2000 - Rules and Regulations
PART 365REAL ESTATE LENDING STANDARDS
Subpart AReal Estate Lending Standards
Subpart BRegistration of Residential Mortgage Loan Originators
Authority, purpose, and scope.
AUTHORITY: 12 U.S.C. 1828(o).
§ 365.1 Purpose and scope.
This subpart, issued pursuant to section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991, 12 U.S.C. 1828(o), prescribes standards for real estate lending to be used by insured state nonmember banks (including state-licensed insured branches of foreign banks) in adopting internal real estate lending policies.
§ 365.2 Real estate lending standards.
(a) Each insured state nonmember bank shall adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate.
(b)(1) Real estate lending policies adopted pursuant to this section must:
(i) Be consistent with safe and sound banking practices;
(ii) Be appropriate to the size of the institution and the nature and scope of its operations; and
(iii) Be reviewed and approved by the bank's board of directors at least annually.
(2) The lending policies must establish:
(i) Loan portfolio diversification standards;
(ii) Prudent underwriting standards, including loan-to-value limits, that are clear and measurable;
(iii) Loan administration procedures for the bank's real estate portfolio; and
(iv) Documentation, approval, and reporting requirements to monitor compliance with the bank's real estate lending policies.
(c) Each insured state nonmember bank must monitor conditions in the real estate market in its lending area to ensure that its real estate lending policies continue to be appropriate for current market conditions.
(d) The real estate lending policies adopted pursuant to this section should reflect consideration of the Interagency Guidelines for Real Estate Lending Policies established by the federal bank and thrift supervisory agencies.
[Codified to 12 C.F.R. § 365.2]
Appendix A to Subpart A of Part 365Interagency Guidelines for
The agencies' regulations require that each insured depository institution adopt and maintain a written policy that establishes appropriate limits and standards for all extensions of credit that are secured by liens on or interests in real estate or made for the purpose of financing the construction of a building or other improvements.1 These guidelines are intended to assist institutions in the formulation and maintenance of a real estate lending policy that is appropriate to the size of the institution and the nature and scope of its individual operations, as well as satisfies the requirements of the regulation.
Each institution's policies must be comprehensive, and consistent with safe and sound lending practices, and must ensure that the institution operates within limits and according to standards that are reviewed and approved at least annually by the board of directors. Real estate lending is an integral part of many institutions' business plans and, when undertaken in a prudent manner, will not be subject to examiner criticism.
Loan Portfolio Management Considerations
The lending policy should contain a general outline of the scope and distribution of the institution's credit facilities and the manner in which real estate loans are made, serviced, and collected. In particular, the institution's policies on real estate lending should:
Identify the geographic areas in which the institution will consider lending.
Establish a loan portfolio diversification policy and set limits for real estate loans by type and geographic market (e.g., limits on higher risk loans).
Identify appropriate terms and conditions by type of real estate loan.
Establish loan origination and approval procedures, both generally and by size and type of loan.
Establish prudent underwriting standards that are clear and measurable, including loan-to-value limits, that are consistent with these supervisory guidelines.
Establish review and approval procedures for exception loans, including loans with loan-to-value percentages in excess of supervisory limits.
Establish loan administration procedures, including documentation, disbursement, collateral inspection, collection, and loan review.
Establish real estate appraisal and evaluation programs.
Require that management monitor the loan portfolio and provide timely and adequate reports to the board of directors.
The institution should consider both internal and external factors in the formulation of its loan policies and strategic plan. Factors that should be considered include:
The size and financial condition of the institution.
The expertise and size of the lending staff.
The need to avoid undue concentrations of risk.
Compliance with all real estate related laws and regulations, including the Community Reinvestment Act, anti-discrimination laws, and for savings associations, the Qualified Thrift Lender test.
The institution should monitor conditions in the real estate markets in its lending area so that it can react quickly to changes in market conditions that are relevant to its lending decisions. Market supply and demand factors that should be considered include:
Demographic indicators, including population and employment trends.
Current and projected vacancy, construction, and absorption rates.
Current and projected lease terms, rental rates, and sales prices, including concessions.
Current and projected operating expenses for different types of projects.
Economic indicators, including trends and diversification of the lending area.
Prudently underwritten real estate loans should reflect all relevant credit factors, including:
The capacity of the borrower, or income from the underlying property, to adequately service the debt.
The value of the mortgaged property.
The overall creditworthiness of the borrower.
The level of equity invested in the property.
Any secondary sources of repayment.
Any additional collateral or credit enhancements (such as guarantees, mortgage insurance or takeout commitments).
