This chapter governs the conduct of any person engaged in mortgage lending, mortgage brokering, or mortgage servicing of loans secured by residential real estate located in this State, unless specifically exempt from licensure under Financial Institutions Article, §11-502, Annotated Code of Maryland. In this chapter, the following terms have the meanings indicated. Terms Defined. “Advertisement” means a statement in any medium used or intended to induce any person to apply for a mortgage loan. “Annual percentage rate (APR)” has the meaning stated in 12 CFR Part 1026, as it may be amended from time to time. Applicant. “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. “Average prime offer rate” has the meaning stated in 12 CFR Part 1026, as it may be amended from time to time. “Borrower” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Breach of the security of a system” has the meaning stated in Commercial Law Article, §14-3504, Annotated Code of Maryland. Broker. 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: The person aids or assists a borrower in obtaining a mortgage loan for a fee or other valuable consideration; and The creditor identified in the loan documents is a different person than the person described in §B(7)(b)(i) of this regulation. There is no broker in a transaction solely because the lender contracts with a third party for processing or underwriting services if: The person contracting to perform the processing or underwriting did not generate the loan application; and The loan is closed in the name of the lender which did generate the loan application. “Commissioner” has the meaning stated in Financial Institutions Article, §1-101, Annotated Code of Maryland. “Commitment” has the meaning stated in Commercial Law Article, §12-125(a)(3), Annotated Code of Maryland. “Corporate governance” means the management structure of the licensee and the processes by which the business is managed, including the corporate controls, rules, policies, processes, and practices used to oversee and manage the institution. “Customer information” has the meaning stated in 16 CFR Part 314, as it may be amended from time to time. “Dwelling” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Electronic record” has the meaning stated in Commercial Law Article, §21-101(h), Annotated Code of Maryland. “Escrow account” has the meaning stated in Commercial Law Article, §12-109(a)(3), Annotated Code of Maryland. “External audit” means the formal report prepared by an independent certified public accountant expressing an opinion on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial reporting framework, and is inclusive of an evaluation of the adequacy of a company’s internal control structure. “Financing agreement” has the meaning stated in Commercial Law Article, §12-125(a)(4), Annotated Code of Maryland. “Fully indexed rate” has the meaning stated in 12 CFR Part 1026, as it may be amended from time to time. “Higher-priced mortgage loan” has the meaning stated in 12 CFR Part 1026, as it may amended from time to time. “Information security program” has the meaning stated in 16 CFR §314.2, as it may be amended from time to time. “Initial application” means the submission of a borrower’s financial information in anticipation of a credit decision relating to a mortgage loan, which shall include the borrower’s name, the borrower’s monthly income, the borrower’s social security number to obtain a credit report, the property address, an estimate of the value of the property, and the mortgage loan amount sought. “Internal audit” means the internal independent and objective assurance and consulting activity performed to evaluate and improve the effectiveness of a licensee’s operations, risk management, internal controls, and governance processes. Lender. “Lender” means a person who makes a mortgage loan. “Lender”, as used in these regulations, does not include a person acting as a: Mortgage broker; or Mortgage servicer. “License” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Licensed location” means any location listed by the licensee in NMLS. “Licensee” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Loan” as used in these regulations, unless the context indicates otherwise, means a mortgage loan. “Loan application” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Loss mitigation option” has the meaning stated in 12 C.F.R. Part 1024, as it may be amended from time to time. “Mortgage lender” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Mortgage loan” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Mortgage loan originator” has the meaning stated in Financial Institutions Article, §11-601, Annotated Code of Maryland. Mortgage Servicer. “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: Performs the routine administration of mortgage loans as agent of a servicer or MSR investor under the terms of a subservicing contract; Invests in and owns mortgage servicing rights and relies on subservicers to administer the mortgage loans on its behalf; Collects or receives payments directly from borrowers for distribution to the owner of the mortgage loan or another third party, including a master servicer; Evaluates borrower eligibility for loss mitigation options; Communicates with the borrower regarding loss mitigation options; Is responsible for supervision of third parties that take action to protect a secured party’s interest in the property under the applicable security instrument, such as maintenance of hazard and mortgage insurance coverage and preservation of the property; or Conducts or supervises the foreclosure process, except if the person is an attorney representing a mortgagee or its successors and assigns, or is acting as a substitute trustee in a foreclosure action under a deed of trust. “Mortgage servicing rights” or “MSR” means the contractual right to service a mortgage loan on behalf of the owner of the associated mortgage in exchange for specified compensation in accordance with the servicing contract. “MSR Investor” means a person who invests in and owns mortgage servicing rights and relies upon subservicers to administer the mortgage loans on the person’s behalf, and who may be referred to as a master servicer. “NMLS” has the meaning stated in Financial Institutions Article, §1-101, Annotated Code of Maryland. “Person” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Processing”, when used in the context of processing a loan application, means the: 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. “Residential real estate” has the meaning stated in Financial Institutions Article, §11-501, Annotated Code of Maryland. “Risk management program” means the policies, procedures, and internal controls designed to identify, measure, monitor and mitigate risk. “Service provider” has the meaning stated in 16 CFR Part 314, as it may be amended from time to time. Social Media. “Social media” means an Internet website or application software that: Requires a person to register or create an account to become a member; and Allows two or more members to communicate directly with one another. “Social media” includes an Internet website or application software that allows members to communicate by means of one or more of the following: Text; Video; Still photograph; or Audio. “Social media” does not include an electronic mail account. “Subservicer” means a person performing the routine administration of mortgage loans as an agent of a servicer or MSR investor under the terms of a subservicing contract. “Trade name” means any word or group of words used to identify a business to the public. “Underwriting” means the evaluation of information and materials about the loan, the applicant, and the property which will secure the loan, to determine whether the loan will be made or denied. A licensee shall be deemed to have complied with a requirement under Commercial Law Article, Title 12, Subtitles 1, 3, 4, 8, 9, or 10, Annotated Code of Maryland, to provide a written disclosure or agreement within a specified time period after the date the loan application is completed if the mortgage disclosure or agreement is provided to an applicant in