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Mississippi Revises State Mortgage Licensing Law
On April 6, Mississippi Governor Phil Bryant signed into law SB 2504, which reenacts and amends the Mississippi S.A.F.E. Mortgage Act. Among other things, the legislation (i) revises licensure and continuing education requirements for mortgage loan originators; (ii) modifies books, accounts, and records storage and filing requirements; (iii) ensures timely and accurate mortgage licensee reporting in the Nationwide Mortgage Licensing System and Registry (NMLS); and (iv) specifically provides that “[f]ailure to file accurate, timely, and complete reports on the [NMLS] may result in a violation of this chapter, resulting in a civil penalty.”
CSBS Announcement: Arizona Department of Financial Institutions Becomes Latest State Agency to Adopt National SAFE MLO Test
On July 29, the Conference of State Bank Supervisors (CSBS) announced that the Arizona Department of Financial Institutions began using the National SAFE Mortgage Loan Originator (MLO) Test, making it the 47th state banking agency to adopt the SAFE MLO Test containing Uniform State Content. Combining both the national and state testing requirements of the SAFE Act and the CSBS/AARMR model state law, the test with Uniform State Content was first made available to state banking agencies on April 1, 2013 to help streamline the application process for MLOs seeking to obtain licensure in more than one state. Since April 1, 2013, according to the CSBS, over 58,000 MLOs have taken the National SAFE MLO Test with Uniform State Content. Notably, applicants who take the test on or after October 3, 2015, will be expected to understand requirements of the TRID Rule as promulgated by the CFPB.
Oregon Amends Mortgage Licensing Rules
On September 16, the Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities adopted a rule amending several sections of the Oregon Administrative Rules related to the licensing of mortgage loan originators. The amendment makes minor changes to sections related to (i) definitions; (ii) the license application process; (iii) criminal records check requirements; (iv) significant event and financial reporting requirements; (v) bonding calculations; and (vi) retention of advertising samples. In addition, the rulemaking added a new section that designates the filing of a report containing false or incorrect information as a practice subject to denial, suspension, or revocation of licensure. The amendment also clarifies the manner in which deposits into or withdrawals from a trust account of borrower funds must be documented. Finally, the amendment adjusts the amount of pre-licensing and continuing education required to obtain and maintain licensure. The amendments become effective on January 1, 2015.
Rhode Island Adds Loan Servicer Licensing, Other Requirements
On July 8, Rhode Island Governor Lincoln Chafee signed HB 7997, which extends the state’s licensing requirements to include companies servicing a loan, directly or indirectly, as a third-party loan servicer. Under the existing state statute, the term “loan” means any advance of money or credit, including mortgage loans, educational loans, and other consumer loans. The new law adds new definitions for servicing and third-party loan servicer, establishes for such servicers a $1,100 annual licensing fee, and requires licensed servicers to: (i) maintain at least $100,000 capital; (ii) obtain a bond; (iii) maintain segregated borrower accounts; and (iv) maintain certain records. The law also establishes prohibited acts and practices for third-party servicers, including, among others: (i) knowingly misapplying loan payments to the outstanding balance of a loan or to escrow accounts; (ii) requiring unnecessary forced placement of insurance; (iii) failing to provide loan payoff information as required; (iv) collecting private mortgage insurance beyond the date required; (v) failing to timely respond to consumer complaints; and (vi) charging excessive or unreasonable fees to provide loan payoff information. The law exempts depository institutions and licensed lenders and other licensed entities. The new rules and requirements take effect July 1, 2015.
New York Proposes First Virtual Currency Licensing Framework
On July 17, the New York DFS announced a proposal to establish a licensing regime for virtual currency businesses, the first by any state. In January, the DFS held a two-day hearing on developing a regulatory framework for virtual currency firms, and subsequently sought applications for virtual currency exchanges pending completion of the regulations. The proposed regulations define virtual currency as “any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology.” This would include digital units of exchange that: (i) have a centralized repository or administrator; (ii) are decentralized and have no centralized repository or administrator; or (iii) may be created or obtained by computing or manufacturing effort. It would exclude digital units that are used solely within online gaming platforms or that are used exclusively as part of a customer affinity or rewards program.
Under the proposal, the state would require companies engaged in the following activities to obtain a so-called BitLicense: (i) receiving or transmitting virtual currency on behalf of consumers; (ii) securing, storing, or maintaining custody or control of such virtual currency on the behalf of customers; (iii) performing retail conversion services; (iv) buying and selling virtual currency as a customer business (as distinct from personal use); or (v) controlling, administering, or issuing a virtual currency. To obtain a license, a business would be required to, among other things: (i) hold virtual currency of the same type and amount as any virtual currency owed or obligated to a third party; (ii) provide transaction receipts with certain required information; (iii) comply with AML rules; (iv) maintain a cyber security program; and (v) establish business continuity and disaster recovery policies. Licensed entities would be subject to DFS supervision, with examinations taking place no less than once every two calendar years. The proposal will be published in the New York State Register’s July 23, 2014 edition, which begins a 45-day public comment period.
