Chapter 06. Mortgage Lenders

“Applicant” means a borrower who has not received a commitment from a licensee to make the loan requested.

“Applicant” does not include a person whose request for a mortgage loan has been denied.

This section defines whether a person is acting as a broker or a lender in a particular transaction.

For purposes of all Maryland laws and regulation applicable to mortgage lenders, a person is acting as a broker if:

There is no broker in a transaction solely because the lender contracts with a third party for processing or underwriting services if:

“Lender” means a person who makes a mortgage loan.

“Lender”, as used in these regulations, does not include a person acting as a:

“Mortgage servicer” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland.

“Mortgage servicer” includes a person that engages in one or more of the following actions for the benefit of other persons in connection with mortgage loans:

Collection of data, documents, and other materials which a lender or broker requires in order to evaluate whether a loan will be granted or denied;

Preparation of all materials necessary for closing a loan; and

Scheduling of the closing of a loan.

“Social media” means an Internet website or application software that:

“Social media” includes an Internet website or application software that allows members to communicate by means of one or more of the following:

“Social media” does not include an electronic mail account.

Is an out-of-State deposit-taking financial institution;

Does not have offices in Maryland;

Does not have tax situs in Maryland; or

Is not required to register as a foreign corporation doing business in Maryland.

The individual has received compensation in connection with a minimum of 12 closed mortgage loans per year for each of the 3 years; or

The individual has worked in the mortgage lending business at least an average of 20 hours per week for each of the 3 years.

An individual who owns, directly or indirectly, 10 percent or more of the business entity;

An individual who serves on the board of directors or board of managers;

An elected or appointed senior officer, including President, Executive Vice President, Senior Vice President, Treasurer, Secretary, Chief Executive Officer, Chief Operating Officer, Chief Legal Officer, Chief Credit Officer, and Chief Compliance Officer; or

An individual, regardless of title, who has the power to direct the management or policies of the mortgage lending business.

Upon notice of the termination from the bond surety, or issuer of the letter of credit or trust account, the licensee shall immediately cease doing any business as a mortgage lender; and

The mortgage lender's license is suspended.

A new license; and

A license renewal.

The necessary skills and knowledge of the mortgage industry to be able to adequately respond to consumer complaints; and

Authority to resolve the complaint, or shall report directly to an individual with such authority.

A lender;

A mortgage broker; or

A mortgage servicer.

A licensee shall notify the Commissioner in writing through NMLS if, after the issuance or the renewal of its license, the licensee begins conducting a new activity that the licensee did not designate under §H(1) of this regulation.

A licensee shall deliver the notification through NMLS to the Commissioner within 10 business days after beginning the new activity.

Original books, accounts, and files;

An approved electronic equivalent; or

An approved microphotographic copy.

Completes an attestation in the format prescribed by the Commissioner; and

Uploads an electronic copy of the attestation to NMLS in accordance with directions provided by the Commissioner.

Store the records in a format that shall allow the Commissioner to read the records using common, readily available software;

Maintain electronic copies of the original documents that are:

Ensure that, when printed, the records will be legible;

Protect the records from:

Be permitted to alter electronic documents in any manner that does not affect the content of the records.

Ensure that all records are:

Protect the records from:

Immediately notify the Commissioner when a licensee discovers or is notified of a potential loss of records, completes a reasonable and prompt investigation, and then determines that records have been lost or are reasonably likely to be lost.

A lender shall retain records for 61 months after a loan is denied, repayment of the loan is made in full, or the loan is sold, whichever occurs first.

A mortgage servicer shall retain records for 61 months after final payment is made or the right to service the loan under either a servicing or subservicing agreement is terminated or transferred, whichever occurs first.

If a licensee acts as a broker in a mortgage loan, records of the mortgage loan shall be retained for 61 months after the mortgage loan is made or denied.

