Alert July 21, 2009

FinCEN Issues ANPR Seeking Comment on Application of AML Compliance Requirements to Residential Mortgage Lenders and Originators

The Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (the “ANPR”) seeking public comment on whether and how to apply anti-money laundering (“AML”) compliance requirements and suspicious activity report (“SAR”) regulations to non-bank residential mortgage lenders and originators.  In 2003, FinCEN issued an earlier ANPR involving Bank Secrecy Act (“BSA”)/AML compliance requirements for non-bank mortgage lenders, but the 2003 ANPR did not result in the adoption of any final regulations.

In the ANPR, FinCEN stated that residential mortgage lenders and originators are “in a unique position to assess money laundering risks and possible mortgage fraud while directly assisting consumers with their financial needs and protecting them from the abuses of financial crime.”  In addition, FinCEN expressed a concern that, currently, a “regulatory gap” exists between BSA/AML coverage of bank residential mortgage lenders and non-bank residential mortgage lenders, and that the existence of that gap makes non-bank residential mortgage lenders particularly vulnerable to mortgage fraud and other financial crimes.

In the ANPR, FinCEN seeks public comment on:

  1. whether FinCEN should take an “incremental approach” to BSA/AML compliance regulations for loan and finance companies by having such regulations initially only apply to residential mortgage lenders and originators;
  2. how BSA/AML compliance regulations should define residential mortgage lending or origination.  The ANPR notes that mortgage companies will be required to comply with the nationwide licensing system and registry being developed pursuant to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “S.A.F.E. Act”).  FinCEN seeks comment on whether FinCEN should adopt, for BSA/AML compliance purposes, the definitions used by the S.A.F.E. Act for “loan originator” and for “residential mortgage loan”;
  3. the financial crime and money laundering risks posed by residential mortgage lenders and originators;
  4. how BSA/AML programs for residential mortgage lenders and originators should be structured;
  5. whether residential mortgage lenders and originators should be covered by BSA/AML compliance requirements other than the requirement to establish a BSA/AML compliance program, including SAR reporting (e.g., should they be required to file currency transaction reports?); and
  6. whether any subset of residential mortgage lenders or originators should be exempted from BSA/AML compliance requirements or SAR reporting requirements.
Comments on the ANPR are due to FinCEN by August 20, 2009.