OLR Bill Analysis
AN ACT CONCERNING IMPLEMENTATION OF THE S. A. F. E. MORTGAGE LICENSING ACT.
This bill implements the 2008 federal Secure and Fair Enforcement for Mortgage Licensing (S. A. F. E. ) Act by imposing conditions on licensing for mortgage professionals, including education and testing. It (1) changes definitions and confidentiality and surety bond requirements, (2) expands the commissioner's enforcement and investigative authority, and (3) prohibits a number of actions by persons subject to the mortgage licensing laws.
The bill also requires that some funds the Banking Department receives or collects from assessments or fees that the law requires credit unions and banks pay to fund the department be used to fund the implementation of the S. A. F. E. Act. It requires the Office of Policy and Management (OPM) secretary to allocate enough of the money in the State Banking Fund to the Banking Department for this purpose (see BACKGROUND).
Finally, the bill makes minor, technical, and conforming changes.
EFFECTIVE DATE: Upon passage, except for one technical provision, which is effective October 1, 2009.
§ 1 — CONFIDENTIALITY
By law, certain Banking Department records are not generally disclosable or subject to public inspection or discovery. These records include:
1. examination and investigation reports and information contained in or derived from such reports;
2. confidential supervisory or investigative information obtained from a state, federal, or foreign regulatory or law enforcement agency; and
3. information obtained, collected, or prepared in connection with examinations, inspections or investigations, and complaints from the public received by the Banking Department, if the records are protected from disclosure under federal or state law or, in the opinion of the commissioner, they would disclose, or would reasonably lead to the disclosure of personal, investigative, or harmful information.
However, the law allows the commissioner to disclose these records for any appropriate supervisory, government, law enforcement, or other public purpose. Such disclosures must be safeguarded, and the law allows a court to issue an order to protect information in a court proceeding.
Current law already exempts from these requirements the disclosure of any information maintained by the commissioner with the Nationwide Mortgage Licensing System to the licensee and certain agencies authorized to access the information. The bill appears to exempt all disclosures of information to all state and federal regulatory officials and eliminates the provision allowing disclosure to the licensee. The bill does so by specifying that, except as otherwise provided in the confidentiality provisions of the federal S. A. F. E. Act, any requirements under Connecticut or federal law or any privilege arising under Connecticut or federal law that protects the disclosure of a record provided to or maintained with the system continues to apply after it has been disclosed to the system. The bill allows the record to be shared with all state and federal regulatory officials that have oversight authority over the mortgage industry without the loss of privilege or the loss of confidentiality protections provided by Connecticut or federal law. For these purposes, the bill allows the commissioner to enter into agreements with other government agencies, the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators, or associations representing government agencies. The bill specifies that any Connecticut disclosure law inconsistent with this provision is superseded.
The bill also exempts any information or material protected from disclosure as discussed above from (1) disclosure under any federal or state law governing disclosure to the public of information held by an officer or agency of the federal government or the respective state or (2) subpoena, discovery, or admission into evidence in any private civil action or administrative process. But a person may, at his or her discretion, waive in whole or in part a privilege held by the system concerning such information and material.
Finally, the bill provides that the confidentiality provisions do not apply to records relating to the employment history of, and publicly adjudicated disciplinary and enforcement actions against, mortgage loan originators that are included in the system for public access.
§ 2 — DEFINITIONS
The bill defines the term “control person” as an individual that directly or indirectly exercises control over another person. The bill specifies that any person that (1) is a director, general partner or executive officer or (2) directly or indirectly has the right to vote 10% or more of a class of any voting security or the power to sell or direct the sale of 10% or more of the capital, is presumed to be a “control person. ” The bill defines “control” as power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract or otherwise.
The bill specifies that the term “depository institution” has the same meaning as it does in the Federal Deposit Insurance Act, and includes any Connecticut credit union, federal credit union, or out-of-state credit union.
The bill specifies that “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.
The bill defines an “immediate family member” as a spouse, child, sibling, parent, grandparent, or grandchild and includes stepparents, stepchildren, stepsiblings, and adoptive relationships.
The bill specifies that an individual is a “natural person,” and a “person” is a natural person, corporation, company, limited liability company, partnership, or association.
