CFPB Adopts TRID Rule Amendments and Proposes to Address Black Hole Issue

As we reported previously, the Consumer Financial Protection Bureau (CFPB) recently issued long-awaited amendments to the Truth in Lending Act (TILA)/Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) rule, also known as the "Know Before Your Owe" rule. The CFPB also issued a proposal to address the so-called "black hole" issue, which refers to situations in which a lender may not be able to use a Closing Disclosure to reset fee tolerances. The amendments will become effective 60 days after publication in the Federal Register, although compliance will be optional until October 1, 2018. Comments on the black hole proposal will be due 60 days after publication in the Federal Register.

As the CFPB indicated when it proposed the amendments, its general intent was not to address larger policy issues and instead to adopt changes to the TRID rule to reflect informal guidance previously provided by CFPB staff in webinars or otherwise. The CFPB remained true to its intent. Larger issues on which the industry seeks clarification and changes, such as liability and the ability to cure errors, are not addressed by the amendments. On the most significant policy issue addressed by the CFPB, the so-called black hole, the CFPB deferred action by proposing a new amendment. We address in this article the black hole proposal and various final amendments to the TRID rule.

Black Hole Proposal. Under the TRID rule, a Loan Estimate is the disclosure primarily used to reset tolerances. Because the final revised Loan Estimate must be received by the consumer no later than four business days before consummation, the Commentary to the TRID rule includes a provision under which a creditor may use a Closing Disclosure to reset tolerances if "there are less than four business days between the time" a revised Loan Estimate would need to be provided and consummation. Because of the four-business-day timing element, in various cases when a creditor learns of a change, the creditor is not able to use a Closing Disclosure to reset tolerances. This situation is what the industry termed the "black hole." The industry repeatedly asked the CFPB to address the black hole issue.

In the TRID rule proposed amendments issued in July 2016, the CFPB included a proposal regarding the black hole issue. As proposed, the existing Regulation Z Commentary provision that permits the use of a Closing Disclosure to reset tolerances (section 1026.19(e)(4)(ii)-1) would remain unchanged, and a new Commentary provision would be added (section 1026.19(e)(4)(ii)-2). The proposed Commentary provision appeared to retain the timing element of the existing provision that creates the black hole issue for an initial Closing Disclosure, but permit the use of a corrected Closing Disclosure to reset tolerances without regard to the timing element. Many industry members interpreted the proposal to effectively eliminate the black hole issue with regard to a corrected Closing Disclosure.

In the preamble to the current proposal, the CFPB advises that it actually intended only to clarify that, if the conditions for using a Closing Disclosure to reset tolerances are met, including the timing element, then either an initial Closing Disclosure or a corrected Closing Disclosure could be used to reset tolerances. The CFPB also advises that despite the proposal's limited intent, parties commenting on it were not uniform in their interpretations, with many interpreting the proposal to allow use of a corrected Closing Disclosure to reset tolerances without regard to when the disclosure was issued relative to the timing of consummation.

The CFPB decided not to finalize the originally proposed amendment, and to issue the current proposal. As stated by the CFPB in the preamble, "under the current proposal, creditors could use either initial or corrected Closing Disclosures to reflect changes in costs for purposes of determining if an estimated closing cost was disclosed in good faith, regardless of when the Closing Disclosure is provided relative to consummation." The CFPB proposes that the amendment, if adopted, would become effective 30 days after publication in the Federal Register, although it seeks comment on the effective date. Creditors still would be limited to resetting tolerances to the circumstances currently set forth in the TRID rule, and still would need to issue a corrected Closing Disclosure within three business days of learning of the circumstance.

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- Richard J. Andreano, Jr.

CFPB Proposes to Temporarily Increase HELOC Reporting Threshold under HMDA

As we have previously reported, in October 2015 the CFPB adopted significant revisions to the Home Mortgage Disclosure Act (HMDA) rule, most of which become effective January 1, 2018. Among the revisions, the reporting of home equity lines of credit under HMDA, which is currently voluntary, will become mandatory for both depository institutions and non-depository institutions that originated at least 100 home equity lines of credit in each of the two preceding calendar years.

