23 Sep Arizona Legislation
The Arizona legislature recently amended its Mortgage Brokers, Mortgage Bankers, and Loan Originators’ laws (the “Laws”) to comply with the Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “S.A.F.E. Act”). If you have any questions concerning this Memorandum, please contact Laura LaRaia.
Arizona House Bill 2143 (effective September 29, 2009)
The Superintendent of the Department of Financial Institutions (the “Superintendent”) may submit to the Nationwide Mortgage Licensing System and Registry (the “NMLSR”) the name and fingerprints of an applicant, licensee, active manager, or responsible individual or the name and fingerprints of any organizer, director, or officer of any corporate applicant or licensee for any license. The Superintendent may allow the NMLSR to collect licensing fees on behalf of the Superintendent, to collect a processing fee for the services of the system directly from each applicant for a license or licensee, and to process and maintain records on behalf of the Superintendent.
Definitions
“Clerical or support duties” means duties subsequent to the receipt of a residential mortgage loan application, including both of the following:
- The receipt, collection, distribution, and analysis of information common for the processing or underwriting of a residential mortgage loan; and
- The communication with a consumer to obtain the information necessary for the processing or underwriting of a loan if the communication does not include offering or negotiating loan rates or terms or counseling consumers about residential mortgage loan rates or terms.
“Consumer lender” means a person that is licensed as a consumer lender and advertises to make or procure, solicits, or holds itself out to make or procure, or makes or procures consumer lender loans to consumers in Arizona.
“Department” means the Department of Financial Institutions.
“Depository institution” means any bank or savings institution, including credit unions.
“Federal banking agency” means the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Deposit Insurance Corporation.
“Immediate family member” means a spouse, child, sibling, parent, grandparent, grandchild, stepparent, stepchild, or stepsibling whether related by blood or adoption.
“Judgment” means either:
- A final judgment in a court of competent jurisdiction;
- A criminal restitution order; or
- An arbitration award that includes findings of fact and conclusions of law.
“Judgment debtor” means any defendant under the Laws who is the subject of a judgment.
“Loan originator”:
- Means a natural person who for compensation or gain or in the expectation of compensation or gain does any of the following:
- Takes a residential mortgage loan application;
- Offers or negotiates terms of a residential mortgage loan; or
- On behalf of a borrower, negotiates with a lender or noteholder to obtain a temporary or permanent modification in an existing residential mortgage loan agreement;
- Does not include:
- An individual engaged solely as a loan processor or underwriter, except a loan processor or underwriter engaged as an independent loan contractor;
- A person who only performs real estate brokerage activities and who has a real estate license, unless the person is compensated by a lender, a mortgage broker, or any other loan originator, or by any agent of these;
- A person solely involved in extensions of credit relating to a timeshare plan;
- A person who makes 5 or fewer mortgage loans per calendar year;
- A person who takes back a purchase money mortgage in connection with the sale of residential real estate; or
- An employer making a mortgage loan to an employee.
“Loan processor or underwriter” means an individual who performs clerical or support duties as an employee at the direction of and subject to the supervision and instruction of a person licensed, or exempt from licensing under the Laws.
“Mortgage loan” or “residential mortgage loan” means a loan for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or residential real estate upon which a dwelling is constructed or intended to be constructed.
“Real estate brokerage activity” means any activity that involves offering or providing real estate brokerage services to the public, including:
- Acting as a real estate salesperson or real estate broker for a buyer, seller, lessor, or lessee of real property;
- Bringing together parties interested in the sale, purchase, lease, rental, or exchange of real property;
- Negotiating, on behalf of any party, any portion of a contract relating to the sale, purchase, lease, rental, or exchange of real property, other than in connection with providing financing with respect to any such transaction;
- Engaging in any activity for which a person is required to be licensed as a real estate salesperson or real estate broker under applicable law; and
- Offering to engage in any activity, or act in any capacity described above.
“Registered loan originator” means any individual:
- Who is a loan originator and is an employee of:
- A depository institution;
- A subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency; or
- An institution regulated by the Farm Credit Administration; and
- Is registered with, and maintains a unique identifier through, the NMLSR.
“Residential mortgage loan servicer” means a person who does either of the following:
- On behalf of the noteholder, collects or receives payments, including payments of principal, interest, escrow monies, and other monies due, on obligations due and owing to the noteholder pursuant to a residential mortgage loan; or
- When the borrower is in default or in foreseeable likelihood of default, works on behalf of the noteholder with the borrower to modify the obligations either temporarily or permanently in order to avoid foreclosure or otherwise to finalize collection through the foreclosure process.
“Residential real estate” means any property that is located in Arizona on which a dwelling is constructed or intended to be constructed.
“Unique identifier” means a number or other identifier assigned by protocols established by the NMLSR.
