largest credit union advocacy organization in this country, representing approximately 90% of our nations 8,000 state and federal credit unions, which serve 92 million members.
Summary of CUNAs Comments
- These rules should apply to credit union service organizations (CUSOs) to the extent they apply to subsidiaries of other types of financial institutions.
- The Agencies must ensure that all credit unions, including those that are privately-insured, have access to the Registry, even though privately-insured credit unions are not subject to these proposed rules. One means to ensure access would be to include privately-insured credit unions within these rules.
- More guidance is needed with regard to the definition of a mortgage loan originator, which should not include very high level officials who only periodically review certain loan applications that have already been approved.
- The threshold for determining whether financial institutions should be subject to these rules should be asset-based, such as using the threshold that applies under the Home Mortgage Disclosure Act (HMDA) rules.
- These rules should not apply to loan modifications, although we agree they should apply to institutions which refinance existing loans.
- The cost of providing digital fingerprints will be high, and CUNA does not believe it is necessary to exclude the use of an employees fingerprints that are more than three years old.
- CUNA does not believe it is necessary to require all employees to renew their registration during the time period from November 1st and December 31st each year. This will require employees to register twice within the first calendar year. The better approach is to allow employees to renew one year after their initial registration and also believe the Agencies should consider requiring renewals once every other year, as opposed to annual renewals.
- Credit union employees may work for more than one credit union, and the Registry must take this into account.
- Credit unions must have the ability to override information provided by the employee if it is inconsistent with the credit unions records.
- CUNA supports the provisions that require policies and procedures to ensure compliance with these rules, since similar policies and procedures would be necessary to ensure compliance with the SAFE Act requirements, regardless of whether they were specifically included within these rules.
- For automated loan processes, the loan originator should not be required to disclose his or her unique identifier until the loan application is received, and the rules should be clarified accordingly. CUNA also recognizes that any employee who verifies an application that is approved under an automated process should be registered under these rules.
- Under the proposal, the initial registrations do not have to be completed until 180 days after the Registry is capable of receiving them. CUNA believes this timeframe will be adequate, as long as the Registry is capable of receiving multiple registrations on one data file, as opposed to requiring financial institutions to provide registration information for each employee separately.
CUSOs Should be Included in the SAFE Act Rules
CUSOs that are owned by one or more credit unions should be included within the scope of the SAFE Act rules to the extent that their employees engage in mortgage lending activities. The result will be that CUSO employees who originate mortgage loans will need to register under these rules, as opposed to being registered and licensed under State law, which is required under the SAFE Act for mortgage loan originators who are not employees of a financial institution or its subsidiaries. Otherwise, CUSOs will be subjected to significant, additional burdens, which will place them at a competitive disadvantage, as compared to subsidiaries of other financial institutions. This is completely unnecessary since these subsidiaries and CUSOs provide similar services under a similar structure.
As proposed, the rules will apply to employees of a subsidiary of a financial institution that is regulated by a Federal banking agency. We urge NCUA to consider CUSOs that are owned by one or more credit unions as subsidiaries for purposes of these rules, based on their structure and their functions, which are similar to those of bank subsidiaries.
We believe NCUA has the authority to include at least certain CUSOs within the scope of the rules by treating them as subsidiaries. We note that the term subsidiary is not defined in the SAFE Act or in the proposed rules. Although similar, we also note that there is no standard definition within the banking statutes. For example, under the Federal Deposit Insurance Corporation Act, subsidiary is defined as any company that is owned or controlled directly or indirectly by another company, which includes any service corporation owned in whole or in part by an insured financial institution or any subsidiary of such a service corporation. The definition in the Bank Holding Company Act is similar, but more specific, in that it means: 1) any company 25 percent or more of whose voting shares is directly or indirectly owned or controlled by such bank holding company, or is held by it with power to vote; (2) any company the election of a majority of whose directors is controlled in any manner by such bank holding company; or (3) any company with respect to the management or policies of which such bank holding company has the power, directly or indirectly, to exercise a controlling influence.
As there is no standard definition of subsidiary, we believe CUSOs that are owned by one or more credit unions should also be considered subsidiaries under the SAFE Act rules. Although the definitions noted above differ in certain respects, they each reference ownership and, therefore, CUSOs that are owned by one or more credit unions should be considered subsidiaries.
We recognize that under the SAFE Act, the subsidiary must also be regulated by a Federal banking agency, which includes NCUA, in order for it to be subject to these registration rules, as opposed to the registration and licensing requirements under State law. We believe Part 712 of NCUAs rules provides the regulatory nexus to satisfy the SAFE Act requirements.
Part 712 regulates federal credit unions investments in CUSOs and addresses NCUAs authority to examine the CUSO's financial records and its potential impact on a credit union's investment in that CUSO. Also, by way of written agreements between the CUSO and a federal credit union, CUSOs are required to:
- account for all its transaction in accordance with generally accepted accounting principles (GAAP);
- prepare quarterly financial statements and obtain an annual opinion audit by a licensed certified public accountant in accordance with generally accepted auditing standards (GAAS); and
- provide NCUA with complete access to the books and records of the CUSO and the ability to review the internal controls of the CUSO.
