Earlier this year, Hawaii’s legislature enacted Senate Bill 1218, adopting a HUD-approved model act based on the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008, and sent the bill to the Governor’s desk for signature. On June 30, 2009, the Governor indicated her intent to veto the bill, stating that Senate Bill 1218 “fails to provide the regulatory framework for the State of Hawaii to comply with the Secure and Fair Enforcement of Mortgage Licensing Act (SAFE Act) and would leave certain mortgage loan originators unlicensed and unregulated.” On July 15, 2009, following the last chance for the Governor to reconsider, the Hawaii legislature overrode her veto.
Effective August 1, 2010, (or such later date as approved by HUD), an individual may not engage in the business of a mortgage loan originator with respect to any dwelling located in the State of Hawaii without first obtaining a license. A “mortgage loan originator” is an individual who for compensation or gain or in the expectation of compensation or gain: (1) takes a residential mortgage loan application; or (2) offers or negotiates terms of a residential mortgage loan (secured by residential real estate located in the State of Hawaii). Also, effective August 1, 2010, no new licenses will be issued, and no existing licenses will be renewed under the existing Mortgage Brokers and Mortgage Solicitors Provisions, Haw. Rev. Stat. Ch. 454.
The following are exempt from the new law:
1. A registered mortgage loan originator when such person is acting for an insured depository institution, a subsidiary of an insured depository institution regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration.
2. An individual engaging solely in loan processor or underwriter activities; provided that the person who performs the services of a loan processor or underwriter must not represent to the public, through advertising or other means of communicating that the person can or will perform any of the activities of a mortgage loan originator.
3. A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client unless the attorney is compensated by the lender, a mortgage broker or other mortgage loan originator or agent of any of them.
4. A Hawaii-licensed real estate broker unless the person or entity is compensated by the lender, a mortgage broker or other mortgage loan originator or agent of any of them.
5. A person or entity solely involved in extensions of credit relating to timeshare plans.
6. Any individual who offers or negotiates terms of a residential mortgage loan secured by that person’s residential dwelling, or who offers or negotiates terms of a residential mortgage loan on behalf of an immediate family member.
Curiously absent from the exemptions in the new law is any reference to a “foreign lender” as defined in Haw. Rev. Stat. § 207-11. A “foreign lender” is one that is not organized in Hawaii, has no offices or employees in Hawaii, and makes its loans from outside of the State of Hawaii. Additionally, a “foreign lender” must be one of the following: (A) “a depository institution” as defined in section 501(a)(2) of the federal Depository Institutions Deregulation and Monetary Control Act of 1980, a “real estate investment trust” as defined in the Internal Revenue Code, or an insurance company, the principal office of which is in another state, whether incorporated or unincorporated and whether acting in its individual capacity or in a fiduciary capacity; (B) the trustee or trustees from time to time in office of any employee benefit plan; (C) a lender approved by the Secretary of the United States Department of Housing and Urban Development for participation in any mortgage insurance program under the National Housing Act; (D) any corporation of which all of the capital stock (except the directors’ qualifying shares) is owned by one or more foreign lenders specified in (A), (B), and (C); and (E) any corporation of which all of the capital stock (except for the directors’ qualifying shares) is owned by one or more foreign lenders specified in (D).
The Commissioner of Financial Institutions is given broad authority to adopt rules the Commissioner deems necessary for administration of the new law, and to conduct examinations or investigations of records and documents, wherever they are kept. The Commissioner is also given authority to accept and rely on examination reports made by other government officials, within or without the State of Hawaii. This is a departure from current authority, under which the Commissioner has indicated it does not regulate persons who engage only in interstate commerce and who have no physical or legal presence in the State of Hawaii. See “Understanding Certain Licensing Requirements of the Division of Financial Institutions (‘DFI’) for Lenders That Do Not Take Deposits,” DFI Fact Sheet (Rev. 02-2008). Unless the Commissioner adopts rules requiring a mortgage loan originator have a physical place of business in Hawaii, that requirement will no longer exist under the new law.
Elizabeth (Liz) Huber is a partner in the California office of Hudson Cook, LLP. Basis Points readers can reach Liz at 310-686-5050 or by email at lhuber@hudco.com.