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Financial Services Law Insights and Observations

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  • Additional States Pass SAFE Act Legislation

    State Issues

    North Carolina and Pennsylvania recently joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). North Carolina HB 1523 and Pennsylvania HB 1654 require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. North Carolina HB 1523 became effective July 31, 2009, with mortgage loan originator licensure required by July 31, 2010 (for “exclusive mortgage brokers”) or by December 31, 2009 (for “limited loan officers”). Pennsylvania HB 1654 became effective immediately. Individuals not currently licensed as mortgage originators must file an application for a mortgage originator license by October 4, 2009 (60 days after the effective date). Mortgage originators previously licensed must complete the required education and testing requirements by December 31, 2009

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  • Alabama Enacts Alabama Uniform Real Property Electronic Recording Act

    State Issues

    Alabama Governor Robert Riley recently signed SB 90, a bill that enacts the “Alabama Uniform Real Property Electronic Recording Act.” SB 90 allows for (i) the electronic recording of documents that must otherwise, by law, be original, and (ii) the electronic signature of documents that must otherwise, by law, be signed, notarized, acknowledged, verified, witnessed, or made under oath. SB 90 also establishes the Alabama Electronic Recording Commission, which is authorized to adopt and enforce electronic recording and signature standards. The bill becomes effective January 1, 2010.

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  • Colorado Division of Real Estate Adopts New Mortgage Loan Originator Rules

    State Issues

    The Colorado Division of Real Estate recently adopted new rules relating to the business practices and licensing of mortgage loan originators. Among other items, the new rules (i) establish minimum surety bond requirements for licensees (Rule 1-2-2), (ii) set forth when the Division may inactivate a license (Rule 1-5-1), (iii) explain how and when a temporary license may be issued (Rule 1-1-2), (iv) clarify a licensee’s duties in connection with an investigation by the Division (Rule 3-1-2), (v) require that a licensee’s contact information and all other information required for licensing be kept current (Rule 3-1-3), (vi) identify disclosures to be provided by licensees to borrowers (Rule 5-1-2), (vii) set forth requirements applicable to transactions containing specific prepayment penalty terms (Rule 3-1-4), (viii) define compliance with the requirement that licensees maintain contracts with borrowers and mortgage lenders (Rule 5-1-1), and (ix) establish guidelines for licensee advertising (Rule 8-1-1). Additionally, Rule 3-1-1 explains how a licensee must comply with the “reasonable inquiry” and “net tangible benefit” requirements associated with the licensee’s duty of good faith and fair dealing in all communications and transactions with borrowers. Finally, Rule 1-2-1 repeals the surety bond requirement for mortgage brokers. Certain rules become effective August 30, 2009, while others become effective September 30, 2009.

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  • Additional States Enact SAFE Act Legislation

    State Issues

    Recently, Alaska, Florida, Maine, and Tennessee each signed into law legislation designed to meet the mandate of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of mortgage loan originators under the Nationwide Mortgage Licensing System (NMLS). Alaska HB 221 authorizes participation in the NMLS and allows for emergency regulations to further implement the legislation. Among other items, Florida SB 2226Maine SB 523, and Tennessee SB 2279 each require mortgage loan originators to (i) submit to fingerprinting for the purpose of a criminal history background check, (ii) complete at least twenty hours of pre-licensing education, (iii) receive a passing score (i.e., 75%) on a qualified written test developed by the NMLS, and (iv) complete at least eight hours of continuing education annually. The Florida and Tennessee bills also amend certain definitions and licensing requirements applicable to mortgage lenders and mortgage brokers. Maine SB 523 also sets forth new requirements applicable to residential mortgage loans and higher-priced mortgage loans. Most provisions of Florida SB 2226 became effective July 1, 2009. The mortgage loan originator licensing provisions of Maine SB 523 become effective July 31, 2010. Most provisions of Tennessee SB 2279 become effective July 31, 2009. Alaska SB 221 is effective immediately.

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  • Illinois Governor Signs Legislation Relating to Residential Property Foreclosures

    State Issues

    On July 31, Illinois Governor Pat Quinn signed two bills (HB 3863 and HB 153) amending the Illinois Code of Civil Procedure in connection with residential property foreclosures. Among other things, HB 3863 requires certain entities - such as lenders acting in the capacity of a mortgagee in possession of REO - to (i) make a good faith effort to ascertain the identities and addresses of all known occupants of the property, and (ii) notify known occupants that such property has been acquired, as well as provide information about the new ownership and occupants’ rights. HB 3863 becomes effective 90 days after July 31. For a foreclosure action filed on or before the effective date of the amendments, the relevant entities will have an additional 60 days to comply with the new provisions. HB 153 requires any deed executed pursuant to the Mortgage Foreclosure Act (or similar judgment vesting title by a consent foreclosure) to state the grantee’s or mortgagee’s name, the name of a contact person, street and mailing address, and telephone number. HB 153 became effective July 31.