The date of the loan closing;

The annual percentage rate of interest payable on the loan;

Documentation of all charges and fees disbursed from the proceeds of the loan or collected directly from the borrower;

Documentation of disbursements of loan proceeds to creditors of the borrower;

Documentation of any broker's agreement signed by the borrower if a broker fee is paid from the loan proceeds at closing;

The amount of any origination or discount fee;

A notation of any applicable governmental loan program for each loan;

An accurate history or audit trail, since the date of loan closing, of the application of all:

The objective index used to determine the interest rate from time to time if the loan has an adjustable rate;

If the loan was assigned by the licensee, the name of the assignee, and the date of the assignment;

Any document which indicates whether the security interest is in first or second lien position at the time the loan is made;

All required State and federal disclosure documents;

Records of all monies received from a borrower for fees to be paid to third parties for services in connection with the loan;

Records indicating that the services were provided and the fees paid by the licensee to the third party;

A record of dates on which a credit report, appraisal, and other services or items were ordered by the licensee;

Any other document on which the licensee relied in underwriting the loan;

Optional insurance:

Records of any foreclosure action begun by the licensee by filing an order to docket or a complaint to foreclose including, if applicable:

Copies of all documents filed by or on behalf of the licensee in a borrower’s bankruptcy proceeding involving the mortgage loan;

If the licensee is a mortgage servicer:

Other documents necessary to prove compliance with any State or federal statute or regulation applicable to the mortgage loan.

Shall retain copies of all records listed in §B(1) of this regulation which the licensee obtains in the course of processing or underwriting a loan;

Shall retain a copy of the broker agreement between the licensee and the borrower;

Shall retain a record of the lender to whom the loan was brokered;

Shall retain a record of the amount of any finder’s fee received;

Shall retain a record of any compensation, as required by federal law; and

Is not responsible for retaining any record unless the licensee at some time is in physical possession of a copy of that record.

In an electronic format agreed to by the Commissioner;

In paper form, if the licensee does not maintain its records in an electronic format; and

Organized in any manner requested by the Commissioner.

Is listed as a licensed location in NMLS; or

Has been approved by the Commissioner pursuant to COMAR 09.03.02.09A.

Need not disclose any address of the advertiser; and

May use the trade name of a parent corporation.

In writing; and

Provided promptly to the borrower following execution by all parties.

A note;

A deed of trust;

A mortgage;

An affidavit by the borrower;

Any written certification or statement by the borrower as to use of loan proceeds;

Any other instrument granting a security interest in property;

Any other document which constitutes a debt obligation of the borrower; and

A finder's fee agreement required under Commercial Law Article, §12-805, Annotated Code of Maryland.

Notary public;

Witness who is not a borrower, guarantor, or obligor on the loan; or

Person required to sign a certification or affidavit required by law for recordation.

Fees which the seller may be required to pay,

The fact that the borrower has the responsibility for informing the seller about the fees, and

The fact that the loan will not be made unless the seller, or someone other than the borrower, pays those fees.

All original documents and other materials which were supplied to the licensee by the borrower; and

If paid for by the borrower, a copy of the appraisal report.

At the time the loan application was received the licensee believed in good faith that the licensee was acting as a lender not a broker in the transaction; and

Within 5 business days after determination by the licensee that the loan will be closed in the name of a third-party lender, the licensee:

Increasing any cost to the borrower; or

Avoiding any legal obligation to the borrower.

Purchase money mortgage loan applications; and

Loan applications in which the licensee establishes a deadline for closing, after which the loan terms offered to the applicant may change.

A credit report and property appraisal within 5 business days after initial application; or

Within 5 business days, other reports from third parties needed for underwriting after discovery that the reports will be needed.

Verification of employment; and

Verification of deposits.

“Covered employees” means the person with the required experience under Financial Institutions Article, §11-506(b)(2), (3), and (4), Annotated Code of Maryland, and the manager of each branch office licensed, or required to be licensed, by the Commissioner.

“Covered employees” does not include an employee who:

Federal law and regulations relating to mortgage origination — 3 hours;

Ethics, including instruction on fraud, consumer protection, and fair lending issues — 2 hours;

Lending standards and loan terms for the nontraditional mortgage product market — 2 hours; and

Maryland law and regulations relating to mortgage lending and origination — 1 hour.

Provide to the Commissioner any information or certification as the Commissioner may require as proof of satisfactory completion of each covered employee's education requirements; and

Submit to the Commissioner, in the manner the Commissioner requires, a list of all covered employees.

