SF 1547

1st Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to residential mortgage lending; modifying licensing and education
requirements; prohibiting predatory lending practices; providing examination
powers to the commissioner; prescribing a criminal penalty; amending Minnesota
Statutes 2006, sections 58.04, subdivisions 1, 2; 58.05; 58.06, subdivision 2,
by adding a subdivision; 58.08, subdivision 3; 58.10, subdivision 1; 58.13,
subdivision 1; proposing coding for new law in Minnesota Statutes, chapters 58;
609; repealing Minnesota Statutes 2006, section 58.08, subdivision 1.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2006, section 58.04, subdivision 1, is amended to read:

Subdivision 1.

Residential mortgage originator licensing requirements.

(a)
deleted text begin Beginning August 1, 1999, deleted text end No person shall act as a residential mortgage originator, or
make residential mortgage loans without first obtaining a license from the commissioner
according to the licensing procedures provided in this chapter.

(b) new text begin A licensee must be either a partnership, limited liability partnership, association,
limited liability company, corporation, or other form of business organization, and must
have and maintain at all times one of the following: (1) approval as a mortgagee by
either the federal Department of Housing and Urban Development or the Federal National
Mortgage Association; (2) a minimum net worth, net of intangibles, of at least $250,000;
or (3) a surety bond or irrevocable letter of credit in the amount of $50,000. Net worth,
net of intangibles, must be calculated in accordance with generally accepted accounting
principles.
new text end

new text begin (c) new text end The following persons are exempt from the residential mortgage originator
licensing requirements:

deleted text begin (1) an employee of one mortgage originator licensee or one person holding a
certificate of exemption;
deleted text end

deleted text begin (2) a person licensed as a real estate broker under chapter 82 who is not licensed to
another real estate broker;
deleted text end

deleted text begin (3) an individual real estate licensee who is licensed to a real estate broker as
described in clause (2) if:
deleted text end

deleted text begin (i) the individual licensee acts only under the name, authority, and supervision of the
broker to whom the licensee is licensed;
deleted text end

deleted text begin (ii) the broker to whom the licensee is licensed obtains a certificate of exemption
according to section deleted text begin 58.05, subdivision 2 deleted text end ;
deleted text end

deleted text begin (iii) the broker does not collect an advance fee for its residential mortgage-related
activities; and
deleted text end

deleted text begin (iv) the residential mortgage origination activities are incidental to the real estate
licensee's primary activities as a real estate broker or salesperson;
deleted text end

deleted text begin (4) an individual licensed as a property/casualty or life/health insurance agent under
chapter 60K if:
deleted text end

deleted text begin (i) the insurance agent acts on behalf of only one residential mortgage originator,
which is in compliance with chapter 58;
deleted text end

deleted text begin (ii) the insurance agent has entered into a written contract with the mortgage
originator under the terms of which the mortgage originator agrees to accept responsibility
for the insurance agent's residential mortgage-related activities;
deleted text end

deleted text begin (iii) the insurance agent obtains a certificate of exemption under section deleted text begin 58.05,
subdivision 2 deleted text end ; and
deleted text end

deleted text begin (iv) the insurance agent does not collect an advance fee for the insurance agent's
residential mortgage-related activities;
deleted text end

deleted text begin (5) deleted text end new text begin (1) new text end a person who is not in the business of making residential mortgage loans and
who makes no more than three such loans, with its own funds, during any 12-month period;

deleted text begin (6) deleted text end new text begin (2) new text end a financial institution as defined in section 58.02, subdivision 10;

deleted text begin (7) deleted text end new text begin (3) new text end an agency of the federal government, or of a state or municipal government;

deleted text begin (8) deleted text end new text begin (4) new text end an employee or employer pension plan making loans only to its participants;

deleted text begin (9) deleted text end new text begin (5) new text end a person acting in a fiduciary capacity, such as a trustee or receiver, as a result
of a specific order issued by a court of competent jurisdiction; or

deleted text begin (10) deleted text end new text begin (6) new text end a person exempted by order of the commissioner.

Sec. 2.

