Hawaii Legislative Update

Hawaii Legislative Update

The Hawaii legislature recently amended its laws related to mortgage servicing and mortgage loan origination.  Both bills discussed in this memorandum are effective September 1, 2017.

 

Hawaii Senate Bill 950

 

If a licensed mortgage servicer (“Licensee”) wishes to implement a change in control, it must submit to the Hawaii Commissioner of Financial Institutions (“Commissioner”) an application requesting approval of the proposed change of control of Licensee along with a nonrefundable application fee of $500.  The Commissioner will approve an application requesting approval of a proposed change of control if, after investigation, the Commissioner determines that:

  • The person or group of persons who will obtain control will be in compliance with the Hawaii servicing laws upon approval of the application;
  • The person or group of persons who will obtain control has the competence, experience, character, and general fitness to control the Licensee or person in control of the Licensee in a lawful and proper manner; and
  • The interests of the public will not be jeopardized by the change of control.

 

An individual is presumed to control an entity if that individual is:

  • An executive officer of the entity; or
  • A director, general partner, or managing member who directly or indirectly has the right to vote 10% or more of a class of voting securities of the entity or has the power to sell or direct the sale of 10% or more of a class of voting securities of the entity.

 

“Executive Officer” means a president, chairperson of an executive committee, senior officer responsible for the business of the subject entity or organization, chief financial officer, or any other person who performs similar functions related to the subject entity or organization.

 

When submitting an application for licensure or license renewal, the applicant must disclose whether the applicant or any of its executive officers, directors, general partners, or managing members have ever been issued or been the subject of an injunction or administrative order pertaining to any aspect of the lending business, have ever been convicted of a misdemeanor involving the lending industry or any aspect of the lending business, or have ever been convicted of any felony.

 

The mortgage servicer must file with Nationwide Multistate Licensing System and Registry (“NMLS”) or, if the information cannot be filed with NMLS, directly notify the Commissioner in writing no later than five business days after the Licensee has reason to know of certain events pertaining to Licensee, an executive officer of Licensee or an individual in control of Licensee (including bankruptcy filings, criminal indictments, regulatory actions, suspensions of any agency approvals or class action filings).

 

It is a violation of law for any mortgage servicer to provide any services that would require licensing unless the mortgage servicer is licensed.

 

Each Licensee or person subject to the mortgage servicing laws must provide to the Commissioner upon request the books and records relating to the operations of the Licensee or person subject to the mortgage servicing laws.  The Commissioner must be given access to the books and records and must be permitted to interview the executive officers, directors, managing members, general partners, principals, mortgage servicer’s employees, independent contractors, agents, and customers of the Licensee or person subject to the mortgage servicing laws concerning their business.

 

Hawaii Senate Bill 951

 

“Executive Officer” 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” means an individual who is responsible for the oversight of mortgage loan originators that are employed by or contracted to perform work for a mortgage loan originator company or an exempt sponsoring mortgage loan originator company.

 

An individual is presumed to control a mortgage loan originator company if that individual is:

  • An executive officer; or
  • A director, general partner, or managing member who directly or indirectly has the right to vote ten per cent or more of a class of voting securities or has the power to sell or direct the sale of ten per cent or more of a class of voting securities of that licensee or applicant.

 

Every mortgage loan originator company licensed under Hawaii’s Secure and Fair Enforcement for Mortgage Licensing Act (“S.A.F.E. Act”) and every exempt sponsoring mortgage loan originator company registered with NMLS must designate a qualified individual to fulfill the duties and responsibilities required by the S.A.F.E. Act.  A qualified individual has the duty to manage and supervise the mortgage loan origination activities of the principal office of the licensed mortgage loan originator company or exempt sponsoring mortgage loan originator company, and the licensed mortgage loan originators located at or working out of the principal office and all company branch offices.  A qualified individual for a mortgage loan originator company must hold a license as a mortgage loan originator.

 

The law was amended to provide that a qualified individual for an exempt sponsoring mortgage loan originator company has the same duties and responsibilities as a qualified individual for a mortgage loan originator company.

Every exempt sponsoring mortgage loan originator company is also required to have and maintain a principal place of business in Hawaii and designate a qualified individual to fulfill the duties and responsibilities required by law.

A nonprofit organization must designate an employee who will have the duty to directly manage and supervise the mortgage loan origination activity of the nonprofit organization, including:

  • The maintenance of all records, contracts, and documents of the nonprofit organization relating to mortgage loan origination activity;
  • All mortgage loan originator agreements and mortgage loan documents and the handling of these documents by the nonprofit organization’s employees, or by independent contractors located at or working out of the nonprofit organization; and
  • All employees of the nonprofit organization, and all independent contractors of the nonprofit organization located at or working out of the nonprofit organization, who are working on or handling mortgage loan origination activity of the nonprofit organization.