PRIOR PRINTER'S NO. 530 PRINTER'S NO. 1614
No. 488 Session of 2007
INTRODUCED BY BROWNE, FERLO, BOSCOLA, PILEGGI, ERICKSON, FUMO, RHOADES, COSTA, BAKER AND STACK, MARCH 15, 2007
SENATOR D. WHITE, BANKING AND INSURANCE, AS AMENDED, DECEMBER 4, 2007
AN ACT 1 Amending the act of December 12, 1980 (P.L.1179, No.219), 2 entitled "An act to define and regulate secondary mortgage 3 loans and providing penalties," further providing for 4 definitions, for license requirements and exemptions, for 5 application for license, for annual license fee, for issuance 6 of license, for license duration, for transfer of license, 7 for powers conferred on licensees, for licensee requirements, 8 for licensee limitations, for prepayment, for open-end loans, 9 for authority of Secretary of Banking, for surrender of 10 license, for suspension, for scope of act, for foreclosure, 11 for penalties, for preservation of existing powers and for 12 exclusions from act. 13 The General Assembly of the Commonwealth of Pennsylvania 14 hereby enacts as follows: 15 Section 1. The definitions of "broker's agent," "open-end 16 loan," "person," "secondary mortgage loan broker" and 17 "sponsoring broker" in section 2 of the act of December 12, 1980 18 (P.L.1179, No.219), known as the Secondary Mortgage Loan Act, 19 added July 7, 1989 (P.L.222, No.36) and June 26, 1995 (P.L.73, 20 No.15), are amended and the section is amended by adding 21 definitions to read: 22 Section 2. Definitions.
1 The following words and phrases when used in this act shall 2 have, unless the context clearly indicates otherwise, the 3 meanings given to them in this section: 4 * * * 5 "Applicant." A person who applies for a license under this 6 act. 7 "BANKING INSTITUTION." A STATE-CHARTERED BANK, BANK AND <-- 8 TRUST COMPANY, SAVINGS BANK OR PRIVATE BANK, NATIONAL BANK, 9 FEDERALLY-CHARTERED OR STATE-CHARTERED SAVINGS ASSOCIATION OR A 10 SUBSIDIARY OF ANY OF THE ENTITIES UNDER THIS DEFINITION. 11 * * * 12 "Branch." An office or other place of business located in 13 this Commonwealth or any other state, other than the principal 14 place of business, where a person engages in the secondary 15 mortgage loan business which falls under the scope of this act. 16 ["Broker's agent." A category of secondary mortgage loan 17 broker's license that is issued to individuals who broker 18 secondary mortgage loans exclusively to one licensed secondary 19 mortgage loan broker, designated as a sponsoring broker, and who 20 are not employees of such sponsoring broker.] 21 "Consumer discount company." A licensee under the act of 22 April 8, 1937 (P.L.262, No.66), known as the "Consumer Discount 23 Company Act." 24 "Department." The Department of Banking of the Commonwealth. 25 * * * 26 "Mortgage originator." An individual not licensed as a 27 secondary mortgage lender or secondary mortgage loan broker 28 under this act who solicits, accepts or offers to accept 29 secondary mortgage loan applications, or negotiates secondary 30 mortgage loan terms, in other than a clerical or ministerial 20070S0488B1614 - 2 -
1 capacity. The term does not include directors, partners or 2 ultimate equitable owners of 10% or more of a licensee. 3 "Open-end loan." A secondary mortgage loan made by a 4 secondary mortgage lender licensee under this act pursuant to an 5 agreement between the licensee and the borrower whereby: 6 (1) the licensee may permit the borrower to obtain 7 advances of money from the licensee from time to time or the 8 licensee may advance money on behalf of the borrower from 9 time to time as directed by the borrower; 10 (2) the amount of each advance, interest and permitted 11 charges and costs are debited to the borrower's account and 12 payments and other credits are credited to the same account; 13 (3) interest is computed on the unpaid principal balance 14 or balances of the account outstanding from time to time; 15 (4) the borrower has the privilege of paying the account 16 in full at any time without prepayment penalty or, if the 17 account is not in default, in monthly installments of fixed 18 or determinable amounts as provided in the agreement; and 19 (5) the agreement expressly states that it covers open- 20 end loans pursuant to this act. 21 "Person." An individual, association, joint venture or joint 22 stock company, partnership, limited partnership, limited 23 partnership association, limited liability company, a business 24 corporation, nonprofit corporation, or any other group of 25 individuals however organized. 26 "Primary market." The market wherein secondary mortgage 27 loans are originated between a lender and a borrower. 28 "Principal place of business." The primary office of the 29 licensee located in this Commonwealth which is staffed on a 30 full-time basis and at which books, records, accounts and 20070S0488B1614 - 3 -