The CFPB is now proposing to temporarily increase the threshold to 500 home equity lines of credit in each of the two preceding calendar years. The temporary increase would apply for data collection years 2018 and 2019. The CFPB notes that through outreach it "has heard increasing concerns from community banks and credit unions that the challenges and costs of reporting open-end lending may be greater than the Bureau had estimated when adopting the 100-loan threshold. Additionally, the Bureau’s analysis of more recent data suggests changes in open-end origination trends that may result in more institutions reporting open-end lines of credit than was initially estimated." The temporary increase will allow the CFPB to assess the appropriate threshold for smaller-volume lenders.

Comments on the proposal are due by July 31, 2017. The CFPB notes that at a later date it will issue a separate proposal with a longer notice and comment process to consider adjustments to the permanent threshold.

- Richard J. Andreano, Jr.

CFPB Updates HMDA Guidance

The CFPB has updated the Home Mortgage Disclosure Act guidance that is available on its resource webpage for HMDA filers. Updates were made to the Technology Preview, the Filing Instruction Guides for both data collected in 2017 and data collected in 2018 and subsequent years, and the Frequently Asked Questions.

In the FAQs, the CFPB notes that the new internet-based HMDA Platform for the submission of HMDA data is expected to be available in the third quarter, and that once the Platform is available, companies will be able to register for login credentials and establish an account.

- Richard J. Andreano, Jr.

CFPB Issues Executive Summary of TRID Rule Amendments

The CFPB recently issued final amendments to the TILA/RESPA Integrated Disclosure (TRID) rule and a proposal to further amend the TRID rule. The CFPB has also issued an Executive Summary of the amendments.

Although the amendments will become effective 60 days after publication in the Federal Register, mandatory compliance with the amendments will be required for applications received on or after October 1, 2018. The CFPB advises that during the optional compliance period between the effective date and October 1, 2018, a party may comply with the amendments "all at one time or phase in the changes over time (even within the course of a transaction)."

The CFPB also addresses uncertainty regarding what loans are subject to the existing partial payment disclosure requirement for mortgage transfer notices and the existing escrow closing notice requirement. The requirements were included in the same final rule that contains the original TRID rule provisions, even though they are not integrated disclosure requirements. This led to uncertainty as to whether the requirements apply to all transactions within the scope of the requirements, or only those transactions for which the application was received on or after October 3, 2015, the effective date of the original TRID rule. The CFPB clarifies that compliance with the requirements becomes mandatory on October 1, 2018, regardless of when the application was received.

- Richard J. Andreano, Jr.

CFPB Issues Policy Guidance and Technical Corrections for Mortgage Servicing Rule Amendments

The CFPB recently issued two updates for its Mortgage Servicing Rule amendments to Regulations X and Z. Issued on August 4, 2016, the Mortgage Servicing Final Rule amended various aspects of the existing Mortgage Servicing Rules. These changes will become effective either on October 19, 2017, or April 19, 2018.

First, the CFPB issued non-substantive, technical corrections to the Mortgage Servicing Final Rule issued in 2016. The corrections include fixing several typographical errors, revisions to show the correct effective date for certain provisions, and a citation correction.

The CFPB also issued non-binding policy guidance for a three-day period of early compliance with the amended Mortgage Servicing Rules. According to the Bureau, the policy guidance was issued in response to industry concerns over operational challenges presented by the mid-week effective date. Industry participants sought the ability to implement and test these changes over the weekend prior to the effective date.

Accordingly, the non-binding policy guidance states that the CFPB does not intend to take supervisory or enforcement action for violations of existing Regulation X or Regulation Z provisions, resulting from a servicer’s compliance with the new requirements, up to three days before the applicable effective dates. Therefore, for amendments that become effective on October 19, 2017, the three-day period will cover Monday, October 16 through Wednesday, October 18. For amendments that will take effect on April 19, 2018, the three-day period will cover Monday, April 16 through Wednesday, April 18.

