Delaware’s Bank Commissioner Adopts Mortgage Regulations
by: Louis Danastorg
Delaware has adopted the amended regulations that had been published in the February 2014 edition of the Delaware Register of Regulations. The effective date of the amended regulations is April 11, 2014.
Background
Delaware’s Office of the State Bank Commissioner published notice of the proposed changes with all their text in the February Register. The notice included regulation summaries and asked interested parties to contact the Office with any written comments. No comments had been received on or before March 5, 2014, so the commissioner has ordered the adoption of the amended regulations. The amendments chiefly concern chapters 21 and 22 of Title 5 of the Delaware Code, relating specifically to the operating regulations, reporting rules, recordkeeping and disclosure requirements, and fee schedules for mortgage loan brokers and licensed lenders.
Chapter 2101 – Mortgage Loan Brokers Operating Regulations
Applicability
Chapter 21 only applies to extensions of credit secured by one-to-four family residential property intended to be a primary household, and does not apply to mortgage loans secured by commercial property or property over 25 acres.
Compliance with Applicable Laws
Managers and appropriate staff must have familiarity with and maintain access to all relevant statutes and regulations, including: 5 Del.C. Ch. 21, Reg. 101, Reg. 2101 – Reg. 2108, and Reg. 2401.
Display of License
Every licensed office must prominently display its license in clear view of all customers.
Loan Closings in the Name of a Licensee
Unless a government agency or government sponsored entity requires a licensee to do otherwise, no mortgage loan shall close in the name of the licensee.
Mortgage Loan Originators
Licensees shall take reasonable steps to insure that every person it employs or affiliates with as a mortgage loan originator has complied with all requirements and regulations. Each individual mortgage loan originator must show his or her NMLS number on all loan application forms and any advertisements that list the individual originator’s name. A licensee may use its surety bond to cover mortgage loan originators that are employees or exclusive agents; however, an irrevocable letter of credit may not. Licensees must provide the Commissioner with written notification of any mortgage loan originators covered by its surety bond. Whenever employment ceases or affiliation terminates, the licensee must promptly notify the Commissioner.
Advertising
False or misleading advertisements, or advertisements that falsely claim a government agency or recipient’s existing lender as its source, are strictly prohibited. Whenever a licensee advertises its services the advertisement must contain a statement that the licensee is licensed by the Commissioner to conduct business in DE and specify the license number and expiration date.
Internet Websites
The home page must clearly and conspicuously state that the licensee is licensed by the Commissioner and specify the license number and expiration date. The website must list the name and identification number of all mortgage loan originators employed by or affiliated with the licensee. The website must properly secure the transmission of all confidential information.
Information Security
Licensees must implement and maintain a written comprehensive security program that contains administrative, technical and physical measures to safeguard all information concerning applicants and borrowers.
License Applications
The Commissioner has authorized the NMLS to facilitate the application and licensing process. NMLS is authorized to process applications, collect payments, submit fingerprints for required criminal history background checks, maintain records, share and receive information. NMLS processing and investigation fees are nonrefundable.
Chapter 2102 – Minimum Records
Each licensed office shall maintain separate registers for applicants and borrowers, as well as, an applicant record, borrower record, daily transaction record, litigation record, advertising record and mortgage loan originator register.
- The applicant register must include: applicant’s name and address, a file identification number, application date, the originator’s identification numbers, credit decision date or date of withdrawal, and the reason applicant was denied credit.
- The borrower register must contain the information listed above including: the loan closing date, the loan’s security identification, loan amount, the lender’s name and address, any broker’s fees and payment date of those fees.
- The applicant record must include: applicant’s name and address, a file identification number, the application, all TIL disclosures, originator’s name and identification numbers, the GFE, signed broker’s agreement, all invoices and receipts, a record of all fees collected or refunds given, identifying information of all lenders the licensee contacted in relation to the loan, any written counteroffers, and all other written communication between licensee and applicant.
- The borrower record must contain the information listed in the applicant record including: the lenders name and address, loan commitment, the uniform settlement statement, certification from an independent housing counselor for reverse mortgages, and all other written communication between licensee and borrower.
- The daily transaction record must include itemized details of all transactions involving either the receipt or disbursement of any amount.
- The litigation record must include a record of all judicial and arbitration proceedings involving the licensee and an applicant or borrower as adverse parties. These records shall include all documents filed and the date and terms of any judgment, arbitration decision, dismissal or settlement.
- The advertising record must include a copy, transcript or screenshot of each advertisement with listing of publications and billboard locations, broadcast stations and air dates, or the dates the licensee maintained its website.
