Senate Bill 462 (S-1) would create the Mortgage Loan Originator by ytx42466

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									MORTGAGE LOAN ORIGINATORS                                         S.B. 462 (S-1)-465 (S-1):
                                                   ANALYSIS AS REPORTED FROM COMMITTEE




Senate Bill 462 (Substitute S-1 as reported)
Senate Bill 463 (Substitute S-1 as reported)
Senate Bill 464 (Substitute S-1 as reported)
Senate Bill 465 (Substitute S-1 as reported)
Sponsor: Senator Randy Richardville (S.B. 462)
           Senator Tony Stamas (S.B. 463)
           Senator Dennis Olshove (S.B. 464)
           Senator Alan Sanborn (S.B. 465)
Committee: Banking and Financial Institutions

Date Completed: 5-19-09

RATIONALE

As part of the Housing and Economic               It has been suggested that the SAFE Act's
Recovery Act of 2008, Congress enacted the        provisions should be implemented in
Safe and Fair Enforcement for Mortgage            Michigan.    According to the Office of
Licensing Act (the SAFE Act) to require           Financial   and    Insurance   Regulation,
states to establish uniform regulations and       compliance is necessary to maintain
minimum      licensing     requirements     for   supervisory authority over State-licensed
mortgage loan originators. The SAFE Act           mortgage loan originators.
also requires states to ensure that mortgage
loan originators register with the Nationwide     CONTENT
Mortgage Licensing System and Registry
(NMLSR), to increase accountability and           Senate Bill 462 (S-1) would create the
provide the ability to track individuals across   "Mortgage Loan Originator Licensing
state lines.       The NMLSR, which is            Act" to do the following:
administered by the Conference of State
Bank    Supervisors     and    the   American     -- Prohibit an individual from engaging
Association     of    Residential    Mortgage        in the business of a mortgage loan
Regulators, provides each loan originator            originator without obtaining and
with a unique identification number, which           maintaining a license under the Act,
under the SAFE Act must be displayed on all          with certain exceptions.
documents related to the loan originator's        -- Require a person applying for a
business activities.                                 license   to   undergo     a   criminal
                                                     background check and submit certain
In addition, the SAFE Act requires loan              personal history information.
originators to meet certain education             -- Require    an    applicant   to   meet
requirements, pass a written test, submit to         specified    prelicensing    education
a criminal background check and credit               requirements, pass a written test,
check, and meet certain minimum asset                and post a surety bond.
requirements or post a surety bond, among         -- Require a licensed mortgage loan
other requirements.       Most states must           originator    to    complete    annual
implement the Act's requirements by July             continuing education requirements,
31, 2009, although the Department of                 including education in Federal law
Housing and Urban Development (HUD) may              and regulations, ethics, and lending
grant an extension of up to 24 months if it          standards for the nontraditional
determines that a state is making a good             mortgage product marketplace.
faith effort to comply with the Act.

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-- Require     the   Commissioner     of              Senate Bill 462 (S-1) is tie-barred to Senate
   Financial and Insurance Regulation                 Bills 463, 464, and 465, each of which is tie-
   to establish a schedule of fees                    barred to Senate Bill 462.
   sufficient to pay the expected costs
   of administering and enforcing the                 Senate Bill 462 (S-1) would take effect on
   Act, including an annual fee for each              July 31, 2009; the remaining bills would
   licensed mortgage loan originator.                 take effect on August 1, 2010. The bills are
-- Require the fees to be deposited into              described in detail below.
   the Mortgage Brokers, Lenders, and
   Servicers Licensing Act Fund.                                    Senate Bill 462 (S-1)
-- Provide that the Commissioner would
   have to require mortgage loan                      License
   originators to be licensed and
   registered through the NMLSR.                      Beginning August 1, 2010, an individual
-- Permit the Commissioner to issue an                could not engage in the business of a
   order suspending an individual's                   mortgage loan originator with respect to any
   license or prohibiting an individual               dwelling located in the State without first
   from being licensed under certain                  obtaining and maintaining annually a license
   circumstances.                                     under the proposed Act, unless specifically
-- Permit the Commissioner to conduct                 exempt.     Each licensed mortgage loan
   investigations or examinations for                 originator would have to register with and
   the purpose of initial licensing,                  maintain a valid unique identifier issued by
   license removal or suspension, or                  the Nationwide Mortgage Licensing System
   investigating       violations     or              and Registry.
   complaints.
-- Authorize    the   Commissioner    to              The unique identifier of any person
   direct, subpoena, or order the                     originating a residential mortgage loan in
   attendance of any person with                      the State would have to be shown clearly on
   relevant testimony about the loans or              all residential mortgage loan application
   the business or subject matter of an               forms, solicitations, or advertisements,
   investigation.                                     including business cards or websites, and
                                                      any other documents, as established by rule
Senate Bill 463 (S-1) would amend the                 or order of the Commissioner.
Mortgage     Brokers,   Lenders,    and
Servicers Licensing Act (MBLSLA) to                   Each of the following would be exempt from
require a loan officer to be registered               the Act:
under the proposed Mortgage Loan
Originator Licensing Act, rather than                 -- A registered mortgage loan originator,
under    the   MBLSLA    as   currently                  when acting for a depository institution, a
required.                                                subsidiary of a depository institution that
                                                         was owned and controlled by that
Senate Bill 464 (S-1) would amend the                    institution and regulated by a Federal
Secondary Mortgage Loan Act to require                   banking     agency,    or   an    institution
a secondary mortgage loan officer to be                  regulated      by    the    Farm       Credit
registered under the proposed Act,                       Administration.
rather than under the Secondary                       -- An individual who offered or negotiated
Mortgage    Loan   Act  as    currently                  terms of a residential mortgage loan with
required.                                                or on behalf of an immediate family
                                                         member of that individual.
Senate Bill 465 (S-1) would amend the                 -- An individual who offered or negotiated
Consumer Financial Services Act to                       terms of a residential mortgage loan
prohibit a licensee acting as a mortgage                 secured by a dwelling that served as his
broker    or   mortgage    lender   from                 or her residence.
employing or engaging an individual as                -- A licensed attorney who negotiated the
a loan officer to originate mortgage                     terms of a residential mortgage loan on
loans unless he or she were a licensed                   behalf of a client as an ancillary matter to
loan officer under the proposed Act.                     his or her representation of the client,
                                                         unless the attorney were compensated by
                                                         a lender, mortgage broker, or other