person, or placed in the mail, before the end of the time period specified in the applicable statute. Electronic Disclosures. Mortgage disclosures required by Commercial Law Article, Title 12, Subtitles 1, 3, 4, 8, 9, 10, 12, or 13, Annotated Code of Maryland, may be provided to an applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (15 U.S.C. §7001 et seq.) and the Maryland Uniform Electronic Transactions Act (Commercial Law Article, Title 21, Annotated Code of Maryland). For the purpose described in §A of this regulation, unless otherwise agreed between the licensee and an applicant, the time of sending and receipt of a mortgage disclosure sent as an electronic record shall be governed by Commercial Law Article, §21-114, Annotated Code of Maryland. Scope. If otherwise required to be licensed under Financial Institutions Article, §11-502, Annotated Code of Maryland, a person is not exempt because the person: 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. Repealed. For purposes of Financial Institutions Article, §11-506, Annotated Code of Maryland, an individual is considered to have at least 3 years of experience in the mortgage lending business if: 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. The Commissioner may consider the totality of an individual's particular duties and activities while engaged in the mortgage lending business to determine whether the individual has at least 3 years of experience. For purposes of Financial Institutions Article, §11-506, Annotated Code of Maryland, a “principal officer” includes: 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. Unlicensed Mortgage Lender. A licensee may not broker a loan to, or accept a loan referral from, a person the licensee knows is not licensed by the Commissioner, unless the licensee reasonably and in good faith believes that the person is properly licensed or exempt from the licensing requirement. Renewals. A licensee may renew a license by filing a completed renewal application before the expiration of its current license. A person who fails to comply with §C(1) of this regulation shall file an application for a new license with all application and investigation fees, unless the renewal application is filed with the Commissioner within 30 days after the date on which the current license expired. Bond Termination. If a licensee's bond, letter of credit, or trust account is cancelled, expired, or closed and no substitute bond or authorized security is in place: 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. If the termination remains in effect for more than 30 days, an application for a new license shall be filed with all application and investigation fees. Loan Processing Under Expired License. If a licensee files an application for license renewal with the Commissioner at least 2 calendar weeks before the license expires and the Commissioner has not approved the application before the license expires, the licensee may continue to process and close loans until the Commissioner takes final action on the application in accordance with State Government Article, §10-226(b), Annotated Code of Maryland. If a licensee files an application for license renewal with the Commissioner less than 2 calendar weeks before the license expires and the Commissioner has not approved the application before the license expires, the licensee shall cease processing and closing loans when the license expires. Complaint Resolution. A licensee shall designate a person as being responsible for, and authorized to make, decisions regarding the resolution of complaints received from the Commissioner. A licensee shall provide to the Commissioner the name of the person designated under §G(1) of this regulation as part of an application for: A new license; and A license renewal. A person designated under §G(1) of this regulation shall have: 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 licensee shall notify the Commissioner through NMLS of any change in the person designated under §G(1) of this regulation within 10 business days of the change. Designation of Mortgage-Related Activity. A licensee shall designate on its original license application and on any license renewal application whether it will act, under its license, as one or more of the following: A lender; A mortgage broker; or A mortgage servicer. Notification. 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. NMLS. Applications. The Commissioner shall approve or deny an application for an initial license, a renewal license, or a license amendment within 60 days after the Commissioner receives a completed application, including, if applicable, a surety bond and all required fees. If the Commissioner notifies an applicant that an application for an initial license, a renewal license, or a license amendment is incomplete, the Commissioner shall itemize the steps that the applicant must take to complete the application. The application for an initial license, a renewal license, or a license amendment may not be approved until after the applicant completes all steps identified in the Commissioner’s notice. If an application for an initial license, a renewal license, or license amendment is incomplete when submitted and remains incomplete, the Commissioner may cease processing and deem the incomplete application withdrawn, provided that the Commissioner has previously notified the applicant of the basis for incompleteness in accordance with §J(2) of this regulation, and given the applicant not less than 15 days to correct the incompleteness. Preservation of Records. A licensee shall preserve the records of a mortgage loan in one or more of the following ways: Original books, accounts, and files; An approved electronic equivalent; or An approved microphotographic copy. A licensee’s use of electronic or microphotographic preservation of records, or storage of books and records at a location other than the licensee’s place of business, shall be considered approved by the Commissioner if the licensee: 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. A licensee who stores records in the form of electronic copies shall: 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: Complete; Accurate; Unaltered; and Unabridged; Ensure that, when printed, the records will be legible; Protect the records from: Deletion; Damage to or failure of electronic storage media; and Unauthorized access, use, modification, or disclosure; and Be permitted to alter electronic documents in any manner that does not affect the content of the records. A licensee who stores records at a location other than its licensed address shall: Ensure that all records are: Complete; Accurate; Unaltered; and Unabridged; Protect the records from: Deletion; Damage to, or failure of, electronic storage media; and Unauthorized access, use, modification, or disclosure; and 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. Time Period. 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. Records required to be retained shall be maintained separately from the records of any other business of the licensee or its employees. Notwithstanding §A(3) of this regulation, a licensee may commingle records of mortgage loans with records of other types of loans made, brokered, or held by the licensee, if the mortgage loans can be readily retrieved for an examination. Content of Records. For each mortgage loan made or serviced by a licensee, a file shall be maintained which contains, at a minimum, the following: 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: Payments; Charges; and Credits; 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: Insurance information regarding optional insurance coverage purchased by the borrower in connection with the loan, including the premium charged, the types of coverages, and written authorization from the borrower for each type of coverage; This paragraph does not apply to hazard insurance and flood insurance on the property securing the mortgage loan; Records of any foreclosure action begun by the licensee by filing an order to docket or a complaint to foreclose including, if applicable: The name and license number or NMLS unique identifier