08 Dec Oregon Legislative and Regulatory Update
The Oregon legislature recently enacted the Mortgage Loan Servicer Practices Act (the “Act”) to require a license for mortgage loan servicers and to prescribe prohibited acts and practices, as well as to establish requirements. The Act requires that mortgage servicers obtain a license from the Department of Consumer and Business Servicers (the “Department”) and authorized the Director of the Department (the “Director”) to promulgate regulations pursuant to the Act. The Act is effective January 1, 2018, with temporary rules enacted by the Department in October 2017.
Oregon Senate Bill 98
New definitions include:
- Licensee means a person that has applied for and obtained or renewed a license from the Director of the Department of Consumer and Business Services (“Director”) to engage in business as a residential mortgage loan servicer in Oregon;
- Controller means:
- A director, officer or general partner of a business entity;
- A managing member of a limited liability company;
- A person that has a direct or indirect right to vote 10% or more of the securities or voting rights or a business entity;
- A person that has contributed 10% or more to a partnership’s capital or has the right to receive a distribution of 10% or more of a partnership’s capital or assets upon dissolution; or
- A person that, under the terms of a contract or because the person has an ownership interest in another person, has the power to manage or set policies for the other person, or otherwise direct the other person’s operations or affairs.
- Person means an individual or a business entity;
- Service a residential mortgage loan means to:
- Receive a scheduled periodic payment from a borrower under the terms of a residential mortgage loan, including any amounts for deposit into an escrow account the lender establishes in accordance with RESPA;
- Pay to the lender or another person principal, interest, and other amounts associated with a residential mortgage loan in accordance with the terms of any contract or agreement for servicing the loan; or
- Pay an amount to a borrower, if the residential mortgage loan is a home equity conversion mortgage or a reverse mortgage.
A person may not directly or indirectly service a residential mortgage loan in Oregon unless the person obtains or renews a license; however, this does not apply to:
- A person, or an affiliate, that in all operations within the U.S. during the calendar year services fewer than 5,000 residential mortgage loans, excluding loans that the person, or affiliate, originates or owns.
- A financial institution, as defined under Oregon law;
- A person that has obtained a consumer finance license (ORS 725.140);
- A financial holding company or bank holding company, if it does not do more than control an affiliate or subsidiary, and does not itself engage in business as a residential mortgage loan servicer;
- An attorney who is licensed or otherwise authorized to practice law in Oregon if the attorney:
- Services a residential mortgage loan as an ancillary matter while representing a client; and
- Does not receive compensation form a residential mortgage loan servicer.
- An agency or instrumentality of Oregon or the U.S.
- A housing finance agency, as defined under Oregon law;
- An institution that the Farm Credit Administration regulates;
- A person that the Director designates by rule or order as exempt, including, but not limited to, a nonprofit organization that promotes affordable housing or financing.
For any of the persons exempt from obtaining a license, the Director may still require the person to obtain a license if the Director determines that the person has violated state or federal law or has engaged in a course of dealing that is fraudulent, deceptive or dishonest.
A person required to obtain a license must submit an application to the Director on a form and with the content as the Director specifies by rule, which may include submitting it to the Nationwide Mortgage Licensing System and Registry. The Act also sets forth:
- All of the information and items that the Director’s rule must require for an applicant to submit;
- Fees to be paid; and
- Conditions for renewal and reinstatement of a license.
A Licensee must notify the Director in writing at least 30 days before the Licensee takes certain actions, as set forth in the Act, including:
- Relocations of the principal place of business or a branch office; and
- Opening of a new branch.
A Licensee must notify the Director in writing no later than 30 days after the occurrence of certain actions, including:
- Changes in the Controllers, registered agents or managers; or
- Any material change in the information submitted in the application for license.
A Licensee must notify the Director in writing no later than 10 days after the occurrence of certain actions, including:
- Filing for bankruptcy;
- Controller, registered agent or manager becomes subject to an indictment related to Licensee’s activities;
- Licensee receives notice of final order from Oregon or another state that:
- Suspends or revokes a license or registration;
- Is a cease and desist order; or
- Constitutes any other formal or informal regulatory action against Licensee;
- Registers or changes an assumed name;
- Significant change in Licensee’s operations or governance.
The Act sets forth the acts and practices that a person servicing a residential mortgage loan must perform, as well as those acts and practices that are prohibited (the requirements are similar to the federal servicing rules). The Act also directs the Director to promulgate regulations establishing requirements for obtaining and maintaining a license.
The Act applies to servicer transactions for residential mortgage loans that occur on or after January 1, 2018.
Oregon Temporary Rules FSR 9-2017 and 10-2017
The temporary rules are effective through April 17, 2018. These rules were promulgated as temporary rules, because the statutorily-required license date of January 1, 2018, did not provide adequate time for the Department to complete the notice and comment procedures under the state law for a permanent rule. Permanent rules will be promulgated in the future. Temporary rule 10-2017 is to make clerical corrections in the temporary rule 9-2017.