Exemptions
The Laws do not apply to:
- Registered loan originators;
- An individual who offers or negotiates terms of a residential mortgage secured by a dwelling that served as the individual’s residence;
- A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, a mortgage broker, or any other loan originator, or by any agent of these;
- An individual who offers to negotiate terms of a residential mortgage loan with or on behalf of the individual’s immediate family member and who does not otherwise engage in the business of a loan originator;
- A manufactured home retailer and its employees if performing only clerical or support duties in connection with the sale or lease of a manufactured home and the manufactured home retailer and its employees receive no compensation or other gain from a mortgage banker or a mortgage broker for the performance of the clerical or support duties; and
- An individual who is employed by a residential mortgage loan servicer if the individual is involved solely in loss mitigation efforts, unless the United States Department of HUD (“HUD”) requires the individual to be licensed as a mortgage loan originator. “Loss mitigation efforts” means a residential mortgage loan borrower is in default or default is reasonably foreseeable and an individual works with the borrower on behalf of the residential mortgage loan servicer to modify either temporarily or permanently the obligation or to otherwise mitigate loss on an existing residential mortgage loan.
Prohibited Acts
Beginning July 1, 2010 (previously January 1, 2010):
- An individual is not entitled to receive compensation in connection with arranging for or negotiating a mortgage loan if the individual is not licensed pursuant to the Laws. An individual who is not specifically exempted from licensure must not engage in the business of a loan originator with respect to any dwelling located in Arizona without first obtaining and maintaining annually a license. Each licensed loan originator must register with and maintain a valid unique identifier issued by the NMLSR;
- A loan originator must not make, negotiate, or offer to make or negotiate for compensation, either directly or indirectly, a loan that is either:
- Less than the minimum amount that the loan originator’s employer is allowed to make (previously less than $5,000); and
- Not secured by a mortgage or deed of trust or other lien interest in real property unless employed by a consumer lender; and
- A loan originator must not advertise for or solicit mortgage business in any manner without all of the following:
- The name and license number as issued on the employing mortgage broker’s, mortgage banker’s, or consumer lender’s principal place of business license;
- Approval of the employing mortgage broker, mortgage banker, or consumer lender; and
- The unique identifier the loan originator maintains with the NMLSR;
On request, a loan originator must make available to the Superintendent the books and records relating to the loan originator’s operations. The Superintendent may have access to the books and records and interview the officers, principals, employees, independent contractors, agents, and customers of the loan originator concerning their business. In connection with a request by the Superintendent, a person may not knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, or other information.
A loan processor or underwriter who is an independent contractor may not engage in the activities of a loan processor or underwriter unless the loan processor or underwriter obtains and maintains a license. Each independent contractor loan processor or underwriter licensed as a loan originator must have and maintain a valid unique identifier issued by the NMLSR. An individual engaging solely in loan processor or underwriter activities must not represent to the public, through advertising or other means of communicating that the individual can or will perform any of the activities of a loan originator.
Licensing
Beginning July 1, 2010 (previously January 1, 2010), a natural person must not act as a loan originator unless licensed under the Laws. Beginning July 1, 2010 (previously January 1, 2010), the Superintendent will not grant a loan originator license to a person, other than a natural person. An applicant for a loan originator’s license must have done all of the following:
- Satisfactorily completed a course of study, including at least 20 hours of education, for loan originators approved by the Superintendent during the 2-year period immediately preceding the time of application. The education must include at least all of the following:
- 3 hours of federal law;
- 3 hours of ethics, which includes instruction on fraud, consumer protection, and fair lending issues; and
- 2 hours of training related to lending standards for the nontraditional mortgage product marketplace;
- Passed a loan originator’s examination not more than 1 year before the granting of the license demonstrating knowledge and understanding of the following:
- Federal and Arizona laws;
- The obligations between principal and agent;
- The applicable rules of business ethics;
- The Laws and rules adopted under the Laws;
- The arithmetical computations common to mortgage brokerage;
- The principles of real estate lending;
- The general purposes and legal effect of mortgages, deeds of trust, and security agreements;
- The terms and conditions of conforming and nonconforming residential mortgage products; and
- The principals of appraisal independence;
- Obtained a unique identifier through the NMLSR;
- Deposited with the Superintendent a bond executed by the applicant’s employer as principal and a surety company licensed to do business in Arizona as a surety;
- Submitted fingerprints to the Department for the purpose of a background investigation; and
- Paid an amount to be determined by the Superintendent for deposit in the mortgage recovery fund or deposited with the Superintendent a bond executed by the applicant’s employer as principal and a surety company licensed to do business in Arizona for the benefit of any person aggrieved by any act, representation, transaction, or conduct of a licensed loan originator that violates laws regulating Banks and Financial Institutions or the rules adopted pursuant to those laws. The amount of the bond must be in an amount of not less than $200,000. Loan originators working under the employer bond need not contribute to the mortgage recovery fund.
Before submitting a renewal application, an applicant for renewal of a loan originator license must have satisfactorily completed 8 approved continuing education units that include at least:
- 3 hours of federal law;
- 2 hours of ethics, including instruction on fraud, consumer protection, and fair lending issues; and
- 2 hours of training related to lending standards for the nontraditional mortgage product marketplace.
Education courses taken before licensure and continuing education courses must be reviewed and approved by the NMLSR. A licensed loan originator may only receive credit for a continuing education course in the year in which the course was taken and may not take the same approved course in the same or successive years to meet the annual continuing education requirements.