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   mortgage loan originator or by any agent               The FBI would have to perform the criminal
   of one of those entities.                              history check. The individual who was the
                                                          subject of the check would have to have his
A loan processor or underwriter who was an                or her fingerprints taken by a law
independent contractor could not engage in                enforcement agency or by another qualified
the activities of a loan processor or                     person, as determined by the Commissioner.
underwriter unless he or she obtained and                 The individual would have to pay the agency
maintained a license under the proposed                   or person the fees required by the FBI, and
Act.                                                      request that the agency or person
                                                          performing the criminal history check
The Commissioner could establish licensing                forward the fingerprints and fee to the FBI
rules and interim procedures for licensing                for a national criminal history check.
and acceptance of applications, including
expedited review and licensing procedures                 A criminal history check could be conducted,
for   previously registered  or   licensed                requested of the FBI, and submitted to the
individuals.                                              Commissioner any time on or after July 31,
                                                          2009.
("Mortgage loan originator" would mean an
individual who meets all of the following:                An applicant also would have to furnish to
                                                          the NMLSR information concerning his or her
-- For compensation or gain, or in the                    identity, including the results of the criminal
   expectation of compensation or gain,                   history check and the applicant's personal
   takes a residential mortgage loan                      history and experience. This would have to
   application, or offers or negotiates terms             include authorization for the NMLSR and the
   of a residential mortgage loan.                        Commissioner to obtain both of the following
-- Is not an individual engaged solely as a               concerning the applicant:
   loan processor or underwriter (except as
   provided regarding an independent                      -- An independent credit report obtained
   contractor).                                              from a consumer reporting agency.
-- Is not a person who only performs real                 -- Information related to any administrative,
   estate brokerage activities and is                        civil, or criminal findings by any
   licensed or registered under the laws of                  governmental jurisdiction.
   this State, unless the person is
   compensated by a lender, mortgage                      Licensee Qualifications
   broker,    or    other    mortgage     loan
   originator, or the agent of one of them.               The Commissioner could not issue a
-- Is not a person solely involved in                     mortgage loan originator license unless he
   extensions of credit relating to timeshare             or she found at least the following:
   plans.)
                                                          -- The applicant was not subject to a
License Application                                          prohibition   order     issued    by    the
                                                             Commissioner under the proposed Act or
An applicant for a license would have to                     under any of the financial licensing acts.
apply in a form as prescribed by the                      -- The applicant had never had a mortgage
Commissioner. The applicant would have to                    loan originator license revoked in any
include with the application the required                    governmental jurisdiction, except that the
annual operating fee and the required                        Commissioner could not consider a
criminal history check.                                      revocation that was formally vacated.
                                                          -- The applicant had not been convicted of,
A person that employed or offered to                         or pleaded no contest to, a felony or
employ, or engaged or offered to engage as                   misdemeanor involving fraud, dishonesty,
an agent, an individual as a mortgage loan                   or a breach of trust, money laundering,
originator, to originate mortgage loans after                embezzlement,      forgery,    a   financial
July 31, 2010, would have to conduct a                       transaction, or securities, at any time
criminal history check of that individual.                   before the date of the application; or any
The applicant would have to submit the                       other felony within the 10-year period
results of that check with his or her license                preceding that date.
application.                                              -- The    applicant    had    completed    the
                                                             prelicensing education requirements.

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-- The applicant had passed a written test                 Prelicensing education could be offered in a
   that met the test requirement specified in              classroom, online, or by any other means
   the Act.                                                approved by the NMLSR.
-- The applicant had met the surety bond
   requirement.                                            If a person completed any of the above
-- The applicant had demonstrated financial                prelicensing education requirements that
   responsibility, character, and general                  were approved by the NMLSR for any state,
   fitness that commanded the confidence of                the Commissioner would have to accept
   the    community      and   warranted    a              those hours of education as credit toward
   determination that the mortgage loan                    completion of the prelicensing education
   originator would operate honestly, fairly,              requirement of the proposed Act.
   and efficiently within the purposes of the
   Act.                                                    For an application for a license submitted
                                                           before August 1, 2010, completion of certain
A determination that an individual had not                 classroom       instruction    requirements
shown financial responsibility could include a             described in the Mortgage Brokers, Lenders,
finding of any of the following:                           and Servicers Licensing Act or the
                                                           Secondary Mortgage Loan Act would satisfy
-- Current outstanding judgments, except                   the prelicensing education requirement. To
   those that were solely the result of                    apply such a course to the prelicensing
   medical expenses.                                       requirement, an applicant would have to
-- Current outstanding tax liens or other                  provide proof in the form of a certificate of
   government liens and filings.                           completion or other evidence acceptable to
-- Foreclosures within the past three years.               the Commissioner.
-- A pattern of seriously delinquent accounts
   within the past three years.                            Written Test Requirement