of the mortgage originator that originated the loan if that information is contained in the security instrument underlying the foreclosure or is otherwise known to the licensee; The name and license number or NMLS unique identifier of the mortgage lender that originated the loan; and Copies of all documents provided to the borrower or filed with a court in conjunction with the foreclosure action; 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: Copies of all written correspondence between the licensee or its vendors and the borrower; Written records of verbal communications between the mortgage servicer or its vendors and the borrower; and Copies of any audio recordings of communication with the borrower; and Other documents necessary to prove compliance with any State or federal statute or regulation applicable to the mortgage loan. Notwithstanding §B(1) of this regulation, a licensee acting as a broker in connection with a particular 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. A licensee shall maintain all records that demonstrate that the licensee meets the general qualifications for a license as described in Financial Institutions Article, §11-506, Annotated Code of Maryland. Records retained for longer than the minimum time period shall be made available to the Commissioner upon the Commissioner's reasonable request. Provision of Records to the Commissioner. A licensee who keeps books and records at a licensed location shall, at the request of the Commissioner, immediately make those books and records available to the Commissioner at the licensed location. A licensee who keeps books and records at a location other than the licensed location with prior permission by the Commissioner shall, within 5 business days of a request by the Commissioner, make those books and records available to the Commissioner at the licensed location. A licensee shall ensure that the Commissioner receives any records requested in writing by the Commissioner within 10 business days from the date of the request. When delivered to the Commissioner, records shall be: 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. Loss of Records. A licensee shall immediately notify the Commissioner of any actual or potential loss of records required to be kept by this regulation. A person may not publish, or cause to be published, any advertisement, or make or cause to be made any representation, that: Contains any false, misleading, or deceptive statements regarding the making, brokering, or servicing of mortgage loans; or Misrepresents terms, availability, rates, or charges incident to a mortgage loan. Licensee Name and Address. A licensee may not advertise under any name or address other than a name or address that: Is listed as a licensed location in NMLS; or Has been approved by the Commissioner pursuant to COMAR 09.03.02.09A. Notwithstanding §B(1) of this regulation, an advertisement: Need not disclose any address of the advertiser; and May use the trade name of a parent corporation. Notwithstanding §B(1) of this regulation, a licensee may use an e-mail address or website address that is different from the name or website address that appears on the licensee's license, provided that the content of any e-mail correspondence, or of the website itself, uses only a name that appears on the licensee's license or has been approved by the Commissioner pursuant to [Regulation .04L of this chapter] COMAR 09.03.02.09B and is listed as a trade name on the licensee's NMLS record. A licensee shall disclose its NMLS unique identifier in every advertisement. Notwithstanding §B(4) of this regulation, a licensee who utilizes social media for advertising purposes need not disclose the licensee's NMLS unique identifier in each statement published through a social media platform, provided that the NMLS unique identifier is displayed prominently on the licensee's profile page within the social media platform. A licensee is responsible for a violation of §A of this regulation even if a parent corporation's trade name is used as permitted in §B(2)(b) of this regulation. A licensee is responsible for any advertisement disseminated by an employee of the licensee if such advertisement relates to activities performed by the licensee or by the employee in the employee's capacity as an employee of the licensee. For purposes of Commercial Law Article, §§12-125, 12-922, and 12-1022, Annotated Code of Maryland: An application is completed at the time of initial application; Settlement occurs when the loan proceeds are disbursed by the person conducting settlement to the borrower or to third parties as required by the lender's instructions; Settlement has not occurred when the loan proceeds are disbursed from the lender to the custody of an escrow agent pending expiration of a time period during which the borrower is entitled by statute to rescind the loan. In a loan transaction where there is a separate broker and lender, only one financing agreement need be provided to the applicant. A financing agreement need not be provided under Commercial Law Article, §12-125, 12-922, or 12-1022, Annotated Code of Maryland, if within 10 business days after initial application the: Loan is closed; or Applicant receives a written commitment. Written Agreements. Agreements between a borrower and a licensee shall be: In writing; and Provided promptly to the borrower following execution by all parties. Exact copies of original documents may be provided to the borrower to satisfy this section. Agreements in Blank. A person may not obtain a borrower's or guarantor's signature on any of the following documents if blanks remain to be filled in after execution by the borrower: 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. The prohibitions of §B(1) of this regulation do not apply to blanks for the signatures of a: 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. Undisclosed Fees. Unless disclosed in written agreements signed by the borrower, a licensee may not, directly or indirectly, impose any fee or charge payable by or on behalf of the borrower. In this section “written agreements” includes all closing documents signed by the borrower. Compliance with applicable disclosures under 12 CFR §§1026.37 and 1026.38 shall be deemed compliance with §C(1) and (2) of this regulation. This section does not apply to changes in amounts collected to be placed in an escrow account maintained after the loan is made. Security Instruments. Licensees shall comply with the requirements relating to security instruments to be recorded in connection with the inclusion of the name and licensee number of the mortgage lender and mortgage originator, or an affidavit in lieu thereof, as set forth in Real Property Article, §3-104.1, Annotated Code of Maryland. A mortgage lender: May not cause or permit any loan to be characterized as a commercial loan if there are circumstances known to the licensee which indicate that any portion of the loan proceeds will not be used for commercial purposes; Which cannot guarantee acceptance of a borrower's application into a particular loan program, shall disclose that fact to the applicant in writing; Shall keep an applicant generally informed of the progress of the processing of a loan application in the event that problems arise in the processing or underwriting of a loan which may delay closing; and Shall comply with all State and federal laws and regulations applicable to a particular loan. If a mortgage lender elects to make a loan under Commercial Law Article, Title 12, Subtitle 9 or Subtitle 10, Annotated Code of Maryland, the lender shall make that election in writing in the: Agreement, note, or other evidence of an extension of closed end credit; or Agreement governing a revolving credit plan. A licensee may not retain a fee, or any portion of a fee, collected from the borrower if the fee is represented as a charge to be paid to a third party for services in connection with the loan. Timing of Collection. If a financing agreement is required under Commercial Law Article, §12-125, 12-922, or 12-1022, Annotated Code of Maryland, and these regulations, a licensee may not collect any fee from the