PRIOR PRINTER'S NO. 848 PRINTER'S NO. 1499
No. 757 Session of 1989
INTRODUCED BY F. TAYLOR, GALLEN, STEIGHNER, BATTISTO, MRKONIC,
COHEN, MORRIS, McVERRY, VAN HORNE, LESCOVITZ, HAGARTY,
TRELLO, ITKIN, HERMAN, BUNT, D. W. SNYDER AND OLASZ,
MARCH 14, 1989
AS REPORTED FROM COMMITTEE ON BUSINESS AND COMMERCE, HOUSE OF
REPRESENTATIVES, AS AMENDED, APRIL 25, 1989
AN ACT
1 Providing for the regulation and licensing of mortgage bankers
2 and mortgage brokers; imposing additional powers and duties
3 on the Department of Banking; and providing penalties.
4 TABLE OF CONTENTS
5 Section 1. Short title.
6 Section 2. Definitions.
7 Section 3. License requirements and exemptions.
8 Section 4. Application for license.
9 Section 5. Annual license fee.
10 Section 6. Issuance of license.
11 Section 7. License duration.
12 Section 8. Licensee requirements.
13 Section 9. Licensee limitations.
14 Section 10. Authority of department.
15 Section 11. Surrender of license.
16 Section 12. Suspension, revocation or refusal.
17 Section 13. Penalties.
1 Section 14. Scope of act.
2 Section 15. Effective date.
3 The General Assembly of the Commonwealth of Pennsylvania
4 hereby enacts as follows:
5 Section 1. Short title.
6 This act shall be known and may be cited as the Mortgage
7 Bankers and Brokers Act.
8 Section 2. Definitions.
9 The following words and phrases when used in this act shall
10 have the meanings given to them in this section unless the
11 context clearly indicates otherwise:
12 "Advance fee." Any funds requested by or to be paid to a
13 mortgage broker in advance of or during the processing of a
14 mortgage loan application, excluding those fees paid by an
15 applicant borrower directly to a credit agency reporting bureau,
16 title company or real estate appraiser.
17 "Department." The Department of Banking of the Commonwealth.
18 "Licensee." A person who is licensed under this act.
19 "Mortgage banker." A person who directly or indirectly
20 originates and closes mortgage loans with its own funds in the
21 primary market.
22 "Mortgage broker." A person who directly or indirectly
23 negotiates or places mortgage loans for others in the primary
24 market.
25 "Mortgage loan." A loan which is secured by a first mortgage
26 or other similar instrument or document which creates a first
27 lien on real property, which real property is used as a one-
28 family to four-family dwelling, a portion of which may be used
29 for nonresidential purposes.
30 "Person." An individual, association, joint venture or
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1 joint-stock company, partnership, limited partnership, limited
2 partnership association, business corporation, nonprofit
3 corporation, or any other group of individuals, however
4 organized.
5 "Primary market." The market wherein mortgage loans are
6 originated between a lender and a borrower.
7 Section 3. License requirements and exemptions.
8 (a) License required.--On and after the effective date of
9 this act, no person shall act as a mortgage banker or mortgage
10 broker in this Commonwealth without a license as provided for in
11 this act, provided, however, that any person licensed as a
12 mortgage banker may also act as a mortgage broker without a
13 separate license. A person licensed as a mortgage broker may
14 only perform the services of a mortgage broker as defined in
15 section 2.
16 (b) Exceptions.--The following persons shall not be required
17 to be licensed under this act in order to conduct the activities
18 of a mortgage banker or mortgage broker but shall be subject to
19 the provisions of section 9(a)(4) 9(A)(3) and, in addition, any <--
20 other provisions of this act as specifically provided in this
21 section:
22 (1) A State-chartered bank, bank and trust company,
23 savings bank, private bank or national bank, a State or
24 federally chartered savings and loan association, a federally
25 chartered savings bank or a State or federally chartered
26 credit union.
27 (2) An attorney authorized to practice law in this
28 Commonwealth, who acts as a mortgage broker in negotiating or
29 placing a mortgage loan in the normal course of legal
30 practice.
