05 Sep Connecticut Legislative Update
Our May 27, 2014 Compliance Memorandum discussed the provisions of House Bill 5353, effective May 14, 2014, which addressed the confidentiality provisions of the Nationwide Mortgage Licensing System and Registry (“NMLSR”) as well as the foreclosure mediation provisions. The provisions of House Bill 5353 addressed in this Memorandum that are effective October 1, 2014 amend the mortgage servicing laws (the “laws”). A future Compliance Memorandum will discuss the provisions of House Bill 5353 that are effective January 1, 2015.
Connecticut House Bill 5353
The definition of a “first mortgage loan” has been deleted from the laws. The laws now apply to all residential mortgage loans.
“Branch office” means a location other than the main office at which a licensee or any person on behalf of a licensee acts as a mortgage servicer.
“Control person” means an individual that directly or indirectly exercises control over another person.
“Control” means the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract or otherwise.
“Individual” means a natural person.
“Main office” means the main address designated on the NMLSR.
“Mortgage broker” means a person who for compensation or gain or with the expectation of compensation or gain takes a residential mortgage loan application, or offers or negotiates terms of a residential mortgage loan, and is not the prospective source of the funds for the residential mortgage loan. A “mortgage broker” does not include:
- An individual who is licensed as a mortgage loan originator acting as a mortgage loan originator on behalf of such mortgage loan originator’s sponsoring mortgage lender, mortgage correspondent lender, mortgage broker, or exempt registrant; or
- An individual exempt from mortgage loan originator licensure when acting within the scope of such exemption.
“Mortgage correspondent lender” means a person engaged in the business of making residential mortgage loans in such person’s own name where the loans are not held by such person for more than 90 days and are funded by another person through a warehouse agreement, table funding agreement or similar agreement.
“Mortgage lender” means a person engaged in the business of making residential mortgage loans in such person’s own name utilizing such person’s own funds or by funding loans through a warehouse agreement, table funding agreement or similar agreement.
The term “mortgage servicing company” has been replaced with the term “mortgage servicer.”
A “mortgage servicer” now includes a person who makes payments to borrowers pursuant to the terms of a Home Equity Conversion Mortgage or reverse mortgage.
“Residential mortgage loan” means any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling, located in Connecticut, or real property located in Connecticut upon which is constructed or intended to be constructed a dwelling.
On and after January 1, 2015, a person must not act as a mortgage servicer, directly or indirectly, without first obtaining a license from the Banking Commissioner (the “Commissioner”) for its main office and each branch office where such business is conducted, unless the person is exempt from licensure.
The following persons are exempt from mortgage servicer licensing requirements:
- Any bank, out-of-state bank, Connecticut credit union, federal credit union, or out-of-state credit union, provided such bank or credit union is federally insured;
- Any wholly-owned subsidiary of such bank or credit union;
- Any operating subsidiary where each owner of such operating subsidiary is wholly owned by the same such bank or credit union; and
- Any person licensed as a mortgage lender in Connecticut while acting as a mortgage servicer from a location licensed as a main office or branch office provided the person meets the supplemental mortgage servicer surety bond, fidelity bond, and errors and omissions coverage requirements.
o During any period that the Connecticut mortgage lender license has been suspended, the exemption will not be effective.
The following provisions of the laws will apply to any person, including a person exempt from licensure, who acts as a mortgage servicer in Connecticut on or after January 1, 2015:
- Notice requirements pursuant to the Real Estate Settlement Procedures Act (“RESPA”);
- Federal loan servicing laws and regulations, including RESPA and Regulation X and the Truth-in-Lending Act (“TILA”) and Regulation Z;
- Fee and fee schedule requirements; and
- Prohibited practices requirements.
