Curing Consumer Finance Overreach

A legacy of the financial crisis a decade ago, Congress enacted the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), which gave states one year to pass legislation requiring licensure of mortgage loan originators according to national standards. In response the Florida legislature amended Chapter 494, Florida Statutes in 2009 to create the Florida Mortgage Brokerage and Mortgage Lending Act. Administered by the Office of Financial Regulation through its Division of Consumer Finance, the amended law provides for the licensing of individuals acting as loan originators, as well as providing for licensing of mortgage brokers and mortgage lenders.

The SAFE Act also gave the United States Department of Housing and Urban Development (“HUD”) authority to oversee states’ compliance with the SAFE Act. In July of 2011 HUD adopted its final SAFE Act Rule. Under this rule, the mere referral of a borrower to a lender does not raise a licensing obligation unless the referring party has actually taken an application for a loan. Florida’s amended Chapter 494 adopts the SAFE Act’s definition of loan originator, but expands it to include an “individual who, directly or indirectly, solicits or offers to solicit a mortgage loan.” In addition, the 2009 amendments to Chapter 494 repealed an exemption from licensing under Part II of Chapter 494 as a mortgage broker for a “securities dealer registered under the provisions of s. 517.12, when dealing with its corporate or individual clients in the normal course of its securities business.”

On August 15, 2016, the Office of Financial Regulation concluded litigation instituted a year earlier by issuance of its Declaratory Statement and Final Order in Administrative Proceeding Docket Number 66425. The Order determined that even though HUD’s SAFE Act Rule does not consider a general referral or recommendation to constitute “offering or negotiating loan terms” so as to require a loan originator license, Florida’s broader definition including the phrase “indirectly solicits,” requires licensure if such activities are compensated.

CS/HB 747 by the Insurance and Banking Subcommittee and Representative Richard Stark (D-Weston) and S830 by Senator Dennis Baxley (R-Ocala) would restore the exemption for Florida licensed securities dealers, investment advisers and their registered associated persons. The intention is to enable these financial professionals to more fully serve their clients. Should mortgage finance questions arise in the course of investment business, advisers could answer limited questions about mortgage loans without fear of being held subject to licensing. Being able to refer a client to a lender, trained and licensed to be knowledgeable about mortgage financing, the array of mortgage products and daily pricing of mortgage loans, provides a benefit to the client and to the lender for which the investment professional should be compensated. These professionals are already licensed by the Office of Financial Regulation’s Division of Securities. Requiring an additional license from its Division of Consumer Finance should be limited in instances where mortgage loan origination is more than incidental to their regular business.