- Reid F. Herlihy

Industry Groups Ask FHFA to Extend Comment Period for LEP RFI

A group of eight trade associations has sent a letter to the Federal Housing Finance Agency (FHFA) asking the the agency to extend by at least 45 days the comment period on the FHFA’s Request for Input (RFI) on improving language access in mortgage lending and servicing. Issued this past May, the RFI asks for input to be provided by no later than July 10, 2017.

In 2016, the FHFA had considered including a question about borrower language preference in the Uniform Residential Loan Application. The same eight trade associations that are now seeking an extension of the RFI comment period sent a letter to the FHFA in June 2016 setting forth various compliance and legal concerns raised by the addition of the language preference question. In the RFI, the FHFA noted that such concerns were raised by the mortgage industry and stated that it "decided not to include the question at that time and, instead, decided to examine [the issue of how to better serve Limited English Proficiency (LEP) borrowers] more broadly."

The FHFA intends to use the information it receives in response to the RFI to inform "additional steps that could potentially be taken to further support LEP borrowers and the mortgage industry’s ability to serve them throughout the mortgage life cycle." The RFI, which focuses on single-family mortgages, contains a series of questions dealing with the following issues:

  • Existing processes and tools to assist potential and qualified LEP borrowers
  • Current barriers that exist for LEP individuals in the mortgage life cycle
  • Potential actions to improve language access in the short term (i.e. actions with an implementation cycle of less than 18 months) (The FHFA asks for input on eight specific potential measures as well as suggestions for other short-term actions.)
  • Potential actions to improve language access in the long term (i.e. actions with an implementation cycle of more than 18 months), including tracking and collection of data on language preference
  • Legal and regulatory risks of process improvements for LEP borrowers

Serving LEP consumers is one of the most challenging issues facing financial institutions today. The logistical challenges of ensuring accurate translations, dealing with dialects, and having non-English compliance and monitoring resources have been coupled with a great deal of uncertainty about regulatory risks from serving LEP consumers. While LEP guidance issued by the CFPB last November was a step in the right direction, further and more specific compliance guidance is needed.

As the trade associations observed in their letter seeking an extension of the RFI comment period, "the importance of [the issue of how to address the challenges of LEP borrowers] is expected to grow over time, as LEP borrowers continue to increase as a share of the overall population of borrowers in the years ahead." Given these expected demographic changes and the absence of clear guidance from regulators, financial institutions should review their plans for serving LEP customers with counsel to reduce potential supervisory and enforcement risk.

- Richard J. Andreano, Jr. and John L. Culhane, Jr.

Nevada Enacts Multiple Laws Affecting Consumer Finance

Nevada is rolling out a slate of legislation affecting consumer finance, including a measure to protect consumers’ privacy online and programs aimed at mitigating their risk of foreclosure. Here is a list of measures recently signed into law by Governor Brian Sandoval.

New Website Privacy Notice: SB 538, which goes into effect October 1, 2017, contains provisions intended to protect the internet privacy of consumers, including a requirement that website operators display a notice identifying certain categories of information collected through the website and also disclose information related to collection of personal data.

The measure defines a website operator as anyone who:

  • owns or operates a website or online service for commercial purposes;
  • purposefully directs its activities toward the State of Nevada by transacting with consumers therein; and
  • collects and maintains certain information about consumers (such as a first and last name, address, email, and telephone contact information).

There is no private right of action, but a violation of this section can lead to injunctive relief by the Nevada Attorney General and a civil penalty of $5,000 for each violation.

Fees Banned for Updating or Changing Consumer Records: AB 361, which took effect July 1, 2017, amends Nevada's Deceptive Trade Practices Act to prohibit the charging of fees to update or change a consumer's records, including billing or credit information. Nevada law provides an existing private right of action for violations of the Deceptive Trade Practices Act, which allows for damages, any appropriate equitable relief, and attorneys' fees.