- The mortgage loan originator register must include information relating to all employees acting as mortgage loan originators: name, unique identifier, date of first retention by licensee, and date employment or affiliation ended.
Chapter 2103 – Schedule of Charges
Itemization of Charges
Each licensee must maintain an itemization of the current charges it uses in consumer transactions that it may collect from an applicant or borrower. The itemization must be dated as of the most recent change and may contain value ranges that reflect cost differences related to risk or rate. Every applicant shall be provided this itemization when an application is made; a properly completed GFE satisfies this requirement.
Licensee Compensation
Any form of compensation is valid; however, it may not exceed any maximum allowed by state or federal statue or regulation. All compensation received from applicants or borrowers must be specified in a written agreement. Charges to third parties may not exceed amount paid to that party for the particular service; total compensation shall not exceed the value for the goods and services provided.
Charges Permissible Prior to Receipt of a Written Commitment
The following may be collected before receipt of a written commitment from a lender: credit report fee, appraisal fee, rate lock fee, title insurance premiums and title service fees, third party fees, and any returned check fees. Amounts collected in excess of actual charges shall be refunded, and amounts that don’t cover actual charges may be charged to the consumer. A licensee may collect fees that a lender requires prior to closing, if paid directly to the lender or third party. A licensee may collect fees from a lender at closing or end of rescission period.
Chapter 2104 – Minimum Disclosure and Agreement Requirements
Licensees shall enter into separate, signed, written agreements with each applicant independent of the loan agreement. The applicant must receive the terms of the agreement before paying any nonrefundable fee, other than any credit report fee.
Chapters 2105 and 2106 – Delaware Loan Volume and State Assets Reports
Each licensee must submit a DE loan volume report to the Office biannually. The first must be received by July 31 and contain information from January 1st through June 30th of the current year; the second must be received by January 31st and contain information from January 1st through December 31st of the previous year. Each licensee must annually submit a report of only its DE assets; to be received by April 1st of each year, containing information for the previous calendar year. Failure to timely submit either of these reports constitutes a violation and may result in staff allocation without respect to licensee’s volume of DE loans or DE assets.
Chapter 2201 – Licensed Lenders Operating Regulations
Applicability
Chapter 22 applies to consumer credit transactions, and does not apply to mortgage loans secured by property over 25 acres, commercial loans, or lending that requires a license to finance the sale of a motor vehicle.
Compliance with Applicable Laws
Managers and appropriate staff must have familiarity with and maintain access to all relevant statutes and regulations, including: 5 Del.C. Ch. 22, Reg. 101, Reg. 2201 – Reg. 2208, Reg. 2210 and Reg. 2401.
Display of License and Payday Loan Notice
Each licensed office open to the public must prominently display its license in clear view of all customers, and, in a similarly conspicuous manner, display a statement that payday loans are not intended to meet long term financial needs.
Satisfaction of Mortgages and Other Security Interests
Licensees shall cause a proper recording of satisfaction or performance within 60 days of full performance of a debt obligation or duty secured by mortgage. Licensees shall take all necessary action to discharge, satisfy or release any other security interest within 30 days from date of loan satisfaction or full performance.
Insurance
No licensee shall receive commission or incentives for placement of any type of insurance. Contracts prepared in advance of borrower’s signature shall not automatically include credit life, health, disability or other insurance, but a licensee may offer such insurance to qualified borrowers. A licensee may require proof of insurance for any loan secured by a motor vehicle, real estate or other collateral to protect the licensee’s interests. All other insurance must be specifically requested in writing by the borrower.
Purchase of Sale of Loan Charges
Licensees may not transfer loan contracts to any unlicensed person without the express written permission of the Commissioner. Transferees are limited to collecting balances due under the existing contract. This section does not apply to transfers to licensees under the same management, out of state affiliates, any person secondarily liable on the contract, or transfers to government agencies, regulated entities, insurance companies or investment banking firms.
Mortgage Loan Originators, Advertising, Websites, Information Security and License Applications
Licensed Lenders are subject to the same mortgage loan originator, advertising, internet websites, information security and license application requirements and regulations as mortgage loan brokers reflected above in chapter 2101.
Repossession Policy
Each licensee must maintain a written comprehensive policy that describes the manner and timing of repossession of collateral after borrower default.
Chapter 2202 – Minimum Records
Each licensed office shall maintain separate registers for applicants and borrowers, as well as, applicant records for mortgage loans and short term consumer loans, borrower record, daily transaction record, litigation and enforcement of security record, credit insurance claims record, advertising record and mortgage loan originator register.
