PA 09-209—sSB 948
AN ACT CONCERNING IMPLEMENTATION OF THE S. A. F. E. MORTGAGE LICENSING ACT, THE EMERGENCY MORTGAGE ASSISTANCE PROGRAM, FORECLOSURE PROCEDURES AND TECHNICAL REVISIONS TO THE BANKING STATUTES
SUMMARY: This act implements the 2008 federal Secure and Fair Enforcement for Mortgage Licensing (S. A. F. E. ) Act by imposing additional conditions on licensing for mortgage professionals, including education and testing. It (1) changes definitions and confidentiality and surety bond requirements, (2) expands the banking commissioner's enforcement and investigative authority, and (3) prohibits a number of actions by persons subject to the mortgage licensing laws. The act also expands the prohibition on influencing residential real estate appraisals to everyone, rather than just mortgage brokers. It also eliminates the requirement that lenders making secondary mortgage loans of up to $15,000 with an interest rate, charge, or other consideration higher than 12% be licensed as small loan lenders. Lenders making similar first mortgage loans are already exempt from the law.
This act changes the process for determining eligibility for the Emergency Mortgage Assistance Program (EMAP) by (1) allowing the Connecticut Housing Finance Authority (CHFA) to determine what constitutes a significant reduction in a borrower's income and (2) expanding the circumstances that constitute a financial hardship beyond a borrower's control and changing some of the conditions for repayment. It allows borrowers to apply for the program before they receive notice of intent to foreclose under certain circumstances. It specifies the circumstances under which the lender may proceed with the foreclosure. The act expands eligibility for the CT FAMILIES refinancing program from homeowners with adjustable rate mortgages to include those with fixed-rate mortgages.
This act makes the foreclosure mediation program established under PA 08-176 mandatory, rather than optional, for actions with return dates on and after July 1, 2009. To that end, the act changes the mechanism by which borrowers are notified and mediation sessions scheduled and makes other conforming changes. The act also sets requirements for disclosures made during the mediation.
The act specifies that no judgment of strict foreclosure or foreclosure by sale can be entered before July 1, 2010 unless the mediation period has expired or otherwise terminated, whichever is earlier, or the mediation program is not otherwise required or available (see COMMENT).
Under existing law, lenders must appear in person at the first mediation session and be authorized to agree to a proposed settlement. If the lender's attorney appears instead, he or she must have such authority, and the lender must be available by phone or electronic means. The act specifies that the court cannot award attorney's fees to any lender for time spent in the first mediation session if it does not comply with this requirement, unless the court finds reasonable cause for it.
The act also allows judgments of strict foreclosure to be opened after title has become absolute under certain circumstances.
Finally, the act makes minor, technical, and conforming changes.
EFFECTIVE DATE: July 1, 2009, except (1) certain technical changes and the CT FAMILIES provision are effective on passage, and (2) the provision on opening strict foreclosure judgments and certain technical and conforming changes are effective October 1, 2009. (See “Related Acts” for changes to effective dates. )
§ 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.
Existing 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 act appears to exempt all disclosures of information to all state and federal regulatory officials and eliminates the provision allowing disclosure to the licensee. The act 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 act 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 act 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 act specifies that any Connecticut disclosure law inconsistent with this provision is superseded.
The act 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 act 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 act defines the term “control person” as an individual who directly or indirectly exercises control over another person. The act specifies that any person who (1) is a director, general partner or executive officer, (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 any class of voting securities, (3) is a managing member of a limited liability company, or (4) in a partnership, has the right to receive upon dissolution, or has contributed 10% or more of the capital, is presumed to be a “control person. ” The act 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 act 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 act 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 act defines an “immediate family member” as a spouse, child, sibling, parent, grandparent, or grandchild and includes stepparents, stepchildren, stepsiblings, and adoptive relationships.
The act specifies that an individual is a “natural person,” and a “person” is a natural person, corporation, company, limited liability company, partnership, or association.