The lending policies should reflect the level of risk that is acceptable to the board of directors and provide clear and measurable underwriting standards that enable the institution's lending staff to evaluate these credit factors. The underwriting standards should address:
The maximum loan amount by type of property.
Maximum loan maturities by type of property.
Pricing structure for different types of real estate loans.
Loan-to-value limits by type of property.
For development and construction projects, and completed commercial properties, the policy should also establish, commensurate with the size and type of the project or property:
Requirements for feasibility studies and sensitivity and risk analyses (e.g., sensitivity of income projections to changes in economic variables such as interest rates, vacancy rates, or operating expenses).
Minimum requirements for initial investment and maintenance of hard equity by the borrower (e.g., cash or unencumbered investment in the underlying property).
Minimum standards for net worth, cash flow, and debt service coverage of the borrower or underlying property.
Standards for the acceptability of and limits on non-amortizing loans.
Standards for the acceptability of and limits on the use of interest reserves.
Pre-leasing and pre-sale requirements for income-producing property.
Pre-sale and minimum unit release requirements for non-income-producing property loans.
Limits on partial recourse or nonrecourse loans and requirements for guarantor support.
Requirements for takeout commitments.
Minimum covenants for loan agreements.
The institution should also establish loan administration procedures for its real estate portfolio that address:
Type and frequency of financial statements, including requirements for verification of information provided by the borrower.
Type and frequency of collateral evaluations (appraisals and other estimates of value).
Loan closing and disbursement.
Collections and foreclosure, including:
Delinquency follow-up procedures.
Extensions and other forms of forbearance.
Acceptance of deeds in lieu of foreclosure.
Claims processing (e.g., seeking recovery on a defaulted loan covered by a government guaranty or insurance program).
Servicing and participation agreements.
Supervisory Loan-to-Value Limits
Institutions should establish their own internal loan-to-value limits for real estate loans. These internal limits should not exceed the following supervisory limits:
1Multifamily construction includes condominiums and cooperatives.
2A loan-to-value limit has not been established for permanent mortgage or home equity loans on owner-occupied, 1- to 4-family residential property. However, for any such loan with a loan-to-value ratio that equals or exceeds 90 percent at origination, an institution should require appropriate credit enhancement in the form of either mortgage insurance or readily marketable collateral.
The supervisory loan-to-value limits should be applied to the underlying property that collateralizes the loan. For loans that fund multiple phases of the same real estate project (e.g., a loan for both land development and construction of an office building), the appropriate loan-to-value limit is the limit applicable to the final phase of the project funded by the loan; however, loan disbursements should not exceed actual development or construction outlays. In situations where a loan is fully cross-collateralized by two or more properties or is secured by a collateral pool of two or more properties, the appropriate maximum loan amount under supervisory loan-to-value limits is the sum of the value of each property, less senior liens, multiplied by the appropriate loan-to-value limit for each property. To ensure that collateral margins remain within the supervisory limits, lenders should redetermine conformity whenever collateral substitutions are made to the collateral pool.
In establishing internal loan-to-value limits, each lender is expected to carefully consider the institution-specific and market factors listed under "Loan Portfolio Management Considerations," as well as any other relevant factors, such as the particular subcategory or type of loan. For any subcategory of loans that exhibits greater credit risk than the overall category, a lender should consider the establishment of an internal loan-to-value limit for that subcategory that is lower than the limit for the overall category.
The loan-to-value ratio is only one of several pertinent credit factors to be considered when underwriting a real estate loan. Other credit factors to be taken into account are highlighted in the "Underwriting Standards" section above. Because of these other factors, the establishment of these supervisory limits should not be interpreted to mean that loans at these levels will automatically be considered sound.
Loans in Excess of the Supervisory Loan-to-Value Limits
The agencies recognize that appropriate loan-to-value limits vary not only among categories of real estate loans but also among individual loans. Therefore, it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits, based on the support provided by other credit factors. Such loans should be identified in the institution's records, and their aggregate amount reported at least quarterly to the institution's board of directors. (See additional reporting requirements described under "Exceptions to the General Policy.")
The aggregate amount of all loans in excess of the supervisory loan-to-value limits should not exceed 100 percent of total capital.2 Moreover, within the aggregate limit, total loans for all commercial, agricultural, multifamily or other non-1-to-4 family residential properties should not exceed 30 percent of total capital. An institution will come under increased supervisory scrutiny as the total of such loans approaches these levels.