1 documents are to be maintained. 2 "Secondary mortgage lender." A person who directly or 3 indirectly originates and closes secondary mortgage loans with 4 its own funds in the primary market for consideration. 5 "Secondary mortgage loan broker." [A person who in the 6 ordinary course of business, for a fee, directly or indirectly 7 negotiates or arranges for others a secondary mortgage loan.] A 8 person who directly or indirectly negotiates or places secondary 9 mortgage loans for others in the primary market for 10 consideration. 11 * * * 12 "Secondary mortgage loan business." A person is deemed to be 13 engaged in the secondary mortgage loan business in this 14 Commonwealth if: 15 (1) the person advertises, causes to be advertised, 16 solicits, negotiates or arranges in the ordinary course of 17 business, offers to make or makes more than two secondary 18 mortgage loans in a calendar year in this Commonwealth, 19 whether directly or by any person acting for his benefit, but 20 this provision shall not prohibit advertising or solicitation 21 by a licensee under a general corporate name, logo or 22 trademark; or 23 (2) the person in the ordinary course of business 24 becomes the subsequent holder of more than two promissory 25 notes or mortgages, indentures or any other similar 26 instruments or documents received in a calendar year in 27 connection with a secondary mortgage loan; provided, however, 28 that a person will not be deemed to be engaged in the 29 secondary mortgage loan business if such person becomes the 30 subsequent holder of two or more promissory notes or 20070S0488B1614 - 4 -
1 mortgages, indentures or any other similar instruments or 2 documents received in a calendar year in connection with a 3 secondary mortgage loan solely as an investment and such 4 person is not otherwise in the business of making or 5 servicing such loans. 6 * * * 7 "Service a mortgage loan." The collection or remittance of 8 payments for another or the right to collect or remit payments 9 for another of principal, interest, taxes, insurance and any 10 other payments pursuant to a secondary mortgage loan. 11 ["Sponsoring broker." A licensed secondary mortgage loan 12 broker who negotiates or arranges secondary mortgage loans on 13 behalf of a broker's agent and provides indemnification of such 14 broker's agent in order to protect borrowers from monetary 15 damages which may be a result of doing business with a broker's 16 agent.] 17 Section 2. Section 3 of the act, amended July 7, 1989 18 (P.L.222, No.36) and June 26, 1995 (P.L.73, No.15), is amended 19 to read: 20 Section 3. License requirements and exemptions. 21 [(a) (1) No person shall engage in the business of making 22 secondary mortgage loans in this Commonwealth except a 23 business corporation organized under the laws of this 24 Commonwealth or any other state, after first obtaining a 25 license from the secretary in accordance with the provisions 26 of this act. 27 (2) No person shall engage in the business of being a 28 secondary mortgage loan broker until after first obtaining a 29 license from the secretary in accordance with the provisions 30 of this act. 20070S0488B1614 - 5 -
1 (3) A State-chartered or National bank, bank and trust 2 company, savings bank, private bank, savings association or 3 savings and loan association, having its principal place of 4 business in this Commonwealth, or an individual making loans 5 to family members, shall not be required to be licensed under 6 this act in order to make loans secured by real property 7 under this act. 8 (4) Any agency or instrumentality of the United States 9 Government or a corporation otherwise created by an act of 10 the United States Congress which engages in the business of 11 purchasing secondary mortgage loans shall not be required to 12 be licensed under this act in order to purchase secondary 13 mortgage loans from licensees under this act. This shall 14 include but not be limited to the Federal National Mortgage 15 Association and the Federal Home Loan Mortgage Corporation. 