Denial of a license renewal under Financial Institutions Article, §11-511(b), Annotated Code of Maryland; or

Suspension or revocation of a license or other sanctions pursuant to Financial Institutions Article, §11-517, Annotated Code of Maryland.

Prohibits a covered employee who has failed to comply with this regulation from qualifying as the person with the required experience under Financial Institutions Article, §11-506(b)(2), (3), and (4), Annotated Code of Maryland, or acting as a manager of a branch office; and

Continues in effect until the licensee demonstrates to the Commissioner completion by the covered employee of all educational requirements of this regulation.

Promptly provide borrowers with an accurate accounting of the debt owed when borrowers request an accounting;

Make borrowers in default aware of loss mitigation options and services offered by the licensee;

Provide trained personnel and telephone facilities sufficient to promptly answer and respond to borrower inquiries regarding their mortgage loans; and

Pursue loss mitigation when possible.

Obtaining a lower interest rate;

Obtaining a lower monthly payment, including principal, interest, taxes, and insurance;

Obtaining a shorter amortization schedule;

Changing from an adjustable rate to a fixed rate;

Eliminating a negative amortization feature;

Eliminating a balloon payment feature;

Receiving cash-out from the new loan in an amount greater than all closing costs incurred in connection with the loan;

Avoiding foreclosure;

Eliminating private mortgage insurance; and

Consolidating other existing loans into a new mortgage loan.

Pay only the interest due on the mortgage loan; and

After the interest-only period ends, make payments that include both principal and interest.

That allows the borrower to choose from a number of different payment options, which may include, but are not limited to:

For which, at a certain point in the mortgage loan term, the monthly payment amount is required to be set at an amount that will fully amortize the outstanding balance of the loan over the remaining loan term.

Payment shock resulting from potential interest rate increases, including how the new payment will be calculated when the introductory fixed-rate period expires;

Negative amortization, including:

Prepayment penalties that may be imposed if the mortgage, or any part of it, is paid off before maturity, including how any prepayment penalty may be calculated and when it may be imposed;

Balloon payments, including:

Responsibility for taxes and insurance when:

Cost of reduced documentation loans when there is a pricing premium attached to a reduced documentation or stated income mortgage loan.

In complying with this regulation, a licensee may utilize the sample illustrations included in:

A licensee may revise and adapt the illustrations described in §B(2)(a) of this regulation to make them applicable to the specific mortgage loan products offered by the licensee.

A licensee acting as a lender that offers or originates nontraditional or higher-priced mortgage loan products shall train its lending personnel to convey information to consumers about the product terms and risks in a timely, accurate, and complete manner. If the lender offers new or additional nontraditional or higher-priced mortgage loan products, the lender shall provide lending personnel with additional training as necessary to enable the lending personnel to convey information to consumers in a timely, accurate, and complete manner. The lender shall monitor lending personnel to determine whether the personnel are conveying information in the manner required.

A licensee acting as a lender shall review consumer complaints to identify potential noncompliance and other risks. The review shall include:

A licensee acting as a lender that originates, invests in, or services nontraditional or higher-priced mortgage loan products using a mortgage broker, correspondent, or other third party shall take appropriate steps to ensure third-party practices are consistent with the policies of the lender, including, but not limited to:

A licensee acting as a lender shall establish written policies and procedures to implement the requirements set forth in this subsection.

A licensee acting as a lender shall design and implement control systems, including quality control, compliance, and audit procedures to focus on mortgage lending activities that pose high risk.

The procedures shall include controls to monitor compliance with underwriting standards and monitor exceptions to those standards.

A licensee acting as a lender shall have systems and controls in place for establishing and maintaining relationships with third-party originators, including procedures for performing due diligence.

Lender oversight of third parties shall involve monitoring the quality of originated nontraditional and higher-priced mortgage loans to ensure that the products:

A licensee acting as a lender shall develop and use control systems to monitor whether the lender's actual practices are consistent with the policies and procedures of the lender relating to nontraditional and higher-priced mortgage loans.

Experienced supervisory personnel to review and discuss:

Regularly updated policies and procedures that provide adequate guidance to mortgage loan originators in the following areas:

Review of disclosures, agreements, and other documents prepared or executed by mortgage loan originators;

Compliance with the policies and procedures specified in §B(1)(b) of this regulation; and

Dissemination of the policies and procedures specified in §B(1)(b) of this regulation.

