Financial Institutions

MORTGAGE SERVICERS

 FREQUENTLY ASKED QUESTIONS

 These questions and answers constitute informal guidelines only and do not constitute legal advice or rules by DFI.  Any interpretations of Chapter 454M, HRS, are specific to the facts and circumstances in each particular situation.  Questions and answers will be updated and supplemented as DFI develops additional guidance.  Additional answers can be found using the NMLS Resource Center.

If additional guidance is required on a unique situation in your company or for yourself, you may send your inquiry via letter or email to:

Division of Financial Institutions
Department of Commerce and Consumer Affairs
P.O. Box 2054
Honolulu, HI 96805
OR
[email protected]

MORTGAGE SERVICER LICENSING

 Who needs a mortgage servicer license in Hawaii?
Anyone engaging in the business of mortgage servicing, including master servicer companies, must have a mortgage servicer license, unless exempted under Chapter 454M, HRS.  Section 454M-2, HRS.

Who is exempted from the mortgage servicer licensing requirement?
For the exemption provision, see Section 454M-3, HRS.

Generally, Chapter 454M, HRS, does not apply to the following:  (1) insured depository institutions including banks or savings associations chartered or authorized under the laws of any state or federal law, and operating subsidiaries of an insured depository institution;  (2)  trust companies, credit unions, insurance companies, and financial service loan companies licensed by the State of Hawaii; and (3) a person making or acquiring contemporaneously no more than five residential mortgage loans with that person’s own funds for that person’s own investment.  There are also exemptions under specified circumstances for the Federal Deposit Insurance Corporation and other government agencies in Section 454M-3(3) and (4), HRS.

Does a licensed mortgage servicer need a mortgage loan originator license to offer loan modifications?
Yes.  In order to provide loan modifications, the licensed mortgage servicer must comply with license requirements of Section 454M-2(c), HRS, and obtain a mortgage loan originator license pursuant to Chapter 454F, HRS, the “Secure and Fair Enforcement for Mortgage Licensing Act”, which governs mortgage loan originators in Hawaii.   Section 454M-2, HRS.

It is a violation of Chapter 454M, HRS for any mortgage servicer to provide any mortgage loan modifications or other services that would require licensing pursuant to Chapter 454F, HRS, unless the mortgage servicer is licensed under Chapter 454F, HRS.  Section 454M-6(c), HRS.

Note that under certain circumstances, an employee of a mortgage servicer company may be exempt from licensure as a mortgage loan originator.   Section 454F-24, HRS.

How do I obtain a mortgage servicer license, how much does it cost, and what is NMLS?
The application process is summarized on the Hawaii Licensing Page of the NMLS.  From that page, click on the Mortgage Servicer License “New Application” link for detailed instructions, an application check list, and fee information.   Currently, the mortgage servicer license fee is $775, which includes the NMLS processing fee.

Statutory licensure requirements are set out in Section 454M-4, HRS.  The application is processed through NMLS, an online mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the state licensing and registration of state-licensed loan originators and other financial services providers.   The Commissioner’s authority to require all mortgage servicers to register with NMLS is set out in Section 454M-4.5, HRS, and participation in NMLS is pursuant to Section 454M-4, HRS.

What information must I disclose in my license application?
In the application on NMLS, the mortgage servicer applicant must submit any information that the Commissioner may require, including:

• The applicant’s formand place of organization;
• The applicant’s taxidentification number;
• The applicant’s proposedmethod of doing business;
• Whether the applicant or any of its officers, directors, employees, managers, agents, partners, or membershave ever been issued or been the subject of an injunction or administrative order pertaining to any aspect of the lending business, have ever been convicted of a misdemeanor involving the lending industry or any aspect of the lending business, or have ever been convicted of any felony.  454M-4(e); and
• A complete, current schedule of the ranges of costs and fees the applicant charges borrowers for its servicing-related activities.

If a mortgage servicer applicant has one or more officers, directors, employees, managers, agents, partners, or members with a criminal record, will the application be denied?
Not automatically.  DFI will conduct a consensual background check of each such person, and will consider the results in determining whether to issue a license.  See Sections 454M-4(e), and 454M-5(a)(4), HRS.

When does a mortgage servicer license expire, and how do I renew it?
A mortgage servicer license expires on December 31 of each calendar year, unless renewed.   A licensee may apply for license renewal by filing a renewal statement on a form prescribed by NMLS or by the Commissioner and paying a renewal fee of $425 plus $100 NMLS processing fee, at least four weeks prior to December 31.  Section 454M-4(a), HRS.

