Question

Answer

As a residential mortgage servicer in New Jersey, what do I need to know about the Mortgage Servicing Licensing Act?

In a recent bulletin, the New Jersey Department of Banking and Insurance (the “Department”) provided guidance on the Mortgage Servicers Licensing Act (the “Act”), which became effective on July 28, 2019. The Act requires non-bank mortgage companies servicing residential mortgage loans secured by property in New Jersey to become licensed as mortgage servicers unless exempt. Notably, the Act exempts companies licensed as Residential Mortgage Lenders or Correspondent Residential Mortgage Lenders under the New Jersey Residential Mortgage Lending Act. However, such entities must maintain the supplemental surety bond, fidelity bond and errors & omissions insurance coverage applicable to mortgage servicing. Calculations for required insurance policy amounts are based on the dollar volume of New Jersey residential mortgages serviced.

The bulletin indicated that beginning January 13, 2020, mortgage servicers must submit license applications through the Nationwide Multistate Licensing System & Registry (“NMLS”). The Department plans to begin issuing mortgage servicer licenses on or after April 13, 2020. Entities currently conducting business as mortgage servicers in New Jersey will be permitted to continue to do so provided they submit a Mortgage Servicer License application by April 13th. Entities that are not currently operating as mortgage servicers in New Jersey, that have been denied licensure by the Department, or that fail to submit an application between January 13 and April 13, 2020 and are not otherwise exempt from licensure will be prohibited from acting as a mortgage servicer in New Jersey until the Department issues a Mortgage Servicer License to them.

Violators of the law will be subject to civil penalties of up to $25,000 and can be charged with a third-degree crime.

I read something recently about changes to New York regulations related to reverse mortgages issued under FHA’s HECM program. What are the changes?

On December 6, 2019, Assembly Bill 5626 was signed into law by the governor and is set to take effect on March 5, 2020 (the “Act”). The Act places additional requirements on lenders and/or servicers who offer and/or service reverse mortgages under FHA’s HECM program in New York.

Most importantly, in order to make a HECM in New York, in addition to a mortgage lenders license, you’ll need a separate approval. There is no “grandfather” provision in the Act for current HECM lenders. The Act also prohibits a lender from engaging in any unfair or deceptive practices in connection with the marketing or offering of a HECM loan. Specifically, a lender shall not: (a) use the words “public service announcement” in any mailing, advertisement or writing; (b) use the words “government insured” or other similar language representing that HECM loans are insured, supported, and sponsored by any governmental entity in any mailing, advertisement or writing; or (c) represent that any such HECM is anything other than a commercial product.

In addition, the Act:

  • Requires HECM lenders to provide supplemental consumer protection material (the content and form of which shall be specified by the Superintendent of Financial Services) with any HECM solicitation mailed to a physical address within New York.
  • Requires HECM lenders to provide each applicant or potential applicant the telephone number and website address provided by HUD for the purpose of acquiring HECM counseling.
  • Requires both the HECM lender and the borrower to be represented by an attorney at closing, and each party must have at least one attorney present to conduct the closing.
  • Requires HECM lenders to provide a notice of duty of the borrower to pay certain property related expenses when equity in the property is low or depleted.
  • Outlines various other servicing and foreclosure related requirements.

Noteworthy, compliance with the Act is a condition precedent to foreclosing on a HECM and the failure to comply is a “complete” defense to a foreclosure action.

There are many other requirements in the Act not discussed above. For a complete version of the Act, click here.

Does Georgia have specific requirements with regard to a mortgage loan originator (“MLO”) acting under Temporary Authority (“TA”)?

Yes, effective January 9, 2020 the Georgia Department of Banking and Finance (the “Department”) requires the following with regard to Temporary Authority: 

    • All advertisements mentioning a MLO’s ability to act as an MLO in GA must “clearly and conspicuously” disclose that the MLO is operating under Temporary Authority in the state, is not currently licensed in GA, and has a pending application with the Department, which may be granted or denied.

 

    • A MLO purporting to operate under the TA must indicate “TAO,” “temporary authority to operate,” or a substantially similar designation next to the signature line on any document, application, or disclosure signed by the MLO in connection with any residential mortgage loan application, including but not limited to the negotiation of terms or the offering of a loan.

 

    • Any MLO who qualifies to operate under TA must submit proof to the Department of enrollment in a class to satisfy GA’s MLO education requirements, as well as registering to take the test as required by O.C.G.A. § 7-1-1004(f). Such proof shall be submitted to the Department within thirty (30) days of receipt of the MLO’s application. 

 

    • Mortgage companies must maintain in their journal of mortgage loan transactions clear identification regarding when any MLO utilizes TA at any point in the application or loan process, as well as the final status of the MLO’s GA license application.

 

    • Requires mortgage lenders and brokers sponsoring MLOs operating under TA to provide a written disclosure in at least 10-point bold-faced type to an applicant on the date the applicant signs an application or any disclosure, whichever occurs first. The disclosure must be signed by the applicant and must include the following language:
“The Georgia Department of Banking and Finance requires that we inform you that our company is licensed but the mortgage loan originator responsible for your loan is not currently licensed by the Georgia Department of Banking and Finance. The mortgage loan originator has applied for a mortgage loan originator license with the Georgia Department of Banking and Finance. Federal law (

12 U.S.C. § 5117

) authorizes certain mortgage loan originators to operate on a temporary basis in the state of Georgia while their application is pending. The Georgia Department of Banking and Finance may grant or deny the license. Further, the Georgia Department of Banking and Finance may take administrative action against the mortgage loan originator that may prevent such individual from acting as a mortgage loan originator before your loan closes. In such case, our company could still act as your broker or lender.” 



This disclosure provision becomes effective April 1, 2020.