This session, the Washington legislature amended the Consumer Loan Act (CLA) to impose a new entity-level licensing requirement on those engaged in the business of servicing residential mortgage loans. The legislation also expanded the applicability of the mortgage loan originator licensing requirement by expressly defining “mortgage loan originator” to include individuals performing loan modification services.
Historically, the CLA’s licensing requirement applied only to persons engaged in the business of making loans. However, last year, to comply with the mandate of the SAFE Act, the legislature amended the CLA to impose a new mortgage loan originator license requirement on individuals who for compensation or gain (i) take a residential mortgage loan application, or (ii) offer or negotiate terms of a residential mortgage loan. As a result of this SAFE Act change, it has been unclear as to whether the legislature meant for the mortgage loan originator licensing requirement to capture individuals performing loan modification activities.
The 2010 CLA amendments resolve the confusion. The CLA expands the definition of “mortgage loan originator” to expressly include persons performing loan modifications. The amendments also specifically address the applicability of the new entity-level servicer license requirement to servicers performing loan modification activities. Therefore, the legislature’s intent to capture servicer entities and individuals engaged in loan modification activities seems crystal clear.
Consumer Loan Company License. Effective July 1, 2010, the CLA requires any person engaged in the business of servicing a residential mortgage loan to obtain a consumer loan company license, unless an exemption applies. For purposes of the licensing requirement, “service or servicing a loan” is broadly defined to mean on behalf of the lender or investor of a residential mortgage loan, any of the following activities:
This change captures virtually all servicing-related activities, and even collection activities. Proposed regulations implementing the new servicer licensing provision under the CLA (expected to be final in the Fall of 2010) make it clear that the licensing requirement applies to companies servicing loans they originated, loans they purchased post closing, and/or loans owned by other companies.
The CLA provides for a number of exemptions, including an exemption for banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions, as well as for entities making loans under programs of the United States Department of Agriculture, Department of Housing and Urban Development, or other federal government program that provides funding or access to funding for single-family housing developments or grants to low-income individuals for the purchase or repair of single-family housing.
Mortgage Loan Originator License
The amendments to the CLA also expanded the definition of “mortgage loan originator” to include an individual who for compensation or gain performs residential mortgage loan modification services or holds himself out as being able to perform such services. “Residential mortgage loan modification services” includes negotiating, attempting to negotiate, arranging, attempting to arrange, or otherwise offering to perform a residential mortgage loan modification. “Residential mortgage loan modification services” also include the collection of data for submission to an entity performing mortgage loan modification services.
The CLA defines “residential mortgage loan modification” to mean a change in one or more of a residential mortgage loan’s terms or conditions. Changes to a residential mortgage loan’s terms or conditions include but are not limited to forbearances; repayment plans; changes in interest rates, loan terms, or loan types; capitalization of arrearages; or principal reductions. Under the amended CLA, there is no longer any doubt that individuals engaged in loan modification activities in Washington fall within the CLA’s definition of “mortgage loan originator.”
The good news is that there is some lead time. The definition of “residential mortgage loan modification services” does not include actions by any “individual servicing a mortgage loan” before July 1, 2011, which is the date the licensing provision for such individuals takes effect. For purposes of the delayed implementation of the mortgage loan originator licensing requirement, the CLA defines “individual servicing a mortgage loan” to mean a person on behalf of a lender or servicer licensed by Washington, who collects or receives payments including payments of principal, interest, escrow amounts, and other amounts due, on existing obligations due and owing to the licensed lender or servicer for a residential mortgage loan when the borrower is in default, or in reasonably foreseeable likelihood of default, working with the borrower and the licensed lender or servicer, collects data and makes decisions necessary to modify either temporarily or permanently certain terms of those obligations, or otherwise finalizing collection through the foreclosure process. Any individual who meets this definition is not required to obtain a mortgage loan originator license before July 1, 2011.
Despite the delay in the implementation of the licensing requirements for individuals servicing mortgage loans, the CLA, as amended, is clear: Washington intends for those engaged in servicing residential mortgage loans to be licensed.
Catharine Andricos is an associate in the Washington, D.C., office of Hudson Cook, LLP. Catharine can be reached at 202-327-9706 or by email at candricos@hudco.com.
Copyright © 2024 CounselorLibrary.com, LLC. All rights reserved.