In determining the aggregate amount of such loans, institutions should: (a) Include all loans secured by the same property if any one of those loans exceeds the supervisory loan-to-value limits; and (b) include the recourse obligation of any such loan sold with recourse. Conversely, a loan should no longer be reported to the directors as part of aggregate totals when reduction in principal or senior liens, or additional contribution of collateral or equity (e.g., improvements to the real property securing the loan), bring the loan-to-value ratio into compliance with supervisory limits.
The agencies also recognize that there are a number of lending situations in which other factors significantly outweigh the need to apply the supervisory loan-to-value limits. These include:
Loans guaranteed or insured by the U.S. government or its agencies, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit.
Loans backed by the full faith and credit of a state government, provided that the amount of the assurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit.
Loans guaranteed or insured by a state, municipal or local government, or an agency thereof, provided that the amount of the guaranty or insurance is at least equal to the portion of the loan that exceeds the supervisory loan-to-value limit, and provided that the lender has determined that the guarantor or insurer has the financial capacity and willingness to perform under the terms of the guaranty or insurance agreement.
Loans that are to be sold promptly after origination, without recourse, to a financially responsible third party.
Loans that are renewed, refinanced, or restructured without the advancement of new funds or an increase in the line of credit (except for reasonable closing costs), or loans that are renewed, refinanced, or restructured in connection with a workout situation, either with or without the advancement of new funds, where consistent with safe and sound banking practices and part of a clearly defined and well-documented program to achieve orderly liquidation of the debt, reduce risk of loss, or maximize recovery on the loan.
Loans that facilitate the sale of real estate acquired by the lender in the ordinary course of collecting a debt previously contracted in good faith.
Loans for which a lien on or interest in real property is taken as additional collateral through an abundance of caution by the lender (e.g., the institution takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real property is low relative to the aggregate value of all other collateral).
Loans, such as working capital loans, where the lender does not rely principally on real estate as security and extension of credit is not used to acquire, develop, or construct permanent improvements on real property.
Exceptions to the General Lending Policy
Some provisions should be made for the consideration of loan requests from creditworthy borrowers whose credit needs do not fit within the institution's general lending policy. An institution may provide for prudently underwritten exceptions to its lending policies, including loan-to-value limits, on a loan-by-loan basis. However, any exceptions from the supervisory loan-to-value limits should conform to the aggregate limits on such loans discussed above.
The board of directors is responsible for establishing standards for the review and approval of exception loans. Each institution should establish an appropriate internal process for the review and approval of loans that do not conform to its own internal policy standards. The approval of any such loan should be supported by a written justification that clearly sets forth all of the relevant credit factors that support the underwriting decision. The justification and approval documents for such loans should be maintained as a part of the permanent loan file. Each institution should monitor compliance with its real estate lending policy and individually report exception loans of a significant size to its board of directors.
Supervisory Review of Real Estate Lending Policies and Practices
The real estate lending policies of institutions will be evaluated by examiners during the course of their examinations to determine if the policies are consistent with safe and sound lending practices, these guidelines, and the requirements of the regulation. In evaluating the adequacy of the institution's real estate lending policies and practices, examiners will take into consideration the following factors:
The nature and scope of the institution's real estate lending activities.
The size and financial condition of the institution.
The quality of the institution's management and internal controls.
The expertise and size of the lending and loan administration staff.
Lending policy exception reports will also be reviewed by examiners during the course of their examinations to determine whether the institutions' exceptions are adequately documented and appropriate in light of all of the relevant credit considerations. An excessive volume of exceptions to an institution's real estate lending policy may signal a weakening of its underwriting practices, or may suggest a need to revise the loan policy.
For the purposes of these Guidelines:
Construction loan means an extension of credit for the purpose of erecting or rehabilitating buildings or other structures, including any infrastructure necessary for development.
Extension of credit or loan means:
(1) The total amount of any loan, line of credit, or other legally binding lending commitment with respect to real property; and
(2) The total amount, based on the amount of consideration paid, of any loan, line of credit, or other legally binding lending commitment acquired by a lender by purchase, assignment, or otherwise.
Improved property loan means an extension of credit secured by one of the following types of real property:
(1) Farmland, ranchland or timberland committed to ongoing management and agricultural production;
(2) 1- to 4-family residential property that is not owner-occupied;
(3) Residential property containing five or more individual dwelling units;
(4) Completed commercial property; or
(5) Other income-producing property that has been completed and is available for occupancy and use, except income-producing owner-occupied 1- to 4-family residential property.