Minnesota Statutes 2006, section 58.04, subdivision 2, is amended to read:

Subd. 2.

Residential mortgage servicer licensing requirements.

(a) deleted text begin Beginning
August 1, 1999, deleted text end No person shall engage in activities or practices that fall within the
definition of "servicing a residential mortgage loan" under section 58.02, subdivision
22, without first obtaining a license from the commissioner according to the licensing
procedures provided in this chapter.

(b) The following persons are exempt from the residential mortgage servicer
licensing requirements:

(1) a person licensed as a residential mortgage originator;

deleted text begin (2) an employee of one licensee or one person holding a certificate of exemption
based on an exemption under this subdivision;
deleted text end

deleted text begin (3) deleted text end new text begin (2) new text end a person servicing loans made with its own funds, if no more than three such
loans are made in any 12-month period;

deleted text begin (4) deleted text end new text begin (3) new text end a financial institution as defined in section 58.02, subdivision 10;

deleted text begin (5) deleted text end new text begin (4) new text end an agency of the federal government, or of a state or municipal government;

deleted text begin (6) deleted text end new text begin (5) new text end an employee or employer pension plan making loans only to its participants;

deleted text begin (7) deleted text end new text begin (6) new text end a person acting in a fiduciary capacity, such as a trustee or receiver, as a result
of a specific order issued by a court of competent jurisdiction; or

deleted text begin (8) deleted text end new text begin (7) new text end a person exempted by order of the commissioner.

Sec. 3.

Minnesota Statutes 2006, section 58.05, is amended to read:

58.05 EXEMPTIONS FROM LICENSE.

Subdivision 1.

Exempt person.

An exempt person as defined by section 58.04,
subdivision 1, paragraph deleted text begin (b) deleted text end new text begin (c) new text end , and subdivision 2, paragraph (b), is exempt from the
licensing requirements of this chapter, but is subject to all other provisions of this chapter.

Subd. 3.

Certificate of exemption.

A person must obtain a certificate of exemption
from the commissioner to qualify as an exempt person under section 58.04, subdivision
1, paragraph deleted text begin (b) deleted text end new text begin (c) new text end , deleted text begin as a real estate broker under clause (2), an insurance agent under
clause (4), deleted text end a financial institution under clause deleted text begin (6) deleted text end new text begin (2) new text end , or by order of the commissioner
under clause deleted text begin (10) deleted text end new text begin (6) new text end ; or under section 58.04, subdivision 2, paragraph (b), as a financial
institution under clause deleted text begin (4) deleted text end new text begin (3) new text end , or by order of the commissioner under clause deleted text begin (8) deleted text end new text begin (7) new text end .

Sec. 4.

Minnesota Statutes 2006, section 58.06, subdivision 2, is amended to read:

Subd. 2.

Application contents.

new text begin (a) new text end The application must contain the name and
complete business address or addresses of the license applicant. deleted text begin If deleted text end The license applicant deleted text begin is deleted text end
new text begin must be new text end a partnership, limited liability partnership, association, limited liability company,
corporation, or other form of business organization, new text begin and new text end the application must contain the
names and complete business addresses of each partner, member, director, and principal
officer. The application must also include a description of the activities of the license
applicant, in the detail and for the periods the commissioner may require.

new text begin (b) An applicant must submit one of the following:
new text end

new text begin (1) evidence which shows, to the commissioner's satisfaction, that either the federal
Department of Housing and Urban Development or the Federal National Mortgage
Association has approved the applicant as a mortgagee;
new text end

new text begin (2) a surety bond or irrevocable letter of credit in the amount of not less than
$50,000 in a form approved by the commissioner, issued by an insurance company or bank
authorized to do so in this state. The bond or irrevocable letter of credit must be available
for the recovery of expenses, fines, and fees levied by the commissioner under this chapter
and for losses incurred by borrowers. The bond or letter of credit must be submitted with
the license application, and evidence of continued coverage must be submitted with each
renewal. Any change in the bond or letter of credit must be submitted for approval by the
commissioner within ten days of its execution; or
new text end

