Iowa Regulatory Update

Iowa Regulatory Update

The Iowa Division of Banking (“Division”) recently amended its rules related to mortgage lenders, mortgage bankers, mortgage brokers and lenders licensed under the Regulated Loan Act, effective July 1, 2017.

 

Iowa Rules 187 Chapters 15, 18 and 19

 

Chapter 18 (535B License) – Mortgage Bankers, Mortgage Brokers, and Real Estate Closing Agents

 

“Nationwide Multistate Licensing System” or “NMLS” means a multistate licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the licensing and registration of mortgage loan originators, mortgage providers, mortgage lenders, mortgage brokers, and mortgage servicers.  NMLS was previously referred to in the rule as “Nationwide Mortgage Licensing System and Registry” or “NMLS & R.”  All references in the rules have been updated to reflect the revised name.

 

“Services a Loan” or “Servicing a Loan” means undertaking the direct collection of payments on a loan from the borrower or holding the right to undertake direct collection of payments on a loan from the borrower.  Undertaking the direct collection of payments means receiving any scheduled periodic payments from a borrower pursuant to the terms of any federally related mortgage loan.  Holding the right to undertake direct collection of payments means holding the right to service a loan, including where the holder of this right contracts with or otherwise arranges for another person to service the loan.

 

Each officer, director, and individual who has control of an applicant for a license to operate as a mortgage banker, mortgage broker, or closing agent, must provide fingerprints, authorize a fingerprint background check through NMLS, and pay the appropriate fees for the purpose of conducting a national criminal history background check through the Federal Bureau of Investigation.

 

The Iowa Superintendent of Banking (“Superintendent”) must approve or deny an application for licensure in accordance with the provisions of Iowa law.  The following may be considered evidence that the business of the applicant may not be operated honestly in the public interest consistent with the purposes of such laws and may therefore be considered grounds for denial of an application:

  • An applicant, or an officer, director, or individual who has control of an applicant has had a mortgage loan originator license or any lending license revoked in any governmental jurisdiction; or
  • An applicant, or an officer, director, or individual who has control of an applicant, has been convicted of, or has pleaded guilty or no contest to, a felony in a domestic, foreign, or military court if such felony involved an act of fraud, dishonesty, or breach of trust, or money laundering. A pardon of a conviction does not constitute a conviction for purposes of this rule.

 

A mortgage banker or mortgage broker licensee must notify the Administrator of the Superintendent (“Administrator”) through NMLS of the addition of any mortgage loan originator, owner, officer, partner, or director within ten days (previously five days) of addition.

 

When a change of control of a licensee is proposed, the party that will assume control of the licensee must give notice to the Superintendent through the NMLS at least 60 days before the proposed change will take effect.  The party that will assume control of the licensee must furnish the Superintendent through NMLS with the same information required of initial applicants for a license, along with the appropriate fee.  The party that will assume control may be required to provide fingerprints, authorize a fingerprint background check though NMLS, and pay the appropriate fees for the purpose of conducting a national criminal history background check through the Federal Bureau of Investigation.  The Superintendent must approve or deny the request in accordance with Iowa law.

 

References to “Good Faith Estimate” were replaced with “initial disclosure” and references to “HUD-1 Settlement Statement” or “settlement statement” were replaced with “closing disclosure.”

 

A closing agent must maintain a closing file for each real estate transaction for which the closing agent performed real estate closing services.  The closing file was previously required to retain detailed records of the individuals present at each closing, including “copies of photo identification,” and specifying where and when each closing is held.  The requirement to include copies of photo identification in the closing file has been deleted.

 

Chapter 19 (535D License) Mortgage Loan Originators

 

“Nationwide Multistate Licensing System” or “NMLS” means a multistate licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the licensing and registration of mortgage loan originators, mortgage providers, mortgage lenders, mortgage brokers, and mortgage servicers.  NMLS was previously referred to in the rule as “Nationwide Mortgage Licensing System and Registry” or “NMLS & R.”  All references in the rules have been updated to reflect the revised name.

 

An applicant for a mortgage loan originator license must provide fingerprints, authorize a fingerprint background check through NMLS, and pay the appropriate fees for the purpose of conducting a national criminal history background check through the Federal Bureau of Investigation.

 

An individual who has completed 20 hours of prelicensure education must retake 20 hours of prelicensure education in order to be eligible for mortgage loan originator licensure if the individual:

  • Fails to acquire a valid state license or federal registration as a mortgage loan originator within three years from the date of federal compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”); or
  • Fails to acquire a valid state license or federal registration as a mortgage loan originator within three years from the last date of licensure or registration as a mortgage loan originator.

 

A licensee must notify the Superintendent through NMLS within ten days (previously five business days) of the occurrence of any of the following events:

  • The licensee files for bankruptcy protection;
  • A prosecuting authority files criminal charges against the licensee;
  • Another state or jurisdiction institutes license denial, cease and desist, suspension or revocation procedures, or other formal or informal regulatory action against the licensee;
  • The attorney general of Iowa, the Federal Trade Commission, or the enforcer of the consumer protection laws of any other jurisdiction initiates an action to enforce consumer protection laws against the licensee;
  • The Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal Housing Administration (“FHA”), or Government National Mortgage Association (“Ginnie Mae”) suspends or terminates the licensee’s status as an approved loan originator.
  • The licensee ceases engaging in activities requiring a license and wishes to surrender the licensee’s license. Although the licensee has surrendered the licensee’s license, the Superintendent retains jurisdiction over the licensee’s activities during the time the individual was licensed; or
  • A change is made in the licensee’s name.

 

Chapter 15 (536 License) – Regulated Loan Act

 

“Business of Making Regulated Loans” means making ten or more loans of money or other forms of credit in a calendar year for which a license is required under the Iowa Regulated Loan Act, advertising the availability of such loans, or directly undertaking the collection of payments due on such loans or otherwise enforcing rights against borrowers who have entered into regulated loans.

 

“Nationwide Multistate Licensing System” or “NMLS” means a multistate licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the licensing and registration of non-depository financial institutions.

 

“Regulated Loan” means a loan made by a licensee acting under the terms of the Iowa Regulated Loan Act. A regulated loan qualifies as a consumer loan subject to the Iowa Consumer Credit Code if the borrower is a person other than an organization; the debt is incurred for personal, family, or household use; and the amount financed is below the statutory threshold.

 

All application and licensing information must be submitted through the NMLS including but not limited to the following:

  • Original application information;
  • Changes in application information;
  • License renewal information;
  • Changes in name, location, and control; and
  • Notices of significant events.

 

The applicant or licensee must pay any fees required by NMLS including but not limited to the following:

  • Initial set-up fee and annual processing fees;
  • Background check fees; and
  • Credit background check fees.

 

The Superintendent must refund the initial license fee if the application is denied, but the application fee is not subject to refund. A licensee must pay also an investigation or examination fee as determined by the Superintendent based on the actual cost of the operation of the finance bureau of the banking division.

 

An application for a license to operate a regulated loan business in Iowa must be submitted to the Superintendent, on the form provided and with the information requested, through NMLS. The Superintendent may consider an application withdrawn if it does not contain all of the information required and the missing information is not submitted to the Superintendent within 30 days after the Superintendent requests the missing information. The applicant may also request that the application be withdrawn at any time before the Superintendent has decided to grant or deny the application.

 

Each officer, director, and individual who has control of an applicant must provide fingerprints, authorize a fingerprint background check through NMLS, and pay the appropriate fees for the purpose of conducting a national criminal history background check through the Federal Bureau of Investigation.

 

If any information material to the application changes after the applicant files the initial application, the applicant must provide updated information to the Superintendent within 10 days of the change. When such a material change in information has occurred, the Superintendent may deny an application if the applicant fails to provide updated information within the prescribed time frame.

 

An applicant for a regulated loan company license must file with the Superintendent a bond which meets the statutory requirements. For applicants or licensees who do not make, arrange, broker, process, or underwrite any residential mortgage loans, the bond must be in the amount of $25,000.  For applicants or licensees who make, broker, process, or underwrite residential mortgage loans, the bond amount required to be filed and maintained will be set and adjusted annually by March 31 using the following scale, based on the volume of residential mortgage loans made, originated, arranged, brokered, processed, and underwritten, as the case may be, by the applicant or licensee during the preceding calendar year:

 

Loans                                                  Bond Amount

$0 – $5,000,000                                  $25,000

$5,000,001 – $20,000,000                  $50,000

$20,000,001 – $50,000,000                $75,000

$50,000,001 – $100,000,000              $100,000

Over $100,000,000                             $150,000

 

Licenses expire on the next December 31st after they are issued, but licenses granted on or after November 1st but before January 1st will not expire until December 31st of the following year. For example, a license granted on November 17, 2017, would not expire until December 31, 2018.

 

The Superintendent must approve or deny a license application as required by Iowa law.  The following may be considered evidence that the business of the applicant may not be operated lawfully and honestly within the purposes of Iowa law and may therefore be considered grounds for denial of an application:

  • An applicant, or an officer, director, or individual who has control of an applicant, has had a mortgage loan originator license or any lending license revoked in any governmental jurisdiction; or
  • An applicant, or an officer, director, or individual who has control of an applicant, has been convicted of, or has pleaded guilty or no contest to, a felony in a domestic, foreign, or military court if such felony involved an act of fraud, dishonesty, or breach of trust, or money laundering.

 

A licensee must renew a license before the expiration date of the license. A licensee who fails to renew a license before the expiration date is not authorized to make regulated loans in Iowa after the expiration date.

 

An application to renew a license must be submitted to the Superintendent, on the form provided and with the information requested, through NMLS by December 1st of the year of expiration. For example, for a license that will expire on December 31, 2017, an application for renewal must be submitted by December 1, 2017. All requested information, including any material change to information contained in the original application, must be provided to the Superintendent.