We believe the provisions above provide sufficient indicia that CUSOs owned by federal credit unions meet the SAFE Acts standard regarding federal agency regulation. Since they are also the functional equivalent of a subsidiary, we believe this provides ample justification for allowing these CUSOs to be covered under the SAFE Act rules to the extent their employees engage in mortgage lending activities, as opposed to being subject to the registration and licensing requirements under State law.
As noted above, CUSOs are often owned by more than one credit union. In these situations, we believe all CUSOs that are owned by more than one credit union should also be subject to these SAFE Act rules, as long as one of the credit union investors is a federal credit union, which would subject the CUSO to the Part 712 rules.
In addition, many employees of CUSOs are also employees of the credit union that has an ownership interest in the CUSO. In these situations, the employees who are mortgage loan originators should only be required to register under these rules, based on their role as an employee of the credit union. The fact that they also are employed by the CUSO should not require the additional licensing requirements under State law, which would subject them to significant requirements that are not imposed on the other employees of the credit union.
For the above reasons, we believe it is critical that these proposed SAFE Act rules include CUSOs to the same extent they cover subsidiaries of other types of financial institutions.
Privately-Insured Credit Unions Must Have Access to the Registry
Section 1503 of the SAFE Act includes any credit union within the definition of a depository institution. The SAFE Act is, therefore, very clear in that all credit unions are subject to the provisions that apply to financial institutions, which means their employees will be required to register, as opposed to being registered and licensed under State law. This includes privately-insured credit unions, in addition to federally-insured credit unions.
However, the proposed rules that NCUA and the other Agencies have issued will only apply to federally-insured credit unions. If not changed, this means employees of privately-insured credit unions will need to register, as required under the SAFE Act, but will not be subject to these proposed rules.
We are not necessarily advocating that privately-insured credit unions be subject to these rules. However, it is vital that all privately-insured credit unions have the same access to the Registry as all other financial institutions that are subject to the proposed rules and that this access not be affected or dependent on whether they are subject to these rules.
Again, the SAFE Act applies to privately-insured credit unions, as well as federally-insured credit unions. Not only are the Agencies responsible for rulemaking under the SAFE Act, but they are also responsible for ensuring that employees of all financial institutions have equal access to the Registry, even if the rules issued by the Agencies do not include all types of financial institutions, such as privately-insured credit unions. This is very clear in Section 1507 of the SAFE Act which states that [t]he Federal banking agencies shall jointly, through the Federal Financial Institutions Examination Council, and together with the Farm Credit Administration, develop and maintain a system for registering employees of a depository institution. As noted above, all credit unions, including those that are privately-insured, are included within the definition of depository institution.
We recognize that one means to ensure that employees of all credit unions have access to the Registry would be to extend the coverage of these rules to privately-insured credit unions. We could support this if it were the best means to ensure that employees of privately-insured credit unions have equal access to the Registry. There is precedent in which certain NCUA rules apply to privately-insured credit unions, with the primary example being those rules that implement the Truth in Savings Act (TISA). NCUA was given rulemaking authority under TISA and its rules apply to all credit unions since TISA itself applies to all financial institutions.
We believe the SAFE Act and NCUAs rulemaking authority is a very similar situation since the SAFE Act also applies to privately-insured credit unions. We also believe NCUAs added burden in providing for the registration of privately-insured credit union employees under these proposed rules would be minimal and would be outweighed by the need to fulfill the express legislative intent of the SAFE Act as it applies to all financial institutions.
Another possible approach would be for the Agencies to make a clear and specific statement in the SAFE Act rules that privately-insured credit unions are subject to the same provisions that apply to financial institutions, which means their employees will be required to register, as opposed to being registered and licensed under State law. We believe this is necessary to ensure that States with privately-insured credit unions are aware of the status of these specific types of credit unions.
Definition of Mortgage Loan Originator
We appreciate that the proposed rules and the appendix provide numerous examples of who is and who is not a mortgage loan originator for purposes of complying with these rules. However, we believe more guidance is necessary with regard to those at the highest level at a financial institution.
For example, the President and CEO of certain credit unions may periodically review a sample of loan applications, especially at smaller credit unions. In these situations, the review will not affect the status or approval of the loan unless there is a unique issue or discrepancy. We urge the Agencies to clearly state that these officials should not be considered mortgage loan originators and should not be required to comply with these rules since this is not their primary function and they generally do not affect the decision of making a specific loan or the terms of that loan.
The proposed rules will not apply to an employee if during the previous 12 months: 1) the employee acted as a loan originator for five or fewer residential mortgage loans; and 2) the financial institution employs originators who meet this threshold who in aggregate originate 25 or fewer residential loans.
We believe the threshold should be based on asset size, instead of the number of loans made. Other regulations use an asset size threshold, such as the rules that implement HMDA. One suggestion is for the SAFE Act rules to incorporate the $39 million HMDA threshold in which only institutions that exceed this asset size are required to comply with the HMDA data collection requirements.