applicant before providing the financing agreement executed by the lender. Notwithstanding §B(1) of this regulation, a licensee may collect fees which are to be fully paid to third parties for services in connection with the loan, before providing a financing agreement. A licensee may condition the making of a loan on the real estate seller's paying certain fees only if: The seller has agreed in writing to pay those fees; or At the time the borrower elects the type of loan applied for, the licensee discloses in writing: 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. If a licensee fails to comply with §C of this regulation, the licensee may not: Fail to close the loan solely because the seller refuses at closing to pay certain fees; or Threaten at closing to refuse to make the loan unless the seller pays certain fees. Disbursement of Loan Proceeds. A licensee shall disburse all loan proceeds in a timely manner as provided in the loan documents. Disbursement of all loan proceeds to a third-party closing agent is deemed compliance with this section. A licensee may not collect a separate settlement fee in a loan when closing is conducted by: The lender; A subsidiary of the lender; A sister corporation of the lender; An owner or part owner of the lender; A partner of the lender; or A director, officer, or employee of the lender. Duties on Failure to Close. If a loan transaction is not closed, the licensee shall, upon written request by the applicant, return to the applicant: 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. Section C(1)(b) of this regulation does not apply to any portion of an appraisal report which any federal law or regulation prohibits the licensee from releasing to the applicant. The licensee may retain copies of all documents returned to the borrower. This section does not apply to a written application for a loan. A person acting as a mortgage broker in a loan transaction may not obtain an exclusive dealing or exclusive agency agreement from any borrower. Notwithstanding §A of this regulation, a person acting as a mortgage broker may obtain an agreement from a borrower that, in the event the loan is not made, restricts the borrower from obtaining a loan within 180 days after the borrower's initial application to the broker, from any lender identified to the borrower by the broker. Fees. Except for a fee to be paid to a third party for services in connection with the loan, a person acting as a broker in a loan transaction may not collect a fee from an applicant before the loan is closed. Section C(1) does not authorize any fee not permitted under applicable sections of Commercial Law Article, Title 12, Annotated Code of Maryland. Cure of Unintentional Violation. This section applies only to a licensee that engages in both brokering and lending in the regular course of its business. At the time a loan application is received, a licensee that collects a fee which would be prohibited under §C(1) of this regulation may cure a violation by tendering a refund of the impermissible fee collected if: 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: Tenders to the applicant a refund of all impermissible fees, and Provides the applicant with a written broker agreement as required under Commercial Law Article, §12-805(d), Annotated Code of Maryland. A licensee shall act expeditiously in processing and underwriting loan applications. A licensee may not: Issue any agreement that locks in or sets an interest rate and points on the loan applied for, if the licensee knows that the time period established in the agreement after which the rate may change is not sufficient for the loan to be closed; Accept more applications than the licensee can reasonably expect to be processed and closed within established lock-in periods; or Delay the settlement of a loan with the specific intent to, and for the purpose of: Increasing any cost to the borrower; or Avoiding any legal obligation to the borrower. Ordering Underwriting Documents — Timing. This section applies only to: 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. If a licensee fails to close a loan by the expiration date of a contract of sale supplied by the borrower, or by a deadline for closing established by the licensee, there is a rebuttable presumption that the licensee failed to process the loan expeditiously if the licensee fails to order: 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. This section does not apply to: Verification of employment; and Verification of deposits. Within 5 business days after written request by the borrower, a licensee shall provide the borrower or the borrower's designee with a written statement of the dollar figure which will repay a loan in full. Upon written request by the borrower, a licensee shall provide, within a reasonable time, but not in excess of 45 days, an accounting statement to the borrower, setting forth: All payments made on the loan; All amounts credited to principal and interest; and Any other charges. If a loan is being serviced by a different entity than the licensee, this regulation applies when the servicer of the loan is in receipt of a written request from the borrower for a payoff or accounting statement. Within 30 days from the date a loan is repaid in full, a licensee shall: Prepare and forward to the borrower documents sufficient for the borrower to obtain a release of the lien securing the loan; or Prepare and deliver to the appropriate city or county land records office documents which are sufficient to release the lien securing the loan. An act, agreement, or statement of an applicant may not constitute a valid waiver of any benefit or protection provided to an applicant under these regulations or applicable law. Nothing in this regulation affects the validity of any waiver specifically permitted under the Commercial Law Article, Annotated Code of Maryland. The required amount of a bond, letter of credit, or trust account established to meet the requirements of Financial Institutions Article, §11-508, Annotated Code of Maryland, shall be subject to recalculation at the time a license is renewed. Restitution awarded and to be paid from a letter of credit or trust account shall be paid as follows: Awards resulting from individual complaints shall be paid in the order in which they are received by the Commissioner; Awards resulting from an examination by the Commissioner that will exceed the total available under the letter of credit or trust account shall be paid on a pro rata basis; Claims against a letter of credit or trust account shall be filed by a claimant with the Commissioner within 3 years after the occurrence from which the claim arises; and Notwithstanding §C(1) of this regulation, if the aggregate amount of all pending claims exceeds the amount of the letter of credit or trust account, the Commissioner may require a prorated distribution. The Commissioner may require part or all of the funds in a letter of credit or trust account to remain on deposit if: There are unresolved pending claims against the account or letter of credit, which were timely filed; and The amount required by the Commissioner to be maintained is reasonably calculated to cover the payment of those claims. Claims against a bond, letter of credit, or trust account may not include: Attorneys' fees; Damages for personal injury; or Punitive damages. A surety under a bond issued under Financial Institutions Article, §11-508, Annotated Code of Maryland, shall: Pay directly to a claimant any meritorious claim; and Immediately notify the Commissioner when it pays a claim to a claimant. A person who violates these regulations is subject to the enforcement provisions of Financial Institutions Article, §11-517, Annotated Code of Maryland. Purpose and Applicability. The State legislature has determined that it is in the public interest to require licensees to comply with a continuing education requirement as a prerequisite to the renewal of a mortgage lender license. The continuing education requirement does not apply to the original application for a license. Definitions. In this regulation, the following terms have the meanings indicated: “Continuing