July 2008 Mortgage Licensing Update

States are finally starting to finish off their attempts to legislate the housing problem. There are still many proposed foreclosure rescue plans in the state and federal legislatures, but most state licensing bills have been either passed or voted against. There is still some talk of a federal licensing requirement for mortgage companies if the state has not complied with the federal governments minimum requirements. There is also a lot of discussion about FHA Reform, which could affect FHA Licensing, and RESPA and GSE Reform. Be ready for some major changes. Their still appears to be more to happen before the end of this congressional session.

NMLS Transition Deadlines (Nationwide Mortgage Licensing System) Very important! See transition deadlines for NMLS transitions starting July 1.

HUD Reminds Lenders of FHA Rules for Dealing with Mortgage Brokers HUD recently issued a mortgagee letter reminding lenders of various payment and service restrictions when dealing with non-FHA-approved mortgage brokers for forward mortgage. The letter states that although a borrower may engage a non FHA-approved mortgage broker for counseling services, loan origination services may not be performed by the broker and the FHA-approved mortgagee may not compensate the broker for the counseling services. Such a payment would violate RESPA's prohibition on duplicative fees and may even be considered an illegal referral fee. To the extent a borrower receives counseling from a non-FHA-approved mortgage broker, the services must constitute "meaningful counseling" and the fees must be paid from the borrower's own available assets and disclosed on the HUD-1. In addition, a copy of the service contract must be included in the loan file submitted for insurance endorsement. See Mortgagee Letter 08-17.

Maryland New Surety Bond and Net Worth Requirements

There are two new provisions of law governing Maryland mortgage lender licensees ("Licensees") that went into effect June 1, 2008. The first is an amendment to Md. Code Ann., Fin. Inst. ("FI") § 11-508 which increases the amount of the surety bond, letter of credit or trust account required to be maintained by Licensees. The second is a new minimum net worth requirement that must be maintained by Licensees which is codified at FI § 11-508.1.

Surety Bond, Letter of Credit, or Trust Account

The new required surety bond, letter of credit, or trust account amounts are as follows:

$50,000 Bond, etc: Required where the aggregate principal amount of mortgage loans is $3,000,000 or less for the preceding twelve (12) months;

$100,000 Bond, etc: Required where the aggregate principal amount of mortgage loans is more than $3,000,000 but not more than $10,000,000 for the preceding (12) months;

$150,000 Bond, etc: Required where the aggregate principal amount of mortgage loans is more than $10,000,000 for the preceding twelve (12) months;

$750,000 Bond, etc: Required blanket surety bond when an applicant files five (5) or more original or renewal applications at the same time and chooses to submit a blanket bond.

Under Maryland law, surety bond, letter of credit, trust account amounts are based on the volume of the Licensee's mortgage business for the preceding twelve (12) months.

    Effective June 1, 2008, the new surety bond, letter of credit, or trust account requirements apply to each applicant for a new license or for the renewal of a license. These new requirements apply to applicants for original and branch location licenses. Any addition of a new branch location to an existing blanket bond will require the blanket bond to be increased to the new $750,000 bond amount or the option to post an individual bond for the new branch in the new amount required by law.

July 2008 Mortgage Licensing Update

Minimum Net Worth

Another new provision of law requires Licensees to meet and maintain a specified minimum net worth. A summary of the required amounts are as follows:

$25,000 Minimum Net Worth: No lending activity;

$25,000 Minimum Net Worth: Not more than $1,000,000 in lending secured by residential real property for the preceding 12 months;

$50,000 Minimum Net Worth: More than $1,000,000 but not more than $5,000,000 in lending secured by residential real property for the preceding 12 months;

$100,000 Minimum Net Worth: More than $5,000,000 in lending secured by residential real property for the preceding 12 months.

The foregoing minimum net worth requirements take effect June 1, 2008. An additional net worth requirement of $250,000 where a licensee has engaged in more than $10,000,000 in lending secured by residential real property for the preceding 12 months will take effect January 1, 2009.

Please review Chapters 7 and 8 of the 2008 Laws of Maryland (codified at FI § 11-508.1) for important additional information regarding the new net worth requirements, including rules governing the use of lines of credit by Licensees that lend money to satisfy up to 75% of their minimum net worth requirements.

This office will require proof from Licensees that they meet the minimum net worth at the time of application for a new or renewal license and at the time of a compliance examination.

July 2008 Mortgage Licensing Update

Alaska Finally Adopts Mortgage Lending Licensing Regulations The much-awaited regulations implementing Alaska's Mortgage Lending Regulation Act have finally been adopted. The regulations implement new licensing and registration requirements for persons engaged in mortgage lending activities, requiring that any non-exempt person acting as a mortgage lender must be licensed and any non-exempt person acting as a small mortgage lender be registered with the state. The regulation also includes application, competency testing, and continuing education requirements on licensees and registrants. Other obligations imposed by the regulations include annual reporting, record-keeping, and supervision requirements. The regulations also enumerate a number of practices that are considered unfair or deceptive advertising or mortgage lending practices, and provide for disciplinary action taken by the Department. Finally, the regulations provide for the establishment and operation of an originator surety fund. The new regulations become effective on July 1.

If you are already operating as a mortgage lender, mortgage broker, or originator, you do not have to be licensed under the AMLRA until March 1, 2009. This means that if you are operating as a mortgage lender, mortgage broker, or originator in AK on June 30, 2008, you are not required to be licensed until March 1, 2009. The Division of Corporations, Business, and Professional Licensing will consider a person to be operating in AK on June 30, 2008, if the person is engaging in business as a mortgage lender, mortgage broker, or originator pursuant to a current AK business license issued for that purpose. For example, if an AK business license has been issued to a mortgage company prior to June 30, 2008, that would indicate the company was doing business prior to July 1, 2008. If you enter the mortgage business as a lender, broker, or originator in AK after June 30, 2008, you are subject to the AMLRA that takes effect on July 1, 2008.

Some highlights of the new law are: All mortgage brokers or lenders that make or provide mortgage loans to AK residents shall be required to obtain a license. This includes all companies that operate on the internet or provide remote lending from another state by mail, or telephone. All mortgage originators will be required to pass a background investigation and a competency test prior to providing service to AK residents. All mortgage originators will be required to complete 24 hours of continuing education every biennial licensing period. All mortgage originators will be required to pay into a surety fund. The fund will be used to compensate consumers for losses they may incur due to unethical or illegal behavior on the part of an originator. The division will conduct examinations of licensed entities on a three-year cycle, or sooner if a complaint is made by a consumer. Under the AMLRA, mortgage lenders and mortgage brokers must obtain a "mortgage license" and individual originators must obtain an "originator license." An individual who is the principal owner or legally authorized manager of the applicant may apply for a dual license as a mortgage licensee and the single designated originator for the mortgage licensee.