On April 12, North Dakota Governor Doug Burgum signed into law House Bill 1068, which creates a new statutory licensing scheme in North Dakota covering residential mortgage loan servicing activities. This follows on the heels of the enactment last month of North Dakota Senate Bill 2090, which overhauled North Dakota’s licensing requirements related to residential mortgage lending. Both licenses will be enforced by the North Dakota Department of Financial Institutions and are effective as of August 1, 2023.
Residential Mortgage Lending
Senate Bill 2090 shifts the applicable license-type for conducting residential mortgage lending from the existing North Dakota Money Broker License to a new Residential Mortgage License. Existing Money Broker Licensees are not required to hold the new Residential Mortgage License until December 31, 2023, a limited extension to the law’s general effective date of August 1, 2023. The entities exempt from the requirement to hold a Residential Mortgage License include banks, credit unions, savings and loan associations, trust companies, and certain nonprofits.
The Residential Mortgage License will require licensees to hold a surety bond of at least $50,000; maintain a minimum net worth of $25,000; file call reports via the NMLS; and refrain from net branching arrangements. Further, the statue will require the following language to be in written contracts (in capital letters):
NOTICE: RESIDENTIAL MORTGAGE LENDERS ARE LICENSED AND REGULATED BY THE NORTH DAKOTA DEPARTMENT OF FINANCIAL INSTITUTIONS. THE DEPARTMENT OF FINANCIAL INSTITUTIONS HAS NOT PASSED ON THE MERITS OF THE CONTRACT AND LICENSING DOES NOT CONSTITUTE AN APPROVAL OF THE TERMS OR OF THE LENDER’S ABILITY TO ARRANGE ANY LOAN. COMPLAINTS REGARDING THE SERVICES OF RESIDENTIAL MORTGAGE LENDERS SHOULD BE DIRECTED TO THE DEPARTMENT OF FINANCIAL INSTITUTIONS.
Residential Mortgage Loan Servicing
House Bill 1068 creates a new North Dakota Residential Mortgage Loan Servicing License, which is required to engage in residential mortgage servicing as a servicer, subservicer, or mortgage servicing rights investor. We note that the statutory language is not clear regarding the types of activities covered by the new licensing requirement.
The law defines “residential mortgage servicing” as 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 to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. For home equity conversion mortgages or reverse mortgages, this includes making payments to the borrower.
“Servicer” is defined to mean “the entity performing the routine administration of residential mortgage loans on behalf of the owner or owners of the related mortgages under the terms of a servicing contract.”
“Subservicer” is defined to mean “the entity performing the routine administration of residential mortgage loans as agent of a servicer or mortgage servicing rights investor under the terms of a subservicing contract.”
“Mortgage servicing rights investor” is defined as “entities that invest in and own mortgage servicing rights and rely on subservicers to administer the loans on their behalf. Mortgage servicing rights investors are often referred to as master servicers.”
“Service” or “Servicing a loan” is defined to mean the following, when performed on behalf of a lender or investor:
- Collecting or receiving payments on existing obligations due and owing to the lender or investor, including payments of principal, interest, escrow amounts, and other amounts due;
- Collecting fees due to the servicer;
- Working with the borrower and the licensed lender or servicer to collect data and make decisions necessary to modify certain terms of those obligations either temporarily or permanently;
- Otherwise finalizing collection through the foreclosure process; or
- Servicing a reverse mortgage loan.
Exemptions from licensing are provided for banks, credit unions, savings and loan associations, trust companies, and certain nonprofits. The Residential Mortgage Loan Servicing License will require licensees to maintain a minimum tangible net worth based upon the volume of loans serviced nationwide, with a minimum net worth requirement of $100,000. Special requirements will apply to “large servicers,” which the statute defines, in part, as a servicer with a residential mortgage loan servicing portfolio of 2,000 or more.
Both of the new licensing statutes authorize the North Dakota Department of Financial Institutions to issue regulations. A copy of House Bill 1069 can be found here, and a copy of Senate Bill 2090 can be found here.