Pennsylvania Ties Mortgage Servicer License to Federal System in Flux

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On December 22, 2017, the Pennsylvania Legislature approved Senate Bill 751 (or Act 81), which creates a new licensing requirement for residential mortgage servicers. Joining 36 other states, Pennsylvania took steps toward giving its Department of Banking and Securities the authority to license and examine non-bank mortgage servicers.

Pennsylvania servicers have until June 30, 2018 to obtain a license in accordance with the rules, and the department anticipates accepting applications starting April 1, 2018, using the Nationwide Multistate Licensing System (NMLS)

Servicing a Mortgage

The definition varies between states, but generally a mortgage servicer is an entity that has the right to “service” a mortgage (regardless of whether it initially originated the loan or purchased the servicing rights), which can include accepting and recording payments of principal, tax, and insurance, as well as calculating interest rates. In the bill’s corresponding press release, the department notes that the national non-bank share of mortgage servicers has grown 18 percent since 2012 (from seven to 25), and intends to license this growing industry in order to protect Pennsylvania homeowners from wrongful foreclosures.

Requirement to Mirror Federal Regulations

Notably, Act 81 states that the new license will not take effect until the department creates regulations that “effectively incorporate the Consumer Financial Protection Bureau’s mortgage servicer regulations,” which are collected in Regulation X of the Real Estate Settlement Procedures Act (RESPA). Accordingly, on February 6 the department issued regulations that almost match the language of Regulation X verbatim (there are technical differences, as well as the exclusion of a RESPA exemption for small servicers, and the expansion of early intervention and loss mitigation requirements beyond just principal residence-secured loans). The bill goes further in its reliance on RESPA by stating that if Regulation X changes, the state’s regulations must change with it, and that if federal action ever leads to a “complete lack of Federal regulations in the area,” the department will have two years to create its own rules on the topic.

The department’s press release states its hope that by simply adopting standards already established in the marketplace, servicers will feel comfortable working with a “familiar and consistent set of rules and guidelines.”

Potential Change Looms at the Federal Level

However, as with other aspects of the federal financial regulatory system, it remains unclear how long rules like Regulation X will stay “familiar and consistent.” For example, H.R. 2133, the Community Lending Enhancement Regulatory Relief (CLEARR) Act of 2017, would expand the federal disclosure exemption for small servicers (currently a servicer is “small” if it services 5,000 or fewer loans, and the act would widen the scope to 30,000). Bills like Senator Mike Crapo’s (R-ID) reform bill, S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, proposes numerous changes in requirements for mortgage professionals. It would affect the licensing requirements for mortgage originators, and would press Congress to provide new guidance on Regulation Z regarding the TILA-RESPA Integrated Disclosure (TRID) Rule. Other bills, like H.R. 1946 and H.R. 4651 would affect CFPB authority over mortgage lenders. In addition, the top-to-bottom review of the Bureau being conducted by acting director Mick Mulvaney is creating uncertainty in other areas under CFPB authority.

With Congress starting to move forward on some banking reform (the Senate may vote on S. 2155 as soon as early March), the Pennsylvania department may have to release amendments to the regulations it issued in February sooner than it may have anticipated. The department also has yet to clarify what constitutes a “complete lack of Federal regulations in the area,” but a sudden jolt in federal requirements requiring a regulatory recalibration is not unthinkable.

For more information on Pennsylvania’s finance licensing regime, Bloomberg Law subscribers can access the Banking & Finance State Law Chart Builders