Land development loan means an extension of credit for the purpose of improving unimproved real property prior to the erection of structures. The improvement of unimproved real property may include the laying or placement of sewers, water pipes, utility cables, streets, and other infrastructure necessary for future development.
Loan origination means the time of inception of the obligation to extend credit (i.e., when the last event or prerequisite, controllable by the lender, occurs causing the lender to become legally bound to fund an extension of credit).
Loan-to-value or loan-to value ratio means the percentage or ratio that is derived at the time of loan origination by dividing an extension of credit by the total value of the property(ies) securing or being improved by the extension of credit plus the amount of any readily marketable collateral and other acceptable collateral that secures the extension of credit. The total amount of all senior liens on or interests in such property(ies) should be included in determining the loan-to-value ratio. When mortgage insurance or collateral is used in the calculation of the loan-to-value ratio, and such credit enhancement is later released or replaced, the loan-to-value ratio should be recalculated.
Other acceptable collateral means any collateral in which the lender has a perfected security interest, that has a quantifiable value, and is accepted by the lender in accordance with safe and sound lending practices. Other acceptable collateral should be appropriately discounted by the lender consistent with the lender's usual practices for making loans secured by such collateral. Other acceptable collateral includes, among other items, unconditional irrevocable standby letters of credit for the benefit of the lender.
Owner-occupied, when used in conjunction with the term 1- to 4-family residential property means that the owner of the underlying real property occupies at least one unit of the real property as a principal residence of the owner.
Readily marketable collateral means insured deposits, financial instruments, and bullion in which the lender has a perfected interest. Financial instruments and bullion must be salable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions, on an auction or similarly available daily bid and ask price market. Readily marketable collateral should be appropriately discounted by the lender consistent with the lender's usual practices for making loans secured by such collateral.
Value means an opinion or estimate, set forth in an appraisal or evaluation, whichever may be appropriate, of the market value of real property, prepared in accordance with the agency's appraisal regulations and guidance. For loans to purchase an existing property, the term "value" means the lesser of the actual acquisition cost or the estimate of value.
1- to 4-family residential property means property containing fewer than five individual dwelling units, including manufactured homes permanently affixed to the underlying property (when deemed to be real property under state law).
[Codified to 12 C.F.R. Appendix A to Part 365]
[Appendix A to Part 365 amended at 78 Fed. Reg. 55597, September 10, 2013, effective January 1, 2014. Mandatory compliance date January 1, 2014 for advanced approaches FDIC-supervised institutions, January 1, 2015 for all other FDIC-supervised institutions]
Subpart BRegistration of Residential Mortgage Loan Originators
§ 365.101 Authority, purpose, and scope.
(a) Authority. This subpart is issued pursuant to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, title V of the Housing and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 Stat. 2654, 12 U.S.C. 5101 et seq.).
(b) Purpose. This subpart implements the S.A.F.E. Act's Federal registration requirement for mortgage loan originators. The S.A.F.E. Act provides that the objectives of this registration include aggregating and improving the flow of information to and between regulators; providing increased accountability and tracking of mortgage loan originators; enhancing consumer protections; supporting anti-fraud measures; and providing consumers with easily accessible information at no charge regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, mortgage loan originators.
(c) Scope--(1) In general. This subpart applies to insured State nonmember banks (including State-licensed insured branches of foreign banks), their subsidiaries (except brokers, dealers, persons providing insurance, investment companies, and investment advisers) (collectively referred to in this subpart as insured State nonmember banks), and employees of such banks or subsidiaries who act as mortgage loan originators.
(2) De minimis exception. (i) This subpart and the requirements of 12 U.S.C. 5103(a)(1)(A) and (2) of the S.A.F.E. Act do not apply to any employee of an insured State nonmember bank who has never been registered or licensed through the Registry as a mortgage loan originator if during the past 12 months the employee acted as a mortgage loan originator for 5 or fewer residential mortgage loans.
(ii) Prior to engaging in mortgage loan origination activity that exceeds the exception limit in paragraph (c)(2)(i) of this section, an insured State nonmember bank employee must register with the Registry pursuant to this subpart.
§ 365.102 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Annual renewal period means November 1 through December 31 of each year.
(b)(1) Mortgage loan originator1 means an individual who:
(i) Takes a residential mortgage loan application; and
(ii) Offers or negotiates terms of a residential mortgage loan for compensation or gain.
