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New York State Banking Department Proposes Regulations for Mortgage Loan Servicers
On May 13, the New York State Banking Department (NYSBD) issued proposed regulations that would impose registration, financial responsibility, and business background requirements on mortgage loan servicers doing business in the state. Under the proposed rules, any entity engaging in the business of servicing mortgage loan must register with the NYSBD Superintendent, unless the entity is specifically exempted under the regulations. Currently, the proposed regulations exempt state and federally regulated financial institutions, New York licensed mortgage bankers and mortgage brokers, and their employees. The proposed regulations seek to impose financial responsibility requirements that would be applicable to registrants and exempt entities alike. Under these requirements, all servicers must have (i) an adjusted net worth of at least 1% of the outstanding principal balance of loans serviced, but never less than $250,000, (ii) a ratio of adjusted net worth to total assets of at least 5%, (iii) a corporate surety bond, and (iv) an Errors & Omissions bond that varies based on the dollar amount of the loans serviced. Apart from registration and financial responsibility requirements, non-exempt entities would also need to satisfy the proposed rules’ business background and character and fitness requirements, including proof of five year experience in the mortgage servicing business. The NYSBD is currently accepting public comment on the rules, but expects to exercise its emergency authority to adopt final regulations on or before July 1, 2009.
West Virginia Enacts SAFE Mortgage Act
On May 8, West Virginia Governor Joe Manchin approved a bill to create the West Virginia SAFE Mortgage Licensing Act (S.B. 532). The Act (i) requires licensing and registration of mortgage loan originators, (ii) authorizes the Division of Banking to participate in the Nationwide Mortgage Licensing System and Registry, (iii) requires prelicensure education of mortgage loan originators, (iv) implements a prelicensure testing requirement for mortgage loan originators; (v) explains standards for mortgage loan originator license renewal, (vi) clarifies annual continuing education requirements for mortgage loan originators, and (vii) outlines prohibited acts and practices for mortgage loan originators. The effective date of the West Virginia SAFE Mortgage Licensing Act for all individuals licensed as mortgage loan originators before July 1, 2009, is January 1, 2011. For all other individuals, the effective date is January 31, 2010. In addition to creating the West Virginia SAFE Mortgage Licensing Act, S.B. 532 makes amendments to the West Virginia Residential Mortgage Lender, Broker and Servicer Act, and the West Virginia Consumer Credit and Protection Act, relating to the West Virginia Division of Banking’s participation in the Nationwide Mortgage Licensing System and Registry.
Oregon Enacts Legislation Enhancing Protections Available under the Servicemembers Civil Relief Act
On May 8, Oregon Governor Ted Kulongoski signed into law HB 2303, an Act that supplements the rights given to members of the armed forces under the federal Servicemembers Civil Relief Act (SCRA). Among other things, the SCRA limits the interest that can be charged on debts incurred by servicemembers before they enter into active duty and restricts the rights of landlords and creditors in eviction and foreclosure proceedings against servicemembers. Oregon’s legislation enhances these protections by allowing a servicemember to enforce the SCRA without regard to arbitration or choice of law provisions. Additionally, if a servicemember makes a written demand on the opposing party for relief under the SCRA within 10 days of commencing an action or filing a counterclaim, then the court may award the servicemember attorneys fees and the greater of $1,000 or actual damages. Finally, if an opposing party willfully violates SCRA, the court can award additional damages equaling the lesser of $5,000 or treble damages. The Act was passed under emergency authority and is effective immediately.
Washington Legislature Enacts “Prevent or Reduce Owner-Occupied Foreclosure Program”
On May 7, 2009, Washington Governor Christine Gregoire signed into law S.B. 6033, which creates the “Prevent or Reduce Owner-occupied Foreclosure Program” (PROOF). The Act requires the Washington Department of Financial Institutions (Department) and the Washington State Housing Finance Commission (Commission) to enter into an interagency agreement to implement and administer the program. The Commission, in consultation with the Department, will assist households and individuals facing foreclosure in obtaining work-out or modification agreements with their creditors. The Commission must also provide an annual report in which the Commission will create specific metrics and criteria by which the PROOF program can be measured. Section 4 of the Act, which would have required the State Housing Finance Commission to establish a program oversight committee, was vetoed by the Governor.
Georgia, New Jersey Implement SAFE Act
On May 4, New Jersey Governor Jon Corzine signed AB 3816, the “New Jersey Residential Mortgage Lending Act,” and, on April 29, Georgia Governor Sonny Perdue signed HB 312. The bills reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Georgia HB 312 becomes effective July 1, 2009; most provisions of New Jersey AB 3816 become effective immediately, with remaining sections taking effect July 31, 2010.
