For years, state regulators have been considering whether the law that licenses residential mortgage loan servicers should be applied to entities that acquire and hold mortgage loan servicing rights (“MSRs”). As states enacted new laws to license mortgage loan servicers, one of the first questions we asked of regulators is whether the licensing obligation is applied to those who only hold the servicing rights for the mortgage loans. (For instance, Oregon’s new Mortgage Loan Servicer Practices Act, effective January 1, 2018, will require a license by those who hold mortgage loans servicing rights under certain conditions.) While states continue in that direction, they have not been quick to take action against companies that acquire and hold mortgage servicing rights without a license.

However, Arkansas recently joined California as a state prepared to sanction companies that acquire and hold MSRs without a license. On November 2, 2017, the Arkansas Securities Department, which administers the Arkansas Fair Mortgage Lending Act (“FMLA”), entered into a consent order with Aurora Financial Group, Inc. (the “Company”). The Department had concluded that Aurora was “operating as an unlicensed mortgage servicer in Arkansas by holding master servicing rights on 169 residential mortgage loans in Arkansas.” We understand this is the Department’s first such action. The fine was small, only $5,000, and the Company did not need to divest itself of its servicing rights, which may be because the Company self-reported its error. The Department required the Company to apply for a license under the FMLA and maintain its license until such time as it no longer conducts mortgage servicing activities under the FMLA.

Arkansas has licensed those who only hold MSRs without actually servicing mortgage loans since August 2013. At that time, amendments to the Arkansas FMLA became effective that changed the definition of “mortgage servicer” to mean a person that receives, or has the right to receive, from or on behalf of a borrower: (A) funds or credits in payments for a mortgage loan; or (B) the taxes or insurance associated with a mortgage loan. From our conversations with Arkansas regulators, we understand they apply the mortgage servicer licensing obligation to those that acquire and hold mortgage loans with the servicing rights, as well as those that only hold mortgage servicing rights.

Over 20 states now license entities that hold MSRs. The definition of a mortgage servicer under the Arkansas FMLA as a person that has the right to receive funds for a mortgage loan is a key component of the definition in some other states. However, other definitional language could impose a licensing obligation for holding mortgage loan servicing rights. For instance, in a few states (such as New Hampshire), the licensing obligation expressly applies to a person that holds mortgage servicing rights. Other states (such as Connecticut) define a mortgage loan servicer as a person that indirectly services a mortgage loan, and apply that definition and licensing obligation to a person that merely holds servicing rights. Then there is the California Department of Business Oversight, which has applied the licensing obligations of the California Residential Mortgage Lending Act (“RMLA”) to persons that only hold mortgage loan servicing rights, even though the RMLA defines “servicing” on the basis of receiving payments and performing services related to the receipt of those payments on behalf of the note holder.

It is unclear if the Arkansas action, and similar actions by California, signal that a long overlooked licensing obligation under the laws of many states may be coming into focus for enforcement actions. It is clear, though, that more states are moving to license entities that merely hold MSRs.

On November 7, Texas voters will have the opportunity to make some significant changes to the state’s homestead equity loan restrictions. As summarized below, Texas Proposition 2 will, if approved: (1) revise the strict fee limits for such loans; (2) add to the list of lenders that are authorized to make the loans; (3) eliminate the “once-a-home-equity-loan, always-a-home-equity-loan” rule; (4) allow borrowers to sign an affidavit of compliance regarding certain new refinancings of such loans; and (5) allow advances on lines of credit up to 80% loan-to-value (LTV) ratio.

The Texas Constitution imposes strict limits on the types of loans that validly may be secured by Texas homestead property. For home equity loans (other than purchase-money loans or rate/term refinances), the Texas Constitution imposes a long list of limitations and requirements, the violation of which invalidates the lien and can result in the forfeiture of principal and interest. A lender or holder has an opportunity to cure at least some of those violations. Since the limitations are part of the state constitution, relief can come only through legislative resolutions on which the public must then have the opportunity to vote. Continue Reading Texas Voters Consider Big Changes to Home Equity Loan Restrictions

With Oregon scheduled to begin accepting mortgage loan servicer license applications through the Nationwide Multistate Licensing System (“NMLS”) on November 1, 2017, we wanted to update our August 16, 2017 blog post for those who may be subject to the licensing requirements.

Temporary rules were issued on October 20, 2017 so that the licensing process can commence.  Rules applicable to the non-licensing requirements of the new Oregon Mortgage Loan Servicer Practices Act (the “Servicer Act”), will be proposed later this year or early 2018, and will be incorporated with the temporary rules when the final servicer rules are issued.