education course” or “course” means an educational program related to mortgage lending or brokering which contributes directly to the enhancement of professional competence of a covered employee to engage in the mortgage lending business, as defined in Financial Institutions Article, §11-501, Annotated Code of Maryland. Covered Employees. “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: Has been employed by the licensee for less than 6 months before the expiration date of the licensee's current license; and Had no prior experience as a covered employee with any other licensee. Requirements. Except as provided in §A(2) of this regulation, in order to renew a license, each covered employee of a licensee shall successfully complete in the licensing period immediately preceding the current renewal period at least 8 hours of continuing education in approved courses. The required 8 hours of continuing education shall be the same as the continuing education requirements for mortgage loan originators set forth in Financial Institutions Article, §11-612, Annotated Code of Maryland, and COMAR 09.03.09.03, and include at least the following subjects in the number of hours indicated: 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. Hours in excess of the minimum requirement during any licensing period may not be carried over to a successive period. Reporting, Verification, and Record Keeping. A licensee, when applying for a license renewal, shall: 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. The Commissioner may require verification, on a random or other basis, of satisfactory completion of the requirements of this regulation. A licensee shall retain the evidence reasonably acceptable to the Commissioner to verify satisfactory completion of the requirements of this regulation for a period of at least 3 years after issuance of the renewal license to which it applies. Nonrenewal, Suspension, or Revocation of License. Subject to the notice and hearing requirements of Financial Institutions Article, §11-518, Annotated Code of Maryland, failure to comply with the requirements of this regulation is grounds for: 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. The Commissioner may issue to a licensee a cease and desist order under Financial Institutions Article, §11-517, Annotated Code of Maryland, which: 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. Purpose and Scope. The General Assembly has determined that it is in the public interest to require lenders to comply with special rules with respect to certain mortgage loans. This regulation applies to loans subject to Commercial Law Article, §§12-127, 12-311, 12-409.1, and 12-1029, Annotated Code of Maryland. Subject to §C of this regulation, a lender shall give due regard to the borrower’s ability to repay the mortgage loan, as follows: A borrower’s monthly gross income shall be compared to the nonmetropolitan median family income for the county in which the property is located, as reported in the most recent estimates made available by the United States Department of Housing and Urban Development as of the date of initial application for a loan if the residential real estate securing the loan of a borrower is not located in a metropolitan statistical area; A borrower’s total scheduled monthly payment obligations are the amounts required to be paid to satisfy the borrower’s legally enforceable minimum monthly financial obligations as of the date of initial application for a loan; A borrower’s total scheduled monthly payment obligations include secured and unsecured debt, alimony, child support, and other similar legally enforceable financial obligations payable in two or more installments; A borrower’s total scheduled monthly payment obligations do not include any debts that are consolidated with, or paid off by, a mortgage loan; and A lender’s consideration of a borrower’s scheduled monthly payment obligations may be limited to information provided directly by the borrower and verified by a consumer report from a consumer reporting agency, unless information provided by the borrower or the consumer reporting agency reasonably leads to further investigation by the lender. Compliance with applicable provisions in 12 CFR Part 1026.43, as it may be amended from time to time, may be substituted for the obligations required by, and shall be sufficient to meet the requirements of, §B of this regulation. Good Faith and Fair Dealing. A licensee has a duty of good faith and fair dealing in communications, transactions, and course of dealings with a borrower in connection with the advertisement, solicitation, making, servicing, purchase, or sale of any mortgage loan, including, but not limited to: The duty to recommend to a borrower or induce a borrower to enter into only a mortgage loan refinancing that has a net tangible benefit to a borrower, considering all of the circumstances, including the terms of a loan, the cost of a loan, and the borrower's circumstances; The duty to provide to a borrower who is offered a higher-priced mortgage loan information about the non-higher-priced mortgage loans that the licensee can make available and for which the borrower may qualify; and The duty when servicing mortgage loans to: 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. Method to Determine Net Tangible Benefit. When determining whether a refinance of a mortgage loan will provide a net tangible benefit to the borrower, a licensee shall make a reasonable inquiry of the borrower to determine what net tangible benefit, if any, the borrower will receive from a mortgage loan. Net tangible benefits may include, but are not limited to: 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. A licensee is considered to have conducted a reasonable inquiry of whether a refinance of a mortgage loan provides a net tangible benefit to a borrower if the mortgage lender has the borrower complete and sign a net tangible benefit worksheet on the form prescribed by the Commissioner, or a form that is substantially similar to the form prescribed by the Commissioner. In this regulation, the following terms have the meanings indicated: “Interest-only mortgage loan” means a mortgage loan on which, for a specified period of time, the borrower is required to: Pay only the interest due on the mortgage loan; and After the interest-only period ends, make payments that include both principal and interest. “Nontraditional mortgage loan” means any mortgage loan that allows the borrower to defer repayment of principal, interest, or both, including, but not limited to, all interest-only mortgage loans and payment-option ARMs. “Payment-option ARM” means an adjustable rate mortgage loan: That allows the borrower to choose from a number of different payment options, which may include, but are not limited to: A minimum payment option based on an introductory interest rate; or A fully amortizing principal and interest payment based on a 15-year or 30-year loan term, plus any required escrow payments; and 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. “Reduced documentation mortgage loan” means a mortgage loan for which the lender sets reduced or minimum documentation standards to substantiate the borrower's income and assets. Marketing and Promotion. Licensee marketing and promotional communications and materials for nontraditional and higher-priced mortgage loans shall include information about the costs, terms, features, and risks of nontraditional and higher-priced loans that can assist consumers in their product selection, including, as applicable, information on the following: 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: That the effect of negative amortization is the increase in the principal mortgage loan amount and the decrease of home equity; and Any other negative consequences, such as the possibility that a negatively amortizing mortgage loan could make it more difficult to refinance or to obtain cash upon a sale; 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: That a balloon payment is a scheduled lump sum usually due at the end of the mortgage loan term that is significantly larger than the other regularly scheduled periodic payments; and That the inability to make a balloon payment could result in a foreclosure; Responsibility for taxes and insurance when: The borrower is required to make payments for real estate taxes and property insurance, in addition to the loan payment; and The lender does not establish an escrow account for the collection and disbursement of these payments, including the fact that the cost of taxes and insurance may be substantial; and Cost of reduced documentation loans when there is a pricing premium attached to a reduced documentation or stated income mortgage loan. Illustrations. In complying with this regulation, a licensee may utilize the sample illustrations included in: The Illustrations of Consumer Information for Nontraditional Mortgage Borrowers issued by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration as final guidance on June 8, 2007; and Any consumer information for higher-priced or subprime mortgage lending that may be issued by the foregoing federal regulators or a similar interagency group as final guidance. 