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  • North Carolina Governor Signs Legislation to Protect Victims of Identity Theft

    State Issues

    On July 27, North Carolina Governor Beverly Perdue signed SB 1017, an Act enhancing protections available to victims of identity theft. In general, the Act creates new legal obligations for credit reporting agencies (CRAs), creditors, businesses, and credit monitoring services. Under the Act, CRAs must notify a North Carolina consumer that requests a security freeze that such consumer must make separate, individual requests to CRAs regarding a security freeze because a freeze can only be placed on the files of the CRA to which the consumer directs a request. Additionally, the Act mandates that CRAs lower their response times to a consumer’s request to add or remove a freeze. Specifically, for written requests, CRAs must add or remove a freeze within three days. For electronic or telephonic requests, CRAs must add a freeze within 24 hours and must remove a freeze within 15 minutes. With respect to creditors, the Act prohibits any communication about a debt to a CRA during the pendency of a consumer’s application for an award from the North Carolina Crime Victims Compensation Fund. The Act also requires credit monitoring services to notify consumers that they have the right to one free credit report per year before charging the consumer a fee to obtain or monitor the consumer’s credit report on behalf of the consumer. The Act becomes effective October 1, 2009.

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  • Pennsylvania Court Holds Consumer Loan Law Applies to Out-of-State Companies

    State Issues

    On July 10, in a 4-3 decision, the Pennsylvania Commonwealth Court upheld an interpretation of the Pennsylvania Consumer Discount Company Act (CDCA) that applied the law to companies with no physical presence in Pennsylvania. Cash Am. Net of Nev., LLC v. Dep’t of Banking, No. 8 M.D. 2009, 2009 WL 197499 (Pa. Commw. Ct. July 10, 2009). In July 2008, the Pennsylvania Department of Banking (Department) announced that, after more than 70 years of interpreting the requirements of the CDCA to apply only to Pennsylvania persons, all persons making non-mortgage consumer loans to Pennsylvania residents – whether or not those persons had any physical presence in Pennsylvania – would be required to comply with the requirements of the CDCA (reported in InfoBytes, Aug. 1, 2008). The CDCA limits the interest and fees a non-bank company can charge for non-mortgage loans of $25,000 or less. The petitioner, an online payday lender located in Nevada, sued the Department for a declaratory judgment, alleging that the new interpretation was both procedurally improper and substantively incorrect. The Commonwealth Court rejected both arguments. First, the court held that the new interpretation was merely a statement of policy, nonbinding on the courts or even the Department itself. Therefore, the policy did not need to be adopted through the procedures reserved for formal regulations. Second, the court held that the Department’s new interpretation of the reach of the CDCA “is the correct one,” even while acknowledging that “the Department formerly endorsed a contrary interpretation of that section.” Three judges joined in a dissenting opinion, which argued that the Department’s earlier interpretation of the limits of the CDCA was the correct one.

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  • Missouri Governor Signs Bill Regarding Security Breach Notification

    State Issues

    On July 9, Missouri Governor Jay Nixon signed HB 62, an omnibus crime bill containing a provision that requires companies to notify Missouri consumers regarding a security breach of personal information. The provision does not create a private right of action and instead grants the Missouri Attorney General exclusive authority to bring an action (for up to $150,000 per security breach) for an alleged violation of the provision. The provision becomes effective August 28, 2009. 

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  • Missouri Governor Signs Loan Originator Registration Bill

    State Issues

    On July 8, Missouri Governor Jay Nixon signed the “Missouri Secure and Fair Enforcement for Mortgage Licensing and Residential Mortgage Brokers Licensing Act” (the Act) (HB 382). Among other things, the Act sets forth a scheme for registering residential mortgage loan originators and substantially amends the regulations applicable to residential mortgage brokers. Under the Act, loan originators must register with the Nationwide Mortgage Licensing System (NMLS) and must satisfy new pre-licensing and continuing education requirements. For residential mortgage brokers, the Act requires licensure via the NMLS. In addition, the Act limits the number of exemptions available to licensure and modifies the method for calculating requisite surety bonds. Finally, the Act increases the amount of civil penalties from $5,000 to $25,000 per violation. The Act became effective July 8, however, the Act’s loan originator licensing provisions do not take effect until July 31, 2010.

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  • Connecticut Bill Creates Restrictions for Nonprime Home Loans, High Cost Home Loans; Establishes Residential Mortgage Fraud as Criminal Offense

    State Issues

    On July 7, Connecticut Governor M. Jodi Rell signed SB 949, “An Act Concerning Mortgage Practices.” The bill, among other things, establishes residential mortgage fraud as a criminal offense in Connecticut. The bill also amends the definition of “nonprime home loans” and prohibits or restricts a lender from offering nonprime home loans with certain terms and conditions (i.e., negative amortization, default rate increases, excessive late fees and acceleration clauses). Finally, under the bill, a high cost home loan cannot provide for an increase in the interest rate after default or provide for default charges in excess of five per cent of the amount in default. The bill becomes effective October 1, 2009.

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