P Mortgage InsuranceMortgage insurance
house bill 2179 (p/n 4020), now known as Act 2008-56, nullifies most of Pennsylvania's Mortgage Bankers and Brokers and Consumer Equity Protection Act ("MBBA") and all of Pennsylvania's Secondary Mortgage Loan Act ("SMLA") and supersedes them with a fully incorporated Mortgage Loan Industry Licensing and Consumer Protection Law ("MLILCP"). MLILCP comes into force on November 4, 2008.
Its primary objective is to strengthen the regulations for persons requesting mortgage credit, to raise training standards for mortgage specialists and otherwise enable the Pennsylvania Department of Banking ("DOB") to adopt a stricter prudential supervision stance. Without any obvious or imperative reasons, however, MLILCP is taking the further steps of abolishing the well-accepted licence legal structures existing within the framework of the MBBA and MLMA and prescribing a completely new legal system.
License of the mortgage lender. MLILCP introduces a new licence class for "mortgage lenders". "A " mortgage lender " is a person, not otherwise licenced, who submits, receives or otherwise negotiated mortgage credit requests other than in an ecclesiastical or ministry function and has personal and/or immediate access to the consumer.
Mortgage lenders may only conduct the mortgage lending activity if they are hired and regulated by a licenced mortgage brokers, mortgage lenders or mortgage correspondents and are allocated at a licenced site of the employers, the license holder. MLILCP frees banking staff from having to license them as mortgage lenders.
The DOB is expected to start 2009 with the licencing of mortgage lenders within the MLILCP framework. Changes in training and examination standards. MLILCP considerably increases the training needs for mortgage beneficiaries. Training needs must now be met to keep a licence in place, but MLILCP also needs to be met to acquire a new licence.
Furthermore, the educational standards of the MLILCP are applicable to second mortgage creditors who have not previously been required to meet educational standards under the terms of the MLMA. In order to obtain a new licence, an individually mortgage lender licence requester - and for all other licence requests, a principal, affiliate or ultimate rightful holder of at least 10 per cent of the licence - must have successfully undergone at least 12 consecutive training periods and must have successfully undergone a new test programme relating to the first and second mortgage lending transactions and various applicable federal and state legislation.
It is the first test that was part of a Pennsylvania mortgage licence process. In order to obtain a licence, a mortgage agent, mortgage provider or mortgage credit secretary must prove to DOB that at least one non- mortgage provider individual from each approved bureau and all mortgage providers engaged by the licence holder have completed at least six consecutive training periods each year.
Extended scope of license. Regardless of whether intentional or unintentional, the MLILCP's consolidated MBBA and SMLA license terms expand the cover of Pennsylvania's mortgage bank legislation in several ways. Firstly, the MBBA included a license waiver for a single individual who took out less than three first mortgage credits in a single year and the SMLA included a license waiver for a single individual who took out two or less second mortgage credits in a single year.
Accordingly, one individual has been able to grant up to four mortgage credits without the need for a license. According to MLILCP, it seems that a license is needed for a single individual who grants more than two mortgage credits in a single year, comprising all first or second mortgage credits, or any combinations thereof.
Secondly, and even more importantly, MLILCP seems to have removed the earlier exceptions to licencing that existed for many collateral mortgages. In the MLA there were exceptions to licencing for (i) loan repayable within 90 or less working days, to ( ii) loan resulting from the purchase of an apartment granted by the vendor, to (iii) loan not under Pennsylvania's general usufruct, and to (iv) loan granted under another Pennsylvania Act.
Above all, the general liberation from profiteering made Pennsylvania's TMLA not applicable to second mortgage credits over 50,000 US dollars. As the MLILCP does not contain this freedom of MLA, there does not seem to be a single amount of dollars from which the second mortgage loan is excluded from the MLILCP cover. Repayment procedures for mortgage credits. Repayment procedures, which previously only prevailed for second mortgage credits protected by the AMLA, now also prevailed within the framework of MLILCP for first mortgage credits.
MLILCP demands that a mortgage provider terminate any insurance against full pay, that he stamps each bill with a "fully paid" or "cancelled" seal and returns the credit contract or bill to the customer within 60 working days. As these new regulations are implemented, creditors and service providers should pay attention to the disbursement related regulations in other Pennsylvania laws that will still be in effect.
Potential new charges and interest rate caps for first mortgages. Probably the most drastic and potentially troublesome outcome of the MBBA and MLLA consolidations through MLILCP is the seemingly new restriction on the charges that can be levied on first mortgage credit. The MLILCP seems to apply similar tariff limits to first mortgages while maintaining the MLA tariffs for second mortgages.
While the MBBA did not limit the charges that a license holder could levy beyond adherence to Pennsylvania's general usurious right, the MLILCP now determines what charges a license holder may levy on initial mortgage credits. Those charges shall comprise charges for security checks, information on creditworthiness, expert opinions, civil auditors, fiscal authorities and other charges actually relating to the handling of a mortgage claim or the granting of a mortgage where such charges are actually borne or borne by the licence holder.
Furthermore, a license holder may calculate the statutory initial mortgage charges actually payable to officers for establishing the existence or perfection, release or satisfaction of interests. MLILCP also covers first mortgage loan, the AMLA's authorisation to levy a commission on an unpaid cheque.
MLILCP approves the collection of "application fees" for first and second mortgage credits. The MLILCP maintains the MLA clause for second mortgage credits, which restricts an initial claim charge to no more than 3 per cent of the initial amount of the credit and provides that an initial claim charge is "fully earned" when the credit is granted.
It is not allowed for an applicant to pay a non-refundable "application fee" to all grant holders to meet his overheads, with the exception of the 3% grant fees, which can only be levied on concluded credits. The MLILCP could prohibit creditors from levying a premium, referred to as the "application premium" for first mortgage credit, unless it corresponds to the 3% premium of the MLILCP and is levied only for committed mortgages.
