NEW JERSEY ASSEMBLY BILL 2035

The New Jersey legislature recently amended several provisions of its Residential Mortgage Lending Act (“Act”), effective November 22, 2018.

“Approved conditional status” means the status of the license of an individual who has satisfied all conditions for licensure as a mortgage loan originator or qualified individual licensee except a satisfactory demonstration of his or her financial responsibility but who is making a good faith effort to achieve the level of financial responsibility required for such licensure.

“Approved inactive status” means the status of the license of an individual applicant who has satisfied all conditions for licensure except sponsorship by a licensed business entity or the status of a licensed individual who is no longer so sponsored.

“Bona fide not for profit entity” means an organization that:

• Maintains tax exempt status under Section 501(c)(3) of the Internal Revenue Code;
• Promotes low to moderate income housing or provides homeownership education, or similar services;
• Conducts its activities in a manner that serves public or charitable purposes;
• Receives funding and revenue and charges fees in a manner that does not incentivize the organization or its employees to act other than in the best interests of its clients;
• Compensates employees in a manner that does not incentivize employees to act other than in the best interests of its clients;
• Provides to or identifies for the borrower residential mortgage loans with terms that are favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
• Meets such other standards as may be prescribed by the Commissioner of Banking and Insurance (“Commissioner”).

“Branch manager” means an employee of a licensed business entity with management responsibilities over a branch and who is identified as such with the Nationwide Mortgage Licensing System and Registry (“NMLS”).

“Exempt company” means a person other than a bona fide not for profit entity that is not subject to licensure as a residential mortgage lender or a residential mortgage broker that is registered as provided below.

An individual who is employed by a federal, state, or local government agency or a housing finance agency and who acts as a mortgage loan originator only pursuant to his or her official duties as an employee of the federal, state, or local government agency, or of a housing finance agency is not included in the definition of mortgage loan originator.  The agency itself is not considered a mortgage loan originator.  For purposes of this provision, “Housing finance agency” means any organization that is:

• Chartered by a state to help meet the affordable housing needs of the residents of the state;
• Supervised, directly or indirectly, by the state government;
• Subject to audit and review by the state in which it operates; and
• Whose activities make it eligible to be a member of the National Council of State Housing Agencies.

“Out-of-state mortgage loan originator” means an individual who maintains a unique identifier through NMLS and currently holds a valid mortgage loan originator license issued pursuant to the law of any state or other jurisdiction within the United States.

“Registered mortgage loan originator” means any individual who:

• Is a mortgage loan originator and an employee of:
  • A depository institution;
  • A subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency; or
  • An institution regulated by the Farm Credit Administration, or its successor; and
• Is registered with, and maintains a unique identifier through, NMLS and was validly registered as a mortgage loan originator with a depository institution employer for at least the one-year period prior to applying for licensure under the Act.

The following secondary mortgage loans are no longer excepted from the provisions of the Act:

• A loan which is to be repaid in 90 days or less;
• A loan which is taken as security for a home repair contract executed in accordance with the provisions of the New Jersey Home Repair Financing Act; or
• A loan which is the result of the private sale of a dwelling, if title to the dwelling is in the name of the seller and the seller has resided in that dwelling for at least one year, if the buyer is purchasing that dwelling for his own residence and, if the buyer, as part of the purchase price, executes a secondary mortgage in favor of the seller.

“Sponsor” means a business licensee that employs a qualified individual licensee, a mortgage loan originator, or an applicant for a transitional mortgage loan originator license.

“Transitional mortgage loan originator license” or “transitional license” means a license, issued to an out-of-state mortgage loan originator or registered mortgage loan originator that provides temporary authority to engage in the business of mortgage loan origination in New Jersey pending the completion by the transitionally licensed individual of the requirements for licensure as a New Jersey mortgage loan originator.  A transitional mortgage loan originator license is valid for a term of no longer than 120 days.

No individual may act as a mortgage loan originator without first obtaining a license or transitional license.  No individual, except as otherwise provided, may be issued or hold a license or transitional license as a mortgage loan originator unless employed as an originator by one, and not more than one, business licensee, and is subject to the direct supervision and control of that licensee, employed by an exempt company, or who is under a written agreement with and sponsored in NMLS by one, and not more than one, person exempt from licensing requirements and registered with the Department of Banking and Insurance (“Department”) and is subject to the direct supervision and control of that exempt person.

No individual may act as a loan processor or underwriter who is an independent contractor or employed by an independent contractor without first obtaining a mortgage loan originator license under the Act unless otherwise provided.