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1 (3) A person licensed pursuant to the provisions of the
2 act of February 19, 1980 (P.L.15, No.9), known as the Real
3 Estate Licensing and Registration Act, who is principally
4 engaged in a third-party real estate brokerage business, but
5 only to the extent that he provides information, verbal or
6 written, to or negotiates or places a mortgage loan for a
7 buyer of real estate and is not compensated by the buyer or
8 any other person for providing such information or
9 negotiating or placing such mortgage loan. If he is
10 compensated for providing such information or negotiating or
11 placing such mortgage loan, he shall be subject to the
12 provisions of sections 8, 10 and 13(b), excluding section
13 8(a)(1).
14 (4) A seller of a dwelling, if he has resided in the
15 dwelling at least one year and as part of the purchase price
16 receives a first mortgage executed by the purchaser.
17 (5) A person who either originates or negotiates less
18 than 12 mortgage loans in a calendar year in this
19 Commonwealth.
20 (6) Builders, when obtaining mortgages for their own
21 construction or for the sale of their own construction.
22 (7) Any agency or instrumentality of the Federal
23 Government or a corporation otherwise created by an act of
24 the United States Congress, including, but not limited to,
25 the Federal National Mortgage Association, the Government
26 National Mortgage Association, the Veterans' Administration,
27 the Federal Home Loan Mortgage Corporation and the Federal
28 Housing Administration.
29 (8) The Pennsylvania Housing Finance Agency.
30 (9) A licensee under the act of April 8, l937 (P.L.262,
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1 No.66), known as the Consumer Discount Company Act, except
2 that any such licensee who makes a mortgage loan other than
3 under the provisions of that act shall be subject to the
4 provisions of sections 4(b)(2) and (3), 8, 10 and 13(b) of
5 this act, excluding section 8(a)(1).
6 (10) Except for licensees described in paragraph (9),
7 subsidiaries and affiliates of the following institutions:
8 Pennsylvania State-chartered banks, bank and trust companies,
9 savings banks, private banks, savings and loan associations
10 and credit unions or national banks, federally chartered
11 savings and loan associations, federally chartered savings
12 banks and federally chartered credit unions, provided such
13 institutions are located in Pennsylvania, except that all
14 subsidiaries and affiliates of institutions enumerated in
15 this paragraph shall:
16 (i) be subject to the provisions of sections 8,
17 9(a)(3), 10 and 13(b) of this act excluding section
18 8(a)(1); and
19 (ii) deliver to the department annually copies of
20 financial reports made to all supervisory agencies.
21 (11) Employees of a licensee or excepted persons acting
22 for their employers.
23 Section 4. Application for license.
24 (a) Contents.--An application for a license to act as a
25 mortgage banker or mortgage broker shall be on such forms as may
26 be prescribed and provided by the department. Each application
27 shall include the address or addresses where business is to be
28 conducted, the full name, official title and business address of
29 each director and principal officer of the business and any
30 other information that may be required by the department.
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1 (b) Mortgage banker's license.--The department shall issue a
2 mortgage banker's license applied for pursuant to this act if
3 the applicant establishes that he has met the following
4 conditions:
5 (1) That he is approved by or meets the current criteria
6 for approval of at least one of the following:
7 (i) Federal National Mortgage Association.
8 (ii) Federal Home Loan Mortgage Corporation.
9 (iii) Federal Housing Administration.
10 (2) That he maintains or is approved for, and will
11 continue to maintain as a licensee, a line of credit or
12 equivalent mortgage funding capability of not less than
13 $1,000,000.
14 (3) That he has a minimum tangible net worth of $250,000
15 at the time of application and will, at all times thereafter,
16 maintain such minimum net worth, provided, however, that
17 those applicants who were in business prior to January 1,
18 1987, may be licensed with a minimum tangible net worth of
19 $100,000 if, in the opinion of the department, the applicant
20 has established that it has an otherwise adequate financial
21 structure and operating history.
