05 Jun Michigan Legislative and Colorado Regulatory Update
The Michigan legislature recently amended the Mortgage Loan Originator Licensing Act (the “Act”), effective May 30, 2012. The Colorado Board of Mortgage Loan Originators (the “Board”) recently promulgated a new S.A.F.E. Act Compliance Rule and amended the Mortgage Loan Originator Advertising Rule. The Rules are effective July 15, 2012. On May 16 the Board also issued a Position Statement.
MICHIGAN SENATE BILL 908
The title of the Commissioner of the Office of Financial and Insurance Regulation in the Department of Energy, Labor, and Economic Growth is now the Commissioner of the Office of Financial and Insurance Regulation in the Department of Licensing and Regulatory Affairs (the “Commissioner”).
“Exempt company” means a person that meets all of the following:
- Is not required to obtain a license or registration, or is exempt from licensing or registration, under the Mortgage Brokers, Lenders, and Servicers Licensing Act, the Secondary Mortgage Loan Act, or the Consumer Financial Services Act.
- Has a unique identifier in the Nationwide Mortgage Licensing System and Registry (“NMLSR”).
- Has been approved by the Commissioner in the NMLSR as an exempt company.
The definition of “loan modification activities” has been deleted from the Act.
“Sponsor” means a person that meets all of the following:
- Has a unique identifier in the NMLSR;
- Is approved by the Commissioner in the NMLSR as an exempt company or as a person licensed or registered under the Mortgage Brokers, Lenders, and Servicers Licensing Act, the Secondary Mortgage Loan Act, or the Consumer Financial Services Act.
- Has indicated in the NMLSR that an individual will act as a mortgage loan originator for that person under that person’s specific license, registration, or status as an exempt company.
The Commissioner will not issue a mortgage loan originator license unless the Commissioner finds that the applicant has a sponsor in the NMLSR that is approved by the Commissioner.
The license of a mortgage loan originator who fails to meet the surety bond and sponsor requirements is automatically subject to a condition that he or she may not originate mortgage loans under the Act. Such a mortgage loan originator must immediately cease originating mortgage loans and must not originate mortgage loans until that condition is removed by the Commissioner.
4 CCR 725-3 1-1-8 S.A.F.E. ACT COMPLIANCE RULE
“A residential mortgage loan application” means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the borrower or prospective borrower that is customary or necessary in a decision to make such an offer.
“An employee” mean an individual whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person, and whose compensation for federal income tax purposes is reported, or required to be reported, on a W-2 form issued by the controlling person.
“An independent contractor” means an individual who performs his or her duties other than at the direction and subject to the supervision and instruction of an individual who is licensed and registered or is not required to be licensed.
“Taking a residential loan application” occurs if the individual receives a residential mortgage loan application for the purpose of facilitating a decision whether to extend an offer of residential mortgage loan terms to a borrower or a prospective borrower, whether the application is received directly or indirectly from the borrower or prospective borrower.
“Offering or negotiating terms of a residential mortgage loan” means to present considerations to a borrower or prospective borrower particular residential mortgage loan terms, communicating directly or indirectly with a borrower, or prospective borrower for the purpose of reaching a mutual understanding about prospective residential mortgage loan terms, recommending, referring, or steering a borrower or prospective borrower to a particular lender or set of residential mortgage loan terms, in accordance with a duty to or incentive from any person other than the borrower or prospective borrower, and receiving or expecting to receive payment of money or anything of value in connection with the above activities or as a result of any residential mortgage loan terms entered into as a result of the activities.
Mortgage Loan Originator Right to Challenge Information in the Nationwide Mortgage Licensing System and Registry (NMLSR)
A mortgage loan originator may challenge information entered into the NMLSR by the Colorado Division of Real Estate (the “Division”). The challenge must be in writing and must set forth the specific information being challenged and include supporting evidence. The grounds for a challenge will be limited to the factual accuracy of the information pertaining to the mortgage loan originator’s own license record that has been entered into the NMLSR by the Division. A mortgage loan originator must not submit a challenge in order to appeal the underlying reasons for the disciplinary action.
The Director of the Division (the “Director”), or an authorized representative of the Director, will review all information submitted by the mortgage loan originator and will determine the merits of the challenge. If the Director, or an authorized representative of the Director, determines that the information submitted to the NMLSR is factually incorrect, the Director, or authorized representative of the Director, must take prompt steps to correct information submitted.
A mortgage loan originator that is aggrieved by the Director’s, or the authorized representative of the Director, decision in response to the challenge submitted may appeal the decision to the Board within 30 days of the Director’s, or authorized representative of the Director, decision.
Determining Bona Fide Nonprofit Entities
Pursuant to the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “S.A.F.E. Act”) and the Consumer Financial Protection Bureau’s (“CFPB”) regulation of the S.A.F.E. Act, the Board adopts the following 7 standards in order to determine if an entity is a bona fide nonprofit entity and is therefore exempt from the Board’s jurisdiction. To be exempt from the Board’s jurisdiction, the entity must meet all of the following 7 standards:
- Has the status of an 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 interest of its clients;
- Provides or identifies for the borrower, residential mortgage loans with terms favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
- Meets other standards determined by the state.
Periodic Examinations of Entities Determined to Be Bona Fide Nonprofit Organizations
The CFPB’s regulation clarifying the S.A.F.E Act requires state agencies to periodically examine the books and activities of an organization determined to be a bona fide nonprofit organization and to revoke such status if the organization does not meet the 7 required standards. The Board has determined that examination of the books and activities of the bona fide nonprofit organizations upon the submission of a complaint regarding any such entities will meet the requirement for such periodic examinations.
Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the following sanctions allowable under Colorado law, including, but not limited to:
- Cease and desist orders;
- Permanent injunctions;
- Refusal to renew a license;
- Refusal to issue a license;
- Imposition of fines; and
- Restitution of any financial loss.
This Rule brings Colorado’s mortgage loan originator regulatory program into compliance with the S.A.F.E. Act unless the CFPB determines otherwise.
4 CCR 725-3 8-1-1 MORTGAGE LOAN ORIGINATOR ADVERTISING
The requirements that advertisements contain clear and conspicuous information statements do not apply to:
- Any advertisement, which indirectly promotes a credit transaction and which contains only the name of the mortgage company, the name and title of the mortgage loan originator, the contact information for the mortgage company or the mortgage loan originator, a mortgage company logo, or any license or registration numbers, such as on an inscription on a coffee mug, pen, pencil, youth league jersey, sign, business card, or other promotional item; or
- Any rate sheet, pricing sheet, or similar proprietary information provided to real estate brokers, builders, and other commercial entities that is not intended for distribution to consumers.
COLORADO DIVISION OF REAL ESTATE POSITION STATEMENT MB 1.4
The Colorado Board of Mortgage Loan Originators recently issued a Position Statement addressing Mortgage Loan Originator and Mortgage Company Exemptions under the Colorado Mortgage Loan Originator Licensing and Mortgage Company Registration Act (the “Colorado Act”).
The following individuals and entities are exempt from all sections, provisions, and requirements of the Colorado Act:
- A bank and a savings association, a subsidiary that is owned and controlled by a bank or savings association, employees of a bank or savings association, employees of a subsidiary that is owned and controlled by a bank or savings association, credit unions, and employees of credit unions;
- An attorney who renders services in the course of practice, who is licensed in Colorado, and who is not primarily engaged in the business of negotiating residential mortgage loans;
- A person who:
- Funds a residential mortgage loan that has been originated and processed by a licensed person or by an exempt person;
- Does not solicit borrowers in Colorado for the purpose of making residential mortgage loans; and
- Does not participate in the negotiation of residential mortgage loans with the borrower, except for setting the terms under which a person may buy or fund a residential mortgage loan originated by a licensed or exempt person;
- A loan processor or underwriter who is not an independent contractor and who does not represent to the public that the individual can or will perform any activities of a mortgage loan originator;
- To the extent that it is providing programs benefiting affordable housing units, an agency of the federal government, the Colorado government or any of Colorado’s political subdivisions, or employees of any such agencies;
- Community development organizations or their employees; and
- Self-help housing organizations, their employees, or volunteers acting as agents of self-help housing organizations.
With respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of no more than 3 properties in any 12-month period to purchasers of the property, each of which is owned by the person, estate, or trust and serves as security for the loan is not exempt from the Colorado Act.