The bill defines a “loan processor” or “underwriter” as an employee who performs clerical or support duties at the direction of and subject to the supervision and instruction of a person licensed or exempt from licensing under the mortgage licensing statutes. Under the bill, “clerical or support duties” include, subsequent to the receipt of an application, (1) the receipt, collection, distribution, and analysis of information common for the processing or underwriting of a residential mortgage loan and (2) communication with a consumer to obtain the information necessary to process or underwrite a loan to the extent that such communication does not include offering or negotiating loan rates or terms or counseling consumers about residential mortgage loan rates or terms.
The bill eliminates the definition of “mortgage loan” (which currently just means a first or secondary mortgage loan) and simplifies the definition of first and secondary mortgage loan. It defines a “first mortgage loan” to include a residential mortgage loan secured by a first mortgage, and a “secondary mortgage” as a residential mortgage loan secured, in whole or in part, by mortgage, if the property is subject to at least one prior mortgage. The bill defines a “residential mortgage loan” as any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling as defined in the Consumer Credit Protection Act, or residential real estate located in upon which a dwelling is constructed or planned.
The bill eliminates the definition of “residential property” and replaces it with “residential real estate,” which is any real property located in Connecticut, upon which is constructed or intended to be constructed a dwelling as defined in the Consumer Credit Protection Act.
The bill defines “real estate brokerage activity” as any activity that involves offering or providing real estate brokerage services to the public, including:
1. acting as a real estate agent or real estate broker for a buyer, seller, lessor, or lessee of real property;
2. bringing together parties interested in the sale, purchase, lease, rental, or exchange of real property;
3. 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;
4. engaging in any activity for which a person engaged in the activity is required to be licensed as a real estate agent or real estate broker under any applicable law; and
5. offering to engage in any activity, or act in any capacity described above.
The bill specifies that a “registered mortgage loan originator” is any individual who (1) meets the definition of mortgage loan originator and is an employee of a depository institution, a subsidiary owned and controlled by a depository institution and regulated by a federal banking agency, or an institution regulated by the Farm Credit Administration; and (2) is registered with and maintains a unique identifier through the system. A “unique identifier” is a number or other identifier assigned by protocols established by the system.
The bill changes the definition of “mortgage broker” to a person who, for compensation or gain, or in expectation of compensation or gain (1) takes a residential mortgage loan application or (2) offers or negotiates terms of a residential mortgage loan. It excludes an individual sponsored by another mortgage lender, mortgage correspondent lender, or mortgage broker. “Sponsored” means employed or retained as an independent contractor.
The bill defines “mortgage loan originator” similarly, eliminating current law's requirement that originators act on behalf of a lender or broker. It states that this is an individual that takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain. The bill specifies that this does not include:
1. any person who does not otherwise fall within the definition of mortgage loan originator and, as under current law, who performs purely administrative or clerical tasks on behalf of a mortgage loan originator;
2. a person who only performs real estate brokerage activities and is licensed under the statutes governing real estate brokers and salespersons, unless the individual is compensated by a mortgage lender, mortgage correspondent lender, mortgage broker or other mortgage loan originator or by one of their agents; or
3. a person solely involved in extensions of credit relating to timeshare plans.
“Administrative or clerical tasks” means the receipt, collection, and distribution of information common for processing or underwriting a loan in the mortgage industry and communication with a consumer to obtain information necessary for processing or underwriting a residential mortgage loan.
§ 3 — MORTGAGE LICENSING SYSTEM REQUIREMENTS
By law, the banking commissioner must participate in the Nationwide Mortgage Licensing System and allow it to process applications for and maintain records on mortgage professionals. The bill specifies that the commissioner must require these individuals to be licensed and registered through the system. For this purpose, the bill allows the commissioner, by order or regulation, to establish the requirements and procedures necessary for participating in the system, including:
1. applicant background checks for criminal history through fingerprint or other databases, civil or administrative records, or credit history or any other information as deemed necessary by the system;
2. fees to apply for or renew licenses through the system;
3. license renewal or reporting dates; and
4. the process for amending or surrendering a license or any other such activities as the commissioner deems necessary for participation in the system.
For the purpose of participating in the system, the bill allows the commissioner to waive or modify by regulation or order, any requirement of the mortgage licensing statutes and to establish new requirements as reasonably necessary to participate in the system.