(2) The term mortgage loan originator does not include:
(i) An individual who performs purely administrative or clerical tasks on behalf of an individual who is described in paragraph (b)(1) of this section;
(ii) An individual who only performs real estate brokerage activities (as defined in 12 U.S.C. 5102(3)(D)) and is licensed or registered as a real estate broker in accordance with applicable State law, unless the individual is compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker, or other mortgage loan originator, and meets the definition of mortgage loan originator in paragraph (b)(1) of this section; or
(iii) An individual or entity solely involved in extensions of credit related to timeshare plans, as that term is defined in 11 U.S.C. 101(53D).
(3) Administrative or clerical tasks means the receipt, collection, and distribution of information common for the processing or underwriting of a loan in the residential mortgage industry and communication with a consumer to obtain information necessary for the processing or underwriting of a residential mortgage loan.
(c) Nationwide Mortgage Licensing System and Registry or Registry means the system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the State licensing and registration of State-licensed mortgage loan originators and the registration of mortgage loan originators pursuant to 12 U.S.C. 5107.
(d) Registered mortgage loan originator or registrant means any individual who:
(1) Meets the definition of mortgage loan originator and is an employee of an insured State nonmember bank; and
(2) is registered pursuant to this subpart with, and maintains a unique identifier through, the Registry.
(e) Residential mortgage loan means any 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 (as defined in section 103(v) of the Truth in Lending Act, 15 U.S.C. 1602(v)) or residential real estate upon which is constructed or intended to be constructed a dwelling, and includes refinancings, reverse mortgages, home equity lines of credit and other first and additional lien loans that meet the qualifications listed in this definition.
(f) Unique identifier means a number or other identifier that:
(1) Permanently identifies a registered mortgage loan originator;
(2) Is assigned by protocols established by the Nationwide Mortgage Licensing System and Registry, the Federal banking agencies, and the Farm Credit Administration to facilitate:
(i) Electronic tracking of mortgage loan originators; and
(3) Must not be used for purposes other than those set forth under the S.A.F.E. Act.
§ 365.103 Registration of mortgage loan originators.
(a) Registration requirement--(1) Employee registration. Each employee of an insured State nonmember bank who acts as a mortgage loan originator must register with the Registry, obtain a unique identifier, and maintain this registration in accordance with the requirements of this subpart. Any such employee who is not in compliance with the registration and unique identifier requirements set forth in this subpart is in violation of the S.A.F.E Act and this subpart.
(2) Insured State nonmember bank requirement--(i) In general. An insured State nonmember bank that employs one or more individuals who act as a residential mortgage loan originator must require each such employee to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements of this subpart.
(ii) Prohibition. An insured State nonmember bank must not permit an employee of the bank who is subject to the registration requirements of this subpart to act as a mortgage loan originator for the bank unless such employee is registered with the Registry pursuant to this subpart.
(3) Implementation period for initial registration. An employee of an insured State nonmember bank who is a mortgage loan originator must complete an initial registration with the Registry pursuant to this subpart within 180 days from the date that the FDIC provides in a public notice that the Registry is accepting registrations.
(4) Employees previously registered or licensed through the Registry--(i) In general. If an employee of an insured State nonmember bank was registered or licensed through, and obtained a unique identifier from, the Registry and has maintained this registration or license before the employee becomes subject to this subpart at this bank, then the registration requirements of the S.A.F.E Act and this subpart are deemed to be met, provided that:
(A) The employment information in paragraphs (d)(1)(i)(C) and (d)(1)(ii) of this section is updated and the requirements of paragraph (d)(2) of this section are met;
(B) New fingerprints of the employee are submitted to the Registry for a background check, as required by paragraph (d)(1)(ix) of this section, unless the employee has fingerprints on file with the Registry that are less than 3 years old;
(C) The insured State nonmember bank information required in paragraphs (e)(1)(i) (to the extent the bank has not previously met these requirements) and (e)(2)(i) of this section is submitted to the Registry; and
(D) The registration is maintained pursuant to paragraphs (b) and (e)(1)(ii) of this section, as of the date that the employee becomes subject to this subpart.
(ii) Rule for certain acquisitions, mergers, or reorganizations. When registered or licensed mortgage loan originators become insured State nonmember bank employees as a result of an acquisition, merger, or reorganization, only the requirements of paragraphs (a)(4)(i)(A), (C), and (D) of this section must be met, and these requirements must be met within 60 days from the effective date of the acquisition, merger, or reorganization.