No person may qualify for registration as an exempt company unless the person is in the business of mortgage loan origination solely by virtue of its performance of loan processing or underwriting functions.  The Commissioner will have the authority to adopt rules in accordance with the Administrative Procedures Act specifying additional criteria on the basis of which a person in the business of mortgage loan origination solely by virtue of its performance of loan processing or underwriting functions may qualify for registration as an exempt company.

An exempt company must register with the Commissioner and with NMLS.  An applicant for registration or for renewal of registration as an exempt company must:

• Submit a completed application to the Commissioner on the form, in the manner, and with the appropriate evidence in support of the application as may be prescribed by the Commissioner;
• Pay to the Commissioner at the time of application a nonrefundable application fee not to exceed $500 as established by the Commissioner by regulation;
• Pay to NMLS any fees required by that system and registry, or any fees which, by arrangement of the Commissioner, are payable to NMLS on behalf of the Commissioner; and
• Obtain a blanket bond in an amount and form prescribed by the Commissioner, but not less than $25,000.  The law sets forth specific requirements for the bond to be acceptable.

A registered exempt company must:

• Respond in a timely manner to any request of the Commissioner for the production of and access to books, records, accounts, documents or other information relative to its operations;
• Submit to NMLS a mortgage call report of conditions, in the form and manner, and with such information, at any time as may be required by NMLS, and any other report to, or through NMLS pursuant to an arrangement for reporting and sharing information;
• Provide written notice to the Commissioner within 10 days of the occurrence of any event that would cause the exempt company to no longer qualify for registration as such under the terms of this provision and so notify in writing all licensed mortgage loan originators employed or retained by the exempt company; and
• Employ at least one individual who is licensed as a mortgage loan originator who does not engage in the origination of mortgage loans and is assigned supervision and instruction duties with respect to individuals employed as loan processors or loan underwriters.

Depository institutions are exempt from this Act but subsidiaries and service corporations of these institutions are not exempt.  A depository institution may register with the Department for the purpose of sponsoring individuals, licensed as mortgage loan originators, provided that such registered entity obtains and maintains bond coverage for mortgage loan originators as required.  A depository institution registered with the Department will otherwise remain exempt from the licensing requirements.

The Act does not apply to a bona fide not for profit entity and any individuals directly employed by that entity, so long as the entity maintains its tax-exempt status and otherwise meets the definition of “bona fide not for profit entity.”

The Commissioner may require any officer, director, partner, owner, or principal of an entity seeking licensure as a business licensee to authorize NMLS to obtain a credit report on such individual and at their cost.

A person whose application is deemed abandoned is required to submit a new application in order to obtain licensure as a business licensee.  The Commissioner may adopt rules addressing notices of abandonment and the subsequent submission of new applications.

The amendments to the Act sets forth procedures for applying for a transitional mortgage loan originator license.

The approved continuing education course required for a mortgage loan originator license must include, at a minimum:

• 3 hours of instruction on federal statutes and regulations;
• 2 hours of instruction on ethics, including instruction on fraud, consumer protection, and fair lending issues;
• 2 hours of training related to lending standards for the nontraditional mortgage product marketplace; and
• 2 hours of instruction related to New Jersey laws and regulations on residential mortgage lending.

Each branch office must be under the supervision of a branch manager.  A branch manager must supervise only one branch office at any given time except as may be permitted by the Commissioner in accordance with applicable rules.  In order to act in the capacity as a branch manager, an individual must either possess a mortgage loan originator license or, if unlicensed, the qualified individual licensee of the business licensee must certify that when acting in the capacity of a branch manager the unlicensed individual will not engage in any activity that would require licensure as a mortgage loan originator.

Notwithstanding the provisions of any other law, a residential mortgage lender, incidental to the origination, processing and closing of any mortgage loan transaction, has the right to charge only the following fees:

• Application fee;
• Origination fee;
• Lock-in fee;
• Commitment fee;
• Warehouse fee;
• Discount points; and
• Fees necessary to reimburse the residential mortgage lender for charges imposed by third parties which includes appraisal fees, credit report fees, and such other third-party charges as the Commissioner may expressly permit to lenders by rule in accordance with a procedure established by rule.

Notwithstanding the provisions of any other law, a residential mortgage broker, incidental to the brokering of any mortgage loan transaction, has the right to charge only the following fees:

• Application fee;
• Broker fee;
• Lock-in fee; and
• Fees necessary to reimburse the residential mortgage broker or lender for charges imposed by third parties which includes appraisal fees, credit report fees, and such other third-party charges as the Commissioner may expressly permit to brokers by rule in accordance with a procedure established by rule.

