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CSBS Proposes Uniform Reporting of Authorized Delegates for Money Service Businesses
On September 28, the Conference of State Bank Supervisors (CSBS) proposed a system for state-licensed money service businesses (MSBs) to report information concerning authorized delegates through NMLS. Licensed MSBs are permitted to contract with third-parties-authorized delegates-to perform the function of receiving and dispensing funds on behalf of the MSB. Most state regulators require that MSBs report information regarding their authorized delegates. NMLS currently is expanding to allow state agencies to manage filings by non-mortgage companies, including MSBs. To date, nine states have started to manage or have announced their intent to manage MSB licenses through NMLS. An NMLS working group has determined that the reporting of authorized delegate information is not supported by NMLS' existing platform. The instant proposal (i) identifies new NMLS functionality to facilitate reporting of authorized delegate information, (ii) outlines policies to implement such reporting, and (iii) describes the process by which an MSB would report such information through NMLS. The CSBS has requested comment from licensees and regulatory agencies by November 1, 2012.
NMLS Announces System Enhancements
On September 26, the NMLS published a portfolio of targeted system enhancements scheduled for release on October 22, 2012. The release will include (i) credit report enhancements, (ii) updates to the federal registry disciplinary actions reporting pursuant to the SAFE Act, (iii) renewal enhancements, and (iv) other general system enhancements. One such enhancement would require federally registered mortgage loan originators to provide certain disciplinary action information related to any disclosure questions they answered in the affirmative.
Idaho and Pennsylvania Transition Certain Non-Mortgage Businesses to NMLS
Beginning September 1, 2012, Idaho and Pennsylvania transitioned to NMLS the state licensing process for certain non-mortgage consumer financial service providers. In Idaho, all money transmitters now have the option of using the NMLS to obtain or renew their licenses. In Pennsylvania, all debt management services, money transmitter, and accelerated mortgage payment providers can begin to use the NMLS for all licensing-related transactions as of September 1, 2012. Effective November 1, 2012, all new applications must be processed through NMLS, and all current license holders must submit a transition request by December 31, 2012.
Special Feature: Report on the AARMR 23rd Annual Regulatory Conference
The American Association of Residential Mortgage Regulators (AARMR) held its 23rd Annual Regulatory Conference in Boston, Massachusetts from August 14-17, 2012. AARMR is the trade association of state mortgage regulators that coordinates state-level regulation of the mortgage industry and, in partnership with the Conference of State Bank Supervisors (CSBS), created the National Mortgage Licensing System & Registry (NMLS).
The Conference brought together state and federal mortgage regulators, industry professionals, compliance companies, legal professionals, and education providers to discuss the latest developments in mortgage supervision and pressing issues confronting the industry, most notably developments regarding: (i) the SAFE Act and entity level licensing through the NMLS and (ii) the examination, enforcement and rulemaking initiatives of the Consumer Financial Protection Bureau (CFPB).
On August 14, recently appointed NMLS Ombudsman Timothy Siwy, Deputy Secretary for Non-Depository Institutions, Pennsylvania Department of Banking, presided over his first bi-annual NMLS Ombudsman Meeting, which allows NMLS users an opportunity to raise concerns and questions regarding the NMLS. Specifically, the session addressed the following topics, among others:
- Continued discussion of the states potentially issuing (1) “reciprocal licenses” for mortgage loan originators (MLOs) based on similar state education and testing standards, or (2) a 90- to 120-day “transitional license” for MLOs needing additional time to complete a state’s specific MLO requirements;
- “Inactive licenses” for federally registered MLOs, which would allow MLOs not currently employed by a state-licensed entity to obtain and maintain an “Approved-Inactive” status in the NMLS if the MLO otherwise satisfies the state’s MLO licensing requirements;
- The Uniform State Test for MLOs, which is expected to launch in Spring 2013;
- Alleviating “home state” licensure for MLOs, which is where a state requires the MLO to secure a license not because the MLO makes loans to borrowers in the state or secured by property in the state, but rather because the MLOs office is located in the home state;
- Issues facing exempt companies, such as insurance companies, that may be required to obtain entity level approval via NMLS because of certain non-lending activities performed by its employees, e.g., underwriting activities;
- States compelling submission of information from depository institutions to authorize state exemptions via the NMLS when such depository institutions may otherwise be exempt from a state’s mortgage lending law;
- The April 2012 NMLS amendments, including a request for uniformity among states regarding recently-implemented requirements to upload documentation to the NMLS; and
- Suggestions on how to improve the user interface of the NMLS.