22 (4) That he will maintain fidelity bond coverage in
23 accordance with the guidelines established by the Federal
24 National Mortgage Association or the Federal Home Loan
25 Mortgage Corporation.
26 (c) Mortgage broker's license.--The department shall issue a
27 mortgage broker's license applied for pursuant to this act if
28 the applicant establishes that he has met the following
29 conditions:
30 (1) That he is eligible to and will obtain a bond in the
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1 amount of $100,000, in a form prescribed by the regulations
2 of the department, prior to the issuance of the license, from
3 a surety company authorized to do business in this
4 Commonwealth, which bond shall run to the Commonwealth for
5 the benefit of any person injured by the wrongful act,
6 default or misrepresentation of the mortgage broker. No bond
7 shall comply with the requirements of this section unless it
8 contains a provision that it shall not be canceled for any
9 cause unless notice of intention to cancel is given to the
10 department at least 30 days before the day upon which
11 cancellation shall take effect.
12 (2) In lieu of the bond required by subsection (c)(1),
13 the applicant may deposit, with the department or with the
14 State Treasurer, bonds, notes, debentures or other
15 obligations of the United States or any agency or
16 instrumentality thereof if guaranteed by the United States,
17 or such bonds, notes, debentures or other obligations of the
18 Commonwealth or of a political subdivision thereof having a
19 market value of at least $100,000; and it shall be the
20 obligation of the licensee to see to it that the securities
21 on deposit shall have a market value of at least $100,000 at
22 all times. The depositor shall be entitled to receive all
23 interest and dividends thereon, and shall have the right,
24 with the approval of the department, to substitute other
25 securities for those deposited. Should the securities on
26 deposit at any time have a market value of less than
27 $100,000, the department may revoke the license as
28 hereinafter provided. All securities deposited shall be held
29 under the same conditions and subject to the same right of
30 execution as the bond provided for in subsection (c)(1).
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1 (3) Mortgage brokers who can demonstrate to the
2 satisfaction of the department that they do not accept
3 advance fees shall be exempt from the requirement of this
4 subsection.
5 (d) Foreign corporation.--If the applicant is a foreign
6 corporation, that corporation shall be authorized to do business
7 in this Commonwealth in accordance with the law of this
8 Commonwealth regulating corporations and shall maintain at least
9 one office in this Commonwealth which is the office that shall
10 be licensed as the principal place of business for the purposes
11 of this act. The corporation shall file with the application an
12 irrevocable consent, duly acknowledged, that suits and actions
13 may be commenced against that licensee in the courts of this
14 Commonwealth by the service of process of any pleading upon the
15 department in the usual manner provided for service of process
16 and pleadings by the statutes and court rules of this
17 Commonwealth. The consent shall provide that this service shall
18 be as valid and binding as if service had been made personally
19 upon the licensee in this Commonwealth. In all cases where
20 process or pleadings are served upon the department pursuant to
21 the provisions of this section, such process or pleadings shall
22 be served in triplicate; one copy shall be filed in the Office
23 of the Secretary of Banking and the others shall be forwarded by
24 the department, by certified or registered mail, return receipt
25 requested, to the last known principal place of business in the
26 Commonwealth and to the corporation's principal place of
27 business.
28 Section 5. Annual license fee.
29 An applicant shall pay to the department at the time an
30 application is filed an initial license fee of $500 for the
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1 principal place of business and an additional license fee of $50
2 for each branch office in this Commonwealth. On or before July 1
3 of each year and thereafter, a licensee shall pay a license
4 renewal fee of $200 for the principal place of business and an
5 additional license renewal fee of $25 for each branch office in
6 this Commonwealth. No abatement of any license fee shall be made
7 if the license is issued for a period of less than one year. The
8 department shall be entitled to recover any cost of
9 investigation in excess of license or renewal fees from the
10 licensee or from any person who is not licensed under this act
11 but who is presumed to be engaged in business contemplated by
12 this act.
13 Section 6. Issuance of license.
14 (a) Time limit.--Within 60 days after an application is
15 received, the department shall either issue a license or, for
16 any reason for which the department may suspend, revoke or
17 refuse to renew a license as provided for by section 12, refuse
18 to issue a license.