new text begin (3) a copy of the applicant's most recent audited financial statement, including
balance sheet, statement of income or loss, statements of changes in shareholder equity,
and statement of changes in financial position. Financial statements must be as of a date
within 12 months of the date of application.
new text end

new text begin (c) new text end The application must also include all of the following:

deleted text begin (a) deleted text end new text begin (1) new text end an affirmation under oath that the applicant:

deleted text begin (1) will maintain competent staff and adequate staffing levels, through direct
employees or otherwise, to meet the requirements of this chapter deleted text end new text begin (i) is in compliance
with the requirements of section 58.125 new text end ;

new text begin (ii) will maintain a perpetual roster of individuals employed as mortgage residential
mortgage originators, including employees and independent contractors, which includes
the date that mandatory initial education was completed. In addition, the roster must
be made available to the commissioner on demand, within three business days of the
commissioner's request;
new text end

deleted text begin (2) deleted text end new text begin (iii) new text end will advise the commissioner of any material changes to the information
submitted in the most recent application within ten days of the change;

deleted text begin (3) deleted text end new text begin (iv) new text end will advise the commissioner in writing immediately of any bankruptcy
petitions filed against or by the applicant or licensee;

deleted text begin (4) is financially solvent deleted text end new text begin (v) will maintain at all times either a net worth, net of
intangibles, of at least $250,000 or a surety bond or irrevocable letter of credit in the
amount of at least $50,000 new text end ;

deleted text begin (5) deleted text end new text begin (vi) new text end complies with federal and state tax laws; new text begin and
new text end

deleted text begin (6) deleted text end new text begin (vii) new text end complies with sections 345.31 to 345.60, the Minnesota unclaimed property
law; deleted text begin and deleted text end

deleted text begin (7) is, or that a person in control of the license applicant is, at least 18 years of age;
deleted text end

deleted text begin (b) deleted text end new text begin (2) new text end information as to the mortgage lending, servicing, or brokering experience
of the applicant and persons in control of the applicant;

deleted text begin (c) deleted text end new text begin (3) new text end information as to criminal convictions, excluding traffic violations, of persons
in control of the license applicant;

deleted text begin (d) deleted text end new text begin (4) new text end whether a court of competent jurisdiction has found that the applicant or
persons in control of the applicant have engaged in conduct evidencing gross negligence,
fraud, misrepresentation, or deceit in performing an act for which a license is required
under this chapter;

deleted text begin (e) deleted text end new text begin (5) new text end whether the applicant or persons in control of the applicant have been the
subject of: an order of suspension or revocation, cease and desist order, or injunctive
order, or order barring involvement in an industry or profession issued by this or another
state or federal regulatory agency or by the Secretary of Housing and Urban Development
within the ten-year period immediately preceding submission of the application; and

deleted text begin (f) deleted text end new text begin (6) new text end other information required by the commissioner.

Sec. 5.

Minnesota Statutes 2006, section 58.06, is amended by adding a subdivision to
read:

new text begin Subd. 3. new text end

new text begin Waiver. new text end

new text begin The commissioner may, for good cause shown, waive any
requirement of this section with respect to any license application or to permit a license
applicant to submit substituted information in its license application in lieu of the
information required by this section.
new text end

Sec. 6.

Minnesota Statutes 2006, section 58.08, subdivision 3, is amended to read:

Subd. 3.

Exemption.

deleted text begin Subdivisions 1 and deleted text end new text begin Subdivision new text end 2 deleted text begin do deleted text end new text begin does new text end not apply to
mortgage originators or mortgage servicers who are approved as seller/servicers by the
Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

Sec. 7.

Minnesota Statutes 2006, section 58.10, subdivision 1, is amended to read:

Subdivision 1.

Amounts.

The following fees must be paid to the commissioner:

(1) for an initial residential mortgage originator license, deleted text begin $850 deleted text end new text begin $2,550 new text end , $50 of which
is credited to the consumer education account in the special revenue fund;

(2) for a renewal license, deleted text begin $450 deleted text end new text begin $1,350 new text end , $50 of which is credited to the consumer
education account in the special revenue fund;

(3) for an initial residential mortgage servicer's license, $1,000;

(4) for a renewal license, $500; and

(5) for a certificate of exemption, $100.

