Do You Need A License To Collect A Mortgage Payment After Closing?
With 2022 underway, many mortgage lenders are thinking about how to originate loans with record levels of inflation and an anticipated increasing rate environment. Mortgage lenders should also be thinking whether they conduct any mortgage servicing activities, which may trigger licensing requirements.
On January 31st, Colorado’s Nonbank Mortgage Services Act (HB 21-1282) took effect. The Act requires entities who engage in mortgage servicing to notify the Administrator in the Colorado Department of Law and pay a $1,000 initial notification fee. Colorado defines a mortgage servicer as, “[A] person . . . that is responsible for servicing a Colorado residential mortgage loan.” Some exemptions from notification do apply.
States define mortgage servicing differently. By way of example, Colorado defines mortgage servicing to mean, “[R]eceiving any scheduled periodic payments from a borrower pursuant to the terms of a residential mortgage loan, including amounts for escrow accounts, and making the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the residential mortgage servicing loan documents or servicing contract.”
Are You Considered A Mortgage Servicer?
When mortgage servicing comes to mind, many lenders think of entities who service a high volume of loans, on a life of loan basis, and perform a variety of services on behalf of an investor on a mortgage loan. While this fits the bill of many mortgage servicers, others may be considered mortgage servicers as well.
Interim Servicing
Some states will require a mortgage lender that accepts a minimum number of payments, or services a minimum number of loans, to secure a mortgage servicing license or registration prior to conducting mortgage servicing activities. For some states, accepting as little as 1 payment is enough to trigger licensure.
Subservicing
Subservicers – that is, entities performing servicing activities on behalf of the master servicer – may need to be licensed as mortgage servicers. But did you know that the master servicer may still need to be licensed as well, even if the subservicer alone is performing mortgage servicing functions? State requirements and the relationship between the master servicer and subservicer will dictate which entity(ies) may need to be licensed as a mortgage servicer.
Additional Requirements To Consider: Branch Office & Personnel
Another consideration is where the mortgage lender is performing servicing activities. In some states, servicing activity will occur at a location other than the main/principal office, a branch office license may be required. This may also require the designation of a branch manager, a licensed mortgage loan officer, and/or an individual with sufficient experience who can serve in that capacity.
Additionally, mortgage lenders should consider what the scope of their mortgage servicing offerings may include. To the extent that the mortgage lender, will permit a consumer to assume the mortgage loan obligation, an individual mortgage loan officer license may be required. Similarly, if the mortgage lender will be offering loss mitigation assistance, including a loan modification, an individual mortgage loan officer license may be required.
The Takeaway
In each of the above instances, a mortgage servicing license may be required for a particular state. Because this is a state-by-state issue, mortgage lenders are advised to determine if a servicing license may be needed, prior to conducting business in a particular state.
If you need help with mortgage servicing licensing or have any other mortgage servicing questions such as Fannie Mae or Federal Housing Administration please contact our legal team.
About The Author
Todd Karazim is an attorney at Mitchell Sandler specializing in mortgage servicing. He has previously served as in-house counsel for mortgage lenders and servicers and advised clients on mortgage lending and servicing matters. Todd holds a Certified Mortgage Servicer designation from the MBA. Connect with Todd Karazim
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