The Commissioner will issue a mortgage servicer license to an applicant for such license if the Commissioner finds that:
- The applicant has identified a qualified individual for its main office and a branch manager for each branch office where the business is conducted, provided such qualified individual and branch manager have supervisory authority over the mortgage servicer activities at the respective office location and at least 3 years’ experience in the mortgage servicing business within the 5 years immediately preceding the date of the application for licensure;
- The applicant, control persons of the applicant, the qualified individual, and any branch manager with supervisory authority at the office for which the license is sought have not been convicted of or pled guilty or no contest to, in a domestic, foreign, or military court, a felony during the 7-year period preceding the date of the application for licensing or a felony involving an act of fraud or dishonesty, a breach of trust, or money laundering at any time preceding the date of application, provided any pardon or expungement of a conviction will not be considered a conviction;
- The applicant demonstrates that the financial responsibility, character, and general fitness of the applicant, the control persons of the applicant, the qualified individual, and any branch manager having supervisory authority over the office for which the license is sought command the confidence of the community and warrant a determination that the applicant will operate honestly, fairly, and efficiently within the purposes of the laws;
- The applicant has met the surety bond, fidelity bond, and errors and omissions coverage requirement;
- The applicant has not made a material misstatement in the application; and
- The applicant has met any other similar requirements as determined by the Commissioner.
If the Commissioner fails to make such findings, the Commissioner will not issue a license, and will notify the applicant of the denial and the reasons for the denial.
The level of offense of the crime and the status of any conviction, pardon, or expungement will be determined by reference to the law of the jurisdiction where the case was prosecuted. If the jurisdiction does not use the term “felony,” “pardon,” or “expungement,” such terms will include legally equivalent events.
“Experience in the mortgage servicing business” means paid experience in the:
- Servicing of mortgage loans;
- Accounting, receipt, and processing of payment on behalf of lenders; or
- Supervision of such activities; or
- Any other relevant experience as determined by the Commissioner.
An application for a license as a mortgage servicer or renewal of such license must be filed, in a form prescribed by the Commissioner, with the NMLSR and accompanied by the required application or renewal fee. Each such form must contain content as set forth by the instruction or procedure of the Commissioner and may be changed or updated as necessary by the Commissioner in order to carry out the purpose of the laws.
The applicant must, at a minimum, furnish to the NMLSR information concerning the identity of the applicant, any control person of the applicant, the qualified individual, and any branch manager, including personal history and experience in a form prescribed by the NMLSR and information related to any administrative, civil, or criminal findings by any governmental jurisdiction. The applicant must notify the Commissioner on the NMLSR of any change to the information submitted in connection with its most recent application for licensure not later than 15 days after the applicant has reason to know of the change.
Evidence of experience of the qualified individual and any branch manager will include:
- A statement specifying the duties and responsibilities of the person’s employment, the term of employment, including month and year, and the name, address, and telephone number of a supervisor, employer or, if self-employed, a business reference; and
- If required by the Commissioner, copies of W-2 forms, 1099 tax forms or, if self-employed, 1120 corporate tax returns, signed letters from the employer on the employer’s letterhead verifying such person’s duties and responsibilities and term of employment including month and year, and, if such person is unable to provide such letters, other proof satisfactory to the Commissioner that the person meets the experience requirement.
The Commissioner may conduct a criminal history records check of the applicant, any control person of the applicant, the qualified individual, and any branch manager with supervisory authority at the office for which the license is sought and require the applicant to submit the fingerprints of such persons as part of the application.
The minimum standards for license renewal for a mortgage servicer will include the following:
- The applicant continues to meet the minimum standards for licensure; and
- The mortgage servicer has paid all required initial license fees and renewal fees.
The license of a mortgage servicer failing to satisfy the minimum standards for license renewal will expire. The Commissioner may adopt procedures for the reinstatement of expired licenses consistent with the standards established by the NMLSR. The Commissioner may automatically suspend a mortgage servicer license if the licensee receives a deficiency on the NMLSR indicating that the payment of the renewal fee was Returned-ACH or returned pursuant to such other term as may be utilized by the NMLSR to indicate that the payment was not accepted. After a license has been automatically suspended, the Commissioner will give the licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew and an opportunity for a hearing on such action, and require the licensee to take or refrain from taking such action that, in the opinion of the Commissioner, will bring about the purposes of the above provisions.