We also note that the HMDA threshold increases over time based on changes in inflation, as required under the Economic Growth and Regulatory Paperwork Reduction Act of 1996. We believe this adjustment should apply to our suggested approach with regard to an asset-based threshold for the SAFE Act requirements, both to maintain consistency with HMDA and to reflect future changes in inflation.
SAFE Act Rules Should Not Apply to Loan Modifications
The Agencies have requested comments as to whether the SAFE Act rules should apply to loan modifications and to mortgage originators who refinance existing loans. We do not believe these rules should apply to loan modifications, which we view as workouts, as opposed to new loans. Loan modifications and workouts involve different considerations than those that apply to new loans, and employees who focus on modifications are often different than those who make other types of loans.
However, we would agree that these rules should apply to mortgage originators that refinance existing loans. These are, in essence, new loans that are similar to other loans and the employees who provide loan refinancing are often the same as those who provide other types of loans.
The proposed rules will require employees to submit fingerprints to the Registry, preferably in digital form. Fingerprints that the financial institution currently has on file may be used if they are less than three years old.
Credit unions generally have not fingerprinted their employees so they will now have to do so for their mortgage loan originators, notwithstanding the exception for fingerprints that are less than three years old. We are also concerned with the focus on digital fingerprints as that may require credit unions to purchase expensive equipment.
We also do not believe it is necessary to exclude the use of an employees fingerprints that are more than three years old. Since fingerprints do not change, the issue is how long fingerprints can be preserved, which we believe is much longer than three years, especially if they are in digital form.
We are concerned with the provisions in the proposal that will require all mortgage loan originators to renew their registration between November 1st and December 31st of each calendar year, regardless of the date of the initial registration. We believe this is unnecessary, especially in the first year in which all mortgage loan originators will be required to register for the first time and then register again during the following November/December timeframe. This will mean that all registrants will essentially be required to register twice within the same year.
A less burdensome approach would be to require mortgage loan originators to renew their registrations one year after the initial registration. This will not only avoid the need to register twice within the same year, but we believe such a staggered approach will also be less burdensome for the Registry as it would avoid a massive number of renewals each November and December. We also urge the Agencies to consider only requiring renewals once every other year. This will reduce burdens for financial institutions and their employees without sacrificing the accuracy of the information, much of which will likely not change on an annual basis.
General Issues with Regard to the Registry
Although this may be a unique issue for credit unions, we wanted to make the Agencies aware that there are instances in which credit unions share loan originators and that these originators work for more than one credit union. We would encourage to Agencies to ensure that the Registry can accommodate these situations.
Another issue is with regard to the provisions that will allow either the financial institution or the loan originator to provide the information to the Registry. Although we do not oppose these provisions, we urge the Agencies to modify them so they clearly allow the financial institution to override any information provided by the employee if it conflicts with the information in the financial institutions records. We believe this will help ensure that the information in the Registry is accurate, as well as consistent with the information maintained by the employers.
Policies and Procedures
Under the proposal, financial institutions must implement written policies and procedures that are intended to assure compliance with these rules, which must be appropriate to the nature, size, complexity and scope of the institutions mortgage activities. The Agencies have requested comments on the burdens associated with adopting these policies and procedures.
We support this proposed requirement since credit unions would need to implement policies and procedures to ensure that their mortgage loan originators are registered, regardless of whether they were required under these rules. It appears that adopting the concepts in the proposal should be sufficient, without the need for significant, additional resources.
Automated Loan Processing
The Agencies have requested comments with regard to automated processes in which mortgage loans are offered without a loan originator. With regard to such processes, such as an Internet loan application, we do not believe it should be necessary for the loan originator to provide his or her unique identifier, which is a number or other means of identification that is associated with the loan originator within the Registry system, until after the application is received.
The proposed policies and procedures indicate that in all instances the identifier should be provided by the employee before acting as the loan originator. For these automated processes, we request the Agencies clarify that the identifier does not have to be provided until after the application is submitted by the borrower. This clarification will recognize that the loan originator will not be assigned until after the application is received.
There are also automated systems in which approval is provided by the system but is then verified by an employee. We recognize that in these situations, the employee verifying the information should be registered, even if he or she is not approving the loan. However, we would appreciate any other general guidance as to who would be considered a mortgage loan originator with regard to these automated processes.
Under the proposal, the initial registrations do not have to be completed until 180 days after the Registry is capable of receiving them, which we understand is not expected until mid-year 2010. We believe this timeframe will be adequate, as long as the Registry is capable of receiving multiple registrations on one data file, as opposed to requiring financial institutions to provide registration information for each employee separately.
The Agencies have also requested comments as to whether a staggered process should be used for receiving initial registrations. Although we would support a staggered approach as we believe it would relieve overall burdens on the registration system, we believe the issue here is the extent that the Registry will be able to accept the mass volume of these initial registrations. Although credit unions may be able to provide the required information within the proposed six-month time period, it is unclear whether the Registry will be able to accept them all at once or whether a staggered approach is preferable so that the registrations are processed in a timely manner.
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Thank you for the opportunity to comment on the SAFE Act proposal. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.
Jeffrey P. Bloch
Senior Assistant General Counsel