8 July 2016
On June 21, 2016, New Hampshire Governor Maggie Hassan signed into law House Bill 1685 (“HB 1685”), substantially amending the state’s regulatory structure for mortgage servicers. The amendments will take effect on August 20, 2016.
New Hampshire Moves to License Mortgage Loan Servicers under the Same Law that Licenses Mortgage Bankers
Whereas presently there are two separate New Hampshire statutes regulating mortgage finance activities, HB 1685 repeals the statute that solely regulates mortgage servicers and folds regulation of mortgage servicers into the one remaining statute. Specifically, mortgage servicers are currently regulated, and registered, under the Regulation of Mortgage Loan Servicers Act (the “Servicers Act”) (N.H. Rev. Stat. Ann. §§ 397-B:1 et seq.). Companies licensed as mortgage bankers under the state’s Licensing of Nondepository First Mortgage Bankers and Brokers Act (the “Mortgage Act”) (id. §§ 397-A:1 et seq.)—which, despite its name, licenses and regulates mortgage lending, brokering, and mortgage loan originator activities in New Hampshire involving first- and subordinate-lien residential mortgage loans (herein, “mortgage loans”)—are exempt from needing to register under the Servicers Act to service residential mortgage loans but are subject to the Servicers Act’s practice requirements. With the repeal of the Servicers Act, HB 1685 will transfer the regulation of mortgage servicers to the Mortgage Act. Accordingly, mortgage servicers will no longer be subject to registration under Chapter 397-B but rather will be required to obtain a license under Chapter 397-A.
Therefore, three types of company-level licenses will be issued under the Mortgage Act: a mortgage banker license, a mortgage broker license and a mortgage servicer license. An entity seeking to have the authority to only service mortgage loans will be able to obtain only a mortgage servicer license. An entity obtaining a mortgage banker license will have the authority to make, broker or service mortgage loans. A company that holds a mortgage banker license will continue to be able to act as a mortgage servicer without obtaining a separate license, pursuant to an express provision in the Mortgage Act. A licensed mortgage broker under the Mortgage Act will not be afforded the same exemption and will not be authorized to service mortgage loans under its mortgage broker license.
Transitioning to a Mortgage Servicer License
Current mortgage servicer registrants will be relieved to learn that they will not be required to apply for a new license as a result of HB 1685’s changes. According to senior representatives with the New Hampshire Banking Department (the “Department”), each mortgage servicer’s registration will be converted to a new mortgage servicer license without the requirement of a new application filing. However, mortgage servicers will be required to increase the dollar amount of their posted bond from $50,000 to $100,000 under the amended Mortgage Act, and submit evidence of the increased bond before the amendments take effect, to have the authority to continue to service mortgage loans. If a servicer registrant converting to a servicer license is having an issue with increasing the surety bond by August 20, 2016, the matter should be brought to the attention of the Department. (We can help if you need assistance.) An entity seeking only a servicer license, as it will not be conducting the mortgage loan origination activities that require a mortgage banker license, may be relieved of the need to have a Qualified Individual, but this should be confirmed with Department officials before applying. As is generally the case with entities licensed under the Mortgage Act, the Department will require a mortgage servicer applicant whose main office is in a state that licenses mortgage servicers to be licensed as a mortgage servicer in its home state before being authorized to service New Hampshire mortgage loans. Department officials recognize that some state regulatory agencies may take longer than the Department to review a pending application. We understand that the Department will take this into consideration in processing an application for a servicer license if the applicant has begun the process of applying for a license in its home state.
Holders of Servicing Rights will Continue to be Regulated
A “mortgage servicing company” or “mortgage servicer” (equivalent terms with a single definition under the Servicers Act, and herein, “mortgage servicer”) will not be incorporated into the term “mortgage banker” under the Mortgage Act but will be separately defined. The definition of “mortgage servicer” will remain unchanged, and will continue to include an entity that merely holds servicing rights. Specifically, “mortgage servicer” will continue to be defined as “an individual, partnership, corporation, association, or other entity however organized and wherever located which, for itself or on behalf of the holder of a mortgage loan, holds the servicing rights or records such payments on its books and records and performs such other administrative functions as may be necessary to properly carry out the mortgage holders obligations under the mortgage agreement including, when applicable, the receipt of funds from the mortgagor to be held in escrow for payment of real estate taxes and insurance premiums and the distribution of such funds to the taxing authority and insurance company.” Id. § 397-A:1(XIV-a). Neither the Servicers Act nor its regulations further define what it means to hold mortgage servicing rights, and the amended Mortgage Act also does not define the term “servicing rights.” (Unlike other states that license those who hold mortgage loan servicing rights and may distinguish between holding servicing rights for loans held by investors as opposed to servicing rights for mortgage loans in portfolio, the New Hampshire statutory language does not draw a distinction.)
Licensing of Loan Modification Activities will be Conducted under the State’s Debt Adjustment Services Act
HB 1685 also changes the way that loan modification activities will be regulated in New Hampshire. While the Servicers Act does not directly address loan modification activities, certain loan modifications are presently regulated under the pre-amended Mortgage Act. By eliminating loan modification activities from the Mortgage Act’s statutory definitions of “first mortgage loan” and “second mortgage loan,” NH 1685 removes loan modifications from the Mortgage Act’s regulatory scope. Thus, whereas a mortgage servicer will be subject to licensing under the Mortgage Act when NH 1685 takes effect, the Mortgage Act will no longer regulate or require licensing for loan modification activities. Moreover, the revised definition of mortgage loan originator will exclude “an individual engaged solely in loan modification activities not resulting in a new extension of credit.” Instead, additional legislation, the recently enacted HB 1618, will bring the licensing and regulation of mortgage loan modification activities under New Hampshire’s debt adjuster statute, effective January 1, 2017. For purposes of this Update, we have not examined the amended debt adjuster statute. We have asked Department officials whether any guidance will be issued for debt adjuster licensees conducting loan modifications activities but have not yet received a reply.
The various practice requirements imposed by the repealed Servicers Act—for example, those regarding recordkeeping and examinations—will take new form under similar provisions within the amended Mortgage Act that apply generally to all license types. Escrow account requirements for servicers are being added to the amended Mortgage Act. Mortgage servicers are encouraged to examine the language of HB 1685 for the details of any changes to their compliance obligations. The Department plans to provide additional information regarding HB 1685’s changes on the state’s NMLS Resource Center webpage.
HB 1685 also makes various non-servicing-specific amendments to the regulation of mortgage activities under Chapter 397-A, which also will take effect August 20, 2016. Among these changes is the repeal of the Mortgage Act’s annual reporting requirement and the addition of new licensing requirements for independent contractor loan processors and underwriters.
Should you have any questions about the changes in New Hampshire’s law or licensing questions generally, please let us know, as we will be sorting through these and other issues with those administering the licensing laws in the Department.