("Financial licensing acts" would mean that                To meet the written test requirement for
term as defined in the Consumer Financial                  licensure, an individual would have to pass a
Services Act, i.e., that Act, the Regulatory               qualified written test developed by the
Loan Act, the Secondary Mortgage Loan Act,                 NMLSR and administered by a test provider
the Motor Vehicle Sales Finance Act, the                   approved     by   the    NMLSR based on
Sale of Checks Act, the Money Transmission                 reasonable standards.
Services Act, and the MBLSLA.)
                                                           A qualified written test would have to
Prelicensing Education Requirement                         measure     adequately     the    applicant's
                                                           knowledge      and     comprehension       in
To    meet    the   prelicensing  education                appropriate subject areas, including ethics
requirement to qualify for a license, an                   and State and Federal law and regulation
applicant would have to complete at least 20               pertaining to mortgage origination and
hours of education approved as described                   mortgage lending, including fraud, consumer
below, including the following:                            protection, and fair lending issues and the
                                                           nontraditional mortgage marketplace.
-- Three hours of Federal law and
   regulations.                                            An approved provider could provide a test at
-- Three     hours    of    ethics,   including            the location of the applicant's employer, the
   instruction     on     fraud,     consumer              location of any subsidiary or affiliate of the
   protection, and fair lending issues.                    employer, or the location of any entity with
-- Two hours of training related to lending                which the applicant held an exclusive
   standards for the nontraditional mortgage               arrangement to conduct the business of a
   product marketplace.                                    mortgage loan originator.

("Nontraditional mortgage product" would                   An individual would not be considered to
mean any mortgage product other than a                     have passed a qualified written test unless
30-year fixed rate mortgage.)                              he or she achieved a test score of 75% or
                                                           more correct answers to questions.
Only    prelicensing     education   courses
reviewed and approved by the NMLSR could                   An individual could retake a test three
be used to satisfy that requirement.                       consecutive times, if each retaking occurred

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at least 30 days after the preceding test. If            -- The mortgage loan originator continued
an individual failed three consecutive tests,               to meet the minimum standards for
he or she would have to wait at least six                   license issuance under the proposed Act.
months before taking the test again.                     -- He or she had satisfied the annual
                                                            continuing education requirement.
Surety Bond                                              -- He or she had paid the required fee.

Each mortgage loan originator would have to              If a mortgage loan originator failed to satisfy
provide to the Commissioner or be covered                those requirements for renewal, his or her
by a surety bond that met the requirements               license would expire.     The Commissioner
described below.     If the mortgage loan                could    adopt     procedures       for    the
originator were an employee or exclusive                 reinstatement of expired licenses consistent
agent of a person subject to the proposed                with the standards established by the
Act and that person had provided the                     NMLSR.
Commissioner with a surety bond that
satisfied the Act's requirements, the                    Continuing Education Requirements
Commissioner could accept that surety bond
in lieu of the mortgage loan originator's                To meet the annual continuing education
surety bond obligation.                                  requirements for license renewal, a licensed
                                                         mortgage loan originator would have to
A surety bond would have to provide                      complete at least eight hours of education
coverage for each mortgage loan originator               approved by the NMLSR, including at least
covered by that bond in one of the amounts               the following:
shown in Table 1, based on the sum of the
principal amounts of mortgage loans the                  -- Three hours of Federal law and
mortgage loan originator closed in the                      regulations.
preceding calendar year.                                 -- Two hours of ethics, including instruction
                                                            on fraud, consumer protection, and fair
                   Table 1                                  lending issues.
 Sum of the principal amounts of                         -- Two hours of training related to lending
  mortgage loans closed in the    Required                  standards for the nontraditional mortgage
     preceding calendar year     Surety Bond                product marketplace.
Less than $12.0 million            $10,000
$12.0 million or more but less                           Only continuing education courses reviewed
than $24.0 million                 $25,000               and approved by the NMLSR, based on
                                                         reasonable standards, could be used to
$24.0 million or more              $50,000
                                                         satisfy    the    continuing     education
                                                         requirements.
The surety bond would have to be in a form
prescribed by the Commissioner.
                                                         An approved continuing education course
                                                         could be provided by the mortgage loan
If an action were commenced on a bond, the
                                                         originator's employer, an entity affiliated
Commissioner could require the filing of a
                                                         with the originator by an agency contract, or
new bond. If there were a recovery in that
                                                         a subsidiary or affiliate of that employer or
action, the mortgage loan originator
                                                         entity.
immediately would have to provide to the
Commissioner a new surety bond that met
                                                         Continuing education could be offered in a
the above requirements.
                                                         classroom, online, or by any other means
                                                         approved by the NMLSR.
Annual License Renewal
                                                         A licensed mortgage loan originator could
The Commissioner would have to renew the
                                                         receive credit for a continuing education
license of a licensed mortgage loan
                                                         course only in the year in which the course
originator annually if all of the following
                                                         was taken (except as provided under
were met before his or her current license
                                                         procedures developed for the reinstatement
expired:
                                                         of an expired license or procedures by which
                                                         an individual could make up any deficiency
                                                         in continuing education).