(b) Maintaining registration. (1) A mortgage loan originator who is registered with the Registry pursuant to paragraph (a) of this section must:
(i) Except as provided in paragraph (b)(3) of this section, renew the registration during the annual renewal period, confirming the responses set forth in paragraphs (d)(1)(i) through (viii) of this section remain accurate and complete, and updating this information, as appropriate; and
(ii) Update the registration within 30 days of any of the following events:
(A) A change in the name of the registrant;
(B) The registrant ceases to be an employee of the insured State nonmember bank; or
(C) The information required under paragraphs (d)(1)(iii) through (viii) of this section becomes inaccurate, incomplete, or out-of-date.
(2) A registered mortgage loan originator must maintain his or her registration, unless the individual is no longer engaged in the activity of a mortgage loan originator.
(3) The annual registration renewal requirement set forth in paragraph (b)(1) of this section does not apply to a registered mortgage loan originator who has completed his or her registration with the Registry pursuant to paragraph (a)(1) of this section less than 6 months prior to the end of the annual renewal period.
(c) Effective dates--(1) Registration. A registration pursuant to paragraph (a)(1) of this section is effective on the date the Registry transmits notification to the registrant that the registrant is registered.
(2) Renewals or updates. A renewal or update pursuant to paragraph (b) of this section is effective on the date the Registry transmits notification to the registrant that the registration has been renewed or updated.
(d) Required employee information--(1) In general. For purposes of the registration required by this section, an insured State nonmember bank must require each employee who is a mortgage loan originator to submit to the Registry, or must submit on behalf of the employee, the following categories of information to the extent this information is collected by the Registry:
(i) Identifying information, including the employee's:
(A) Name and any other names used;
(B) Home address and contact information;
(C) Principal business location address and business contact information;
(D) Social security number;
(E) Gender; and
(F) Date and place of birth;
(ii) Financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the bank;
(iii) Convictions of any criminal offense involving dishonesty, breach of trust, or money laundering against the employee or organizations controlled by the employee, or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offense(s);
(iv) Civil judicial actions against the employee in connection with financial services-related activities, dismissals with settlements, or judicial findings that the employee violated financial services-related statutes or regulations, except for actions dismissed without a settlement agreement;
(v) Actions or orders by a State or Federal regulatory agency or foreign financial regulatory authority that:
(A) Found the employee to have made a false statement or omission or been dishonest, unfair or unethical; to have been involved in a violation of a financial services-related regulation or statute; or to have been a cause of a financial services-related business having its authorization to do business denied, suspended, revoked, or restricted;
(B) Are entered against the employee in connection with a financial services-related activity;
(C) Denied, suspended, or revoked the employee's registration or license to engage in a financial services-related activity; disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee's activities; or
(D) Barred the employee from association with an entity or its officers regulated by the agency or authority or from engaging in a financial services-related business;
(vi) Final orders issued by a State or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct;
(vii) Revocation or suspension of the employee's authorization to act as an attorney, accountant, or State or Federal contractor;
(viii) Customer-initiated financial services-related arbitration or civil action against the employee that required action, including settlements, or which resulted in a judgment; and
(ix) Fingerprints of the employee, in digital form if practicable, and any appropriate identifying information for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive such information in connection with a State and national criminal history background check; however, fingerprints provided to the Registry that are less than 3 years old may be used to satisfy this requirement.
(2) Employee authorizations and attestation. An employee registering as a mortgage loan originator or renewing or updating his or her registration under this subpart, and not the employing insured State nonmember bank or other employees of the insured State nonmember bank, must:
(i) Authorize the Registry and the employing institution to obtain information related to sanctions or findings in any administrative, civil, or criminal action, to which the employee is a party, made by any governmental jurisdiction;
(ii) Attest to the correctness of all information required by paragraph (d) of this section, whether submitted by the employee or on behalf of the employee by the employing bank; and
(iii) Authorize the Registry to make available to the public information required by paragraphs (d)(1)(i)(A) and (C), and (d)(1)(ii) through (viii) of this section.
(3) Submission of information. An insured State nonmember bank may identify one or more employees of the bank who may submit the information required by paragraph (d)(1) of this section to the Registry on behalf of the bank's employees provided that this individual, and any employee delegated such authority, does not act as a mortgage loan originator, consistent with paragraph (e)(1)(i)(F) of this section. In addition, an insured State nonmember bank may submit to the Registry some or all of the information required by paragraphs (d)(1) and (e)(2) of this section for multiple employees in bulk through batch processing in a format to be specified by the Registry, to the extent such batch processing is made available by the Registry.
