Wednesday, June 29, 2011

HUD: Some non-profits exempt from SAFE Act requirements

HUD published its rules today on the SAFE Act. See here for the published rule.

The new information does not appear to conflict with the provisions in Colorado Senate Bill 206, passed by the General Assembly last session. See here for more on this from the Division of Housing.

Consult your legal counsel for a determination on whether or not your organization is exempted by SB 206 and/or the new HUD rule.

See page 11 of the Rule for this section on non-profits:

The SAFE Act does not cover employees of bona fide nonprofit organizations who act as loan originators with respect to residential mortgage loans outside a commercial context.
Individuals who act as loan originators with respect to certain kinds of loans as employees of "bona fide" nonprofit organizations, as defined by this final rule, are not subject to the licensing and registration requirements of the SAFE Act. Under the circumstances defined in this final rule, such individuals are similar to government employees who act as loan originators pursuant to government-funded and -regulated housing assistance programs, in that employees of a bona fide nonprofit organization who act as loan originators do so for public or charitable purposes,and not for the profit of another individual or entity. Employees of bona fide nonprofit organizations who act as loan originators do not act in a commercial context and consequently are not covered by the SAFE Act.

HUD recognizes that the mere fact of an organization’s 501(c)(3) status is insufficient to conclude that its employees who act as loan originators necessarily do so for the benefit of the borrower and for public or charitable purposes, rather than for the profit of the organization or another entity or individual. Instead, the organization’s activities, purpose, incentive structures,and loan products must be considered in order to determine that its employees who act as loan originators do so outside of a commercial context. Accordingly, this final rule provides that an organization is considered to be a "bona fide" nonprofit organization if the organization demonstrates to the satisfaction of the applicable regulator that the organization:

(1) Maintains tax-exempt status under section 501(c)(3) of the Internal Revenue Code of 1986;
(2) Promotes affordable housing or provides homeownership education, or similar services;
(3) Conducts its activities in a manner that serves public or charitable purposes;
(4) Receives funding and revenue and charges fees in a manner that does not incentivize the organization or its employees to act other than in the best interests of its clients;
(5) Compensates employees in a manner that does not incentivize employees to act other than in the best interests of its clients;
(6) Provides to or identifies for the borrower residential mortgage loans with terms that are favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
(7) Meets such other standards that the state determines appropriate. With respect to whether particular mortgage terms are favorable to borrowers, the applicable regulator should examine the interest rate that the home loan would carry; the charges that are imposed on the borrower for origination, application, closing and other costs; whether the mortgage includes any predatory characteristics; the borrower’s ability to repay the loan; and the term of the mortgage.

Finally, to ensure that all of the individual’s actions in the course of acting as a loan originator are subject to the control of the bona fide nonprofit organization and are consistent with the organization’s mission and practices, the individual must be an employee of the organization and must be acting within the scope of his or her employment on behalf of the organization. (Applicability of SAFE Act licensing requirements to volunteers is addressed below under the section of this preamble that addresses “for compensation or gain.”)