Mortgage Licensing Definitions
Below you will find definitions of certain terms used in state mortgage licensing and FHA licensing.
Felony Convictions – To be eligible for a license, an individual must not have been convicted of any felony within the preceding seven years or convicted of certain types of felonies at any time prior to application, such as convictions of fraud and dishonesty. Since the provision is triggered by a conviction, rather than by an extant record of a conviction, HUD interprets the provision to make an individual ineligible for a loan originator license even if the conviction is later expunged. Pardoned convictions, in contrast, are generally treated as legal nullities for all purposes under state law and would not render an individual ineligible. The law under which an individual is convicted, rather than the state where the individual applies for a license, determines whether a particular crime is classified as a felony.
FHA – The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
HUD – The Department of Housing and Urban Development, generally known as “HUD.” HUD’s mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD embraces high standards of ethics, management and accountability and forge new partnerships–particularly with faith-based and community organizations–that leverage resources and improve HUD’s ability to be effective on the community level.
Loan Originator – 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.” In the SAFE Mortgage Licensing ACT, an individual `assists a consumer in obtaining or applying to obtain a residential mortgage loan’ by, among other things, advising on loan terms (including rates, fees, other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan. Activities that are excluded are those that pertain to administrative or clerical tasks; real estate brokerage activities by individuals licensed or registered by a state to undertake real estate brokerage activities unless a person is compensated by a loan originator, loan processing or underwriting undertaken under the direction and supervision of a state-licensed loan originator or registered loan originator; and those individuals solely involved in extensions of credit relating to timeshare plans.
Mortgage Broker – An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are then lent in the name of the mortgage lender. A mortgage broker collects an origination fee and/or a yield spread premium from the lender as compensation for its services.
Mortgage Lender/Banker – Uses its own funds to originate, underwrite, and make mortgages. May take applications directly from borrowers, which is considered retail origination, or may take applications from mortgage brokers, which is considered wholesale origination.
Mortgage Servicer – Accepts payments for principal, interest, taxes and insurance on a mortgage loan. Some states require licensing for mortgage servicers.
Residential Mortgage Loan – A loan secured by a consensual security interest on a “dwelling” and cross-references the definition of dwelling in section 103(v) of the Truth in Lending Act (TILA) (15 U.S.C. 1601 note). Regulation Z, which implements TILA, defines dwelling to mean “a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”
Surety Bond – Contract by which one party agrees to make good the default or debt of another. Actually, three parties are involved: the principal, who has primary responsibility to perform the obligation (after which the bond becomes void); the surety, the individual with the secondary responsibility of performing the obligation if the principal fails to perform. (After the surety performs, recourse is against the principal for reimbursement of expenses incurred by the surety in the performance of the obligation, known as surety’s right of exoneration); and the obligee, to whom the right of performance (obligation) is owed.
The Housing and Economic Recovery Act of 2008 – Signed into law on July 30, 2008 (Public Law 110-289) (HERA), constitutes a major new housing law that is designed to assist with the recovery and the revitalization of America’s residential housing market – from modernization of the Federal Housing Administration, to foreclosure prevention, to enhancing consumer protections. The SAFE Act is a key component of HERA.
The S.A.F.E. Mortgage Licensing Act – Requires all States to adopt a system of licensing for all residential loan originators. The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry.