Montana Legislative Update

Montana Legislative Update

The Montana legislature recently amended the Montana Mortgage Act (the “Act”), effective October 1, 2013.

MONTANA SENATE BILL 93

 

 

Unless exempt under the Act, a person may not regularly engage in the business of a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator with respect to any residential mortgage loan unless licensed under the Act or registered through the Nationwide Mortgage Licensing System and Registry (“NMLS”) with a unique identifier assigned.

 

 

A mortgage broker or mortgage lender may not employ or contract with any person required to be licensed under the Act if the person is not licensed.

 

 

“Administrative or clerical tasks” mean the receipt, collection, and distribution of information common for the processing or underwriting of a loan in the mortgage industry, without performing any analysis of the information, and communication with a borrower to obtain information necessary for the processing or underwriting of a residential mortgage loan.

 

 

“Advertising” means a commercial message in any medium that promotes, either directly or indirectly, a residential mortgage lending transaction.

 

 

“Application” means a request, in any form, for an offer of residential mortgage loan terms or a response to a solicitation of an offer of residential mortgage loan terms and includes the information about the borrower that is customary or necessary in a decision on whether to make such an offer.

 

 

“Bona fide not-for-profit entity” means an entity that:

  • Maintains tax-exempt status as a charitable organization;
  • 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 the entity or its employees to act other than in the best interests of its clients;
  • Compensates employees in a manner that does not incentivize employees to act other than in the best interests of clients;
  • Provides to or identifies for the borrower residential mortgage loans with terms that are favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs.  For residential mortgage loans to have terms that are favorable to the borrower, the Department of Administration (the “Department”) must determine that the terms are consistent with loan origination in a public or charitable context, rather than a commercial context; or
  • Is either certified by the U.S. Department of Housing and Urban Development (“HUD”) or has received a Community Housing Development Organization designation.

 

 

“Commercial context” means that an individual who acts as a mortgage loan originator does so for the purpose of obtaining profit for an entity or individual for which the individual acts, including a sole proprietorship or other entity that includes only the individual, rather than exclusively for public, charitable, or family purposes.

 

 

A person is presumed to control an entity if that person is a director, general partner, or executive officer, or is an individual that occupies a similar position or performs a similar function.

 

 

“Expungement” means a court-ordered process that involves the destruction of documentation related to past arrests and convictions.

 

 

“Housing finance agency” includes the Montana Board of Housing.

 

 

“Independent contractor” means an individual who performs duties other than at the direction of and subject to the supervision and instruction of another individual who is licensed and registered or exempt under the Act.

 

 

“Origination of a residential mortgage loan” means all activities related to a residential mortgage loan from the taking of a residential mortgage loan application through the completion of all required loan closing documents and funding of the residential mortgage loan.

 

 

“Regularly engage” means that a person:

  • Has engaged in the business of a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator on more than 12 residential mortgage loans in the previous calendar year or expects to engage in the business of a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator on more than 12 residential mortgage loans in the current calendar year; or
  • Has served as the prospective source of financing or performed other phases of loan originations on more than 12 residential mortgage loans in the previous calendar year or expects to serve as the prospective source of financing or perform some other phases of loan origination on more than 12 residential mortgage loans in the current calendar year.

 

“Residential mortgage loan origination activities” means all activities related to residential mortgage loans from the taking of a residential mortgage loan application through the completion of all required loan closing documents and funding of the residential mortgage loan.