The bill requires the commissioner to report regularly to the system on violations of, and enforcement actions under, the mortgage licensing statutes and the bill's provisions on investigative authority, prohibited acts, and other relevant information. The bill also allows him to establish relationships or enter into contracts with the system or other entities designated by the system to collect and maintain records and process transaction fees or other fees related to licensees or other persons subject to the mortgage licensing statutes.
For the purposes of the mortgage licensing statutes and to reduce the points of contact that the Federal Bureau of Investigation may have to maintain under the federal S. A. F. E. Act, the bill allows the commissioner to use the system as a channeling agent for requesting information from and distributing information to any government agency or any other source. The bill also requires the commissioner to establish a process for mortgage lenders, mortgage correspondent lenders, mortgage brokers and mortgage loan originators to challenge information the commissioner enters into the system.
Finally, the bill also requires mortgage lenders, brokers, and originator licensees to submit to the system reports of condition that must be in the form and must contain the information the system requires.
§ 5 — ORIGINATOR LICENSING
Effective April 1, 2010, the bill requires any individual (natural person) to obtain a mortgage loan originator license before conducting such business unless such individual does not engage directly in the activities of a mortgage loan originator. The license must be maintained annually and each licensed originator must register with, and maintain a valid unique identifier issued by, the system.
The law prohibits an individual from acting as an originator for more than one person at a time. Additionally, a mortgage loan originator license is not effective during any period when the mortgage loan originator is not associated with a lender or broker. Finally, the law allows the originator or the broker or lender to file a notification of termination of employment with the system. The bill specifies that the brokers and lenders serve as the originator's sponsor.
The bill exempts from the originator licensing requirements:
1. a registered mortgage loan originator, when acting for an institution or subsidiary;
2. an individual who offers or negotiates the terms of a residential mortgage loan with or on behalf of an immediate relative;
3. an individual who offers or negotiates the terms of a residential mortgage loan secured by a dwelling that served as the individual's residence; and
4. 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 mortgage lender, mortgage correspondent lender, mortgage broker or other mortgage loan originator or by any agent of such mortgage lender, mortgage correspondent lender, mortgage broker or other mortgage loan originator.
The bill prohibits an individual who engages solely in loan processor or underwriter activities from representing to the public, through advertising or other means of communicating or providing information, that the individual can or will perform any of the activities of a mortgage loan originator.
Starting July 31, 2010, the bill prohibits loan processors or underwriters who are independent contractors from engaging in loan processor or underwriter activities unless they are licensed as mortgage loan originators. These individuals must also have and maintain a valid unique identifier issued by the system.
§ 6 — EXEMPTIONS FROM LICENSURE
By law, any bank, out-of-state bank, or Connecticut or federal credit union, and their federally chartered subsidiaries are exempt from the mortgage licensing requirements. The bill specifies that the exemption applies only if the banks are federally insured. The bill also extends this exemption to Connecticut banks and credit unions' wholly-owned subsidiaries. The bill requires the Connecticut subsidiaries to provide written notification to the commissioner before engaging in such activity.
§ 7 — GENERAL LICENSING REQUIREMENTS
The bill adds prelicensing education and testing to the requirements necessary to obtain a broker or lender license. The law requires the broker or lender to have a qualified individual at the main office for which the license is sought, and a branch manager at each branch. Effective April 1, 2010, the bill requires the individuals to meet the education and testing requirements.
By law, broker, lender, and originator license applications must be filed with the system. The bill specifies that they must be filed in a commissioner-prescribed form. It requires that the form include content as set forth by the commissioner's instruction or procedure and may be changed or updated as necessary by the commissioner to carry out relevant statutes. The applicant must at least furnish to the system information on the applicant's identity, any control person, the qualified individual and any branch manager, including personal history and experience in a form prescribed by the system, and information related to any administrative, civil, or criminal findings by any government jurisdiction. The bill limits the requirement for certain supplemental information to the initial application.
The bill requires a broker or lender license applicant, any control person of the applicant, and the qualified individual or branch manager with supervisory authority at the office for which the license is sought to submit authorizations for them to obtain an independent credit report from a consumer reporting agency. Originator applicants must provide this authorization starting November 1, 2010 and they must furnish their fingerprints to the system starting April 1, 2010.
