Why CUs May Be SAFE, But Not Certain CUSOs

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LAS VEGAS-While not on the radar of many credit unions, the SAFE Act, which goes into effect on Oct. 1, could have a major impact on mortgage lending CUSOs.

The Act mandates that all depositories and other companies register any and all employees involved in real estate, but the regulations governing non-depositories are more onerous.

"The CUSOs are not depository institutions so everybody in a CUSO will not have to just be registered but be licensed and have FBI background checks. They are the ones really in harm's way," explained ACUMA President/CEO Bob Dorsa. "The one thing nobody really knows is what the states are going to charge in fees to register these people."

Registered employees will be given an identifier number for the national registry that "will allow consumers access to information about the loan originator she or he is working with," Joy Audet, political communications coordinator with the Arizona Credit Union League, told Credit Union Journal.

Though the Act officially goes into effect in October, the registry is not expected to go live until 2011.

While the law was intended to homogenize state registries, the execution has been quite different. The licensing requirements and fees are different in every state, which will make it difficult for CUSOs to conduct business across the country, creating a "licensing quagmire," according to Dave Toepp, President/CEO of Southfield, Mich.-based Mortgage Center.

"[Before], if we had a situation where we had a member that was buying a second home in a state where we know we wouldn't do a lot of business, we could [make the loan]. There was a way to do business in all fifty states," he explained. "[Now], instead of making it simpler, it makes it more complicated because it added a layer of bureaucracy instead of combining them. I don't think that's what they really intended, I don't think that we were the characters they intended to freeze out."

Even doing business within a single state is tougher, according to Nick Serrano, Nick Serrano, sales manager at Reno-based Greater Nevada Mortgage Services.

"Since the inception of our CUSO we've worked under the exemption that was under the umbrella of the CU. However with this final rule that just came out, we're subject to licensing like a broker," he explained noting that the CUSO spent nearly $1,000 on training and licensing fees for each of its 13 mortgage consultants. Employees lost nearly an entire workweek to training as state regulations require 30 hours of pre-licensing training and had to take both state and federal exams. Each employee will also have to complete 10 hours of continuing education every year and will have to renew his license on an annual basis as well.

Hiring has also become more cumbersome as training is not constantly available in every location in the state, forcing CUSOs to re-tool their hiring processes. The mandated background checks add an additional wrinkle as they are currently taking up to 12 weeks to complete.

"They think they are scaring away the bad people, but they're also scaring away good people that we could use," Serrano said. "I understand why they wanted to tighten down, but I don't think there was enough follow though on all the impact this would have on efficiency and ensuring that this was an industry that could hire quality people."

The new regulations will likely not harm the bottom line greatly, but the inability of CUSOs to conduct business nationwide will be an inconvenience for the membership. With straightforward compliance directives, credit unions that deal directly in the real estate market may actually benefit from the SAFE Act as it will clear up their business plans, Dorsa contended.

"Credit unions are going to have to look hard and fast to think about who they really have in real estate. I see this as a good thing for credit unions to have to step up to the plate and identify those people who are doing the business," he said.

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