CFPB Affirms Permissibility of Transitional Licensing for Licensed MLOs

The Consumer Financial Protection Bureau provided the industry with a partial victory in its efforts to push for transitional licensing for mortgage loan originators. Through its Bulletin 2012-05, the CFPB has confirmed that the SAFE Act permits a state to provide a transitional license to a mortgage loan originator licensed in another state. The CFPB also advised that Regulation H—the final SAFE Act Rule as issued by HUD and now under the CFPB’s authority—does not permit states to provide a transitional license for a registered mortgage loan originator moving from a depository institution to a licensed entity, notwithstanding the CFPB’s acknowledgement that this “creates impediments to job changes.”

Industry members have been advocating for transitional licensing for some time and requested that the CFPB issue guidance on the matter as a number of state regulatory agencies were unwilling to provide for it absent express guidance from the CFPB. While the Bulletin is welcome news for the industry, it falls short with regard to mortgage loan originators moving from depository institutions to licensed entities.
The CFPB has stated its commitment to continuing to work with the states, the industry and NMLSR to minimize the impediments it acknowledges mortgage loan originators face when seeking to move from a depository institution to a licensed entity. The industry will no doubt be making another run at the CFPB on this issue.

- John D. Socknat



NMLS Expansion Update

As previously discussed in the Mortgage Banking Update, the NMLS (Nationwide Mortgage Licensing System & Registry) is in the process of expanding to administer additional non-mortgage license types. Several states recently announced new transition plans and deadlines for these license types.

The Rhode Island Division of Banking began transitioning the following licenses onto the NMLS on April 16: sale of checks, debt management services electronic money transfers, check cashers, and small loan lenders. From April 16 on, the Division will no longer accept paper applications or amendment forms for these license types. All such licenses must be transitioned onto the NMLS by June 30, 2012.
The Vermont Department of Financial Regulation began transitioning Motor Vehicle Sales Finance Company Licenses and Retail Installment Sales Finance Company Licenses onto the NMLS on April 1, 2012. After April 1, the Department will no longer accept paper application or amendment forms for these license types. All such licenses must be transitioned onto the NMLS by June 30, 2012.
The Washington Department of Financial Institutions recently announced that Money Transmitter and Currency Exchange Licensees could begin transitioning those licenses onto the NMLS beginning on April 16, 2012.

To summarize, the following states and licenses types are now being administered through the NMLS:


  • Check Cashers
  • Check Sellers
  • Debt Collectors
  • Foreign Transmittal Agencies
  • Insurance Premium Finance Companies
  • Motor Vehicle Sales Finance Companies
  • Retail Installment Sales Finance Companies
  • Small Loan Companies


  • Deferred Deposit Lenders

Rhode Island

  • Check Cashers
  • Debt Management
  • Electronic Money Transfers
  • Sales of Checks
  • Small Loan Companies


  • Sales Finance


  • Check Cashers
  • Currency Exchangers
  • Money Transmitters
  • Payday Lenders

- Reid F. Herlihy



The SCRA Paper Chase

One of the more common themes in the National Mortgage Settlement has been increased attention on documentation. In our recent webinar series, Beyond the Numbers: The Impact to the Industry of the Multistate/National Mortgage Settlement, we spoke to how the new requirements are going to drastically change how servicers implement and monitor compliance with the Servicemembers Civil Relief Act, including the documentation to do so.

The National Mortgage Settlement expands the foreclosure protection to include certain active duty personnel who are deployed to combat destinations. However, the servicer has to comply only if it can determine, based on a servicemember’s military orders (or a letter from the servicemember’s Commanding Officer), together with any other documentation provided by or on behalf of the servicemember that is satisfactory to the servicer, that the servicemember is eligible for hostile fire/imminent danger pay and servicing at a location outside the United States or at least 75 miles from the secured property. The Settlement does not specify what constitutes “satisfactory” or what other documentation servicers need to look for.
At this time, it appears logical to assume that eligible servicemembers are likely to notify a servicer of an upcoming scheduled deployment, but does a simple verbal or even written notification of an impending deployment “satisfy” the servicer that the borrower is eligible for hostile fire/imminent danger pay?

