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Indiana loan broker legislative update
Aug 11, 2009

On May 12, 2009, Indiana Gov. Mitch Daniels signed House Enrolled Act 1646, which updates the Indiana Loan Broker Act to meet compliance standards set by the Federal SAFE Act. The SAFE Act requires all states to have minimum licensing standards for mortgage loan originators, regardless of business type. A brief summary of these changes as well as other updates to the Loan Broker Act follows. Updates for Loan Broker Companies As a result of the SAFE Act, the bond amounts required must reflect the amount of loans originated the previous calendar year. Instead of the flat $50,000 bond amount for all loan brokers, the bond levels are graduated. If the loan broker originated less than $5 million in loans the previous year, the bond amount is $50,000. If the loan broker originated between $5 million and $20 million, the bond amount is $60,000. If the loan broker originated more than $20 million in loans the previous calendar year the bond amount is $70,000. Changes to the loan broker examination process include file maintenance. Loan files must be kept in the office in which the loan was originated. This means that if a loan file was originated in a Branch Office, then the file needs to stay in the Branch Office and be available for examination. A copy may be sent to the main office, but the original must stay in the Branch Office. The Pipeline Report is included as part of the audit and must be made available to the Securities Division Examiner. Providing false information on the Pipeline Report could result in a Class C felony. Out of state loan brokers must send their records, either physically or electronically, within 10 business days of a request by the Securities Division. There are no longer license exemptions in the Loan Broker Act. Everyone who fits within the definition of a loan broker is required to become licensed. If an entity desires an official determination that licensing is not required, then a request for an interpretive opinion can be filed. Instructions are available on the Securities Division web site There have been changes to the penalty provisions of the Indiana Loan Broker Act. Violations of certain federal laws relating to mortgage origination are also now violations of the Indiana Loan Broker Act. These federal laws include the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Equal Credit Opportunity Act. House Enrolled Act 1646 also increases the level of criminal penalty for violations of the Indiana Loan Broker Act from a class D to a class C felony. It is also now a class B felony if the violation occurs against a person age 60 or older. Branch Office is now a defined term and includes any fixed, physical location that is held out to the public as engaging in the loan broker business. Branch Offices are material information that must be disclosed in the loan broker’s application through the Nationwide Mortgage Licensing System’s Form MU3. The Nationwide Mortgage Licensing System will create a process to collect reports of mortgage activity for loan brokers. The format of these reports is not known at this time, but more information will be forthcoming. The loan broker and individual license numbers will only need to be displayed on the loan broker agreement, not on every document required to be delivered to the borrower. Updates for Mortgage Loan Originators and Principal Managers House Enrolled Act 1646 officially changes the status of mortgage loan originators and principal managers to licensed, instead of registered. The definition of mortgage loan originator has changed to include receiving an application for use by a creditor, or offering to negotiate or negotiating loan terms. In contrast, loan processor is now defined as performing clerical tasks or communicating with the borrower to obtain information so long as that communication does not include discussion of the terms of the loan or negotiation of the loan. The SAFE Act provides specific requirements for license approval. The Securities Commissioner must deny a license for a mortgage loan originator or principal manager if that individual has had his or her license revoked in any state, has been convicted of a felony within the previous 7 years or a felony involving fraud at any point, fails to maintain the required bond, fails to demonstrate financial responsibility, fails to meet the education requirements, fails to pass the required test, or fails to maintain the required books and records for examination. The education requirements have changed to 20 hours in the 24 months prior to becoming licensed. The continuing education requirements are now 8 hours annually. The Nationwide Mortgage Licensing System will begin reviewing and approving education classes starting in January 2010. The Nationwide Mortgage Licensing System will also begin collecting information to obtain a credit report for individuals becoming licensed. For more information, visit 
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