The Pennsylvania Mortgage Bankers and Brokers Act (the "Act") governs the licensing and operations of first lien residential mortgage lenders and brokers in the Commonwealth of Pennsylvania. A comprehensive set of amendments to the Act (the "Amendments") was signed into law on December 21, 1998 and became effective on February 19, 1999. The following is a brief summary of some of the major provisions of the new legislation:
1. New Categories of Licensees.
The Amendments create two new categories of licensees -- loan correspondents and limited mortgage brokers. A loan correspondent is one who originates and closes loans in its own name using funds provided by a wholesale table funder, and then assigns the loans to the wholesale table funder. A wholesale table funder is an entity which funds loans through a correspondent rather than making loans directly.
The limited mortgage broker classification applies to certain small-scale mortgage brokers who make only nonpurchase money mortgage loans. The requirements of the Act with respect to net worth, bonding and continuing education are eased with respect to limited mortgage brokers.
2. Exemptions from the Licensing Requirements.
Several new exemptions from the licensing requirements are also created by the Amendments. An employer who makes a mortgage loan to an employee may not be subject to the licensing requirements of the Act, provided the employer does not hold itself out to the public as a first mortgage lender. Similarly, a nonprofit corporation making mortgage loans for the disadvantaged may not be subject to the licensing requirements of the Act, provided the corporation does not hold itself out to the public as a first mortgage lender.
3. License Application and Suspension Procedures.
Under the Amendments, the Department of Banking (the "Department") is given broader authority to investigate new applicants and to refuse to grant licenses where the applicant does not meet certain stated requirements. In addition, the Department may suspend, revoke or refuse to renew a license under a wider range of circumstances, including the failure of the licensee to "comply with the requirements of this act to make and keep records prescribed by rule or order of the department, to produce such records required by the department or to file any financial reports or other information the department by rule or order may require...."
4. Continuing Education Requirement.
The Amendments impose a new continuing education requirement on mortgage bankers, mortgage brokers and loan correspondents. Specifically, at least one person from each licensed office must attend a minimum of six hours of continuing education each year. The requirement for limited mortgage brokers is two hours of continuing education each year.
5. Lock-In Agreements.
The Amendments prescribe the content and form of "lock-in" agreements, which are defined as agreements which guarantee "until a specified date the availability of a specified rate of interest or specified formula by which the rate of interest and/or specific number of discount points will be determined...." All lock-in agreements must be in writing and must contain the following provisions:
- the expiration date of the lock-in;
- the interest rate locked in;
- the discount points locked in;
- the commitment fee locked in; and
- the lock-in fee.
The foregoing is only a cursory summary of the Amendments. Anyone potentially affected by the new legislation should carefully review it with counsel.