Mortgage Loan Servicing

Despite changes in leadership at numerous federal agencies, Washington D.C. continues to focus on lending to servicemembers. In December, Congress extended the time period for protections against foreclosure under the Servicemembers Civil Relief Act. Otherwise, those protections would have expired at the end of 2017.

In addition, the Department of Defense recently amended its Military Lending Act interpretive rule. Among other topics, the amendments address loans to purchase a motor vehicle or other property, and the extent to which the Act’s requirements exempt loans that finance amounts in addition to the purchase price.

Read more in Mayer Brown’s Legal Update.

Pennsylvania became the latest state to impose a licensing obligation on mortgage loan servicers. It appears that the licensing obligation will apply not only to entities that conduct the typical mortgage loan servicing activities for others, but also to certain mortgage lenders servicing their own portfolio. In addition, the licensing obligation may apply to persons merely holding mortgage servicing rights. Pennsylvania regulators intend to issue guidance regarding the scope of the state’s new licensing obligation while the effective date is pending.

Read more in Mayer Brown’s Legal Update.

On December 22, 2017, Ohio Governor Kasich signed into law Ohio House Bill 199, which will make significant changes in how the state will license and regulate mortgage lenders and brokers. The bill takes effect 91 days after filing with the Ohio Secretary of State (which filing had not been made as of January 4, 2018).

The bill amends the Ohio Mortgage Brokers Act (the “OMBA”) to bring the registration of mortgage lenders and brokers, and the licensing of mortgage loan originators, together under a single statute. The amended statute will be called the Ohio Residential Mortgage Lending Act (“ORMLA”). Continue Reading Ohio Consolidates its Mortgage Finance Licensing Laws into a new Residential Mortgage Lending Act

For most of 2017, the Trump Administration was quiet with regard to the Federal Housing Administration (“FHA”) loan program. However, the Department of Housing and Urban Development (“HUD”) recently offered some relief to lenders and servicers of FHA-insured loans. Through Mortgagee Letter 2017-18, HUD ended its policy of allowing FHA insurance for mortgage loans secured by properties encumbered with Property Assessed Clean Energy (“PACE”) obligations. FHA’s new policy prohibiting PACE obligations in connection with FHA-insured loans, which becomes effective for loans with FHA case numbers issued on or after January 7, 2018, reverses Mortgagee Letter 2016-11, a short-lived Obama era policy that permitted lenders to originate FHA-insured loans involving PACE obligations.

PACE loans provide homeowners an alternative to traditional financing for energy efficient home improvements such as solar panels, insulation, water conservation projects, and HVAC systems. Instead of funding the home improvements through loans, the borrower pays through special property tax assessments. PACE financing does not follow the standard review of a borrower’s income, debt, and FICO score, but rather is based on the borrower’s equity in the home and the mortgage or property tax payment history. Many states and municipalities passed legislation implementing a PACE program and establishing their own terms and conditions for PACE loans. Homeowners voluntarily sign up for PACE financing through private companies, which often offer PACE through a network of approved dealers and installers. The PACE loan is secured by a property tax lien, often with terms of up to twenty years, which takes priority over both existing and future mortgages on the property.  Continue Reading FHA Changes Course on PACE Obligations

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

Is it possible for an investor to participate in the economics of agency residential mortgage servicing rights without being an approved holder of the servicing rights? Acquiring excess servicing fees is one way that investors are exploring to accomplish this objective.  Mayer Brown partners Larry Platt and Jon Van Gorp wrote an article for Bloomberg BNA’s Banking Report on the subject of acquisition of excess servicing fees for mortgage servicing rights, which can be found here.

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 October 4, the Consumer Financial Protection Bureau (“CFPB”) issued an interim final rule and a proposed rule related to the 2016 Mortgage Servicing Final Rule to clarify the timing of and facilitate the provision of certain required communications with borrowers.

The CFPB amended its mortgage servicing rules in August 2016, to go into effect in large part on October 19, 2017 (the “2016 Final Rule”). One provision of the 2016 Final Rule requires mortgage servicers to send certain delinquent borrowers early intervention notices, modified for use with a borrower who has requested a cease in communication under the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA allows borrowers to request that servicers and other companies refrain from contacting them except in certain circumstances, such as when a borrower becomes delinquent. The 2016 Final Rule exempts servicers from sending the early intervention notices only in situations where the borrower does not have a loss mitigation option available or where the borrower is a debtor in bankruptcy.

Under the 2016 Final Rule, mortgage servicers, when communicating with consumers who have invoked the FDCPA’s cease communication right, were required to provide the consumers modified early intervention notices, but only once every 180 days. Continue Reading It’s All in the Timing: CFPB Addresses Timing Challenges in 2016 Mortgage Servicing Rules


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