 

 

The Act does not apply to:

  • An entity that is an agency of a tribal government;
  • An individual who is an employee of a federal, state, tribal, local government, or housing finance agency acting as a loan originator only according to the individual’s official duties as an employee of the federal, state, tribal, local government, or housing finance agency;
  • An individual who performs only administrative or clerical tasks at the direction of and subject to the supervision and instruction of an individual who:
    • Is a licensed and registered mortgage loan originator under the Act; or
    • Is exempt from licensure under the Act;
  • An entity that is a bona fide not-for-profit entity;
  • An employee of a bona fide not-for-profit entity who acts as a loan originator only with respect to work duties for the bona fide not-for-profit entity and who acts as a loan originator only with respect to residential mortgage loans with terms that are favorable to the borrower;
  • A person regulated by the Commissioner of Insurance if that person’s principal business is to prepare abstracts or make title searches that are used as a basis for the issuance of any title insurance policy by a company doing business under Montana laws relating to insurance companies;
  • A Montana-licensed attorney performing activities that fall within the definition of a mortgage loan originator if the activities are:
    • Considered by the Montana Supreme Court to be part of the authorized practice of law in Montana;
    • Carried out within an attorney-client relationship; and
    • Accomplished by the attorney in compliance with all applicable laws, rules, and standards; or
  • An individual who is an employee of a retailer of manufactured or modular homes if the employee is performing only administrative or clerical tasks in connection with the sale or lease of a manufactured or modular home and if the individual receives no compensation or other gain from a mortgage lender or a mortgage broker for the performance of the administrative or clerical tasks.

 

 

To qualify for an exemption as a bona fide not-for-profit entity, an entity must certify, on a form prescribed by the Department, that it is a bona fide not-for-profit entity and must provide additional documentation as required by the Department by rule.  To maintain this exemption, the entity must file the prescribed certification and accompanying documentation by December 31 of each year.

 

 

In determining if an entity is a bona fide not-for-profit entity, the Department may rely on its receipt and review of:

  • Reports filed with federal, state, tribal, local government, or housing finance agencies and authorities; or
  • Reports and attestations prescribed by the Department.

 

The Department may require by rule that applicants complete additional hours of training that are specific to Montana residential mortgage statutes and rules.

 

 

All application fees must be paid through the NMLS and are not refundable.

 

 

The Department will by rule establish the fees for renewal applications and reinstatement of expired licenses.  The fees set by the Department must correspond with program costs.

 

 

A pardon or expungement of a conviction is not considered a conviction for character and fitness purposes.  When determining the eligibility of the applicant for licensure, the Department may consider the underlying crime, facts, or circumstances of a pardoned or expunged felony conviction.  A pardoned or expunged felony conviction does not require denial of the license application.  Whether a particular crime is classified as a felony must be determined by the law of the jurisdiction in which an individual is convicted.

 

 

The Department may not issue or renew any mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator license if the applicant has been found to have violated:

  • Any rule of conduct for persons taking the mortgage loan originator national or state test under the federal Secure and Fair Enforcement for Mortgage Licensing Act (the “SAFE Act”); or
  • The NMLS industry terms of use as they pertain to enrolling, scheduling, or taking the mortgage loan originator national or state test under the SAFE Act.

 

The Department may consider an application abandoned if an applicant fails to provide or respond to a request for additional information within the time period specified by the Department by rule.

 

 

The Department will use surety bond proceeds to reimburse borrowers, the Department, or bona fide third parties who successfully demonstrate a financial loss because of a mortgage servicer’s act that violates the Act.

 

 

A mortgage broker or mortgage lender may not charge or receive, directly or indirectly, fees for assisting a borrower in obtaining a mortgage until all of the services that the mortgage broker or mortgage lender has agreed to perform for the borrower are completed.

 

 

A mortgage broker or mortgage lender may not charge or receive an amount in excess of the amount allowed by federal law.

 

 

The Department, upon giving a licensee who is a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator 14 (previously 10) days’ written notice informing the licensee that the licensee has the right to be heard at an administrative hearing if requested by the licensee, may suspend, condition, or revoke a license if it finds that the licensee has violated the Act or any rule adopted under the Act.

 

 

Any person who directly or indirectly controls an entity liable for violations of the Act, any partner, officer, director, or person occupying a similar status or performing similar functions of the entity, and any person who participates or materially aids in the violation is liable jointly and severally with and to the same extent as the person committing the violation.  In addition, each person committing the violation or aiding in the violation is jointly and severally liable if the person committing the violation or aiding in the violation knew or in the exercise of reasonable care should have known of the existence of the facts by reason of which the liability is alleged to exist.  There must be contribution between or among the severally liable persons.

