Q:  What is the Mortgage Lending Act (the “Act”)? And, when date does it take effect?

A: The Act (S.L. 2001-393; SB 904) is found in Chapter 53, Article 19A of the North Carolina General Statutes. It requires all persons and companies who make or broker loans secured by mortgages/deeds of trust on owner-occupied residential properties located in North Carolina to be licensed by the Commissioner of Banks unless exempted. Also, all employees of the licensee who accept or offer to accept applications on the licensee's behalf must be licensed as “Loan Officers”. This Act was effective July 1, 2002.

Q: My company is a registered Mortgage Broker. How will the Act affect me?

A:   There is a physical location requirement for Mortgage Brokers. The Act requires that each licensed Mortgage Broker maintain a principal place of business in the State of North Carolina, and that all books, records and files be maintained in that Principal Office unless a different office is permitted by written consent of the NCCOB.

Q: My company is currently exempt from registration as a "HUD-approved, non-supervised" lender. How will the Act affect me?

A:  A lender classified as a "Loan Correspondent" under the HUD approval rules will not be "grandfathered" and must apply for a Mortgage Lender (or Broker) License. Additionally, all individuals acting as Loan Officers for such entity will need to obtain a Loan Officer license.  Supervised depository institutions are exempt from licensing and should file a claim of exemption form.

Q:  My company, a licensed Mortgage Broker, wishes to engage in Table Funding Mortgage Loans. How will the Act affect me?

A:  Table funding -- the assignment and sale of any loan closed by a Mortgage Broker licensee in its own name must be consummated within one business day. Any Mortgage Broker who is uncertain if the sale of loans will be accomplished within one business day should apply for a Mortgage Lender license.

Q:  My company is licensed with the NCCOB. Is there anything it can offer in lieu of a surety bond to satisfy those requirements under the Act?

A:  Only a surety bond on the appropriate bond form, or an appropriate deposit of cash will be accepted. The lone exception is for HUD-approved lenders, which may submit an audited financial statement showing a net worth of $250,000 or more in acceptable assets in lieu of a surety bond.

Q:  I am sole proprietor, licensed as a Mortgage Broker. Will I also need a Loan Officer's license?

A: Yes you will. In order for a sole proprietor to be licensed as a Mortgage Broker, he/she must also be a licensed Loan Officer.  Additionally, since you will also be the Qualified Individual of the Company, you will be required to have at least three years of experience in the mortgage lending business.

Q:  I wish to operate a "net branch" for a licensed mortgage company. Can I do this under the Act?

A: If you solicit loans secured by residential real estate in North Carolina, you will need a Loan Officer license and at least three years of experience in the mortgage lending business in order to be designated to manage a Branch Office. You must either be a Loan Officer employee of the licensee or you must obtain a sole proprietor Mortgage Lender or Broker license.

You and your employer should review the Commissioner of Banks' Declaratory Ruling 2003-1 regarding "net branching" to be certain the arrangement you have with the lender or broker licensee satisfies the Mortgage Lending Act's requirements as interpreted in that Ruling. The text of the Ruling is available online at http://www.nccob.org/

Q:  I am a "freelance" Loan Officer who solicits loans for (but is not an employee of) one or more lenders. Will I need a Mortgage Broker and/or a Loan Officer License?

A: Yes, you will need a Loan Officer license and need to be employed with a licensed lender or broker. Since you are self-employed, you are not an "employee" under the Act and you may legally solicit applications only if you are licensed as a sole proprietor Mortgage Broker.  You must also obtain a Loan Officer license. 

Q:  What are the requirements for being a Branch Manager?

A: Under the Act, each Branch Office must have a person designated as "Branch Manager." The Qualified Individual of a licensed Mortgage Broker or Lender must designate an individual to be a Branch Manager for each authorized Branch Office. This individual must have a Loan Officer License and at least three years of experience in the mortgage lending business. Upon designation as Branch Manager by the Qualified Individual, the Branch Manager will have primary responsibility for the operations and employees of that Branch Office.

Q:  My company is licensed under the Act as a Mortgage Lender; can I also broker with this license? Must I have an office in North Carolina and/or a separate broker surety bond?

A: A separate license as a Mortgage Broker will not be required if you are already licensed as a Mortgage Lender. However, you should be aware that when acting as a broker, you should comply with the provisions of the Act applicable to Mortgage Brokers, though you need not have an office in North Carolina or separate surety bond. 

If you store files out of the State, you should send a letter requesting permission to store files outside the state. The letter should advise this office of the location where files will be stored, it should advise that the licensee, upon request, will make files available for review by this office at a mutually agreeable location  at the licensee's expense.

Q:  What is a "Qualified Individual?"

A: A Qualified Individual is an individual designated by the licensed Mortgage Lender or Broker as the person who has primary responsibility for the operations of the licensed company. Although the Qualified Individual is the person that the OCOB will contact in the event of a consumer complaint or other problem, he/she is not required to be physically located in North Carolina nor in every case must he/she hold a Loan Officer license. This individual must have at least three years of experience in the mortgage lending business and will be expected to have at least as much knowledge regarding the lending operations as any licensed Loan Officer. The Qualified Individual, if licensed as a Loan Officer, may also serve as the Branch Manager for no more than one Branch Office.

