20 Aug Connecticut Legislative Update
The Connecticut legislature recently amended its laws governing the recording fees, interest on funds held in escrow, and security breaches, and amended the Connecticut Housing Finance Authority Act (the “Act”). All of the legislation is effective October 1, 2012.
CONNECTICUT SENATE BILL 67
Our June 14, 2012 Compliance Memorandum discussed the provisions of Senate Bill 67 that were effective June 8, 2012, which amended Connecticut real estate appraisal laws. Senate Bill 67 also addressed the powers of the Banking Commissioner (the “Commissioner”), mortgage lenders, correspondent lenders, brokers, and mortgage loan originators.
Banking Commissioner’s Powers
The Commissioner, in his or her discretion, may:
- Require or permit any person to testify, produce a record, or file a statement in writing, under oath, or otherwise as the Commissioner determines, as to all the facts and circumstances concerning the matter to be investigated or about which an action or proceeding is pending; and
- Publish information concerning any violation of any provision of Connecticut law within the jurisdiction of the Commissioner or any regulation or order adopted or issued under such provision.
The Commissioner may issue subpoenas in Connecticut at the request of another state concerning which the information is sought would constitute a basis for an investigation, examination, or proceeding had the activities occurred in Connecticut, and such other state has reciprocal legal authority to issue subpoenas in that state on behalf of the Commissioner.
Whenever the Commissioner finds as the result of an investigation that any person has violated any provision of Connecticut law within the jurisdiction of the Commissioner, or any regulation, rule, or order issued under the provisions, the Commissioner may, in addition to any other remedy authorized by law, order the person to:
· Make restitution of any sums shown to have been obtained due to the violation plus interest; and/or
· Give up any profits obtained from the violation.
After the Commissioner issues such an order, the person named in the order may, not later than 14 days after the receipt of the order, file a written request for a hearing. The order will be deemed received by the person on the earlier of the date of actual receipt or 7 days after mailing or sending.
Mortgage Lenders, Correspondent Lenders, Brokers, and Loan Originators
“Dwelling” means a residential structure or mobile home, which contains 1-to-4 family housing units, of individual units of condominiums or cooperatives.
“Employee” mean an individual:
- Whose manner and means of work performance are subject to the right of control or, are controlled by, a person; and
- Whose compensation is reported or required to be reported on a W-2 form issued by the controlling person.
For purposes of the definition of a “registered mortgage loan originator,” “employee” has the meaning provided above or such other means as the Federal Banking Agencies may issue in connection with the Agencies’ implementation of the Secure and Fair Enforcement for Mortgage Licensing of Act of 2008 (the “S.A.F.E. Act”).
“Independent contractor” means an individual retained on a basis where the individual is not an employee of any person in connection with the services the individual provides and whose compensation is reported or required to be reported on an IRS Form 1099 issued by the retaining person.
“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 with the scope of the exemption.
An individual, unless specifically exempted, will be deemed to be engaged in the business of a mortgage loan originator if the individual:
- Acts as a mortgage loan originator in connection with any residential mortgage loan on behalf of a licensee or exempt person; or
- Makes any representation to the public through advertising or other means of communication that the individual can or will act as a mortgage loan originator on behalf of a licensee or exempt person.
A loan processor or underwriter licensee may not be sponsored by more than one person at a time.
In addition to the prior exemption, the following are exempt from licensure as a mortgage loan originator:
- An individual who offers or negotiates the terms of a residential mortgage loan secured by a dwelling that served as the individual’s residence, unless the context demonstrates that the individual engaged in the activities with a degree of habitualness or repetition;
- An individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan as an employee of a federal, state, or local government agency or housing finance agency exempt from licensure, and who does so only pursuant to such individual’s official duties as an employee of the agency;
- An individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan as an employee of an organization that has obtained bona fide nonprofit status from the Commissioner and is exempt from licensure, and who does so only pursuant to such individual’s official duties as an employee of the organization; and
- An individual who offers or negotiates the terms of a residential mortgage loan secured by a dwelling that is not the individual’s residence but is owned by the individual, unless the context demonstrates that the individual engaged in the activities with a degree of habitualness or repetition.
