Texas Department of Housing & Community Affairs - Building Homes and Strengthening Communities

Announcement: More on the SAFE Licensing Act

SAFE Act-SML Ruling Letter (PDF)

Our recent announcement regarding SAFE Act licensing has triggered a number of questions and concerns.  First of all, TDHCA is not seeking to terminate contracts or create needless burdens.  We are, however, concerned that there seems to be a widespread lack of awareness of the Texas SAFE Act and the ways that it can potentially impact many of the people who are helping to administer various mortgage loan programs.  We want anyone who is required to be licensed under the Texas SAFE Act to start the licensure process promptly.  

Look at the definition of a residential mortgage loan originator carefully, and look at what it is that you do.  If you are acting as a residential mortgage loan originator, you MAY still be entitled to an exemption, but that is something on which TDHCA cannot advise.  You will need to confirm the availability of an exemption through the National Mortgage Licensing website: 

http://mortgage.nationwidelicensingsystem.org  

If you still have questions, the Savings and Mortgage Lending Department is a good resource, and you can reach them by email at: 

licensing@sml.state.tx.us   

The specific issue that appears to have triggered the most concern is the structure where a program that involves Residential Mortgage Loans (see definition from the Texas SAFE Act, below) is awarded to a subrecipient that engages a consultant to administer the program.  The consultant is compensated for their activity, and that activity includes taking information from potential program beneficiaries and assisting them in the process.  This appears to meet the definition of acting as a residential mortgage loan originator, and, unless an exemption applies, requires the person doing that activity to be licensed. 

PLEASE read the attached letter from the Savings and Mortgage Lending Department carefully.  The scope of this law appears to go well beyond the traditional mortgage broker model of taking a “1003” application. 

Note that there is a specific exemption for a nonprofit organization providing self-help housing that originates zero interest residential mortgage loans to borrowers who have provided part of the labor to construct the dwelling securing the loan.  We are aware that Savings and Mortgage Lending has issued at least one letter confirming such an exemption.   If you believe that your particular facts and circumstances qualify for an exemption, you will need to determine that through the Savings and Mortgage Lending Department.   We cannot and will not issue or grant exemption determinations.   NOTE:  The exemptions under the Mortgage Broker Licensing Act (the “MBLA”) and the exemptions under the Texas SAFE Act are NOT identical.  Under the MBLA there is an exemption for “a political subdivision of this state involved in affordable homeownership programs.”   This exemption does not appear in the SAFE Act. 

“Renting an RMLO”

We have heard that some consultants involved in administering HOME subrecipient agreements are exploring the possibility of bringing in a licensed RMLO to take general responsibility for their transactions but not necessarily to conduct all of the interaction with the applicants.  The objective, presumably, would be to avoid the need for the consultants to get licensed as RMLOs.

In a State Bar of Texas webcast, senior representatives of the Savings and Mortgage Lending Department (“SML”) made clear their view that the use of a licensed RMLO in the process is not sufficient to ensure that no one else involved in the transaction needs to be an RMLO.  They referred to this idea of bringing in a licensed RMLO without having that RMLO handle all aspects of the transaction requiring licensure as “renting an RMLO.”   In SML’s view, the licensed RMLO must be the person performing all of the acts and providing the services that require RMLO status. If another person is providing some of those services, it is SML’s view that the other person needs to be licensed as an RMLO as well.  

So, before you lock down on a strategy along these lines (“renting an RMLO”), check with SML or your counsel to be sure that you are, in fact, accomplishing what you set out to accomplish. 

Here are two important links: 

This one is to the website of the Texas Savings and Mortgage Lending Department, the Texas agency charged with administering the Texas SAFE Mortgage Act:

http://www.sml.state.tx.us

You can also link to the National Mortgage Licensing website via the SML website.  

Here is the link to the Texas SAFE Act itself: 

http://www.statutes.legis.state.tx.us/Docs/FI/htm/FI.180.htm#180.001

Here are some key definitions from the Texas SAFE Act: 

"Residential mortgage loan": means a loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real estate.

"Residential mortgage loan originator":

  1. (A) means an individual who for compensation or gain or in the expectation of compensation or gain:
    1. (i)  takes a residential mortgage loan application; or
    2. (ii) offers or negotiates the terms of a residential mortgage loan; and
  2. (B) does not include:
    1. (i)  an individual who performs solely administrative or clerical tasks on behalf of an individual licensed as a residential mortgage loan originator or exempt from licensure under Section 180.003, except as otherwise provided by Section 180.051;
    2. (ii)  an individual who performs only real estate brokerage activities and is licensed or registered by the state as a real estate broker or salesperson, unless the individual is compensated by:
      1. (a)  a lender, mortgage broker, or other residential mortgage loan originator; or
      2. (b)  an agent of a lender, mortgage broker, or other residential mortgage loan originator;
    3. (iii)  an individual licensed under Chapter 1201, Occupations Code, unless the individual is directly compensated for arranging financing for activities regulated under that chapter by:
      1. (a)  a lender, mortgage broker, or other residential mortgage loan originator; or
      2. (b)  an agent of a lender, mortgage broker, or other residential mortgage loan originator;
    4. (iv)  an individual who receives the same benefits from a financed transaction as the individual would receive if the transaction were a cash transaction; or
    5. (v)  an individual who is involved solely in providing extensions of credit relating to timeshare plans, as defined by 11 U.S.C. Section 101(53D).

Here is the general licensing requirement: 

Sec. 180.051.  STATE LICENSE REQUIRED; RENEWAL. 

  1. (a)  Unless exempted by Section 180.003, an individual may not engage in business as a residential mortgage loan originator with respect to a dwelling located in this state unless the individual:
    1. (1)  is licensed to engage in that business under Chapter 156, 157, 342, 347, 348, or 351; and
    2. (2)  complies with the requirements of this chapter.
  2. (b)  Unless exempted by Section 180.003, a loan processor or underwriter who is an independent contractor may not engage in the activities of a loan processor or underwriter unless the independent contractor loan processor or underwriter obtains and maintains the appropriate residential mortgage loan originator license and complies with the requirements of this chapter.
  3. (c)  The individual must renew the license annually to be considered licensed for purposes of this section.
  4. (d)  Notwithstanding any provision of law listed in Subsection (a)(1), the regulatory official shall provide for annual renewal of licenses for individuals seeking to engage in residential mortgage loan origination activities.