Insights

Since last month’s issue of Basis Points, eight more 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”), bringing the total number to 35, with legislation pending in 14 other states.

With the introduction of Pennsylvania’s SAFE Act legislation on June 5, 2009, Minnesota remains the only state that has not introduced SAFE Act legislation that would impose licensing requirements on mortgage loan originators. While Hawaii introduced SAFE Act legislation earlier this year, the Governor of Hawaii vetoed Hawaii’s SAFE Act legislation on June 30, 2009, finding that it failed to provide the regulatory framework that the state would need to comply with the SAFE Act and would have left certain mortgage loan originators unlicensed and unregulated. On July 15, the legislature overrode the veto, thereby bringing Hawaii into compliance with the SAFE Act licensing and registration mandate.

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.

The most recent eight states to enact SAFE Act legislation have adopted the HUD State Model Law definition or similar language. Please note that Alaska’s SAFE Act legislation simply supplements an existing licensing requirement for mortgage loan originators and does not contain a new definition of “mortgage loan originator.” However, in connection with the existing licensing requirements, Alaska applies a disjunctive definition of “originator” that is similar to the HUD State Model Law definition.

Seven states (AK, DE, FL, ME, MO, TN, and TX) have not created an exception for or addressed the applicability of the new licensing requirements to persons engaged in loss mitigation activities. In these seven states, individuals employed by mortgage loan servicers who negotiate with borrowers to modify the terms of an existing residential mortgage loan may be surprised to discover that they must obtain a license to engage in these activities.

Only one state - Nevada - has specifically excluded from the definition of “mortgage agent,” people who collect payments and perform related services, including, without limitation, the modification of an existing loan, in connection with a loan secured by a lien on real property and who do not undertake any other activity that would otherwise require a license. Thus, as described below, it appears that the Nevada legislature intended to exclude mortgage loan servicers who collect payments and modify existing mortgage loans from the new licensing requirement.

An overview of the recently enacted legislation is summarized below.

Alaska: Effective June 24, 2009, House Bill 221 authorizes the Alaska Department of Commerce, Community and Economic Development (the “Department”) to adopt regulations to participate in the NMLS. Prior to the enactment of House Bill 221, Alaska’s Mortgage Lending Regulation Act (the “MLRA”) already required that “originators” be licensed.

Under the MLRA, “originator” means a natural person who, for compensation or gain, or in the expectation of compensation or gain, directly or indirectly, by telephone, by electronic means, by mail, or in person: (i) interviews the consumer in connection with the consumer’s application for a mortgage loan; (ii) accepts or offers to accept an application for a mortgage loan from a potential borrower; (iii) solicits or offers to solicit a mortgage loan for a potential borrower; (iv) negotiates or offers to negotiate the terms or conditions of a mortgage loan with or for a borrower or potential borrower; or (v) issues or offers to issue to borrowers, potential borrowers, or the representatives of borrowers or potential borrowers, mortgage loan commitments, interest rate agreements, interest rate guarantees, prequalification letters, or commitments to finance up to a stated amount of the value of real property, or 90-percent letters to finance up to a stated amount of the value of real property.

The new law does not require the Department to amend the definition of “originator.” Nor does the new law require an exemption for persons engaged in loss mitigation. It is unclear whether, in adopting regulations to participate in the NMLS, the Department will amend the definition of “originator.”

House Bill 221 does not specify when the new licensing requirements become effective.

Delaware: Senate Bill 73, enacted July 6, 2009, replaces the state’s existing mortgage loan originator licensing requirements under the Mortgage Loan Originators provisions. As amended, the provisions adopt a disjunctive definition of “mortgage loan originator” that is similar to the HUD State Model Law definition. There is no exclusion for loss mitigation activities.

The legislation becomes effective on July 30, 2009, and the licensing requirement is set to take effect on July 31, 2010.

Florida: Senate Bill 2226 creates a new individual mortgage loan originator licensing requirement. The legislation adopts the disjunctive phrasing from the HUD State Model Law definition of “mortgage loan originator.” However, the legislation adds several components to the definition, as set forth below.

For purposes of the new licensing requirement, “loan originator” means an individual who, directly or indirectly, solicits or offers to solicit a mortgage loan, accepts or offers to accept an application for a mortgage loan, negotiates or offers to negotiate the terms or conditions of a new or existing mortgage loan on behalf of a borrower or lender, processes a mortgage loan application, or negotiates or offers to negotiate the sale of an existing mortgage loan to a noninstitutional investor for compensation or gain. The term includes the activities of a loan originator as that term is defined in the SAFE Act. There is no exclusion for loss mitigation activities.

The licensing requirement becomes effective on October 1, 2010.

Maine: Legislative Document 1439, enacted June 11, 2009, replaces the state’s existing loan officer registration provisions under the Maine Consumer Credit Code 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 and the new licensing requirement become effective on July 31, 2010.

Missouri: House Bill 382, enacted July 8, 2009, creates a new individual 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.

For mortgage loan originators, the licensing provisions become effective on July 31, 2010.

Nevada: Assembly Bill 523, enacted June 8, 2009, amends the state’s existing mortgage agent licensing requirement. The legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law, and requires that mortgage loan originators obtain a mortgage agent license. There is no express exclusion for loss mitigation activities. However, the legislation amends the definition of “mortgage agent” to exclude people who collect payments and perform related services, including, without limitation, the modification of an existing loan, in connection with a loan secured by a lien on real property and who do not undertake any other activity that would otherwise require a license. While the definition of “residential mortgage loan originator” could potentially capture mortgage loan servicers engaging in modifications of existing mortgage loans, based on the amended definition of “mortgage agent” explained above, it appears that the legislature intended to exclude mortgage loan servicers who collect payments and modify existing mortgage loans from the licensing requirement.

The legislation is effective June 8, 2009. The new law requires the Nevada Commissioner of Mortgage Lending to adopt regulations for mortgage loan originator licensing. It is currently unclear when the new licensing requirements will become effective.

Tennessee: Senate Bill 2279, enacted June 23, 2009, amends existing licensing requirements under the Industrial Loan and Thrift Company Act and the Tennessee Residential Lending, Brokerage and Servicing Act. 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 is effective June 23, 2009, and the licensing requirements become effective on July 31, 2009.

Texas: House Bills 10, 2774, and 2779, enacted on June 19, 2009, amend the state’s existing mortgage licensing requirements for mortgage brokers, mortgage bankers, and mortgage loan originators, to comply with the SAFE Act. Where applicable, the legislation adopts the definition of “mortgage loan originator” found in the HUD State Model Law. None of the three pieces of legislation contains an exclusion for loss mitigation activities.

House Bill 10 becomes effective on June 19, 2009. However, the new requirements for current licensees under Chapters 156, 157, 342, 347, 348, and 351, of the Finance Code do not become effective until July 1, 2010. The provisions for residential mortgage loan originators licensed as of July 1, 2009 do not become effective until July 1, 2011. House Bill 2774, which impacts licensed mortgage brokers, becomes effective on September 1, 2009. House Bill 2779, which impacts licensed mortgage bankers, becomes effective on April 1, 2010.

Catharine S. 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.