An individual must not engage in the activities of a loan processor or underwriter unless the individual obtains and maintains a license as a loan processor or underwriter. The following individuals are exempt from licensure:
- An employee of a licensed mortgage lender, mortgage correspondent lender, or mortgage broker who engages in loan processor or underwriter activities in connection with residential mortgage loans either originated or made by the licensee, and at the direction of and subject to the supervision of a licensed mortgage loan originator of the licensee;
- An employee of a person exempt from licensure who engages in loan processor or underwriter activities at the direction of and subject to the supervision of either a licensed mortgage loan originator or a registered mortgage loan originator of the exempt person; or
- Any individual engaged, in any capacity, in loan processor or underwriter activities in connection with a residential mortgage loan originated by an individual not required to be licensed or registered as a mortgage loan originator.
Each residential mortgage loan taken, offered, negotiated, solicited, arranged, placed, found, made, processed, or underwritten without a license will constitute a separate violation.
Housing finance agencies are now exempt from licensure as a mortgage lender or mortgage correspondent lender.
A “housing finance agency” means any authority:
- Chartered by a state to help meet the affordable housing needs of the residents of the state;
- Supervised directly or indirectly by the state government;
- Subject to audit and review by the state in which it operates; and
- Whose activities make it eligible to be a member of the National Council of State Housing Agencies.
A bona fide nonprofit organization will be exempt from licensing as a mortgage broker to the extent that the bona fide nonprofit organization acts as a mortgage broker in connection with residential mortgage loans to be exclusively made by any corporation or its affiliate that makes residential mortgage loans exclusively for benefit of its employees or agents or any corporation, licensed under Connecticut law, or its affiliate or subsidiary, that makes residential mortgage loans to promote homeownership in urban areas.
A “bona fide nonprofit organization” means an organization that has filed a written certified submission to the Commissioner in a form prescribed by the Commissioner and that demonstrates to the satisfaction of the Commissioner that the organization:
- Has the status of a tax-exempt organization under the Internal Revenue Code;
- Promotes affordable housing or provides homeownership education or similar services;
- Conducts its activities in a manner that serves public or charitable purposes rather than commercial purposes;
- Receives funding and revenue and charges fees in a manner that does not incentivize it or its employees to act other than in the best interests of its clients;
- Compensates its employees in a manner that does not incentivize employees to act other than in the best interests of its clients;
- Provides or identifies for the borrower residential mortgage loans:
- With terms favorable to the borrower, which means the terms must be consistent with the loan origination in a public or charitable context, not a commercial context; and
- Comparable to mortgage loans and housing assistance programs; and
- Meets such other standards as the Commissioner may by regulation require.
Any organization that demonstrates to the satisfaction of the Commissioner its status as a bona fide nonprofit organization must, not later than December 31 of each year, submit to the Commissioner a renewed certification and documentation to update all information last filed in support of the status and timely report any change in any information previously submitted.
In addition to the prior minimum standards for initial licensure and renewal of a mortgage lender, mortgage correspondent lender, or mortgage broker license, effective November 1, 2012, each qualified individual and branch manager must be licensed as a mortgage loan originator and complete any applicable continuing education requirements.
In addition to the prior minimum standards for initial licensure for a mortgage loan originator or loan processor, effective November 1, 2012, qualified individuals or branch managers seeking initial licensure as a mortgage loan originator must complete any applicable continuing education requirements.
An individual who previously held a position as a qualified individual or branch manager subsequent to the applicable effective date of the pre-licensing and testing requirements, at a time when the individual was not required to be licensed as a mortgage loan originator, may not hold the position again until the individual has completed all of the continuing education requirements for the year in which the individual last held the position and, effective November 1, 2012, has obtained the required mortgage loan originator license.
