What constitutes a “reasonable” ability-to-repay determination when making a mortgage loan? Since the CFPB’s Ability-to-Repay rules became effective in 2014, the clearest answer to that question is that making a qualified mortgage (“QM”) complies (or is presumed to comply) with those rules. However, mortgage lenders serving the non-QM market have few specifications for how they
Mortgage Loan Origination
Maryland Guidance Applies Licensing Requirements to Assignees of Residential Mortgage Loans
On January 10, 2025, the Maryland Office of Financial Regulation (“OFR”) issued formal guidance asserting that assignees of residential mortgage loans—including certain “passive trusts” that acquire or obtain assignments of residential mortgage loans in Maryland—must become licensed in Maryland prior to April 10, 2025 unless the assignee is expressly exempt under Maryland law. The guidance, which expands on an April 2024 court ruling that an existing assignee of a home equity line of credit was required to obtain a license as a prerequisite to having legal authority to bring a foreclosure action in Maryland court, raises significant questions regarding how the OFR will apply this new licensing requirement, how assignees of residential mortgage loans will respond to the new guidance, and whether and to what extent this guidance will impact the secondary market for Maryland residential mortgage loans.
Maryland’s existing licensing laws do not expressly require a license to purchase closed and funded residential mortgage loans. In April 2024, a decision by the Appellate Court of Maryland, Maryland’s intermediate appeals court, held that the licensing requirement under Maryland’s Credit Grantor provisions that applies to persons who “make” certain open-end home equity lines of credit loans with interest rates and charges exceeding Maryland’s statutory usury limit must be read in a manner that applies to subsequent assignees of such a loan. The Appellate Court held in Estate of Brown v. Ward that those provisions require assignees of home equity lines of credit made pursuant to the Credit Grantor provisions to hold (1) a Maryland mortgage lender license, and (2) a Maryland Installment Loan license in order to have the legal right to initiate a foreclosure action on the loan, unless the assignee is exempt from licensing. Even though the express statutory language in the Credit Grantor provisions limits the scope of the licensing requirement to a person “making” loans, which arguably is limited to the originating lender that closes and funds the loan, the Appellate Court concluded that because Maryland case law observes “the principle that an assignee ‘succeeds to the same rights and obligations under the loan agreement as its assignor[,]’” an assignee of a loan made subject to the Credit Grantor provisions is subject to any licensing requirements that applied to the originating lender. Thus, the court held that an assignee (including the statutory trust at issue) was required to obtain both an Installment Loan license and a Mortgage Lender license in order to have legal authority to bring a foreclosure action on a loan made subject to the Credit Grantor provisions.
The Ward decision was limited to home equity lines of credit that were specifically made pursuant to the Credit Grantor provisions and did not address whether a statutory trust, or any other assignee, would be required to obtain a license to acquire a loan that was not made pursuant to the Credit Grantor provisions (although the court did express skepticism about the reasoning of certain federal court decisions that held that out-of-state statutory trusts were not subject to licensing requirements under Maryland’s Mortgage Lender Law). Since the parties did not appear to raise that argument, the Ward decision also did not address whether the court’s conclusion would have been different if the national bank that acted as trustee for the trust in Ward—and which, as a national bank, is exempt from licensing under Maryland law—was the party that acquired and held the loans in its capacity as trustee for the trust.
On January 10, the OFR issued guidance to “clarify” its position on the application of Maryland’s licensing laws to assignees of residential mortgage loans in light of Ward. Despite previously taking the position that a license was not required to purchase closed and funded residential mortgage loans (and issuing regulations consistent with that position), the OFR’s new guidance adopts the court’s reasoning in Ward that an assignee “succeeds to the same rights and obligations as the assignor,” including licensing requirements that applied to the originating lender. The guidance expands the holding in Ward and asserts that any assignee of residential mortgage loans, including “mortgage trusts,” are required to obtain a license under the Maryland Mortgage Lender Law to “acquire or obtain assignments of any mortgage loans,” regardless of lien position. The Mortgage Lender Law exempts, among other entities, federally-chartered banks, Maryland state banks, and insurance companies that are authorized to do business in Maryland, although state banks that are chartered by a state other than Maryland are only exempt if the bank maintains a branch in Maryland. Continue Reading Maryland Guidance Applies Licensing Requirements to Assignees of Residential Mortgage Loans
New Disclosure and Other Requirements for Shared Appreciation Agreements Take Effect in Maryland
Maryland regulations governing “shared appreciation agreements” become effective November 25, 2024. After the Maryland Commissioner of Financial Regulation proposed regulations governing required disclosures for shared appreciation agreements in July 2024, the regulations were finalized on October 30, 2024, with no substantive revisions.
As a reminder, a “shared appreciation agreement” is defined for purposes of Maryland’s Credit Grantor mortgage laws as “a writing evidencing a transaction or any option, future, or any other derivative between a person and a consumer where the consumer receives money or any other item of value in exchange for an interest or future interest in a dwelling or residential real estate, or a future obligation to repay a sum on the occurrence of an event such as: (1) the transfer of ownership; (2) a repayment maturity date; (3) the death of the consumer; or (4) any other event contemplated by the writing.”
Below is a summary of the final regulations governing shared appreciation agreements. Continue Reading New Disclosure and Other Requirements for Shared Appreciation Agreements Take Effect in Maryland
Department of Labor Raises Overtime Salary Thresholds
The Department of Labor issued a final rule raising the thresholds applicable to an employer’s obligation to pay overtime. The rule sets new levels applicable to the so-called “executive, administrative, and professional” (“EAP”) exemption from overtime requirements and for qualifying as a “highly compensated employee.” The initial updates will become effective on July 1, 2024.
Federal Court Stalls Enforcement of New CRA Rules
On March 29, 2024, the United States District Court for the Northern District of Texas issued a preliminary injunction prohibiting enforcement of the new Community Reinvestment Act (“CRA”) regulations against the plaintiffs in the case.
The CRA, passed in 1977, generally requires insured depository institutions to participate in investment, lending, and service activities that help…
HUD Eliminates Mandatory Branch Office Registration
FHA branch offices could become a thing of the past.
The Department of Housing and Urban Development published a final rule on February 2, 2024, eliminating the requirement for lenders to register each branch office where lenders and mortgagees conduct FHA business with HUD. FHA addressed questions from stakeholders in Frequently Asked Questions.
By…
NYDFS Finalizes Climate Risk Management Guidance
The New York Department of Financial Services finalized guidance on how banks and mortgage institutions should manage climate-related financial and operational risks. The agency’s guidance creates extensive obligations for New York institutions, particularly mortgage lenders and servicers for which those risk management expectations may be new. Also, the NYDFS emphasizes that those institutions must still…
FHFA Proposes Regulatory and Legislative Reforms for FHLB System
On November 7, 2023, the Federal Housing Finance Agency proposed a series of significant regulatory and legislative reforms for the Federal Home Loan Bank System in a much-anticipated report, “FHLBank System at 100: Focusing on the Future”, containing the results of a year-long comprehensive review of the FLHB System. This Legal Update provides an overview…
Treatment of Mortgage Loans and Mortgage Servicing Rights Under the Hart-Scott-Rodino Act
Transactions involving the purchase and sale of residential mortgage loans and mortgage servicing rights (“MSRs”) frequently raise the question of whether they require submitting premerger notification filings to the Federal Trade Commission and the Department of Justice under the Hart-Scott-Rodino (“HSR”) Act. This Legal Update provides an overview of how residential mortgage loans, MSRs and…
New Issue of Licensing Link
Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.
In this issue, we…