One Year Post-Service Foreclosure Protection for Service Members: Congress modified the Servicemembers Civil Relief Act to decrease from one year to 90 days the period after completion of service during which service members are protected from a sale, foreclosure, or seizure of property. The change is effective January 1, 2018. However, the Nevada Legislature, via Senate Bill 33, reestablished as a matter of state law a one-year protection period following the end of active duty or deployment for service members and, in certain instances, a dependent of a service member. The bill, which took effect May 29, 2017, amends Nevada Revised Statutes Chapters 40 and 107, governing deeds of trust, and 116, governing community or homeowners associations (HOAs). 

Pre-Default Vehicle Repossession Added as Deceptive Practice: Assembly Bill 262, which becomes effective October 1, 2017, amends Nevada's Deceptive Trade Practices Act by making it a deceptive trade practice for any person to repossess a vehicle from a debtor before default, or to commit any act that grants a consumer any remedy available under Nevada's version of Uniform Commercial Code (UCC) 104.9625. That measure already provides remedies to a consumer for a secured lender's failure to comply with UCC Article 9. A violation of this provision is subject to a private right of action under the Deceptive Trade Practices Act, which allows for damages, any appropriate equitable relief, and attorneys' fees.

Revised Uniform Fiduciary Access to Digital Assets Act of 2015: Assembly Bill 239, which becomes effective October 1, 2017, enacts the Revised Uniform Fiduciary Access to Digital Assets Act of 2015. Nevada is one of 15 states that have enacted the Act, which is intended to facilitate access to, and use of, digital assets by state-law appointed fiduciaries (such as executors of an estate, guardians, agents under a power of attorney, and trustees) who manage the property of a person who has died or is no longer in charge of his or her own affairs.

The Act defines a digital asset as "an electronic record in which a natural person has a right or interest," and is described by the Uniform Law Commission as "documents, photographs, email, and social media accounts." The Act is intended to work alongside federal privacy laws involving emails and social media conversations by governing the circumstances under which "Custodians"—defined by the Act as anyone who "carries, maintains, processes, receives, or stores a digital asset of a user"—can release digital assets to a fiduciary when the user who created the electronic record has not consented to disclosure, and the fiduciary has not presented certified documents, such as a court order, a copy of a will, or a death certificate. A user's directive via an online tool or in a will can be deemed to override a custodian's terms-of-service agreement. The definition of a custodian is so broadly worded that it could include virtually any business that interacts with customers and maintains electronic copies of those communications.

New Lender Notice Requirement for Homeowners Associations: As community associations and HOAs continue to fuel litigation in Nevada, Senate Bill 239, which goes into effect October 1, 2017, imposes a new notice requirement on HOAs. Nevada law allows an HOA to enter the grounds of a home to abate a nuisance or maintain its exterior under certain circumstances. Prior law required an HOA to notify a lender of its intent to enter grounds in such instances only if the lender had started the foreclosure process. Senate Bill 239 amended Nevada Revised Statutes Chapter 116 to require an HOA to provide notice, via certified mail, to each holder of a recorded security interest encumbering a home, of the HOA's intent to enter a unit that is vacant but not in the foreclosure process to abate a nuisance or maintain the unit's exterior. If the HOA enters or modifies a property for these purposes, it can impose the costs upon the homeowner and will have a corresponding lien that is superior in interest to a first deed of trust.

Foreclosure Mediation Program Revived and Made Permanent: In 2015, the Nevada Legislature passed a bill ending the State's Foreclosure Mediation Program as of June 30, 2017. The program required foreclosing lenders to enter mediation with participating borrowers and included strict requirements for lenders coupled with heavy sanctions for noncompliance such as monetary awards and forced-loan mediations. Senate Bill 490 revived the Foreclosure Mediation Program as a permanent fixture, along with enacting several other changes. This law went into effect June 12, 2017—applying retroactively to December 2, 2016—to both judicial and non-judicial residential foreclosures. Changes to the program include:

  • The Nevada Supreme Court will no longer administer the program. Instead, it will be administered by Home Means Nevada, Inc., a nonprofit corporation established by the Nevada Department of Business and Industry and aimed at helping homeowners retain their homes. Mediations will be overseen by the district court.
  • Enrollment into the program now requires a petition to the district court and a $25 filing fee. The petition must be filed within 30 days of the receipt of a Notice of Default and Election to Sell and served via certified mail.
  • An electronic filing system will be implemented for notices and certain documents exchanged between parties.
  • The Mediation Administrator is tasked with developing an internet portal for administering the program.
  • The fee for the mediation has increased from $400 to $500.

