Selling mortgages originated in Maryland on the secondary market may have just become more complicated. To purchase loans as an investor in the secondary market, the state is requiring the purchaser to be NMLS licensed in Maryland.
The action has arisen somewhat out-of-the-blue, as far as industry sources are concerned, and without much clarity for lenders in the state.
On Jan. 10, the Maryland Office of Financial Regulation (OFR) issued guidance to clarify the licensing requirements under Maryland law for those engaged in mortgage lending, including mortgage trusts and their assignees. OFR applied the guidance to all mortgage loans.
While this applies to mortgage loans, it does not apply to exempt lenders such as state- and federal-chartered banks.
“There will be a lot of reactions about what this means for lenders in Maryland,” said David Lykken, management consultant and founder of Transformational Mortgage Solutions. “I don’t think this is a huge disruption or example of regulatory overreach, more of a buttoning-up.” Lykken noted, however, that some lenders could see short-term liquidity challenges until those affected get their licenses.
Despite OFR’s attempt to clarify licensing requirements, ACC Mortgage President Robert Senko shared his confusion with NMP about how exactly this regulation applies. Senko reported that he has not heard any panic from investors yet.
“I work with a lot of bigger institutions," he explained, "so to me, this may be much ado about nothing. We've been licensed for 25 years.”
The emergency regulations from OFR that took effect on Jan. 10 were passed “to ensure that mortgage trusts can obtain appropriate licensure and satisfy statutory requirements without undue burden.” The regulations provide “a feasible avenue for mortgage trusts to obtain a license,” according to the state.
The regulation stems from a court case, Gregory Brown v. Ward, et al, following a foreclosure action initiated by FirstKey Master Funding. The borrower, Gregory Brown, entered into a home equity line of credit (HELOC) agreement in 2006 and defaulted on the loan in 2008.
Much of the focus in the case was on whether FirstKey, which acquired the deed of trust in 2022 and initiated the foreclosure, was subject to Maryland’s licensing requirements for revolving credit plans and foreclosure actions.
OFR said it will suspend enforcement activities against those potentially subject to these new regulations through April 10, 2025, but with many loans taking up to 90 days to close, it could create uncertainty or problems for loans that have yet to close.
Because the OFR is providing some leeway for investors to get licensed, Senko believes this regulation will only cause “a short-term scare” among Non-QM lenders. However, that depends on investors’ appetite for those loans now that there are licensing requirements.
“I don't think it shuts down the market; I think it'll frustrate the market. There may be some investors that say, ‘We won't buy loans in Maryland because we don't want to do this,’” Senko speculated, adding, "but there will be plenty of others that will.”
Overall, Senko feels that the new licensing requirement may be unnecessary, saying “We're heavily regulated. We have audits from our states probably every other year. And — knock on wood — do a great job. The brokers that send these loans get audited, and they've got to be in good standing or else we wouldn't do business with them. So it feels like it's a little redundant.”
Other states have implemented similar requirements, such as Georgia and Oklahoma. The Georgia Residential Mortgage Act (GMRA) required those who hold or purchase mortgage loans or who hold servicing rights to mortgage loans to have a mortgage lender license. However, Georgia has walked back its licensing requirements to provide certain secondary market participants exemption from the licensing or registration requirements of the GRMA.
Furthermore, Senko admits “Maybe Maryland knows something that I don't know, and that's what they're trying to prevent against. I don't know what they're trying to prevent. It’s interesting that with Georgia… if they had a similar type of approach and then they softened their approach, it [may have been] much ado about nothing.”
Some of the gray areas concerning these new regulatory guidelines include DSCR loans, which are given to investors on residential homes. NMP will give a further update as more information develops.
