PENNSYLVANIA REGULATION OF MORTGAGE SERVICERS
Senate Bill No. 75, now known as Pennsylvania Act No. 81 of 2017 (the “Amendment”), amends Pennsylvania’s Mortgage Licensing Act (the “Law”) to provide for licensing and regulation of non‑bank residential mortgage loan servicers (each a “Servicer”) by the Pennsylvania Department of Banking and Securities (the “Department”). Sen. Donald White (R‑41) sponsored Senate Bill No. 751 to implement state enforcement of Servicers by authorizing the Department to adopt regulations modeled on federal regulations. Those federal regulations, found at 12 CFR Parts 1024 and 1026 and known as the 2016 Mortgage Servicing Rule, were promulgated August 4, 2016, by the Consumer Financial Protection Bureau (“Bureau”). Thirty‑six other states have adopted rules to license and regulate Servicers following the 2016 Mortgage Servicing Rule. Pennsylvania has embraced new licensing and regulation of Servicers previously unregulated by the Commonwealth, but the Act raises many questions for Servicers.
The Amendment requires Servicers to be licensed and provides separate licenses for mortgage lenders, brokers, correspondents, and Servicers who collectively engage in the mortgage loan business. Such business is defined as “[t]he business of (1) advertising, causing to be advertised, soliciting, negotiating or arranging in the ordinary course of business or offering to make or making mortgage loans; or (2) servicing mortgage loans.” 7 Pa. C.S.A. § 6102. A “mortgage servicer” is defined as “[a] person who engages in the mortgage loan business by directly or indirectly servicing a mortgage loan.” 7 Pa. C.S.A. § 6102. Direct servicing under the Amendment is “the power and authority to collect and remit for a lender, mortgagee, note owner, note holder, trustee or primary beneficiary of a residential mortgage loan payment of principal, interest, or an amount to be placed into escrow for any combination of the payment of insurance, hazard insurance or taxes, [related to the borrower’s residential real estate].” 7 Pa. C.S.A. § 6122(c). Although the Amendment does not define indirect servicing, such practice might refer to the work of a subservicer, one who contracts with the Servicer to perform some or all of the loan servicing.
Under the exemption to licensure, a licensed mortgage lender may (i) be a broker, or a correspondent lender without a separate broker or correspondent license or (ii) service mortgage loans it has originated, negotiated and owns without a separate mortgage servicer license. However a person licensed only as a mortgage servicer may perform mortgage servicing for itself or others. Accordingly, a mortgage lender licensed as such in Pennsylvania must be separately licensed as a Servicer in order to service mortgage loans owned by others.
Certain persons may perform mortgage servicing without a mortgage servicing license. First, an attorney at law who does not hold himself or herself out as a broker or originator is exempt from licensure unless the attorney is compensated by a broker, lender, correspondent, exempt person, originator or servicer or an agent of any of the foregoing. Second, a Servicer who services less than four mortgage loans in a calendar year is exempt from licensure. Third, a consumer discount company is exempt from licensure except that if it acts as a Servicer it will be subject to Subchapter C of the Mortgage Loan Licensing and Consumer Protection provisions of the Law (“Restrictions and Requirements”) and parts of Subchapter D related to administrative and licensure provisions of the Law. Fourth, employees and individuals supervised and controlled by a Servicer are exempt. Fifth, exempt also are affiliates of banking institutions and subsidiaries and affiliates of federally chartered or State‑chartered credit unions which (i) are subject to some of the Restrictions and Requirements, (ii) provide financial reports to the Department, (iii) are registered with the Department, (iv) maintain bond coverage and (v) assure that certain employees have obtained any required mortgage originator’s license. Finally, persons licensed under the Money Transmission Business Licensing Law are exempt to the extent funds are transmitted from a mortgagor (borrower) in excess of the scheduled monthly minimum.
The Amendment supplements the Commonwealth’s Mortgage Satisfaction Act. New terms require a Servicer to respond in good faith when a mortgage loan is paid in full and when a lender is no longer obligated to make advances on an open-end mortgage loan which is paid in full. Under such circumstances the Servicer must in good faith (1) request the mortgage holder to release its lien on the residential real estate and deliver to the consumer good and sufficient documents to evidence the release; (2) request the mortgage holder (lender) to cancel any insurance in connection with the mortgage and refund any unearned premium; and (3) satisfy the duties of the mortgage holder in (1) and (2) if the holder has delegated those tasks to the Servicer.
