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Pennsylvania's Governor Signs Bill Requiring Licenses for Mortgage Servicers

Pennsylvania's Governor Signs Bill Requiring Licenses for Mortgage Servicers
By ALFN member, Troy Freedman, Esq., Stern & Eisenberg, PC
 
The Pennsylvania Department of Banking and Securities (“Banking Department”) is seeking to amend the Pennsylvania Mortgage Licensing Act (7 Pa. C.S.A. § 6101 et seq.)(“MLA”) such that, among other things, and subject to certain exceptions, anyone or any entity engaged in the "mortgage loan business" which is defined by the MLA amendments as including mortgage servicing will be required to pay an initial licensing fee and an annual renewal fee.
 
The Pennsylvania House of Representatives and Senate passed the Bill containing the amendments (S.B. 751), which has been signed by Pennsylvania's Governor, and is now known as Act 81 of 2017 (“Act 81”).  The Banking Department will now promulgate appropriate regulations to enforce and implement the requirements of Act 81.
The tentative date to accept license applications is April 1, 2018 and the deadline for doing so is June 30, 2018.
 
Licensing Requirements
In order to apply for a license, an applicant must first satisfy the following criteria:
  • Be approved by or meet the current eligibility criteria for approval as a residential mortgage loan servicer by a GSE, government corporation or federal agency;
  • Have a minimum net worth of $250,000;
  • Be approved for fidelity bond average in accordance with Fannie/Freddie guidelines;
  • Obtain a surety bond in the amount of $500,000; and
  • Designate the individual who will serve on the Nationwide Multistate Licensing System & Registry as its qualifying individual.
 
Licensing Fees
Once the foregoing criteria are met, the following licensing fees are applicable:
  • $2,500 for the initial license of the principal office plus $1,250 for the initial license of each branch office; and
  • $1,000 for the renewal of the principal office's license plus $500 for the renewal of each branch office's license.
  • One concern with the licensing fees is that Act 81 does not address the scenario in which an entity is headquartered out-of-state but maintains branches in Pennsylvania.  In that scenario, it is unclear whether the $2,500 initial fee and $1,000 renewal fees apply.  It is possible that final regulations of the Banking Department will clarify this.
January 2018
 
Other Notable Features of Act 81
Requirement for mortgage servicers to take action to record instruments reflecting satisfaction of a mortgage.  Act 81 requires that a mortgage servicer “shall act in good faith” to request that a mortgagee record the appropriate instrument indicating a mortgage has been paid in full.  Act 81, however, does not define what does or does not constitute “good faith” or specifically, what a mortgage servicer must do to comply.  In the event this omission is not clarified by final regulations of the Banking Department, the Pennsylvania Courts will be required to interpret this “good faith” requirement and, if that occurs, varying decisions across the Commonwealth of Pennsylvania may result.  While the Pennsylvania Mortgage Satisfaction Act permits significant penalties on a mortgagee for failure to do so, Act 81 does not extend those same penalties to mortgage servicers; however, it is possible that final regulations of the Banking Department may ultimately provide for some form of penalty upon a mortgage servicer.
 
Requirement of a single point of contact (“SPOC”).  Like the federal Consumer Financial Protection Bureau regulation, Act 81 imposes a SPOC requirement on mortgage servicers.  However, Act 81 requires a SPOC to be designated on the 36th day following default while the federal regulations require designation on the 45th day following default.  It is possible that final regulations of the Banking Department will bring consistency between Act 81 and the analogous federal regulation.  If not, servicers should be prepared to make the appropriate adjustments to their systems/P&Ps to account for this nine (9) day difference.
 
Incorporation of 12 C.F.R. 1024, the federal mortgage servicing regulations.  Act 81 incorporates all federal Consumer Financial Protection Bureau's mortgage servicing regulations codified at 12 C.F.R. 1024.  Act 81 addresses changes to the federal mortgage servicing regulations in two (2) ways.  First, where there are amendments to the federal regulations, the Banking Department is required to “promulgate regulations making the appropriate incorporation” meaning that the Banking Department will adopt the federal amendment(s).  Second, where the federal regulations are repealed, Act 81 requires the Commonwealth's regulations to remain in effect for two (2) years.  This provision may have been inserted in response to the change in leadership at the Consumer Financial Protection Bureau and a concern that the current Republican administration may repeal a number of financial regulations including 12 C.F.R. 1024.
 
Exceptions to the licensing requirement.  Act 81 excepts certain individuals and entities from the licensing requirement, namely: (a) one who originates, services, or negotiates less than four (4) mortgage loans in a calendar year; and (b) those engaged in mortgage servicing which originated, negotiated, and own the mortgage loans.  It is unclear why the number four (4) was selected as a baseline for exception from the licensing requirement.  Moreover, Act 81 appears to indicate that all mortgage loans be originated, negotiated, and owned by the mortgage servicer to satisfy the licensing exception.  It appears that, to the extent even one (1) mortgage loan is not originated, negotiated, and owned by the servicer, then the licensing requirement would be triggered.
 
Penalties.  Act 81 does not expressly prescribe penalties for non-compliance.  Instead, Act 81 adopts the penalties outlined under Sections 6139 and 6140 of the MLA, which provide for suspension, revocation, or non-renewal of a license as well as a fine “up to $10,000 for each offense.
INDUSTRY IMPACT: WHAT IT MEANS FOR SERVICING
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Licensing is now required for mortgage servicers in Pennsylvania and Consumer Financial Protection Bureau regulations are being adopted in Pennsylvania. Servicers should know there are penalties for non-compliance.