In April 2013, Representative Scavello (R. Monroe County) and others introduced HB 1124, which would amend the Mortgage Licensing Act (“MLA”), 7 Pa. C.S. 6101 et seq. HB 1124 was passed by the House on April 24, 2013 and is currently with the Senate. The bill has the support of the Department of Banking and Securities. There is a good chance that HB 1124 will be signed into law by the end of 2013. The bill includes new exceptions to licensure, new statutory requirements, and clarifies existing provisions of the MLA which is regulated and enforced by the Department of Banking and Securities (“Department”).
- LICENSURE: The proposed new exceptions to licensure include:
- Infrequent loans. Currently, the only de minimus exception to licensure in the MLA is for a person who offers or negotiates the terms of a loan for a member of that person’s immediate family. 7 Pa. C.S. § 6112(3). HB 1124 would repeal this exemption and replace it with a more general exemption for persons who “engage in the ‘mortgage loan business’ less than four times in a calendar year, unless otherwise determined to be engaged in the mortgage loan business by the Department. “ (emphasis added). The MLA defines “mortgage loan business” as the “business of advertising, causing to be advertised, soliciting, negotiating or arranging in the ordinary course of business or offering to make or making mortgage loans.” 7 Pa. C.S. § 6102. This de minimus exception to licensure expands the previous exception of up to two loans in a calendar year provided in the former Mortgage Bankers and Brokers and Consumer Equity Protection Act, 63 P.S. § 456.302., which was repealed and replaced by the MLA.
- Non-profits. The proposed amendments would replace the current exception for nonprofit corporations with an exception for “bona fide nonprofit organizations” and their employees. Currently, the exception applies to non-profit organizations not holding themselves out to the public as being engaged in the mortgage loan business. 7 Pa. C.S. § 6112(11). HB 1124 defines a “bona fide non-profit organization” to include entities that promote affordable housing, homeownership education, or other similar service. This proposed exemption will be beneficial for entities such as the Pennsylvania Housing Finance Agency (PHFA) which was not previously exempt from licensure. The bona fide nonprofit organization must still meet the recordkeeping and bond requirements of the MLA and be subject to examination and possible fines by the Department. The Department will publish a list of the bona fide nonprofit organizations on its website.
- No Pennsylvania nexus. The bill includes an exemption for mortgage loan originators that are physically located in Pennsylvania but that do not engage in transactions involving Pennsylvania consumers, Pennsylvania dwellings or Pennsylvania residential real estate. This is a logical exception to licensure as these transactions have no meaningful connection to Pennsylvania that would require regulation.
- Loan Modifications. Persons engaged in mortgage loan modifications for existing mortgage loans held or serviced by that person or the person’s employer who do not otherwise engage in the mortgage loan business would be exempt from licensure per HB 1124.
- CLARIFICATIONS: The proposed clarifications to the MLA include:
- Dual Employees. The MLA does not currently restrict the number of companies that a mortgage originator could work for. The proposed amendments to the MLA would require that mortgage originators only be engaged in the mortgage loan business on behalf of a single employer (broker, lender, loan correspondent, or exempted entity).
- Education. The MLA does not currently state how frequently the continuing education is to be measured. HB 1124 clarifies that the continuing education requirement is an annual requirement that is applicable to all branch managers, loan originators and qualifying individuals. A “qualifying individual” is a new term proposed for the MLA defined as an employee of a mortgage broker, lender or loan correspondent as well as a management-level officer assigned to the principal place of business. 7 Pa. C.S. § 6102. Mortgage lenders and brokers would be required to designate a “qualifying individual” for the licensee’s principal place of business and separate individuals as branch managers for each branch location for purposes of the education requirements.
- Records. The MLA does not currently indicate the timeframe that licensees should maintain their records. The proposed amendments would require licensees to maintain records for 4 years.
- Commission. References to the “Secretary of Banking” are deleted and replaced with the “commission” to reflect the merger between the Department of Banking and the Securities Commission.
- OFFICES AND PENALTIES: The new statutory requirements proposed by the bill include:
- Office Location. Perhaps the most significant proposed amendment of HB 1124 is the restriction on how far a mortgage originator could live from his or her assigned office. The current MLA requires a loan originator to work out of a licensed location. However, the MLA does not restrict the distance a loan originator may live from his or her assigned office. (In addition, the former Mortgage Bankers and Brokers and Consumer Equity Protection Act did not provide for such restriction.) HB 1124, if adopted, would require mortgage originators to be assigned to work out of a licensed location that is either the originator’s residence or a licensed location of the licensee that is not more than 100 miles from the originator’s residence. The Department informally seems to have adopted this policy even before legislation makes this change.
- Penalties. Mortgage originators would be subject to the same potential for suspensions, revocations or refusals to renew licenses and fines as other licensees under the Act.
A copy of HB 1124 is available here for your reference: HB 1124.pdf