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Mortgage Loan Approved

By year end, credit unions must complete an independent audit of procedures and processes related to the registration of mortgage loan originators.

Credit Union Deadline Approaches for SAFE Act Audits

  • 10/17/2012

Credit Union Deadline Approaches for SAFE Act Compliance

Aftershocks of the mortgage crisis continue to rumble across America’s financial landscape as provisions of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) surface once again. The latest wave is a provision requiring credit unions to complete an independent audit of their registration procedures and processes for mortgage loan originators (MLOs) by December 31, 2012.

“Judging by the level of planning that I have seen, I would say that many credit unions are not aware of this audit requirement,” says Bruce Hull, manager in CliftonLarsonAllen’s financial institutions group. “Even credit unions that just implemented new procedures last summer need to conduct the audit by the end of the year.”

Enhanced consumer protection

Passed in July 2008 following the collapse of sub-prime mortgages, the SAFE Act requires states to register MLOs according to national standards, and create the Nationwide Mortgage Licensing System and Registry (NMLS). The SAFE Act is designed to enhance consumer protection and reduce fraud by setting minimum standards for the registration of MLOs.

Under the SAFE Act, residential MLOs employed by credit unions must register with the NMLS. To be a “registered loan originator,” a credit union employee who handles residential mortgage loan originations must:

  • Provide fingerprints for a criminal background check 
  • Provide personal history and experience, including authorization to obtain information about any administrative, civil, or criminal findings 
  • Be assigned a unique identifier that will facilitate electronic tracking and public access to his or her employment history and enforcement action record
The law is intended to exercise better regulatory oversight on the mortgage origination industry in the hopes of preventing the risk-taking that led to the mortgage crisis. It also allows consumers to check up on the individuals and institutions that are providing them with mortgage origination services.

Annual independent audit

In addition to registering MLOs, credit unions must conduct annual independent tests to ensure compliance with the regulation. The policies and procedures must be appropriate to the nature, size, complexity, and scope of the credit union’s mortgage lending activities.

A credit union’s written policies and procedures must establish:

  • A process for identifying which employees must be registered 
  • A method for MLO employees to be informed of the registration requirements and how to comply with them 
  • Procedures for complying with the unique identifier requirements 
  • Procedures for confirming the adequacy and accuracy of MLO employee registrations 
  • Systems for tracking and monitoring compliance with registration and renewal requirements 
  • A schedule for an annual independent audit to test for compliance with the SAFE Act 
  • Appropriate disciplinary standards for employees who fail to comply with registration requirements 
  • A process for reviewing employee criminal history background reports and taking appropriate action if needed 
  • Policies and procedures to ensure compliance with the SAFE Act for any third party with which the credit union has arrangements related to mortgage loan origination
Hull says the SAFE Act audit must be performed by an independent party, although it does not have to be a third-party vendor. Even so, he said a credit union’s in-house personnel may not have sufficient expertise to ensure that the audit complies with the regulation, or the audit may not be truly independent.

How we can help

CliftonLarsonAllen has performed due diligence on the SAFE Act, and has designed and implemented comprehensive audit procedures and programs to help make credit unions compliant with the audit requirement. Our professionals are ready to assist you in meeting the appropriate regulatory deadlines.


Bruce Hull, Manager, Financial Institutions or 520-352-1256