 

 

The Department must establish a process under which mortgage servicers may challenge information entered into the NMLS by the Department.

 

 

A de novo inactive license may be issued to a mortgage loan originator that has met all the requirements for licensure except sponsorship.  A de novo inactive license may be issued to an entity that has met all the requirements for licensure except employment of at least one Montana-licensed mortgage loan originator.  Business may not be conducted under a de novo inactive license.

 

 

The form that a mortgage servicer must file with the Department detailing the mortgage servicer’s activities in Montana no longer must include:

  • The number of mortgage loans the mortgage servicer is servicing;
  • The type and characteristics of the loans in Montana;
  • The number of serviced loans in default, along with the 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 in Montana.

 

The Department will set forth by rule what must be included in the form detailing the mortgage servicer’s activities in Montana.

 

 

A mortgage servicer no longer must disclose to the borrower at the time the mortgage servicer accepts assignment of servicing rights for a mortgage loan a notice in the form and content acceptable to the Department that the mortgage servicer is licensed in Montana and that complaints about the mortgage servicer may be submitted to the Department.

 

 

The following exemptions from the Act have been deleted:

  • An individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of that individual;
  • A person who offers, negotiates, or provides financing in conjunction with the sale of real property owned by that person and that is secured by a contract for deed, mortgage, deed of trust, or other equivalent security interest on the real property sold;
  • A loan that is made by an entity to an employee of the entity if the proceeds of the loan are used to assist the employee in meeting the employee’s housing needs;
  • An entity engaged only in commercial real estate lending;
  • An entity qualified as a pension plan under the Internal Revenue Code if the plan makes residential mortgages only to the plan’s participants;
  • Fannie Mae, Freddie Mac, and Ginnie Mae;
  • A charitable organization that is not otherwise engaged in or holding itself out to the public as being engaged in the mortgage loan business, that makes mortgage loans to promote home ownership or improvements for bona fide low-income individuals;
  • A Montana-licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client unless the attorney is compensated by a mortgage lender, mortgage broker, or mortgage loan originator or any agent of the mortgage lender, mortgage broker, or mortgage loan originator; and
  • A Montana-licensed public accountant who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to providing public accounting services to the client unless the accountant is compensated by a mortgage lender, a mortgage broker, or a mortgage loan originator or an agent of the mortgage lender, mortgage broker, or mortgage loan originator.

 

Licensees must renew their licenses by December 31 of each year.  A renewal application for a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator must demonstrate that:

  • The licensee continues to meet the standards for licensure;
  • A mortgage loan originator has satisfied annual continuing education requirements; and
  • The licensee has paid all required fees for renewal of the license, all outstanding examination fees and investigation fees, and any civil penalties.

 

 

Any license not renewed by December 31 expires on December 31.  The Department may adopt rules regarding requirements for renewal applications and the procedures for the reinstatement of expired licenses consistent with the standards established by the NMLS.

 

 

A licensee may not operate under a name other than the name licensed by the Department.

 

 

A licensee may not:

  • Advertise that an applicant has unqualified access to credit without disclosing that material limitations on the availability of credit may exist, such as the percentage required as a down payment, that a higher interest rate or points could be required, or that restrictions as to the maximum principal amount of the mortgage loan offered could apply;
  • Advertise a mortgage loan with a prevailing interest rate indicated in the advertisement unless the advertisement specifically states that the interest rate could change or not be available at the time of commitment or closing;
  • Advertise mortgage loans, including interest rates, margins, discounts, points, fees, commissions, or other material information, including material limitations on the mortgage loans, unless the licensee is able to make or broker the offered mortgage loans to a reasonable number of qualified applicants;
  • Engage in false, deceptive, or misleading advertising; or
  • Falsely advertise or misuse names in violation of federal law.