§ 8 — STANDARDS FOR ISSUANCE AND RENEWAL OF LICENSES
Minimum Standards for Issuance
The bill prohibits the commissioner from issuing an initial license for a mortgage lender or broker, unless he finds, at a minimum, that:
1. the applicant meets net worth and prelicensing education and testing requirements;
2. the applicant, the control persons of the applicant, and the qualified individual or branch manager with supervisory authority at the office for which the license is sought have not been convicted of, or pled guilty or nolo contendere to, a felony in a domestic, foreign, or military court during the seven-year period preceding the date of the application for licensing or at any time preceding the date of application if such felony involved an act of fraud, dishonesty, a breach of trust or money laundering, provided any pardon of a conviction cannot be a conviction for purposes of this subdivision;
3. similar to current law, the applicant demonstrates that the financial responsibility, character, and general fitness of the applicant, the control persons of the applicant and the qualified individual or branch manager having supervisory authority over the office for which the license is sought are such as to command the confidence of the community and to warrant a determination that the applicant will operate honestly, fairly, and efficiently within the purposes of this chapter;
4. the applicant has met the required surety bond requirement; and
5. as under current law, the applicant has not made a material misstatement in the application.
If the commissioner denies a license based on an applicant's failure to meet these requirements, he must notify the applicant of the reasons for the denial.
The commissioner cannot issue an initial license for a mortgage loan originator unless he, at a minimum, finds that the applicant has:
1. never had a mortgage loan originator license revoked in any government jurisdiction, except that a subsequent formal vacating of such revocation must not be deemed a revocation;
2. similar to current law, has not been convicted of, or pled guilty or nolo contendere to, a felony and demonstrates financial responsibility, character, and general fitness as discussed above;
3. effective April 1, 2010, completed the prelicensing education requirement and passed a written test as required by the bill;
4. effective July 31, 2010, met the surety bond requirement; and
5. as under current law, not made a material misstatement in the application.
With regard to originators, the bill specifies that a person has shown that he or she is not financially responsible when such person has shown a disregard in the management of such person's own financial condition. Such determination may include: (1) current outstanding judgments, except judgments solely as a result of medical expenses; (2) current outstanding tax liens or other government liens and filings; (3) foreclosures during the three years preceding the date of application or the date of evaluation for renewal of a license; or (4) a pattern of seriously delinquent accounts within the previous three years.
If the commissioner denies an application for a mortgage loan originator license, he must notify the applicant in the same way he must notify a broker or lender applicant.
Minimum Standards for Renewal
The bill provides at a minimum, in order to renew a mortgage lender or broker license, the applicant must continue to meet the minimum standards above; effective April 1, 2010, each qualified person and branch manager has completed the prelicensing education requirement and passed a written test, or has satisfied the annual continuing education requirements; and the lender or broker has paid all fees for renewal of the license. The bill adopts similar standards for originators.
If these standards are not met, the license must expire. The bill allows the commissioner to adopt procedures for the reinstatement of expired licenses consistent with the standards established by the system.
The bill provides that originators licensed as of the bill's enactment date have until October 31, 2010 to complete the prelicensing education requirement and pass the written test.
§ 9 — PRELICENSING EDUCATION, TESTING, AND CONTINUING EDUCATION
The bill requires a person to complete at least 24 hours of approved education with at least (1) three hours of instruction on relevant federal law and regulations; (2) three hours of ethics, including instruction on fraud, consumer protection, and fair lending issues; and (3) two hours of training related to lending standards for the nontraditional mortgage product marketplace.
These courses must be reviewed and approved by the system based on reasonable standards. This must include review and approval of the course provider. Prelicensing education may be offered either in a classroom, online, or by any other means approved by the system, and courses provided by the applicant's affiliated entity or employer are permitted. The bill requires a person who has successfully completed prelicensing education requirements in another state to be granted reciprocity if those requirements were system-approved.
A person licensed prior to the bill's effective date who is applying for a license renewal after the bill's effective date must demonstrate that he or she has completed all of the continuing education requirements for the year in which the license was last held.
The bill requires an individual to pass, with a score of at least 75%, a qualified written test developed by the system and administered by a system-approved test provider based on reasonable standards. The test must adequately measure the applicant's knowledge and comprehension in appropriate subject areas, including (1) ethics; (2) federal law and regulation pertaining to mortgage origination; (3) state law and regulation pertaining to mortgage origination; and (4) federal and state law and regulation, including instruction on fraud, consumer protection, the nontraditional mortgage marketplace, and fair lending issues. The bill allows the test provider to provide a test at the location of (1) the applicant's employer or its subsidiary or (2) any entity with which the applicant holds an exclusive arrangement to conduct the business of a mortgage loan originator.