Subsequent panel discussions provided more detailed information on several of these topics, and also examined related NMLS issues.
Details regarding the specific issues submitted for comment, as well as accompanying exhibits and an audio recording, will be made available on the NMLS Ombudsman website.
The Conference included several CFPB focused panels, which included presentations from high ranking CFPB officials.
First, on August 15, Edwin Chow, Regional Director, CFPB, West Region, discussed the CFPB’s supervision process for both banks and non-bank lenders with a focus on the recently launched non-bank exams. Mr. Chow stated that the general intention of a CFPB examination is to evaluate a company’s ability to manage its compliance. An entity’s ability to manage its compliance is assessed through the CFPB’s examination approach, which at a macro level includes:
- The CFPB initiating the first point of contact through a preliminary meeting by phone or in-person with the entity;
- Prior to an examination, issuing a letter to the entity requesting information to facilitate fast and efficient review of the entity;
- Throughout the process, coordinating with state regulators of the entity; and
- Following the examination, performing an “exit interview” prior to any finalized action to discuss tentative findings and conclusions and to address how issues may be corrected.
Regardless of the region in which the examination is being conducted, Mr. Chow indicated that the CFPB will strive for uniformity and consistency in its examination approach.
Also, on August 16, Steven Antonakes, Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, and David Bleicken, Acting Deputy Associate Director for Supervision, Enforcement, and Fair Lending, CFPB, provided an update on the CFPB’s Supervision, Enforcement, and Fair Lending division and provided an overview of the CFPB’s enforcement approach. Specifically, the officials indicated that during examinations the CFPB will:
- Focus on harm to consumers, as it weighs heavily into whether the CFPB takes a “punitive” or “instructive” approach in a particular examination, (e.g., the CFPB may consider on a case-by-case basis whether consumer reimbursements are appropriate when there was no actual harm to a particular consumer);
- Continue its efforts to maintain any relevant attorney-client privilege for information disclosed by entities. Following the issuance of its January bulletin and June 28 final rule, the CFPB has asserted that a party may submit information to the CFPB in the supervisory or regulatory process without waiving any applicable privileges;
- Utilize a product-based, rather than institution-based, focus; and
- Utilize real-time information sharing.
While the CFPB touched on the process for making decisions about what constitutes an “abusive” practice under the CFPB’s unfair, deceptive, or abusive acts or practices (UDAAP) authority, the officials declined to comment regarding mortgage-specific practices that the CFPB would generally deem to be “abusive.”
The CFPB expects to issue the first summary of its examination findings this fall.
Finally, during a separate panel on August 16, Peter Carroll, Assistant Director of Mortgage Markets, CFPB provided an overview of the CFPB’s widely-reported rulemakings on the combined TILA/RESPA disclosure form, HOEPA, appraisals, ability to repay and qualified mortgages, mortgage servicing guidelines, and MLO compensation and qualification. Mr. Carroll indicated that next year the CFPB plans to focus on HMDA reporting and reverse mortgages.
In addition to the above, the Conference covered other various federal and state regulatory issues, including the following:
- In the panel “Mortgage Fraud and Other Trends Affecting Housing Finance Federal Housing Finance Agency (FHFA) Office of Inspector General,” representatives of the FHFA-OIG provided an overview of its ongoing audits of mortgage fraud;
- “Mortgage Loan Servicing: Aftermath of National Servicer Settlement/Updates & Lessons” provided an overview of the widely-reported mortgage servicing settlement announced earlier this year. Notably, Joseph Smith, Monitor of the Office of Mortgage Settlement Oversight, provided several comments regarding the settlement and fair lending concerns. Specifically, while some have expressed a concern regarding the application of principal reductions for protected classes, the Monitor noted that violations of state fair lending laws were specifically reserved in the settlement, and the Monitor takes the position that the consumer relief provisions do not authorize him to assess whether principal reductions are being equally applied with respect to protected classes;
- In the panel “Multistate Mortgage Committee Overview of Examination Procedures: Risk Scoping to Post-Exam Enforcement,” the Multistate Mortgage Committee (MMC), which coordinates examination and supervision of mortgage lenders, servicers and brokers operating in more than one state, gave an overview of its activities that (i) emphasized a risk-based approach to examinations, and (ii) outlined an examinations process that strives for uniformity, modernization, and effectiveness;
- “A Look at Foreclosure Prevention, Loan Modification Scams and the Role of the Regulators” provided an overview of loan modification and foreclosure-related concerns, including issues affecting low-income borrowers and protected classes; and
- “FinCEN, Updates on AML for Mortgage Lenders and Originators” provided an overview of anti-money laundering, specifically the recently-effective requirement for non-banking entities, including residential mortgage lenders and originators, to file suspicious activity reports.