A new definition is added to the mortgage licensing regulations as follows: “contract or agreement for servicing a residential mortgage loan” means an agreement for the ongoing servicing of a loan and does not include one-time transfers of funds such as those associated with the origination or closing of a loan.
The rules set forth the items that each person applying for a mortgage servicer license must submit to the Director through the nationwide multistate licensing system (“NMLS”) including:
- Form MU1;
- Form MU2;
- Fingerprints and an authorization to conduct a criminal records check and to obtain a credit report for any individual that acts as a controller or manager for the mortgage servicer;
- Corporate surety bond;
- Irrevocable letter of credit;
- Biographical information on certain individuals;
- Information regarding each branch office; and
- Payment of fees.
Additionally, the following items must be submitted to the Director:
- Financial statements;
- Statement with detailed breakdown of the portfolio of mortgage loan servicing rights on a nationwide basis, as well as separately for Oregon;
- Names and contact information of all subcontractors performing servicing activities on behalf of the mortgage servicer; and
- Biographical information on certain individuals.
Biographical information is required for each of the following individuals:
- Any director, officer, and a shareholder with a direct or indirect ownership of greater than or equal to 10% of outstanding shares of corporate applicant;
- The owner, if unincorporated sole proprietorship;
- Each managing partner of a limited partnership or a partner in a general partnership with a partnership interest greater than or equal to 10% of the total partnership interest;
- A member or managing member in a limited liability company with an ownership interest greater than or equal to 10% of the total membership interests; and
- Each manager of a branch office.
If an application is incomplete, the Director must notify the applicant through NMLS. The applicant must correct a deficiency within 30 days of being notified through NMLS. A challenge submitted to NMLS will halt the 30-day period of time for correcting the deficiencies during the challenge process. If the applicant fails to complete the application or to respond to deficiencies within 30 days, the application will be considered abandoned. Any fees paid by applicant will not be refunded due to abandonment.
If a licensee intends to operate a branch office from which it will service Oregon loans or that will be located in Oregon, the licensee must obtain a license for the branch office prior to servicing loans from that office. The Director will issue a separate branch office license if the company license is in good standing and the branch application is complete.
Every applicant must file a corporate surety bond or irrevocable letter of credit with the Director by December 1 of each year to be effective as of December 31. The surety bond or letter of credit must remain in effect for at least 5 years after the person ceases to be licensed as a mortgage servicer. The surety bond or letter of credit is calculated on the total unpaid principal balance of residential mortgage loans in Oregon as of the last day of the 2nd quarter of the year, or, for new applications, the most recent completed quarter. The amount of the surety bond or letter of credit is:
- $50,000 for unpaid principal balance of less than $10 million;
- $75,000 for unpaid principal balance of $10 million but less than $25 million;
- $100,000 for unpaid principal balance of $25 million but less than $50 million;
- $150,000 for unpaid principal balance of $50 million but less than $100 million;
- $200,000 for unpaid principal balance of $100 million or more.
In addition to the NMLS fees, a mortgage servicer must pay the Director the following fees:
- Nonrefundable application fee of $960 plus $330 nonrefundable application fee for each branch;
- Nonrefundable renewal application fee of $480 plus a $165 nonrefundable renewal application fee for each branch.
In addition to any requirement for registering an assumed business name with the Secretary of State, a mortgage servicer who intends to use an assumed business name to identify the person’s mortgage servicer business must also comply with the following before doing business under the assumed name:
- If the assumed business name contains certain words or phrases as described in ORS 56.023 (such as banc, bancorp, bank, banker, banking, savings, safe deposit, trust, trustee, building and loan, or similar), the mortgage servicer must obtain specific written approval from the Director; and
- The mortgage servicer must list the name as another trade name on the company’s MU1 in NMLS.
In reviewing the application for a mortgage servicer license, the Director may consider the following factors in determining whether an individual has not demonstrated financial responsibility:
- Current outstanding judgment or material litigation, excluding judgment solely related to medical expenses;
- Current outstanding tax liens or other government liens and filings;
- A foreclosure within the past 3 years and the type of property subject to foreclosure, whether residential or commercial;
- Pending or completed bankruptcy proceedings, and the length of time between two or more bankruptcy filings;
- A pattern of seriously delinquent accounts within the past 3 years.
In assessing the financial responsibility of the individual, the Director may consider extenuating or mitigating factors, including:
- Involuntary loss of job or income;
- Involuntary medical expenses;
- Attempting workout arrangements with creditors; or
- Any other factor the Director believes reflects circumstances beyond the control of the applicant.
A person is not required to obtain a mortgage servicer license if the person:
- Is an employee of a licensed mortgage servicer or an exempt entity acting within the scope of the person’s employment;
- Owns the rights to service a mortgage loan but does not otherwise service a residential mortgage loan;
- Is a nonprofit organization that:
- Has been granted a tax-exempt status under federal law;
- Promotes affordable housing, affordable housing financing, or other similar services approved by the Director; and
- Has not violated a state or federal law and has not engaged in a course of dealing that is fraudulent, deceptive, or dishonest.