NCCOB`s Regulation of the Mortgage Industry

NCCOB’s Regulation of the
Mortgage Industry
Will Corbett, Staff Attorney
Office of the Commissioner of Banks
September 16, 2010
Phase I: Mortgage Registration (1987)
• Initial effort to identify and track mortgage lenders
and brokers
• Concern with lending practices (Predatory Lending
Act in 1999) led to initiative to increase supervision
of mortgage industry
Phase II: Mortgage Lending Act (20032009)
• Required full licensure of “mortgage bankers” and “mortgage
– Bond/net worth requirements
– Bricks and mortar requirement for brokers
– Branch office licensing
• Required full licensure of individual “loan officers”
Criminal history
Education and testing
Financial responsibility
• Began requiring licensure of “mortgage servicers” in 2009
• Does not apply to depository institutions
Percentage of NC Mortgage
Originations by Licensees
NC Mortgage Originations
$ in millions
NC Total
NC Licensee Total
Phase III: SAFE Act
• Federal SAFE Act set minimum federal standards for
“mortgage loan originators” and gave states 1-2
years to update state law to meet or exceed
• Failure to update law would lead to US Dept of
Housing and Urban Development (HUD) assumption
of responsibility for regulating mortgage loan
• HUD responsible for ensuring states have effective
enforcement regime and for promulgating rules
• NC SAFE Mortgage Licensing Act (2009-current)
• Reorganized old-MLA into new article
– MLA repealed, but continues to apply to activities prior to
effective date of NC SAFE
– NC SAFE Act incorporate many components of old-MLA,
but added components to meet SAFE requirements
• Some elements conditioned on final HUD-Approval
– Application to non-profit affordable housing lenders and
government lending
– Status of “Loss Mitigation Specialists”
Scope: Residential Mortgage Loans
• Residential Mortgage Loans are defined by N.C. G.S. § 53244.030(20) as any loan:
– Made or represented to be made to a natural person or persons
– Primarily for personal, family, household and
– Secured by mortgage, deed of trust or other security interest in
• A dwelling located in NC
• Residential real estate
• Applies to loans securing vacation homes, but not
investment properties or commercial loan (assuming no
• Applies to loans secured by manufactured or modular
homes, even if not attached to land
Who has to be licensed?
• Anyone “engaged in the Mortgage Business” (some
– For or with expectation for Compensation or gain
• Accept applications or negotiate the terms, or offer to
• Make or Fund, or offer to make or fund loans
• Receive and apply payments from a borrower on an existing loan
– Four Categories
Mortgage Loan Originators
Mortgage Lenders
Mortgage Brokers
Mortgage Servicers
Who is a Mortgage Loan Originator
• 53-244.030(21) defines Mortgage Loan Originator as:
Any individual who, for compensation or gain :
– Takes residential mortgage loan applications or offers to
negotiate loans;
– Accepts or solicits to accept residential mortgage loan
– Solicits or offers to solicit a mortgage loan;
– Negotiates the terms or condition of a mortgage loan; or
– Issues mortgage loan commitments or interest rate guarantee
• Method of communication is not relevant: Can be in
person, by phone, by email or by mail
Loss Mitigation Specialists: License
or Not?
• National debate over whether SAFE’s definition of
Mortgage Loan Originator covers activities of loss
mitigation staff at servicer
– Employees talking to borrowers about contractual terms of loan
and possible, offering loan modification and accepting
• NC SAFE defines “Loss Mitigation Specialist” –
• Employee of servicer authorized to
– Collects amounts owed when borrower is in default
– Collects data from borrower
– Makes decisions necessary to modify terms of loan or otherwise
finalize collection process
• Loss Mitigation Specialist included in MLO definition only
to the extent required by final determination by HUD
Status of Non-Profits and Government
Agencies under Prior Law
• Non-Profits engaged in origination of loans to
provide affordable housing
– Employees processing applications and working with
prospective homeowners, generally not paid any
• Government Agencies Administering state, federal
or local loan programs
– Similarly situated employees
• Both met definition of “exempt person” under under
previous MLA
Status of Non-Profits and Government
Agencies under SAFE
• Federal SAFE Act
– provided for no exemption for either government agencies or nonprofits
– To avoid failure minimum federal requirements, does not include
specific exemptions
– Non-profit and Government Lending activity may not meet definitional
requirement of engaging in business for “compensation or gain”
– Also question as to treatment of employees handling applications
• NCCOB position - Pending final HUD decision, NCCOB will not
take any enforcement action against existing non-profits or
government agencies or employees which previously
operated under MLA exemption
Other MLO exclusions
• Does NOT include (among other exclusions in 53244.030(21)c.