With each yearly renewal statement, the licensee must submit information including:

• A complete, current schedule of the ranges of costs and fees it charges borrowers for its servicing-related activities; and
• A report detailing the servicer’s activities in Hawaii, including:
  (A)      The number of mortgage loans the servicer is servicing;
  (B)      The type and characteristics of loans serviced in this State;
  (C)     The number of serviced loans in default, along with a breakdown of thirty-, sixty-, and ninety-day delinquencies;
  (D)     Information on loss mitigation activities, including details on workout arrangements undertaken;
  (E)      ­­Information on foreclosures commenced in this State;
  (F)     The affiliations of the mortgage servicer, including any lenders or mortgagees for which the mortgage servicer provides service, any subsidiary or parent entities of the mortgage servicer, and a description of the authority held by the mortgage servicer through its affiliations; and
  (G)     Any other information that the Commissioner may require.
  Section 454M-5(a)(4), (5), HRS.

Is my license application or renewal fee refundable?
No.  Fees paid pursuant to Section 454M-4(a), HRS, are nonrefundable, including fees paid in connection with an application.  Fees are not prorated if the license is surrendered, revoked, or suspended prior to the expiration of the period for which it was approved.  Section 454M-4(a), HRS.

Must a mortgage servicer have an office in the State of Hawaii?
This depends on the mortgage servicer’s business share in Hawaii.   Section 454M-5(b)(b), HRS requires a mortgage servicer to maintain an office in the State that is staffed by at least one agent or employee for the purposes of addressing consumer inquiries or complaints and accepting service of process, provided that the mortgage servicer’s business constitutes at least a twenty per cent share of the portion of the total mortgage loan service market in Hawaii that was serviced by mortgage servicers licensed under Chapter 454M, HRS, within the previous calendar year.   However, that section does not bar a mortgagee (as defined by Section 667-1, HRS) or a mortgage servicer from contracting with a licensee that maintains an office in this State in conformity with Section 454M-5, HRS, for the purposes of addressing consumer inquiries or complaints and accepting service of process.   Sections 454M-2, 454M-5(b)(6), HRS.

Is there a bond requirement for a mortgage servicer license? (M-4(j))
Yes, pursuant to Section 4 of Act 62 (2015).  Section 9 of Act 62 (2015) provides that for persons holding a current license under Chapter 454M, HRS, on the effective date of Act 62 (2015) [May 28, 2015], the new surety bond requirements under Section 454M-4(j) to (n), HRS, apply as of the date of the licensee’s next license renewal under Chapter 454M, HRS, but no later than December 31, 2015.  Subject to the foregoing:

Before a mortgage servicer’s license becomes effective, the applicant or licensee shall file with the Commissioner a surety bond written by a surety authorized to write surety bonds in this State, covering the applicant or licensee’s principal office and any branch office from which the applicant or licensee acts as a mortgage servicer, in a penal sum of $100,000.  No mortgage servicer licensee shall act as a mortgage servicer in this State without maintaining the surety bond required by Section 454M-4, HRS.

The surety bond shall be:
(1)       In a form approved by the attorney general of this State; and
(2)       Conditioned upon the mortgage servicer licensee faithfully performing any and all written agreements or commitments with or for the benefit of borrowers and mortgagees, truly and faithfully accounting for all funds received from a borrower or mortgagee in the person’s capacity as a mortgage servicer, and conducting the mortgage business consistent with the provisions of Chapter 454M, HRS, to perform any written agreements or commitments.  Section 454M-4(j), HRS.

Under what circumstances can the surety bond requirement be increased?
If the Commissioner finds that the financial condition of a mortgage servicer so requires, as evidenced by the reduction of tangible net worth, financial losses, or potential losses as a result of a violation of law or rule, the Commissioner may require one or more additional bonds that meet the requirements of Section 454M-4, HRS.  The licensee shall file any additional bonds no later than ten days after receipt of the Commissioner’s written notice of the requirement for one or more additional bonds.  A mortgage servicer or mortgage lender licensee shall file, as the Commissioner may require, any bond rider or endorsement or addendum, as applicable, to any bond on file with the Commissioner to reflect any changes necessary to maintain the surety bond required by Section 454M-4, HRS.   Section 454M-4(m), HRS.

Who can bring an action against the surety bond, and how does a claimant proceed?
The Commissioner, or any person claiming to have sustained damage by reason of the failure of the mortgage servicer to comply with the mortgage servicer’s bond, or by the wrongful conversion of funds paid by a borrower to the mortgage servicer, may bring an action on the bond to recover the damage therefrom.  The Commissioner may deposit with a court of competent jurisdiction all or any part of the sum of the bond.  The proceeds of the bond, even if mixed with other assets of the principal, shall be deemed by operation of law to be held in trust for the benefit of claimants against the principal in the event of bankruptcy of the principal and shall be immune from attachment by creditors and judgment creditors.  The surety bond shall run concurrently with the period of the license for the principal office of the mortgage servicer and the aggregate liability under the bond shall not exceed the penal sum of the bond.  The principal shall notify the Commissioner of the commencement of an action on the bond.  When an action is commenced on a principal’s bond, the Commissioner may require the filing of a new bond and immediately on recovery on any action on the bond, the principal shall file a new bond.  Section 454M-4(k), HRS.