The act 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 act, “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 act eliminates the definition of “mortgage loan” (which previously just meant 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 act 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 upon which a dwelling is constructed or planned.
The act replaces the definition of “residential property” 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. Under prior law, “residential property” did not appear to include vacant land or non-owner occupied property as appears to be covered by the new term.
The act 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 or registered 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 act 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 act 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 act defines “mortgage loan originator” similarly, eliminating prior law's requirement that originators act on behalf of a lender or broker. It states that an originator is an individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for or with the expectation of compensation or gain. The act specifies that this does not include:
1. an individual engaged solely as a loan processor or underwriter, except for those acting as independent contractors;
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;
3. a person solely involved in extensions of credit relating to timeshare plans; or
4. any individual who only renegotiates terms for existing mortgages and does not otherwise act as an originator, unless the U. S. Department of Housing and Urban Development (HUD) or a court of competent jurisdiction determines the individual needs to be licensed under the S. A. F. E. Act.
§ 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 act specifies that the banking commissioner must require these individuals to be licensed and registered through the system. For this purpose, the act allows the commissioner to establish the requirements as necessary for participating in the system, including:
1. 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. payment of fees to apply for or renew licenses through the system;
3. setting or resetting of license renewal or reporting dates; and
4. requirements for amending or surrendering a license or any other such activities as the commissioner deems necessary for participation in the system.
To implement an orderly and efficient licensing process, the act allows the commissioner to adopt licensing regulations and interim procedures for licensing and acceptance of applications. For previously licensed individuals, it allows the commissioner to establish expedited review and licensing procedures.
For the purpose of participating in the system, the act 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 act requires the commissioner to report regularly to the system on violations of, and enforcement actions under, the mortgage licensing statutes and the act's provisions on investigative authority, prohibited acts, and other relevant information. The act 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 act and to reduce the points of contact that the FBI may have to maintain to comply with the act's background check requirements, the act 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 act 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 act 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 act requires any individual (natural person) to obtain a mortgage loan originator license before conducting such business unless the 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 act specifies that a person, other than a licensed originator acting on a broker's behalf, must be deemed to be acting as a broker if the person advertises that he or she will negotiate, solicit, place, or find a residential mortgage loan, either directly or indirectly.
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 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 act specifies that the brokers and lenders serve as the originator's sponsor.
The act exempts from the originator licensing requirements:
1. a registered mortgage loan originator or an employee of an institution or subsidiary who is not required to be registered under the S. A. F. E. Act, when acting for the 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 one of these entities.
The act 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 act 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.
Finally, if HUD or a court of competent jurisdiction determines that the S. A. F. E. Act requires an individual who only renegotiates terms for existing mortgages and does not otherwise act as an originator to be licensed as an originator under state law, the act allows the individual to act in his or her current capacity as long as the person files a license application within 60 days of the decision that it is necessary.
§ 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 act also extends this exemption to Connecticut banks and credit unions' wholly-owned subsidiaries. The act specifies that the exemption applies only if the banks are federally insured. The act requires the Connecticut subsidiaries to provide written notification to the commissioner before engaging in such activity.
§ 7 — GENERAL LICENSING REQUIREMENTS
The act adds prelicensing education and testing to the requirements necessary to obtain a broker or lender license. Existing 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 act requires the individuals to meet the education and testing requirements.
Under existing law, broker, lender, and originator license applications must be filed with the system. The act specifies that they must be filed on 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 of the applicant, 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 act eliminates the requirement that a financial statement, which must be filed with the initial application, also be filed with renewal application.
The act 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 the system and the commissioner to obtain an independent credit report from a consumer reporting agency. Originator applicants and licensees must provide this authorization starting July 31, 2010, or 30 days after the system starts accepting the authorizations. Applicants and licensees must furnish their fingerprints to the system starting April 1, 2010.
§ 8 — STANDARDS FOR ISSUANCE AND RENEWAL OF LICENSES
Minimum Standards for Issuance
The act 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. regardless of the law on denial of employment based on prior conviction, 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.