State Law Update: Maine Transitions Supervised Mortgage Lender and Broker Licensing to NMLS
Recently, Maine finalized a rule to convert licensing of state supervised mortgage lenders and brokers to the Nationwide Mortgage Licensing System and Registry (NMLS). In concert with the transition to NMLS, the state regulator (i) converted the state’s two-year license to a one year license, (ii) shifted the annual licensing date from September 30 to January 1, and (iii) set new licensing fees. Starting August 31, 2012, new applicants can begin using the NMLS to obtain a license and currently licensed lenders and brokers can transition to the NMLS as renewals. To aid in the transition, the NMLS provides requirements checklists and transition information on its website.
NMLS Releases Quarterly Reports
Recently, the NMLS released the Nationwide View of State-Licensed Mortgage Entities and the NMLS Federal Registry Report for the second quarter of 2012. The Nationwide View report provides information regarding state-licensed entities including application activity and licensed entities by state, among other summary data. The Federal Registry report provides summary data regarding federally registered institutions.
Illinois Amends Its Mortgage Licensing Act
On August 3, Illinois enacted numerous changes to its Residential Mortgage Licensing Act. Effective immediately, House Bill 4521 (i) increases annual licensing fees, (ii) substantially raises the cap on fines for fraudulent and deceptive acts, (iii) authorizes the state regulator to contract with the NMLS to collect and maintain records and process fees, (iv) prohibits advance fees for loan modifications, and (v) restricts short sale facilitation services to those originators who also hold a license under Illinois' Real Estate License Act. The bill amends and adds several definitions to facilitate the substantive changes above, such as its revision of the definition of “mortgage loan originator” to incorporate individuals engaged in loan modification activities. The bill also amends the state Residential Real Property Disclosure Act to require that monthly consumer debt be included in reports prepared by originators for the state predatory lending database. This change takes effect January 1, 2013.
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.
NMLS Releases First Ever Quarterly Reports
On June 6, NMLS released for the first time two quarterly publications that together provide a comprehensive overview of all individuals, mortgage companies, and depository institutions originating residential mortgages in the United States. The first report, the Nationwide View of State-Licensed Mortgage Entities, compiles data concerning companies, branches, and mortgage loan originators who are state-licensed or state-registered through NMLS. The report provides information about new applications activity, the legal status of licensed or registered companies, and state-by-state licensing data. The second report, the NMLS Federal Registry Quarterly Report, provides summary information about the charter type of federally registered entities and state-by-state summary data.
West Virginia Revises Mortgage and Consumer Lending Statutes
West Virginia recently enacted several bills to amend statutes related to mortgage licensing and servicing and consumer lender licensing. House Bill 4271 was enacted March 30 and takes effect June 8, 2012. It amends existing reporting requirements for licensed residential mortgage lenders and brokers to direct lenders and brokers to submit reports through the Nationwide Mortgage Licensing System and Registry (NMLS) for periods established by the NMLS. The law allows the Commissioner of the Division of Banking to require direct reporting, preserves the confidentiality of the reports, and alters certain public reporting obligations of the Commissioner. Also enacted on March 30, House Bill 4274, authorizes the Commissioner of the Division of Banking to fine regulated consumer lenders required to be licensed up to $2,000 for violating applicable statutory and regulatory requirements. Each day that a consumer lender engages in covered conduct without being licensed is considered a separate violation subject to a separate fine. This change takes effect June 7, 2012. On April 2, effectively retroactive to January 1, 2012, Senate Bill 551 creates an exemption to mortgage loan limitations to allow for modification or refinancing loans made between January 1, 2012 and January 15, 2015 as part of the federal Home Affordable Modification Program or any other federal or state program or litigation settlement.