InfoBytes Blog

State Law Update: Hawaii Establishes Transition Period for Certain Mortgage Loan Originators

On July 25, the Hawaii Department of Commerce and Consumer Affairs (DCCA) announced a transition period for certain mortgage loan originator companies (MLOCs) to comply with recently enacted mortgage loan originator (MLO) licensing requirements. Pursuant to Act 252 (Session 2012), effective July 1, 2012, all exempt registered MLOs and MLOCs of a subsidiary of an insured depository institution regulated by a federal banking agency are required to be licensed under the state’s SAFE Act. Under the DCCA action, affected MLOs can continue to engage in mortgage loan origination activity until September 30, 2012, provided that they take certain preliminary steps towards compliance, such as creating a record in the Nationwide Mortgage Licensing System.

Mortgage Licensing Mortgage Origination NMLS

CFPB Announces Senior Staff Changes

On June 19, the CFPB announced a series of senior leadership changes and additions. Meredith Fuchs will now serve as General Counsel. She replaces Leonard Kennedy, who will now serve as Senior Advisor and Counselor to Director Richard Cordray. Ms. Fuchs had been serving as CFPB Chief of Staff and, prior to that, served as Principal Deputy General Counsel. Garry Reeder, who had been Senior Advisor to the Deputy Director, will now serve as Acting Chief of Staff. Steven Antonakes has been promoted to Associate Director for Supervision, Enforcement, and Fair Lending. The Assistant Director of Large Bank Supervision position that he leaves behind will be filled on an “acting” basis by Paul Sanford, who has been serving as Chief of Staff for Large Bank Supervision. In addition, Wendy Kamenshine has transitioned from Acting Ombudsman to Ombudsman, Clifford Rosenthal joined the CFPB as Assistant Director of Financial Empowerment, and Camille Busette was hired as Assistant Director of the Office of Financial Education.

CFPB

FCC Seeks Comments on Mobile Device Privacy, Data Security

Recently, the FCC released a request for public comment on the privacy and data security of personal information on mobile devices.  The request focuses on the amount and types of consumer information that may be collected by carriers. For example, the FCC lists a series of factors, including (i) the degree of control that the service provider exercises over the design, integration, installation, or use of the software that collects and stores information, (ii) the manner in which the collected information is used, and (iii) the role of third parties in collecting and storing data, and asks which, if any, are relevant to assessing a wireless provider’s obligations under the Communications Act and the Commission’s implementing rules. The FCC will accept public comments for 30 days from publication of the request in the Federal Register. In 2007, the FCC similarly solicited comments and revised its rules under the Communications Act to tighten data security requirements and address pretexting.

Mobile Commerce FCC Privacy/Cyber Risk & Data Security

CFPB Clarifies Transitional Licensing for Mortgage Loan Originators

On April 19, the CFPB issued Bulletin 2012-05 to clarify issues related to the transitional licensing of mortgage loan originators under the SAFE Act and Regulation H. According to the Bulletin, (i) states are allowed to provide a transitional license to an individual with a valid license from another state, but (ii) states are prohibited from providing a transitional license for a registered loan originator who leaves a federally regulated financial institution to act as a loan originator while pursuing a state license.