16 (5) For the purpose of this act, a person is deemed to 17 be engaged in the secondary mortgage loan business in the 18 Commonwealth if: 19 (i) such person advertises, causes to be advertised, 20 solicits, negotiates or arranges in the ordinary course 21 of business, offers to make or makes more than two 22 secondary mortgage loans in a calendar year in this 23 Commonwealth, whether directly or by any person acting 24 for his benefit, but this provision shall not prohibit 25 advertising or solicitation by a licensee under a general 26 corporate name, logo or trade mark; or 27 (ii) such person in the ordinary course of business 28 becomes the subsequent holder of more than two promissory 29 notes or mortgages, indentures or any other similar 30 instruments or documents received in a calendar year in 20070S0488B1614 - 6 -
1 connection with a secondary mortgage loan, provided, 2 however, that a person will not be deemed to be engaged 3 in the secondary mortgage loan business if such person 4 becomes the subsequent holder of two or more promissory 5 notes or mortgages, indentures or any other similar 6 instruments or documents received in a calendar year in 7 connection with a secondary mortgage loan solely as an 8 investment and such person is not otherwise in the 9 business of making or servicing such loans. 10 (b) A real estate broker licensed pursuant to the provisions 11 of the law of this Commonwealth or an attorney authorized to 12 practice law in this Commonwealth shall not be required to 13 obtain a license to arrange a secondary mortgage loan in the 14 normal course of the business of a real estate broker or 15 attorney. 16 (c) A secondary mortgage loan broker who can demonstrate to 17 the satisfaction of the secretary that he does not accept 18 advance fees shall be exempt from the capital requirement of 19 section 4(b). 20 (d) A person who is deemed to be engaged in the secondary 21 mortgage loan business solely because he negotiates or arranges 22 secondary mortgage loans for others need not obtain a secondary 23 mortgage loan license but shall be required to be licensed as a 24 secondary mortgage loan broker. 25 (e) A secondary mortgage loan broker who is an individual 26 exempt from the capital requirement of section 4(b) and who can 27 also demonstrate to the satisfaction of the secretary that he 28 solicits secondary mortgage loan applications exclusively for 29 one secondary mortgage loan broker may apply for a broker's 30 agent license subject to the requirements in section 4(d).] 20070S0488B1614 - 7 -
1 (a) On and after the effective date of this section, no 2 person shall engage in the secondary mortgage loan business in 3 this Commonwealth without a license as provided for in this act. 4 A mortgage originator may not engage in the secondary mortgage 5 loan business unless the mortgage originator is employed and 6 supervised by a licensed secondary mortgage lender or secondary 7 mortgage loan broker. 8 (b) (1) A secondary mortgage lender may act as a secondary 9 mortgage loan broker without a separate secondary mortgage 10 loan broker license and, if licensed as an individual, may 11 perform the services of a mortgage originator without a 12 separate mortgage originator license. 13 (2) A person licensed as a secondary mortgage loan 14 broker may only perform the services of a secondary mortgage 15 loan broker. If a secondary mortgage loan broker is licensed 16 as an individual, a secondary mortgage loan broker may 17 perform the services of a mortgage originator without a 18 separate mortgage originator license. 19 (c) The following persons shall not be required to be 20 licensed under this act in order to conduct the secondary 21 mortgage loan business but shall be subject to the provisions of 22 this act as specifically provided in this section: 23 (1) A State-chartered bank, bank and trust company, <-- 24 savings bank, private bank or national bank, a State or 25 federally chartered savings and loan association, a federally 26 chartered savings bank or a State or Federal chartered credit 27 union. 28 (1) A BANKING INSTITUTION OR A FEDERALLY CHARTERED OR <-- 29 STATE-CHARTERED CREDIT UNION IF THE PRIMARY REGULATOR OF THE 30 BANKING INSTITUTION OR FEDERALLY CHARTERED OR STATE-CHARTERED 20070S0488B1614 - 8 -