The bill allows an individual to retake a test three consecutive times with each consecutive test occurring at least 30 days after the preceding test. After failing three consecutive tests, an individual has to wait at least six months before taking the test again. The bill requires a licensed mortgage lender, mortgage correspondent lender, mortgage broker, or mortgage loan originator who fails to maintain a valid license for a period of five years or longer, not taking into account any time during which such individual is a registered mortgage loan originator, to retake the test.
The bill requires a licensed lender, broker, or originator to complete at least eight hours of education on the same topics and subject to the same conditions as the prelicensing education courses. The bill allows a licensee to only receive credit for a continuing education course in the year in which the course is taken, and prohibits the licensee from taking the same approved course in the same or successive years to meet the annual requirements for continuing education. The bill allows a licensee who is an instructor of an approved continuing education course to receive credit toward the licensee's own annual continuing education requirement at the rate of two hours credit for every one hour taught.
The bill requires a licensed mortgage loan originator who subsequently becomes unlicensed to complete the continuing education requirements for the last year in which the license was held prior to issuance of an initial or renewed license.
The bill allows a person who meets the minimum standards discussed above and who paid all required fees to compensate for any deficiency in continuing education requirements pursuant to regulations adopted by the commissioner.
The bill defines the term “nontraditional mortgage product” as any mortgage product other than a 30-year fixed rate mortgage.
§ 10 — SURRENDER OF LICENSES
By law, any licensee who intends to permanently cease engaging in the business of making residential mortgage loans or acting as a mortgage broker at any time during a license period for any cause, must file a surrender of the license on the system. The bill instead requires him or her to file a request to surrender the license and specifies that the surrender is not effective until it has been accepted by the commissioner.
§ 11 — EXPIRATION OF ORIGINATOR LICENSES AND LICENSING FEES
By law, mortgage loan originator licenses expire when the licenses of the retaining lender or broker expire, if they are not renewed. The bill aligns the expiration date for originator licenses with broker and lender licenses, providing that they generally expire at the close of business on December 31.
The bill also sets the license fee for originators at $ 300, starting November 1, 2009. Under current law, lenders and brokers must pay $ 100 initial fee and a $ 125 renewal fee for each originator. As the bill eliminates these requirements, it is not clear what fee will apply between the bill's effective date and November 1, 2009.
§ 12 — BONDING REQUIREMENT
By law, the surety bond that mortgage lenders and brokers are required to obtain is scheduled to increase from $ 40,000 to $ 80,000 starting August 1, 2009. The bill instead requires, effective July 31, 2010, the bond to be in an amount that reflects the dollar amount of the loans originated by the mortgage lender, mortgage correspondent lender, or mortgage broker, as determined by the commissioner. The bill provides that, effective July 31, 2010, each person licensed as a mortgage loan originator must be covered by a surety bond. The coverage must be provided through the bond of the mortgage lender or broker that sponsors the originator. The bill requires the bond's penal sum to be maintained in an amount that reflects the dollar amount of loans originated by the mortgage loan originator, as determined by the commissioner. The bill allows the commissioner to adopt regulations with respect to the requirements for the surety bonds.
The bill requires licensees to notify the commissioner of the commencement of an action on the licensee's bond. When an action is commenced on a licensee's bond, the commissioner may require the filing of a new bond, and immediately on recovery on any action on the bond, the licensee must file a new bond.
§ 14 — ENFORCEMENT
The bill allows the commissioner to suspend a license or require a person to take or refrain from taking certain actions when he finds that the person:
1. has violated the mortgage licensing law or any regulation or order issued thereunder;
2. has been convicted of a felony that would preclude licensing under the law; or
3. no longer demonstrates the financial responsibility, character, and general fitness to command the confidence of the community and to warrant a determination that the person will operate honestly, fairly, and efficiently.
To do this, the bill requires the commissioner to notify the person by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice is deemed received by such person on the earlier of the date of actual receipt or seven days after mailing or sending. The notice must include:
1. a statement of the time, place, and nature of the hearing;
2. a statement of the legal authority and jurisdiction under which the hearing is to be held;
3. a reference to the particular sections of the general statutes, regulations, or orders alleged to have been violated;
4. a short and plain statement of the matters asserted; and
5. a statement indicating that such person may file a written request for a hearing on the matters asserted not later than 14 days after receipt of the notice.