CFPB Mortgage Licensing Mortgage Origination

State Law Update: Several States Alter Mortgage and Other Consumer Finance Laws

CSBS and NMLS Issue New Forms for Expanded Use of Registry. On April 16, the Conference of State Bank Supervisors and the National Mortgage License and Registry System (NMLS) issued new licensing forms to support the CSBS’s previously announced plans to expand the use of NMLS to include nonbank, non-mortgage financial service providers. With the issuance of the new forms, the NMLS announced that 11 states have committed to requiring non-mortgage financial services institutions to begin using the NMLS this year, with Washington, Vermont, and Rhode Island as the most recent to provide transition plans. The other states include theDistrict of Columbia,Idaho,Louisiana,Maryland,Massachusetts,New Hampshire,Oklahoma,Tennessee, andPennsylvania. Nebraska Expands NMLS Use and Alters Mortgage Licensing. On April 5, Nebraska enacted Legislative Bill 965 to require and provide for the transition of the state’s manual licensing of installment loan companies to licensing through the NMLS. This change will take effect beginning January 2013. The law also amends the Residential Mortgage Licensing Act to, among other things (i) update and add certain exemptions for mortgage banker and mortgage loan originator licensing requirements, and (ii) adjust the powers of the Department of Banking and Finance to administer the mortgage banker and loan originator licensing process. Kentucky Enacts Numerous Bills Impacting Mortgages and Vehicle Finance. On April 11, Kentucky Governor Steve Beshear signed several bills impacting consumer lending. House Bill 417 makes a variety of amendments impacting motor vehicle installment contracts, including, among other things, (i) altering the form and required content of retail installment contracts, (ii) adjusting the permissible delinquency and collection charge on an installment in arrears for a period of 10 or more days, (iii) creating a safe harbor for retail installment contracts that satisfy the requirements of the Truth in Lending Act, and (iv) making various amendments regarding retail installment sales that are precomputed. House Bill 62 and House Bill 396 relate to foreclosures. The former requires a mortgage holder to file a deed in lieu of foreclosure with the county clerk within 45 days of the instrument's execution and allows for a penalty in the form of a violation of law for any mortgage holder who fails to do so. The bill also exempts filing deeds in lieu of foreclosures from the state’s transfer tax on property as well as the voluntary surrender under a mortgage in lieu of a foreclosure proceeding. The latter relates to an expedited sale mechanism for foreclosures involving vacant and abandoned real property and amends the offense of defrauding a secured creditor to add situations where collateral is intentionally damaged. Finally, House Bill 409, among other things, exempts from most laws and regulations applicable to mortgage loan companies and brokers persons other than natural persons that originate four or fewer mortgage loans per year and do not hold themselves out to be primarily in the mortgage loan business, while House Bill 533 prohibits private transfer fees. Oregon Establishes Foreclosure Mediation Process. On April 11, Oregon established a foreclosure mediation process when it enacted Senate Bill 1552. The law requires that a beneficiary (i) enter into mediation with a grantor for the purpose of negotiating a foreclosure avoidance measure and (ii) notify a grantor if they are not eligible for any foreclosure avoidance measure or if the grantor has not complied with the terms of a foreclosure avoidance measure. The new law details the form for notices required under the new process and establishes potential penalties for a beneficiary failing to comply with the new procedures. The bill took effect on April 11, with most of the new requirements becoming operative 91 days after the effective date. Maryland Alters Mortgage Licensing Exemptions, Expands Commissioner’s Enforcement Power. On April 10, Maryland enacted Senate Bill 302, which removes the mortgage licensing exemption for a person who makes three or fewer mortgage loans per calendar year and brokers no more than one mortgage loan per calendar year. The law also expands the authority of the Commissioner of Financial Regulation to investigate and enforce state law with regard to a subsidiary or affiliate of an institution over which the Commissioner has jurisdiction. The law becomes effective on January 1, 2013.  Colorado Amends Foreclosure Law. On April 12, Colorado passed a law amending administrative procedures under its foreclosure law. Pursuant to Senate Bill 30, effective September 1, 2012 counties must (i) notify a homeowner during the foreclosure process that they may be due money if excess funds are obtained through the sale of their foreclosed property, (ii) attempt to locate the homeowner and notify them of excess funds obtained from the public auction of their foreclosed property, and (iii) turn excess funds over to the state treasurer if the homeowner cannot be located. The state will hold the funds in perpetuity, allowing a homeowner to claim the funds at any time. Under existing law, counties are not required to conduct any initial outreach and can retain for themselves any money not claimed within five years of the sale.

Foreclosure Mortgage Licensing Nonbank Supervision Auto Finance

Washington Enacts Multiple Amendments to Consumer and Mortgage Lending Laws

On March 8, Washington enacted HB 2255, which alters state regulation of consumer loan companies, including mortgage originators, check cashers and sellers, and payday lenders. Under the Consumer Loan Act, which covers nonbank consumer lenders including nonbank mortgage originators, consumer lenders are prohibited from making a loan from an unlicensed location. The Director of the Department of Financial Institutions can, among other things, order refunds to customers, informally settle complaints and enforcement actions, and issue subpoenas. Entities offering retail installment sales using open loop prepaid cards are no longer exempt from the Consumer Loan Act. Under the Check Cashers and Sellers Act, which covers entities that cash or sell checks, drafts, money orders, or other commercial paper, as well payday lenders, the definition of “licensee” is amended to include out-of-state entities, as well as those that should have a small loan endorsement. The Director can informally settle complaints and enforcement actions regarding covered entities. The bill includes new prohibited practices for check cashers and sellers, including (i) selling open loop prepaid access in a retail installment loan, (ii) advertising a statement that is false or deceptive, (iii) failing to pay annual assessments on time, and (iv) failing to pay other monies due to the Director. The law allows for the transition of check cashers and sellers, escrow agents, and money transmitters to the National Mortgage License System and Registry. HB 2255 also eliminates the requirement that mortgage originators provide a state disclosure form, so long as the originator offers disclosures in compliance with federal Regulation X. All of the above changes take effect June 7, 2012.