What requirements apply to cancellation of a surety bond?
A surety may cancel the surety bond required by Section 454M-4, HRS, at any time by a written notice to the principal stating the date cancellation shall take effect.  The notice shall  be sent by certified mail to the principal at least thirty days prior to the date of cancellation.   A surety bond shall not be canceled unless the surety notifies the Commissioner, in writing, not less than thirty days prior to the effective date of cancellation.  After receipt of the notification from the surety, the Commissioner shall give written notice to the principal of the date the cancellation shall take effect.  The Commissioner shall automatically suspend the license of a mortgage servicer on that date.  No automatic suspension or inactivation shall occur if, prior to the date that the bond cancellation shall take effect:
(1)     The principal submits a letter of reinstatement of the bond or a new bond; or
(2)     The mortgage servicer licensee has ceased business in this State and has surrendered all licenses in accordance with Chapter 454M, HRS.

For purposes of Section 454M-4, “principal” means, in the context of a surety bond requirement, the primary party who will perform the contractual obligation.  Sections 454M-4(l), (n), HRS.

What situations require that a mortgage servicer update the Commissioner or NMLS?
Section 454M-4(h), HRS, requires a mortgage servicer licensee to file with NMLS or, if the information cannot be filed with NMLS, directly notify the Commissioner in writing no later than five business days after the licensee has reason to know of the occurrence of any of the following events:
(1)     Filing for bankruptcy or the consummation of a corporate restructuring of the licensee;
(2)     Filing of a criminal indictment against the licensee or receiving notification of the filing of any criminal felony indictment or felony conviction of any of the licensee’s officers, directors, employees, managers, agents, members, partners, or shareholders owning ten per cent or more of the outstanding stock of the licensee;
(3)     Receiving notification of the initiation of license denial, cease and desist, suspension or revocation procedures, or other formal or informal regulatory action by any governmental agency against the licensee and the reasons for the action;
(4)     Receiving notification of the initiation of any action against the licensee by the state attorney general or the attorney general of any other state and the reasons for the action;
(5)     Suspension or termination of the licensee’s status as an approved servicer by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association;
(6)     Receiving notification that certain servicing rights of the licensee will be rescinded or canceled, and the reasons provided therefor;
(7)     Receiving notification of filing for bankruptcy of any of the licensee’s officers, directors, members, managers, agents, partners, or shareholders owning ten per cent or more of the outstanding stock of the licensee; or
(8)     Receiving notification of the initiation of a class action lawsuit on behalf of consumers against the licensee that is related to the operation of the licensed business.

“Corporate restructuring” occurs when there is an addition or a removal of a person having an ownership interest in the company as found in the company’s direct owners and indirect owners schedules.

Is a mortgage servicer license transferrable or assignable?
No.  A mortgage servicer license is not transferable or assignable.  Section 454M-4(f), HRS.

Are there restrictions on the business name used by a mortgage servicer?
Yes.  A mortgage servicer licensee may use only its legal name or a fictitious name approved by the Commissioner; however, a licensee may not use the licensee’s legal name if the Commissioner disapproves of the use of the licensee’s legal name.   Section 454M-4(f), HRS.

May a mortgage servicer licensee change its name, including fictitious name, or address?
A mortgage servicer licensee may change its name, including fictitious name, or the address of any of the licensee’s offices specified on the most recent filing with NMLS if:

• The licensee files an advance change notice (ACN) with NMLS not less than 30 days prior to of the effective date of the change.
• The licensee, in the case of the principal office or abranch office, provides directly to the Commissioner  a bond rider or endorsement, or addendum, as applicable, to any bond on file with the Commissioner that reflects the new name or address of the principal office or branch office; and
• The Commissioner approves the change in writing.
  Section 454M-4(g), HRS.

If a mortgage servicer voluntarily ceases business, may it surrender its license?
Yes.  Under Section 454M-4(i), HRS, a licensed mortgage servicer may voluntarily cease business and surrender its license by giving written notice to the Commissioner of its intent to surrender its mortgage servicer license.  Notice must be given at least thirty days before the surrender of the license and include:
(1)     The date of surrender;
(2)     The name, address, telephone number, facsimile number, and electronic address of a contact individual with knowledge and authority sufficient to communicate with the Commissioner regarding all matters relating to the licensee during the period that it was licensed pursuant to Chapter 454M, HRS;
(3)     The reason(s) for surrender;
(4)     The original license issued pursuant to Chapter 454M, HRS, to the mortgage servicer; and
(5)     If applicable, a copy of all notices to affected borrowers required by RESPA of the assignment, sale, or transfer of the servicing of all relevant loans that the licensee is currently servicing under the license being surrendered.

Voluntary surrender of a license is effective upon the date of surrender specified on the written notice to the Commissioner, provided that if a mortgage servicer is required to assign, sell, or transfer the servicing of any loans, the voluntary surrender of the mortgage servicer’s license shall be effective upon the effective date of the assignment, sale, or transfer of the servicing of all loans.   Section 454M-4(i), HRS.