- The applicant register must include: applicant’s name and address, a file identification number, application date, the originator’s identification numbers, credit decision date or date of withdrawal, and the reason applicant was denied credit.
- The borrower register must contain the information listed above including: the loan closing date, the loan’s security identification, and loan amount.
- The applicant record must include: applicant’s name and address, a file identification number, the application, all TIL disclosures, originator’s name and identification numbers, the GFE, all invoices and receipts, a record of all fees collected or refunds given, any document containing reasons credit was denied, and all other written communication.
- For mortgage loans: name and unique identifier of loan originator and GFE
- For short term consumer loans: evidence licensee has complied with all requirements for short term consumer loans or rollover applications and a copy of the database submission used to determine applicant’s eligibility or the database ineligibility confirmation.
- The borrower record must include: closing date, loan amount, repayment terms, type of security, name of any endorsers, receipt date of each payment, name of assignees, breakdown of how payments are applied, current balance due, any workout agreements, any credit related insurance contracts, evidence that a security interest has been satisfied, evidence that licensee has complied with Federal Servicemembers Civil Relief Act and requirements relating to loan modification services, and all other written communication with the borrower.
- For short term consumer loans: copy of database eligibility submission or ineligibility confirmation, database transaction identification number, and that the date loan or rollover has been paid in full.
- For mortgage loans: originator’s NMLS number, GFE, Uniform Settlement Statement, housing counselor certification for reverse mortgages, and any evidence consumer had exercised right to rescind.
- The daily transaction record must include itemized details of all transactions involving either the receipt or disbursement of any amount.
- The litigation record must include a record of all judicial and arbitration proceedings involving the licensee and an applicant or borrower as adverse parties. These records shall include all documents filed and the date and terms of any judgment, arbitration decision, dismissal or settlement. Licensees must maintain a similar record of all loans it has enforced its security interest by taking possession without judicial proceeding.
- The credit insurance claims record must include: claim date, claim amount, date and amount of payment by insurer, date of rejection, borrower’s identifying information, file identification number, reason for claim, and copies of any checks issued by insurer.
- The advertising record must include a copy, transcript or screenshot of each advertisement with listing of publications and billboard locations, broadcast stations and air dates, or the dates the licensee maintained its website.
- The mortgage loan originator register must include information relating to all employees acting as mortgage loan originators: name, unique identifier, date of first retention by licensee, and date employment or affiliation ended.
Chapter 2203 – Schedule of Charges
Licensed Lenders are subject to the same itemization and compensation regulations for Mortgage Loan Brokers as discussed above in chapter 2103.
Charges for Revolving Credit: interest, periodic charges for borrower privileges, transactional charges, minimum charges for each scheduled billing period for outstanding unpaid balances, fees for services rendered, late fees, attorney fees incurred as a result of default, court fees, and returned check fees.
Charges for Closed End Credit: interest, fees for services rendered, late fees, charges for deferred installments, attorney fees, deferral fees, and returned check fees.
Charges Credit Secured by Real Estate: charges contained in the above two sections, rate lock fee, origination fees, points, appraisal fees, credit report fee, tax service fee, flood certification fee, funding fee, per diem interest, mortgage insurance premiums, homeowner’s insurance premiums, other insurance premiums, escrow reserves, government transfer taxes, survey and inspection fees, prepayment charges and any incidental closing costs.
Chapter 2204 – Surety Bond or Irrevocable Letter of Credit
Each licensee shall file with the Commissioner an original corporate surety bond or irrevocable letter of credit in an amount that correlates with the licensee’s volume of lending in DE. The regulation provides a table to determine the minimum amount of surety required. The Commissioner may require a larger surety bond or letter of credit based on a licensee’s particular circumstances. A licensee may use its surety bond to cover mortgage loan originator employees or exclusive agents, but not a letter of credit. Written notice must be provided to the Commissioner of any originators covered under the licensee’s surety bond.
Chapters 2105 and 2106 – Delaware Loan Volume and State Assets Reports
Licensed Lenders are subject to the same loan volume and state assets report regulations for Mortgage Loan Brokers as discussed above in chapter 2105 and 2106.
About the Author
Louis Danastorg, J.D., M.B.A. is Regulatory Compliance Consultant at Bankers Advisory. He is a graduate of Vanderbilt University and earned his Juris Doctor and Masters of Business Administration from Suffolk University. He can be reached at Louis@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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