19 (b) Appeal of denial.--If the department refuses to issue a
20 license, it shall notify the applicant, in writing, of the
21 denial and the reason therefor and of the applicant's right to
22 appeal from such action to the Commonwealth Court. An appeal
23 from the department's refusal to approve an application for a
24 license shall be filed by the applicant within 30 days of notice
25 thereof.
26 (c) Contents of license.--Each license issued by the
27 department shall specify:
28 (1) The name and address of the licensee, the address so
29 specified to be that of the licensee's principal place of
30 business within this Commonwealth.
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1 (2) The licensee's reference number, which may remain
2 the same from year to year despite variations in annual
3 license numbers which may result from the renewal of licenses
4 by mechanical techniques.
5 (3) Such other information as the department shall
6 require to carry out the purposes of this act.
7 Section 7. License duration.
8 A license issued by the department shall:
9 (1) Be renewed on July 1 of each year upon payment of
10 the annual renewal fee and after a determination that the
11 licensee is conducting business in accordance with the
12 provisions of this act is made by the department. No refund
13 of any portion of the license fee shall be made if the
14 license is voluntarily surrendered to the department or
15 suspended or revoked by the department prior to its
16 expiration date.
17 (2) Be invalid if the mortgage banker's corporate
18 charter is voided in accordance with the provisions of any
19 law of this Commonwealth or any other state.
20 (3) Not be assignable by operation of law or otherwise
21 without the written consent of the department.
22 Section 8. Licensee requirements.
23 (a) Requirements on licensee.--A licensee shall:
24 (1) Conspicuously display its license at each licensed
25 place of business.
26 (2) Maintain, at its principal place of business within
27 this Commonwealth, or at such place within or outside this
28 Commonwealth, if agreed to by the Secretary of Banking,
29 either the original or a copy of such books, accounts,
30 records and documents, or electronic or other similar access
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1 thereto, of the business conducted under the license as may
2 be prescribed by the department to enable it to determine
3 whether the business of the licensee is being conducted in
4 accordance with the provisions of this act and the orders,
5 rules and regulations issued under this act.
6 (3) Annually, before May 1, file a report with the
7 department which shall set forth such information as the
8 department shall require concerning the business conducted as
9 a licensee during the preceding calendar year. The report
10 shall be in writing, under oath, and on a form provided by
11 the department.
12 (4) Be subject to examination by the department at the
13 discretion of the department at which time the department
14 shall have free access, during regular business hours, to the
15 licensee's place or places of business in this Commonwealth
16 and to all instruments, documents, accounts, books and
17 records which pertain to a licensee's mortgage loan business.
18 The department may examine a licensee at any time if the
19 department deems such examination to be necessary or
20 desirable. The cost of any such examination shall be borne by
21 the licensee.
22 (5) Comply with all provisions of the act of January 30,
23 1974 (P.L.13, No.6), referred to as the Loan Interest and
24 Protection Law, provided, however, that this shall not be
25 deemed an override of section 501 of the Depository
26 Institutions Deregulation and Monetary Control Act of 1980
27 (94 Stat. 161, 12 U.S.C. § 1735f-7 note).
28 (6) Comply with the provisions of the act of December
29 23, 1983 (P.L.385, No.91), entitled "An act amending the act
30 of December 3, 1959 (P.L.1688, No.621), entitled, as amended,
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1 'An act to promote the health, safety and welfare of the
2 people of the Commonwealth by broadening the market for
3 housing for persons and families of low and moderate income
4 and alleviating shortages thereof, and by assisting in the
5 provision of housing for elderly persons through the creation
6 of the Pennsylvania Housing Finance Agency as a public
7 corporation and government instrumentality; providing for the
8 organization, membership and administration of the agency,
9 prescribing its general powers and duties and the manner in
10 which its funds are kept and audited, empowering the agency
11 to make housing loans to qualified mortgagors upon the
12 security of insured and uninsured mortgages, defining
13 qualified mortgagors and providing for priorities among
14 tenants in certain instances, prescribing interest rates and
15 other terms of housing loans, permitting the agency to
16 acquire real or personal property, permitting the agency to
17 make agreements with financial institutions and Federal
18 agencies, providing for the purchase by persons of low and
19 moderate income of housing units, and approving the sale of
20 housing units, permitting the agency to sell housing loans,
21 providing for the promulgation of regulations and forms by
22 the agency, prescribing penalties for furnishing false
23 information, empowering the agency to borrow money upon its
24 own credit by the issuance and sale of bonds and notes and by
25 giving security therefor, permitting the refunding,
26 redemption and purchase of such obligations by the agency,
27 prescribing remedies of holders of such bonds and notes,
28 exempting bonds and notes of the agency, the income
29 therefrom, and the income and revenues of the agency from
30 taxation, except transfer, death and gift taxes; making such
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1 bonds and notes legal investments for certain purposes; and
2 indicating how the act shall become effective,' providing for
3 homeowner's emergency assistance."