Now that the program is permanent, lenders should review requirements to ensure compliance and to monitor how it unfolds administratively. 

- Alan S. Kaplinsky, Abran Vigil, and Holly Priest

Justice Department Settles with Michigan Credit Union for Violations of the Servicemembers Civil Relief Act

The U.S. Department of Justice (DOJ) announced earlier this month that it reached an agreement with Michigan-based COPOCO Community Credit Union to settle a lawsuit alleging that the credit union violated the Servicemembers Civil Relief Act (SCRA) when it repossessed a service member’s vehicle. The lawsuit—originally filed in July 2016—alleged that the credit union did not have an SCRA compliance policy and that it had unlawfully repossessed the vehicle despite the fact that its owner was actively engaged in military training. After the lawsuit was filed, the DOJ learned of three additional service members whose vehicles were illegally repossessed.

The settlement requires COPOCO to develop policies and procedures for SCRA compliance that specifically include Section 3952, which concerns vehicle repossessions, and Section 3937, which is focused on interest-rate relief. It also requires that COPOCO provide its employees with SCRA training, compensate any service members whose vehicles were repossessed in violation of the SCRA, and pay a $5,000 civil penalty to the United States.

This settlement demonstrates the DOJ’s willingness to bring an SCRA enforcement action, even when only a single service member is affected by non-compliant lending and collection practices. In light of this low bar, financial services companies of all stripes should take steps to ensure compliance with all aspects of the SCRA.

- Alan S. Kaplinsky, Anthony C. Kaye, and Taylor Steinbacher

Federal Appeals Court Rules Mortgage Underwriters Owed Overtime for Work in Excess of 40 Hours in Workweek

The Ninth Circuit Court of Appeals has issued a decision holding that mortgage underwriters are not exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). The July 6 decision, which furthers a split among several federal circuit courts, has the potential to profoundly impact the pay practices of companies that employ mortgage underwriters, particularly those with employees located in the western part of the United States.

In McKeen-Chaplin v. Provident Savings Bank, the appeals court reversed the district court's holding that mortgage underwriters qualified for the "administrative exemption" from the FLSA overtime requirements. Named plaintiff Gina McKeen-Chaplin and other mortgage underwriters were responsible for reviewing mortgage loan applications for Provident Savings Bank ("Provident"), which sold mortgages to consumers and resold the mortgages to investors. The underwriters' duties consisted of applying guidelines established by Provident and analyzing loan applications to determine borrowers' creditworthiness. The underwriters also imposed conditions on certain loan applications based on their analysis. In addition, they recommended alternative loan products, which were communicated to applicants by a loan officer. The underwriters could also request that Provident make exceptions to its guidelines in certain cases, but they were not involved in finalizing loan funding or the sale of approved loans on the secondary market.

McKeen-Chaplin alleged that she and other underwriters often worked in excess of 40 hours in a workweek and, therefore, were owed overtime compensation of time and one half their regular rates of pay for each excess hour worked. Provident disagreed, arguing that the underwriters are exempt from the overtime-pay requirements of the FLSA under the so-called "administrative exemption." The exemption is generally reserved for white-collar workers whose primary duties involve the exercise of discretion and independent judgment on matters of significance to the business, which must include the business management or general operations. The district court ruled that the underwriters' primary duties qualified them as exempt under the administrative exemption because they included "quality control" that directly related to the bank's business operations.

The court of appeals disagreed. In an opinion by Chief Judge Sidney R. Thomas, the court focused on the distinction, imposed by Department of Labor (DOL) regulations interpreting the scope of the FLSA exemptions, between "work directly related to running or servicing of the business" and "working on a manufacturing production line or selling a product in a retail or service establishment," known at times as the "administrative-production dichotomy." According to the DOL, those engaged in management of the business are exempt from the overtime-pay requirements of the FLSA, while those involved in making the goods it sells or performing the services a business provides are not exempt. The court noted that reaching a conclusion about which side of the DOL's line underwriters' duties fall on is complicated and that two other circuit courts of appeals, the Second Circuit (which ruled underwriters are nonexempt) and the Sixth Circuit (which ruled they are exempt) have reached opposite conclusions.

