This topic consolidates legislative summaries of new and revised state laws pertaining to licensing, originating, and servicing mortgage loans.
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On August 7, 2017, the Colorado Uniform Consumer Credit Code ("UCCC") Administrator issued guidance clarifying that lenders charging fees for debt cancellation and suspension agreements must include those fees in the calculation of a finance charge. Read the guidance.
Bankers Advisory, Compliance Monitor--Julio Suarez
Effective as of July 31, 2017, Maryland amended provisions to align state mortgage industry terminology with federal terminology and clarified provisions impacting mortgage lender originators (MLOs). The following topics were clarified by the amendments: continued education, duty of care, application, exemptions and advertising.
As may be evident, the objective of the legislation was to simplify compliance. Accordingly, both “average prime offer rate” and “higher-priced mortgage loan” were defined in accordance with their definitions within CFR 12 §1026. Since these terms’ definitions are now imbedded within the federal regulation they are subject to change in accordance with any changes made to CFR 12 §1026.
As for the provisions amending MLO requirements to promote clarity, the most notable changes are listed below.
Search our Compliance Calendar for current regulatory changes & updates.
Bankers Advisory, Compliance Monitor--Julio Suarez
Effective September 21, 2017, New Jersey amended its Fair Foreclosure Act by defining servicers and their duties during a short sale.
The amendment defines a servicer as the following:
The person, corporation or other entity responsible for servicing a residential mortgage loan, including a residential mortgage lender who makes or holds a loan if the lender also services the loan.
Servicing is defined as:
Managing the mortgage loan account on a daily basis, including collecting and crediting periodic loan payment, managing escrow accounts, or enforcing the terms of the mortgage note.
Individuals who fit within the confines of the definitions will be required to engage with sellers, seller’s agents, and/or authorized third parties purchasing properties through a short sale. To do so (1) the servicer must respond to good faith offers; (2) the response must include an approval, denial or request for further information; and (3) the response must be provided within 60 days of the date of the offer.
Should the servicer deny the offer or fail to respond within the required time, then the buyer is entitled to be refunded, in its entirety, any deposits made. The buyer will also be released from any further obligations – promissory notes, bonds or other similar evidence of a duty to pay – with respect to the transaction.
The regulation implements certain provisions of the Mortgage Lending Reform Law, which was enacted in August, 2008 (Chapter 472 of the Laws of 2008). That law, among other things, amended Article 12‐D of the Banking Law to create a framework for regulating the servicing of mortgage loans.
The Mortgage Lending Reform Law requires that entities be registered with the Superintendent in order to engage in the business of servicing mortgage loans in this state. The new law further requires mortgage loan servicers to engage in the business of servicing mortgage loans in conformity with the rules and regulations promulgated by the Superintendent.
The rule implements provisions of the Subprime Lending Reform Law (ch. 472, Laws of 2008) amending article 12-D of the Banking Law to require that persons or entities which service mortgage loans on residential real property on or after July 1, 2009 be registered with the Superintendent of Financial Services (formerly the Superintendent of Banks). Part 418 sets forth application, exemption and approval procedures for registration as a mortgage loan servicer (MLS) and financial responsibility requirements for applicants, registrants and exempted persons.
Bankers Advisory, Compliance Monitor--Ryan Peters
North Carolina recently enacted the Uniform Power of Attorney Act (the Act), effective January 1, 2018.
The Act amends the North Carolina General Statues by adding Chapter 32C, cited as the North Carolina Uniform Power of Attorney Act.
Power of Attorney is defined by § 32C-1-102 as “a writing or other record that grants authority to an agent to act in the place of the principal, whether or not the term power of attorney is used.”
Article 1 of the Act outlines definitions and general provisions, including applicability, durability, execution, and validity of the power of attorney.
A power of attorney created pursuant to Chapter 32C is durable unless the instrument expressly provides that it is terminated by the incapacity of the principal.
Article 2 of the Act includes provisions regarding the general and specific authority that a principal may give an agent in a power of attorney, such as authority involving real property, tangible personal property, and stocks and bonds.
Article 3 provides statutory forms.
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troutman sanders--Ashley L. Taylor, Jr. & David Long, Jr.
On July 20, Pennsylvania Attorney General Josh Shapiro announced the creation of a Consumer Financial Protection Unit to protect Pennsylvanians from “financial scams.”
According to Shapiro’s announcement, the new unit will focus on lenders and mortgage and student loan servicers that “prey on seniors, families with students, and military service members.” This new consumer unit will focus on protecting financially vulnerable Pennsylvanians.
