June 2007 - Interest Notes
In this issue:Think Positive Amid Regulatory Change
By: Jim Lewis
Chairman of the Board
The Colorado General Assembly adjourned on Friday, May 4, 2007. During the five-month session, the legislature passed six bills that directly affect the Colorado mortgage lending industry. In total, the bills account for 80 pages of legislation. Issues covered include the transition of mortgage broker registration to loan originator licensing, marketing of non-traditional mortgage products, inappropriate influencing of appraisers, regulation of real estate settlement service providers, and streamlining the foreclosure process in Colorado. In order to gain a thorough understanding of the new laws, I encourage you to download and read all six of the bills, the CMLA Frequently Asked Questions about Loan Originator Licensing, and the CMLA Legislative & Regulatory Update, which are all provided at the CMLA web site: http://www.cmla.com/DRE.html
Six Bills Passed During the 2007 General Session:
Senate Bill 07-085: Inappropriate influencing of appraisals
Senate Bill 07-203: Loan originator licensing
Senate Bill 07-216: Marketing of non-traditional mortgage products
Senate Bill 07-249: Regulation of real estate settlement service providers
House Bill 07-1157: Streamlines the foreclosure process
House Bill 07-1322: Additional regulation of loan originators
While CMLA opposed Senate Bill 07-203 and House Bill 07-1322, the Board of Directors and I agree that our focus now is to help our members and friends adapt and thrive under new conditions. Colorado elected officials responded to concerns expressed by their constituents and significant press resulting from foreclosures and mortgage fraud. Those elected officials who supported the legislation feel that the bills will help solve the problems that plague our industry. Some have mistakenly asked how CMLA could have supported certain aspects of the bills. I assure you that at no time did we abandon our long-held position that enforcement, as opposed to regulation, is the one tool that government can apply equally to all industry participants. However, the time for debate is past; the legislature and Governor Ritter have determined that the six “mortgage bills” should become law. It is now up to us to avoid negative and unproductive reactions to our new regulatory environment. As an industry, we’ve adapted to change before and I am confident that we will find ways to succeed in the future.
Who is a mortgage broker?
Colorado Statute defines a mortgage broker as an individual who negotiates, originates, or offers or attempts to negotiate or originate for a borrower, and for a commission or other thing of value, a residential mortgage loan to be consummated and funded by a mortgage lender. I would encourage you to consider that the definition does not stipulate a third-party relationship between a consumer, a mortgage broker, and a source of funds. Rather, the definition seems to include ‘first-party’ lending environments. It is therefore the opinion of CMLA that the Colorado definition requires registration [licensing] of all loan originators, except those who work for a state- or federally-chartered financial institution, or a subsidiary of a state- or federally-chartered financial institution. While some states license “loan originators,” it seems that Colorado is the first to include all such persons in a single regulatory model and to label them all as “mortgage brokers”. I call your attention to this potentially confusing standard in hopes of avoiding any misunderstanding on the part of loan originators who refer to themselves as “loan officers” or something other than a “mortgage broker.” Please understand that while you may not think of yourself as a mortgage broker, you may still be required to obtain a license.
The next critical issue of the new regulation is to understand that House Bill 07-1322 became effective when the Governor signed it into law on June 1, 2007. At that moment, the prior “FHA exemption” was repealed and thousands of loan originators who were previously exempt from registration were immediately required to register as mortgage brokers. Recognizing that looming issue, CMLA worked with the Division of Real Estate (“DRE”) and other industry representatives to provide input on an emergency rule to provide temporary registration status to anyone who was previously exempt under the FHA exemption. It is important to recognize that the emergency rule does not offer temporary registration to anyone who was denied mortgage broker registration over the past year or more since that program became law. The rule also does not apply to any person who would not presently qualify for registration.
Visit http://www.cmla.com/ER_Temp_Reg.pdf for a copy of the Emergency Rule
I take this opportunity to thank Director Toll and Cary Whitaker, Administrator of the Mortgage Broker Registration Program, for their prompt attention to the Emergency Rule for Temporary Registration. Director Toll shared with CMLA members and friends at our Southern Chapter luncheon in May that she would look to our association and others for depth of knowledge and assistance in crafting effective rules by which the new regulations will be implemented and enforced. I’m grateful for the speed and accuracy achieved in our first rule-making effort and I have every confidence that the Division of Real Estate will continue to perform to such high standards.
Moving forward, Director Toll has shared with us her intentions to craft additional rules on matters including, but not limited to:
• The terms and conditions of the errors and omissions insurance coverage that will be required of each licensed loan originator effective January 1, 2008
• Temporary licensing, which would be available after January 1, 2008 and would allow licensed loan originators to hire an unlicensed loan originator while waiting for the CBI background check process to complete
• Education and testing requirements that will become effective January 1, 2009.
• Defining inappropriate influencing of an appraiser
• Defining “good faith and fair dealing” by mortgage brokers
• Defining the “reasonable tangible net benefit” of a loan to a borrower
• The marketing of nontraditional products
The Executive Committee has asked me to represent our association on the DRE Rule-making task force for a two-year term. I’m proud to take on that responsibility as I move into the last month of my chairmanship of CMLA and ask that you continue to communicate your views to me and Stacey Harding, who will succeed me as chairman in August. You can always reach right to the top of CMLA by sending an email to: chairman@cmla.com.
Whether you’re a mortgage banker, mortgage broker, or an industry service provider, I encourage you to visit the CMLA web site and download a copy of our Legislative & Regulatory Update. The document outlines critical aspects of the bills and serves as a guide when reviewing each of the bills. Please understand that the Legislative & Regulatory Update is a summary – a guide – and should not be considered as a comprehensive review of each bill. Frankly, a comprehensive review would quickly equal or exceed the length of the bills themselves. Please, I cannot encourage you strongly enough, download the bills and read them thoroughly. Seek advice from private counsel and the Division of Real Estate.
Bob Mitchell, Compliance Officer, Cherry Creek Mortgage Company, and Chris Holbert, President, CMLA, address over 200 loan originators and sales managers June 14 at the Denver Licensing seminar.
If you’re a loan originator or sales manager, please plan to attend one of the upcoming CMLA Licensing Seminars. Chris Holbert, president of CMLA, and Bob Mitchell, Compliance Officer for Cherry Creek Mortgage Company are touring the state providing updates on the most time-critical aspects of the new regulations. Their program offers benefit to those who are already registered as mortgage brokers and those who were previously exempt under FHA. For the latter group, please act quickly to initiate the registration process as the emergency rule for temporary registration will expire on September 1, 2007 and you must have acted in good faith by that time in order to maintain registration with the State of Colorado.
Visit http://www.cmla.com/DRE.html
For more information about the bills and
the upcoming licensing classes
Finally, please continue to think positively during this time of regulatory change. The cycle we are experiencing will correct itself through it's own discipline and influence. Our real estate market will rebound, foreclosures will decrease and mortgage professionals who “do it right” will prosper.