Under prior law, the commissioner had to issue an initial license for originators if certain requirements were met. Under the act, 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, regardless of the law on denial of employment based on prior conviction;
3. effective April 1, 2010, completed the prelicensing education requirement and passed a written test as required by the act;
4. effective July 31, 2010, met the surety bond requirement; and
5. as under current law, has not made a material misstatement in the application.
For originators, the act 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 for an initial or 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 act provides at a minimum, that 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 act adopts similar standards for originators, except that continuing education is mandatory for them.
If these standards are not met, the license expires. The act allows the commissioner to adopt procedures for the reinstatement of expired licenses consistent with the standards established by the system.
The act provides that originators licensed as of the act'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 act 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 sponsor are permitted. The act requires a person who has successfully completed prelicensing education system-approved requirements in another state to be granted reciprocity.
After April 1, 2010, a previously licensed person applying to be licensed under the new standards must prove that he or she has completed all of the continuing education requirements for the year in which the license was last held.
The act 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 and state law and regulation pertaining to mortgage origination; and (3) federal and state law and regulation, including instruction on fraud, consumer protection, the nontraditional mortgage marketplace, and fair lending issues. The act allows the test provider to provide a test at the location of (1) the applicant's sponsor 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 act allows an individual to retake a test three consecutive times with at least 30 days between tests. After failing three consecutive tests, an individual has to wait at least six months before taking the test again. The act requires a licensed mortgage lender, mortgage correspondent lender, mortgage broker, or mortgage loan originator who fails to maintain a valid license for at least five years, not taking into account any time during which such individual is a registered mortgage loan originator, to retake the test.
The act requires a licensed 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 act 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. However, procedures or regulations adopted under the act can provide otherwise. The act allows a licensee who is an approved 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 act 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 act 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 act defines the term “nontraditional mortgage product” as any mortgage product other than a 30-year fixed rate mortgage.
§ 10 — SURRENDER OF LICENSES
Under prior 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 act 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.
The act also eliminates the requirement that a lender or broker licensee notify the system, or if the information cannot be filed with the system, the commissioner, about any proposed change in control in the ownership of the licensee, or among the licensee's officers, directors, members or partners. The change had to be filed on a commissioner prescribed form and he could investigate as if the licensee were applying for an initial license.
§ 11 — EXPIRATION OF ORIGINATOR LICENSES AND LICENSING FEES
Under prior law, mortgage loan originator licenses expired when the licenses of the retaining lender or broker expired, if they were not renewed. The act 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 act also eliminates a late filing option whereby a licensee could file its renewal by March 1st with a $100 fee and have its filing be deemed timely and sufficient.
The act also sets the license fee for originators at $300, starting November 1, 2009. Under prior law, lenders and brokers had to pay a $100 initial fee and a $125 renewal fee for each originator. As the act eliminates these requirements, it is not clear what fee will apply between the act's effective date and November 1, 2009.
§ 12 — BONDING REQUIREMENT
Under prior 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 act instead keeps the bond at $40,000 until July 31, 2010, when it requires the bond to be in an amount that reflects the dollar amount of the loans originated by the lender or broker, as determined by the commissioner. The act 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 act 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 act allows the commissioner to adopt regulations with respect to the requirements for the surety bonds.
The act 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 act allows the commissioner to remove an individual conducting business under the mortgage lending statutes, as amended by the act, from office and from employment or retention as an independent contractor in the mortgage business in the state (1) whenever he finds, as a result of an investigation, that the person has violated the mortgage licensing law or any regulation or order issued there under or (2) for any reason that would be sufficient grounds for the commissioner to deny a license.
To do this, the act 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 act allows him to suspend the person and require him or her 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 act 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 act gives the commissioner the authority to conduct investigations and examinations under certain circumstances.
For purposes of(1) initial licensing; (2) license renewal, suspension, conditioning, revocation, or termination; or (3) general or specific inquiry or investigation to determine compliance with the mortgage licensing statutes, the act 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 act 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 act 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 act requires each lender, broker, and originator 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 act's purposes.