Shapiro has taken steps to protect the Commonwealth’s residents from financial scams prior to creating the Consumer Financial Protection Unit. In 2016, Pennsylvania’s Consumer Protection Bureau handled 19,727 consumer complaints, returning $8 million in restitution to consumers. Most recently, Shapiro joined other state attorneys general in filing suit against Education Secretary Betsy DeVos after she rolled back regulations holding for-profit colleges accountable for misleading advertising. Shapiro said in an interview with NPR’s NewsWorks Tonight host Dave Heller that the rolled back regulations “make it harder for students to recover once they have been scammed” by a for-profit school. Based on Shapiro’s announcement regarding creation of the unit, expect his office to focus on for-profit colleges engaged in misleading advertising.
Shapiro also announced that Nicholas Smyth, who worked on the United States Treasury team that created the federal Consumer Financial Protection Bureau, would be the Assistant Director of Pennsylvania’s Attorney General’s Bureau of Consumer Protection. Although Shapiro has recruited one of the creators of the CFPB, his decision to create a consumer protection unit is not new. In fact, Pennsylvania joins more than fifteen states, including Georgia and Virginia, that have created dedicated consumer protection divisions within the offices of their attorneys general.
Although certain advocates for the business community may question the continuing increase in individual state consumer financial protection agencies, state attorneys general have argued that these units benefit consumers. For example, before Virginia Attorney General Mark Herring launched a Consumer Predatory Unit, Virginia was known as the “East Coast capital of predatory lending.” According to Virginia’s State Corporation Commission, Virginia-based payday lenders made more than $170 million in loans to Virginia consumers at an average interest rate of 289%. Since its implementation, the Consumer Protection Unit has entered into multiple large enforcement actions and settlements, including a settlement agreement with CashCall for over $15 million in restitution and debt relief.
Other states, like Georgia, have entered similar settlement agreements with offending collection companies, resulting in restitution and debt forgiveness for the states’ residents.
The trend by state attorneys general to create consumer finance protection units has emerged amidst Congressional pressure to restructure the CFPB and limit its investigative and rulemaking ability. With increasing uncertainty about the future of the CFPB, we expect state attorneys general will strengthen, create, or augment their states’ laws to ensure consumers are protected from unscrupulous businesses.
Bankers Advisory, Compliance Monitor--Julio Suarez
Effective immediately, Delaware has extended the Delaware Automatic Residential Mortgage Foreclosure Mediation Program. Previously, the foreclosure mediation program was to sunset January 18, 2018. Through the extension, the program will continue to run until January 18, 2020.
The foreclosure mediation program was designed to find solutions between the borrower and the lender when foreclosure is looming. The program allows for parties on both sides to meet face-to-face and conduct a conflict resolution mediation through the assistance of a HUD-approved Housing Counselor. The program, due to the simplicity of the process and financial incentives, has garnered a 53.82% overall participation out of those individuals who applied to commence mediation. Presently, the success of reaching a non-foreclosure resolution for those who participate is at a resounding 63.21%.
Success in the program can come in two different forms. First, the borrower may seek and find a way to remain in his or her home. This can be achieved by: (1) finding an agreeable loan terms modification; (2) creating a loan repayment plan that allows for both parties to meet their financial objectives; or (3) entering into a forbearance agreement. Second, as an alternative to staying in the home the borrower may find that voluntarily exiting the home may be more beneficial for both parties. This can be achieved by either conducting a lender-approved short sale or transferring a deed in lieu to the lender in exchange for debt cancellation. It is due to the success of the program in creating for borrowers and lenders options that were previously unavailable and providing financial benefits for all parties that it was extended for a further two years.
Bankers Advisory, Compliance Monitor--Zachary Pearlstein
The state of Hawaii has recently passed Senate Bill 951, which updates the state’s mortgage loan origination law with regard to licensing requirements. These updates are effective as of September 1st, 2017.
The first major revision relates to presumption of control. The law states that an individual is presumed to control a mortgage loan origination company if he or she is a director, general partner, or managing member who directly or indirectly has the right to vote 10% or more of a class of voting securities or has the power to sell (or direct the sale of) 10% or more of a class of voting securities of that licensee or applicant. In addition, an individual is presumed to control a mortgage loan origination company if he or she is an executive officer, which the law defines as a chairperson of an executive committee, senior officer responsible for a subject entity or organization’s business, chief financial officer, or any other person who performs similar functions related to the subject entity or organization.
The updates also address the issue of a change in control. The Commissioner may approve a change of control if, after investigation, he or she is able to determine that the following three conditions are met: the person or persons who obtain control will be in compliance with the applicable regulations once approved; the person or persons who will obtain control have the competence, experience, character, and general fitness to control the licensee in a lawful manner; and the interests of the public will not be jeopardized by the change of control.
