Pennsylvania Legislative Update

Pennsylvania Legislative Update

The Pennsylvania legislature recently amended its provisions governing the licensing of mortgage originators, mortgage lenders, mortgage brokers, and mortgage loan correspondents, effective August 31, 2013.

 

PENNSYLVANIA HOUSE BILL 1124

 

“Administrative or clerical tasks” means the receipt, collection, and distribution of information common for the processing or underwriting of a mortgage loan and communication with a borrower to obtain information necessary for the processing or underwriting of a mortgage loan.

 

 

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

 

 

“Bona fide nonprofit organization” means a person that:

  • Is tax-exempt 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;
  • 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 interests of its clients;
  • Provides or identifies for the borrower 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 as determined by the Department of Banking and Securities of the Commonwealth (the “Department”).

 

“Branch” means an office or other place of business, other than the principal place of business, where a person engages in the mortgage loan business.  The term does not include a location where the licensee-sponsored mortgage originator contacts borrowers or processes mortgage loans, provided that the location is not:

  • Owned or controlled by a licensee.  A location is not considered to be owned or controlled by a licensee if the location is under the control of a subsidiary or affiliate of the licensee, is primarily used by the subsidiary or affiliate, and is only used by the licensee on an incidental basis for the convenience of a borrower;
  • Advertised or represented to borrowers as an operating location of the mortgage originator or the mortgage originator’s sponsor; or
  • A place where records regarding the licensee’s mortgage loan business are stored.

 

“Commercial context” means acting for the purpose of obtaining anything of value for an individual, or for an entity or individual for which the individual acts, rather than exclusively for public, charitable, or family purposes.

 

 

“Employee” means 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.

 

“Lease-purchase agreement” means a deferred purchase of a dwelling or residential real estate where an individual makes installment payments to the seller of the dwelling or residential real estate or the seller retains title to the dwelling or residential real estate until some or all of the installment payments are completed.  The term does not include an agreement where an individual is not obligated to purchase the dwelling or real estate or where the final payment approximates the fair value of the dwelling or residential real estate or the anticipated fair value of the dwelling or residential real estate and is not a nominal amount.

 

 

“Habitually and repeatedly” means engaging in any activity at least 4 times in a calendar year.

 

 

“Mortgage loan” means a first or secondary mortgage loan, or both, a lease-purchase agreement, or a mortgage loan modification, as the context requires.

 

 

“Mortgage loan modification” means an agreement that revises the terms of an existing mortgage loan, including an agreement to reduce mortgage loan payment amounts, the balance, or the interest rate, or to waive any accrued or prospective mortgage loan charges.  The term does not include any agreement to refinance a mortgage loan into a new mortgage loan.

 

 

“Mortgage originator” means an individual who in a commercial context and habitually and repeatedly does any of the following:

  • Takes a mortgage loan application;
  • Offers or negotiates terms of a mortgage loan for compensation or gain;
  • Represents to the public, through advertising or other means of communicating or providing information, including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that the individual can or will perform the activities above.

 

“Mortgage originator” does not include any of the following:

  • An individual who is involved only in extensions of credit relating to timeshare plans;
  • An individual who performs only clerical or support duties and:
    • Who does so at the direction of and subject to the supervision and instruction of an individual who is licensed and registered or exempt from licensing requirements; or
    • Who performs such duties only with respect to transactions for which the individual who acts as a mortgage originator is not required to be licensed;
  • An individual who performs only administrative or clerical tasks on behalf of a mortgage originator;
  • An individual who is a registered mortgage loan originator;
  • An individual employed by an agency or instrumentality of the federal government or a corporation otherwise created by an act of the Congress of the United States or an agency or instrumentality of a state or local government, the District of Columbia or any territory of the United States, including the Pennsylvania Housing Finance Agency and other government housing finance agencies, who acts as a mortgage originator within the scope of employment;
  • An individual who is employed by a bona fide nonprofit organization who acts as a mortgage originator within the scope of employment;
  • An individual employed by a licensee or person exempt or excepted from licensure who only engages in mortgage loan modifications for existing mortgage loans held or serviced by that licensee or person and who does not otherwise act as a mortgage originator; or
  • A loan processor or underwriter employed by a licensee or person exempt or excepted from licensure, provided that the loan processor or underwriter:
    • Is under the direct supervision and control of a licensed mortgage originator or registered mortgage loan originator;
    • Acts as a loan processor or underwriter only for the individual’s employer; and
    • Does not represent to the public, through advertising or other means of communicating or providing information, including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that the person can or will perform any of the activities of a mortgage originator; and
  • An individual who is all of the following:
    • An employee of a broker-dealer registered as a securities agent under the Pennsylvania Securities Act of 1972 or an employee of an insurance agency licensed or registered as an insurance agent or broker under the Insurance Department Act of 1921;
    • Engaged in recommending, referring, or steering a borrower or prospective borrower in a way that falls under the definition of “offering or negotiating terms of a mortgage loan for compensation or gain” to a banking institution, licensed mortgage lender, licensed mortgage loan correspondent, licensed mortgage broker, or person exempt from licensing in a manner incidental to and in the normal course of his or her securities brokerage or insurance activities;
    • Not otherwise acting as a mortgage originator; and
    • Not in receipt of any compensation or gain for such activities from the person making or brokering the loan, or a borrower or a prospective borrower.