In conducting any examination or investigation under these provisions, the act 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 them in the place where they are usually kept. During the period of control, the act 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 licensee's documents or records 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 act 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 the regulatory burden by sharing resources, standardized or uniform methods or procedures, and documents, records, information, or evidence obtained under his powers;
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, in or outside this state; and
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, investigation, or other document.
The act 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 act 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 act 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, or attempting to collect, charge, 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 act requires any licensed originator 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 act provides that a Connecticut court's finding that any of its provisions or applications to any person or circumstance are invalid, does not affect the remainder of the sections or the application of the provision to other persons or circumstances.
§§ 27-33 — EMERGENCY Mortgage assistance program
By law, in order to be eligible for EMAP, a person must be experiencing “financial hardship due to circumstances beyond his or her control. ” Prior law defined this to include a significant reduction of at least 25% of aggregate family household income that reasonably could not be alleviated by the liquidation of assets by the borrower, including a reduction resulting from a number of specified situations. The term also included a significant increase in the mortgage payment amount. The act eliminates this as an independent definition of financial hardship, and instead, makes it one of several criteria that can cause a reduction in income. It also eliminates from the definition reductions specifically resulting from uninsured damage to the mortgaged property which affects livability and necessitates costly repairs. It adds reductions resulting from an unanticipated rise in housing expenses. The act also specifies that “financial hardship due to circumstances beyond his or her control,” does not include the accumulation of credit, rather than just installment debt, incurred for recreational or nonessential items prior to the occurrence of the circumstances beyond the mortgagor's control.
The act allows CHFA to generally determine what amount constitutes a significant reduction and eliminates reference to the 25% threshold. It also includes in the definition a significant increase in expenses that cannot or could not have been alleviated by the liquidation of assets.
The act allows borrowers to apply for EMAP before they receive notice of intent to foreclose if they (1) are 60 days or more delinquent on their mortgage or (2) anticipate they will be 60 or more days delinquent based on financial hardship beyond their control, if CHFA agrees with them. Under prior law, borrowers applied when they received information about the program with the lender's notice of intent to foreclose. The act also allows CHFA to refer an applicant to a HUD approved counseling agency as part of the application process.
By law, when determining EMAP eligibility, one of the things that CHFA must consider is whether there is a reasonable prospect that the mortgagor will be able to resume full mortgage payments within a certain time period. The act specifies that these payments can be on the original, modified, or refinanced mortgage.
By law, upon approval of EMAP payments, the authority must enter into an agreement with the mortgagor for repayment with interest. Under prior law, if the mortgagor's total housing expense was 35% or less than his or her aggregate family income, he or she had to pay CHFA the difference between 35% and the total housing expense, unless CHFA determined otherwise after examining the mortgagor's financial circumstances and ability to repay. The act eliminates this provision.
In situations where the amount is greater than 35%, repayment is deferred until the total housing expense is 35% or less of the aggregate family income. The act specifies that the total housing expense includes projected repayments for mortgage assistance.
Proceeding with Foreclosure
Under existing law, before foreclosing on certain mortgages, a lender has to notify the borrower about the default and that they have 60 days in which to meet with the lender or consumer credit counseling agency and contact CHFA to get information about and apply for EMAP if the default is unable to be resolved. If the borrower fails to (1) meet with the lender or (2) act within the designated time period, or if the EMAP application is denied or is not filed on time, the foreclosure can continue without any further interruption. The act specifies that this does not apply if the lender refuses to meet with the borrower. Additionally, the act provides that nothing in the EMAP statutes prevents a person from applying or reapplying and being considered for EMAP if the person is referred to the program by the foreclosure mediation program.
§§ 34-36 — FORECLOSURE MEDIATION PROGRAM
By law, the lender has to inform the borrower about the foreclosure mediation program by attaching a notice of its availability and a mediation request form to the front of the foreclosure complaint. Because the act makes mediation automatic for actions with a return date on and after July 1, 2009, for those actions, it requires lenders to attach instead (1) a notice of foreclosure mediation; (2) a foreclosure mediation certificate; and (3) a blank appearance form, all in a chief court administrator-prescribed form.
