What you need to know about the SAFE Act (2024)

The SAFE Act was enacted in 2008 to reduce mortgage fraud and thereby protect consumers. The necessity of the act came after the housing bubble, caused by the subprime mortgage crisis, burst.

If you are looking for a career in the mortgage industry, particularly as a mortgage loan originator, knowledge of the SAFE Act is a requirement.

In this article, we will outline exactly what the SAFE Act is, its background and objectives, and what it requires from you. Here is everything you need to know about the SAFE Act.

What does the SAFE Act define?

The SAFE Act—which stands for the Secure and Fair Enforcement for Mortgage Licensing Act—was enacted in 2008. The SAFE Act requires anyone offering residential (MLO) services to be federally registered and state licensed. The licensing body is the Nationwide Mortgage Licensing System and Registry (NMLS).

The SAFE Act was designed to enhance consumer protection and reduce fraud. The act did so by establishing minimum standards for the licensing and registration of state-licensed mortgage loan originators. It did the same for the American Association of Residential Mortgage Regulators (AAMR) and the Conference of State Bank Supervisors (CSBS).

The SAFE Act is a piece of the Housing and Economic Recovery Act of 2008 (HERA). HERA was the financial reform legislation enacted as a response to the housing bubble caused by the subprime mortgage crisis.

The SAFE Act: the origin of the 2008 housing bubble

The 2008 housing bubble was the result of a few different factors. Low inventory, high demand for housing, and a significant increase in home prices each played a role.

The housing bubble actually began in the early 90s when the federal government lowered mortgage rates to increase homeownership rates.

The annual average mortgage rate dropped to 6.03% in 2008 from 10.13% in 1990. With so many Americans wanting to take advantage of that decrease, banks then loosened their lending requirements for anyone wanting to become a home buyer. Since they offered low introductory interest rates, adjustable-rate mortgages became especially popular. The downside, however, was this type of mortgage usually led to borrowers defaulting on their loans when the initial low-interest rate period was over.

Due to overbuilding and a drop in home prices, the demand for housing decreased as well. Americans were purchasing property for more than they were worth, and a record number of foreclosures resulted from mass mortgage defaults. The SAFE Act was designed to ensure this cycle would not be repeated.

What are the objectives of the SAFE Act?

In a nutshell, the SAFE Act aims to reduce fraud and protect consumers by requiring all mortgage lending professionals to complete specific education. This would help mortgage professionals to earn and maintain their professional license.

Here are the objectives of the SAFE Act:

• Provide consistent license applications and reporting requirements for state-licensed loan originators
• Maintain a licensing and supervisory database
• Support and improve the flow of information among regulators
• Offer a system for accountability and tracking of loan originators
• Make the licensing process more efficient, reducing regulatory burden
• Strengthen consumer protection measures, including supporting anti-fraud initiatives
• Make information on loan originators – including their employment history and any disciplinary or enforcement issues – accessible to the public at no added cost
• Require that mortgage loan originators always act in the consumers’ best interests
• Ensure that the subprime mortgage marketplace conducts transactions responsibly. The Act also calls for thorough training and exam requirements for subprime mortgage lending
• Handle consumer complaints on behalf of state and federal mortgage regulators

The SAFE Act: additional requirements

The objectives of the SAFE Act are to monitor and regulate mortgage loan originators. There are, however, additional requirements that mortgage loan originators have to meet. If you are aspiring to be an MLO, you must register with the NMLS and receive a unique NMLS identification.

You will also have to complete these tasks to get and maintain your license:

• Authorize the NMLS to get your credit report
• Complete required pre-licensing education
• Pass the NMLS SAFE MLO Test
• Submit fingerprints and get a criminal background check
• Take continuing education each year

To know more about getting an NMLS license, read our step-by-step guide.

If you have been convicted of theft or fraud, you cannot become a licensed mortgage loan officer. This is an added safety measure.

The SAFE Act was implemented to increase communication from state to state, to standardize licensing requirements, and to add more protections to borrowers. It also ensures that mortgage loan originators meet standards of ethical practices and training to increase accountability and reduce mortgage fraud.

How do you pass the SAFE Act?

The SAFE Act requires that state licensed mortgage loan originators pass a written test with a score of 75% or higher. You will also have to finish a minimum of 20 hours of pre-licensing education courses and eight hours of continuing education courses each year.

The SAFE Act: the written test

After finishing 20 hours of pre-licensing education, you can register for the SAFE exam. The exam is divided into two parts: the state-specific component and the national component. The national component consists of 125 test questions, with 115 scored and 10 not scored. You have 190 minutes (about 3 hours) to finish the exam.

The state-specific component consists of 45-55 operational questions, which are scored, and an additional 10 pre-test questions, which are not scored. The number of test questions scored differs between states. You have 90 minutes to finish the exam, and an added 30 minutes to complete an optional tutorial and survey.

A new component to the SAFE test is the Uniform State Test, which includes 25 questions. This brings the length of the National Test Component with Uniform State Content to 125 questions. Of those, 115 are scored and 10 are not scored. The UST replaces the state-specific test components only for the states that have adopted it.

The SAFE Act: mortgage licensing/continuing education requirements

To get your MLO pre-licensing education requirements, you must complete 20 hours of NMLS-approved education, which breaks down this way:

• Three hours of federal law and regulations
• Three hours of ethics, including instruction on fraud, fair lending issues, and consumer protection
• Two hours of training related to lending standards for non-traditional mortgage product market place
• 12 hours of undefined instruction on mortgage origination

To complete the annual continuing education portion, you will have to successfully complete the following:

• Three hours of federal law and regulation
• Two hours of ethics, including instruction on fraud, fair lending issues, and consumer protection
• Two hours of training related to lending standards for the non-traditional mortgage product market
• One hour of undefined instruction on mortgage origination

The SAFE Act: closing thoughts

Mortgage loan originators are essential to the mortgage industry, helping families and business owners along their way to buying the home that will make their dreams come true. Understanding the SAFE Act is critical to getting your license and starting yourself off on your new career. Remember: the more knowledge you have, the better off you and your clients will be.

If you're truly interested in becoming a mortgage loan originator, read through our ten-step guide. Then, take the time to look at the mortgage professionals we highlight in our Best of Mortgage section. Here you will find the top performing mortgage professionals, including mortgage loan officers, across the USA.