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NCCOB’s Regulation of the Mortgage Industry. Will Corbett, Staff Attorney Office of the Commissioner of Banks September 16, 2010. Overview of Mortgage Regulation. Phase I: Mortgage Registration (1987). Initial effort to identify and track mortgage lenders and brokers
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NCCOB’s Regulation of the Mortgage Industry Will Corbett, Staff Attorney Office of the Commissioner of Banks September 16, 2010
Phase I: Mortgage Registration (1987) • Initial effort to identify and track mortgage lenders and brokers • Concern with lending practices (Predatory Lending Act in 1999) led to initiative to increase supervision of mortgage industry
Phase II: Mortgage Lending Act (2003-2009) • Required full licensure of “mortgage bankers” and “mortgage brokers” • Bond/net worth requirements • Bricks and mortar requirement for brokers • Branch office licensing • Required full licensure of individual “loan officers” • Criminal history • Experience • Education and testing • Financial responsibility • Began requiring licensure of “mortgage servicers” in 2009 • Does not apply to depository institutions
Phase III: SAFE Act • Federal SAFE Act set minimum federal standards for “mortgage loan originators” and gave states1-2 years to update state law to meet or exceed minimums • Failure to update law would lead to US Dept of Housing and Urban Development (HUD) assumption of responsibility for regulating mortgage loan originators • HUD responsible for ensuring states have effective enforcement regime and for promulgating rules
NC SAFE Act • NC SAFE Mortgage Licensing Act (2009-current) • Reorganized old-MLA into new article • MLA repealed, but continues to apply to activities prior to effective date of NC SAFE • NC SAFE Act incorporate many components of old-MLA, but added components to meet SAFE requirements • Some elements conditioned on final HUD-Approval • Application to non-profit affordable housing lenders and government lending • Status of “Loss Mitigation Specialists”
Scope: Residential Mortgage Loans • Residential Mortgage Loans are defined by N.C. G.S. § 53-244.030(20) as any loan: • Made or represented to be made to a natural person or persons • Primarily for personal, family, household and • Secured by mortgage, deed of trust or other security interest in • A dwelling located in NC • Residential real estate • Applies to loans securing vacation homes, but not investment properties or commercial loan (assuming no subterfuge) • Applies to loans secured by manufactured or modular homes, even if not attached to land
Who has to be licensed? • Anyone “engaged in the Mortgage Business” (some exemptions) • For or with expectation for Compensation or gain • Accept applications or negotiate the terms, or offer to • Make or Fund, or offer to make or fund loans • Receive and apply payments from a borrower on an existing loan • Four Categories • Mortgage Loan Originators • Mortgage Lenders • Mortgage Brokers • Mortgage Servicers
Who is a Mortgage Loan Originator (MLO)? • 53-244.030(21) defines Mortgage Loan Originator as: Any individual who, for compensation or gain : • Takes residential mortgage loan applications or offers to negotiate loans; • Accepts or solicits to accept residential mortgage loan applications; • Solicits or offers to solicit a mortgage loan; • Negotiates the terms or condition of a mortgage loan; or • Issues mortgage loan commitments or interest rate guarantee agreements • Method of communication is not relevant: Can be in person, by phone, by email or by mail
Loss Mitigation Specialists: License or Not? • National debate over whether SAFE’s definition of Mortgage Loan Originator covers activities of loss mitigation staff at servicer • Employees talking to borrowers about contractual terms of loan and possible, offering loan modification and accepting applications • NC SAFE defines “Loss Mitigation Specialist” – • Employee of servicer authorized to • Collects amounts owed when borrower is in default • Collects data from borrower • Makes decisions necessary to modify terms of loan or otherwise finalize collection process • Loss Mitigation Specialist included in MLO definition only to the extent required by final determination by HUD
Status of Non-Profits and Government Agencies under Prior Law • Non-Profits engaged in origination of loans to provide affordable housing • Employees processing applications and working with prospective homeowners, generally not paid any commission • Government Agencies Administering state, federal or local loan programs • Similarly situated employees • Both met definition of “exempt person” under under previous MLA
Status of Non-Profits and Government Agencies under SAFE • Federal SAFE Act • provided for no exemption for either government agencies or non-profits • NC SAFE • To avoid failure minimum federal requirements, does not include specific exemptions • Non-profit and Government Lending activity may not meet definitional requirement of engaging in business for “compensation or gain” • Also question as to treatment of employees handling applications • NCCOB position - Pending final HUD decision, NCCOB will not take any enforcement action against existing non-profits or government agencies or employees which previously operated under MLA exemption
Other MLO exclusions • Does NOT include (among other exclusions in 53-244.030(21)c. • Individuals engaged solely as loan processors or underwriters, so long as they do not communicate directly with borrowers • Individuals who only inform borrowers of availability of mortgage businesses, and do not take or assist in the completing of a loan application • A sales person at a manufactured housing dealer who does not pull a borrowers credit unless at the request of a licensed MLO who has already received an application filled out by the borrower with no assistance, other than physically transmitting it, from the sales person.
