GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1991

H	1 

HOUSE BILL 55

Short Title:  Mortgage Banker/Broker Provisions.	(Public)
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Sponsors: Representatives Brubaker; Dickson, Hasty, Holmes, and Rogers.
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Referred to:  Commerce.
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February 11, 1991

A BILL TO BE ENTITLED
AN ACT TO AMEND REGULATIONS PERTAINING TO MORTGAGE BANKERS AND BROKERS.
The General Assembly of North Carolina enacts:
Section 1. G.S. 53-233 reads as rewritten:
                             "ARTICLE 19.
"Registration of Mortgage Bankers, Brokers, and Servicers.
"§ 53-233.  Title and scope.
(a)	This Article shall be known and cited as the 'Residential Mortgage Loan Registration Act'.
(b)	No person, partnership, corporation, banking organization, or other entity, shall make, broker, or service a residential mortgage loan as defined in this Article, unless either (i) the maker, broker, or servicer of the mortgage loan is an exempt person or organization as defined in G.S. 53-234(6), or (ii) has complied with the provisions of this Article.  Nothing in this Article shall be construed to apply to the purchase of loans or participations in loans or the commitment by an entity to fund loans made by registrants or exempt persons or organizations.  Provided, however, no person or entity may service a purchased loan without first being registered with the Commissioner, unless such servicer shall be exempt as defined in G.S. 53-234(6)."
Sec. 2. G.S. 53-234 reads as rewritten:
"§ 
	 " 	 " 	 " 	 " 	 " 	 " 						 " 			 " "§ 53-234.  Definitions.
	The following definitions apply in this Article:
	(1)	'Mortgage loan' means a loan to a natural person or persons made primarily for personal, family or household use, primarily secured by either a mortgage or a deed of trust on residential real property.
(2)	'Residential real property' means real property located in this State upon which there is located or there is to be located one or more single family dwellings or dwelling units.
(3)	'Mortgage banker' means a person or entity who or which for compensation or gain, either directly or indirectly, advances funds, offers to advance funds, or makes a commitment to advance funds to an applicant for a mortgage loan.
(4)	'Mortgage broker' means a person or entity in the business of soliciting, processing, placing or negotiating mortgage loans for others or offering to process, place or negotiate mortgage loans for others.
(4a)	'Mortgage servicer' means any person who or which for compensation or gain, directly or as an agent for another, engages in servicing mortgage loans.
(4b)	'Servicing' means collecting for any lender, note owner, note holder, or for a registrant's own account, payments of principal and/or interest, payment of trust items including, but not limited to, hazard insurance and taxes on a residential mortgage loan in accordance with the terms of any mortgage, deed of trust or other such loan agreement.  Servicing shall also include loan payment follow up, delinquency loan follow up, loan analysis, and any notifications to the borrower which are necessary to enable the borrower to keep the loan current and in good standing.
(5)	'Soliciting, processing, placing or negotiating a mortgage loan' means for compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, assisting or offering to assist in the processing of an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a third party or negotiating or offering to negotiate the terms or conditions of a mortgage loan with a lender on behalf of a third party.
(6)	'Exempt person or organization' means:
(a)	Any lender authorized to engage in business as a bank, a farm credit system, life insurance company, savings institution, or credit union, under the laws of the United States or any state and subsidiaries and affiliates of such lenders, which subsidiaries and affiliates are subject to the general supervision or regulation of the lender or subject to audit or examination by the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, National Credit Union Administration, or any successor to any of those financial institution regulatory agencies, or a financial institution regulatory agency created under state law; the entities listed in this sub-subdivision, and their officers and employees, are not subject to any of the provisions of this Article; or
(b)	Any licensed real estate agent or broker, who is performing those activities subject to the regulation of the North Carolina Real Estate Commission.  Notwithstanding the above, an exempt person does not include a real estate agent or broker who receives direct compensation or income in connection with the placement of a mortgage loan; or 
(c)	Any person who, as seller, receives in one calendar year no more than ten mortgages, deeds of trust, or other security instruments on real estate as security for a purchase money obligation; or
(c1)	Any person making two or less mortgage loans in any period of 12 consecutive months; or
(d)	The North Carolina Housing Finance Agency as established by Chapter 122A of the General Statutes; or
(e)	Any agency of the federal government or any state or municipal government granting first mortgage loans under specific authority of the laws of any state or the United States; or
(f)	Bona fide officers and employees of registrants.
(7)	'Registrant' means any person or entity who or which is registered pursuant to G.S. 53-236:
(a)	Which engages in the business of making mortgage loans in this State; 
(b)	Which engages in the business of soliciting, processing, placing or negotiating mortgage loans for others, or offering to process, place or negotiate mortgage loans for others; or
(c)	Which services mortgage loans in this State.
(8)	'Commissioner' means the Commissioner of Banks of this State."
Sec. 3.  G.S. 53-235 reads as rewritten:
"§ 53-235.  Registration requirements of mortgage bankers and mortgage brokers.
(a)	No mortgage banker, as defined in G.S. 53-234(3), shall engage in the business of making mortgage loans without first being registered with the Commissioner in accordance with the registration procedure provided in this Article and such regulations as may be promulgated by the Commissioner.
(b)	No mortgage broker, as defined in G.S. 53-234(4), shall engage in the business of processing, placing or negotiating a mortgage loan or offering to process, place or negotiate a mortgage loan in this State without first being registered with the Commissioner in accordance with the registration procedure provided in this Article and such regulations as may be promulgated by the Commissioner.
(c)	No mortgage loan servicer, as defined in G.S. 53-243(4a), shall engage in servicing any mortgage loan without first being registered with the Commissioner in accordance with the registration procedure provided by this Article and such other regulations as may be promulgated by the Commissioner.
	(d) Notwithstanding subsections (a), (b) , and (c)	 of this section, exempt persons or entities as defined by G.S. 53-234(6) are not required to register with the Commissioner, so long as they shall have received written confirmation of exemption from registration.
	(e)	Notwithstanding any other provision of law, an affiliate operating in the same office or subsidiary operating in the same office of a licensee under the North Carolina Consumer Finance Act shall register with the Commissioner in accordance with the registration procedures provided in this Article:  Provided, however, such affiliate or subsidiary shall be exempt from the payment of any required fees under this Article."
Sec. 4.  G.S. 53-236 reads as rewritten:
"§ 53-236.  Registration procedures.
(a)	An application to become registered as a mortgage banker, a mortgage broker, or a mortgage loan servicer shall be in writing, under oath, and in such form as shall be prescribed by the Commissioner.  Such application shall contain the name and complete business and residential address or addresses of the applicant, or if the applicant is a partnership, association, corporation or other form of business organization, the names and complete business and residential addresses of each member, director and principal officer thereof.
(b)	The application shall also include an affirmation of financial solvency noting such capitalization requirements as the Commissioner may prescribe by regulation, and such descriptions of the business activities, financial responsibility, educational background and general character and fitness of the applicant as may be required by the Commissioner.  The Commissioner may accept a verifiable line of credit in lieu of a minimum capital requirement. Such application shall be accompanied by a fee, payable to the Commissioner, of five hundred dollars ($500.00)."
Sec. 5.  G.S. 53-237 reads as rewritten:
"§ 53-237.  Registration by the Commissioner.
(a)	Upon the filing of an application for registration, if the Commissioner finds that the financial responsibility, experience, character, and general fitness of the applicant, and of the members thereof if the applicant is a partnership or association, and of the officers and directors thereof if the applicant is a corporation, are such as to command the confidence of the community and to warrant belief that the business will be operated honestly and fairly, within the purposes of this Article, he shall thereupon register the applicant as a mortgage banker, a mortgage broker, or a mortgage servicer, whichever is applicable, on a roll maintained for that purpose at the Commission of Banks, and shall issue a certificate attesting to such registration.  If the Commissioner does not so find, he shall not register such applicant, and shall notify the applicant of the denial.  The Commissioner shall transmit the certificate to the applicant.
(b)	Upon the receipt of such certificate, a registrant shall be authorized to engage in the business for which the registration certificate was issued.
(c)	Each certificate issued to a registrant shall state the address or addresses at which the business is to be conducted and shall state fully the name of the registrant, and the date of the registration.  A copy of such certificate shall be prominently posted in each place of business of the registrant.  Such certificate shall not be transferable or assignable."
Sec. 6.  G.S. 53-238 reads as rewritten:
"§ 53-238.  Prohibited activities of mortgage bankers and mortgage brokers, and mortgage servicers.
Mortgage bankers, mortgage brokers, and mortgage servicers are prohibited from the following activities:
(1)	Misrepresenting the material facts or making false promises likely to influence, persuade, or induce an applicant for a mortgage loan or a mortgagor to take a mortgage loan, or pursuing a course of misrepresentation through agents or otherwise;
(2)	Misrepresenting or concealing of material factors, terms or conditions of a transaction to which he is a party, pertinent to an applicant for a mortgage loan or a mortgagor;
(3)	Failing to disburse funds in accordance with a written commitment or agreement to make a mortgage loan;
(4)	Improperly refusing to issue a satisfaction of a mortgage;
(5)	Failing to account for or deliver to any person any personal property obtained in connection with a mortgage loan such as money, funds, deposit, check, draft, mortgage, or other document, or thing of value, which has come into his hands and which is not his property, or which he is not in law or equity entitled to retain;
(6)	Engaging in any transaction, practice, or course of business which is not in good faith or fair dealing, or which operates a fraud upon any person, in connection with the making of or purchase or sale of any mortgage loan."
Sec. 7.  Article 19 of Chapter 53 is amended by adding a new section to read:
"§ 53-238.1  Limitation on mortgage broker fees.