MLILCP also includes the MLMA clause, which provides for a 20 or 10 per cent delay fee for each transaction, whichever is greater, for a transaction that is more than 15 business day overdue. The MLILCP, however, only provides for this requirement for second mortgage credits. MLILCP allows creditors to grant credit under Pennsylvania's general extortion laws for first mortgage credits.
Whilst this Act is generally construed to allow adequate default interest on first mortgage loan, it does not contain an explicit authorisation for default interest. For example, the similar lack of an explicit mandate in the MLILCP to charge belated fees for first mortgage credit provides the unlucky opportunity for a creditor to call into question the capacity of a creditor to charge belated fees for first mortgage credit.
Although it seems doubtful that such a challenging exercise would be successful, the fact that MLILCP even left the scope for such a challenging exercise open, together with the other uncertainties in the MLILCP discussion above, raise issues about the validity of the approaches to consolidate two well agreed legal systems.
The MLILCP contains a general provision that licencees must abide by current Swiss legislation, and in particular specifies RESPA, the Truth-in-Lending Act ("TILA") and the Equal Credit Opportunity Act.
MLILCP makes the SMLA regulations on interest calculation methodologies for first and second mortgage credits usable for revolving facilities. Furthermore, the AMLA's ban on interest accumulation will now apply to both first and second open mortgage credits. MLILCP significantly raises fines for offences from $2,000 per offence to $10,000.
MLILCP regulations, which aim to better monitor the sector and enable DOBs to remove poor gamblers, will be able to meet their targets. Of the five new laws, the second most important is Senate Bill 483 (p/n 2163), now known as Act No. 2008-57, which amends Pennsylvania's general extortion laws (formally known as the Loan Interest and Protection Act and commonly known as Act 6) (the Act 6 Amendments).
Enhanced cover for private mortgage lending. One of the main changes introduced by the amendments to Act 6 is to significantly broaden the scope of the Act by raising the number of credits falling under the scope of the Act 6 as a "private mortgage". "So far, a "residential mortgage" has been classified as a mortgage with a face value of up to USD 50,000 guaranteed by a pledge on properties with two or fewer housing unitss.
Soon, as modified, the concept of "residential mortgage" will be used to describe credits with a nominal amount of up to USD 217,873 (adjusted by the DOB for annual inflation). Firstly, Act 6 sets an interest ceiling for "private mortgages" linked to the Monthly Index of Long Term United States Government Bond Yields.
" Whereas this upper interest limit is anticipated by German legislation for most mortgage credits with a first right of pledge guaranteed by housing properties, a larger number of secondary and other mortgage credits to which priority does not accrue are now covered by the upper interest limit of Act 6 "Residential Property".
Secondly, Act 6 contains disclosure and restrictions affecting floating rates mortgage lending. Historically, the relatively small number of loan facilities under Act 6 has minimised the possible effects of these disclosure and restrictions. By now, with the extent of Act 6 extended, creditors may want to give re-examination to whether or not the Act 6 applies discretionary disclosure and restrictions or are prevented by Federal Act 6.
Thirdly, Law 6 stipulates that TILA and RESPA data must be provided for 'residential mortgages'. Fourth, the law 6 amendments extend the scope of the credits, the object of extant foreclosure notification and procedure, which under law 6 shall be applicable to "residential mortgage. Fifth, the current Act 6 on the ban on advance payment fines, 41 P.S. 405, will now be applicable to many more credits.
Wide exception for commercial credits. In general, Act 6 sets a 6 per cent interest ceiling on credits of USD 50,000 or less, with the exception of private mortgage lending. Excluded from this interest barrier are several types of credit, among them corporate credit over USD 10,000, which is backed by an oath of affirmation for commercial purposes.
Lending to a corporate body is also exempted from this interest barrier since companies cannot invoke extortion as a defence. Amendments to Law 6 abolish the abovementioned exceptions and substitute them with a wide exception for'corporate credits of any amount'. "Since it is not clear that an oath of affirmation for commercial purposes will still be necessary in order to benefit from the new waiver, it seems advisable that creditors should maintain an oath of affirmation in order to prevent a reassessment of whether the new waiver is applicable.
Electronical licencing. With effect from July 8, 2008, Senate Act 484 (p/n 2251), now known as Act 2008-58, allows the German women's outerwear (DOB) to charge licence holders for the use of a domestic license system and the payment of related royalties. Legislation has also changed the Pennsylvania Housing Finance Agency Act, in particular the part commonly known as Act No. 91, which is concerned with immediate funding.
A " detailed break-down of the overdue amount " must now be included in the preliminary statement of account to be sent by a security right over real property creditor, and if a statement is sent to a mortgage creditor, the security right over real property creditor must at the same time forward a copy to the HFA. Instead of submitting a copy of each message, a mortgage holder may submit a three-monthly mailing schedule of messages to the HFA.
" With effect from September 5, 2008, Senate Act 485 (p/n 2252), now known as Act 2008-59, mandates that these students work under the guidance of a Certified residential appraiser or a Certified general appraiser. Non-life insurance Cap. A few and a half months before the signature of the five above-mentioned laws, Gov. Rendell on July 4, 2008 House Bill 2428 (p/n 3875), now known as Act 2008-51, passed The Mortgage Property Insurance Coverage Act.
" With effect from the date of signature, the new Act forbids all mortgage creditors from demanding that the borrower take out non-life insurance for owner-occupied personal home ownership in excess of the current value of the building on the plot that secures the mortgage. In addition, it forbids all mortgage providers from asking the borrower to provide insurance cover for the value of the real estate.