MLO exemptions • Exempted from licensure, G.S. 53-244.040(d): • Depository Institutions and certain subsidiaries • MLOs who are employed by banks or their subsidiaries and registered • Loans to immediate family members • Purchases financed by someone selling their principal residence • Attorneys who negotiate loan terms, incidental to their representation, so long as neither “holding themselves” out, nor compensated by a lender, broker or MLO • Seller-financer, with limitation of no more than five loans per yer
Requirements of licensure for mortgage loan originators • No previous revocation, SEE 244.060(1) • Pre-licensure education – 24 hours total, SEE 244.070 • Test - Pass written national test developed by NMLS&R and a written test on North Carolina law and regulation, SEE 244.080 • Criminal Record - convictions, pled guilty or nolocontendere, SEE 244.060(2) and (3) • No felonies, convicted, pled or nolocontendere in the last 7 years • Never had certain felonies – e.g. fraud, money laundering • Not had certain Misdemeanors within 5 years • Financial responsibility (credit score, history of repaying debts), SEE 244.050(C)(2)a. and .060(4) • Character and fitness determination, SEE 244.060(4)
Requirements of licensure for lenders, brokers, and servicers • Meet Bond Requirements - indexed by volume, SEE 244.103 • Minimum Net Worth Requirement,SEE 244.104 • Experience – Have “Qualified Individual” SEE 244.040(e) and .050(2)c. • Principal Officer, manager or general partner • At least three years of experience • Operate business under full, supervision charge, and control • Branch managerSEE 53-244.040(f) • For all branches, manager with at least three years of experience
NCCOB oversees mortgage activities • Routine examinations of books and records (13 examiners) • Examinations scheduled according to agency priority • Confidential Reports of Examination • Investigations (Mortgage assigned 2 FTE investigators, analyst, director) • Consumer Affairs • Facilitating and reviewing licensee response to complaints from consumers • Foreclosure Prevention Project • Connecting Borrowers to housing counseling and monitoring Mortgage Servicer efforts to avoid foreclosure
Duties of Mortgage Brokers SEE 244.109 • Safeguard and account for money handled for borrowers • Act with reasonable care, and follow reasonable instructions from the borrower • Make reasonable efforts to a reasonably advantageous loan • Timely and clearly disclose material information to borrowers • Exercise loyalty to the borrower and represent borrower’s best interest in the transaction • Not engage in discriminatory treatment or advertising
Duties of Mortgage Servicers, SEE 244.110 • Safeguard and account for money handled for borrowers • Follow reasonable instructions from borrowers • Act with reasonable skill, care, and diligence • Upon accepting servicing of a loan provide timely disclosures • notice of transfer, list of fee schedule • Provide NCCOB with a list of fee ranges charged to borrowers • Report to NCCOB on servicing activity
Prohibited Activities, SEE 53-244.111 • Applies to “any person in the course of a residential mortgage loan transaction” • Licensees • Unlicensed Actors • Depository Institutions and their employees • Individuals otherwise excepted or exempted from licensure
Prohibited Activities: Key prohibitions (cont’d) • (1) Misrepresentation to induce a borrower to take mortgage loan • (4) Pay, receive, or collect any compensation for brokering or servicing a loan in violation of NC SAFE • “(5) To charge or collect any fee or rate of interest or to make or broker or service any loan with terms or conditions in a manner contrary to provisions of Chapter 24, 45, or 54 of the general statutes.” • (8) To engage in any transaction, practice or course of business that is not in good faith or fair dealing or that constitutes a fraud upon any person in connection with the brokering or making or servicing of, or purchase or sale of any mortgage loan.”
Prohibited Activities: Key prohibitions (cont’d) • (9) Failure to promptly pay appraiser for appraisal services • (11) To improperly influence or attempt to influence an appraisal • (14) To fail to comply with applicable State and Federal laws and regulations related to mortgage lending or mortgage servicing.
Disciplinary Authority , SEE 53-244.116 • Deny, suspend, revoke or refuse to renew license • Impose Civil Money Penalties up to $25,000 • Require disgorgement of amounts received and collected in violation of Chapter 24 • Summary actions (with opportunity for hearing) • Summarily order licensee or person to cease and desist from any harmful activities or violations • Summarily suspend license