At the Superintendent’s discretion, application fees may be waived if the applicant is a housing counselor certified by HUD and is employed by a nonprofit agency.
Each mortgage broker or mortgage banker must submit to the NMLSR reports of condition that are in a form and that contain information required by the NMLSR. The Superintendent will establish a process for loan originators to challenge information that the Superintendent enters into the NMLSR.
Temporary License
An applicant for a loan originator license who is currently registered with the NMLSR may be granted a temporary license for a period not to exceed 180 days.
Denial, Suspension, or Revocation of Licenses
The Superintendent may deny a license to a person or suspend or revoke a license if the Superintendent finds that the applicant or licensee:
- Does not have the financial responsibility, experience, or competence to adequately serve the public or warrant the belief that the applicant or licensee will act lawfully, honestly, and fairly pursuant to the Laws;
- Has been convicted of a felony during the 7-year period immediately preceding the date of the application or any crime of breach of trust or dishonesty, fraud, or money laundering at any time preceding the date of application; or
- Has had a loan originator license, consumer lender license, mortgage broker or mortgage banker license revoked or denied in Arizona or any other state.
Each applicant for an original loan originator license, before issuance of the license, must take and pass an examination given under the supervision of the Department or its designee. An applicant may take the examination 3 consecutive times with each consecutive taking occurring at least 30 days after the preceding examination. An applicant who fails the examination on 3 consecutive occasions must wait at least 6 months before taking the examination again.
The Superintendent may determine the fee for each examination. The Superintendent may contract for the examination for the licensing of applicants. If the Superintendent contracts for the examination, the fee for examination for licenses is payable directly to the contractor by the applicant for examination.
A loan originator must make reasonable efforts to secure a loan that is reasonably advantageous to the borrower considering all of the circumstances, including the interest rates, charges, and repayment terms of the loan.
Mortgage Recovery Fund
The Superintendent will establish and maintain a mortgage recovery fund (the “fund”) consisting of the monies received by the Superintendent pursuant to the Laws for the benefit of any person aggrieved by any act, representation, or conduct of a licensed loan originator that violates the laws regulating Banks and Financial Institutions or the rules adopted pursuant to the Title. The fund will only pay for a loss that is an actual and direct out-of-pocket loss to an aggrieved person directly arising out of a mortgage transaction, including reasonable attorney fees and court costs.
The fund’s liability will not exceed:
- $200,000 for each transaction, regardless of the number of persons aggrieved or the number of licensees or parcels of real estate involved; and
- $500,000 for each licensee.
The liability of the fund for the acts of a licensed loan originator is terminated on the issuance of orders authorizing payments from the fund in an aggregate amount. The fund is liable to pay only against the license of a natural person, not on that of a corporation, a partnership, or any other fictitious entity. The fund is liable to pay only for damages arising out of transaction in which the defendant licensee performed acts for which a loan originator license was required or when the defendant licensee engaged in fraud or misrepresentation and the aggrieved person was harmed due to reliance on the defendant’s licensed status. The fund will not pay any claim until the penal sums of the surety bonds have been exhausted.
In addition to any other fees, applicants must pay an amount to be determined by the Superintendent to the fund on application for an original loan originator license. If, on June 30 of any year, the balance remaining in the fund is less than $2 million, every licensee when renewing a loan originator license during the following license year must pay, in addition to the license renewal fee, a fee to be determined by the Superintendent.
An action for a judgment that subsequently results in an order for payment from the fund must be started no later than 5 years after the accrual of the cause of action. If an aggrieved person commences a cause of action for a judgment that may result in an order for payment from the fund and the defendant licensee cannot be served process personally in Arizona, the summons may be served by alternative methods of service of process, including service by publication. A judgment that complies with the Laws and that was obtained after service by publication only applies to and is enforceable against the fund. The Department may intervene and defend any action.
Disciplinary Action
The Superintendent’s authority to take disciplinary action against a licensee under the Laws or rules adopted pursuant to the Laws is not limited by an aggrieved party’s claim under the Fund. The repayment in full of all obligations to the fund by any licensee does not nullify or modify the effect of any other disciplinary proceeding brought pursuant to the Laws or the rules adopted pursuant to the Laws.
Financial Services Fund
The financial services fund is established consisting of loan originator fees collected pursuant to the Laws. The Superintendent will administer the financial services fund for the supervision and regulation of loan originators.
Arizona House Bill 2318 (effective September 29, 2009)
The following nonrefundable fees are payable to the Department with the filing of the following applications:
- To apply for a loan originator license transfer, an amount to be determined by the Superintendent; and
- To apply for a conversion from a mortgage banker license to a mortgage broker license, an amount to be determined by the Superintendent.
A licensee who funds in the aggregate 150 or fewer loans in the immediately preceding calendar year may apply at the time of license renewal to the Department for a conversion to a mortgage broker license. The conversion application must be in a manner prescribed by the Superintendent by rule. The approval of the conversion is at the discretion of the Superintendent.