The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”) requires states to implement a licensing and registration system for mortgage loan originators. For states whose legislatures meet annually, the compliance deadline was July 31, 2009. For states whose legislatures meet biennially, the deadline is July 31, 2010. As this issue of Basis Points goes to press, 49 states have decided to play it SAFE and have implemented new licensing standards for mortgage loan originators, as required by the SAFE Act.
Only California and Minnesota have not implemented SAFE Act-compliant mortgage loan originator licensing standards, but California’s SAFE Act legislation is currently pending and is expected to pass. As previously reported, it appears that Minnesota does not intend to enact legislation implementing SAFE Act-compliant mortgage loan originator licensing standards.
Since the last issue of Basis Points, 13 states have enacted SAFE Act legislation. Each of these states adopted the HUD State Model Law definition of “mortgage loan originator” or similar language. The HUD State Model Law 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.
Seven of the 13 states (AZ, IL, MA, NH, NY, OR, RI) 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.
One state (CT) provides a limited exclusion from the definition of “mortgage loan originator” for individuals engaged in loss mitigation, including the modification of an existing loan, in connection with a loan secured by a lien on real property, if the individual does not undertake any other activity that would otherwise require a license.
Two states (NC and PA) have included conditional exclusions for employees of mortgage loan servicers engaged in loss mitigation activities, similar to Connecticut. Such employees will be exempt from licensing unless HUD or a court determines that the SAFE Act requires those employees to be licensed as mortgage originators under state law.
Two other states (MI and OH) have delayed the implementation of the licensing requirements for individuals employed by mortgage loan servicers who perform loan modification activities until July 2011.
Finally, Louisiana has authorized the Commissioner of the Louisiana Office of Financial Institutions to exempt mortgage servicer loss mitigation specialists under certain circumstances. As yet, it is unclear whether and to what extent the Louisiana Commissioner will implement such an exemption.
An overview of the recently enacted legislation is summarized below.
Arizona: House Bill 2143, enacted July 13, 2009, amends the state’s existing loan originator licensing requirements under the Mortgage Brokers, Mortgage Bankers and Loan Originators Provisions. As amended, the provisions adopt the disjunctive phrasing from the HUD State Model Law definition of “mortgage loan originator.” However, the legislation expands the definition of originator to cover persons engaged in loan modifications.
The legislation defines “mortgage loan originator” to mean a natural person who for compensation or gain or in the expectation of compensation or gain does any of the following: (1) Takes a residential mortgage loan application; (2) Offers or negotiates terms of a residential mortgage loan; (3) On behalf of a borrower, negotiates with a lender or note holder to obtain a temporary or permanent modification in an existing residential mortgage loan agreement.
The legislation becomes effective on September 30, 2009, and the licensing requirement is set to take effect on July 1, 2010.
Connecticut: Substitute Senate Bill 948, enacted July 9, 2009, amends the state’s existing loan originator licensing requirements under Connecticut law governing Mortgage Lenders, Correspondent Lenders, Brokers and Loan Originators. 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.
The legislation defines “mortgage loan originator” to mean an individual who is employed or retained by, or otherwise acts on behalf of, a mortgage lender, correspondent lender, or mortgage broker licensee, who, for, or with the expectation of, a fee, commission or other valuable consideration, takes an application for or negotiates, solicits, arranges or finds a mortgage loan. The definition excludes an “individual who solely renegotiates terms for existing mortgage loans and who does not otherwise act as a “mortgage loan originator,” unless HUD or a court of competent jurisdiction determines that the SAFE Act requires such individuals to be licensed as a mortgage loan originator under state laws implementing the SAFE Act.
The legislation and the licensing requirement became effective on July 31, 2009.
Illinois: House Bill 4011, enacted July 31, 2009, replaces the state’s existing loan originator registration requirement. The legislation adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no exclusion for loss mitigation activities.
For individuals not registered as loan originators as of July 31, 2009, the licensing requirement becomes effective no later than July 31, 2010. For individuals registered as loan originators as of July 31, 2009, the licensing requirement becomes effective no later than January 1, 2011. The legislation authorizes the Director of the Illinois Division of Banking to designate the operability date for the new licensing requirements.
Louisiana: House Bill 810, enacted July 10, 2009, amends the state’s existing originator licensing requirements under the Residential Mortgage Lending Act. As amended, the Act adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.”
Although the Act does not expressly exclude individuals engaged in loss mitigation activities from the definition of “mortgage loan originator,” the Act authorizes the Commissioner of the Louisiana Office of Financial Institutions to exempt mortgage servicer loss mitigation specialists if the Commissioner determines that such an exemption is compliant with the minimum standards set forth in the federal SAFE Act. As yet, it is unclear whether and to what extent the Louisiana Commissioner will implement such an exemption.
The legislation and licensing requirement became effective on July 31, 2009. However, the new licensing requirement does not apply to the following persons until July 31, 2010: (1) Any person whose residential mortgage lending activities were not subject to licensing prior to July 31, 2009; or (2) Any person engaged in residential mortgage lending activities pursuant to an exemption prior to July 31, 2009.
Massachusetts: House Bill 4178, enacted July 31, 2009, replaces the state’s existing mortgage loan originator licensing requirements. The legislation adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no exclusion for loss mitigation activities.