Based on the facts of McKeen-Chaplin's case, the court sided with the Second Circuit and concluded that the Provident underwriters are entitled to overtime pay. Specifically, the court determined that underwriters' work consisted of assessing whether or not a particular loan fit within the guidelines the employer-bank established, as opposed to determining how to set those guidelines themselves. "Assessing a loan's riskiness according to relevant guidelines," it found "is quite distinct from assessing or determining Provident's business interests." Underwriters, according to the court, do not engage in activities generally deemed exempt within the financial services industry, such as advising customers or promoting products. Therefore, the court held that underwriters are not exempt from overtime pay and ordered summary judgment in favor of McKeen-Chaplin and the other plaintiffs.

The opinion furthers the split among the circuits, with the Ninth Circuit (covering nearly all of the western United States) and Second Circuit (New York and parts of New England) concluding that underwriters are nonexempt, and the Sixth Circuit (Michigan, Ohio, Kentucky, and Tennessee) concluding that underwriters are exempt. The McKeen-Chaplin decision is also noteworthy in that it included U.S. District Judge Michael M. Baylson of the Eastern District of Pennsylvania sitting by designation. Judge Baylson joined in the McKeen-Chaplin opinion, signifying that at least one judge whose jurisdiction is within the Third Circuit agrees with the Ninth Circuit’s analysis. Unless and until the divergence among the circuits is resolved by the Supreme Court, employers with mortgage underwriters must take care to review the underwriters' duties and ensure they are properly classified under the FLSA. Even employers whose underwriters reside outside of the Second and Ninth Circuits should be prepared for their employees to challenge their classification if they are currently considered exempt and therefore ineligible for overtime.

- Christopher T. Cognato, Emily J. Daher, and Constantinos G. Panagopoulos

Did You Know?

NMLS Release 2017.2.1

The NMLS Release 2017.2.1 has been targeted for July 24, 2017. Enhancements will be provided to the new MSB Call Report and Electronic Surety Bond filing.

- Wendy T. Novotne

Georgia Adopts New Mortgage Servicing Rules

The Georgia Department of Banking and Finance has issued new mortgage servicing rules including, but not limited to, the following provisions:

  • Definitions that generally have the same meaning as in the terms defined in Ga. Code Ann. § 7-1-4 and Ga. Code Ann. § 7-1-1000. The term "complete loss mitigation application" has been added, and means an application in which a servicer has received all of the information that the servicer requires from a borrower in evaluating applications for loss mitigation options available to the borrower. A servicer shall exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application. The term "notice of error" has been added, and means any written notice from the borrower that asserts an error and that includes the name of the borrower, information that enables the servicer to identify the borrower’s mortgage loan account, and the error the borrower believes has occurred. A notice on a payment coupon or other payment form supplied by the servicer need not be treated by the servicer as a notice of error.
  • Mortgage servicer standards applicable to any person who services mortgage loans, including the duty to act with reasonable skill, care, and diligence.
  • Record retention requirements, including the requirement for each servicer to maintain required books, accounts, and records at the principal place of business for a period of five years after the date a mortgage loan is discharged or the servicing rights are transferred or otherwise terminated.
  • Specific minimum requirements for books and records that must be maintained, including copies of certain documents, servicer files for each mortgage loan serviced, and a list of all servicer violations.

These provisions went into effect on July 19, 2017.