“Application fee” means a fee imposed by a lender or a broker for taking or processing a loan application, which fee may not be based upon a percentage of the principal amount of the loan or the amount financed.  An application fee may be charged only once with respect to the same mortgage loan application and, where a loan is brokered, may be charged by a residential mortgage lender or a residential mortgage broker, but not by both.

“Appraisal fee” means a fee charged to a borrower by a lender or broker to recover the direct cost of the fee charged by a duly credentialed real estate appraiser for an appraisal in connection with a mortgage loan application.  An appraisal fee may be charged only once with respect to the same mortgage loan application and, where a loan is brokered, may be charged by a residential mortgage lender or a residential mortgage broker, but not by both.  A lender or broker may charge a borrower an appraisal fee for a second appraisal provided that requiring a second appraisal is in accordance with duly promulgated rules.

“Broker fee” means a fee that may be charged to a borrower only by a broker and that is payable only at closing, which fee may be based on a percentage of the principal amount of the loan or a fraction thereof.

“Commitment fee” means a fee, exclusive of third-party fees, imposed by a residential mortgage lender as consideration for binding the lender to make a loan in accordance with the terms and conditions of its written commitment and payable on or after the borrower’s acceptance of the commitment.  The amount of the commitment fee must be reasonably related to its purpose and may be based upon a percentage of the principal amount of the loan.  A commitment fee may not be charged or collected unless the borrower receives a written commitment from the lender by midnight of the third business day prior to the day upon which the mortgage loan closing occurs and the borrower has accepted such commitment.

“Credit report fee” means a fee charged to a borrower by a lender or broker in connection with a mortgage loan application to recover the direct cost of the fee charged by a credit reporting agency for obtaining a credit report.  A credit report fee may be charged to a borrower by a residential mortgage lender or by a residential mortgage broker, but not by both in connection with the same mortgage loan application.  A lender or broker may charge a borrower a credit report fee for a second credit report provided that requiring a second credit report is in accordance with duly promulgated rules.

“Discount point” means a fee charged by a lender based on a percentage of the principal amount of the loan and payable only at the closing of the mortgage loan, which fee operates to reduce the interest rate of the mortgage loan.

“Lock-in agreement” means a written agreement between a lender and a borrower whereby the lender guarantees until a specified date or for a specified period of time the availability of a specified rate of interest or specified formula by which the rate of interest will be determined and, if applicable, the specific number of discount points required to obtain such rate or formula, provided the loan is approved and closed by the specified date.  No lender may charge a lock-in fee for a lock-in agreement executed after midnight of the third business day prior to the day upon which the mortgage loan closing occurs.

“Lock-in fee” means a fee that a lender may charge to a borrower for a lock-in agreement, which fee may be payable at closing but in no event be payable prior to the commencement of the lock-in period.

“Origination fee” means a fee that a lender may charge to a borrower for originating a loan and that is based on a percentage of the principal amount of the loan and is payable only at the closing of the mortgage loan.  An origination fee may also be referred to as a “point.”

“Warehouse fee” means a fee charged by a lender not to exceed the cost associated with holding the particular mortgage loan pending its assignment to a permanent investor, and payable at closing.  The fee must be based on the actual holding period and warehouse rate and the initial coupon rate on the mortgage loan.  No profit may accrue to a lender from collection of a warehouse fee.

A residential mortgage lender or residential mortgage broker may use a term for a fee that is different from a term specified in these provisions or in duly promulgated rules implementing these provisions, provided that the lender or broker can document to the Department that such fee fits the definition and description of a fee permitted by these provisions or by duly promulgated rules implementing these provisions, provided that such fee functions accordingly, and provided that the lender or broker has disclosed such fee in writing to the borrower in conformity with applicable state and federal disclosure rules.

In addition to the rulemaking authority granted the Commissioner by the above provisions, the Commissioner is authorized to promulgate such rules and forms as may reasonably be deemed necessary by the Commissioner to provide for the adequate disclosure to borrowers of permitted fees consistent with these provisions and with applicable provisions of federal regulations and forms.

“Financial institution” means any bank, savings bank, state association, credit union, residential mortgage lender, residential mortgage broker, consumer lender or any other institution, corporation, partnership or individual subject to the supervision, regulation or licensing by the Department.