Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Indiana enacts Money Transmission Modernization Act
On May 4, the Indiana governor signed SB 452 to amend Indiana code governing financial institutions. Among other things, the Act amends a provision to require the Department of Financial Institutions to adopt emergency rules no later than June 30, 2024, to authorize certain licensees (or certain exempt persons aside from a person that has voluntarily registered with the Department) “to sponsor one (1) or more mortgage loan originators, who are not employees of the sponsoring person, to perform mortgage loan originator activities” provided certain criteria is met. Requirements include that (i) each sponsored person performs mortgage loan originator activities exclusively for the sponsoring person (as provided in a written agreement); (ii) the sponsoring person assumes responsibility for and reasonably supervises the activities of each sponsored mortgage loan originator; (iii) the sponsoring person maintains a bond that covers all sponsored mortgage loan originators; and (iv) each sponsored mortgage loan originator possesses a current, valid insurance producer license as required under state law. The emergency rules must meet the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, HUD and CFPB interpretations of that Act, as well as a subsequent amendment provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
Virginia amends remote work requirements for mortgage companies
On March 26, the Virginia governor signed HB 2389, which permits mortgage lenders and mortgage brokers to allow employees and exclusive agents to work remotely provided certain conditions are met. Requirements to conduct business out of a remote location include: (i) the establishment of written policies and procedures for remote work supervision; (ii) ensuring access to platforms and customer information adheres to the licensee’s comprehensive written information security plan; (iii) the employment of appropriate risk-based monitoring and oversight processes, as well as the agreement from employees or exclusive agents who will work remotely to comply with these established practices; (iv) banning in-person customer interaction at an employee’s or exclusive agent’s residence unless the residence is an approved office; (v) the proper maintenance of physical records; (vi) compliance with federal and state security requirements when engaging in customer interactions and conversations; (vii) access to the licensee’s secure systems via a virtual private network or comparable system with password protection; (viii) the installation and maintenance of security updates, patches, or other alterations; (ix) “the ability to remotely lock or erase company-related contents of any device or otherwise remotely limit access to a licensee’s secure systems"; and (x) the designation of the principal place of business as the mortgage loan originator’s registered location for the purposes of the Nationwide Mortgage Licensing System and Registry record, “unless such mortgage loan originator elects an office as a registered location.” The amendments also add definitions for “office” and “remote location.” The Act is effective July 1.
Washington issues work from home regulations
Recently, the Washington Department of Financial Institutions adopted regulations implementing amendments to the Consumer Loan Act and the Mortgage Broker Practices Act. The amendments, among other things, allow licensed companies, subject to enumerated conditions, to permit licensed mortgage loan originators to work from their residence without licensing the residence as a branch. The amended regulations also clarify that a licensed loan originator may originate loans from any licensed location or their residence, whether located in Washington or not, so long as the mortgage loan originator’s sponsoring company is licensed to do business in Washington. The amendments are effective January 1, 2023.
CFPB and FHFA release updated loan-level mortgage data on borrowers’ pandemic experiences
On December 13, the CFPB and FHFA published updated loan-level data from the National Survey of Mortgage Originations. (See also FHFA announcement here.) The publicly available data highlights borrowers’ experiences when obtaining a mortgage during the Covid-19 pandemic. Key highlights from the updated data include: (i) in 2020 a higher percentage (48 percent) of borrowers reported that a paperless online mortgage process was important; (ii) 21 percent of borrowers reported that their mortgage closing did not occur as originally scheduled (up from 17 percent in 2019); (iii) an increased number of borrowers reported that they were very familiar with available interest rates, with 78 percent of borrowers (up from 67 percent in 2019) stating that they were very satisfied with the interest rate that they qualified for; and (iv) borrowers who refinanced in 2020 versus 2019 were better off financially, with 76 percent of borrowers who refinanced reporting that they were not concerned about qualifying for a mortgage in 2020.
“The data released today provide a clear view of borrower sentiment about the mortgage process during the COVID pandemic in 2020,” said Saty Patrabansh, FHFA Associate Director for the Office of Data and Statistics. “This data should be helpful to analysts and policymakers in understanding the complete experience of mortgage borrowers and identifying what challenges may still exist in mortgage lending.”
Pennsylvania amends remote work definition
On November 3, the Pennsylvania governor signed HB 2667, which amends the definition of “remote location” in the Pennsylvania Consolidated Statutes. In order for a mortgage loan originator sponsored by a licensee to be permitted to work from a “remote location,” the location must meet certain criteria. The amended definition includes a prohibition against “in-person consumer interaction” that is limited to “in-person consumer interaction” at a mortgage loan originator’s personal residence. It also removes a requirement for a “remote location” to maintain “physical records regarding the licensee’s mortgage loan business . . . at the location.” The bill is effective immediately.
FHA seeks to increase small balance mortgages
On October 4, FHA announced a request for information (RFI) seeking input on ways to facilitate greater origination of small balance mortgages for FHA insurance. FHA will use feedback received in response to the RFI to help identify barriers to the origination of small mortgages in its program. The agency will also consider the development of policies and programs to better support and expand affordable homeownership opportunities in underserved markets with lower housing prices and to close the racial homeownership gap. According to the announcement, the RFI seeks input on topics related to “the current availability of small mortgage financing, barriers and disincentives to small mortgage lending transactions, changes to policies or processes that would encourage origination of more FHA-insured small balance mortgages, and considerations regarding liquidity provided through securitization.” Comments on the RFI are due December 5.
