Recent Developments in State Mortgage Servicing Laws
By: Costas A. Avrakotos, Kerri M. Smith, Francis L. Doorley
New laws in Hawaii, Louisiana, Nevada, and Rhode Island will have consequences for mortgage servicers operating in those states. Recently enacted legislation in Hawaii and Nevada imposes new licensing and compliance obligations on servicers. In addition, legislation in Louisiana and Rhode Island set to go into effect has licensing implications for those entities that are mere holders of mortgage servicing rights (“MSRs”), but that do not actually service the loans.
On May 28, 2014, Louisiana enacted amendments to its mortgage licensing statute to provide for the licensing of residential mortgage servicers. Previously, only residential mortgage lenders, brokers and originators were required to be licensed to do business in the state. On June 30, 2015, the new the mortgage servicer licensing obligation took effect. The amended act defines “mortgage servicing” to include collecting and remitting for another certain payments made in connection with a mortgage loan, and having the right to collect or remit payments for another.
We understand that the Louisiana regulators have taken the position that the clause “having the right to collect or remit payments for another” extends the licensing obligation to entities that acquire and hold MSRs or mortgage loans with MSRs. To date, however, the regulators have not issued any public guidance or adopted regulations that provides for mere holders of MSRs to be licensed as mortgage servicers.
In July 2014, Rhode Island amended its financial institutions title to extend a licensing obligation to “third-party loan servicers” that would reach mortgage loan servicers, effective July 1, 2015.
On June 17, 2015, the governor of Rhode Island signed House Bill 6179 into law to extend the statutory definition of a third-party loan servicer to reach mere holders of MSRs. The bill amends the definition of “third-party loan servicer” to include a “person or entity that owns the servicing rights to a loan secured by residential real estate located in Rhode Island whether or not that owner services the loan themselves or contracts with another person or entity for the servicing.” Thus, the statute will be clear that mere holders of MSRs will be subject to the licensing and compliance obligations in Rhode Island. Rhode Island regulators informally indicated that “third party loan servicers that submitted an application for a license before the effective date will be permitted to continue with their servicing activities if the processing of their application is not completed until after July 1, 2015.” According to Rhode Island regulators, entities acquiring closed mortgage loans with the servicing rights will not be subject to licensing as a mortgage loan servicer.
On June 1, 2015, the Hawaii legislature amended its mortgage servicer licensing statute to adopt several extensive compliance obligations for licensed mortgage servicers, effective June 1, 2015. While the scope of the licensing obligation is not affected by the amendments, the amended law requires licensed servicers operating in Hawaii to comply with loss mitigation requirements, servicing fee restrictions, and other substantive compliance obligations. These obligations appear to be similar to the servicing regulations adopted by New York.
Licensed servicers in Hawaii are now required to comply with new loss mitigation requirements, such as:
• Pursuing a loan modification whenever possible;
• Transmitting a written acknowledgement of a borrower’s request for loss mitigation, within 10 business days, that identifies information needed from the borrower and provides an explanation of the loss mitigation process;
• Completing an evaluation of a borrower’s eligibility for a requested loss mitigation option within 30 days of receiving all required documentation;
• Making available to borrowers who are at least 60 days delinquent, or at imminent risk of default, a list of government-approved housing counselors in the borrower’s geographic area;
• Establishing and maintaining a process through which borrowers may bring disagreements to a supervisory level, where a separate review of the borrower’s eligibility for a loss mitigation option can be performed; and
• Avoiding “dual-tracking” borrowers by taking steps to foreclosure, or referring a borrower to foreclosure, if the borrower has requested or is being considered for a loss mitigation option, or is in a trial or permanent loan modification and not 30 days in default.
The amended law also adopts, among other provisions, servicing fee restrictions, and provisions for handling mortgage payments.
On June 9, 2015, Nevada enacted Assembly Bill 480, which repeals and replaces the existing mortgage servicer registration statute, effective January 1, 2016. The bill requires a mortgage servicer to obtain a license, rather than registration. The bill makes certain other changes as well, including: (i) enacting practice requirements for mortgage servicers; (ii) imposing a licensing obligation for certain wholesale lenders under the Mortgage Brokers and Mortgage Agents Act, and under the Mortgage Bankers Act; (iii) limiting the definition of escrow under the Nevada Escrow Agency Act so it does not reach entities servicing mortgage loans; and (iv) extending the anti-evasion provisions of the Installment Loans and Finance Act to mortgage servicers. Nevada regulators informally indicated that an entity merely acquiring and holding MSRs will not be subject to licensing as a mortgage servicer.
Based on these developments, entities subject to the Hawaii and Nevada statutes will now have new compliance obligations. Further, legislation in Louisiana and Rhode Island will have certain licensing implications on those entities holding MSRs.