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IN Broker, IN 1st Lender and IN 2nd Lender Licenses

Joint Guidelines of the Securities Division and Department of Financial Institutions on Determination of Agency to Regulate Mortgage Professionals Issued in Compliance with Sec. 37 of HEA 1359 

September 1, 2008

As required by Sec. 37 of HEA 1359 ( P.L. 145-2008), the Securities Commissioner and the Director of the Department of Financial Institutions issue the following guidelines addressing the appropriate agency to oversee the regulation of certain persons within the mortgage industry.

1. Question: What mortgage professionals are regulated by the Securities Division of the Indiana Secretary of State's office (the "Securities Division")?

Answer: Under lC 23-2-5, the Securities Division licenses and regulates loan brokers. The Securities Division also registers loan originators and principal managers who work on behalf of the licensed loan brokers.

2. Question: What is a loan broker?

Answer: A "loan broker" means any person who, in return for any consideration from any source procures, attempts to procure, or assists in procuring, a loan from a third party or any other person, whether or not the person seeking the loan actually obtains the loan. IC 23-2-5-3(d).

3. Question: Who is excluded from the definition of loan broker?

Answer: The term "loan broker" does not include: (1) any supervised financial organization (as defined in IC 24-4.5-1-301(20), including a bank, savings bank, trust company, savings association, or credit union; (2) any other financial institution that is: (A) regulated by any agency of the United States or any state; and (B) regularly actively engaged in the business of making consumer loans that are not secured by real estate or taking assignment of consumer sales contracts that are not secured by real estate; 

(3) any insurance company; (4) any person arranging frnancing for the sale of the person's product; or (5) a creditor that is licensed under IC 24-4.4-2-402.

4. Question: What mortgage professionals are regulated by the Department of Financial Institutions (the "Department")?

Answer: There are two types of licenses issued by the Department for persons engaged in mortgage lending: First, under the First Lien Mortgage Lending Act ("FLMLA") (effective on January 1,2009), a person who is regularly engaged in Indiana as a creditor in first lien mortgage transactions, and who is funding the loan with its own assets or its own established line of credit, must first obtain a license from the Department. IC 24-4.4-2-401. This person is referred to as a "mortgage lender" throughout this document. Second, under the Uniform Consumer Credit Code ("UCCC"), a person who is regularly engaged in Indiana in making consumer loans, taking assignments of consumer loans or undertaking direct collection of payments from, or enforcement of rights against, debtors arising from consumer loans, must first obtain a license from the Department. Second lien mortgage loans are included in the definition of a "consumer loan" under the UCCC. If a person is regularly engaged as a lender for both first and second lien mortgage loans, it is required to be licensed by the Department under both the FLMLA and the UCCC.

5. Question: What is the difference between a loan broker, licensed by the Securities Division, and a mortgage lender, licensed by the Department?

Answer: Witn respect to first lien mortgage transactionsl, the key difference between a loan broker and a mortgage lender is that the mortgage lender is the named creditor on the loan ønd funds the loan through the use of lender's own funds or established line of credit. A loan broker may or may not close the loan in its name but does not provide the funding from its own funds or its own establishedli ne of credit.

6. Question: What is a tablefunded transaction?

Answer: "Tablefunded" means a transaction in which: (a) a person closes a first lien mortgage transaction in the person's own name as a mortgagee with funds provided by one (1) or more other persons; and (b) the transaction is assigned simultaneously to the mortgage lender providing the funding not later than one (1) business day after the funding of the transaction. IC 24-

7. Question: V/ho regulates persons that tablefund all of their loans?

Answer: The FLMLA specifically excludes tablefunding from the definition of "creditor" (IC 24-4.4-1-301(13)) which means that the Department does not require mortgage companies that exclusively tablefund loans to be licensed. It is the interpretation of the Securities Division that tablefunding is part of the loan brokerage business and, therefore, covered by the Indiana Loan Broker Act. Any person that exclusively tablefunds loans must be licensed by the Securities Division to be able to do business in Indiana.

8. Question: Does the fact fhat the loan broker is approved by HUD, VA, FHLMA, or FNMA eliminate the need to obtain a license under the Loan Broker Act or the FLMLA?

Answer: No, these exemptions are not included in the FLMLA, and all of these exemptions, previously included in the Indiana Loan Broker Act (IC23-2-5-19(a)(8)), have been repealed.

9, Question: If a person does a combination of loan brokering and mortgage lending, who is its regulator?

