We are pleased to announce that S709, the final version of our bill to amend New Jersey’s residential mortgage lending act (RMLA), which includes transitional licensing for registered and state-licensed mortgage loan originators (MLO’s), has passed the senate and is expected to be voted on today after merger with our companion assembly bill (A2035). The merged/substitute bill will then be sent to the governor for signature.
While the bill takes effect 90 days after it is enacted, the commissioner of banking and insurance is given the authority to take administrative action earlier to implement the provisions of the legislation. In this regard, we are planning to propose to the department that the transitional licensing be implemented soon after the bill’s enactment as well as other provisions beneficial to both consumers and industry.
We are pleased that the difficulties that a mortgage company faced when hiring an MLO moving from another state or from a depository institution to new jersey will be eliminated under the transitional licensing provisions of the bill, which allow 120 days for an MLO employed by a RMLA licensed lender or broker to continue to originate residential mortgage loans in new jersey while meeting all licensing requirements. The MLO coming from a depository institution must have been registered with the depository for the one-year period prior to applying for licensure under RMLA.
Modifications to the allowable fees listed in RMLA under the bill when enacted will be helpful to the industry and consumers alike by lessening confusion we have had in the past with unique or ambiguous fee terminology such as the “discount point”, which date back to the first licensing act in 1981. Some of the fees in the bill that will be voted upon today are as follows:
An “application fee” can be charged by a lender or broker as a flat fee and cannot be based upon a percentage of the principal amount of the loan or amount financed. The fee can only be charged once relative to a mortgage loan and cannot be charged by both the lender and broker in a brokered transaction.
A “commitment fee” may be charged by a lender based upon a percentage of the principal amount of the loan or a flat fee payable only on or after the borrower’s acceptance of a written commitment which the borrower must receive from the lender by midnight of the third business day prior to the day the loan closes. The amount of the fee must be reasonably related to its purpose (a fee imposed by a lender as consideration for binding the lender to make a mortgage loan in accordance with the terms and conditions of its written commitment).
An “origination fee”, appearing under this label for the first time in the act as an allowable fee, may alternatively be referred to under its former name as a “point”, at the lender’s discretion. The fee is calculated as a percentage of the principal amount of the mortgage loan and is payable only at closing. It is considered a charge for the origination of the loan. Many lenders were already using the “origination fee” in lieu of referring to a “point”, which the department permitted under existing rules, although it was not one of the fee names referenced in the statute.
A “discount point”, charged only by a lender, is defined as a fee calculated as a percentage of the principal amount of the loan that reduces the interest rate on the loan and is payable only at closing.
RMLA’s allowable fees will now expressly provide for a “broker fee” to be charged only by residential mortgage brokers. The fee is payable only at closing and may be charged as a percentage of the principal amount of the loan or a fraction of such amount. New jersey mortgage brokers will no longer face the dilemma caused by the state’s definition of “discount points,” which currently includes both points and points that discount the interest rate on the loan.
Mortgage brokers as well as lenders will be permitted to collect appraisal and credit report fees, which cannot be charged by both lender and broker in the same transaction. As third party fees, they cannot be upcharged, whether by a lender or broker, and must be used to recover the direct cost of the fees charged by the real estate appraiser or credit reporting agency.
A lender or broker may charge a borrower for a second appraisal or credit report if requiring the second appraisal or credit report is allowed by promulgated rules.
A lender or broker may still use a term for a fee that is different from that in the statute or in a rule promulgated by the department, provided that the lender or broker can document to the department that the fee fits the definition and description of a fee permitted in the statute or by rule, and functions as such and that the lender or broker has disclosed the fee in writing to the borrower in conformity with federal and state disclosure rules.
Based upon the regulation by HUD interpreting the safe act that was adopted by the CFPB, the RMLA revisions provide for a” bona fide not fThe new law also provides for an “exempt company,” which is not subject to licensure as a residential mortgage lender or broker, but is registered with the department and must have a blanket bond of not less than $25,000. The exempt company cannot engage in originating mortgage loans, except to the extent employees provide loan processor and/or underwriting services for mortgage lenders or brokers. While not licensed, they work under the supervision of at least one licensed MLO, who is not permitted to engage in mortgage loan originations.
Some of the current procedures of the department in the treatment of licensees who are filing new applications or renewals, including the use of “approved conditional status” and “approved inactive status”, will now be provided for in RMLA.
There is more in the new bill that we will review in a subsequent issue of perspective that will be coming out soon.
We thank the cooperative efforts by the department as we finalized the wording of the bill. We also thank Senator Pou and Assemblyman McKeon for sponsoring our bills and chairing their respective committees when I submitted testimony in support of the bills.
E. Robert Levy Esq. is Executive Director of the Mortgage Bankers Association of New Jersey. He may be reached by phone at (732) 218-1801 or e-mail [email protected].