Withdrawal of an application for a license will become effective upon receipt by the Commissioner of a notice of intent to withdraw the application. The Commissioner may deny a license up to one year after the effective date of withdrawal. If the license of a mortgage servicer expires due to the licensee’s failure to renew, the Commissioner may institute a revocation or suspension proceeding or issue an order suspending or revoking the license not later than one year after the date of the expiration.
The Commissioner may deem an application for a license abandoned if the applicant fails to respond to any request for required information. The Commissioner will notify the applicant on the NMLSR that if such information is not submitted not later than 60 days from the date of the request, the application will be deemed abandoned. An application filing fee paid prior to the date an application is deemed abandoned will not be refunded. Abandonment of an application will not preclude the applicant from submitting a new application for a license.
At least annually, as part of its application, a mortgage servicer must file with the Commissioner:
- A current schedule of the range of costs and fees it charges borrowers for its servicing-related activities; and
- A report in a form and format acceptable to the Commissioner detailing the mortgage servicer’s activities in Connecticut, including:
- The number of residential mortgage loans the mortgage servicer is servicing;
- The type and characteristics of the residential mortgage loans in Connecticut;
- The number of serviced residential mortgage loans in default, along with a breakdown of 30-day, 60-day, and 90-day delinquencies;
- Information on loss mitigation activities, including details on workout arrangements undertaken; and
- Information on foreclosures commenced in Connecticut.
A mortgage servicer license will not be transferable or assignable. A licensee may not use any name other than its legal name or a fictitious name approved by the Commissioner, provided the licensee may not use its legal name if the Commissioner disapproves use of the name. Any licensee who intends to permanently cease acting as a mortgage servicer at any time during a license period for any cause, including, but not limited to, bankruptcy or voluntary dissolution, must file a request to surrender the license for each office at which the licensee intends to cease to do business, on the NMLSR, not later than 15 days after the date of such cessation, provided this requirement will not apply when a license has been suspended. A surrender will not be effective until accepted by the Commissioner.
A mortgage servicer licensee may change the name of the licensee or address of any office specified on the most recent filing with the NMLSR if:
- At least 30 calendar days prior to the change, the licensee files the change with the NMLSR and, in the case of a main office or branch office, provides, directly to the Commissioner, a bond rider or endorsement, or addendum, as applicable, to any bond or evidence of errors and omissions coverage on file with the Commissioner that reflects the new name or address of the main office or branch office; and
- The Commissioner does not disapprove the change, in writing, or request further information within the 30-day period.
The mortgage servicer licensee must file with the NMLSR or, if the information cannot be filed on the NMLSR, directly notify the Commissioner, in writing, not later than 5 business days after the licensee has reason to know of the occurrence of any of the following events:
- Filing for bankruptcy, or the consummation of a corporate restructuring, of the licensee;
- Filing of a criminal indictment against the licensee or receiving notification of the filing of any criminal felony indictment or felony conviction of any of the licensee’s officers, directors, members, partners, or shareholders owning 10% or more of the outstanding stock;
- Receiving notification of the institution of license denial, cease and desist, suspension or revocation procedures, or other formal or informal regulatory action by any governmental agency against the licensee and the reasons for such action;
- Receiving notification of the initiation of any action by the Attorney General or the attorney general of any other state and the reasons for such action;
- Suspension or termination of the licensee’s status as an approved seller or servicer by Fannie Mae, Freddie Mac, or Ginnie Mae;
- Receiving notification that certain servicing rights of the licensee will be rescinded or cancelled, and the reasons provided;
- Receiving notification of filing for bankruptcy of any of the licensee’s officers, directors, members, partners, or shareholders owning 10% or more of the outstanding stock of the licensee; or
- Receiving notification of the initiation of a class action lawsuit on behalf of borrowers against the licensee that is related to the operation of the licensed business.
Each mortgage servicer license will expire at the close of business on December 31 of the year in which it is approved, unless the license is renewed, and provided any such license that is approved on or after November 1 will expire at the close of business on December 31 of the year following the year in which it is approved. An application for renewal of a license must be filed between November 1 and December 31 of the year in which the license expires. Each applicant for an initial license or renewal of a license as a mortgage servicer must pay to the NMLSR any required fees or charges and a licensee fee of $1,000.