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A licensed mortgage loan originator could                Money received from fees would have to be
not take the same approved course in the                 deposited in the MBLSLA Fund.
same or successive years to meet the
annual     requirements for    continuing                NMLSR Participation
education.
                                                         The Commissioner would have to require
A licensed mortgage loan originator who was              mortgage loan originators to be licensed and
an approved instructor of an approved                    registered through the NMLSR. To carry out
continuing education course could receive                that requirement, the Commissioner would
credit for his or her own annual continuing              be authorized to participate in the NMLSR
education requirement at the rate of two                 and    could   by    rule   establish   other
years' credit for every one hour taught.                 requirements that he or she considered
                                                         necessary, including any of the following:
If a person successfully completed any
continuing education requirements described              -- The payment of fees to apply for or
above that were approved by the NMLSR for                   renew licenses through the NMLSR.
any state, the Commissioner would have to                -- The setting or resetting as necessary of
accept those hours of education as credit                   renewal or reporting dates.
toward completion of        the continuing               -- Amending or surrendering a license or
education requirement under the proposed                    any     other      activities that   the
Act.                                                        Commissioner considered necessary for
                                                            participation in the NMLSR.
Fees
                                                         The Commissioner also could establish
Each year, the Commissioner would have to                requirements for the following background
establish a schedule of fees that were                   checks:
sufficient to pay, but not to exceed, the
reasonably anticipated costs of the Office of            -- The criminal history of a licensed
Financial and Insurance Regulation (OFIR)                   mortgage loan originator or license
for    administering  and    enforcing    the               applicant through fingerprint or other
proposed Act. The fee schedule would have                   databases.
to include an annual fee for each licensed               -- Information about a licensed mortgage
mortgage loan originator in an amount                       loan originator or license applicant in civil
established by the Commissioner.                            or administrative records.
                                                         -- A licensed mortgage loan originator's or
For amending or reissuing a mortgage loan                   license applicant's credit history.
originator license, the schedule would have              -- Any other information about a licensed
to include a fee of not less than $15 or more               mortgage loan originator or license
than $200.                                                  applicant considered necessary by the
                                                            NMLSR.
A licensed mortgage loan originator would
have to pay the actual travel, lodging, and              The Commissioner would have to establish a
meal expenses incurred by employees of                   process through which mortgage loan
OFIR who traveled out of State to conduct                originators could challenge information
an examination or investigation of a licensed            entered    into  the  NMLSR     by     the
mortgage loan originator and the cost of                 Commissioner.
independent investigators employed by the
Commissioner to conduct an investigation.                Penalties; Fines; & Directives

Fees received under the Act would not be                 To ensure the effective supervision and
refundable.                                              enforcement of the proposed Act, the
                                                         Commissioner could do any of the following,
A mortgage loan originator license renewal               in   a   manner     consistent   with   the
fee that was not received by December 31                 Administrative Procedures Act (APA):
would be subject to a penalty of $25 for
each day the fee was delinquent, up to a                 -- Deny, suspend, revoke, condition, or
maximum of $1,000.                                          decline to renew a license for a violation
                                                            of the proposed Act, rules issued under


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   the Act, or an order or directive entered             Suspension or Prohibition for Fraud
   under the Act.
-- Deny, suspend, revoke, condition, or                  If, in the opinion of the Commissioner, an
   decline to renew a license if a licensed              individual had engaged in fraud, the
   mortgage loan originator or license                   Commissioner could serve on that person a
   applicant failed at any time to meet the              written notice of intention to prohibit him or
   requirements for licensure or license                 her from being licensed under the proposed
   renewal or withheld information or made               Act, licensed or registered under any of the
   a material misstatement in an application             financial licensing acts, or employed by, an
   for a license or license renewal.                     agent of, or a control person of a licensee or
-- Order restitution against a person for a              registrant under any of the financial
   violation of the Act.                                 licensing acts.
-- Impose a civil fine on a person subject to
   the Act, as described below.                          The notice would have to contain a
                                                         statement of the facts supporting the
The Commissioner could impose a civil fine               prohibition and, except as otherwise
on a mortgage loan originator or other                   provided, would have to set a hearing on a
person    subject    to   the   Act    if the            date within 60 days after the date of the
Commissioner found, on the record after                  notice. If the individual did not appear at
notice and opportunity for hearing, that the             the hearing, he or she would be considered
mortgage loan originator or other person                 to have consented to the issuance of an
had violated or failed to comply with a                  order in accordance with the notice.
requirement of the Act, a rule promulgated
under it, or an order issued under it.                   If, after a hearing, the Commissioner found
                                                         that any of the grounds specified in the
The maximum fine for each violation or                   notice had been established, he or she could
failure to comply would be $25,000. Each                 issue an order of suspension or prohibition,
violation or failure to comply would be a                as described above.      An order would be
separate and distinct violation or failure.              effective when served on an individual. The
                                                         Commissioner also would have to serve a
The Commissioner could issue any of the                  copy of the order upon the licensee of which
following orders or directives:                          the individual was an employee or agent.
                                                         The order would remain in effect until it was
-- Order or direct a person who was subject              stayed, modified, terminated, or set aside by
   to the Act to cease and desist from                   the Commissioner or a reviewing court.
   conducting      business,   including   an
   immediate temporary order to cease and                After five years from the date of an order,
   desist.                                               the individual subject to it could apply to the
-- Order or direct a person who was subject              Commissioner to terminate the order.
   to the Act to cease any harmful activities
   or violations of the Act, including an                If the Commissioner considered that an
   immediate temporary order to cease and                individual served a notice of intention posed
   desist.                                               an imminent threat of financial loss to
-- Enter an immediate temporary order to                 customers, the Commissioner could serve an
   cease business under a license or interim             order suspending the individual from being
   license issued under the Act, if the                  employed by, an agent of, or a control
   Commissioner       determined    that  the            person of a licensee or registrant under any
   license or interim license was granted                of the financial licensing acts. In that case,
   erroneously or the licensee was currently             unless otherwise agreed to by the
   in violation of the Act.                              Commissioner and the individual served with
-- Issue an order of suspension or                       the order, the Commissioner would have to
   prohibition from being licensed under the             hold a hearing to review the suspension
   Act     under      certain   circumstances            between five and 20 days after the date of
   (described below).                                    the notice.
-- Order or direct any other affirmative
   action that the Commissioner considered               If an individual were convicted of a felony
   necessary.                                            involving fraud, dishonesty, or breach of
                                                         trust, the Commissioner could issue an order
                                                         suspending or prohibiting him or her from