In our experience, hostile fire/imminent danger pay is typically categorized as a line item on a servicemember’s leave earnings statement. To truly document eligibility, it seems that a servicer would have to request that the borrower submit a leave earnings statement with the itemized hostile fire/imminent danger pay. This creates both a documentation issue and the potential for communication issues.

Take the example of an enlisted member of the U.S. Navy who receives orders to a ship. The active duty orders are to the ship itself, not to a particular location. A sailor, attached to any one of the fleet vessels based in Norfolk Virginia might deploy 3 or more times to a combat destination during a three year tour on board. None of those deployments are reflected on their traditional “military orders.”  Further, a ship can go underway at any time, with very little notice. Once underway, the hostile fire/imminent danger pay is not initiated until the ship arrives into geographically designated waters. So, the trip across the Atlantic and into the Mediterranean Sea, is not entitled to hostile fire/imminent danger pay, but once they cross into certain parts of the Mediterranean, or more likely, once arriving into the Persian Gulf, all personnel on board receive hostile fire/imminent danger pay. An underway deployment may be scheduled in advance to last approximately six months, but a final return date is not set and any deployment can be shortened or extended pursuant to the military’s needs. The return trip works the same way. The sailor is entitled to hostile fire/imminent danger pay until crossing back over into specified waters, at which time normal pay resumes. From this point, the sailor is entitled to foreclosure protection for an additional nine months, unless he or she goes underway to a combat destination again.

So, a mortgage servicer is now charged with determining at what point the pay eligibility period ended and when the nine months expire after that. It appears that this would necessitate the servicer requesting updated pay statements from the sailor. This defeats the purpose of the protection. Again, we have a situation where the sailor is deployed, trying to perform his or her duties and is having to provide periodical documentation to a mortgage servicer. Alternatively, if the servicer just waits until it believes the deployment has ended and then tries to contact the borrower, if the borrower fails to acknowledge such requests, can the servicer assume that the eligible pay period has ended?  If the servicer forecloses nine months later, will it violate the agreement if the sailor’s deployment had been extended, such that the protection period had not actually ended at the time the servicer foreclosed?  At what point can the servicer reasonably say that it “confirmed” that the sailor was not longer entitled to protection?

The fall out of the National Mortgage Settlement remains to be seen, but in the mean time, it is pretty clear that this specific protection is going to be a documentation challenge for mortgage servicers.

- Emily G. Miller



Letters of Intent and Term Sheets in the Context of M&A Transactions
Guest column from members of our Mergers and Acquisitions/Private Equity Group

Before a buyer and seller enter into a definitive written agreement for the sale of a business, the seller may be presented with a letter of intent or term sheet setting forth the key terms and conditions upon which the buyer proposes to acquire such business. Typically, a letter of intent or term sheet is initially prepared by the buyer and its counsel after preliminary discussions regarding the proposed sale have commenced but before significant amounts of time and money have been spent on due diligence. The letter of intent or term sheet thereafter may be negotiated to a greater or lesser extent by the parties depending on the scope and level of specificity desired by the parties with respect to the key terms and conditions of the proposed transaction.

What are letters of intent and term sheets?
A letter of intent is a letter from the buyer to the seller in which the buyer states its intent to reach a definitive agreement with the seller for the acquisition of the seller’s business. The letter typically sets forth certain material terms and conditions upon which the business will be acquired and, consequently, represents the preliminary understanding of the buyer and seller regarding the proposed sale. The letter may not contain all of the essential terms of the transaction, however, and may expressly state that the parties will attempt to reach a definitive written agreement within a specified time frame.

In lieu of a letter of intent, the buyer may deliver a term sheet to the seller. A term sheet typically sets forth the most important terms and conditions relating to the proposed sale in the form of a list rather than a formal letter. In addition, unlike letters of intent which are signed by both the buyer and the seller, term sheets are not necessarily signed by the parties.