Q:  I wish to start my own mortgage brokerage business. What do I have to do?

A: If you intend to operate your business as a sole proprietorship and you will be the owner and operator, then you would need to submit a MU1 filing through the NMLS website. The instructions that accompany the filing provide most of the information you would need as to the requirements. Generally, you would have to:
(i) Obtain a Loan Officer license,

(ii) Document that you have three years of mortgage lending experience,

(iii) Obtain a surety bond in the required amount,

(iv) Have an office physically located in North Carolina where you could meet with potential loan applicants and maintain the records regarding the applications taken and processed, if you are applying for a broker's license, and

(v) Demonstrate to the OCOB that you have an acceptable business/employment history, credit history, and are honest, ethical and sufficiently knowledgeable of lending practices to be able to act as a responsible Mortgage Broker/Lender.

Q:  Our company is a NC Licensed Internet lender. Applicants log onto our website and insert information into a form. The application is credit scored and the system generates an e-mail or form letter advising the applicant if approved and on what terms and conditions. Following verification of the information (income, employment, etc.) submitted by the applicant and the satisfaction of any conditions (title insurance, payoff of other debts, etc.) the loan is closed. Individuals in our office talk to an applicant only to find out if the requested information or conditions have been sent or met. Who in our organization needs to be licensed as a Loan Officer?

A: If all customer communications are limited to contact in a clerical capacity and there is no solicitation, negotiation or explanation of loan terms, it would appear that you do not need to license any loan officers. However, the signatory on the e-mail or form letter committing to the loan (or the person identified for the customer to contact in the event of questions) should be licensed.

Q:  The Administrative Code seems to require all mortgage loan files to be maintained within an office in the State of North Carolina. Is that a requirement?

A: Yes. However, Mortgage Lender and Mortgage Broker licensees may request approval to keep records outside the State, conditioned on the licensee's agreement to produce timely upon request the records at its own expense. The NCCOB will generally approve requests by Mortgage Lender licensees who do not maintain an office in the State. Other requests will be considered on a case-by-case basis. The NCCOB also does not object to the temporary removal of a file outside the State to handle a collection, bankruptcy, estate, collateral security or other similar issue, although removal from the State to thwart the NCCOB's effort to examine a file would be considered a violation of the rule.

Q:  I am a registered Mortgage Broker and will become licensed under the Act. Is it legally permissible for me to offer to pay a referral fee to a real estate agent who sells property and refers his buyer/client to me for a mortgage loan?

A: No. If the real estate agent is not a licensed Mortgage Broker then the payment of the fee would be in violation of the Act. The Real Estate Agent is only exempt from the Act if he or she is not collecting any compensation in connection with the mortgage transaction except his or her real estate sales commission. Additionally, Mortgage Lender or Broker licensees are subject to discipline under the Act for knowingly making a payment to an unlicensed (and not exempt) person.  

Q:  Our company is a Lender trying to document the fact that a borrower has received the Commissioner's Notice regarding how amortization works. We want to add a signature block and date to that form posted on the web site. Can we make that modification?

A: The form of the Commissioner's Notice to be delivered to the Applicant at the time of application, or within three days thereafter, is not cast in stone. You may modify the notice to add a signature block to acknowledge receipt, or you may have some other document which you normally have the applicant sign at the time of application refer to the required notice and the fact that the applicant received a copy of the notice on such date. One lender has already inquired about putting the notice on legal size paper and turning the tables to be portrait rather than landscape because of printing limitations. As long as the text is readable, accurate, and complete, you may otherwise make necessary or desirable adjustments.

Q:  Do I need to be licensed as a Mortgage Broker or Lender in order to broker the sale or purchase of closed mortgage loans? If I purchase such a portfolio, must I be licensed to service the loans?

A: No license would be required for either activity, provided the sale is an arms-length, bona fide transaction and not merely a sham designed to avoid the application of the Act. 

Q:  Our company uses Tele-marketers to call prospective borrowers and encourage them to get a loan from our company. The Tele-marketer does not do anything except take information from the applicant, which is plugged into the computer. If the applicant qualifies, then a licensed Loan Officer will underwrite the loan and follow-up to make the loan. Does the Tele-marketer have to be licensed as a Loan Officer?

A: If the Tele-marketer is merely gathering information from a potential applicant and has no authority to explain or to set or negotiate terms or to approve or disapprove loans and in fact does none of those things, then no license would be required. If the Tele-marketer is offering to accept the application for the loan then it would appear that such person should be licensed.

Q:  Must a Qualified Individual or Branch Manager have a Loan Officer license?

A: A Qualified Individual will need a Loan Officer license if he/she has customer contact. A Branch Manager who effectively manages his/her branch will of necessity have at least some periodic communications with consumers and therefore must be licensed as a Loan Officer.  Additionally, a Qualified Individual who anticipates managing a branch will have to be licensed as a Loan Officer.

Q:  How long is a license valid?