If the commissioner finds that the protection of borrowers requires immediate action, the bill allows him to suspend the person and require the person to take or refrain from taking action as the commissioner determines is necessary, by incorporating a finding to that effect in the notice. The suspension or prohibition becomes effective on receipt and, unless stayed by a court, remains in effect until the entry of a permanent order or the dismissal of the matters asserted. If a hearing is requested within the time specified in the notice, the commissioner must hold it on the matters asserted in the notice unless the person fails to appear at the hearing.
After the hearing, if the commissioner finds that the person has violated the laws or lacks financial responsibility, he can order the removal of the person from office and from any employment in the mortgage business in this state. It is unclear what is meant by “removal of the person from office. ” The commissioner can still do this if the person fails to appear at the hearing.
If a license was issued by mistake, the bill allows the commissioner to issue a temporary order to cease business. The commissioner must give the licensee an opportunity for a hearing. The order becomes effective upon receipt by the licensee and, unless set aside or modified by a court, remains in effect until the effective date of a permanent order or dismissal of the matters asserted in the notice.
§ 19 — COMMISSIONER'S INVESTIGATIVE AUTHORITY
In addition to his existing authority under the banking statutes, the bill gives the commissioner the authority to conduct investigations and examinations under certain circumstances.
First, for purposes of initial licensing; license renewal, suspension, conditioning, revocation, or termination; or general or specific inquiry or investigation to determine compliance with the mortgage licensing statutes, the bill allows the commissioner to access, receive and use any books, accounts, records, files, documents, information, or evidence. This includes:
1. criminal, civil, and administrative history information;
2. personal history and experience, including independent credit reports obtained from a consumer reporting agency; and
3. any other documents, information, or evidence the commissioner deems relevant to the inquiry or investigation regardless of their location, possession, control, or custody.
The bill also allows the commissioner to review, investigate, or examine any mortgage lender, broker, or originator subject to the laws as often as necessary in order to carry out the law. The bill allows the commissioner to direct, subpoena, or order the attendance of and examine under oath all persons whose testimony may be required about the loans or the business or subject matter of any examination or investigation. He may direct, subpoena, or order such person to produce books, accounts, records, files, and other documents he deems relevant to the inquiry.
The bill requires each lender, broker, and originator subject to the laws to make or compile reports or prepare other information as directed by the commissioner in order to carry out these purposes. These include accounting compilations, information lists, and data on loan transactions in a format prescribed by the commissioner or such other information the commissioner deems necessary to carry out the purposes of this section.
In conducting any examination or investigation under these provisions, the bill allows the commissioner to control access to any documents and records of the licensee or person under examination or investigation. The commissioner can take possession of the documents and records or place a person in exclusive charge of the documents and records in the place where they are usually kept. During the period of control, the bill prohibits an individual or person from removing or attempting to remove any of the documents and records except under a court order or with the consent of the commissioner. Unless the commissioner has reasonable grounds to believe the documents or records of the licensee have been, or are at risk of being, altered or destroyed to conceal a violation, the licensee or owner of the documents and records must have access to them as necessary to conduct its ordinary business affairs.
In order to carry out these powers, the bill allows the commissioner to:
1. retain attorneys, accountants, or other professionals and specialists, such as examiners, auditors, or investigators to conduct or assist in examinations or investigations;
2. enter into agreements or relationships with other government officials or regulatory associations to improve efficiencies and reduce regulatory burden by sharing resources, standardized or uniform methods or procedures, and documents, records, information, or evidence obtained under this section;
3. use, hire, contract, or employ public or privately available analytical systems, methods, or software to examine or investigate the lender, broker, or originator;
4. accept and rely on examination or investigation reports made by other government officials, within or without this state;
5. accept audit reports made by an independent certified public accountant for the lender, broker, or originator, in the course of that part of the examination covering the same general subject matter as the audit, and may incorporate the audit report in the report of the examination, report of investigation, or other writing of the commissioner; or
6. assess the broker, lender, or originator the cost of the services to conduct the investigations and examinations.