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. Risk Management Policies, Procedures, and Control Systems. A licensee acting as a lender offering nontraditional or higher-priced mortgage loans shall adopt risk management policies, procedures, and controls for these products. Policies and Procedures. 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 legal review as appropriate; and A review to ensure that compensation programs do not improperly encourage lending personnel to direct consumers to particular products. 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: Conducting due diligence and establishing other criteria for entering into and maintaining relationships with a third party; Designing third-party compensation incentives to avoid nontraditional or higher-priced mortgage loan product originations that are not consistent with the policies of the lender; Setting requirements for agreements with a third party; Establishing procedures and systems to monitor third-party compliance with applicable agreements, polices, and laws; and Implementing appropriate corrective actions if a third party fails to comply with applicable agreements, policies, or laws. A licensee acting as a lender shall establish written policies and procedures to implement the requirements set forth in this subsection. Control Systems. 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: Reflect the lending standards of the lender; and Comply with applicable laws and regulations. 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. Application Investigation Fee. The nonrefundable investigation fee required by Financial Institutions Article, §11-507(b)(1), Annotated Code of Maryland, is $1. Initial License Fee. The license fee required by Financial Institutions Article, §11-507(b)(2), Annotated Code of Maryland, is $1,000 for a 1-year license term. In addition to the initial license fee set forth in §B(1) of this regulation, an applicant for a license shall pay to NMLS the license application processing fee and any other fees that NMLS imposes in connection with the application. Renewal Fee. The renewal fee required by Financial Institutions Article, §11-511(b)(2), Annotated Code of Maryland, is $1,000 for a 1-year renewal term. In addition to the renewal fee set forth in §C(1) of this regulation, an applicant for a renewal shall pay to NMLS the renewal application processing fee and any other fees that NMLS imposes in connection with the application. Examination and Investigation Fee. A licensee shall pay all reasonable costs, including the actual cost per day for each of the Commissioner’s employees engaged in examinations or investigations performed by the Commissioner as authorized by Financial Institutions Article, §11-515(c), Annotated Code of Maryland. A licensee who is the employer of a mortgage loan originator shall at all times reasonably and adequately supervise those activities of the mortgage loan originator that are conducted within the scope of the mortgage loan originator’s employment. In order to determine whether supervision by the licensee is reasonable and adequate, the Commissioner may consider factors that include the following: The availability of: Experienced supervisory personnel to review and discuss: Mortgage loan terms; Disclosure requirements; and Advertising; and Regularly updated policies and procedures that provide adequate guidance to mortgage loan originators in the following areas: Licensing and education requirements; State and federal mortgage lending laws and regulations, including any new requirements or changes to existing requirements; The preparation, execution, and review of disclosures, agreements, and other documents; and Advertising; and Evidence of: 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. If the Commissioner determines that the licensee does not provide reasonable and adequate supervision in the areas specified under §B of this regulation, the burden of proof shall be on the licensee to show that the supervision the licensee provides is reasonable and adequate. A licensee that adequately demonstrates compliance with the federal Interagency Guidelines Establishing Information Security Standards, 12 CFR Part 30, Appendix B, as it may be amended from time to time, shall be deemed to be in compliance with §§B—G of this regulation. A licensee shall develop, implement, and maintain a comprehensive information security program that is commensurate with the licensee’s size and complexity, the nature and scope of the licensee’s activities, and the sensitivity of any customer information at issue. A licensee’s information security program shall consider the following objectives: Ensuring the security and confidentiality of customer information; Protecting against any anticipated threats or hazards to the security or integrity of such information; and Protecting against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. Governance over Information Technology. A licensee shall have an established governance process in place to control and monitor information security. The governance process shall include, as appropriate for the size and complexity of the licensee and its information technology systems: 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: Assigning responsibilities and authorities for ensuring adherence to information technology policies and procedures; Documenting accountability for functions to ensure compliance with information technology policies and procedures; and Reporting to the board of directors, ownership, or most senior level of management, no less than annually, regarding the effectiveness of the information technology policies and procedures. Information Technology Security Risk Assessment. A licensee shall complete an information technology security risk assessment on a periodic basis, but not less than once every 3 years. A licensee’s security risk assessment shall include: 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. Information Technology Security Testing and Monitoring. A licensee shall perform periodic testing and monitoring of information technology security controls as appropriate for the size and complexity of the licensee’s information technology systems. A licensee’s periodic testing and monitoring of information technology security controls shall include: 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. Third Party Provider Oversight. A licensee shall oversee third party service providers by: Taking reasonable steps to select and retain service providers that are capable of maintaining appropriate safeguards for the customer information at issue; and Requiring service providers by contract to implement and maintain such safeguards. Reporting Obligations. A licensee shall provide notice of a breach of the security of a system to the Commissioner prior to giving the notice required by Commercial Law Article, §14-3504(b), Annotated Code of Maryland. Record Retention. A licensee shall provide copies of risk assessments under §E of this regulation and results of periodic testing under §F of this regulation to the