Answer: A license issued by the Department is required under the FLMLA if a creditor is regularly engaged as a mortgage lender (a named creditor who funds the loan with its own funds or its own established line of credit) in first lien mortgage transactions in Indiana. The creditor is regularly engaged if: (a) the person acts as a creditor in first lien mortgage transactions in Indiana more than five (5) times in the preceding calendar year; or (b) the person did not meet the numerical standards set forth in subdivision (a) in the preceding calendar year, but has or will meet the numerical standards set forth in subdivision (a) in the current calendar year. IC 24-4.4-1-301 (10). Therefore, if a person acts as a mortgage lender under the FLMLA on more than five consumer purpose first lien mortgage transactions in a calendar year, it will be licensed and regulated by the Department. The Indiana Loan Broker Act exempts any person licensed by the Department under IC 24-4.4-2-402 îrom the definition of a loan broker.

10. Question: If a person acts as a mortgage lender under the FLMLA for fewer than five first lien mortgage transactions in a calendar year and tablefunds the remainder, who will be its regulator?

Answer: If the person acts as mortgage lender under the FLMLA on fewer than five consumer purpose first lien mortgage transactions in a calendar year, it is not considered to be regularly engaged in first lien mortgage transactions in Indiana and is not required to be licensed by the Department. If the person is not licensed by the Department, it will be required to obtain a license with the Securities Division because of its tablefunding activity.

11. Question: If a person is licensed with the Department, but still tablefunds or brokers some of its loan, which agency will regulate those tablefunded transactions?

Answer: In cooperation with the SecuritiesD ivision, as necessary, the Department will regulate those activities consistent with its licensing, examination, and investigative authority.

12. Question: If a person is licensed as a loan broker with the Securities Division, but also engages in mortgage lending activities (but not enough to require a license with the Department), who will regulate those mortgage lending activities?

Answer: The Securities Division, in cooperation with the Department, as necessary, will have jurisdiction over mortgage lending activities through its authority to deny, revoke, or suspend a license for dishonest or unethical practices.

13. Question: Where can I find more information regarding the licensing and regulation of loan brokers and mortgage lenders?

Answer: Additional information is available at the Web sites of the Securities Division and the Department,a t http://www.in.gov/sos/securities/loanBroker/LBInfoWP.htmand http://www.in.gov/dfi/2673.htm, respectively.

 

Recommendations for Legislation Needed to Implement Regulation of the Persons Described Above:

Footnotes to this guidance include some potential legislative issues to be addressed in the 2009 General Session.  Additionally, and significantly, on July 30, 2008, the President signed into law the SAFE Mortgage Licensing Act. This act will require 2009 amendments to mortgage licensing authority for both the Department and the Securities Division.  As noted above, effective January 1, 2009, the Department will assume regulation of first mortgage lenders. The SAFE Act compels states to enact legislation that requires state mortgage regulators to ensure that individual loan originators meet licensing standards (education, testing, and background checks), and that the mortgage companies, through their loan originators, follow applicable state and federal laws and regulations. The SAFE Act provisions require states to not only regulate non-depository mortgage lenders, but also to license each individual mortgage loan originator. This is a significant departure from the Department's current regulatory scheme. The effect on the Securities Division will be less significant as it already registers individuals, and have in place education requirements, testing, and background checks.

INDIANA SECRETARY OF STATE

SECURITIES DIVISION

Chris Navlor

Securities Commissioner

INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONS

Judith G. Ripley, Director

 

Many Indiana mortgage brokers face license loss

By DEANNA MARTIN | Associated Press Writer

4:02 PM CDT, July 7, 2008

INDIANAPOLIS - More than two-thirds of Indiana's mortgage brokerage companies could lose their licenses under a new state law -- causing headaches for some potential homebuyers.

Secretary of State Todd Rokita said Monday that more than 600 of the state's 950 licensed loan brokers have not met requirements set out in a 2007 law.

Mortgage brokerage companies are not banks or credit unions that offer mortgages. Instead, brokers act as third parties that match a borrower to a lender.

A 2007 law required mortgage brokerage companies to name a principal manager by July 1, 2008. A principal manager is a leader with at least three years experience who has passed a state exam.
But Rokita said most companies have not named a qualified principal manager -- or even attempted to have an employee take the exam. Some companies may have gone out of business because of problems in the real estate industry, while others just aren't listening, said Securities Commissioner Chris Naylor, with the Secretary of State's office.

The 639 loan brokerage companies that haven't had a principal manager take the exam have until Aug. 5 to comply or they will lose their license to do business in Indiana.

About 50 principal managers have attempted the test but failed. They have until Sept. 1 to pass the test. The remainder of the state's 950 brokers are already in compliance with the law.

