On February 6, 2018, the Pennsylvania Department of Banking and Securities issued draft regulations in response to the state’s recent law requiring licensing of mortgage loan servicers. The new regulations provide a great deal of information about what servicers will be required to do, but no additional guidance on exactly which entities must obtain the new license.
As we wrote previously, Pennsylvania Senate Bill 751 (also referred to as “Act 81” of 2017) amended the state’s Mortgage Licensing Act to require a person servicing mortgage loans to obtain a license. “Servicing a mortgage loan” for that purpose is defined as “collecting or remitting payment or the right to collect or remit payments of principal, interest, tax, insurance or other payment under a mortgage loan,” without limiting that phrase (and thus without limiting the licensing obligation) to servicing activity conducted only for others. As we indicated, that could be interpreted to require licensing even of persons servicing their own portfolio, unless the servicer also originated the loans (or unless an exemption otherwise applies, such as for banking institutions, their subsidiaries, or their affiliates, which are exempt from licensing upon registering). The legislation also does not indicate whether the licensing obligation applies to an entity that merely holds mortgage servicing rights without directly servicing the loans.
Unfortunately, the Department’s recent draft regulations do not provide guidance on whether such entities must obtain the license. The regulations would simply fulfill the Department’s mandate under Act 81 to “effectively incorporate the Consumer Financial Protection Bureau’s mortgage servicer regulations.” Accordingly, the regulations mimic the CFPB’s mortgage servicing regulations under the Real Estate Settlement Procedures Act (“RESPA”), by providing a similar list of definitions; and by requiring: (i) mortgage servicing transfer disclosures; (ii) timely payments from escrow accounts; (iii) timely responses to notices of error and requests for information; (iv) force-placed insurance disclosures; (v) policies and procedures for compliance with servicing obligations; (vi) servicing file maintenance; and (vii) early intervention and loss mitigation for delinquent borrowers.
The Department’s draft regulations reflect the CFPB’s amendments to the RESPA servicing rules nearly verbatim, including the new RESPA rules that became effective in October 2017. However, the Department’s regulations would differ from those under RESPA in a few respects. For instance, while RESPA’s regulations largely exempt certain small servicers from the early intervention and loss mitigation requirements, the Department’s regulations would not expressly provide such an exemption (although Act 81 generally exempts persons that service fewer than four mortgage loans in a calendar year). Accordingly, it appears that certain small servicers of loans in the state may need to start observing those requirements for those loans. In addition, RESPA’s early intervention and loss mitigation requirements apply only to principal residence-secured loans, while the Department’s incorporation of those provisions would not appear to be limited solely to those loans.
Act 81 requires the Department to update its regulations whenever the CFPB alters the RESPA regulations. However, the Act generally provides that if the CFPB’s future alterations result in a complete lack of federal regulations in the area, the Department’s regulations in effect at that time will remain in effect for two years, while the Department promulgates replacement regulations. It is unclear what constitutes a “complete lack of federal regulation in the area,” or what the exact scope of the Pennsylvania Department’s rulemaking authority is under those circumstances. Certainly servicers of Pennsylvania loans remain subject to applicable and effective RESPA servicing regulations (as well as those under the federal Truth in Lending Act (“TILA”)), since neither Act 81 nor the Pennsylvania Department’s regulations override federal requirements.
Act 81 indicates that it becomes effective “upon the effective date of regulations promulgated.” That date remains unclear. The draft regulations on the Department’s web site do not specify when they will become effective. However, we understand from informal conversations with the Department that it intends to publish the regulations in the Pennsylvania Bulletin soon, and that they will become effective upon that publication. As to the licensing deadline, the web site indicates that the Department will begin accepting applications through the Nationwide Multistate Licensing System (“NMLS”) on April 1, 2018, and that anyone servicing a Pennsylvania mortgage without applying by June 30, 2018 will be considered unlicensed and subject to enforcement action.
The Department unfortunately did not announce plans to provide additional guidance on how broadly it will apply the new mortgage servicer licensing obligation, such as whether it will apply to persons merely servicing their own purchased portfolio or holding mortgage servicing rights. It seems that regulations or other Department guidance is needed prior to the licensing deadline to clarify that question.