All fees paid, including fees paid in connection with an application that is denied or withdrawn prior to the issuance of the license, will be nonrefundable. A fee will not be prorated if the license is surrendered, revoked, or suspended prior to the expiration of the period for which it was approved.
Each mortgage servicer applicant or licensee and any person exempt from mortgage servicer licensure must file with the Commissioner:
- A surety bond, written by a surety authorized to write such bonds in Connecticut, covering its main office and any branch office from which it acts as mortgage servicer, in a penal sum of $100,000 per office location;
- A fidelity bond, written by a surety authorized to write such bonds in Connecticut; and
- Evidence of errors and omissions coverage, written by a surety authorized to write such coverage in Connecticut.
A mortgage servicer licensee and a person otherwise exempt from mortgage servicer licensure must not act as a mortgage servicer in Connecticut without maintaining the required surety bond, fidelity bond, and errors and omissions coverage.
The surety bond must be in a form approved by the Attorney General and conditioned upon the mortgage servicer licensee or person exempt from mortgage servicer licensure faithfully performing any and all written agreements or commitments with or for the benefit of borrowers and lenders, truly and faithfully accounting for all funds received from a borrower or lender in such person’s capacity as a mortgage servicer, and conducting such mortgage business consistent with the laws. Any borrower that may be damaged by the failure of a mortgage servicer licensee or person exempt from mortgage servicer licensure to perform any written agreements or commitments, or by the wrongful conversion of funds paid by a borrower to the licensee or person, may proceed on the bond against the principal or surety on the bond, or both, to collect any civil penalty imposed, any restitution imposed, and any unpaid costs of examination of a licensee. The proceeds of the bond, even if commingled with other assets of the principal, will be deemed by operation of law to be held in trust for the benefit of the claimants against the principal in the event of bankruptcy of the principal and will be immune from attachment by lenders and judgment creditors. The surety bond will run concurrently with the period of the license for the main office of the mortgage servicer or mortgage lender and the aggregate liability under the bond will not exceed the penal sum of the bond. The principal must notify the Commissioner of the commencement of an action on the bond. When an action is commenced on a principal’s bond, the Commissioner may require the filing of a new bond and immediately on recovery on any action on the bond, the principal must file a new bond.
The required fidelity bond and errors and omissions coverage must name the Commissioner as an additional loss payee on drafts the surety issues to pay for covered losses directly or indirectly incurred by borrowers of residential mortgage loans serviced by the mortgage servicer. The fidelity bond will cover losses arising from dishonest and fraudulent acts, embezzlement, misplacement, forgery, and similar events committed by employees of the mortgage servicer. The errors and omissions coverage will cover losses resulting from negligence, errors and omissions by the mortgage servicer with respect to the payment of real estate taxes and special assessments, hazard and flood insurance, or the maintenance of mortgage and guaranty insurance. The fidelity bond and errors and omissions coverage will each be in the following principal amounts based on the mortgage servicer’s volume of servicing activity most recently reported to the Commissioner:
- If the amount of the residential mortgage loans serviced is $100,000,000 or less, the principal amount will be $300,000; or
- If the amount of the loans exceeds $100,000,000, the principal amount will be $300,000:
- Plus 3/20s of 1% of the amount of residential mortgage loans serviced greater than $100 million but less than or equal to $500 million;
- Plus 1/8 of 1% of the amount of residential mortgage loans serviced greater than $500 million but less than or equal to $1 billion; and
- Plus 1/10 of 1% of the amount of residential mortgage loans serviced greater than $1 billion.
The fidelity bond and errors and omissions coverage may provide for a deductible amount not to exceed the greater of $100,000 or 5% of the principal amount.