The legislation became effective on July 31, 2009. The new licensing requirement becomes effective on January 1, 2011 for individuals who are licensed as mortgage loan originators as of July 31, 2009. For all other individuals, the licensing requirement becomes effective on July 31, 2010.
Michigan: Senate Bill 462, enacted July 28, 2009, amends the existing registration requirements found in the Michigan Mortgage, Brokers, Lenders and Servicers Licensing Act and the Secondary Mortgage Loan Act. As amended, the Act adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no express exclusion for loss mitigation activities.
However, the Act delays the implementation of the licensing requirement for individuals employed exclusively by a mortgage servicer, who are authorized to perform loan modification activities concerning existing residential mortgage loans, and who do not originate new residential mortgage loans or perform any other activities of a mortgage loan originator, until July 31, 2011.
The legislation became effective on July 31, 2009. The licensing requirement is set to take effect on July 31, 2010, except with respect to certain individuals employed exclusively by a mortgage servicer, as described above.
New Hampshire: House Bill 610, enacted July 30, 2009, amends the state’s existing licensing requirement found in the Licensing of Nondepository Mortgage Bankers and Brokers Act. As amended, the Act adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no express exclusion for loss mitigation activities.
The legislation and licensing requirement became effective on July 31, 2009.
New York: House Bill 6924 and Senate Bill 3725, enacted on July 11, 2009, replace the state’s existing mortgage loan originator registration requirement. The legislation adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no express exclusion for loss mitigation activities.
The legislation and the licensing requirement became effective on July 11, 2009.
North Carolina: House Bill 1523, enacted July 31, 2009, replaces the state’s existing mortgage loan originator licensing requirement. The legislation adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” However, the legislation provides that the term “mortgage loan originator” only includes an individual acting solely as a loss mitigation specialist if HUD issues a guideline, rule, regulation, or interpretation letter that those individuals are “loan originators” as the term is defined under the SAFE Act, and only to the extent HUD makes such a determination. Thus, individuals acting solely as loss mitigation specialists are not subject to licensing unless HUD issues some guidance that such individuals are loan originators under the SAFE Act.
The legislation defines “loss mitigation specialist” as an employee of a mortgage servicer authorized to: (i) collect or receive payments, including payments of principal, interest, escrow amounts, and other amounts due on existing residential mortgage loans due and owing to the licensed lender or servicer when the borrower is in default or in reasonably foreseeable likelihood of default; (ii) work with the borrower to collect data; and (iii) make decisions necessary to modify, either temporarily or permanently, certain terms of those residential mortgage loans or to otherwise finalize collection through the foreclosure process. Such decisions may include any change in the principal amount of the debt, the rate of annual interest charged, the term of the loan, the waiver of any fees or charges, including late charges, the deferral of payments, or any other similar matter.
The legislation and the licensing requirement became effective on July 31, 2009. Mortgage loan originators who were licensed prior to July 31, 2009, must meet the new requirements by December 31, 2009.
Ohio: House Bill 1, enacted July 17, 2009, amends the state’s existing mortgage broker and mortgage lender licensing/registration requirements. 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.
The legislation defines “mortgage loan originator” to mean an individual who for compensation or gain, or in anticipation of compensation or gain, does any of the following: (1) Takes or offers to take a residential mortgage loan application; (2) Assists or offers to assist a borrower in obtaining or applying to obtain a residential mortgage loan by, among other things, advising on loan terms, including rates, fees, and other costs; (3) Offers or negotiates terms of a residential mortgage loan; (4) Issues or offers to issue a commitment for a residential mortgage loan to a borrower.
An individual acting exclusively as a servicer engaging in loss mitigation efforts with respect to existing mortgage transactions will not be considered a “mortgage loan originator” until July 1, 2011, unless such delay is denied by HUD.
The legislation becomes effective on January 1, 2010. The Ohio Division of Financial Institutions began accepting application for mortgage loan originator licenses on July 17, 2009.
Oregon: House Bill 2189, enacted July 30, 2009, amends the existing loan originator registration requirements under the Oregon Mortgage Lender Law. As amended, the Mortgage Lender Law adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no express exclusion for loss mitigation activities.
The legislation and the licensing requirement became effective on July 30, 2009.
Pennsylvania: House Bill 1654, enacted August 5, 2009, replaces the existing mortgage loan originator licensing requirement. The legislation adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.”
There is no express exemption for individuals engaged in loss mitigation per se, but, individuals employed by a licensee or exempt person who “solely renegotiate terms for existing mortgage loans held or serviced by that licensee or person and who do not otherwise act as a mortgage loan originator” are expressly excluded from the definition of “mortgage loan originator.” However, that exemption will not apply if a court or HUD determines that the SAFE Act requires those employees to be licensed as “mortgage originators” under state law.
The legislation and the licensing requirement became effective on August 5, 2009.
Rhode Island: House Bill 5704 and Senate Bill 461, enacted July 17, 2009, replace the state’s existing licensing/registration requirements. The legislation adopts the disjunctive HUD State Model Law definition of “mortgage loan originator.” There is no exclusion for loss mitigation activities.
The legislation became effective on July 16, 2009, and the licensing requirement took effect on July 31, 2009 for persons not previously licensed as mortgage loan originators in Rhode Island. For those previously licensed as mortgage loan originators in Rhode Island, the effective date is January 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.