The establishment of policies and procedures related to information technology approved by the board of directors, ownership, or most senior level of management; and

A management structure that encompasses:

Identification of the data and information systems that need to be protected;

Classification and ranking of sensitive data, systems, and applications; and

Identification and assessment of threats and vulnerabilities.

Evaluating the effectiveness of existing internal controls;

Taking corrective action to address any significant deficiencies identified during the course of licensee’s evaluation of the effectiveness of existing internal controls;

Monitoring of external sources for new vulnerabilities; and

Developing and implementing additional control frame works for any new or changed threats or risks identified by the licensee.

Clearly defined responsibilities and accountability;

Internal controls, policies, processes, and practices for monitoring, testing, and ensuring compliance with the corporate governance framework;

Internal controls, policies, processes, and practices for training of employees on corporate governance requirements; and

Internal controls, policies, processes, and practices addressing internal audits, external audits, and risk management as set forth in §§B, C and D of this regulation.

Annual financial statements, including a balance sheet, statement of operations (income statement), and cash flows, including notes and supplemental schedules prepared in accordance with generally accepted accounting principles;

Assessment of the internal control structure;

Computation of tangible net worth;

Validation of MSR valuation and reserve methodology, if applicable;

Verification of adequate fidelity and errors and omissions (E&O) insurance;

Testing of controls related to risk management activities, including compliance and stress testing, if applicable; and

Any other element the Commissioner deems appropriate.

“Agency” means Fannie Mae, Freddie Mac, and Ginnie Mae.

“Allowable assets for liquidity means” those assets that may be used to satisfy the liquidity requirements herein, including unrestricted cash and cash equivalents and unencumbered investment grade assets held for sale or trade (for example, agency MBS, obligations of Fannie Mae or Freddie Mac, or U.S. Treasury obligations).

“Board of directors” means the formal body established by a covered institution that is responsible for corporate governance and compliance with this regulation.

“Covered institution” means a licensee who is a mortgage servicer with servicing portfolios of 2,000 or more one-unit to four-unit residential mortgage loans serviced or subserviced for others, excluding whole loans owned, and loans being interim serviced prior to sale as of the most recent calendar year end, reported in the NMLS Mortgage Call Report, and who operates in two or more states, districts, or territories of the United States, either currently or as of the prior calendar year end.

“Fannie Mae” means Federal National Mortgage Association.

“FHFA” means the Federal Housing Finance Agency.

“Freddie Mac” means Federal Home Loan Mortgage Corporation.

“Ginnie Mae” means Government National Mortgage Association.

“Interim serviced prior to sale” means the activity of collecting a limited number of contractual mortgage payments immediately after origination on loans held for sale but prior to the loans being sold into the secondary market.

“Mortgage Call Report” means the quarterly or annual report of residential real estate loan origination, servicing, and financial information completed by companies licensed in NMLS.

“Mortgage-backed security” or “MBS” means a financial instrument, often a debt security, collateralized by residential mortgages.

“Operating liquidity” means the funds necessary to perform normal business operations, such as payment of rent, salaries, interest expenses, and other typical expenses associated with operating the entity.

“Residential mortgage loans serviced” means the specific portfolio or portfolios of residential mortgage loans for which a licensee is contractually responsible to the owner or owners of the mortgage loans for the defined servicing activities.

“Reverse mortgage loan” has the meaning stated in Commercial Law Article, §12-1201, Annotated Code of Maryland.

“Risk management assessment” means a functional evaluation performed under the risk management program and any report thereof provided to the board of directors under the relevant governance protocol.

“Servicing liquidity” or “liquidity” means the financial resources available to the licensee to meet such financial obligations as may arise from the servicing of mortgage loans, including, but not limited to, acquiring and financing MSRs, hedging costs associated with the MSR asset and financing facilities, including margin calls, and advancing or financing the advance of principal, interest, taxes, insurance, and any other servicing related advances.

“Subserviced for others” means the contractual activities performed by subservicers on behalf of a servicer or MSR investor.

“Tangible net worth” means total equity less receivables due from related entities, less goodwill, and other intangibles, less pledged assets.