No mortgage loan broker required to be registered under this Article shall:
(1)	Receive compensation from a borrower until a written commitment to make a mortgage loan is given to the borrower by a mortgage lender, except documented costs for credit reports and appraisals;
(2)	Receive compensation from a mortgage lender of which he is a principal stockholder, partner, trustee, director, officer, or employee;
(3)	Receive compensation from a borrower in connection with any mortgage loan transaction in which he is the lender or principal stockholder, partner, trustee, director, or officer of the lender;
(4)	Receive compensation from the borrower other than that specified in a written agreement signed by the borrower; or
(5)	Receive compensation for negotiating, placing, or finding a  mortgage loan where such mortgage broker, or any person affiliated with such mortgage broker, has otherwise acted as a real estate broker, agent or salesman in connection with the sale of the real estate which secures the mortgage loan and such mortgage broker or affiliated person has received or will receive any other compensation or thing of value from the lender, borrower, seller, or any other person.
As used in this section, the term 'affiliated person of a mortgage broker' means any person who is a subsidiary, stockholder, partner, trustee, director, officer, or employee of a mortgage broker, and any corporation ten percent (10%) or more of the capital stock of which is owned by a mortgage broker or by any person who is a subsidiary, stockholder, partner, trustee, director, officer, or employee of a mortgage broker."
Sec. 8.  Article 19 of Chapter 53 is amended by adding a new section to read:
"§ 53-238.2   Transfer of servicing; notices.
Whenever the servicing of a residential mortgage is transferred or sold by a mortgage banker, mortgage broker, or mortgage servicer, notice shall be given to the mortgagor in accordance with the Mortgage Servicing Transfer Disclosure Provisions of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.2601 et seq.) as amended."
Sec. 9.  Article 19 of Chapter 53 is amended by adding a new section to read:
"§ 53-239.2.   Escrow funds.
Mortgage bankers, mortgage brokers, or mortgage servicers under this Article shall comply with the Mortgage Escrow Accounts provision of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) as amended."
Sec. 10.   G.S. 53-239 reads as rewritten:
"§ 53-239.  Cease and desist; revocation of registration certificate.
(a)	Upon the finding that any action of a mortgage banker, a mortgage broker, or a mortgage servicer may be in violation of this Article, or of any law or regulation of this State or of the federal government or any agency thereof, the Commissioner, after reasonable notice to the mortgage banker, mortgage broker, or mortgage servicer, and an opportunity for the mortgage banker, mortgage broker, or mortgage servicer to be heard, shall order it to cease and desist from such action.
(b)	If the mortgage banker or mortgage broker fails to appeal such cease and desist order of the Commissioner in accordance with G.S. 53-240 hereof and continues to engage in such action in violation of the Commissioner's order to cease and desist such action, it shall be subject to a penalty of one thousand dollars ($1,000) for each such action it takes in violation of the Commissioner's order.  The penalty provision of this section shall be in addition to and not in lieu of any other provision of law applicable to a mortgage banker, a mortgage broker, or a mortgage servicer for the mortgage banker, mortgage broker, or mortgage servicer's failure to comply with an order of the Commissioner.
(c)	The Commissioner may, upon the finding that a mortgage banker, a mortgage broker, or a mortgage servicer has engaged in a course of conduct which is in violation of this Article, revoke the registration of such mortgage banker, mortgage broker, or mortgage servicer temporarily or permanently in the discretion of the Commissioner.
(d)	Nothing in this Article shall limit any statutory or common law right of any person to bring any action in any court for any act, or the right of the State to punish any person for any violation of any law."
Sec. 11. G.S. 66-106 reads as rewritten:
"§ 66-106. Definitions.
For purposes of this Article the following definitions apply:
(1)	A 'loan broker' is any person, firm, or corporation who, in return for any consideration from any person, promises to (i) procure for such person, or assist such person in procuring, a loan from any third party; or (ii) consider whether or not it will make a loan to such person.
(2)	A 'loan' is an agreement to advance money or property in return for the promise to make payments therefor, whether such agreement is styled as a loan, a lease or otherwise.
Provided, that this Article shall not apply to any person, firm, corporation, or other entity engaged exclusively in brokering residential mortgage loans and registered with and subject to the jurisdiction of the Commissioner of Banks under the provisions of Article 19 of Chapter 53 of the North Carolina General Statutes, any party approved as a mortgagee by the Secretary of Housing and Urban Development, the Federal Housing Administration, the Veterans Administration, a National Mortgage Association or any federal agency; nor to any party currently designated and compensated by a North Carolina licensed insurance company as its agent to service loans it makes in this State; nor to any insurance company registered with and licensed by the North Carolina Insurance Commissioner; nor to any attorney-at-law, public accountant, or dealer registered under the North Carolina Securities Act, acting in the professional capacity for which such attorney-at-law, public accountant, or dealer is registered or licensed under the laws of the State of North Carolina. Provided further that subdivision (1)(ii) above shall not apply to any lender whose loans or advances to any person, firm or corporation in North Carolina aggregate more than one million dollars ($1,000,000) in the preceding calendar year."
Sec.12. This act becomes effective October 1, 1991.