(e) Required bank information. An insured State nonmember bank must submit the following categories of information to the Registry:
(1) Bank record. (i) In connection with the registration of one or more mortgage loan originators:
(A) Name, main office address, and business contact information;
(B) Internal Revenue Service Employer Tax Identification Number (EIN);
(C) Research Statistics Supervision and Discount (RSSD) number, as issued by the Board of Governors of the Federal Reserve System;
(D) Identification of its primary Federal regulator;
(E) Name(s) and contact information of the individual(s) with authority to act as the bank's primary point of contact for the Registry;
(F) Name(s) and contact information of the individual(s) with authority to enter the information required by paragraphs (d)(1) and (e) of this section to the Registry and who may delegate this authority to other individuals. For the purpose of providing information required by paragraph (e) of this section, this individual and their delegates must not act as mortgage loan originators unless the bank has 10 or fewer full time or equivalent employees and is not a subsidiary; and
(G) If a subsidiary of an insured State nonmember bank, indication that it is a subsidiary and the RSSD number of the parent bank.
(ii) Attestation. The individual(s) identified in paragraphs (e)(1)(i)(E) and (F) of this section must comply with Registry protocols to verify their identity and must attest that they have the authority to enter data on behalf of the insured State nonmember bank, that the information provided to the Registry pursuant to this paragraph (e) is correct, and that the insured State nonmember bank will keep the information required by this paragraph (e) current and will file accurate supplementary information on a timely basis.
(iii) An insured State nonmember bank must update the information required by this paragraph (e) of this section within 30 days of the date that this information becomes inaccurate.
(iv) An insured State nonmember bank must renew the information required by paragraph (e) of this section on an annual basis.
(2) Employee information. In connection with the registration of each employee who acts as a mortgage loan originator:
§ 365.104 Policies and procedures.
An insured State nonmember bank that employs one or more mortgage loan originators must adopt and follow written policies and procedures designed to assure compliance with this subpart. These policies and procedures must be appropriate to the nature, size, complexity, and scope of the mortgage lending activities of the bank, and apply only to those employees acting within the scope of their employment at the bank. At a minimum, these policies and procedures must:
(a) Establish a process for identifying which employees of the bank are required to be registered mortgage loan originators;
(b) Require that all employees of the insured State nonmember bank who are mortgage loan originators be informed of the registration requirements of the S.A.F.E. Act and this subpart and be instructed on how to comply with such requirements and procedures;
(c) Establish procedures to comply with the unique identifier requirements in Sec. 365.105;
(d) Establish reasonable procedures for confirming the adequacy and accuracy of employee registrations, including updates and renewals, by comparisons with its own records;
(e) Establish reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures;
(f) Provide for independent testing for compliance with this subpart to be conducted at least annually by bank personnel or by an outside party;
(g) Provide for appropriate action in the case of any employee who fails to comply with the registration requirements of the S.A.F.E. Act, this subpart, or the bank's related policies and procedures, including prohibiting such employees from acting as mortgage loan originators or other appropriate disciplinary actions;
(h) Establish a process for reviewing employee criminal history background reports received pursuant to this subpart, taking appropriate action consistent with applicable Federal law, including section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829) and implementing regulations with respect to these reports, and maintaining records of these reports and actions taken with respect to applicable employees; and
(i) Establish procedures designed to ensure that any third party with which the bank has arrangements related to mortgage loan origination has policies and procedures to comply with the S.A.F.E. Act, including appropriate licensing and/or registration of individuals acting as mortgage loan originators.
§ 365.105 Use of unique identifier.
(a) The insured State nonmember bank shall make the unique identifier(s) of its registered mortgage loan originator(s) available to consumers in a manner and method practicable to the institution.
(b) A registered mortgage loan originator shall provide his or her unique identifier to a consumer;
(1) Upon request;
(2) Before acting as a mortgage loan originator; and
Appendix A to Subpart B of Part 365Examples of
This Appendix provides examples to aid in the understanding of activities that would cause an employee of an insured State nonmember bank to fall within or outside the definition of mortgage loan originator. The examples in this Appendix are not all inclusive. They illustrate only the issue described and do not illustrate any other issues that may arise under this subpart. For purposes of the examples below, the term "loan" refers to a residential mortgage loan.
(a) Taking a loan application. The following examples illustrate when an employee takes, or does not take, a loan application.
(1) Taking an application includes: receiving information provided in connection with a request for a loan to be used to determine whether the consumer qualifies for a loan, even if the employee:
(i) Has received the consumer's information indirectly in order to make an offer or negotiate a loan;
(ii) Is not responsible for verifying information;
(iii) Is inputting information into an online application or other automated system on behalf of the consumer; or
(iv) Is not engaged in approval of the loan, including determining whether the consumer qualifies for the loan.
