As many of the 2009 state legislative sessions begin to wrap up for the year, more than half of the states have established new licensing standards for mortgage loan originators, as required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”). Since last month’s issue of Basis Points, six more states and the District of Columbia have enacted SAFE Act legislation, bringing the total number to 27, with legislation still pending in 22 other states.
In addition, Washington enacted a second piece of SAFE Act legislation to amend the state’s Mortgage Broker Practices Act (which already included an originator licensing requirement) to comply with the SAFE Act. The first piece of SAFE Act legislation enacted in Washington applied only to individuals employed by persons licensed under the Consumer Loan Act. The second piece of legislation ensures that employees of all types of non-depository institutions are covered, not only those making loans under the Consumer Loan Act.
Only two states (Minnesota and Pennsylvania) have not yet introduced SAFE Act legislation.
As previously reported, the SAFE Act defines “loan originator” to include an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. However, the State Model Law developed by HUD defines “mortgage loan originator” to mean an individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain.
All of the states enacting SAFE Act legislation since the last issue of Basis Points have adopted the HUD State Model Law definition or similar language. Five states (DC, IN, OK, VT, and WA) have not created an exception for or addressed applicability to loss mitigation efforts. In these states, individuals employed by mortgage loan servicers who negotiate with the borrower to modify the terms of an existing residential mortgage loan may be surprised to discover that they require licensing to engage in these activities.
Three states (AL, CO, and SC) have specifically recognized that loss mitigation efforts may trigger licensing and have created specific exemptions from the licensing requirement for limited activities. In these states, individuals engaged in loss mitigation efforts are either excluded from the definition of loan originator or subject to a delayed effective date (so that they may never need to be licensed).
An overview of the recently enacted legislation is summarized below.
Alabama: Senate Bill No. 249, enacted April 30, 2009, creates a new mortgage loan originator licensing requirement. The legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law. However, the legislation provides an exemption for “loss mitigation specialists” when acting for a depository institution or its operating subsidiary, an operating subsidiary regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration. All other “loss mitigation specialists” are subject to the new licensing requirement.
A “loss mitigation specialist” includes an individual employed by a lender or servicer who negotiates or renegotiates the terms of an existing loan, or assists in refinancing an existing loan when a borrower is in default, or in reasonably foreseeable likelihood of default.
The legislation became effective on June 1, 2009. However, in order to facilitate an orderly transition to licensing and minimize disruption in the mortgage marketplace, the new licensing requirements do not take effect until June 1, 2010. “Loss mitigation specialists” who are not exempt and who are engaged exclusively in loss mitigation efforts in connection with existing mortgage loans are not subject to the new licensing requirements until July 1, 2011.
Colorado: House Bill No. 09-1085, enacted May 21, 2009, amends the state’s Mortgage Broker Licensing Act, which currently requires an individual who originates mortgage loans to obtain a mortgage broker license. As amended, the Act adopts the definition of “mortgage loan originator” found in the HUD State Model Law. However, the definition of “mortgage loan originator” excludes an individual “servicing a mortgage loan.”
“Servicing a mortgage loan” means collecting, receiving, or obtaining the right to collect or receive payments on behalf of a mortgage lender, including payments of principal, interest, escrow amounts, and other amounts due on obligations due and owing to the mortgage lender.
The legislation and licensing requirements are set to take effect on August 5, 2009.
District of Columbia: Law No. L17-0350, the “Mortgage Lender and Broker Temporary Amendment Act of 2008,” amends the District’s existing mortgage broker and mortgage lender licensing requirements to comply with the SAFE Act. The Act adopts the definition of “mortgage loan originator” found in the HUD State Model Law, and expands the definition further to include an individual who solicits, or offers to solicit, a mortgage loan on behalf of a borrower for compensation or gain. There is no exclusion for loss mitigation activities.
