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CSBS Announces Implementation Date for National Mortgage Loan Originator Test
On January 16, the CSBS announced that a new national mortgage loan originator (MLO) test with a uniform state component will be available on April 1, 2013. The 2009 SAFE Act requires that MLOs pass a test in order to obtain a state originator license through the NMLS. Since adoption of the SAFE Act, the test has been comprised of two parts: a national component and a state-specific component. The new test administered by the NMLS is meant to streamline the licensing process for originators seeking to obtain licenses in multiple states. Twenty state agencies will no longer require a state-specific test component as of April 1, 2013, with four more states removing the requirement on July 1, 2013. The NMLS posted additional details about the test, including costs and enrollment eligibility.
Ohio Creates Temporary Loan Originator License
Last month, Ohio enacted a bill, S.B. 333, to allow the Division of Financial Institutions to offer a transitional loan originator license to assist an originator licensed by another state to transition to employment with an Ohio-regulated firm. The new license allows a transitioning out-of-state originator to originate loans on a temporary basis—120 days—while the originator completes the requirements of obtaining a state-issued annual license. A transitioning originator must have a sponsor that meets certain criteria and must pay a fee as set by the state regulator. In addition, the law directs the state regulator to adopt regulations allowing an originator from a federally regulated institution to obtain a temporary state license after federal law is changed to allow such transitional licenses. The CFPB has interpreted current federal law to prohibit such transitional licenses.
NMLS Issues Annual Renewal Reminder
On November 1, the NMLS issued a reminder that the renewal period for state-licensed entities and individuals runs from November 1, 2012 through December 31, 2012. The NMLS also provided a Renewal Handbook to guide users in the renewal process, as well as state-specific renewal FAQs, and deadline and fees charts.
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.
State Law Update: California Amends Mortgage Licensing Statute
On September 7, California enacted Assembly Bill 2666, which updates and clarifies portions of the state's Residential Mortgage Lending Act and Finance Lenders Law to parallel federal implementation of the SAFE Act. The bill requires licensing of individuals who engage in the business of a mortgage loan originator, and sets forth exemptions for employees of nonprofit organizations and government employees. The bill also clarifies requirements for subsidiaries of depository institutions owned and controlled by federally regulated depository institutions, and addresses the validity of certain NMLS records.
State Law Update: Montana Adopts Mortgage Servicer Regulations
On September 6, the Montana Department of Administration published final rules governing mortgage servicers. In 2011, Montana enacted House Bill 90, which made numerous revisions to the Montana Mortgage Broker, Mortgage Lender, and Mortgage Loan Originator Licensing Act concerning the licensing and regulation of mortgage servicers. The bill also updated licensing and other requirements for brokers, lenders and originators. The new regulations implement these amendments, addressing mortgage servicer (i) quarterly reporting requirements, (ii) record keeping requirements and electronic record keeping rules, (iii) renewal application deadlines, and (iv) escrow fund requirements. The final rules also amend existing regulatory definitions and other provisions impacting all mortgage licensees. The adopted regulations largely track the proposed versions, with the exception of changes made in response to comments or to address technical issues.
State Law Update: Washington Amends Consumer Loan Act and Mortgage Broker Practices Act Regulations
Recently, the Washington State Department of Financial Institutions finalized two rulemakings to amend existing regulations and adopt new regulations under the Consumer Loan Act and the Mortgage Broker Practices Act. The final rules make numerous changes impacting mortgage and other consumer lenders, including with regard to licensing and reporting. For example, the amendments to the Consumer Loan Act regulations (i) add requirements and prohibitions relating to force-placed insurance, (ii) clarify licensing exemptions for consumer lenders and mortgage originators, and (iii) add new provisions addressing the activities of servicers and third party residential mortgage loan modification services. The amendments under the Mortgage Broker Practices Act include some of the changes made under the Consumer Loan Act and, among other things (i) revise the definition of mortgage broker, (ii) require approval from the Department for an individual to work as a designated broker for more than one licensee, and (iii) clarify application of loan originator requirements to inactive licensees. All of the changes take effect on November 1, 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.