North Dakota currently licenses and regulates all types of
lending in North Dakota (other than payday lending)—including
mortgage lending, non-mortgage consumer lending, commercial
lending, and finance leasing—under the North Dakota Money
Brokers Act. North Dakota is also one of the only states that does
not currently require a license to service residential mortgage
loans. That is set to change as of August 1, 2023, now that
Governor Doug Burgum has signed Senate Bill 2090 (“SB2090”) and House Bill 1068 (“HB1068”).
Senate Bill 2090 and the New Residential Mortgage Lending
License Requirement
SB2090 establishes a new licensing requirement to engage in
“residential mortgage lending,” defined as “the act
of arranging or providing residential mortgage loans as a form of
financing, or advertising or soliciting either in print, by letter,
in person, or otherwise, the right to find lenders or provide
residential mortgage loans for a person.” A “residential
mortgage loan” is defined consistently with the federal SAFE
Act as a loan primarily for personal, family, or household purposes
that is secured by a dwelling, or residential real estate upon
which a dwelling will be constructed. SB2090 also amends the Money
Brokers Act to create an exemption for “residential mortgage
lenders” who are licensed under the new law. As a result,
companies engaged in lending and brokering activity for
consumer-purpose mortgage loans will be required to obtain only a
residential mortgage lender license, while companies making or
brokering all other types of loans—including
commercial-purpose loans secured by dwellings in North
Dakota—will continue to be subject to the licensing
obligation under the Money Brokers Act.
Under the new statute, applicants for a residential mortgage
lending license must maintain a surety bond of at least $50,000 and
a minimum net worth of $25,000. Banks, credit unions, savings and
loan associations, insurance companies, and certain other persons
and individuals are exempt from the new residential mortgage lender
licensing requirement.
In addition to enacting a new licensing requirement, SB2090 also
incorporates a number of substantive compliance requirements for
licensed residential mortgage lenders. These include:
- A prohibition on receiving certain advance fees. A licensee may
accept an advance fee only if the fee (i) does not exceed the
licensee’s good-faith estimate of the actual costs of any
appraisal or credit report, or (ii) represents a rate lock fee. Any
advance fee permitted under the first exception must be refunded or
credited to the borrower at closing if the fee exceeds the actual
cost of any appraisal or credit report. - A maximum 36% APR limit, inclusive of all origination fees and
charges (other than costs to file, record, or release a lien and
permissible insurance premium charges). - A limitation on late fees. A licensee will be prohibited from
charging or receiving late fees that exceed 5% of the payment. If
the residential mortgage loan is in an original principal amount of
$50,000 or less, late charges may not exceed $20. - Brokerage or loan agreements must contain a specific regulatory
disclosure regarding the licensee’s licensing status and
directions for borrowers to submit complaints.
The legislation provides that existing money broker license
holders will not be required to obtain a residential mortgage
lender license until December 31, 2023. All other provisions of the
new law will take effect on August 1, 2023. Although we expect that
North Dakota regulators will need to create a procedure to receive
and process applications for the new residential mortgage lending
license, mortgage brokers and lenders holding a money broker
license in North Dakota should prepare to transition their license
to the new residential mortgage lending license at the end of 2023
by watching for regulatory announcements regarding that transition
process.
House Bill 1068—North Dakota will Now License Mortgage
Servicers
As noted above, North Dakota is one of the only states in the
country that does not require companies servicing mortgage loans to
obtain a license. Even companies servicing delinquent or defaulted
mortgage loans do not require a license, since the North Dakota
Collection Agencies Act exempts “mortgage servicing
compan[ies]” from its coverage. That will no longer be the
case as of August 1, 2023, now that North Dakota has enacted
HB1068.
HB1068 creates a new licensing requirement for any person
engaging in “residential mortgage loan servicing,”
whether as a primary servicer, subservicer, or holder of mortgage
servicing rights. “Residential mortgage loan servicing”
is defined to include receiving any scheduled periodic payments
from a borrower pursuant to the terms of any federally related
mortgage loan (including amounts for escrow) and making the
payments of principal, interest, and escrow amounts to the owner of
the loan or other third parties, pursuant to the terms of the loan
documents or servicing contract. For reverse mortgages,
“residential mortgage loan servicing” also includes
making payments to the borrower. The law also requires a license
from any “mortgage servicing rights investor,” defined as
an entity that invests in and owns mortgage servicing rights and
relies on subservicers to administer the loans on their behalf.
Institutions exempt from the new law include banks, credit unions,
savings and loan associations, federal or state housing finance
agencies, Farm Credit Administration-chartered institutions, and
nonprofit mortgage servicers.
In addition to creating a new mortgage servicer licensing
requirement, HB1068 also implements the Conference of State Bank
Supervisors (“CSBS”) prudential standards for nonbank
mortgage servicer licensees. Under the new statute, mortgage
servicer licensees must meet certain net worth and financial
condition requirements; the particular requirements depend on
whether the servicer is a “large” servicer, meaning one
(i) that operates in two or more states, districts, or territories
of the United States either currently or as of the end of the prior
calendar year and (ii) whose servicing portfolio, as reported in
its NMLS Mortgage Call Report, consists of 2,000 or more 1-to-4
unit residential mortgage loans serviced or subserviced for others,
exclusive of whole loans owned and loans serviced on an interim
basis prior to sale. A large servicer that meets FHFA eligibility
requirements for capital, net worth ratio, and
liquidity—regardless of whether the servicer is actually
approved to service loans owned by the GSEs—will be in
compliance with the requirement to maintain capital and liquidity.
All required financial information must be determined in accordance
with Generally Accepted Accounting Principles. Large servicers must
also maintain written policies and procedures implementing the
capital and liquidity requirements and for the company to maintain
sufficient operating liquidity, and these policies and procedures
must include a sustainable written methodology for satisfying the
capital and liquidity requirements. HB1068 also subjects
“large” servicers to corporate governance requirements.
These include a requirement to establish a formal risk management
program, and to obtain an annual external opinion audit, audited
financial statements, and a report from an independent public
accountant that includes assessment of the servicer’s internal
control structure, computation of tangible net worth, validation of
MSR valuation and reserve methodology, and risk management,
compliance, and stress testing.
A non-“large” servicer that is approved by one or more
of the GSEs must maintain liquidity, operating reserves, and a
tangible net worth that meets the highest standard of the GSEs for
which the servicer is approved. If the non-“large”
servicer is not approved by any of the GSEs, it must maintain
liquidity to include operating reserves of .00035% of the unpaid
principal balance of its servicing portfolio and either maintain a
$1 million surety bond, or meet a minimum tangible net worth
requirement that is tiered based on the number of loans in the
servicer’s nationwide portfolio, ranging from $100,000 up to $1
million.
HB1068 takes effect on August 1, 2023. Companies that service,
or own servicing rights to, residential mortgage loans in North
Dakota should begin their preparations to submit a license
application so that they are ready for when North Dakota regulators
begin to accept applications for mortgage servicer licenses.
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