Payday Lending Mortgage Origination

Fannie Mae Provides Guidance Regarding Hardest-Hit Fund

On March 6, Fannie Mae issued Servicing Guide Lender Letter LL-2012-02 to all single-family servicers to provide guidance in connection with transition assistance programs under the Hardest-Hit Fund (HHF). Effective immediately, servicers must facilitate the borrowers’ receipt of HHF funds in connection with transition assistance programs on Fannie Mae loans, including those held in a Fannie Mae portfolio or those in an MBS pool with the special servicing option or a shared-risk MBS pool for which Fannie Mae markets the acquired property. The Lender Letter also clarifies policies related to implementation of the HHF unemployment, reinstatement, and loan modification assistance programs, including clarifications regarding (i) collection and solicitation activity, (ii) foreclosure actions, and (iii) servicer obligations when dealing with housing finance agencies.

Fannie Mae Mortgage Servicing Servicing Guide

Special Alert: Report on NMLS Annual User Conference and Training

The Nationwide Mortgage Licensing System and Registry (NMLS) held its fourth annual NMLS User Conference and Training (the Conference) in Scottsdale, Arizona from February 6-9, 2012. The Conference brought together state and federal mortgage regulators, industry professionals, compliance companies, top law firms, and education providers to learn about the latest developments in mortgage supervision and to discuss pressing issues confronting the industry. This special report includes a summary of key topics addressed at the meeting as well as announcements regarding important state licensing initiatives, including:  (i) enhancements to the NMLS system to expand its use for licensing of non-mortgage financial services companies, (ii) issuance of SAFE Act examination guidelines, and (iii) the announcement of efforts to develop a uniform mortgage loan originator state test.

The first day of the Conference included the bi-annual NMLS Ombudsman Meeting, which provided an opportunity for NMLS users to raise issues concerning the NMLS, state and/or federal regulation. NMLS Ombudsman Deborah Bortner, Director of the Non-Depository Division of the Washington Department of Financial Institutions, presided over the meeting, in which specific questions submitted by industry representatives were addressed. Several of the submitted questions focused on "leveling the playing field" between depositories and non-depositories by suggesting various means to allow a more efficient flow of mortgage loan originators (MLOs) from a federally-registered MLO status to a state-licensed MLO status. Suggestions included "transitional licensing", which would allow a federally registered MLO that moves to a state-licensed entity to continue operating for a period of 120 days, during which the individual would complete education, testing and other requirements in order to secure licenses within the transitional approval. Another suggestion was to allow federally registered MLOs to complete state education, examination, and other approval requirements prior to moving from a federal registrant to a state licensee. During a later panel, the Consumer Financial Protection Bureau (CFPB) indicated that there are no immediate plans to amend the requirements applicable to federal registrants.

Full details regarding the specific issues submitted for comment, as well as accompanying exhibits, are available on the NMLS website.  A recording of the Ombudsman Meeting should be posted to the NMLS Resource Center in the near future.

The remaining days of the Conference covered various federal and state regulatory rule implementation, updates for industry, and a look ahead at new initiatives and changes to the NMLS. Specifically, various sessions covered the following issues:

• The CFPB’s supervision of the mortgage industry and the direction that the CFPB is taking with respect to depository and non-depository financial services, including a discussion with CFPB staff regarding issues of interpretation and implementation of state licensing, NMLS and the rules implementing the SAFE Act. Of particular interest, the CFPB indicated that it has started planning its first set of exams of non-depository financial institutions and that the CFPB will select institutions for examination based on size, volume, type of product or service offered, extent of state oversight, patterns of complaints, and other factors.
• Industry views on the regulation of and the future of the mortgage industry.
• Updates regarding the Mortgage Call Report, including a review of preliminary data, how it is used by regulators, and a review of additional changes and updates to assist with the compliance process.
• Review of the NMLS federal registration process and a discussion on how to improve the process.
• NMLS testing and education discussion, with a focus on understanding the desire from industry for increasing the available continuing education topics in order to provide a better learning experience for MLOs.
• NMLS federal examination and third party compliance management, including a discussion of best practices that institutions can consider to efficiently and effectively implement policies and procedures to ensure third parties are properly licensed and/or registered.
• Credit and criminal background checks for MLOs, control persons, and branch managers, which included discussions of expanding the criminal background check process from MLOs to also include branch managers and control persons.
• Potential modifications to the NMLS to accommodate state pre-notification filings for changes in control, changes in branch manager, or other changes in corporate structure or operations that require prior notice.
• Federal and state rules implementation, including ability to repay, loan officer compensation and TILA/RESPA disclosure conflicts.
• Discussion of important FHA rule changes for 2011 and upcoming changes in 2012.
• Surety bonds necessary to comply with state and federal law, including underwriting considerations, risk mitigation, and claim resolution.

In addition to the above general sessions, the Conference covered several major changes and new initiatives announced by the Conference of State Bank Supervisors (CSBS), including:

• System Enhancements and Expansion of NMLS to Cover Additional Financial Services Companies. The CSBS announced plansto expand the use of the NMLS to include nonbank, non-mortgage financial service providers, including consumer lenders, money services businesses, and debt collectors. Following this expansion, these other nonbank firms will be obligated to alter their compliance programs in order to apply for, amend, and renew state licenses using the NMLS. Entities that previously obtained and maintained relevant licenses via hard-copy applications and filings will be required to transition onto the NMLS, a process which could prove difficult as licensee's struggle to learn the new system and which may allow the state agency an opportunity to vet anew its licensees. While the electronic application and related processes will be centralized and uniform, entities that use the NMLS to obtain and maintain their licenses still will be subject to various unique state-specific requirements, which must be dealt with outside of the NMLS. For many participants in the mortgage industry, the mandated use of the NMLS has brought with it heightened compliance costs and increased reporting requirements, particularly as states increased disclosure and other application requirements to become more consistent with other states.  Non-mortgage state licensed financial institutions should be mindful of this experience and be prepared to review their licensing compliance procedures and resources following transition to the NMLS.  At a minimum, licensees should carefully monitor developments regarding licensing requirements during and after the transition to the NMLS.Through expansion of the system state bank regulators expect to see improved efficiency, and regulated entities can expect enhanced supervision and increased public access to license, registration, and supervisory information. The expansion is scheduled to begin in April when at least 12 states will begin transitioning their exiting licensing and registration systems to the NMLS.Further, the April expansion and update will include other changes and enhancements in an effort to improve the system overall:

• New Workflow – the changes and enhancements to the system require a new "license management workflow" (i.e., online navigation and information contained in the uniform plans) to support the new Business Activities section. The new workflow will (1) introduce a new navigational landing page in the Company (MU1), (2) combine the selection of licenses and entry of transition numbers into one step, and (3) introduce new navigation items onto the License/Registrations page.
• Amended Forms – the uniform mortgage forms (i.e., MU1 and MU3) will be amended to "Company Filing" and "Branch Filing", respectively, in anticipation of the expansion of the system to cover non-mortgage related industries.
• Business Activities – expands this section of the Form MU1 to allow users to identify a broader range of business activities conducted by the user (e.g., loan modifications, seller of money orders) based on definitions developed by the states.
• Approvals and Designations – introduces new approval and designation types, and allows users to add approval or identification numbers.
• Disclosure Explanation – in addition to updated company, branch and individual disclosure questions, a new disclosure explanation feature will allow users to add explanations to each disclosure question that has a “yes” answer in conjunction with submitting a filing.
• Document Upload – users will be able to upload specific materials into the NMLS to be shared by state regulators, thereby eliminating the need to send certain materials via hard copy outside the system. The type of materials that may be uploaded may include business plans, certificates of good standing, fidelity bonds, errors and omissions insurance, and other materials generally provided in the application and renewal process.
• Criminal Background Check for a Control/Qualifying Individual – all state licensed individuals will be required to complete a criminal background check via the NMLS.

Copies of the updated forms and "Business Activities Description" are available on the NMLS under News & Events.

Upon implementation of the new forms in April, existing NMLS users should be aware that in order to submit any new applications, address updates, addition of officers, or other general maintenance items, the company will be required to complete all new Company Filing fields, and the company's control persons and qualifying individuals must complete additional questions and information requests.