Another revision states that each licensed mortgage loan originator company must designate a “qualified individual” to fulfill various duties and responsibilities. He or she must be a licensed mortgage loan originator, and must also have the duty to manage and supervise the mortgage loan origination activities of the principal office as well as all company branch offices. The qualified individual is responsible for supervising the maintenance and accounting of client trust accounts and disbursements, as well as supervising all records, contracts, documents, mortgage loan originator agreements, mortgage loan documents, and all licensed mortgage loan originators themselves. He or she is also responsible for developing and enforcing policies and procedures, developing and monitoring compliance with a policy on continuing education requirements, ensuring all licenses are active, conducting training, and ensuring compliance with record retention policies.
An additional update relates to the requirements for becoming licensed as a mortgage loan originator in Hawaii. An applicant must submit to NMLS his or her fingerprints, or if an applicant is not an individual, then the fingerprints of each of the applicant’s control persons, executive officers, directors, general partners, and managing members, which may be submitted to the FBI or other governmental agencies for state, national, and international criminal history background checks. An applicant must also provide his or her personal history and experience. If the applicant is not an individual, the entity must submit the personal history and experience of each of the applicant’s control persons, executive officers, directors, general partners, and managing members, including an authorization for NMLS and the commissioner to obtain credit reports and information related to any administrative, civil, or criminal findings by any governmental jurisdiction.
Bankers Advisory, Compliance Monitor--Zachary Pearlstein
The state of Rhode Island has recently amended Section 34-27-6 of the General Laws in Chapter 34-27, which relates to mortgage foreclosure and sale. These updates are effective immediately.
The updated provisions provide for an increase in penalties for financial institutions that fail to promptly record foreclosure deeds, and fail to promptly pay outstanding taxes.
The law first deals with the issue of recording, stating that in the event of a public auction made according to the provisions of any mortgage of real estate, if a mortgagee (or affiliate) is the successful bidder for the property, the foreclosure deed must be recorded in the records of land evidence for the municipality where the real estate is located within 45 days after the date of the sale. The deed must include the date of the foreclosure, and must be captioned “foreclosure deed.”
The other issue that the update addresses is the payment of outstanding taxes. It states that the grantee of real estate named in the foreclosure deed must pay all taxes and other assessments (including water charges, interest, and penalties) due to the municipality, on or before the date the foreclosure deed is recorded. The only exception would be if the grantee applied for a municipal lien certificate, in which case the taxes would be due within 30 days after the certificate is mailed by the tax collector.
The provisions increase the monthly penalty from $40 to $300 per month for violations of either of these sections. However a maximum aggregate penalty of $2,000 has been added. Finally, the provisions add that any mortgagee that is not licensed as a financial lending institutions, but that is holding a mortgage by private agreement with another party, is exempted from these penalties.
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Bankers Advisory, Compliance Monitor--Ryan Peters
North Carolina House Bill 584 serves to clarify the process for correcting nonmaterial errors in recorded instruments of title, creates a curative procedure for obvious description errors in documents of title, and creates a seven-year curative provision for certain defects in recorded instruments of title. The act is effective August 31, 2018, and applies to curative affidavits filed on or after that date.
Notice of a nonmaterial typographical or other minor error in a deed or other recorded instrument may now be given by recording a corrective notice affidavit. This act clarifies that, “an error that would affect the respective rights of any party to the instrument is not a nonmaterial typographical or minor error.”
Obvious description errors in a recorded instrument affecting title to real property may now be cured by recording a curative affidavit with the register of deeds in every county where the real property is situated.
Prior to recording a curative affidavit, the authorized attorney seeking to record the affidavit shall serve a notice of intent and a copy of the unsigned proposed curative affidavit to:
Persons served with the notice of intent may object to the recordation of the proposed curative affidavit, in writing to the authorized attorney, within 30 days after the service of the documents upon that person.
The act provides a recommended form for the curative affidavit, and specifies that “no particular phrasing is required for the curative affidavit.”
Additionally, an instrument conveying or purporting to convey an interest in real property that contains a defect, irregularity, or omission shall be deemed effective to vest title as stated therein and to the same extent as though the instrument had not contained the material defect, irregularity, or omission, if both of the following conditions are met:
For the full text of North Carolina House Bill 584, please refer to:
Bankers Advisory, Compliance Monitor--Ryan Peters
The State of Georgia Department of Banking and Finance (“the Department”) has adopted rules regarding mortgage servicing standards and records retention, effective July 19, 2017.
Mortgage Servicer Standards
These standards apply to persons licensed, registered, or required to be licensed or registered under Article 13 of Chapter 1 of Title 7 of the Official Code of Georgia Annotated.