A surety will have the right to cancel the surety bond, fidelity bond, and errors and omissions coverage at any time by a written notice to the principal stating the date cancellation with take effect. Such notice must be sent by certified mail to principal at least 30 days prior to the date of cancellation. A surety bond, fidelity bond, or errors and omissions coverage will not be canceled unless the surety notifies the Commissioner, in writing, not less than 30 days prior to the effective date of cancellation. After receipt of such notification from the surety, the Commissioner will give written notice to the principal of the date the cancellation will take effect.
The Commissioner will automatically suspend the license of a mortgage servicer on such date. An automatic suspension or inactivation will not occur if, prior to the date that the bond or errors and omissions coverage cancellation will take effect, the principal submits a letter of reinstatement of the bond or errors and omissions coverage, or a new bond or errors and omissions policy or the mortgage servicer has ceased business in Connecticut and has surrendered all licenses. After a mortgage servicer license has been automatically suspended, the Commissioner will give the licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew and an opportunity for a hearing on such action and require the licensee to take or refrain from taking such action as in the opinion of the Commissioner, will bring about the purposes of the above provisions.
A person licensed a mortgage lender in Connecticut acting as a mortgage servicer from a location licensed as a main office or branch office will cease to be exempt from mortgage servicer licensing requirements in Connecticut upon cancellation of any required surety bond, fidelity bond, or errors and omissions coverage.
If the Commissioner finds that the financial condition of a mortgage servicer or mortgage lender licensee so requires, as evidenced by the reduction of tangible net worth, financial losses, or potential losses as a result of a violation of the laws, the Commissioner may require one or more additional bonds meeting the standards set forth above. The licensee must file any such additional bonds not later than 10 days after receipt of the Commissioner’s written notice of the requirement. A mortgage servicer or mortgage lender licensee must file, as the Commissioner may require, any bond rider or endorsement or addendum, as applicable, to any bond or evidence of errors and omissions coverage on file with the Commissioner to reflect any changes necessary to maintain the surety bond, fidelity bond, and errors and omissions coverage.
Each mortgage servicer licensee and person exempt from licensure must maintain adequate records of each residential mortgage loan transaction at the office named in the mortgage servicer or mortgage lender license, or, if requested by the Commissioner, must make the records available at such office or send such records to the Commissioner by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, not later than 5 business days after requested by the Commissioner to do so. Upon request, the Commissioner may grant a licensee additional time to make the records available or send them to the Commissioner. The records must provide the following information:
- A loan history for residential mortgage loans upon which payments are received or made by the mortgage servicer, itemizing the amount and date of each payment and the unpaid balance at all times;
- The original or an exact copy of the note, residential mortgage, or other indebtedness and mortgage deed;
- The name and address of the mortgage lender, mortgage correspondent lender and mortgage broker, if any, involved in the residential mortgage loan transaction;
- Copies of any disclosures or notifications provided to the borrower required by state or federal law;
- A copy of any bankruptcy plan approved in a proceeding filed by the borrower or a co-owner of the property subject to the residential mortgage loan;
- A communication log that documents all verbal communications with the borrower or the borrower’s representative; and
- A copy of all notices sent to the borrower related to any foreclosure proceeding filed against the encumbered property.
Every mortgage servicer licensee and person exempt from licensure must retain the records of each residential mortgage loan serviced for not less than 2 years following the final payment on such residential mortgage loan, or the assignment of such residential mortgage loan, whichever occurs first, or such longer period as may be required by any other provision of law. Every mortgage servicer licensee and person exempt from licensure must keep and use in its business books, accounts, and records that will enable the Commissioner to determine whether the mortgage servicer is complying with the laws and with any regulations adopted pursuant to the laws.
For purposes of initial licensing, license renewal, license suspension, license conditioning, license revocation or termination, or general or specific inquiry or investigation to determine compliance with applicable laws, the Commissioner may access, receive and use any books, accounts, records, files, documents, information, or evidence including not limited to:
- Criminal, civil, and administrative history information;
- Personal history and experience information including independent credit reports; and
- Any other documents, information, or evidence the Commissioner deems relevant to the inquiry or investigation regardless of the location, possession, control or custody of the documents, information, or evidence.