A: A license is valid from date of issue through the next December 31st. License fees will not be prorated for licenses issued or renewed after January 1st.

Q:  Must I have a physical office in North Carolina?

A: A Mortgage Lender licensee is not required to have a principal office in North Carolina nor does its Qualified Individual have to be physically located in the State. The Act does require a Mortgage Broker to maintain a "principal place of business" within North Carolina. 

Q:  I notice that the Act prohibits brokering of loans of under $150,000 that contain a prepayment penalty. May I as a Mortgage Lender make such loans?

A: For loans made directly (not through a broker), you should consult qualified legal counsel for guidance as to whether you as a lender are subject to North Carolina laws limiting prepayment penalties. The brokering of such loans is a "prohibited activity" under the Act. Any Mortgage Lender licensee or exempt Lender which knowingly deals with a Broker whom it knows is engaged in prohibited activities may itself be subject to discipline.

Q:  My company uses self-employed sales representatives to call on Real Estate Agents. Our representative leaves loan application forms and information regarding our loans. A potential borrower never sees one of our representatives. They call us or contact us via the Internet to file their loan application. Do these sales representatives need a Loan Officer license?

A: No. It appears that these sales representatives have no contact with a borrower and do not explain the terms of or otherwise solicit the loan. Therefore they would not need to be licensed. The Real Estate Agent should refrain from assisting the buyer or borrower in completing the application or they may be engaging in activities for which they need a license. Likewise without a Mortgage Broker license the Realtor should accept no fee other than his/her real estate sales commission or fee. If the Real Estate Agent receives any type of referral fee, such agent should be licensed under the Act and should perform sufficient work in connection with mortgage transaction to warrant receipt of a fee.

Q:  Our Mortgage company wants to encourage Real Estate Agents to direct potential borrowers to our company. Can we agree to pay a specified amount of dollars to the Real Estate Agent's favorite charity for every loan he or she sends us?

A: The act prohibits any unlicensed, non-exempt person from brokering a loan with "... the expectation of compensation or gain, either directly or indirectly ..." The contribution to the real estate agent's favorite charity is a thing of value indirectly benefiting the real estate agent and is prohibited unless the real estate agent is also licensed as a Mortgage Broker. You should also consider the applicability of federal law, especially the Real Estate Settlement Procedures Act (RESPA).

Q:  My company operates several offices. Which of these must be licensed as branches?

A: Any location (other than the designated principal office and whether or not in North Carolina) operated by the licensee which is open to the public and through which the licensee makes or brokers loans in North Carolina must be licensed as a branch and must have a branch manager.

Q:  Is it lawful for two mortgage brokers to work with a borrower to place a loan with a mortgage lender and for each to receive compensation by sharing or splitting the fee charged for brokering the loan? Under what circumstances is this permissible?

A: Two mortgage brokers may share or split the fee for brokering a loan secured by residential real estate in North Carolina, provided that each is licensed (or is listed as exempt from licensure) in North Carolina under the Mortgage Lending Act (MLA), and both parties must actually provide some reasonable amount of work in connection with the extension of the loan, as it is illegal to pay a referral fee in connection with the making of a loan under RESPA. See 12 USC 2607 - Prohibition against kickbacks and unearned fees:
"(b) Splitting charges
No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed."

Persons or brokers not licensed by the North Carolina Office of Commissioner of Banks (or exempt) under the MLA may not receive a fee or anything of value, directly or indirectly, in connection with a loan secured by residential real estate located in North Carolina. Engaging in the business of lending for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly is "acting as a broker" as that term is defined in the MLA. Doing so without benefit of a license will subject both of the brokers and the lender to potential civil money penalties and a felony charge. See N.C. Gen. Stat. §§ 53-243.01(1) and (2), 53-243.02 and 53-243.14.
It is unlawful for a mortgage lender not licensed (or listed as exempt from licensure) in North Carolina to make a loan secured by residential real estate in North Carolina. It would also be unlawful for an unlicensed or nonexempt lender to broker a loan secured by residential property in North Carolina.  

Q:  I employ loan officers at my mortgage company, How do they need to be listed concerning wage reporting?

A:  Loan officers must be reported as W-2 employees and are considered employees of the company not contract workers. 

Q:  Does a loan file register need to be maintained for both denied and closed applications?

A:  Yes. A "master" loan file register of all applications (denied and closed) must be maintained by the broker/lender's main office and must include all branch activities.

Q:  Is it the responsibility of the broker or lender to send adverse action letters to borrowers?

A:  Short answer, both. When an application is submitted through a third party (broker), the application is often sent to more than one creditor. If the applicant uses the credit offered no notification is required. However, if no credit is offered or if the applicant does not expressly accept or use any of the credit offered, each creditor taking adverse action must send written notification, directly or through the third party. A notification given by a third party shall disclose the identity of each creditor on whose behalf the notice is given. See 12 CFR Section 202.9(g) Regulation B for further information. NCCOB would expect to see a copy of the notification in both the broker’s and lender’s adverse action files. We recommend the broker send a notification letter to ensure proper notification was given.