Indiana Governor Signs Law Relating to Residential Mortgage Lending Practices
On April 30, Indiana Governor Mitch Daniels signed HB 1176, a bill that, among other things, (i) disallows a creditor from contracting for or charging a borrower a prepayment fee or penalty for an adjustable interest rate residential mortgage loan closing after June 30, 2009, (ii) restricts and sets forth penalties regarding “corrupting” or “improperly influencing” real estate appraisers, (iii) requires a new notice to be provided to a prospective borrower no later than three business days after the creditor’s receipt of the borrower’s mortgage loan application, (iv) imposes record requirements for foreclosure consultants, and (v) outlines violations in connection with credit service organizations and mortgage rescue protection fraud. The bill becomes effective July 1, 2009.
Massachusetts Division of Banks Releases Industry Letter on Mortgage Loan Modification
On April 27, the Massachusetts Division of Banks (Division) published an industry letter addressing several frequently asked questions regarding mortgage loan modifications in Massachusetts. The Division determined that a broker or any third party cannot charge a modification fee on any loan where the borrower is exercising his right to cure a default, because such fees are prohibited under § 11 of Chapter 206 of the Acts of 2007 and regulation 940 CMR 25.00. In contrast, mortgage lenders can charge a fee to modify a mortgage pursuant to the authority granted them by § 63A of Chapter 183, but only if said lender is also the mortgage holder. In addition to questions concerning fees, the Division addressed whether an unlicensed individual can negotiate or assist in the process of obtaining a loan modification from a mortgage holder on behalf of a borrower. Considering the mortgage broker and/or mortgage loan originator licensing requirements of Chapters 255E and 255F of the General Laws, the Division determined that any person negotiating or assisting in the process of obtaining a loan modification must obtain the applicable broker or originator license if such assistance resulted in a refinancing. Further, the Division warned that such activity may also trigger state law regulatory requirements applicable to financial advisors, credit counseling services and credit services organizations.
Nevada Regulator Revises Mortgage Banking Regulations to Permit Electronic Reproduction and Storage of Mortgage Records
On April 23, the Nevada Commissioner of Mortgage Lending (Commissioner) published final regulations in the Nevada Register of Administrative Regulations that, among other things, permits the Commissioner, for good cause, to allow a mortgage banker to electronically reproduce and store required records pertaining to completed mortgage transactions. The mortgage banker must retain a hard copy that is accessible by the Commissioner for one year after the closing date of the loan.
California Regulator Makes Available Foreclosure Prevention Act Draft Regulations, Report Form for Comment
On April 21, the California Department of Corporations (the Department) made available draft regulations and a reporting form in connection with the California Foreclosure Prevention Act (the Act). The Act grants an additional 90 days (in addition to the period already provided) before a mortgage servicer can file a “Notice of Sale” to allow borrowers to work out a loan modification. Further, the Act imposes a reporting requirement on servicers regarding loan modification data. The Act exempts mortgage loan servicers that have implemented a “comprehensive loan modification program” from providing the additional 90 day extension. An entity seeking this exemption is temporarily exempted upon submitting an application (which has not yet been made available) to the Department. On February 20, 2009, Governor Arnold Schwarzenegger signed the Act (SB 7). Comments on the draft regulations and reporting form are due by May 9, 2009. The anticipated effective date of the Act is June 15, 2009
California Federal Court Holds that CAN-SPAM Act Does not Preempt State Law Claims
The U.S. District Court for the Northern District of California recently ruled that the federal Controlling Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) does not preempt California’s Deceptive Commercial Email statute (the Code). Asis Internet Servs. v. Consumerbargaingiveaways, LLC, No. C 08-04856, 2009 WL 1035538 (N.D. Cal. Apr. 17, 2009). In this case, the plaintiffs sued email advertising companies for violating § 17529.5 of the Code, alleging that the companies sent emails containing (i) third-party domain names without the permission of the third party; (ii) falsified, misrepresented, or forged header information; and (iii) subject lines that would likely mislead a recipient about a material fact regarding the message’s contents. The defendants moved to dismiss the case on grounds that that § 7707(b)(1) of the CAN-SPAM Act preempted the plaintiffs’ claims. Section 7707(b)(1) of the CAN-SPAM Act preempts any state statute, regulation, or rule that expressly regulates the use of electronic mail to send commercial messages, unless the statute, regulation, or rule prohibits “falsity or deception.” The defendants interpreted the phrase “falsity or deception” to mean that the plaintiffs needed to plead fraud in order to make a valid claim under the California Code. The court disagreed, finding that the defendants’ interpretation conflicted with the statute’s plain meaning. According to the court, the phrase must have a broader meaning than simply fraud, because if Congress had meant for it to mean only fraud, it simply would have used the word fraud. The court concluded that the phrase encompasses general false advertising wrongs in addition to fraudulent claims. As a result, the court held that the plaintiffs sufficiently pled false advertising and the court denied the defendants’ motion to dismiss the § 17529.5 claims.