4 (7) Provide for periodic accounting of any escrow
5 accounts held by the licensee to the borrowers not less than
6 annually, showing the amounts received from the borrower and
7 the amounts disbursed.
8 (8) Refund all fees, other than those fees paid by the
9 licensee to a third party, paid by an applicant borrower when
10 a mortgage loan is not produced within the time specified by
11 the mortgage banker or mortgage broker at the rate, term and
12 overall cost agreed to by the borrower, provided, however,
13 that this provision shall not apply when the failure to
14 produce a loan is due solely to the borrower's negligence,
15 his refusal to accept and close on a loan commitment or his
16 refusal or inability to provide information necessary for
17 processing, including, but not limited to, employment
18 verifications and verifications of deposits. The licensee
19 shall disclose to the borrower, in writing, at the time of a
20 loan application which fees paid or to be paid are
21 nonrefundable.
22 (b) Accounting records.--After the effective date of this
23 act, the licensee's accounting records must be constructed and
24 maintained in compliance with generally accepted accounting
25 principles, and all of the aforementioned instruments,
26 documents, accounts, books and records shall be kept separate
27 and apart from the records of any other business conducted by
28 the licensee and shall be preserved and kept available for
29 investigation or examination by the department for at least two
30 years after a mortgage loan has been paid in full. The
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1 provisions of this subsection shall not apply to any instrument,
2 document, account, book or record that is assigned, sold or
3 transferred to another person, nor shall the two-year
4 requirement apply to an instrument or document which must be
5 returned to a borrower at the time a mortgage loan is paid in
6 full.
7 (c) Copies.--If copies of instruments, documents, accounts,
8 books or records are maintained under subsection (a)(2), they
9 may be photostatic, microfilm or electronic copies or copies
10 provided in some other manner approved by the Secretary of
11 Banking, as long as access to information required by the
12 secretary exists electronically at all times within this
13 Commonwealth.
14 Section 9. Licensee limitations.
15 (a) Prohibitions.--A licensee shall not:
16 (1) Transact any business subject to the provisions of
17 this act under any other name except those designated in its
18 license. A licensee that changes its name or place or places
19 of business shall immediately notify the department, which
20 shall issue a certificate, if appropriate, to the licensee
21 which shall specify the licensee's new name or address.
22 (2) Conduct any business other than any business
23 regulated by the department in any place of business licensed
24 pursuant to this act without at least 90 days prior written
25 notification to the department.
26 (3) Pay a finder's fee, service fee or any other
27 compensation to any person in connection with any transaction
28 if that person is receiving compensation from any other
29 person for any services in connection with the same
30 transaction or the real estate transfer leading to such
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1 transaction.
2 (4) DISBURSE THE PROCEEDS OF A MORTGAGE LOAN IN ANY FORM <--
3 OTHER THAN CASH, ELECTRONIC FUND TRANSFER, CERTIFIED CHECK OR
4 CASHIER'S CHECK.
5 (b) Authority to close loans in attorneys' and title
6 insurance companies or agencies' offices.--Nothing contained in
7 this act shall prohibit any licensee or person exempt from
8 licensure hereunder from closing any loans made under the
9 provisions of this act in the offices of attorneys-at-law
10 licensed by and located in this Commonwealth and title insurance
11 companies or agencies licensed by and located in this
12 Commonwealth.
13 Section 10. Authority of department.
14 The department shall have the authority to:
15 (1) Issue rules and regulations and orders as may be
16 necessary for the proper conduct of the business of a
17 mortgage banker or a mortgage broker and for the enforcement
18 of this act.