The Amendment requires the Servicer to establish a single point of contact with whom the borrower “can communicate about foreclosure matters or loss mitigation options [not] later than the 36th day of a borrower’s delinquency, unless contact is inconsistent with applicable bankruptcy law court order.” 7 Pa. C.S.A. § 6123(b). This is more restrictive than federal law which allows 45 days of delinquency to establish a single point of contact. A single point of contact means “[a]n individual or team of personnel, each of whom has the ability and authority to discuss mortgage loan mitigation options with a borrower on behalf of a mortgage servicer. The mortgage servicer shall ensure that each member of the team is knowledgeable about the borrower’s situation and current status.” 7 Pa. C.S.A. § 6102. Loss mitigation means alternatives to mortgage foreclosure offered by the owner, holder or assignee of a delinquent mortgage loan.
The Department shall issue a Servicer license under the Restrictions and Requirements if the applicant: (1) has been approved or meets current eligibility criteria as a residential mortgage loan servicer of at least one Federal GSE, government corporation or agency; (2) has a net worth of at least $250,000; (3) maintains fidelity bond coverage under the guidelines of Fannie Mae or Freddie Mac; (4) maintains a surety bond in the amount of $500,000 which runs to the Commonwealth and in a form acceptable to the Department; and (5) designates a qualifying individual for the principal place of business.
The Amendment establishes licensing fees for mortgage servicers. The initial fee is $2,500 for the principal place of business and $1,250 for each branch location. The renewal fee is $1,000 for the principal place of business and $500 for each branch location. If the applicant is a mortgage servicer applicant it is not required to pay the fee for a mortgage originator license.
The Amendment requires Servicers that maintain surety bonds under 7 Pa. C.S.A. § 6131(f)(4) to file periodic reports. These reports are filed with the Nationwide Multistate Licensing System and Registry (“NMLS”) as the Department determines. The NMLS was created under the Secure and Fair Enforcement for Mortgage Lending Act of 2008, 12 U.S.C. Chapter 51 (“SAFE Act”) and the regulations of the Bureau under the SAFE Act. Those reports are to include information regarding first or secondary mortgage loan business conducted by the Servicer as required by the Department. The penalty for non filing is $100 per day after the due date until the report is filed.
The Amendment further authorizes the Department to adopt, as to Servicers, regulations “which effectively incorporate the Consumer Financial Protection Bureau’s mortgage servicer regulations at 12 CFR Pt. 1024, Subpt. C (relating to mortgage servicing), other than 12 CFR 1024.30 (relating to scope).” 7 Pa. C.S.A. § 6141(a)(1). In light of mortgage industry criticism of the Bureau, the question arises whether and to what extent such federal regulations (“CFPB Regulations”) will survive. The Amendment contemplates the possibility that these CFPB Regulations could change or be repealed, and if they change, the Department “shall promulgate regulations making the appropriate incorporation.” 7 Pa. C.S.A. § 6141(a)(2). If the CFPB Regulations are deleted, “[t]he version of the Pennsylvania regulations in effect at the time of the alteration shall remain in effect for two years.” 12 Pa. C.S.A. § 6141(b)(1). During that two‑year period, “the [D]epartment shall promulgate replacement regulations.” 12 Pa. C.S.A. § 6141(b)(2). Accordingly, the Amendment creates two sets of regulations, one federal and one state, that could require Servicers to comply with possibly conflicting regulations. Further, the Amendment contemplates ongoing state regulation of Servicers if the federal government determines to no longer regulate the industry. That could benefit bank servicers which would be free of CFPB Regulations but non‑bank Servicers would still be subject to Department regulations promulgated under the Amendment.
The Governor approved the Amendment on December 22, 2017. 7 Pa. C.S.A. § 6141 and the effective date section took effect immediately. The remainder of the Amendment will take effect on the effective date of the regulations promulgated under 7 Pa. C.S.A. § 6141. The Department is working on those Servicer regulations. Secretary of Banking and Securities Robin L. Weissman announced January 23, 2018 that the Department anticipates accepting applications for Servicers beginning April 1, 2018 through the NMLS. The deadline for licensing applications is June 30, 2018.