What topics are typically addressed in letters of intent and term sheets?
Despite the difference in form, letters of intent and term sheets tend to address similar topics. For example, a letter of intent or term sheet may address some or all of the following issues:

  • the proposed structure of the transaction (for example, an asset purchase, stock purchase or merger), including, to the extent applicable, the specific assets that will be purchased and not purchased, any liabilities of the seller to be assumed by the buyer, the class or classes of seller’s stock to be acquired, the parties to the merger and the identity of the survivor
  • the purchase price and any purchase price adjustments, including whether any portion of the purchase price will be held in escrow
  • the nature of the consideration to be paid by the buyer (for example, cash, a note, shares of stock or a combination of the foregoing)
  • the due diligence process to be undertaken by the parties, including what information the seller will make available to the buyer and what access the buyer will have to the seller’s employees, records and facilities
  • any conditions that must be satisfied prior to closing the transaction (for example, obtaining financing or third party, stockholder or government approvals)
  • any confidentiality provisions that may prevent the parties from disclosing information they obtain during the due diligence process, even if a separate confidentiality agreement has already been entered into by the parties
  • any non-solicitation provisions (“no shop” or exclusivity provisions) that may prohibit the seller from negotiating with other potential buyers
  • any non-compete provisions that may prohibit the seller from competing with the buyer in a defined geographic area for a specified period of time
  • the payment of certain expenses relating to the transaction
  • indemnification provisions and any related limits
  • what will happen to the seller’s employees after the transaction is consummated
  • when the letter or term sheet will terminate, either by mutual agreement of the parties, upon a specified date, or otherwise

The process of negotiating a letter of intent or term sheet may help the buyer and seller to identify significant issues that could derail the transaction before it goes any further and may facilitate the preparation of a definitive written agreement by memorializing key terms and conditions of the proposed sale that the parties have already agreed upon. The value of a letter of intent or term sheet, however, must be weighed against the reality that the time spent negotiating such a document could have been spent preparing a definitive written agreement. Moreover, sellers should be aware that non-solicitation provisions in a letter of intent or term sheet may prevent them from negotiating with other potential buyers.

Are letters of intent and term sheets binding?
Letters of intent and term sheets represent the preliminary understanding of the parties regarding a proposed sale and, as such, may be either binding or non-binding. In some cases, the parties may want a letter of intent or term sheet to be binding in its entirety. In most cases, however, either the buyer or the seller, or both, do not want to be obligated to consummate a proposed sale before the parties have actually entered into a definitive written agreement. The parties, therefore, may want only certain provisions of a letter of intent or term sheet to be binding immediately (for example, the confidentiality, non-disclosure or non-solicitation provisions and/or the provisions relating to the payment of expenses). Letters of intent and term sheets should expressly state which provisions of the document are binding on the parties. If the intent of the parties to be bound, or not to be bound, is clearly stated in the letter or term sheet, such intent presumably should be given effect by a court in most cases; however, potential buyers and sellers should be aware that a court could conceivably infer the contrary intent if the document is silent, or less than clear, on the matter.

Ballard Spahr’s Mergers and Acquisitions/Private Equity Group routinely assists buyers and sellers with the preparation, review and negotiation of letters of intent and term sheets. For further information, please contact Craig Circosta at 215-864-8520 or, or J. Thomas Bashore II at 410-528-5538 or



NMLS Form Revisions

The NMLS (Nationwide Mortgage Licensing System & Registry) recently revised its MU forms for companies and individuals. The company Form MU1 now includes additional business activity descriptions that licensees may use to describe their scope of services. For example, a company may now designate that it engages in third party mortgage loan processing or underwriting, or lead generation.

To accommodate the non-mortgage license types being transitioned onto the NMLS, the business activities section now includes various activity designations applicable to consumer finance companies, debt collectors, and money service companies.

The new NMLS forms have also added certain new disclosure questions applicable to companies and individuals. Further information can be found here.

- Reid F. Herlihy

Copyright © 2012 by Ballard Spahr LLP.
(No claim to original U.S. government material.)






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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.