• SAFE Act Examination Guidelines. The Multi-State Mortgage Committee (MMC), a ten-state representative body created by CSBS and AARMR, issued SAFE Act Examination Guidelines (SEGs) for use by state non-depository mortgage regulators.  The SEGs are not required guidelines for state agencies, but utilization of SEGs is intended to allow state agencies to determine compliance with the SAFE Act and provides consistent and uniform guidelines for use by institution in-house compliance and audit departments conducting SAFE Act and state compliance reviews. The SEGs are presented in a question and answer format and are “modular,” such that state mortgage regulators may easily use part or all of the SEGs as they see fit.

• Uniform MLO State Test. The CSBS announced that efforts are underway to develop content for a uniform MLO state test. Currently, an MLO is required to take the state component of the SAFE Act mortgage loan originator test for each state in which he or she intends to be licensed. With the introduction of a uniform MLO state test, an MLO will meet the testing requirement for multiple states by passing a single test that includes content representative of all of the states.An ad hoc committee composed of state regulators has been charged with researching the feasibility of developing a uniform MLO state test.  In coordination with industry subject matter experts and test consultants, the committee has completed its initial feasibility studies and test development is now underway. Later this year, the committee plans to present a uniform test proposal to state regulators.

A message that pervaded the Conference was that with the completion of several multi-year NMLS initiatives responding to the requirements of the SAFE Act (e.g., the introduction of the NMLS Mortgage Call Report), NMLS is turning its attention to implementing changes to and expanding the NMLS.  While the changes are ultimately intended to streamline the NMLS process, current NMLS users should prepare for additional oversight and regulation, and licensees transitioning onto the system should prepare for heightened compliance costs and increased reporting requirements.

For more information about NMLS, visit the NMLS Resource Center, About NMLS.

CFPB Mortgage Licensing Nonbank Supervision Mortgage Origination

Obama Administration Expands Housing Recovery Plans

On February 1, President Obama unveiled a plan to expand government support for the housing market, including a broad-based refinancing plan. The plan, announced during the President's State of the Union Address, combines changes to existing programs and creation of new initiatives, some of which will require congressional action. First, the President will ask Congress to enact legislation to allow the Federal Housing Administration (FHA) to provide government support for the refinancing of non-Fannie Mae and non-Freddie Mac mortgages. The $5 to $10 billion program would be funded by a fee imposed on the largest financial institutions. For borrowers with Fannie Mae or Freddie Mac loans, the legislation would further streamline existing refinance programs and create incentives for borrowers to accept shorter loan terms to build equity. Second, the administration will continue its work to create new mortgage origination and servicing standards in an effort to create a Homeowner Bill of Rights. Third, the Federal Housing Finance Agency (FHFA) will conduct a pilot program through which it will sell foreclosed properties to be transitioned into rental housing. Finally, the President's upcoming budget will include a national program to put unemployed construction workers back to work refurbishing vacant and foreclosed properties.

The President also highlighted the work of the recently-formed Residential Mortgage-Backed Securities Working Group, and reviewed the success of existing government efforts (e.g., those related to unemployment forbearance). Further, the announcement incorporated a Treasury Department move last week to enhance the Home Affordable Modification Program (HAMP) by (i) extending HAMP's deadline through December 31, 2013, (ii) expanding borrower eligibility for HAMP, and (iii) encouraging use of principal reduction for loans insured or owned by Freddie Mac or Fannie Mae. In response, the FHFA reiterated its opposition to use of principal reduction by Fannie Mae and Freddie Mac.

Freddie Mac Fannie Mae Mortgage Origination Mortgage Servicing HAMP / HARP

Freddie Mac Issues Selling Bulletin Regarding ULDD Update

On January 31, Freddie Mac issued Bulletin 2012-3 to formally extend the Uniform Loan Delivery Dataset (ULDD) implementation schedule, consistent with an earlier announcement. ULDD mandatory compliance is now required for all loans submitted to Freddie Mac on or after July 23, 2012 (previously March 19, 2012). To provide a transition period, Freddie Mac will update its system for the ULDD data points on April 23, 2012 (previously January 23, 2012). The Bulletin also alerts sellers as to the Single-Family Seller/Servicer Guide updates requiring new ULDD data points for all mortgages with application received dates on or after August 1, 2012 that are delivered on or after November 26, 2012. Lastly, the Bulletin notifies sellers that Appendix A of the Implementation Guide for Loan Delivery Data has been updated to reflect these changes.

Freddie Mac