For the purpose of investigating violations or complaints, the Commissioner may review, investigate or examine any mortgage servicer licensee or person subject to the laws as often as necessary to carry out the purposes of the laws. The Commissioner may direct, subpoena, or order the attendance of and examine under oath all persons whose testimonies may be required about the residential mortgage loans or the business or the subject matter of an examination or investigation, and may direct, subpoena, or order persons to produce books, accounts, records, files, and any other documents the Commissioner deems relevant.
Each mortgage servicer licensee or person subject to the laws must make or compile reports or prepare other information as directed by the Commissioner in order to carry out the purposes of the law including accounting compilations, information lists and data concerning residential mortgage loan transactions in a format prescribed by the Commissioner or such other information the Commissioner deems necessary.
In making any examination or investigation, the Commissioner may control access to any documents and records of the mortgage servicer licensee or person under examination or investigation. The Commissioner may take possession of the documents and records or place a person in exclusive charge of the documents and records in the place where they are usually kept. During the period of control, no individual or person can remove or attempt to remove any of the documents and records except pursuant to court order or with the consent of the Commissioner. Unless the Commissioner has reasonable grounds to believe the documents or records have been or are at risk of being altered or destroyed, the licensee or owner of the documents and records will have access to such documents and records as necessary to carry out its ordinary business affairs.
In order to carry out the purposes of the laws, the Commissioner may:
- Retain attorneys, accountants, or other professionals and specialists as examiners, auditors, or investigators to conduct or assist in the conduct of examinations or investigations;
- Enter into agreements or relationships with other governmental officials or regulatory associations in order to improve efficiencies and reduce regulatory burden by sharing resources, standardized or uniform methods or procedures, and documents, records, information, or evidence;
- Use, hire, contract, or employ public or privately available analytical systems, methods, or software to examine or investigate the mortgage servicer licensee or person subject to the laws;
- Accept and rely on examination or investigation reports made by other government officials; and
- Accept audit reports made by an independent certified public accountant.
The authority of the laws will remain in effect, whether the mortgage servicer licensee or person subject to the laws acts or claims to act under any licensing or registration law of Connecticut, or claims to act without such authority.
A mortgage servicer licensee or person subject to an investigation or examination may not knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, computer records, or other information.
The Commissioner may suspend, revoke, or refuse to renew any mortgage servicer license or take any other action for any reason which would be sufficient grounds for the Commissioner to deny an application for such license, or if the Commissioner finds that the licensee, any control person of the licensee, the qualified individual, or any branch manager with supervisory authority, trustee, employee, or agent of the licensee has done any of the following:
- Made any material misstatement in the application;
- Committed any fraud or misrepresentation or misappropriated funds;
- Violated any provision of the Banking Law of Connecticut or any regulations adopted pursuant to such law, or any other law or regulation applicable to the conduct of its business; or
- Failed to perform any agreement with a lender or a borrower.
Whenever it appears to the Commissioner that any person has violated, is violating, or is about to violate the release of mortgage or payoff statement provisions of Connecticut law, any of the provisions of the Banking Law of Connecticut or any regulations adopted pursuant to such law, or any licensee has failed to perform any agreement with a lender or borrower, committed any fraud, made any misrepresentation, or misappropriated funds, the Commissioner may take action against the person or licensee.
The Commissioner may adopt such regulations as the Commissioner deems necessary to administer and enforce the provisions of the laws.
The mortgage loan servicer licensing requirements will not apply to:
- A person exempt from licensure as a mortgage lender or mortgage correspondent lender while servicing residential mortgage loans;
- A person servicing 5 or fewer residential mortgage loans within any period of 12 consecutive months;
- Any agency of the federal government, any state or municipal government, or any quasi-governmental agency servicing residential mortgage loans under the specific authority of the laws of any state or the United States; and
- A person exempt from licensure as:
o Any bank, out-of-state bank, Connecticut credit union, federal credit union or out-of-state credit union, provided such bank or credit union is federally insured;
o Any wholly-owned subsidiary of such bank or credit union; and
o Any operating subsidiary where each owner of such operating subsidiary is wholly owned by the same such bank or credit union.