 

In any printed, published, email, or internet advertisement for the provision of services, the following information must be included:

  • A name and unique identifier for a mortgage loan originator advertising as an individual; or
  • The name and unique identifier only of the licensed entity when the licensed entity is advertising on its own behalf or as an entity with one or more mortgage loan originators listed.

 

Any document or record that is required to be signed and that is filed in Montana as an electronic record through the NMLS and any other electronic record filed through the NMLS must be considered a valid original document upon reproduction to paper form by the Department.

 

 

The definitions of “immediate family member,” “trust account,” and “trust account funds” have been deleted from the Act.

 

The remainder of this memorandum addresses provisions that have been deleted from the Act:

 

 

A person seeking an exemption under the Act is required to obtain a written exemption from the Department before the exemption applies.  The Department must create a form for requesting an exemption.

 

 

The provisions of the Act apply to activities of retail sellers of manufactured homes and recreational vehicles to the extent determined by HUD through guidelines, regulations, or interpretive letters.

 

 

An individual applying for a license as a mortgage loan originator must have a minimum of six months of experience working in a related field.

 

 

The Department must issue a license to an applicant that has met all the requirements of the applicable provisions under the Act, has paid the required fee, and is determined eligible under the Act.

 

 

The license of a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator is valid for up to a one-year period and expires on December 31.  A state licensee must submit a renewal application and pay to the NMLS a renewal fee in an amount set by the Department by rule.  The Department may establish by rule the requirements for renewal applications.  The fees set by the Department must correspond with program costs.  If the required information or fees are not submitted within the time prescribed, the license will automatically be placed in “Terminated-Expired” status.  The Department may adopt procedures for reinstatement of expired licenses that are consistent with the standards established by the NMLS.

 

 

An application for renewal of a mortgage loan originator license must be accompanied by evidence that the continuing education requirements have been met and that there has not been a material change in the status of the licensee in the preceding 12 months.  An application for renewal also must demonstrate that the licensee continues to meet the standards for licensure under the Act and that the licensee has paid all fees for renewal of the license.

 

 

An applicant for a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator license renewal must apply for Montana licensure on an application form approved by the NMLS.

 

 

The Department will determine that the applicant has demonstrated the qualities of financial responsibility, character, and general fitness if all other requirements for licensure have been satisfied and the Department’s investigation does not reveal a specific problem on the applicant’s part.

 

Each office location must have at least one phone line.

 

 

In any printed, published, e-mail, or internet advertisement for the provision of services, the following information must be included:

o       A name and unique identifier for each mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator advertising as an individual; or

o       The name and unique identifier only of the licensed entity when the licensed entity is advertising on its own behalf or as an entity with one or more mortgage brokers, mortgage lenders, mortgage servicers, or mortgage loan originators also listed.

 

“Advertising” does not include stationery or business forms but does include business cards.  A business card must include a mortgage broker’s, a mortgage lender’s, a mortgage servicer’s, or a mortgage loan originator’s unique identifier but need not list the entity’s unique identifier if the entity’s name is listed.

 

 

A mortgage broker entity must designate to the NMLS an individual who is licensed in Montana as a mortgage loan originator to serve as the designated manager of the main officer and a different designated manager to serve at each branch office.

 

 

With regard to restitution and penalties, all notices, hearing schedules, and orders must be mailed to the person or licensee by certified mail to the address for which the license was issued or in the case of an unlicensed business to the last-known address of record.

 

 

A person practicing as a mortgage broker, mortgage lender, mortgage servicer, or mortgage loan originator without being licensed is guilty of a misdemeanor and may be punished by a fine of not less than $250 or more than $1,000, by imprisonment in the county jail for not less than 90 days or more than one year, or both.  Each violation is a separate offense.

 

 

A licensee-owned mortgage broker license may be issued to an entity that meets the licensing requirements and is owned by a Montana-licensed mortgage loan originator.