Mortgage Loan Lenders

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Dennsylvania licenses residential real estate mortgage loans service providers At the turn of the year, the mortgage lenders in Pennsylvania were welcomed with a new licence covenant. The Pennsylvania governor, Tom Wolf, on December 22, 2017, passed a bill requiring construction financing brokers to obtain a licence. Pennsylvania became the newest state to join the vast majority of states that licensed mortgage service providers with the passing of Senate Act 751 ("SB 751").

The date by which a licence must be granted will be set by the Pennsylvania Department of Banking and Securities (the "Department") in accordance with the rules to be issued in 2018. Before the adoption of such rules regulating the licencing and settlement of mortgage credit service providers, it is anticipated that the Pennsylvania supervisory authorities will publish a standard "Secretary's Letter" to guide the new mortgage credit service provider licencing covenants.

Issues were asked as to who qualified as a mortgage provider, who is exempted from licencing, what service practice to follow, and what conditions must be fulfilled to obtain a licence. Discussing what we know, this legal update poses some issues which SB 751 does not respond to but which the Pennsylvania regulatory authorities should raise in the Minister's letter or regulation.

As Pennsylvania's regulator drives the regulation cycle, we will follow events. Instead of creating a completely new Act, SB 751 modifies the Pennsylvania Mortgage Licensing Act (the "Mortgage Act") by adding service specifics. The Mortgage Act governs the granting of mortgage credit for first homes and accommodation and provides for the licencing of mortgage lenders, mortgage intermediaries, mortgage intermediaries, mortgage correspondents as well as individual mortgage lenders.

751 added mortgage lenders to the listing of licenced companies, provided that "no individual may conduct mortgage lending in this Commonwealth without being approved as a mortgage agent, mortgage provider, mortgage servant, mortgage correspondent or mortgage provider as described in this section. "4 "4 The mortgage lending definitions have been changed to add a mortgage operator as a distinct part of the mortgage lending definitions.

" Companies covered by the mortgage service provider must obtain a new licence for the mortgage service provider from the date to be determined by the Ministry. 751 does not change the Mortgage Act to explicitly licence companies that only buy and/or retain mortgages.

Thus, a unit that performs the traditional mortgage credit serving activity of collection and transfer of mortgage payment must obtain the new mortgage servicer licence in Pennsylvania unless otherwise ordered. The deletion of the term "for another" from the meaning of the term "service mortgage loan" means that the licence requirement also applies to a company managing mortgage loan portfolios.

Therefore, a firm which has a mortgage originator licence for Pennsylvania, with one minor exemption as explained below, must obtain the new mortgage originator licence to serve its own mortgages, unless otherwise exempted from the licence requirement. 751 does not directly deal with mortgage services or explicitly imposes a licence requirement to own only mortgage services or to own mortgage credit with them.

In particular, the law defined a mortgage operator as one who "directly or indirectly" serves a mortgage loan. Many other countries which apply a similar interpretation interprete the "indirect" service of mortgage credit in such a way as to create an entity which only has mortgage service laws and concludes agreements with third countries to perform effective service activities.

Furthermore, as already mentioned, SB 751 defined "service mortgage loans" as the simple "right to recover or transfer payments..." "10 To date, the Ministry has given no guidance as to how widely it will implement the licence requirement for mortgage providers. Whose license is excluded? None of the exceptions to the licence are revoked by the revised Mortgage Act.

Any " banks " which include, inter alia, a central or a publicly owned credit institute will continue to be excluded from the Mortgage Act as a whole, as will the new rules on the authorisation and practices of service providers. Inasmuch as a subsidary of such a financial intermediary is regarded as a financial intermediary, a subsidary of a central or publicly owned financial intermediary is also exempted from the whole of the law and the new service regulations.

Thirteen subsidiaries of banks and certain other companies are exempted from license upon registration with the Department and upon meeting other mortgage law regulatory covenants. As affiliated companies of banks are exempted from registration, they are exempted from being licensed as mortgage service providers upon entry into force of the changes, but continue to be bound by certain regulatory duties under the Mortgage Act, some of which have always been applicable to "exempted affiliated companies".

"The Mortgage Act, as amended, does not include the definition of "subsidiary" and "subsidiary". "Certain prior acts of the Mortgage Act substantially tested 25 per cent or more to identify a wholly owned or affiliated company. The Pennsylvania Banking Code provides certain other rules that recognise the definition of a subsidary or affiliated company under the Federal Banking Holding Company Act that substantially applies a property or audit test of 25 per cent or more to designating a subsidary of a banking institution or a joint property or audit test of 25 per cent or more to designating a subsidary of a banking institution.

Since the Mortgage Act has granted an exemption to these companies since the entry into force of the Mortgage Act, there should be no changes to the companies considered as subsidiaries or affiliates. Which maintenance procedures must be followed? Which prerequisites must be fulfilled to receive a Mortgage Servicicer Licence? In order to be entitled to a mortgage service licence, SB 751 demands that an applicant:

Comply with (1) the admission requirements for being a construction finance lender to a government-sponsored facility (GSE), governing body, or authority; (2) have a net asset value of at least $250,000; (3) retain the licensee's loyalty protection as requested by Fannie Mae or Freddie Mac; (4) receive a $500,000 guarantee under the terms of the law; and (5) appoint a "qualified person" for the applicant's primary place of operations.

22 The need for a company to be licensed by a GSE or government authority, which would comprise Fannie Mae, Freddie Mac, Ginnie Mae, HUD and the VA, is a need found in a very small number of licence acts for service of state mortgage loans. However, such a term for receiving a mortgage credit service provider licence can be challenging for small mortgage lenders not certified by the FHA or VA.

When they cannot easily obtain a mortgage services licence because they do not have the required "federal licence" and can only serve mortgage lending they receive, negotiate and own, such small mortgage lenders are pushed out of any third-party services. Meanwhile, companies directly or indirectly involved in mortgage services in Pennsylvania should consider what impact SB 751 may have on their regulatory requirements and, if necessary, should proceed with the announcement of the Ministry of Mortgage Services rules to be ahead of the time a licence is required.

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