The foreclosure mediation certificate must require the borrower to provide enough information to allow the court to confirm that the defendant in the foreclosure action is actually an owner-occupant of a one-to-four family residential real property located in Connecticut and also the borrower under a mortgage encumbering the real property, which is the primary residence. The act also specifies that the notice and certificate should be attached to the front of the writ summons, which typically appears in front of the complaint.
Generally, when a lender serves a borrower in the foreclosure action, it must return the writ to the court. After the lender returns the writ, the act gives the court three days to issue a notice of foreclosure mediation to the borrower. The notice must tell the borrower to file the appearance form and foreclosure mediation certificate with the court no more than 15 days after the foreclosure action return date (the date by which the lender must respond to the foreclosure action). When the court receives the forms from an eligible borrower, the court must schedule a foreclosure mediation date and notify all appearing parties no earlier than five business days after the return date. If the forms are not returned by the deadline, the court cannot schedule mediation. However, the act allows the court to refer people meeting the requirements to the program any time they appear in a foreclosure action.
By law, the mediation period starts when notice is sent to each appearing party, which has to be within three business days of the court's receipt of the mediation request. For actions with a return date on or after July 1, 2009, the three day requirement is eliminated.
The act provides that information submitted by the mortgagor to a mediator, either orally or in writing, including financial documents, is not subject to disclosure by the Judicial Branch.
§ 37 — OPENING A STRICT FORECLOSURE JUDGMENT
Under prior law, a judgment foreclosing the title to real estate by strict foreclosure could not be opened after title has become absolute in any encumbrancer. The act allows such judgments to be opened upon agreement of each party who has filed an appearance in a foreclosure action and any person who acquired an interest in the real estate after title became absolute in any encumbrancer, with two conditions:
1. the judgment cannot be opened more than four months after a judgment of strict foreclosure was entered or more than 30 days after title has become absolute in any encumbrancer, whichever is later and
2. all rights and interests of (a) all appearing and nonappearing parties and (b) any person who acquired an interest in the real estate after title became absolute in any encumbrancer, are restored to the status that existed on the date of judgment.
If a judgment is opened, the person who filed the written motion must record a certified copy of the court's order to open the judgment on the land records in the town in which the real estate is situated.
§ 38 — CONNECTICUT BUSINESS OPPORTUNITY INVESTMENT ACT CHANGES – PA 09-160
The act makes a minor change to Public Act 09-160. Prior law required a person selling or offering to sell a business opportunity to register the opportunity with the banking commissioner. PA 09-160 changed the law to require that the seller register with the commissioner. This act restores prior law.
§§ 39 - 41 — CONSUMER CREDIT LICENSES – PA 09-208
The act makes technical changes to Public Act 09-208.
§§ 42 & 43 — MORTGAGE PRACTICES – PA 09-207
PA 09-207 provides that a person subject to the new mortgage practice rules it creates includes, among other things, an individual who makes more than three individual mortgage loans or who purchases or sells more than three residential properties in a consecutive 12 month period. The act specifies that the term instead includes an individual who is a mortgagor (borrower) on said loans.
The act also adds a definition of APR from the Connecticut Abusive Home Loan Lending Practices Act and eliminates technical changes.
Foreclosure Judgments Entered After July 1, 2010
By law, and under the act, mediations are allowed to begin up until June 30, 2010 (and therefore continue after that date). However, it appears that this provision allows actions that continue after June 30, 2010 to go to judgment without meeting the act's requirements.
Public Law 110-289
P. L. 110-289 encourages participation in the Nationwide Mortgage Licensing System 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 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.
Public Act 09-219 makes effective upon passage provisions in this act related to the emergency mortgage assistance program. Most of the provisions were effective July 1, 2009, except for the repayment and conforming provisions, which were effective October 1, 2009.
OLR Tracking: SC: KM: PF: ts