The Act is a “temporary” law, effective on March 25, 2009 and set to expire on November 5, 2009. Presumably, the District’s legislature will enact “permanent” legislation prior to the expiration of the Act. However, the Act currently provides that the licensing requirements do not apply until the later of the time that the District has become a part of the Nationwide Mortgage Licensing System and Registry and it is operational, or December 31, 2009.
Indiana: House Bill No. 1646, enacted May 12, 2009, replaces the state’s existing loan originator registration requirement under the Loan Brokers Act with a SAFE Act licensing requirement. The legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law, and there is no exclusion for loss mitigation activities.
The legislation becomes effective on July 1, 2009, but the licensing requirements do not become effective until January 1, 2010.
Oklahoma: Senate Bill No. 1062, enacted May 12, 2009, replaces the state’s existing licensing requirement under the Mortgage Broker Licensure Act with a SAFE Act licensing requirement. The legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law, and expands the definition to expressly include someone who modifies a mortgage loan. There is no exclusion for loss mitigation activities.
The legislation becomes effective on July 1, 2009, but the licensing requirements do not become effective until July 31, 2010.
South Carolina: Senate Bill No. 673, enacted June 3, 2009, imposes a new individual mortgage loan originator license requirement. The legislation adopts the “disjunctive” phrasing from the HUD State Model Law, but includes several additional components to the definition of “loan originator,” as set forth below.
For purposes of the new licensing requirements, “loan originator” means a natural person who, in exchange for compensation or gain or in the expectation of compensation or gain as an employee of a licensed mortgage lender, solicits, negotiates, accepts, or offers to accept applications for mortgage loans, including electronic applications, or includes direct contact with, or informing mortgage loan applicants of, the rates, terms, disclosures, and other aspects of the mortgage loan. However, the definition of “loan originator” does not include an “individual servicing a mortgage loan” until July 31, 2011, unless HUD or a court of competent jurisdiction determines before that time that those individuals servicing mortgage loans are “loan originators” as defined in the federal SAFE Act.
“Individual servicing a mortgage loan” means an employee of a mortgage lender licensed in South Carolina, that: (A) Collects or receives payments including payments of principal, interest, escrow amounts, and other amounts due on existing obligations due and owing to the licensed mortgage lender for a mortgage loan when (i) the borrower is in default; or (ii) the borrower is in reasonably foreseeable likelihood of default; (B) Works with the borrower and the licensed mortgage lender, collects data, and makes decisions necessary to modify, either temporarily or permanently, certain terms of those obligations; or (C) Otherwise finalizes collection through the foreclosure process.
Further, the legislation provides an exemption from the new licensing requirements for an attorney who works for a mortgage lender, pursuant to a contract, for loss mitigation efforts or a third party independent contractor who is HUD certified, Neighborworks certified, or similarly certified, who works for a mortgage lender, pursuant to a contract, for loss mitigation efforts. The legislation does not define “loss mitigation.”
The legislation and licensing requirements take effect on January 1, 2010.
Vermont: House Bill No. 171, enacted May 21, 2009, imposes a new individual mortgage loan originator license requirement. The legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law, and there is no exclusion for loss mitigation activities.
The licensing requirements become effective on July 1, 2009, except that all individuals who are employed by a Vermont licensed mortgage broker and are acting as a mortgage broker under the license or employed by a Vermont licensed lender and acting as a lender or loan officer under the license are not subject to the new licensing requirements until July 1, 2010.
Washington: House Bill No. 1749, enacted May 18, 2009, amends the existing mortgage loan originator licensing requirements under the Mortgage Broker Practices Act to comply with the SAFE Act. This legislation is in addition to House Bill No. 1621, which amends the Consumer Loan Act to create a new mortgage loan originator licensing requirement. The legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law, and there is no exclusion for loss mitigation activities.
The licensing requirements become effective on January 1, 2010, except that individuals who were previously exempt from licensing under the Mortgage Broker Practices Act as exclusive agents under Rev. Code Wash. § 19.146.020(1)(a) (ii) need not obtain a license until July 1, 2010.
Catharine Andricos is an associate in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach Catharine at 202-327-9706 or by email at candricos@hudco.com.