It is not illegal for potential homebuyers to work with brokers who don't currently meet state requirements, Rokita said. But after Aug. 5, Rokita's office will shut down those brokers. So homebuyers whose loans have not closed by that date could have to start their mortgage process all over again with a new broker.

Mike Monaco, president of the Indiana Association of Mortgage Brokers, said he hopes homebuyers in that situation will find a qualified broker to go forward with their mortgage.

"We don't want to see anybody get stuck behind the eight ball and not have a loan that closes on time," he said.

Rokita said homebuyers can check with the secretary of state's office to see whether their broker has named a principal manager. The information also is available at the secretary of state's Web site.

The law may cause problems for some homebuyers, but will clean up the mortgage broker industry in the long run, Rokita said.

"Mortgage brokers are being held to a higher standard," Rokita said. "They need to understand the importance of the new requirements they face."

The exams are available at Ivy Tech Community College campuses around the state and have been available since October. The Secretary of State's Security Commissioner has sent several letters to loan brokers over the last year informing them of the new requirements.

The Indiana Association of Mortgage Brokers supported the law requiring principal managers. Monaco said he's not sure why some brokers haven't yet taken the test.

"They've had the opportunity to comply for a year now," he said.

http://www.chicagotribune.com/news/chi-ap-in-mortgagebrokers,0,5976640.story

IN SUBORDINATE LIEN MORTGAGE LENDER: RENEW BY 12-31-2008 ON NMLS.

Current loan licensees making subordinate lien mortgage loans will renew that license annually, starting with the 2009 renewal, via the Nationwide Mortgage Licensing System (NMLS). Licensees should create their record in NMLS anytime before November 1, and transition their license to the Subordinate Lien Mortgage Lending license after November 1 and before December 15.

IN FIRST LIEN MORTGAGE LENDER: NEW 1ST LIEN MTG LENDER LICENSE REQUIRED: IMMEDIATE ACTION REQUIRED BY 1-1-2009

New IN 1st Lien Mtg. License.

Effective January 1, 2009, a person who is regularly engaged in IN as a creditor in first lien mortgage transactions, and who is funding the loan with their own assets or line of credit, must first obtain a license from the Indiana Department of Financial Institutions (“DFI” or “Department”). The licensing requirement is per licensed entity/creditor and does not apply to individual employees of a first lien mortgage licensee. [IC 24-4.4-2-401]  Legislation passed in the 2008 session of the Indiana General Assembly, IC 24-4.4, First Lien Mortgage Lending, is effective January 1, 2009, and contains regulatory provisions for first lien mortgage lending.  The new statute is contained in House Enrolled Act 1359, Section 20.  License applications will be available by November 1, 2008.  Application for the License and the annual renewal will be handled via the Nationwide Mortgage Licensing System.

How do I determine if I should be licensed as a Mortgage Lender with the DFI

under the new First Mortgage Law or as a Loan Broker with the Secretary of State?

In answering that question, there are two issues:

• First, did you extend first lien mortgages transaction payable in more than four (4) installments for which you were responsible to provide the funding (i.e. through your own funds, through a warehouse line of credit or through some other financing device that you have established).

• Also, remember that if you tablefund a transaction you are not a creditor for purposes of determining if you should be licensed with DFI under the new First Mortgage Law.

If no, you do not need a license under the new law with the DFI. You may need a

license (and certain registrations) under the Loan Broker Act found at IC 23-2-5

et seq.

If yes, go to the next paragraph.

• Second, are you regularly engaged in extending first lien mortgage transactions?

Remember that to be regularly engaged you must act as a creditor and funding agent on

more than five (5) first lien mortgage transactions in IN in 2009.

If no, you do not need a license under the new law with the DFI. You may need a

license (and certain registrations) under the Loan Broker Act found at IC 23-2-5

et seq.

If yes, you do need a license under the new Mortgage Licensing Law.

http://www.in.gov/dfi/QA_FirstLienMortgage.pdf

IN BROKER EXEMPTIONS TERMINATED: IMMEDIATE ACTION REQUIRED BY 1-1-2009

If you are authorized to broker IN loans under an exemption based upon your HUD, Fannie Mae, Freddie Mac, Ginnie Mae, VA lender approval status your status has been revoked, terminated, repealed eliminated as of 1-1-2009. IN Broker Exemption Eliminated  Therefore, you have about 6 months to apply for and received approval for an IN Mortgage Broker License IN Broker License  through the IN Securities Division, Secretary of State, in order to continuing brokerage in IN in 2009. Authority: Public Law 145-2008 [House Enrolled Act 1359] effective date 1-1-2009.