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being licensed under the Act, licensed or                The Commissioner regularly would have to
registered under any of the financial                    report violations of the Act, enforcement
licensing acts, or employed by, an agent of,             actions, and other relevant information to
or a control person of a licensee or                     the NMLSR, subject to the confidentiality
registrant under any of the financial                    provisions described below.
licensing acts.
                                                         Confidentiality
The Commissioner would have to mail a
copy of any notice or order issued under                 The requirements of the Freedom of
these provisions to the employer or principal            Information Act (FOIA) or any Federal law
of the individual subject to the notice or               concerning the privacy or confidentiality of
order.                                                   any information or material provided to the
                                                         NMLSR, and any privilege arising under
Within 30 days after the Commissioner had                Federal or State law or rules of any Federal
notified the parties that the case had been              or State court concerning that information or
submitted to him or her for final decision,              material, would continue to apply after the
the Commissioner would have to render a                  information or material was disclosed to the
decision that included findings of fact                  NMLSR, except as otherwise provided in the
supporting the decision and serve on each                SAFE Act.
party a copy of the decision and an order
consistent with it.                                      Any such information or material could be
                                                         shared with any state and Federal regulatory
Except for a consent order, a party to the               official with mortgage industry oversight
proceeding or a person affected by an order              authority without the loss of privilege or the
issued under these provisions could obtain a             loss of confidentiality protections provided
judicial review of the order. A consent order            by Federal law or FOIA.
could be reviewed as provided under the
APA.                                                     For the purpose of these provisions, the
                                                         Commissioner could enter into agreements
Except for an order under judicial review,               or   sharing  arrangements     with   other
the Commissioner could terminate or set                  governmental agencies, the Conference of
aside any order. The Commissioner could                  State Bank Supervisors, the American
terminate or set aside an order under                    Association   of   Residential    Mortgage
judicial review with the permission of the               Regulators,    or    other     associations
court.                                                   representing governmental agencies, as
                                                         established by rule or order of the
Unless  ordered   by    the court,  the                  Commissioner.
commencement of proceedings for judicial
review would not stay the Commissioner's                 Any information that was subject to a
order.                                                   privilege or confidentiality under these
                                                         provisions would not be subject to disclosure
The Commissioner could apply to            the           under any Federal or state law governing
Ingham County Circuit Court for            the           the disclosure to the public of information
enforcement of any outstanding order.                    held by an officer or an agency of the
                                                         Federal government or the respective state,
An individual who violated a final order                 and would not be subject to subpoena or
issued under these provisions would be                   discovery, or admission into evidence, in any
guilty of a misdemeanor punishable by a                  private civil action or administrative process,
maximum fine of $5,000 or imprisonment                   unless the person to whom the information
for up to one year, or both.                             or material pertained waived that privilege.

As used in these provisions, "fraud" would               These provisions would not apply to any
include    actionable   fraud;   actual    or            information or material relating to the
constructive fraud; criminal fraud; extrinsic            employment     history  of,  and   publicly
or intrinsic fraud; fraud in the execution,              adjudicated disciplinary and enforcement
inducement, or in law; or any other form of              actions against, a mortgage loan originator
fraud.                                                   that was included in the NMLSR for access
                                                         by the public.


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Investigations                                             provision, a person could not remove or
                                                           attempt to remove any of them except
For purposes of initial licensing, license                 under a court order or with the consent of
removal,     license    suspension,     license            the Commissioner. The licensed mortgage
conditioning,     license     revocation     or            loan originator or the owner of the
termination, or general or specific inquiry or             documents and records would have to have
investigation to determine compliance with                 access to them as necessary to conduct
the proposed Act, the Commissioner could                   ordinary business affairs, unless the
gain access to, receive, and use any books,                Commissioner had reasonable grounds to
accounts,     records,    files,   documents,              believe that the documents or records had
information, or evidence, including the                    been or were at risk of being altered or
following:                                                 destroyed to conceal a violation of the Act.