– Individuals engaged solely as loan processors or underwriters,
so long as they do not communicate directly with borrowers
– Individuals who only inform borrowers of availability of
mortgage businesses, and do not take or assist in the
completing of a loan application
– A sales person at a manufactured housing dealer who does not
pull a borrowers credit unless at the request of a licensed MLO
who has already received an application filled out by the
borrower with no assistance, other than physically transmitting
it, from the sales person.
MLO exemptions
• Exempted from licensure, G.S. 53-244.040(d):
– Depository Institutions and certain subsidiaries
– MLOs who are employed by banks or their subsidiaries and
– Loans to immediate family members
– Purchases financed by someone selling their principal residence
– Attorneys who negotiate loan terms, incidental to their
representation, so long as neither “holding themselves” out, nor
compensated by a lender, broker or MLO
– Seller-financer, with limitation of no more than five loans per
Requirements of licensure for
mortgage loan originators
• No previous revocation, SEE 244.060(1)
• Pre-licensure education – 24 hours total, SEE 244.070
• Test - Pass written national test developed by NMLS&R and a written
test on North Carolina law and regulation,
SEE 244.080
• Criminal Record - convictions, pled guilty or nolo contendere, SEE
244.060(2) and (3)
– No felonies, convicted, pled or nolo contendere in the last 7 years
– Never had certain felonies – e.g. fraud, money laundering
– Not had certain Misdemeanors within 5 years
• Financial responsibility (credit score, history of repaying debts), SEE
244.050(C)(2)a. and .060(4)
• Character and fitness determination, SEE 244.060(4)
Requirements of licensure for lenders,
brokers, and servicers
• Meet Bond Requirements - indexed by volume, SEE 244.103
• Minimum Net Worth Requirement, SEE 244.104
• Experience – Have “Qualified Individual” SEE 244.040(e) and
– Principal Officer, manager or general partner
– At least three years of experience
– Operate business under full, supervision charge, and
• Branch manager SEE 53-244.040(f)
– For all branches, manager with at least three years of
NCCOB oversees mortgage activities
• Routine examinations of books and records (13
– Examinations scheduled according to agency priority
– Confidential Reports of Examination
• Investigations (Mortgage assigned 2 FTE investigators,
analyst, director)
• Consumer Affairs
– Facilitating and reviewing licensee response to complaints from
• Foreclosure Prevention Project
– Connecting Borrowers to housing counseling and monitoring
Mortgage Servicer efforts to avoid foreclosure
Duties of Mortgage Brokers
SEE 244.109
• Safeguard and account for money handled for
• Act with reasonable care, and follow reasonable
instructions from the borrower
• Make reasonable efforts to a reasonably advantageous
• Timely and clearly disclose material information to
• Exercise loyalty to the borrower and represent
borrower’s best interest in the transaction
• Not engage in discriminatory treatment or advertising
Duties of Mortgage Servicers
, SEE 244.110
• Safeguard and account for money handled for
• Follow reasonable instructions from borrowers
• Act with reasonable skill, care, and diligence
• Upon accepting servicing of a loan provide timely
– notice of transfer, list of fee schedule
• Provide NCCOB with a list of fee ranges charged to
• Report to NCCOB on servicing activity
Prohibited Activities,
SEE 53-244.111
• Applies to “any person in the course of a residential
mortgage loan transaction”
Unlicensed Actors
Depository Institutions and their employees
Individuals otherwise excepted or exempted from
Prohibited Activities: Key prohibitions
• (1) Misrepresentation to induce a borrower to take mortgage loan
• (4) Pay, receive, or collect any compensation for brokering or
servicing a loan in violation of NC SAFE
• “(5) To charge or collect any fee or rate of interest or to make or
broker or service any loan with terms or conditions in a manner
contrary to provisions of Chapter 24, 45, or 54 of the general
• (8) To engage in any transaction, practice or course of business that
is not in good faith or fair dealing or that constitutes a fraud upon
any person in connection with the brokering or making or servicing
of, or purchase or sale of any mortgage loan.”
Prohibited Activities: Key
prohibitions (cont’d)
• (9) Failure to promptly pay appraiser for appraisal
• (11) To improperly influence or attempt to influence
an appraisal
• (14) To fail to comply with applicable State and
Federal laws and regulations related to mortgage
lending or mortgage servicing.
Disciplinary Authority ,
SEE 53-244.116
• Deny, suspend, revoke or refuse to renew license
• Impose Civil Money Penalties up to $25,000
• Require disgorgement of amounts received and
collected in violation of Chapter 24
• Summary actions (with opportunity for hearing)
– Summarily order licensee or person to cease and desist
from any harmful activities or violations
– Summarily suspend license

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