19 (2) Examine any instrument, document, account, book,
20 record or file of a licensee or any other person, or make
21 such other investigation as may be necessary to administer
22 the provisions of this act.
23 (3) Conduct administrative hearings on any matter
24 pertaining to this act, issue subpoenas to compel the
25 attendance of witnesses and the production of instruments,
26 documents, accounts, books and records at any such hearing,
27 which may be retained by the department until the completion
28 of all proceedings in connection with which they were
29 produced, and administer oaths and affirmations to any person
30 whose testimony is required. In the event a person fails to
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1 comply with a subpoena issued by the department or to testify
2 on any matter concerning which he may be lawfully
3 interrogated, on application by the department, the
4 Commonwealth Court may issue an order requiring the
5 attendance of such person, the production of instruments,
6 documents, accounts, books or records or the giving of
7 testimony.
8 Section 11. Surrender of license.
9 Upon satisfying the department that all creditors have been
10 paid or that other arrangements satisfactory to the creditors
11 and the department have been made, a licensee shall surrender
12 its license to the department by delivering its license to the
13 department with written notice that the license is being
14 voluntarily surrendered, but such an action by a licensee shall
15 not affect the licensee's civil or criminal liability for acts
16 committed.
17 Section 12. Suspension, revocation or refusal.
18 (a) Departmental action.--The department may suspend, revoke
19 or refuse to renew any license issued pursuant to this act after
20 giving 30 days' written notice forwarded to the licensee's
21 principal place of business, by registered or certified mail,
22 return receipt requested, stating the contemplated action and
23 the reason therefor, if the department shall find, after the
24 licensee has had an opportunity to be heard, that the licensee
25 has:
26 (1) Made any material misstatement in his application.
27 (2) Failed to comply with or violated any provision of
28 this act or any rule, regulation or order promulgated by the
29 department pursuant to this act.
30 (3) If licensed under section 4(c)(3), accepts an
19890H0757B1499 - 16 -
1 advance fee.
2 The hearing and notice provisions of this section shall not
3 apply if the licensee's corporate charter is voided in
4 accordance with the provisions of any law of this or any other
5 state, in which event the department may suspend or revoke the
6 license.
7 (b) Reinstatement.--The department may subsequently
8 reinstate a license which has been suspended or revoked or renew
9 a license which had previously been refused for renewal if the
10 condition which warranted the original action has been corrected
11 and the department has reason to believe that such condition is
12 not likely to occur again and the licensee satisfies the
13 requirements of this act.
14 Section 13. Penalties.
15 (a) Nonlicensees.--Any person who is not licensed by the
16 department or is not exempted from the licensing requirements in
17 accordance with the provisions of this act and who engages in
18 the business of a mortgage banker or mortgage broker commits a
19 felony of the third degree.
20 (b) Nonlicensees subject to the provisions of this act.--Any
21 person who is subject to the provisions of this act, even though
22 not licensed hereunder, who violates any of the provisions to
23 which it is subject shall be subject to a fine levied by the
24 department of up to $2,000 for each offense. Any such
25 nonlicensed person who commits three or more offenses may, at
26 the discretion of the department, be prohibited from engaging in
27 the business of a mortgage broker or mortgage banker unless
28 licensed under this act.
29 (c) Violations by licensees.--Any person licensed under the
30 provisions of this act or any director, officer, employee or
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1 agent of a licensee who shall violate the provisions of this act
2 or shall direct or consent to such violations shall be subject
3 to a fine levied by the department of up to $2,000 for each
4 offense.
5 Section 14. Scope of act.
6 The provisions of this act shall apply to any mortgage loan
7 which is:
8 (1) negotiated, offered or otherwise transacted within
9 this Commonwealth, in whole or in part, whether by the
10 ultimate lender or any other person;
11 (2) made or executed within this Commonwealth; or
12 (3) notwithstanding the place of execution, secured by
13 real property located in this Commonwealth.
14 Section 15. Effective date.
15 This act shall take effect in 180 days.
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