An individual may retake the required licensing test 3 times (previously 4 times) with each consecutive taking occurring at least 30 days after the preceding test. After failing 3 consecutive tests, an individual must wait at least 6 months before retaking the test.
Failure by a licensee to submit a timely and accurate report of condition will constitute a violation. Failure of an exempt registrant to timely and accurately submit a report of condition will form a basis to inactivate the licenses of all sponsored mortgage loan originators or loan processors or underwriters. To the extent that the Nationwide Mortgage Licensing System and Registry does not require submission of reports of condition by individual mortgage loan originator or loan processor or underwriter licensees, the individual licensees must timely and accurately report all required information in their possession to their sponsor for purposes of their sponsor’s reporting obligation. Failure of an individual licensee to timely and accurately report required information in his or her possession to his or her sponsor will constitute a violation.
CONNECTICUT HOUSE BILL 5539
The recording fee for a third or subsequent assignment of a mortgage is $2 (previously $1). On and after October 1, 2012, any document being recorded must not contain more than twenty assignments of a mortgage.
CONNECTICUT HOUSE BILL 5414
On and after October 1, 2012, the rate for each calendar year for interest paid on escrow accounts must not be less than the deposit index for that year rounded to the nearest one-tenth of one percentage point (previously the rate could not be less than one and one-half percent).
CONNECTICUT HOUSE BILL 6001
If a notice of a breach of security is required, the person who conducts business in Connecticut, and who, in the ordinary course of the person’s business, owns, licenses, or maintains computerized data that includes personal information, must not later than the time when the notice is provided to the resident also provide notice of breach of security to the Attorney General.
The following provision has been deleted from the Act: No person receiving financial relief under the Act may file a defense, counterclaim or set-off to any action for foreclosure of the mortgage for which such financial relief was provided.
The borrower must provide the Housing Finance Authority (the “Authority”) with full disclosure of all assets and liabilities, whether singly or jointly held, and all household income regardless of source. Both of the following are included as assets:
- The sum of the household’s savings and checking accounts, market value of stocks, bonds and other securities, other capital investments, pensions and retirement funds valued in an amount greater than $100,000, personal property and equity in real property including the subject mortgage property. Income derived from family assets will be considered as income. Equity is the difference between the market value of the property and the total outstanding principal of any loans secured by the property and other liens.
- Lump-sum additions to family assets such as inheritances, capital gains, insurance payments included under health, accident, hazard or worker’s compensation policies and settlements, verdicts or awards for personal or property losses or transfer of assets without consideration within one year of the time of application. Pending claims for such items must be identified by the homeowner as contingent assets.
The Authority will no longer require that a mortgage not insured by the FHA be considered in its determination of eligibility for emergency assistance payments.
If the Authority approves a borrower for assistance under the Act, the Authority will make monthly emergency mortgage assistance payments directly to each mortgagee secured by the borrower’s real property for a period not to exceed 60 months, either consecutively or non-consecutively, except no such payments will be made after 60 months have passed since the date of the initial payment.
A lender must include the form promulgated by the judicial branch, concerning notice of community-based resources to parties involved in foreclosure mediation with any notice to a borrower, of an intent to accelerate the mortgage loan. A municipality must include the form with any statements sent to a homeowner regarding an arrearage owed by the homeowner for public sewer or water services or for property taxes. The judicial branch will provide the form to parties involved in foreclosure mediation to public libraries, religious organizations, and community-based programs throughout Connecticut to ensure that the form is readily available to borrowers.
The form must include the following:
- A reference to Connecticut Housing Finance Authority (“CHFA”)/HUD-Approved Housing Counselors in lieu of a reference to CHFA-Approved Housing Counselors;
- A column in the approved housing counselor chart that includes the counties in which each housing counselor serves; and
- A notification to borrowers who are currently parties to a foreclosure action that they should contact the Department of Banking’s foreclosure assistance hotline for assistance with time sensitive foreclosure concerns.