 

The Superintendent must grant an application to renew a license if:

  • The licensee submits the application and the appropriate renewal fee by December 1st or the licensee submits the application after December 1st but before January 1st and pays the appropriate renewal fee and the appropriate late fee;
  • The application is fully completed and includes all necessary information; and
  • The application does not reveal grounds to deny a license.

 

It is within the discretion of the Superintendent to reject for processing a renewal application submitted after December 31st or to treat such an application as an application for a new license. A licensee who fails to renew a license before the expiration date is not authorized to make regulated loans in Iowa after the expiration date.

 

A licensee wishing to change the name or location of a regulated loan business must notify the Superintendent through NMLS at least 30 days prior to the effective date of the requested change. The notice must include proof that the licensee has either obtained a new bond or amended the existing mandatory bond to reflect the new name or location. The licensee must submit the appropriate fee in conjunction with the notice.

 

When a change of control of a licensee is proposed, the party that will assume control of the licensee must give notice to the Superintendent through NMLS, at least 60 days before the proposed change will take effect. The party that will assume control of the licensee must furnish the Superintendent through NMLS with the same information required of initial applicants for a license, along with the appropriate fee. The party that will assume control may be required to provide fingerprints, authorize a fingerprint background check through NMLS, and pay the appropriate fees for the purpose of conducting a national criminal history background check through the Federal Bureau of Investigation. The Superintendent must approve or deny the request in accordance with the provisions of Iowa law.  Failure to notify the administrator within the prescribed time as required by this rule may subject the licensee to disciplinary action.

 

A licensee must notify the administrator immediately and in writing within 10 days of the occurrence of any of the following events:

  • The licensee or any of the licensee’s officers, directors, principal stockholders, or affiliates file for bankruptcy protection or commence reorganization proceedings;
  • A prosecuting authority files criminal charges against the licensee or any of a licensee’s officers, directors, principal stockholders, or affiliates;
  • Another state or jurisdiction institutes license denial, cease and desist, suspension or revocation procedures, or other formal or informal regulatory action against the licensee or any of the licensee’s officers, directors, principal stockholders, or affiliates;
  • The attorney general of Iowa, the Federal Trade Commission, or the enforcer of the consumer protection laws of any other jurisdiction initiates an action to enforce the consumer protection laws against the licensee or any of the licensee’s officers, directors, principal stockholders, or affiliates.

 

The Superintendent may require a person to provide responses to formal orders, examinations, or complaint inquiries. If a person fails to respond within 30 days of the request, the Superintendent may assess a penalty of $10 per day after the initial 30 days.

 

A licensee must keep records that allow the Superintendent to determine the licensee’s compliance with relevant statutes and regulations.  The owners and directors of the licensee are responsible for ensuring that the record keeping requirements are met.  The rule also provides how such records must be disposed of.  The records must be maintained as follows:

  • As a hard copy or in an electronic equivalent;
  • For at least 24 months from the date of the final transaction with the borrower;
  • In good order and able to produce books and records for the Superintendent upon request. Failure to produce such books and records within 30 days of the superintendent’s request may be grounds for disciplinary action against the licensee; and
  • Even after the licensee ceases business operations in Iowa and turns in or surrenders its license.

 

A licensee must keep, at its principal place of business, a loan register, an account ledger, an account ledger control, a loan file, an index, and a disbursement voucher.  The rule specifies in details what these items must include.

 

For each application the licensee denies, the licensee must also retain a copy of the application and a copy of the adverse action notice. The licensee may maintain this information in one file in either alphabetical or chronological order.

 

A licensee must also keep specified general business records for at least 36 months.

 

The Superintendent has the authority to investigate complaints against a licensee and enforce disciplinary action as necessary.

 

Licensees must file with the Superintendent an annual report, on forms prescribed by the Superintendent, on or before April 15th.  The information contained in the annual report is confidential, and the Superintendent may publish the information only in composite form. The Superintendent may assess a late fee of $10 for each day the annual report is delinquent.

 

A licensee must adhere to the following restrictions related to making regulated loans:

  • A licensee has authority to make and complete loans by mail, or by comparable electronic means, from the lender’s licensed office. However, all loans made to Iowa residents must comply with all applicable Iowa laws.
  • Default charges are not to be collected if payment is made by a credit accident and health insurance claim.
  • The maximum rate of interest that may be charged beginning July 1st, 2017, and until such time as a different rate is fixed by the Superintendent, is 36% per annum on any part of the unpaid balance not exceeding $3,000 (previously $1,000) and 24% per annum on any part of the unpaid balance in excess of $3,000 (previously $1,000), but not exceeding $8,400 (previously $2,800) and 18% per annum on any part of the unpaid balance in excess of $8,400 (previously $2,800), but not exceeding $10,000.

 

Licensees may not establish branch locations outside of the United States.