1 CREDIT UNION SUPERVISES THE BANKING INSTITUTION OR FEDERALLY 2 CHARTERED OR STATE-CHARTERED CREDIT UNION. 3 (2) An attorney authorized to practice law in this 4 Commonwealth, who acts as a secondary mortgage loan broker in 5 negotiating or placing a mortgage loan in the normal course 6 of legal practice. 7 (3) A person who either originates or negotiates fewer 8 than three secondary mortgage loans in a calendar year in 9 this Commonwealth unless he is otherwise deemed to be engaged 10 in the secondary mortgage loan business. 11 (4) An agency or instrumentality of the Federal 12 Government or a corporation otherwise created by an act of 13 the Congress of the United States, including, but not limited 14 to, the Federal National Mortgage Association, the Government 15 National Mortgage Association, the Department of Veterans 16 Affairs, the Federal Home Loan Mortgage Corporation and the 17 Federal Housing Administration. 18 (5) Any agency or instrumentality of a State or local 19 government, the District of Columbia or any territory of the 20 United States, including the Pennsylvania Housing Finance 21 Agency and other government housing finance agencies. 22 (6) Except for consumer discount companies, subsidiaries <-- 23 and affiliates of the following institutions: State-chartered 24 banks, bank and trust companies, savings banks, private 25 banks, savings and loan associations and credit unions or 26 national banks, federally chartered savings and loan 27 associations, federally chartered savings banks and federally 28 chartered credit unions, and such subsidiaries and affiliates 29 of institutions enumerated in this paragraph shall: 30 (6) EXCEPT FOR CONSUMER DISCOUNT COMPANIES, AFFILIATES <-- 20070S0488B1614 - 9 -
1 OF BANKING INSTITUTIONS AND SUBSIDIARIES AND AFFILIATES OF 2 FEDERALLY CHARTERED OR STATE-CHARTERED CREDIT UNIONS. THE 3 SUBSIDIARIES AND AFFILIATES OF BANKING INSTITUTIONS AND 4 FEDERALLY-CHARTERED OR STATE-CHARTERED CREDIT UNIONS SHALL: 5 (i) Be subject to the provisions of sections 10, 16 6 and 22(b), excluding section 10(a)(1) and (b)(1). 7 (ii) Deliver as required to the department annually 8 copies of financial reports made to all supervisory 9 agencies. 10 (iii) Be registered with the department. 11 (7) Employees of a secondary mortgage lender or 12 secondary mortgage loan broker licensee, to the extent that 13 such employees are not otherwise required to be licensed as 14 mortgage originators. 15 (8) Any person who makes a secondary mortgage loan to an 16 employee of that person as an employment benefit, given he 17 does not hold himself out to the public as a secondary 18 mortgage lender. 19 (9) Employees of excepted persons enumerated in this 20 section. 21 (d) This act shall not apply to secondary mortgage loans 22 made for business or commercial purposes. 23 Section 3. Section 4 of the act, amended July 7, 1989 24 (P.L.222, No.36) and June 26, 1995 (P.L.73, No.15), is amended 25 to read: 26 Section 4. Application for license. 27 (a) An application for a secondary mortgage [loan] lender 28 license or a secondary mortgage loan broker license shall be on 29 a form provided by the [secretary. Among other things, the] 30 department. The application shall set forth the following: 20070S0488B1614 - 10 -
1 (1) The full name, corporate title and personal 2 residence address of each officer and director of the 3 proposed licensee corporation or the full name and address of 4 each owner of the proposed broker license if it is not a 5 corporation. 6 (2) Any or all other business entities in which an 7 equity or creditor interest is held by an officer or director 8 of the proposed licensee corporation or by any owner of the 9 proposed broker licensee if it is not a corporation. 10 (3) The dollar amount of such equity or creditor 11 holdings. 12 (4) Whether or not funds are or will be interchanged 13 between the licensee and such business entities. 14 (5) The address or addresses where the secondary 15 mortgage loan business is to be conducted. 16 (6) Any other information that may be required by the 17 department. 18 (a.1) In the case of a mortgage originator, the application 19 shall include the following: 20 (1) The name of the applicant. 21 (2) The name of the employer licensee of the applicant 22 and location of the employer licensee to which the applicant 23 is assigned. 24 (3) Any other information that may be required by the 25 department. 26 (b) [The] An applicant for a secondary mortgage [loan] 27 lender license shall have a minimum legal capitalization of 28 $200,000. At the time of applying for a license under this act, 29 and at all times thereafter, the minimum paid in legal capital 30 shall be $200,000. [An applicant for a secondary mortgage loan 20070S0488B1614 - 11 -