-- Criminal, civil, and administrative history             A licensed mortgage loan originator or other
   information.                                            person    subject    to  investigation    or
-- Personal     history    and     experience              examination under the above provisions
   information, including independent credit               could not knowingly withhold, abstract,
   reports obtained from a consumer                        remove, mutilate, destroy, or secrete any
   reporting agency.                                       books, records, computer records, or other
-- Any other documents, information, or                    information from the Commissioner.
   evidence the Commissioner considered
   relevant to the inquiry or investigation,               A licensed mortgage loan originator who
   regardless of their location, possession,               failed to submit to the Commissioner a
   control, or custody.                                    report requested as part of an investigation
                                                           would be subject to a penalty of $25 for
The Commissioner could direct, subpoena,                   each day the report was delinquent, up to a
or order the attendance of and examine                     maximum of $1,000.
under oath any person whose testimony
could be required about the loans or the                   Prohibited Activities
business or subject matter of that
examination or investigation and could                     A licensed mortgage loan originator could
direct, subpoena, or order that person to                  not do any of the following:
produce books, accounts, records, files, and
any other documents that the Commissioner                  -- Engage in fraud, deceit, or material
considered relevant to the inquiry.                           misrepresentation in connection with any
                                                              transaction governed by the proposed
Each licensed mortgage loan originator or                     Act.
other person subject to the Act would have                 -- Intentionally, or due to gross or wanton
to make available to the Commissioner on                      negligence, repeatedly fail to provide
request the books and records relating to his                 borrowers with any material disclosures
or her or another person's operations. The                    of information required by law.
Commissioner could interview relevant                      -- Directly or indirectly make a false,
parties considering the business of the                       misleading, or deceptive advertisement
licensed mortgage loan originator or other                    regarding mortgage loans or their
person.                                                       availability.
                                                           -- Suppress       or   withhold     from     the
In making any examination or investigation                    Commissioner any information that the
authorized by the proposed Act, the                           originator     possessed    and     that,   if
Commissioner could control access to any                      submitted, would have made him or her
documents and records of the licensed                         ineligible for licensure or license renewal
mortgage loan originator or other person                      under the Act at the time of application
under examination or investigation, either                    and      would      have     allowed      the
by taking possession of the documents and                     Commissioner to refuse to license him or
records or by placing a person in exclusive                   her.
charge of the documents and records in the                 -- Be convicted of, or plead no contest to,
place where they usually were kept.                           any felony or a misdemeanor involving
                                                              fraud, dishonesty, or a breach of trust,
If the Commissioner were controlling access                   money        laundering,     embezzlement,
to documents or records under that

Page 9 of 13                     Bill Analysis @ www.senate.michigan.gov/sfa            sb462-465/0910
   forgery, a financial transaction, or                  providing loan officer services as an
   securities.                                           employee or agent of only one mortgage
-- Refuse or fail to furnish any information             broker, lender, or servicer and is registered
   or make any report required by the                    as a loan officer registrant if required under
   Commissioner to issue or renew a license              the Act.
   under the Act, or otherwise required by
   the Commissioner, within a reasonable                 Under the bill that exception would refer
   period of time, as determined by the                  instead to a licensed loan officer, if licensure
   Commissioner, after he or she requested               were required under the Mortgage Loan
   it.                                                   Originator Licensing Act.

Condition Reports                                        The MBLSLA prohibits a loan officer from
                                                         receiving any compensation for originating a
A licensed mortgage loan originator, or                  mortgage loan unless he or she is a loan
employer or principal of a licensed mortgage             officer registrant.    The bill would refer
loan originator on his or her behalf, would              instead to a licensed loan officer.
have to submit to the NMLSR reports of
condition, in the form and containing the                Fees
information required by the NMLSR.
                                                         The MBLSLA provides for an annual fee for
Action by Attorney General                               each loan officer registrant in an amount
                                                         established by the Commissioner, and a fee
If any fees or penalties were not paid when              of not less than $15 or more than $200 for
required, the Attorney General could                     amending or reissuing a loan officer
maintain an action against the delinquent                registration. The bill would remove those
licensed mortgage loan originator for the                provisions.
recovery of the fees and penalties together
with interest and costs.                                 The bill would require fees established under
                                                         the proposed Mortgage Loan Originator
          Senate Bill 463 (S-1)                          Licensing Act to be deposited into the
                                                         MBLSLA Fund. Currently, money in the Fund
Loan Officer                                             may be used only to administer and enforce
                                                         the MBLSLA and the Secondary Mortgage
Under the MBLSLA, the Commissioner must                  Loan Act and to pay other costs associated
exercise general supervision and control                 with     the    Commissioner's      regulatory
over mortgage brokers, mortgage lenders,                 obligations. Under the bill, money in the
and mortgage servicers doing business in                 Fund also would have to be used to
the State, and loan officers originating                 administer the Mortgage Loan Originator
mortgage loans in the State. The bill would              Licensing Act.
remove the reference to loan officers, and
would remove references to loan officer                  Penalties
registrants and registration throughout the
Act.                                                     A person who acts as a loan officer in the
                                                         State without a required loan officer
("Loan     officer  registrant"  means     an            registration under the MBLSLA is guilty of a
individual who is registered under Section 2a            misdemeanor punishable by a maximum fine
of the Act.      The bill would remove that              of $15,000 or imprisonment for up to one
definition, replacing it with a definition of            year, or both. Under the bill, the same
"licensed loan officer", i.e., a loan officer            penalty would apply if a person acted as a
who was registered as a mortgage loan                    loan officer in the State and were not a
originator under the proposed Mortgage                   licensed loan officer, if licensure were
Loan Originator Licensing Act.)                          required under the Mortgage Loan Originator
                                                         Licensing Act.
The MBLSLA prohibits a person from acting
as a mortgage broker, mortgage lender, or                Currently, if a loan officer registrant is
mortgage servicer without first obtaining a              convicted of, or pleads no contest to, a
license or registering under the Act, except             felony, the Commissioner must revoke his or
under    certain    circumstances.      That             her loan officer registration. The bill would
requirement does not apply if the person is              remove that provision.