Sec. 8.

new text begin [58.115] EXAMINATIONS.
new text end

new text begin The commissioner has under this chapter the same powers with respect to
examinations that the commissioner has under section 46.04, including the authority to
charge for the direct costs of the examination, including travel and per diem expenses.
new text end

Sec. 9.

new text begin [58.126] EDUCATION REQUIREMENT.
new text end

new text begin No person shall serve as a residential mortgage originator before the completion
of 16 hours of educational training which has been approved by the commissioner, and
covering state and federal laws concerning residential mortgage lending.
new text end

Sec. 10.

Minnesota Statutes 2006, section 58.13, subdivision 1, is amended to read:

Subdivision 1.

Generally.

No person acting as a residential mortgage originator
or servicer, including a person required to be licensed under this chapter, and no person
exempt from the licensing requirements of this chapter under section 58.04, shall:

(1) fail to maintain a trust account to hold trust funds received in connection with a
residential mortgage loan;

(2) fail to deposit all trust funds into a trust account within three business days of
receipt; commingle trust funds with funds belonging to the licensee or exempt person; or
use trust account funds for any purpose other than that for which they are received;

(3) unreasonably delay the processing of a residential mortgage loan application,
or the closing of a residential mortgage loan. For purposes of this clause, evidence of
unreasonable delay includes but is not limited to those factors identified in section 47.206,
subdivision 7, clause (d);

(4) fail to disburse funds according to its contractual or statutory obligations;

(5) fail to perform in conformance with its written agreements with borrowers,
investors, other licensees, or exempt persons;

(6) charge a fee for a product or service where the product or service is not actually
provided, or misrepresent the amount charged by or paid to a third party for a product
or service;

(7) fail to comply with sections 345.31 to 345.60, the Minnesota unclaimed property
law;

(8) violate any provision of any other applicable state or federal law regulating
residential mortgage loans including, without limitation, sections 47.20 to 47.208;

(9) make or cause to be made, directly or indirectly, any false, deceptive, or
misleading statement or representation in connection with a residential loan transaction
including, without limitation, a false, deceptive, or misleading statement or representation
regarding the borrower's ability to qualify for any mortgage product;

(10) conduct residential mortgage loan business under any name other than that
under which the license or certificate of exemption was issued;

(11) compensate, whether directly or indirectly, coerce or intimidate an appraiser for
the purpose of influencing the independent judgment of the appraiser with respect to the
value of real estate that is to be covered by a residential mortgage or is being offered as
security according to an application for a residential mortgage loan;

(12) issue any document indicating conditional qualification or conditional approval
for a residential mortgage loan, unless the document also clearly indicates that final
qualification or approval is not guaranteed, and may be subject to additional review;

(13) make or assist in making any residential mortgage loan with the intent that the
loan will not be repaid and that the residential mortgage originator will obtain title to
the property through foreclosure;

(14) provide or offer to provide for a borrower, any brokering or lending services
under an arrangement with a person other than a licensee or exempt person, provided that
a person may rely upon a written representation by the residential mortgage originator that
it is in compliance with the licensing requirements of this chapter;

(15) claim to represent a licensee or exempt person, unless the person is an employee
of the licensee or exempt person or unless the person has entered into a written agency
agreement with the licensee or exempt person;

(16) fail to comply with the record keeping and notification requirements identified
in section 58.14 or fail to abide by the affirmations made on the application for licensure;

(17) represent that the licensee or exempt person is acting as the borrower's agent
after providing the nonagency disclosure required by section 58.15, unless the disclosure
is retracted and the licensee or exempt person complies with all of the requirements of
section 58.16;

(18) make, provide, or arrange for a residential mortgage loan that is of a lower
investment grade if the borrower's credit score or, if the originator does not utilize credit
scoring or if a credit score is unavailable, then comparable underwriting data, indicates
that the borrower may qualify for a residential mortgage loan, available from or through
the originator, that is of a higher investment grade, unless the borrower is informed that
the borrower may qualify for a higher investment grade loan with a lower interest rate
and/or lower discount points, and consents in writing to receipt of the lower investment
grade loan.

