I do owner financing, does the SAFE Mortgage Licensing Act apply to me?  The SAFE Mortgage Licensing Act (“SAFE Act”),  the federal law which passed  July 30, 2008, applies to you if you are owner financing any property other than your current residence or not financing for a family member (defined as a spouse, child, sibling, parent, grandparent, or grandchild). 

Under the federal SAFE Act, you must be licensed to originate a loan application.  The Act requires RMLOs(Residential Mortgage Loan Originators) to complete pre-licensure education courses,  pass a written federal and state qualified test and take annual continuing education courses. If you are originating in Texas, you must apply for licensing by May 31, 2010.  Click here for more information.  Additionally, you need to register with the NMLS(National Mortgage Licensing System), take 20 hours of education, pass the federal and state test, complete a background check, do a finger print check and grant NMLS permission to access your credit report.  Furthermore, you must decide if you want to operate as a Financial Services Company, Mortgage Banker or Mortgage Broker.  You must pick one of those three entities because you cannot originate without selecting.  

Texas passed its own SAFE licensing Act in 2009.  The Texas Department of Savings & Mortgage Lending (SML) is the enforcement agency.   SML is authorize to deny, suspend, revoke, condition, or decline to renew a license; order restitution; issue cease and desist orders and/or impose an administrative penalty up to $25,000 for violation of the Act.  Therefore, I would not recommend originating a loan application without the required license.

The only way to avoid getting a license if you are owner financing properties and do not fall within the two exemptions mentioned above, is to refer all loans to a RMLO.  This of course means higher cost for you and/or the borrower.  One idea might be to work out a set fee agreement with a RMLO for all of your owner financed deals.  Consult with an attorney if you decide to pursue this route or need legal advice.

Update – on 6/18/2010, Texas Department of Savings & Mortgage Lending Commissioner, Douglas Foster extended the deadline for seller - financers to become licensed as Mortgage Company Residential Mortgage Loan Originators and be in compliance with the SAFE Act until August 31, 2010.