On February 7, the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, finalized regulations requiring non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs), as FinCEN requires of other types of financial institutions. FinCEN issued these regulations defining non-bank residential mortgage lenders and originators as loan or finance companies for the purpose of requiring them to establish anti-money laundering programs and report suspicious activities under the Bank Secrecy Act (BSA).
BSA authorizes the Secretary of the Treasury (the Secretary) to issue regulations requiring financial institutions, including any “loan or finance company” to keep records and file reports that the Secretary determines “have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.”
Under this new rule, FinCEN interprets the term “loan or finance company” under the BSA to include any non-bank residential mortgage lenders and originators (RMLOs – generally known as “mortgage companies” and “mortgage brokers” in the residential mortgage business sector).
Pursuant to this rule, FinCEN is requiring that RMLOs establish AML programs and comply with SAR requirements. These AML programs are intended to cover initial purchase money loans and traditional refinancing transactions facilitated by RMLOs. Furthermore, FinCEN expects that RMLOs participating in transactions involving funds or programs under the Troubled Asset Relief Program and similar federal programs, or any similar state housing authority or housing assistance program to follow AML programs and file any necessary SARs to the extent that any transactions conducted by the RMLO could reasonably be considered to be extending a residential mortgage loan or offering or negotiating the terms of a residential mortgage loan.
The final rule will be effective 60 days after publication in the Federal Register and is available on www.FinCEN.gov. The compliance date for this final rule is six months after publication in the Federal Register.
Pepper Point: This final rule represents a significant extension of the scope of the reach of BSA. Where AML compliance and the filing of SARs was originally intended as a vehicle by which banks and other financial institutions monitored activity related to the financing of international terrorism, now FinCEN is requiring the same kind of vigilance on the part of RMLOs with respect to discovering and reporting fraudulent or other suspicious activity relating to the lending and origination of residential mortgages.
Frank A. Mayer, III, Audrey D. Wisotsky and Andrew C. Maher