“Whole loans” means those loans for which a mortgage and the underlying credit risk is owned and held on the balance sheet of the entity with all ownership rights.

This regulation does not apply to a not-for-profit mortgage servicer or a housing finance agency.

Section C of this regulation does not apply to a mortgage servicer solely owning and/or conducting reverse mortgage loan servicing, or the reverse mortgage loan portfolio administered by a covered institution or the whole loan portion of portfolios.

A covered institution shall maintain sufficient allowable assets for operating liquidity in addition to the amounts required for servicing liquidity, to cover normal business operations.

A covered institution shall have in place sound cash management and business operating plans that match the size, operational complexity, and overall risk profile of the covered institution to ensure normal business operations.

A covered institution’s management shall develop, establish, and implement plans, policies, and procedures for maintaining operating liquidity sufficient for the ongoing needs of the covered institution. Such plans, policies, and procedures shall contain sustainable, written methodologies for maintaining sufficient operating liquidity and be available to the Commissioner upon request.

Establishing a written corporate governance framework, including appropriate internal controls designed to monitor corporate governance and assess compliance with the corporate governance framework;

Monitoring and ensuring institution compliance with the corporate governance framework and these regulations; and

Accurate and timely regulatory reporting, including the requirements for filing the Mortgage Call Report.

The board of directors shall establish internal audit requirements that are appropriate for the size, complexity, and risk profile of the covered institution.

Internal audit functions shall be performed by employees of the covered institution who report to the board of directors or its authorized equivalent under this section and who are not otherwise supervised by the persons who directly manage the activities being reviewed.

Employees performing internal audit functions shall have sufficient knowledge, training, and resources to provide a reliable evaluation of the covered institution’s operations, risk management, internal controls, and governance processes.

A covered institution shall receive an external audit, which shall include audited financial statements and audit reports, conducted by an independent public accountant annually.

The external audit shall include at a minimum:

A covered institution shall establish a documented risk management program under the oversight of the board of directors that identifies, measures, monitors, and controls risk sufficient for the size, operational complexity, and overall risk profile of the covered institution.

The risk management program shall have appropriate processes and models in place to measure, monitor, and mitigate financial risks and changes to the risk profile of the covered institution and assets being serviced.

The risk management program shall be scaled to the complexity of the covered institution, but shall be sufficiently robust to manage risks in several areas, including, but not limited to:

Risk Management Assessment. A covered institution shall conduct a risk management assessment on an annual basis, concluding with a formal report to the board of directors. Evidence of risk management activities throughout the year shall be maintained and made part of the report, including findings of issues and the response to address those findings.

“Examination” means the Commissioner’s examination of a licensee pursuant to Financial Institutions Article, §11-515(a), Annotated Code of Maryland.

“Report of examination” means a report issued by the Commissioner or a responsible supervisory agency following the examination of a mortgage lender.

“Responsible supervisory agency” means the supervisory agency of any state primarily responsible for the supervision and examination of mortgage lenders operating in its state.

The responsible supervisory agency issued its report of examination on a date which satisfies the Commissioner’s examination schedule for that licensee under Financial Institutions Article, §11-515(a)(2), Annotated Code of Maryland;

The Commissioner reasonably determines the responsible supervisory agency possesses supervision and examination authority over mortgage lenders operating in that agency's state substantially similar to the supervision and examination authority the Commissioner has over a licensee operating in Maryland;

The Commissioner reasonably determines the responsible supervisory agency has standards for the purposes of examining mortgage lenders that are reasonably equivalent to the requirements of Financial Institutions Article, §11-501 et seq., Annotated Code of Maryland; and

The Commissioner reviews the report of examination prepared by the responsible supervisory agency and determines the report of examination is in form and scope substantially similar to a report of examination the Commissioner would issue following its examination of the licensee.

Examine an aspect of the licensee’s business not addressed in that report of examination;

Further examine an aspect of the licensee’s business addressed in that report of examination;

Request documents or other information from the licensee or otherwise require the licensee to make its books and records available to the Commissioner;

Interview or examine officers, directors, employees, or agents of the licensee;

Take other actions consistent with the examination of a licensee; or

Require the licensee to pay to the Commissioner examination related fees as set forth in Financial Institutions Article, §11-515(c), Annotated Code of Maryland.