Pennsylvania Provides For Licensing, Regulation Of Debt Settlement Providers
On July 9, Pennsylvania Governor Tom Corbett signed SB 622, which directs the Department of Banking and Securities to establish licensing requirements, including fees, for providers of debt settlement services. Such a license will be a “covered license” under state law, and, as such, will require employees of entities seeking a license to submit to criminal history checks. In addition, licensed debt settlement firms would be required to provide written disclosures regarding, among other things: (i) the amount of time necessary to achieve the represented results; (ii) the extent to which debt settlement services may include settlement offers to creditors and debt collectors, including the time by which bona fide offers will be made; (iii) the cost to the individual for providing debt settlement services and the method by which any fee will be calculated; (iv) that the use of a debt settlement service will likely adversely impact the credit worthiness of the individual; and (v) the total estimated program costs if the individual completes the program. The bill does not apply to (i) judicial officers; (ii) depository licensees; (iii) title insurers, escrow companies, or other persons that provide bill paying services and offer debt settlement incidental to those services; or (iv) attorneys who act as intermediaries. The bill defines certain prohibited activities, and grants the regulator authority to supervise licensed firms, enforce the requirements, and impose civil penalties of up to $10,000 for each violation. Most provisions of the bill take effect November 1, 2014.
Michigan Supreme Court Holds Forwarding Companies Are Collection Agencies Subject To Licensing Rules
On June 13, the Michigan Supreme Court held that forwarding companies are collection agencies under state law and are subject to state licensing requirements. Badeen v. Par, Inc., No. 147150, 2014 WL 2686068 (Mich. Jun. 13, 2014). In this case, a state-licensed debt collection agency and an individual state-licensed collection agency manager filed a putative class action against a group of forwarding companies—companies that contract with creditors to allocate a collection to a collection agent in the appropriate location but do not contact the debtors themselves—alleging the companies are actually collection agencies and were operating in the state without first obtaining a collection agency license. The court explained that under state law, a collection agency is “a person directly or indirectly engaged in soliciting a claim for collection or collecting or attempting to collect a claim owed or due another or repossessing or attempting to repossess a thing of value owed or due another arising out of an expressed or implied agreement.” The court determined that under the plain meaning of the statute, the phrase “soliciting a claim for collection” means asking a creditor for any unpaid debts that the collection agency may pursue by allocating them to local collection agents, which the forwarding companies did by contracting with creditors. The court rejected the forwarding companies’ argument that they do not satisfy the definition because soliciting a claim for collection refers only to asking the debtor to pay his or her debt, which the forwarding companies did not do. The court determined it need not reach the issue of whether the forwarding companies indirectly collect or attempt to collect debts when they contract with a local collection agency. The court remanded for trial court consideration a separate issue of whether the forwarding companies satisfy a statutory exception to the licensing requirements applicable to collection agencies whose collection activities in the state are limited to interstate communications.
Louisiana Requires Mortgage Loan Servicers To Obtain License
On May 29, Louisiana Governor Bobby Jindal signed HB 807, which requires companies that service mortgage loans in the state to obtain a state license. The bill amends the state’s Residential Mortgage Lender Law to require a company to obtain a state license by June 30, 2015 if it collects or remits payment for another, or if it holds the right to collect or remit payments for another, of principal, interest, tax, insurance, or other payment under a mortgage loan. The bill subjects mortgage loan servicers to existing licensure requirements and establishes the process to be used to determine the amount of the surety bond mortgage loan servicers must obtain. Finally, the bill requires any individual who services mortgage loans (which, according to the Louisiana Office of Financial Institutions, includes individuals who modify mortgage loans) to register as a mortgage loan originator through the NMLS. The Louisiana Office of Financial Institutions is expected to issue guidance on the new law later this year.
New York Announces Numerous Initiatives To Update Its Mortgage Licensing Processes, Rules, And Resources
On June 5, the New York Department of Financial Services (DFS) announced several changes to streamline the state’s mortgage licensing requirements and processes, and new mortgage-related resources. The DFS also is proposing additional changes to the state’s mortgage licensing regulations.
Uniform State Test
The DFS announced that it will adopt the Uniform State Test (UST) for mortgage loan originators (MLOs) effective September 2, 2014. The UST will replace the current state-specific test for New York. Further, any MLO that passed the UST even prior to the effective date will satisfy the testing requirements for MLOs in New York starting on September 2, 2014. Adoption of the UST will not change the current educational requirements for MLOs in New York.
Transitional Licensing
Effective immediately, DFS is offering transitional licensing for MLOs currently licensed in other states and seeking licensure in New York. Specifically, individuals can now apply for a New York license prior to being employed with a New York licensed entity. This eliminates the previous delay in obtaining licensure until after one had been employed by such an entity, thus resulting in an inability to actually perform work in New York pending approval. Now, applicants can apply and have their application fully processed prior to being hired by a New York licensed entity so there is no delay in the ability to start working once hired and affiliated with the new employer.
Revised Processes and New Resources
The DFS also announced several changes to its practices and procedures, and new resources for industry participants.
