IBA Compliance Connection

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A customer asked one of our commercial lenders about a business-purpose loan secured by a second lien on the customer’s personal property. The commercial lender provided informal verbal approval before referring the customer to a mortgage loan originator for the formal application and approval process. Would the commercial lender’s actions be considered taking a loan application for SAFE Act purposes?

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No, the SAFE Act regulations would not apply because the loan was a business-purpose loan. The SAFE Act requirements apply only to mortgage loan originators who take applications for “residential mortgage loans,” defined as “any loan primarily for personal, family, or household use that is secured by a mortgage . . . .” Even though the borrower’s residence will be used as collateral, the loan is being made for a business purpose. In addition, a de minimis exception would apply if the commercial lender acted as a mortgage loan originator for no more than five residential mortgage loans over the last year.

For resources related to our guidance, please see:

  • 12 CFR 1007.102 (definitions of “mortgage loan originator” and “residential mortgage loan”)
  • 12 CFR 1007.101(c)(2) (de minimis exception for an employee “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”)