Page 10 of 13                  Bill Analysis @ www.senate.michigan.gov/sfa            sb462-465/0910
Advisory Board Duties                                       Employee Definition

The MBLSLA requires the Mortgage Industry                   The bill would define "employee" as an
Advisory Board to communicate to the                        individual who meets both of the following:
Commissioner issues of concern to the
residential mortgage industry and review                   -- Has     an     employment      relationship
and    make    recommendations     to  the                    acknowledged by that individual and the
Commissioner concerning the following:                        licensee or registrant that engages that
                                                              individual to originate mortgage loans.
-- Course sponsors or providers, course                    -- Is treated as an employee by the licensee
   instructors, and the content of and                        or registrant that engages the individual
   materials for courses provided to loan                     to    originate    mortgage    loans    for
   officers and loan officer applicants under                 compliance with Federal income tax laws.
   the Secondary Mortgage Loan Act.
-- Content and procedures for examinations                  Repeals
   given to loan officers under the
   Secondary Mortgage Loan Act.                             The bill would repeal Sections 2a, 2b, 2c,
-- Procedures to verify attendance at and                   and 22b of the MBLSLA, effective August 1,
   participation    in   courses    conducted               2010.     Those sections provide for the
   electronically under that Act.                           licensing and registration of loan officers
                                                            under the MBLSLA and establish certain
The bill would delete those provisions.                     reporting   requirements      and    prohibited
                                                            behavior for loan officer registrants.
In addition, the Board must review and
make recommendations concerning rules                                     Senate Bill 464 (S-1)
proposed under the MBLSLA or the
Secondary Mortgage Loan Act. The bill also                  Secondary Mortgage Loan Officer
would require the Board to review and make
recommendations concerning rules proposed                   The Secondary Mortgage Loan Act requires
under    the   Mortgage   Loan    Originator                the Commissioner to exercise general
Licensing Act.                                              supervision and control over brokers,
                                                            lenders, and servicers doing business in the
The    Board     must    review  and    make                State, and secondary mortgage loan officers
recommendations regarding procedures for                    originating secondary mortgage loans in the
maintaining the confidentiality of personal                 State. The bill would delete the reference to
identifying information and other information               secondary mortgage loan officers, and would
concerning all of the following:                            delete references to secondary mortgage
                                                            loan officer registrants and registration
-- Licensees, registrants, and loan officer                 throughout the Act.
   registrants.
-- Applicants for licensure, registration, or               "Secondary mortgage loan officer registrant"
   loan officer registration.                               means either of the following:
-- Licensees, registrants, and secondary
   loan    officer   registrants    under     the          -- An individual who is registered under
   Secondary Mortgage Loan Act.                               certain sections of the Act.
-- Applicants for licensure, registration, or              -- An individual who is not required to
   secondary       mortgage      loan     officer             register to perform services of a
   registration     under     the    Secondary                secondary mortgage loan officer.
   Mortgage Loan Act.
                                                            The bill would delete that definition, and
The bill would delete those references to                   would define "licensed loan officer" as a
loan officer registrants and loan officer                   secondary mortgage loan officer who was
registration, and instead would refer to                    licensed as a mortgage loan originator under
licensees or applicants for licensure under                 the proposed Mortgage Loan Originator
the proposed Mortgage Loan Originator                       Licensing Act.
Licensing Act.
                                                            Under the Secondary Mortgage Loan Act, a
                                                            person generally may not act as broker,
                                                            lender, or servicer without first obtaining a

Page 11 of 13                     Bill Analysis @ www.senate.michigan.gov/sfa           sb462-465/0910
license or registering under the Act. The Act              licensing and registration of secondary
makes      certain    exceptions    to   that              mortgage loan officers under the Act and
requirement, including for a person who is                 establish certain reporting requirements and
providing secondary mortgage loan officer                  prohibited behavior for secondary mortgage
services as an employee or agent of only                   loan officers.
one broker, lender, or servicer and is
registered as a secondary mortgage loan                                  Senate Bill 465 (S-1)
officer registrant if that registration is
required under the Act.                                    Under the bill, a licensee acting as a
                                                           mortgage broker or mortgage lender could
Under the bill, that exception would refer                 not employ or engage an individual as a loan
instead to a licensed secondary mortgage                   officer to originate mortgage loans unless he
loan officer, if licensure were required under             or she were a licensed loan officer, as
the Mortgage Loan Originator Licensing Act.                defined in the MBLSLA.