Hawaii Revises Mortgage Loan Origination Licensing Requirements

Hawaii revised the following mortgage loan origination provisions of the Secure and Fair Enforcement for Mortgage Licensing Act, including, but not limited to:

  • A new definition for "executive officer" has been added. The term means a president, chairperson of an executive committee, senior officer responsible for a subject entity or organization's business, chief financial officer, or any other person who performs similar functions related to the subject entity or organization.
  • "Qualified individual" now includes an individual who is responsible for the oversight of mortgage loan originators that are employed by or contracted to perform work for an exempt sponsoring mortgage loan originator company.
  • The responsibilities of qualified individuals have been extended to apply to qualified individuals for both mortgage loan companies and exempt sponsoring mortgage loan companies. For example, a qualified individual for a mortgage loan originator company or exempt sponsoring mortgage loan originator company supervise the maintenance of all records, contracts, and documents of the mortgage loan originator company or exempt sponsoring mortgage loan originator company.

These provisions are effective starting September 1, 2017.

Massachusetts Issues Industry Letter On Applicability of MLO Licensing to Individuals Employed by Nonprofit Entities

On June 15, 2017, the Massachusetts Division of Banks (Division) issued an industry letter to clarify when an employee of a nonprofit agency is required to obtain a mortgage loan originator (MLO) license. The Division realized that some nonprofit entities exempt from the mortgage lender and mortgage broker license requirements may not have licensed their employees who were acting as MLOs.

In the July 2008 Opinion 08-018, the Division indicated that an employee of a nonprofit agency exempt from licensure was not required to obtain an individual MLO license. However, amendments were made in July 2009 that altered the regulatory scheme, and thus required that any person that meets the definition of an MLO must be licensed, even if the person is employed by a nonprofit entity that is exempt from licensure as a mortgage lender or mortgage broker.

MLO is defined as "a person who for compensation or gain or in the expectation of compensation or gain: (i) takes a residential mortgage loan application; or (ii) offers or negotiates terms of a residential mortgage loan." The Division considers receiving a salary as "compensation or gain." The industry letter indicates that "if an employee assists a borrower to refinance a mortgage loan, thus originating a new mortgage loan secured by the residential property, a mortgage loan originator license would be required." In contrast, if an employee assists a borrower with a loan modification that does not result in a new mortgage loan, an MLO license would not be required.

The Division recognizes that the July 2009 amendments may have caused some confusion. Therefore, enforcement action will not be taken against any nonexempt individuals engaging in unlicensed MLO activity or any nonprofit employing such unlicensed individuals until after December 31, 2017.

The industry letter can be found here.

Maryland and Washington Converting to Electronic Surety Bonds on NMLS

On August 1, 2017, the Maryland Commissioner of Financial Regulation will start using the new Electronic Surety Bond (ESB) through NMLS.

On July 17, 2017, the Washington Department of Financial Institutions will start using ESB through NMLS for consumer loan companies, money transmitters, and currency exchangers.

More information on ESB is available here.

Montana Revises Licensing Provisions

The Montana Department of Administration has amended its regulations regarding mortgage broker and loan originator licensing, including, but not limited to, the following:

  • The surety bond must be filed with NMLS in light of the ability to upload electronic surety bonds into the licensee’s NMLS record.
  • The reporting form for mortgage services used has been updated to the Quarterly Statement for Mortgage Servicing Activity version dated May 31, 2016.
  • The rule clarifying the definition of "origination of a mortgage loan" has been repealed since it is no longer needed. The rule was adopted in 2013 when there was not a definition for clerical or support duties, to clarify that loan processors and underwriter were not considered mortgage loan originators. Since then, a definition for clerical or support duties has been added.

These provisions are effective starting July 8, 2017.

New Hampshire Amends MLO Licensing Provisions

New Hampshire has amended provisions regarding the licensing laws of mortgage loan originators (MLO) from other states. The commissioner may conditionally approve an application for an MLO license if the applicant is currently licensed as a loan originator in another state and has met the requirements for issuing an MLO license in New Hampshire. The conditional approval expires after 60 days if the applicant does not provide proof of obtaining the required two hours of New Hampshire mortgage law education.

These provisions are effective starting August 28, 2017.

New York Added Money Transmitter License to NMLS

On July 1, 2017, NMLS started receiving new applications for the NYDFS Money Tranmistter License and transition fillings on NMLS. More information on the application requirements can be found here.

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