For purposes of this section, "investment grade" refers to a system of categorizing
residential mortgage loans in which the loans are: (i) commonly referred to as "prime" or
"subprime"; (ii) commonly designated by an alphabetical character with "A" being the
highest investment grade; and (iii) are distinguished by interest rate or discount points
or both charged to the borrower, which vary according to the degree of perceived risk
of default based on factors such as the borrower's credit, including credit score and
credit patterns, income and employment history, debt ratio, loan-to-value ratio, and prior
bankruptcy or foreclosure;

(19) make, publish, disseminate, circulate, place before the public, or cause to be
made, directly or indirectly, any advertisement or marketing materials of any type, or any
statement or representation relating to the business of residential mortgage loans that is
false, deceptive, or misleading;

(20) advertise loan types or terms that are not available from or through the licensee
or exempt person on the date advertised, or on the date specified in the advertisement.
For purposes of this clause, advertisement includes, but is not limited to, a list of sample
mortgage terms, including interest rates, discount points, and closing costs provided by
licensees or exempt persons to a print or electronic medium that presents the information
to the public;

(21) use or employ phrases, pictures, return addresses, geographic designations, or
other means that create the impression, directly or indirectly, that a licensee or other
person is a governmental agency, or is associated with, sponsored by, or in any manner
connected to, related to, or endorsed by a governmental agency, if that is not the case; deleted text begin or
deleted text end

(22) violate section 82.49, relating to table funding new text begin ;
new text end

new text begin (23) make, provide, or arrange for a residential mortgage loan without verifying
the borrower's reasonable ability to pay the principal and interest on the loan, and pay
real estate taxes and home insurance. For loans in which the interest rate may vary, the
reasonable ability to pay must be determined based on the maximum monthly payment
that could be due during the first five years of the loan term, which amount must be
calculated with reference to the maximum interest rate allowable under the loan assuming
no default by the borrower and assuming a fully indexed rate and a repayment schedule
which achieves full amortization over the life of the loan. For all residential mortgage
loans, the borrower's income and financial resources must be verified by tax returns,
payroll receipts, bank records, or other similarly reliable documents. A statement by
the borrower to the residential mortgage originator or exempt person of the borrower's
income and resources is not sufficient to establish the existence of the income or resources
when verifying the reasonable ability to pay;
new text end

new text begin (24) whenever the residential mortgage originator informs a borrower, orally or in
writing, of the anticipated or actual periodic payment amount for a first-lien residential
mortgage loan, the residential mortgage originator must inform the borrower that an
additional amount will be due for taxes and insurance and, if known, disclose to the
borrower the amount of the anticipated or actual periodic escrow payments. A residential
mortgage originator need not make this disclosure concerning a refinancing loan if the
residential mortgage originator knows that the borrower's existing loan that is anticipated
to be refinanced does not have an escrow account. Compliance with federal laws requiring
disclosure of a periodic payment amount constitutes compliance with this paragraph but
only for purposes of the particular disclosure required under federal law;
new text end

new text begin (25) make, provide, or arrange for a residential mortgage loan, other than a reverse
mortgage pursuant to United States Code, title 15, chapter 41, if the borrower's compliance
with any repayment option offered pursuant to the terms of the loan will result in negative
amortization during any six-month period; or
new text end

new text begin (26) make, provide, or arrange for a residential mortgage loan all or a portion of
the proceeds of which are used to fully or partially pay off a "special mortgage" unless
the borrower has obtained a written certification from a counselor with a third-party
nonprofit or governmental organization approved by the United States Department of
Housing and Urban Development or the commissioner that the borrower has received
counseling on the advisability of the loan transaction. The commissioner shall maintain a
list of approved counseling programs. For purposes of this section, "special mortgage"
means a residential mortgage loan originated, subsidized, or guaranteed by or through
a state, tribal, or local government, or nonprofit organization, that bears one or more of
the following nonstandard payment terms which substantially benefit the borrower: (i)
payments vary with income; (ii) payments of principal or interest are not required or
can be deferred under specified conditions; (iii) principal or interest is forgivable under
specified conditions; or (iv) where no interest or an annual interest rate of two percent or
less is charged in connection with the loan new text end .