In conjunction with the RFI, HUD released a report assessing factors that limit the supply of small mortgage loans and highlighting challenges facing borrowers who need loans to purchase lower-priced homes. The report, titled Financing Lower-Priced Homes: Small Mortgage Loans, found that mortgage loans having an original principal obligation of $70,000 or less represent less than 3.5 percent of originations in 2020. Many of these loans secure properties valued at more than $70,000—an indication that the purchases included substantial down payments, HUD said. Among other things, the report also found that FHA disproportionately insures loans for lower-priced homes compared to the rest of the mortgage market and has loan insurance programs for financing property improvements and manufactured homes that are particularly targeted to lower loan amounts. Additionally, the report flagged the fixed costs of loan origination and servicing as a significant barrier to small mortgage lending, noting that this makes small mortgage loans less profitable and may necessitate additional incentives for lenders, such as reducing costs or providing additional lender or loan originator compensation.
Oregon issues remote work guidance to licensed loan originators
On September 21, the Oregon Department of Consumer and Business Services filed permanent administrative order FSR 3-2022 with the Secretary of State to allow licensed loan originators and employees to work from home. Under the order, Oregon licensed mortgage loan originators “may originate loans from a location other than from a licensed branch office if the location is the licensed mortgage loan originator’s home; the licensed mortgage loan originator is an employee of a mortgage banker or mortgage broker; and the mortgage banker or the mortgage broker complies with OAR 441-860- 0040, as applicable.” Mortgage bankers or brokers must have in place appropriate policies and procedures to supervise licensees working from home, including data security measures to protect consumers’ personal data. Additionally, licensees working from home “are prohibited from engaging in person with consumers for loan origination purposes at the home of the loan originator or employee, unless the home is licensed as a branch.” Licensees may, however, “engage with consumers for loan origination purposes at the home of the loan originator or employee by means of conference telephone or similar communications equipment that allows all persons participating in the visitation to hear each other, provided that participation is controlled and limited to those entitled to attend, and the identity of participants is determinable and reasonably verifiable.” Licensees who work from home are also prohibited from keeping any physical business records at any location other than a licensed location, and must also ensure that all origination records are available at a licensed location.
Hawaii enacts licensing legislation
On June 17, the Hawaii governor signed two bills into law. HB 2113 permits money transmitter license applicants to submit to either a state or federal criminal history record check, rather than both, upon application. SB 1105 establishes that, in addition to application fees, and any fees required by NMLS, a mortgage loan originator licensee must pay a mortgage loan recovery fund fee of $200, and upon application for renewal of a license, a mortgage loan originator licensee must pay $100. The bill also permits a person aggrieved by the fraud, misrepresentation, or deceit of a mortgage loan originator company licensee to receive restitution payment upon a final court order. The bills are effective July 1.
States settle with company on fraudulent MLO certifications
On February 10, the Conference of State Bank Supervisors announced that the California Department of Financial Protection and Innovation, Maryland’s Office of the Commissioner of Financial Regulation, and the Oregon Division of Financial Regulation have reached a settlement agreement with the owner of a California-based company for providing false certificates claiming that mortgage loan originators (MLOs) took mandatory eight-hour continuing education courses as required for licensure under state and federal law. The three state financial regulators brought separate enforcement actions alleging violations of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) against the individual and his family (collectively, “respondents”) for their role in the “multi-state fraud scheme that involved hundreds of mortgage loan originators.” According to the announcement, the respondents have “agreed to fully cooperate and provide testimony against implicated mortgage loan originators,” and have “agreed to a lifetime restriction from direct and indirect involvement in businesses that provide mortgage lending-related education.” In addition to a $75,000 monetary penalty (which will be divided between the three states), the respondents have agreed to a non-compliance penalty of $15 million should they fail to fully comply with the terms of the settlement agreement.
The action follows a multistate $1.2 million settlement reached last month with 441 MLOs. As previously covered by InfoBytes, the enforcement action included the participation of 44 state agencies from 42 states, and required the settling MLOs to surrender their licenses for three months, pay a $1,000 fine to each state that is a signatory to the consent order in which the MLO holds a license, and take pre-licensing and continuing-education courses before petitioning or reapplying for an MLO endorsement or license.
States reach $1.2 million settlement with MLOs over fraudulent SAFE Act education certifications
On January 18, the Conference of State Bank Supervisors (CSBS) announced that 441 mortgage loan originators (MLOs) have agreed to pay approximately $1.2 million to settle allegations that they falsely claimed to have completed annual mortgage education programs required under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The enforcement action, which included the participation of 44 state agencies from 42 states, targeted a mortgage education scheme offered by a California-based company and its owner that provided false certificates claiming that MLOs took mandatory eight-hour continuing education courses as required for licensure under state and federal law. (See additional background information on the enforcement action here.) The states’ investigation—led by the California Department of Financial Protection and Innovation—revealed that the owner allegedly, in some instances, completed online education courses on behalf of the MLOs, and in other instances “granted course credit to [MLOs] who had enrolled in his approved course but who neither attended the course nor completed the required coursework necessary to receive course credit.” Administrative enforcement actions have been taken against the company, the owner, and members of the owner’s family. The settling MLOs have agreed to surrender their licenses for three months, pay a $1,000 fine to each state that is a signatory to the consent order in which the MLO holds a license, and take pre-licensing and continuing-education courses before petitioning or reapplying for an MLO endorsement or license. CSBS noted that MLOs implicated in the investigation that did not sign a consent order will face further enforcement actions with their appropriate state financial regulator for additional disciplinary action against their MLO licenses.