The bill specifies that this authority remains in effect, whether the lender, broker, or originator acts or claims to act under any Connecticut licensing or registration law, or claims to act without such authority. The bill prohibits a licensee, individual, or person subject to investigation or examination under these provisions from knowingly withholding, abstracting, removing, mutilating, destroying, or secreting any books, records, computer records, or other information.
§ 20 — PROHIBITED BEHAVIORS BY PERSONS SUBJECT TO THE MORTGAGE LICENSING LAWS
The bill prohibits any person subject to the mortgage licensing law from:
1. directly or indirectly employing any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person;
2. engaging in any unfair or deceptive practice toward any person;
3. obtaining property by fraud or misrepresentation;
4. soliciting or entering into a contract with a borrower that provides in substance that such person or individual may earn a fee or commission through “best efforts” to obtain a loan even though no loan is actually obtained for the borrower;
5. soliciting, advertising, or entering into a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of solicitation, advertisement, or contracting;
6. conducting any business as lender, broker, or originator without holding a valid license, or assisting or aiding and abetting any person in the conduct of business without a valid license ;
7. failing to make disclosures as required by the mortgage licensing statutes and any other applicable state or federal law;
8. failing to comply with the mortgage licensing statutes, or any other state or federal law applicable to mortgage lending;
9. making, in any manner, any false or deceptive statement or representation including, with regard to the rates, points or other financing terms or conditions for a residential mortgage loan, or engaging in bait and switch advertising;
10. negligently making any false statement or knowingly and willfully omitting any material fact in connection with any information or reports filed with a government agency or the system or in connection with any investigation conducted by the commissioner or another government agency;
11. making any payment, threat, or promise, directly or indirectly, to any person for the purposes of influencing the independent judgment of the person in connection with a residential mortgage loan, or making any payment threat or promise, directly or indirectly, to any appraiser of a property to influence the independent judgment of the appraiser with respect to the value of the property;
12. collecting, charging, attempting to collect or charge or use or propose any agreement purporting to collect or charge any fee prohibited by the mortgage licensing laws;
13. causing or requiring a borrower to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer; or
14. failing to truthfully account for monies belonging to a party to a residential mortgage loan transaction.
§ 21 — UNIQUE IDENTIFIER ON DOCUMENTS
The bill requires any person originating a residential mortgage loan to clearly show his or her unique identifier on all residential mortgage loan application forms, solicitations, or advertisements, including business cards or web sites, and any other documents as established by rule, regulation, or order of the commissioner.
§ 22 — severability
The bill provides that if a Connecticut court holds invalid any of its provisions or applications to any person or circumstance, the remainder of the sections or the application of the provision to other persons or circumstances is not affected.
Public Law 110-289
P. L. 110-289 encourages participation in the Nationwide Mortgage Licensing and Registry (NMLSR) system created in 2004 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. It requires licensing of all “loan originators,” which it defines as individuals who (1) take a residential mortgage loan application and (2) offer or negotiate terms of a residential mortgage loan for compensation or gain.
The act establishes requirements for loan originator licensing or registration, including fingerprint and background checks; 20 hours of pre-licensing education; a written test; and eight hours of continuing education annually. It also prevents the issuance of a license to certain applicants.
The act requires the U. S. Department of Housing and Urban Development (HUD) to establish a backup licensing system for a state if, after one year (or two years for biennial legislatures), a state does not (1) participate in the Nationwide Mortgage Licensing System or (2) have a system in place that addresses certain requirements. The HUD secretary can extend this period by up to two years. The Act also requires federal bank regulators to establish a parallel registration system for FDIC-insured banks.
State Banking Fund
By law, the banking commissioner generally assesses Connecticut banks and credit unions the amount necessary to cover DOB expenses. The assessments cannot be more than the budget estimates the commissioner must submit. The state treasurer must place all funds received from the commissioner and all money received for documents or reports sold by the commissioner in the State Banking Fund. Money in the fund can be spent only after being appropriated by the General Assembly.
The comptroller must determine DOB expenses for each fiscal year. The OPM secretary must annually examine the fund after the comptroller makes her determination and direct the treasurer to set aside within the Banking Fund amounts in excess of a reasonable contingency reserve.
This amount is considered surplus, which must be used to reduce pro rata the bank and credit union assessments of prior fiscal years.
On April 22, the Senate referred the bill to the Appropriations Committee, which reported this substitute, adding the funding mechanism.
Joint Favorable Substitute
Joint Favorable Substitute