Sec. 11.

new text begin [609.614] RESIDENTIAL MORTGAGE FRAUD.
new text end

new text begin Subdivision 1. new text end

new text begin Residential mortgage fraud prohibited. new text end

new text begin Whoever with the intent to
defraud for the purpose of depriving another of property or for pecuniary gain, commits,
or permits its employees or its agents to commit, any of the following acts, is guilty of
residential mortgage fraud and may be sentenced as provided in subdivision 2:
new text end

new text begin (1) knowingly makes any deliberate misstatement, misrepresentation, or omission
during the mortgage lending process with the intention that it be relied on by a mortgage
lender, borrower, or any other party to the mortgage lending process;
new text end

new text begin (2) knowingly uses or facilitates the use of any deliberate misstatement,
misrepresentation, or omission, knowing the same to contain a misstatement,
misrepresentation, or omission, during the mortgage lending process with the intention
that it be relied on by a mortgage lender, borrower, or any other party to the mortgage
lending process;
new text end

new text begin (3) receives any proceeds or any other funds in connection with a residential
mortgage closing that such person knew resulted from a violation of clause (1) or (2);
new text end

new text begin (4) conspires to violate any of the provisions of clause (1), (2), or (3); or
new text end

new text begin (5) files or causes to be filed with the official registrar of deeds of any county
of this state any document such person knows to contain a deliberate misstatement,
misrepresentation, or omission.
new text end

new text begin An offense of residential mortgage fraud must not be predicated solely upon information
lawfully disclosed under federal disclosure laws, regulations, and interpretations related
to the mortgage lending process.
new text end

new text begin Subd. 2. new text end

new text begin Sentence. new text end

new text begin Whoever violates this provision may be sentenced as provided
in section 609.52, subdivision 3, based on the greater of (1) the value of property, services,
or other benefit wrongfully obtained or attempted to obtain, or (2) the aggregate economic
loss suffered by any person as a result of the violation. A person convicted of a violation
of this section must be ordered to pay restitution to persons aggrieved by the violation.
Restitution must be ordered in addition to a fine or imprisonment but not in lieu of a
fine or imprisonment.
new text end

new text begin Subd. 3. new text end

new text begin Definitions. new text end

new text begin (a) "Mortgage lending process" means the process through
which a person seeks or obtains a residential mortgage loan including, but not limited
to, solicitation, application, or origination, negotiation of terms, third-party provider
services, underwriting, signing and closing, and funding of the loan. Documents involved
in the mortgage lending process include, but are not limited to, uniform residential loan
applications or other loan applications; appraisal reports; HUD-1 settlement statements;
supporting personal documentation for loan applications such as W-2 forms, verifications
of income and employment, bank statements, tax returns, and payroll stubs; and any
required disclosures.
new text end

new text begin (b) "Pattern of residential mortgage fraud" means one or more misstatements,
misrepresentations, or omissions made during the mortgage lending process that involve
two or more residential properties, which have the same or similar intents, results,
accomplices, victims, or methods of commission or otherwise are interrelated by
distinguishing characteristics.
new text end

new text begin (c) "Person" means a natural person, corporation, company, limited liability
company, partnership, trustee, association, or any other entity.
new text end

new text begin (d) "Residential mortgage loan" means a loan or agreement to extend credit made to
a person, which loan is secured by a deed to secure debt, security deed, mortgage, security
interest, deed of trust, or other document representing a security interest or lien upon any
interest in one-to-four family residential property located in Minnesota including the
renewal or refinancing of any such loan.
new text end

Sec. 12. new text begin LICENSE RENEWAL EXTENSION.
new text end

new text begin The July 31, 2007, renewal date for mortgage originators is extended to October 30,
2007, because of the changes to the licensing requirements made by this act.
new text end

Sec. 13. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2006, section 58.08, subdivision 1, new text end new text begin is repealed.
new text end