DEPARTMENT OF REGULATORY AGENCIES
DIVISION OF REAL ESTATE
MORTGAGE LOAN ORIGINATORS AND MORTGAGE COMPANIES
PERMANENT RULE
4CCR 725-3
NOTICE OF PROPOSED RULEMAKING HEARING
May 16, 2012
1-1-8 S.A.F.E. ACT COMPLIANCE RULE

Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado, and to all persons who have requested to be advised of the intention of the Board of Mortgage Loan Originators to promulgate rules.

Section 1. 	Authority
Section 2.	Scope and Purpose
Section 3. 	Applicability
Section 4. 	Definitions
Section 5. 	1-1-8 S.A.F.E Act Compliance Rule 
Section 6. 	Enforcement

Section 1. 	Authority

The statutory basis for this rule, entitled 1-1-8 S.A.F.E. Act Compliance Rule, is §§ 12-61-903(10) and 12-61-910.3, C.R.S.

This notice proposes to add rule 1-1-8.  This rule, unless otherwise determined by the Consumer Finance Protection Bureau (the “Bureau”), brings Colorado’s mortgage loan originator regulatory program into compliance with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “S.A.F.E. Act”).

Section 2.	Scope and Purpose
In 2008, Congress passed the Housing and Economic Recovery Act.  A small portion of this act includes the S.A.F.E. Act, which established minimum licensing standards for mortgage loan originators.  Furthermore, the S.A.F.E. Act mandated states to adopt such standards.  If states fail to do so, the Bureau is responsible for regulating mortgage loan originators pursuant to the provisions defined in the S.A.F.E. Act.  The Board of Mortgage Loan Originators believes there would be deleterious impacts on mortgage loan originators and the mortgage lending industry if Colorado fails to comply with the S.A.F.E. Act, which would result in direct federal oversight.  In 2011, the Department of Urban Housing and Urban Development adopted a regulation that defined terms and provided clarity on a number of issues.  As a result, the Board believes it is important for the industry to adopt such definitions in the name of conformity and to provide appropriate clarity to the industry regarding the incorporation of the S.A.F.E. Act into Colorado law.  Accordingly, the purpose of this rule is to ensure that Colorado is compliant with the S.A.F.E. Act, to ensure consistency across states, and to provide clarity to the mortgage lending industry. 
Section 3.	Applicability
This rule applies to all individuals required to be licensed pursuant to §§ 12-61-902 and 12-61-903, C.R.S.
Section 4.	Definitions
A.	“A residential mortgage loan application” means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the borrower or prospective borrower that is customary or necessary in a decision on whether to make such an offer.  

B.	“An employee” means an individual whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person, and whose compensation for federal income tax purposes is reported, or required to be reported, on a W-2 form issued by the controlling person. 

C.	“An independent contractor means an individual who performs his or her duties other than at the direction of and subject to the supervision and instruction of an individual who is licensed and registered in accordance with section 3400.103(a), or is not required to be licensed, in accordance with section 3400.103(e)(6), or (e)(7).

D.	“Taking a residential loan application” occurs if the individual receives a residential mortgage loan application for the purpose of facilitating a decision whether to extend an offer of residential mortgage loan terms to a borrower or prospective borrower, whether the application is received directly or indirectly from the borrower or prospective borrower.  

1.	“Offering or negotiating terms of a residential mortgage loan” means to present considerations to a borrower or prospective borrower particular residential mortgage loan terms, communicating directly or indirectly with a borrower, or prospective borrower for the purpose of reaching a mutual understanding about prospective residential mortgage loan terms, recommending, referring or steering a borrower or prospective borrower to a particular lender or set of residential mortgage loan terms, in accordance with a duty to or incentive from any person other than the borrower or prospective borrower, and receiving or expecting to receive payment of money or anything of value in connection with the activities of this section or as a result of any residential mortgage loan terms entered into as a result of such activities.   

Section 5.	1-1-8 S.A.F.E. Act Compliance Rule

1.	Mortgage loan originator right to challenge information in the Nationwide Mortgage Licensing System and Registry (the “NMLS”).
a.	A mortgage loan originator may challenge information entered into the NMLS by the Colorado Division of Real Estate.  Such challenge must be in writing and must set forth the specific information being challenged and include supporting evidence.  The grounds for a challenge shall be limited to the factual accuracy of the information pertaining to the mortgage loan originator’s own license record that has been entered into the NMLS by the Division.  A mortgage loan originator shall not submit a challenge in order to appeal the underlying reasons for the disciplinary action.

b.	The Director of the Division, or an authorized representative of the Director, shall review all information submitted by the mortgage loan originator and shall determine the merits of the challenge.  If the Director, or an authorized representative of the Director, determines that the information submitted to the NMLS is factually incorrect, the Director, or authorized representative of the Director shall take prompt steps to correct information submitted.

c.	A mortgage loan originator that is aggrieved by the Director’s, or the authorized representative of the Director, decision in response to the challenge submitted may appeal said decision to the Board of Mortgage Loan Originators within 30 days of the Director’s, or authorized representative of the Director, decision.  

2.	Determining bona fide non-profit entities.

a.	Pursuant to the S.A.F.E. Act and the Bureau’s regulation regarding the S.A.F.E. Act, the Board of Mortgage Loan Originators adopts the following seven (7) standards in order to determine if an entity is a bona fide non-profit entity and is therefore exempt from the Board’s jurisdiction.  To be exempt from the Board’s jurisdiction the entity must meet all seven (7) standards.

i.	Has the status of a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code of 1986;
ii.	Promotes affordable housing or provides homeownership education, or similar services;
iii.	Conducts its activities in a manner that serves public or charitable purposes, rather than commercial purposes;
iv.	Receives funding and revenue and charges fees in a manner that does not incentivize it or its employees to act other than in the best interests of its clients;
v.	Compensates its employees in a manner that does not incentivize employees to act other than in the best interest of its clients;
vi.	Provides or identifies for the borrower, residential mortgage loans with terms favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
vii.	Meets other standards determined by the state.

3.	Periodic examinations of entities determined to be bona fide non-profit organizations.

a.	The Bureau’s regulation clarifying the S.A.F.E. Act requires state agencies to periodically examine the books and activities of an organization determined  to be a bona fide nonprofit organization, according to the seven (7) standards outlined in section 5, subsection 2 of this rule, and to revoke such status if the organization does not meet those standards.  .  The Board of Mortgage Loan Originators has determined that examination of the books and activities of such bona fide nonprofit organizations upon the submission of a complaint regarding any such entities shall meet the requirement for such periodic examinations.

Section 6. 	Enforcement

1.	Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the following sanctions allowable under Colorado law, including, but not limited to:

a.	Cease and desist orders;
b.	Permanent injunctions;
c.	Revocation;
d.	Refusal to renew a license;
e.	Refusal to issue a license;
f.	Imposition of fines; and
g.	Restitution for any financial loss.

A hearing on the above subject matter will be held on Wednesday, May 16, 2012, at the Colorado Division of Real Estate, 1560 Broadway, Suite 1250A, Denver, Colorado 80202 beginning at 9:00 a.m. 
Any interested person may participate in the rule making through submission of written data, views and arguments to the Division of Real Estate.  Persons are requested to submit data, views and arguments to the Division of Real Estate in writing no less than ten (10) days prior to the hearing date and time set forth above. However, all data, views and arguments submitted prior to or at the rulemaking hearing or prior to the closure of the rulemaking record (if different from the date and time of hearing), shall be considered.
Please be advised that the rule being considered is subject to further changes and modifications after public comment and formal hearing.