Licensing Obligations Under the Servicer Act

The new Oregon Servicer Act provides for a dedicated mortgage loan servicer license, separate from the license as a mortgage banker or mortgage broker obtained under Oregon’s Mortgage Lender Law.  Although the Oregon Servicer Act was effective upon Governor Katherine Brown’s signature on August 2nd, the legislation expressly provides that the Servicer Act will become operative on January 1, 2018, and that it will apply “to service transactions for residential mortgage loans that occur on or after [the] operative date.” Continue Reading Oregon Begins to License Residential Mortgage Loan Servicers


On August 2nd, Oregon Governor Katherine Brown signed legislation that provides for the licensing of residential mortgage loan servicers, Senate Bill 98 (“S 98”), the Oregon Mortgage Loan Servicer Practices Act (the “Servicer Act”).  S 98 provides for a dedicated mortgage loan servicer license, separate from the license as a mortgage banker or mortgage broker obtained under the Oregon Mortgage Lender Law.  With the enactment of the Servicer Act, Oregon joins the majority of states that license residential  mortgage loan servicers.  (A number of states still do not license residential mortgage loan servicers, including New Jersey, and Pennsylvania which is considering a mortgage loan servicer licensing law.) Although the Oregon Servicer Act was effective upon the Governor’s signature, the legislation expressly provides that the Servicer Act will become operative on January 1, 2018, and that it will apply “to service transactions for residential mortgage loans that occur on or after [the] operative date.” Continue Reading Oregon Licenses Residential Mortgage Loan Servicers

Last week was busy for the financial technology industry (Fintechs) and non-bank regulators.

New York joined the Conference of State Bank Supervisors (CSBS) in filing a lawsuit against the Office of the Comptroller of the Currency (OCC), and announced plans to adopt a uniform licensing system for Fintechs. CSBS issued its support of the lawsuit, announced Vision 2020 for Fintechs, and invited industry to participate in developing the uniform licensing system (the Nationwide Multistate Licensing System, or NMLS) chosen by most state regulatory agencies as the universal platform for licensing and supervising the Fintech business sector.

Learn more about Vision 2020 and NMLS 2.0 in Mayer Brown’s Legal Update.

After leaving residential mortgage lenders guessing for many years, the California Department of Business Oversight (“DBO”) finally provided the industry with some guidance on the documentation licensees may use to verify compliance with the state’s per diem statutes.

The California per diem statutes (Financial Code § 50204(o) and Civil Code § 2948.5) prohibit a lender from requiring a borrower to pay interest for more than one day prior to the disbursement of loan proceeds, subject to some limited exceptions.

In 2007, the DBO issued Release No. 58-FS (the “2007 Release”), which provided guidance on acceptable evidence of compliance with Financial Code § 50204(o):

  • A final, certified HUD-1 that reflects the disbursement date;
  • Written or electronic records of communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name of the settlement agent providing the information and the electronic or business address used to contact the settlement agent; or
  • Contemporaneous written or electronic records of oral communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name and telephone number of the settlement agent providing the information.

Of course, much has changed since 2007, including the enactment and implementation of TRID, which replaced the HUD-1 with the Closing Disclosure.  Continue Reading Carpe Per Diem Redux — California Clarifies How to Document Compliance

The NMLS Money Services Businesses (MSB) Call Report, described by the Conference of State Bank Supervisors (CSBS) as “a new tool within the Nationwide Multistate Licensing System (NMLS) that will streamline MSB reporting, improve compliance by the industry, and create the only comprehensive database of nationwide MSB transaction activity,” is now live in the NMLS, and the initial report is due May 15, 2017.

Since state regulators decided to transition the licensing of money services businesses on to the NMLS, they have been developing a more uniform report, which standardizes a number of definitions and the categorization of transactions, by which MSBs could report on their money service-related activities through the NMLS. Further, with the development and use of a more standardized MSB report, the need for MSBs to have additional tracking and reporting systems that can slice and dice transactions into each state’s unique buckets is reduced or eliminated.

Consequently, the new MSB Call Report was adopted by CSBS and released in NMLS on April 1, 2017. As a former Assistant Commissioner with the State of Maryland, I served on both the MSB Call Report Working Group and the NMLS Policy Committee (NMLSPC). The NMLSPC was responsible for recommending the approval of the Report, which was envisioned to operate along the lines of the Mortgage Call Report required of mortgage finance licenses, to CSBS. Continue Reading Money Services Businesses Call Report Q1 Submission Deadline Quickly Approaching

The California Department of Business Oversight* (“DBO”) appears to have backed off of its pronouncement late last year that lenders may not deliver per diem disclosures to all borrowers.