- Streamlined applications review process. The DFS has reorganized its internal workflows to eliminate excess layers of review of license applications and approvals. DFS also will now send a single letter to applicants identifying all items missing from an application package, which will reduce back-and-forth with the DFS and hopefully expedite application processing.
- Dedicated Mailboxes to Answer Questions. The DFS has created encrypted inboxes dedicated to particular topics. This change is intended to remove the burden from licensees and applicants seeking the right person to answer a question. Instead, DFS will staff the inboxes and will find the appropriate person to answer a given question. The DFS has committed to provide responses within one business day in most cases. For mortgage bankers or mortgage banker applicants, the address is mortgage.banker@dfs.ny.gov; for mortgage brokers or applicants, the address is mortgage.broker@dfs.ny.gov; for mortgage loan servicers or applicants, the address is mls@dfs.ny.gov; and for mortgage loan originators or applicants, the address is mlo@dfs.ny.gov.
- Electronic Submissions. TheDFS will now accept all application materials at the four email addresses listed above and will acknowledge receipt of documents. Where the DFS needs originals of certain documents, it will accept online submission first, and the original can follow by mail. DFS is also accepting materials by secure file transfer and will soon be accepting materials through a secure online portal.
- Elimination of “Placeholder Applications.” Effective immediately, an applicant for a mortgage license may no longer file a placeholder application. Instead, when an application is filed, the DFS will review it and write a letter in response identifying any missing information. The applicant will then have 30 days to address these missing items or the application will be deemed withdrawn and the fee forfeited.
- Dedicated Webpage. A new section of the DFS website, www.dfs.ny.gov/mortgage, will serve as a comprehensive resource center. It includes (i) information regarding new proposed regulations; (ii) step-by-step directions on how to apply for a license to become a mortgage banker, mortgage broker, mortgage loan servicer, or mortgage loan originator; (iii) information about how and when to apply for a change of control of a regulated entity, and how to apply for a new branch location, and more; and (iv) links to updated forms.
- New Guidebooks. The DFS announced that it soon will issue comprehensive guidebooks that help companies and individuals apply for and maintain a license. Thee guidebooks will be made available on the mortgage webpage.
Additional Proposed Changes
The DFS also proposed to amend in several ways the mortgage licensing provisions of the New York Code of Rules and Regulations (NYCRR) as well as several General Supervisory Policies and Procedures.
The proposed changes would clarify the requirement that mortgage license applicants must have direct experience or several enumerated qualifications to obtain licensure. Specifically, the proposed regulations would require an applicant to demonstrate that “they are, or have in their employ, a qualifier who is a licensed mortgage loan originator” with the requisite qualifications and experience.
The proposal also would provide for situations in which an applicant may have fewer than three executive officers. Specifically, with respect to mortgage banker applications, the proposed regulations would require personal information from either three executive officers, or if there are not three such officers, two officers and the compliance officer. With respect to mortgage broker applicants that do not have three such officers, personal and financial information would be required of all executive officers.
The DFS also proposes to require applicants to submit, among other materials, business plans that outline marketing strategy, products, target markets and operating structure, as well as a compliance program summary and a fair lending plan. The regulations also would provide new treatment of incomplete applications, which under the proposal would be considered withdrawn after 30 days of failure to provide outstanding documents and information.
The proposed regulations grant the superintendent authority to require applicants to attend, via phone or in person, a meeting for conferral of licenses and to review regulatory requirements associated with holding such licenses.
Finally, the DFS proposes to repeal Part 413 of the NYCRR and Supervisory Procedure mb 106, which provide authority and establish the application process for mortgage brokers to act as FHA mortgage loan correspondents.
Comments in response to the proposed regulations are due 45 days from publication in the State Register.
Connecticut Bill Revises Licensing Laws, Numerous Other Financial Services Laws
On June 3, Connecticut Governor Dannel Malloy signed HB 5353, which makes numerous unrelated changes to Connecticut’s laws governing financial services companies. For example, with regard to mortgage servicing, the bill: (i) modifies who is subject to licensure and expands the scope of services subject to licensure; (ii) adds new licensing, application, fee, bonding, and recordkeeping requirements; (iii) establishes servicer conduct standards; and (iv) grants the state regulator authority to conduct investigations and examinations and take enforcement actions against violators. For the various types of mortgage loan originators, the bill increases the pre-licensing and continuing education and testing requirements, and modifies the exemptions from licensure that apply to certain subsidiaries of banks and credit unions. With regard to licensing in general, the bill extends the banking commissioner's authority to use the NMLS, authorizes the system to receive and maintain licensing and registration records, and establishes filing, licensing, fees, reports, and other system procedures and requirements. The bill also, among other things, (i) establishes procedural requirements for a Connecticut bank that proposes to close a loan production office; (ii) expands the definition of an “automatic teller machine” to include those equipped with a telephone or televideo device that allows contact with bank employees; (iii) extends the state's foreclosure mediation program by two years, until July 1, 2016; and (iv) establishes a task force to study and develop a report for the General Assembly on the reverse mortgage industry.