Commissioner upon request. A licensee shall comply with the duty to report set forth in COMAR 09.03.10.02. A licensee shall notify the Commissioner in writing through NMLS, and, if applicable, amend the licensee’s information and disclosures in NMLS, within 2 business days of the occurrence of any of the following events: Insolvency, filing for bankruptcy or reorganization of the licensee, the placement into receivership by any court, or an assignment for the benefit of creditors; Receiving notification of any initiation of a settlement agreement or other form of consensual resolution, or entry of judgment in any administrative, civil, or criminal action against the licensee by any governmental entity; Expiration or nonrenewal of, or monetary or nonmonetary default under, a line of credit agreement or warehouse credit agreement; Suspension or termination of the licensee’s status as an approved seller or seller/servicer by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Government National Mortgage Association, or a direct endorsement mortgagee by the Federal Housing Administration; A change to net worth resulting from market valuation or future loss liability or another change that causes the net worth of the licensee to fall below the requirements of Financial Institutions Article, §11-508.1, Annotated Code of Maryland; Cancellation or modification by the licensee, or termination by a surety of the licensee’s surety bond required by Financial Institutions Article, §11-508, Annotated Code of Maryland; and Becoming aware of systemic violations of any provision of Financial Institutions Article, Title 11, Subtitle 5, Annotated Code of Maryland, any regulation adopted thereunder, or any other law regulating mortgage loan lending in the State. The notice required by §B(2) of this regulation shall include, as applicable, a copy of the complaint, settlement agreement, or judgment that is the subject of the notice. Corporate Governance — Generally. A licensee shall establish, document, and maintain sufficient corporate governance. Each element of a licensee’s corporate governance shall be commensurate with the size, operational complexity, and overall risk profile of the licensee. For purposes of this regulation, the operational complexity and risk profile of a licensee shall, in part, be defined by the results of regulatory examinations, any external audits, and internal audits. A licensee bears the burden of demonstrating to the Commissioner that its corporate governance is sufficient and commensurate with its size, operational complexity, and overall risk profile. A licensee’s corporate governance shall, at a minimum, include: 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. Each licensee shall, not less than annually, conduct a review of its corporate governance to determine its overall effectiveness, address emerging risks, and otherwise assure that the corporate governance remains commensurate with the size, operational complexity, and overall risk profile of the licensee. Any documentation, controls, policies, procedures, requirements, audits, reports, or other materials included in this regulation shall be made available to the Commissioner upon the Commissioner’s request. Internal Audit. A licensee shall establish internal audit requirements that are appropriate for the size, complexity, and risk profile of the licensee. Unless impracticable given the size of the licensee, internal audit functions shall be performed by employees of the licensee who report to the licensee’s owners or board of directors 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 licensee’s operations, risk management, internal controls, and governance processes. External Audit. If the Commissioner determines based on the size, operational complexity, and overall risk profile of the licensee that an external audit is appropriate, the Commissioner may direct a licensee to receive an external audit. If the Commissioner directs a licensee to receive an external audit, that external audit shall include: 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. Nothing in this section is intended to abrogate a requirement of a licensee to receive an external audit under any other law, rule, regulation, or bylaw, policy, or procedure of the licensee. Risk Management. A licensee shall at all times maintain a risk management program that identifies, measures, monitors, and controls risk sufficient for the size, operational complexity, and overall risk profile of the licensee. 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 licensee. Evidence of risk management activities throughout the year shall be maintained, including findings of issues and the response to address those findings. Authority to Address Risk as Necessary. If risk is determined by a formal review of a licensee to be extremely high, the Commissioner may order or direct the licensee to satisfy additional conditions necessary to ensure that the licensee will continue to operate in a safe and sound manner and be able to continue to engage in business as a mortgage lender in compliance with State and federal law and/or regulation. A covered institution as defined in Regulation .27 of this chapter is not subject to this regulation. Definitions. In this regulation, the following terms have the meanings indicated. Terms Defined. “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. Applicability — Exclusions. This regulation shall be applicable to covered institutions as defined. For entities within a holding company or affiliated group of companies, applicability shall be at the covered institution level. The following exclusions apply: 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. Financial Condition. A covered institution shall maintain capital and liquidity in compliance with this section. For the purposes of complying with the capital and liquidity requirements of this section, all financial data shall be determined in accordance with generally accepted accounting principles. A covered institution that meets the FHFA Eligibility Requirements for Enterprise Single-Family Seller/Servicers for capital, net worth ratio, and liquidity, regardless of whether the covered institution is approved for Fannie Mae or Freddie Mac servicing, meets the requirements of §C(1) and (2) of this regulation. A covered institution shall maintain written policies and procedures implementing the capital and servicing liquidity requirements of this section. Such policies and procedures shall include a sustainable written methodology for satisfying the requirements of §C(3) of this regulation and be available to the Commissioner upon request. Operating Liquidity. 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. Corporate Governance. Each element of a covered institution’s corporate governance shall be commensurate with the size, operational complexity, and overall risk profile of the covered institution. Any documentation, controls, policies, procedures, requirements, audits, reports, or other materials included in this regulation shall be made available to the Commissioner upon the Commissioner’s request. For purposes of this regulation, the operational complexity and risk profile of a covered institution shall, in part, be defined by the results of regulatory examinations, external audits, and internal audits. A covered Institution shall establish and maintain a board of directors responsible for oversight of the covered institution. For a covered institution that is not approved to service loans by Fannie Mae, Freddie Mac, or Ginnie Mae, or if these agencies have granted approval for a board alternative, an institution may establish a similar body constituted to exercise oversight and fulfill all board of directors’ responsibilities in this section. In addition to any other responsibilities required of the board of directors under State or federal law, or these regulations, the board of directors shall be responsible for: 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. Internal Audit. 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. External Audit. 