 

“Non-originating person” means a person, other than an individual, that does not engage in the mortgage loan business but is required to have loan processors or underwriters employed or supervised and controlled by the person licensed as a mortgage originator.

 

 

“Offer or negotiate terms of a mortgage loan for compensation or gain” means:

  • Presenting for consideration by a borrower or prospective borrower particular mortgage loan terms;
  • Communicating directly or indirectly with a borrower or prospective borrower for the purpose of reaching a mutual understanding about prospective mortgage loan terms;
  • Recommending, referring, or steering a borrower or prospective borrower to a particular lender or set of mortgage loan terms, in accordance with a duty to or incentive from any person other than the borrower or prospective borrower; or
  • Receiving or expecting to receive payment of money or anything of value in connection with the activities described above or as a result of any mortgage loan terms entered into as a result of those activities.

 

“Qualifying individual” means an individual identified by a mortgage broker, mortgage lender, or mortgage loan correspondent in the Nationwide Mortgage Licensing System and Registry (“NMLSR”) who:

  • Is a mortgage originator or meets the licensing requirements of a mortgage originator; or
  • Is a management-level officer assigned to the principal place of business of a mortgage broker, mortgage lender, or mortgage loan correspondent.

 

“Take a mortgage loan application” means receive a mortgage loan application for the purpose of facilitating a decision of whether to extend an offer of mortgage loan terms to a borrower or prospective borrower or to accept the terms offered by a borrower or prospective borrower in response to a solicitation, whether the application is received directly or indirectly from the borrower or prospective borrower.

 

 

A mortgage originator may not engage in the mortgage loan business unless the mortgage originator is sponsored in the NMLSR by a licensed mortgage broker, mortgage lender, mortgage loan correspondent, or person exempt from licensure, and is under the direct supervision and control of the sponsoring licensee or exempt person.

 

 

A banking institution or a federally chartered or state-chartered credit union may register with the Department for the purpose of having individuals under its direct supervision and control licensed as mortgage originators, provided that the registered entity:

  • In the same manner as a mortgage lender, obtains and maintains bond coverage for mortgage originators and files a periodic report; or
  • Annually, in a form acceptable to the Department, demonstrates to the Department that all of the mortgage originators employed by or under the direct supervision and control of the entity have obtained and maintained the bond coverage.

 

The following additional persons need not be licensed in order to conduct the mortgage loan business:

  • A person who originates or negotiates less than 4 mortgage loans in a calendar year, unless determined to be engaged in the mortgage loan business by the Department (previously a person who offers or negotiates the terms of a mortgage loan with or on behalf of, or makes a mortgage loan to, a member of the person’s immediate family);
  • Any agency or instrumentality of the federal government or a corporation otherwise created by an act of the United States Congress, including Fannie Mae, Ginnie Mae, the Veterans’ Administration, Freddie Mac, and the Federal Housing Administration (the “FHA”), and their employees acting within the scope of their employment;
  • A bona fide nonprofit organization and employees of the organization acting within the scope of their employment, unless otherwise deemed to be engaged in the mortgage loan business by the Department, provided:
    • The organization must be subject to licensing requirements and the Department’s authority and penalties;
    • The organization must be registered with the Department;
    • As required under the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”), the Department must periodically examine the books and activities of an organization it determines is a bona fide nonprofit organization and revoke its status as a bona fide nonprofit organization if it does not continue to meet the criteria to be considered a bona fide non-profit organization under the SAFE Act;
    • For residential mortgage loans to have terms that are favorable to the borrower, the Department will determine that the terms are consistent with loan origination in a public or charitable context, rather than a commercial context; and
    • The Department will make the list of bona fide nonprofit organizations available on its website;
  • A non-originating person, unless otherwise deemed to be engaged in the mortgage loan business by the Department, except that the non-originating person must:
    • Be subject to licensee requirements and the Department’s authority and penalties;
    • Be registered with the Department;
    • In the same manner as a mortgage broker, obtain and maintain bond coverage for mortgage originators; and
    • Ensure employees or individuals under the direct supervision and control of the person required to be licensed as mortgage originators have completed the prelicensing and continuing education requirements and have obtained the required mortgage originator license;
  • A mortgage originator licensed by one or more other states and physically located in Pennsylvania that does not engage in any transactions involving Pennsylvania borrowers, dwellings, or residential real estate; and
  • A person who engages in mortgage loan modifications for existing mortgage loans held or serviced by that person or that person’s employer and who does not otherwise engage in the mortgage loan business.