Fees                                                       A licensee acting as a broker or lender also
                                                           could not employ or engage an individual as
The Secondary Mortgage Loan Act provides                   a secondary loan officer to originate
for an annual fee for each loan officer                    secondary mortgage loans unless he or she
registrant in an amount established by the                 were a licensed secondary mortgage loan
Commissioner, and a fee of not less than                   officer.
$15 or more than $200 for amending or
reissuing a loan officer registration. The bill            MCL 445.1651a et al. (S.B. 463)
would delete those provisions.                                 493.51 et al. (S.B. 464)
                                                               487.2059 (S.B. 465)
Penalties
                                                           ARGUMENTS
A person who acts as a secondary mortgage
loan officer in the State without a required               (Please note:     The arguments contained in this
registration under the Act is guilty of a                  analysis originate from sources outside the Senate
                                                           Fiscal Agency. The Senate Fiscal Agency neither
misdemeanor punishable by a maximum fine                   supports nor opposes legislation.)
of $15,000 or imprisonment for up to one
year, or both. Under the bill, the same                    Supporting Argument
penalty would apply if a person acted as a                 The recent mortgage crisis has revealed
secondary mortgage loan officer in the State               unscrupulous practices by some mortgage
and were not a licensed secondary mortgage                 loan officers, as well as a lack of
loan officer the proposed Mortgage Loan                    accountability in the industry. Because each
Originator Licensing Act.                                  state had its own regulatory framework, it
                                                           was difficult to track mortgage lenders who
Employee Definition                                        had violated the law or had a suspended
                                                           license in one state and then transferred
The bill would define "employee" as an                     operations to another. The SAFE Act was
individual who meets both of the following:                enacted to correct those problems by
                                                           requiring states to adopt stringent uniform
-- Has     an     employment     relationship              licensing provisions and establishing a
   acknowledged by that individual and the                 nationwide method of monitoring the
   licensee or registrant that engages that                activities of mortgage originators. The bills
   individual    to   originate    secondary               would      implement      the    SAFE    Act
   mortgage loans.                                         requirements, ensuring that Michigan was in
-- Is treated as an employee by the licensee               compliance with Federal law.
   or registrant that engages the individual
   to originate secondary mortgage loans for               The bills also would provide additional
   compliance with Federal income tax laws.                protections for consumers, ensuring that
                                                           mortgage loan originators had a certain
Repeals                                                    minimum level of education. Requiring all
                                                           licensees to register through the NMLSR
The bill would repeal Sections 2a, 2b, 2c,                 would prevent individuals who had been
and 26a of the Act, effective August 1,                    convicted of a crime or had a license
2010.    Those sections provide for the                    revoked in one state from continuing to act

Page 12 of 13                    Bill Analysis @ www.senate.michigan.gov/sfa             sb462-465/0910
as a mortgage originator in another state.                mortgage loan industry to bring it into
That additional level of regulation and                   compliance with Federal requirements in the
accountability could help exclude bad actors              Secure and Fair Enforcement For Mortgage
from the industry, and could help to ensure               Licensing Act of 2008, which was included in
that mortgage loan originators' interests                 the Federal Housing and Economic Recovery
were aligned with those of the consumers                  Act of 2008. The Commissioner of Financial
that they serve.       The Commissioner of                and Insurance Regulation within the
Financial and Insurance Regulation would                  Department of Energy, Labor, and Economic
have the authority to investigate the                     Growth would have the authority to
activities of a licensee and take corrective              establish license fees for mortgage loan
action if he or she found that the licensee               originators at amounts sufficient to cover
had violated the licensing requirements.                  the cost of administering and enforcing the
                                                          regulation; however, the fee amounts would
While 2008 amendments revised the                         be constrained to the range permitted in
MBLSLA and the Secondary Mortgage Loan                    Senate Bill 462 (S-1). Revenue from the
Act to establish licensing requirements and               fees would be deposited in the existing
provide for additional oversight of mortgage              Mortgage Brokers, Lenders, and Services
loan originators, the bills would bring those             Licensing Act Fund and used to pay the
requirements in line with the new Federal                 costs of regulating the profession. Michigan
mandates. According to a spokesperson for                 currently is regulating this industry; thus,
OFIR, the bills are based on model                        the proposed changes are not expected to
legislation that was reviewed by HUD, which               result   in   major    changes    to  OFIR's
verified that the language met the                        administrative costs or revenue.
requirements under the SAFE Act.
       Response: While it is important to                 Under Senate Bill 462 (S-1), any civil fines
protect the interests of consumers, the bills             collected for violations would be deposited
should take a balanced approach to help                   into the General Fund. The amount of civil
preserve businesses in the State, avoiding                fines would depend on the frequency of
excessive regulation or punitive measures.                violations and the level of the fine assessed.
Some individuals working in the mortgage
loan industry are experiencing heavy                      The bill would have an indeterminate fiscal
workloads as they work with homeowners to                 impact on local government. There are no
modify an unprecedented number of                         data to indicate how many offenders would
mortgage loans. Under the circumstances,                  be convicted of violating a final order of
it could be difficult for those individuals to            suspension or prohibition from being
meet the licensing requirements in the                    licensed. Local governments would incur
specified time frame. The bills should give               the costs of misdemeanor probation and
loan originators additional time to meet the              incarceration in local facilities, which vary by
licensing requirements, to avoid distracting              county. Additional penal fine revenue would
from their efforts.                                       benefit public libraries.

Supporting Argument                                                      Fiscal Analyst: Lindsay Hollander
The bills would preserve Michigan's licensing                                               Elizabeth Pratt
system for mortgage loan originators.                                                    Maria Tyszkiewicz
According to OFIR, a state's licensing system
must meet several minimum requirements
for the state to maintain supervisory
authority     over      state-licensed    loan
originators. If a state fails to comply with
the SAFE Act, HUD will develop and maintain
a licensing system for mortgage loan
originators for that state, according to OFIR.

           Legislative Analyst: Curtis Walker

FISCAL IMPACT
                                                            A0910\s462a
The bills would adjust Michigan's current                   This analysis was prepared by nonpartisan Senate staff
                                                            for use by the Senate in its deliberations and does not
system of regulation of participants in the                 constitute an official statement of legislative intent.

Page 13 of 13                   Bill Analysis @ www.senate.michigan.gov/sfa                  sb462-465/0910

								
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