Any person who services a mortgage loan:
Each servicer shall submit reports of condition to the Nationwide Multistate Licensing System and Registry, in accordance with O.C.G.A. § 7-1-1004.1, detailing the number of mortgage loans serviced, the delinquency status of mortgage loans serviced, the number of mortgage loan modifications, and the number of foreclosures.
Each servicer shall disclose to borrowers, at the time a servicer acquires the right to service the mortgage loan:
Each servicer shall disclose to borrowers, upon the transfer of its right to service a mortgage loan within the period of time required by federal law, the following subsequent disclosures:
Failure to adhere to these standards may result in revocation of license or registration and will subject the licensee or registrant to fines.
Mortgage Servicer Location Requirement and Minimum Retention Period
The rule requires each servicer to maintain required books, accounts, and records at the principal place of business, unless the department is first notified in writing if the records are to be maintained elsewhere. Maintaining these documents at a location other than the principal place of business, without written notification to the department, may result in suspension of license or registration.
Books, accounts, and records maintained at a location other than the principal place of business shall be made available to the department within five (5) business days from the date of written request by the department and at a reasonable and convenient location acceptable to the Department.
The penalty for refusal to permit an investigation or examination of books, accounts, and records (after a reasonable request by the department) shall be revocation of license or registration.
Minimum Requirements for Books and Records
Each servicer must maintain copies of all documents required by Chapter 80-11-3, a list of all servicer’s violations as set forth in Rule 80-11-6-.02, and a servicer file for each mortgage loan that it services.
Failure to maintain the books, accounts, and records may result in suspension of license or registration.
For the full text of the Notice of Final Rulemaking, please refer to:
Bankers Advisory, Compliance Monitor--Robert Harrison
The Ohio Office of Attorney General, Consumer Protection, amended provisions relating to the required disclosure at closing. These provisions are effective on July 20, 2017.
Ohio Rev. Code Ann. §1345.031(B)(8) states that suppliers must disclose to the consumer at the closing of a consumer transaction that a consumer is not required to complete the transaction just because the consumer received prior estimates of closing costs or signed an application. Also, suppliers must disclose the consumer should not close a loan transaction that contains different terms and conditions than those promised.
Ohio Admin. Code Sec. 109:4-3-23 states that a supplier must provide the notice attached to this rule as appendix A in order to comply with Ohio Rev. Code Ann. §1345.031(B)(8). Appendix A must be in writing, in duplicate, in at least fourteen point type, signed and dated by the consumer before the consumer signs any other document at the closing of the loan.
The supplier shall provide a copy of the signed disclosure (appendix A) required under this rule to each consumer who is a party to the transaction at the closing. The supplier must retain the original or a copy of the signed form in the consumer’s loan file for a period of at least two years from the date of closing, or as required by other applicable state or federal law, whichever time period is greater.
Ohio Admin. Code Sec. 109:4-3-23 Appendix A was previously known as the “Closing Disclosure”, the amendments have changed the name of that document to “Disclosure of Right Not to Close”. This amendment will avoid confusion with the closing disclosure required by Regulation Z.
The full text of Ohio Admin. Code Sec. 109:4-3-23 can be found here: Full Text
Bankers Advisory, Compliance Monitor--Laura Eckstein
The Montana Department of Administration amended its rules relating to surety bond, table funding, application of financial standards, and reporting forms for mortgage servicers. These provisions became effective July 8, 2017.
Surety Bond
The surety bond must be issued by a surety company that is authorized to do business in Montana. The bond must be placed on file with the NMLS. This includes any and all riders and endorsements executed subsequent to the effective date of the bond. The entity name on the application must exactly match the name on the surety bond. The bond must also be continuous. The bond is deemed one continuous obligation whether or not it is renewed, continued, reinstated, reissued, or otherwise extended, replaced, or modified. The surety on the bond is not liable in an aggregate or cumulative amount exceeding the penal sum set forth on the face of the bond. 2.59.1706(1).
Table Funding
The table funding rule requiring licensure remains the same. The rule was amended to replace the implementation statute 32-9-108 because it was repealed in 2009. The rule now implements 32-9-102. 2.59.1708(1).
Application of Financial Standards
The statute regarding application of financial standards remains the same. The rule was amended to remove the implementation statute 32-9-166 because the statute was stated in error and does not apply to the application of financial standards. 2.59.1739(1)-(2).
Reporting Forms for Mortgage Servicers
The mortgage servicer may choose to submit either the expanded mortgage call report through the NMLS or the Quarterly Statement for Mortgage Servicing Activity dated May 31, 2016 for every quarter during which they held a license. The Quarterly Statement for Mortgage Servicing Activity dated May 31, 2016 is available on the division’s website. 2.59.1743(2)-(3).