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: 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; and Testing of controls related to risk management activities, including compliance and stress testing, if applicable. Risk Management. 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: Credit risk — the potential that a borrower or counterparty will fail to perform on an obligation; Liquidity risk — the potential that the covered institution will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain adequate funding or that it cannot easily unwind or offset specific exposures; Operational risk — the risk resulting from inadequate or failed internal processes, people, and systems or from external events; Market risk — the risk to the covered institution’s condition resulting from adverse movements in market rates or prices; Compliance risk — the risk of regulatory sanctions, fines, penalties, or losses resulting from failure to comply with laws, rules, regulations or other supervisory requirements applicable to the covered institution; Legal risk — the potential that actions against the covered institution that result in unenforceable contracts, lawsuits, legal sanctions or adverse judgments can disrupt or otherwise negatively affect the operations or condition of the covered institution; and Reputation risk — the risk to earnings and capital arising from negative publicity regarding the covered institution’s business practices. 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. Authority to Address Risk as Necessary. If risk is determined by a formal review of a specific covered institution to be extremely high, the Commissioner may order or direct the covered institution to satisfy additional conditions necessary to ensure that the covered institution will continue to operate in a safe and sound manner and be able to continue to service loans in compliance with State and federal law and/or regulation. If risk is determined by a formal review of any covered institution to be extremely low, the Commissioner may provide notice that all or part of this regulation is not applicable to that covered institution. If economic, environmental, or societal events are determined to be of such severity to warrant a temporary suspension of all or certain sections of this regulation, the Commissioner may provide public notice of such temporary suspension. Definitions. In this regulation, the following terms have the meanings indicated. Terms Defined. “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. Examinations. When exercising the Commissioner’s authority to examine a licensee, the Commissioner may consider the report of examination for that licensee issued by a responsible supervisory agency, and accept the information contained therein, if: 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. The Commissioner’s consideration of the report of examination of a responsible supervisory agency pursuant to §B(1) of this regulation does not limit the Commissioner’s ability to: 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. Commissioner's Report of Examination. The Commissioner may adopt, in whole or in part, the report of examination of a responsible supervisory agency the Commissioner considered under §B of this regulation as the Commissioner’s report of examination. The Commissioner may supplement a report of examination of a responsible supervisory agency adopted as the Commissioner’s report of examination under §C(1) of this regulation with information the Commissioner considers relevant. Treatment of Report of Examination. The Commissioner shall treat the report of examination of a responsible supervisory agency the Commissioner considers under §B of this regulation in its examination of a licensee as information obtained in the course of examining that licensee, as set forth in Financial Institutions Article, §2-117 Annotated Code of Maryland. A report of examination of a responsible supervisory agency adopted by the Commissioner pursuant to §C of this regulation, together with any information added to that report of examination by the Commissioner, is the Commissioner’s report of examination and property of the Commissioner. Any report of examination of a responsible supervisory agency considered or adopted by the Commissioner pursuant to §B or C of this regulation shall remain subject to the terms and conditions of the agreement under which the responsible supervisory agency shared such report of examination with the Commissioner. Business Regulation Article, §2-105; Financial Institutions Article, §§2-105.1, 11-503,11-503.1, 11-505, 11-506(a) and (c)(1), 11-507, 11-508(g), 11-511, 11-511.1, 11-513(a), and 11-515(c);Real Property Article, §3-104.1; Annotated Code of Maryland Effective date: Regulations .01—.15, Code of Conduct—Mortgage Lenders, adopted as an emergency provision effective July 1, 1989 (16:14 Md. R. 1564); emergency status extended at 16:26 Md. R. 2782 (Emergency provisions are temporary and not printed in COMAR) Regulations .01—.16, Mortgage Lenders, adopted effective February 19, 1990 (17:3 Md. R. 297) Regulation .06A amended effective July 31, 1995 (22:15 Md. R. 1119) Regulation .08B amended effective June 16, 1997 (24:12 Md. R. 864) Chapter recodified from COMAR 09.04.06 to COMAR 09.03.06, April, 1998 Regulation .01 amended effective March 15, 2010 (37:5 Md. R. 427) Regulation .02B amended effective November 3, 2008 (35:22 Md. R. 1956); January 1, 2009 (35:26 Md. R. 2247); March 15, 2010 (37:5 Md. R. 427) Regulation .03 amended as an emergency provision effective July 1, 2009 (36:15 Md. R. 1158); emergency status extended at 37:3 Md. R. 170; emergency status expired March 15, 2010 Regulation .03 amended effective March 15, 2010 (37:5 Md. R. 427) Regulation .03A amended effective November 3, 2008 (35:22 Md. R. 1956) Regulation .03I adopted effective November 3, 2008 (35:22 Md. R. 1956) Regulation .03J adopted effective January 1, 2009 (35:26 Md. R. 2247) Regulation .04B amended as an emergency provision effective February 19, 2008 (35:6 Md. R. 695); emergency status extended at 35:18 Md. R. 1599; emergency action expired August 24, 2008 Regulation .04B amended effective August 25, 2008 (35:17: Md. R. 1485); November 3, 2008 (35:22 Md. R. 1956); March 15, 2010 (37:5 Md. R. 427) Regulation .07B amended effective March 15, 2010 (37:5 Md. R. 427) Regulation .07D adopted effective November 3, 2008 (35:22 Md. R. 1956) Regulation .15G adopted effective June 15, 1998 (25:12 Md. R. 946) Regulation .15G repealed effective March 15, 2010 (37:5 Md. R. 427) Regulation .17 adopted effective June 26, 2000 (27:12 Md. R. 1138) Regulation .17 amended effective March 15, 2010 (37:5 Md. R. 427) Regulation .17B, G amended effective September 2, 2013 (40:17 Md. R. 1419) Regulation .17C amended effective April 29, 2002 (29:8 Md. R. 697) Regulation .18 adopted effective February 17, 2003 (30:3 Md. R. 178) Regulation .18B, C amended effective March 15, 2010 (37:5 Md. R. 427) Regulation .19 adopted effective October 1, 2004 (31:19 Md. R. 1431) Regulation .19 repealed effective March 15, 2010 (37:5 Md. R. 427) Regulation .20 adopted effective November 3, 2008 (35:22 Md. R. 1956) Regulation .21 adopted effective November 3, 2008 (35:22 Md. R. 1956) Regulation .23 adopted effective January 1, 2009 (35:26 Md. R. 2247) Regulation .23A amended effective July 1, 2016 (43:11 Md. R. 633) Chapter revised effective October 4, 2019 (46:19 Md. R. 813) Regulation .02B amended effective June 27, 2022 (49:13 Md. R. 688); February 3, 2025 (52:2 Md. R. 67) Regulation .02B amended as an emergency effective December 18, 2024 (52:1 Md. R. 17); emergency action expired June 16, 2025 Regulation .04 amended effective October 4, 2021 (48:20 Md. R. 851); February 3, 2025 (52:2 Md. R. 67) Regulation .04A amended as an emergency effective December 18, 2024 (52:1 Md. R. 17); emergency action expired June 16, 2025 Regulation .06B amended effective February 3, 2025 (52:2 Md. R. 67) Regulation .16 amended effective February 3, 2025 (52:2 Md. R. 67) Regulation .26 adopted effective June 27, 2022 (49:16 Md. R. 688) Regulation .27 adopted effective June 27, 2022 (49:16 Md. R. 688) Regulation .28 adopted effective December 11, 2023 (50:24 Md. R. 1041)