(2) Taking an application does not include any of the following activities performed solely or in combination:
(i) Contacting a consumer to verify the information in the loan application by obtaining documentation, such as tax returns or payroll receipts;
(ii) Receiving a loan application through the mail and forwarding it, without review, to loan approval personnel;
(iii) Assisting a consumer who is filling out an application by clarifying what type of information is necessary for the application or otherwise explaining the qualifications or criteria necessary to obtain a loan product;
(iv) Describing the steps that a consumer would need to take to provide information to be used to determine whether the consumer qualifies for a loan or otherwise explaining the loan application process;
(v) In response to an inquiry regarding a prequalified offer that a consumer has received from a bank, collecting only basic identifying information about the consumer and forwarding the consumer to a mortgage loan originator; or
(vi) Receiving information in connection with a modification to the terms of an existing loan to a borrower as part of the bank's loss mitigation efforts when the borrower is reasonably likely to default.
(b) Offering or negotiating terms of a loan. The following examples are designed to illustrate when an employee offers or negotiates terms of a loan, and conversely, what does not constitute offering or negotiating terms of a loan.
(1) Offering or negotiating the terms of a loan includes:
(i) Presenting a loan offer to a consumer for acceptance, either verbally or in writing, including, but not limited to, providing a disclosure of the loan terms after application under the Truth in Lending Act, even if:
(A) Further verification of information is necessary;
(B) The offer is conditional;
(C) Other individuals must complete the loan process; or
(D) Only the rate approved by the bank's loan approval mechanism function for a specific loan product is communicated without authority to negotiate the rate.
(ii) Responding to a consumer's request for a lower rate or lower points on a pending loan application by presenting to the consumer a revised loan offer, either verbally or in writing, that includes a lower interest rate or lower points than the original offer.
(2) Offering or negotiating terms of a loan does not include solely or in combination:
(i) Providing general explanations or descriptions in response to consumer queries regarding qualification for a specific loan product, such as explaining loan terminology (i.e., debt-to-income ratio); lending policies (i.e., the loan-to-value ratio policy of the insured State nonmember bank); or product-related services;
(ii) In response to a consumer's request, informing a consumer of the loan rates that are publicly available, such as on the insured State nonmember bank's Web site, for specific types of loan products without communicating to the consumer whether qualifications are met for that loan product;
(iii) Collecting information about a consumer in order to provide the consumer with information on loan products for which the consumer generally may qualify, without presenting a specific loan offer to the consumer for acceptance, either verbally or in writing;
(iv) Arranging the loan closing or other aspects of the loan process, including communicating with a consumer about those arrangements, provided that communication with the consumer only verifies loan terms already offered or negotiated;
(v) Providing a consumer with information unrelated to loan terms, such as the best days of the month for scheduling loan closings at the bank;
(vi) Making an underwriting decision about whether the consumer qualifies for a loan;
(vii) Explaining or describing the steps or process that a consumer would need to take in order to obtain a loan offer, including qualifications or criteria that would need to be met without providing guidance specific to that consumer's circumstances; or
(viii) Communicating on behalf of a mortgage loan originator that a written offer, including disclosures provided pursuant to the Truth in Lending Act, has been sent to a consumer without providing any details of that offer.
(c) Offering or negotiating a loan for compensation or gain. The following examples illustrate when an employee does or does not offer or negotiate terms of a loan "for compensation or gain."
(1) Offering or negotiating terms of a loan for compensation or gain includes engaging in any of the activities in paragraph (b)(1) of this Appendix in the course of carrying out employment duties, even if the employee does not receive a referral fee or commission or other special compensation for the loan.
(2) Offering or negotiating terms of a loan for compensation or gain does not include engaging in a seller-financed transaction for the employee's personal property that does not involve the insured State nonmember bank.
1The agencies have adopted a uniform rule on real estate lending. See 12 CFR Part 365 (FDIC); 12 CFR Part 208, subpart C (FRB); 12 CFR Part 34, subpart D (OCC); and 12 CFR 563.100-101 (OTS). Go back to Text
2For insured state non-member banks, "total capital" refers to that term described in table I of appendix A to 12 CFR part 325 or 12 CFR 324.2, as applicable. For state savings associations, the term "total capital" is defined at 12 CFR part 390, subpart Z or 12 CFR 324.2, as applicable. Go back to Text
1Appendix A of this subpart provides examples of activities that would, and would not, cause an employee to fall within this definition of mortgage loan originator. Go back to Text