California’s infamous per diem statutes (Fin. Code § 50204(o)Civ. Code § 2948.5) have been the basis of scores of licensing agency examination findings and actions for many years now, resulting in significant refunds and penalties. In fact, just last week the DBO announced that a lender had agreed to pay a settlement of $1.4 million for per diem violations. That is just one of many such settlements that often run into the many hundreds of thousands of dollars or more. One reason for this is the lack of certainty in agency interpretation. Just one example of that uncertainty was addressed by the DBO at the California Mortgage Bankers Association’s (“CMBA’s”) Legal Issues and Regulatory Compliance Conference this past December.  Continue Reading Carpe Per Diem Disclosure — California Department of Business Oversight Clarifies its Position

The 2017 Maryland legislative session ended at midnight last Monday, April 10. Here is a look at legislation affecting financial services businesses that the Governor is expected to sign into law.

HB0182 – Commissioner of Financial Regulation and State Collection Agency Licensing Board – Licensees – Revisions

HB0182, or as we prefer, the “2017 NMLS Transition Bill,” is intended to transition Maryland’s Check Casher, Collection Agency, Consumer Lender, Credit Service Business, Debt Management Company, Installment Lender, and Sales Finance licenses to the Nationwide Multistate Licensing System (the “NMLS”) effective July 1, 2017.

NMLS was established originally to provide a platform for mortgage licensing. More recently, however, NMLS has been expanded to accommodate other categories of licenses. Pursuant to prior state legislation, the Commissioner transitioned all mortgage lender (which includes mortgage brokers and mortgage servicers) and mortgage loan originator licenses to NMLS in 2009-2010 and money transmitter licenses in 2012. Similar to prior transition legislation, the 2017 NMLS Transition Bill is massive and includes: (i) new and amended definitions (including “branch location” and “control person”), (ii) revisions to the term of the license, (iii) with respect to any information and disclosures provided to NMLS, provisions that continue to apply any privilege arising under federal or state law to that information, (iv) authority to share  information with certain officials without the loss of privilege or confidentiality protections provided by federal or certain State laws, and (v) authority to adopt regulations to facilitate the transition to NMLS and more.

No Fee Increase

NMLS was created by Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators and began operations in January 2008. It is owned and operated by the State Regulatory Registry L.L.C., a wholly-owned subsidiary of CSBS. Significantly, the cost to register with NMLS annually is $100 and $20 for each additional branch license/registration. The Commissioner advised that NMLS has agreed to waive the annual fees for Maryland licensees transitioning to the system this fiscal year (July 1, 2017 – June 30, 2018). Although NMLS will resume charging its annual fee for use of the system during the next fiscal year, in an effort to reduce the cost of regulation, the Commissioner proposed and the final bill includes the NMLS processing fee as part of the licensing fee without increasing the current license fee.

No State Criminal Background Check 

Applicants for Maryland mortgage lender, check casher, debt management service, and money transmitter licenses and certain other persons are required to submit fingerprints for a national and State criminal history records check (the “CHRC”) as part of the licensing process. Presently, if an individual required to submit fingerprints for a CHRC is within the Maryland borders, the individual can electronically submit fingerprints for the CHRC, but the process is particularly burdensome for those individuals or control persons who are out-of-state. Individuals who are out-of state cannot use the state’s electronic fingerprint submission process without physically entering the state and must submit fingerprints for processing on paper cards through the mail.

According to the bill’s fiscal and policy notes, the Commissioner advised that the state criminal history records check requirement is time-consuming and does not provide a significant benefit. Therefore, HB0182 not only effectively eliminates the state background check requirement at this time, but allows for the use of the NMLS process for the submission of the CHRC.

The bill would have an effective date of July 1, 2017, but stay tuned for notices from the Commissioner to confirm the precise submission dates for new applications, the transition period for current licensees, and transition instructions – specifically as it relates to licenses that are approaching renewal periods. Continue Reading Maryland Legislative Session Adjourned

A complaint filed March 23 by the bankruptcy trustee for Lam Cloud Management, LLC in the United States Bankruptcy Court for the District of New Jersey challenges two small business financing models: (i) merchant cash advances (“MCAs”); and (ii) small business loans originated under bank partnerships.  While disposition of the complaint will take time, and all that is available for now are bare allegations, the complaint is another recent challenge involving usury and bank partner programs and warrants attention from entities involved in small business financing and lending. Continue Reading NJ Bankruptcy Case Takes Aim at Small Business Financing — Merchant Cash Advances and Bank Partnerships