As we reported on January 11th, the December 22nd Memorandum issued by the Kentucky Department of Financial Institutions provides that the state’s Mortgage Licensing and Regulation Act requires licensing of entities holding residential mortgage loan servicing rights. Based on the Memorandum, a license would be needed by March 1, 2017.

As a licensing obligation exists under that Act for an entity that makes, brokers, purchases, sells, or actually services residential mortgage loans, many companies operating in the state are already licensed under the Act, or rely on an exemption from licensing. However, the Memorandum raised some questions regarding the application of this licensing obligation (i) to entities that have held the servicing rights to Kentucky residential mortgage loan without being licensed, or (ii) to certain institutions exempt from the Act’s license obligations without needing to make a filing with the Department.

On January 19th, in response to our email requests for guidance, Department officials sent us a link to an “FAQ” posted on the Department’s website. The FAQ confirmed our view that the exemption for entities under section 286.8-020(1)(a)-(h) of the Act is “self-executing,” but provided that exempt entities should be prepared to provide proof of a claimed exemption. Section 286.8-020(1)(a) of the Act provides an exemption from licensing for certain banks, bank holding companies, insurance companies, and REITs under certain conditions. That exemption also applies to the wholly-owned subsidiaries of such entities under certain conditions. Based on the FAQ’s clarification, those institutions, among others, will not need to make an up-front filing with the Department in order to be exempt.

In reply to the second question we posed, the FAQ provides that “[a]s long as an application for licensure is filed with the Kentucky Department of Financial Institutions by March 1, 2017, the Department will not seek penalties for servicing Kentucky mortgage loans prior to March 1, 2017, without a license unless consumer harm is identified” (emphasis in original).