 

A mortgage originator must not engage in the mortgage loan business other than on behalf of the single mortgage broker, mortgage lender, mortgage loan correspondent, or a person exempt from licensure that sponsors the mortgage originator.

 

 

In the case of a mortgage broker, mortgage lender, or mortgage loan correspondent, the application must now include the address of any branches of the applicant.

 

 

All applicants and licensees must establish and maintain a separate license for the principal place of business and each branch.

 

 

The Department will now issue a mortgage lender license or a mortgage loan correspondent license if the applicant has designated an individual as the qualifying individual for the principal place of business and separate individuals as branch managers for each branch.

 

 

The Department no longer will issue a mortgage lender license based on the applicant having been approved by or meeting the criteria for approval of Fannie Mae, Freddie Mac, or the FHA.

 

 

A mortgage broker must designate an individual as the qualifying individual for the principal place of business and separate individuals as branch managers for each branch, as applicable.

 

 

A licensee or person must sponsor a mortgage originator in the NMLSR.

 

 

A mortgage originator must:

  • Be assigned to and work from a licensed location of the sponsoring licensee or a location of a sponsoring person who is exempt from licensure, which may be either the mortgage originator’s residence or a location of the licensee that is within 100 miles of the mortgage originator’s residence; and
  • Only engage in the mortgage loan business on behalf of the single mortgage broker, mortgage lender, mortgage loan correspondent, a person exempt from mortgage originator licensing, or a person that is exempt from licensing as a sponsor to a mortgage originator.

 

Licenses must be issued for terms not to exceed 14 months (previously for a 12-month term).

 

 

Licensees must demonstrate to the Department that they are conducting mortgage loan business in accordance with the licensing requirements and that the mortgage originators continue to meet all licensing requirements unless otherwise determined by the Department.

 

 

A mortgage originator applicant and at least one qualifying individual of a mortgage broker, mortgage lender, or mortgage loan correspondent applicant (previously at least one partner or ultimate equitable owner of 10% or more of an applicant other than a mortgage originator) must complete at least 20 hours of education programs and pass a qualified written test developed by the NMLSR.

 

 

A licensee who is a mortgage originator (previously and one individual from each licensed office) and all branch managers and qualifying individuals of a mortgage broker, mortgage lender, or mortgage loan correspondent (previously that is not a mortgage originator unless all of the non-clerical staff of a particular licensed office are licensed as mortgage originators) must annually complete at least 8 hours of education programs.

 

 

A mortgage originator, branch manager, or qualifying individual of a mortgage broker, mortgage lender, or mortgage loan correspondent is not required to complete continuing education requirements in any licensing year in which the individual has completed prelicensing education requirements.

 

 

All records must be preserved and kept available for investigation or examination by the Department for a period of 4 years unless otherwise determined by the Department.

 

 

A licensee that changes its name or place or places of business must notify the Department or the NMLSR, as determined by the Department, within 10 days of the change.

 

 

The provisions regarding the suspension, revocation, or refusal to renew licenses and penalties now apply to mortgage originators.

 

 

The following provision has been deleted from the laws:

 

A licensee who is a mortgage broker, mortgage lender, or mortgage loan correspondent must conspicuously display, at each licensed place of business, its license and copies of the licenses of all mortgage originators assigned to that location.  A licensee who is a mortgage originator must keep the license in the immediate possession of the licensee whenever the licensee is engaged in the mortgage loan business.

 

Each licensee must include in all advertisements language indicating that the licensee is licensed by the Department.  In the case of a mortgage originator, all advertising must include the name of the mortgage originator’s employer.