1 broker license shall have a minimum legal capitalization of 2 $25,000 at the time of applying for a license under this act and 3 at all times thereafter.] 4 (b.1) An applicant for a secondary mortgage loan broker 5 license shall have a minimum legal capitalization of $25,000 at 6 the time of applying for a license under this act and at all 7 times thereafter. A secondary mortgage loan broker who can 8 demonstrate to the satisfaction of the secretary that he does 9 not accept advance fees shall be exempt from the capital 10 requirement of this section. 11 (c) (1) If the applicant is [a foreign corporation] not a 12 resident of this Commonwealth, said [corporation] applicant 13 shall be authorized to do business in this Commonwealth in 14 accordance with the law of this Commonwealth regulating 15 corporations[. Such corporations shall file with the 16 application an irrevocable] and other entities conducting 17 business in this Commonwealth and shall maintain at least one 18 office in this Commonwealth which is the office that shall be 19 licensed as the principal place of business for the purposes 20 of this act. 21 (2) An applicant shall file with the application an 22 irrevocable consent, duly acknowledged, that suits and 23 actions may be commenced against such [licensee] person in 24 the courts of this Commonwealth by the service of process or 25 any pleading upon the [secretary] department in the usual 26 manner provided for service of process and pleadings by the 27 statutes and court rule of this Commonwealth. Said consent 28 shall provide that such service shall be as valid and binding 29 as if service had been made personally upon the [licensee] 30 person in this Commonwealth. In all cases where process or 20070S0488B1614 - 12 -
1 pleadings are served upon the [secretary] department pursuant 2 to the provisions of this section, such process or pleadings 3 shall be served in duplicate, one of which shall be filed in 4 the [office of the secretary] department and the other shall 5 be forwarded by the [secretary] department, by certified or 6 registered mail, return receipt, to the last known principal 7 place of business of the [licensee] person to whom such 8 process or pleadings is directed. 9 [(d) The applicant for a secondary mortgage loan broker 10 license may apply for a broker's agent license subject to the 11 following: 12 (1) The applicant must be an individual. 13 (2) The applicant must be exempt from the capital 14 requirement of subsection (b) by satisfying the secretary 15 that no advance fees whatsoever are accepted or collected, 16 and no fees may be accepted or collected from borrowers. 17 (3) The applicant must demonstrate to the satisfaction 18 of the secretary that he solicits secondary mortgage loan 19 applications exclusively for one licensed secondary mortgage 20 loan broker known as the sponsoring broker. 21 (4) The principal office location of the holder of a 22 broker's agent license must be a Pennsylvania-licensed 23 principal or branch place of business of the sponsoring 24 broker. 25 (5) The holder of a broker's agent license, if he uses 26 advertising to solicit or obtain customers for his secondary 27 mortgage loan brokerage business, may not advertise in his 28 own name alone but shall advertise his own name only in 29 conjunction with the name of the sponsoring broker.] 30 (d.1) A mortgage originator shall be an employee of a single 20070S0488B1614 - 13 -
1 secondary mortgage lender or secondary mortgage loan broker 2 licensed under this act. This licensee shall directly supervise, 3 control and maintain responsibility for the acts and omissions 4 of the mortgage originator. A mortgage originator shall be 5 assigned to a licensed location of the employer licensee. 6 [(e) The sponsoring broker shall enter into an 7 indemnification agreement in a form provided by the secretary to 8 protect borrowers from any monetary damages which may result 9 from doing business with a broker's agent.] 10 (f) (1) In order to obtain a license under this act, an 11 applicant shall submit to the department with its application 12 evidence that the applicant or an officer of the applicant 13 has successfully completed a minimum of 12 hours of 14 instruction and a testing program regarding the secondary 15 mortgage loan business and the provisions of this act, the 16 act of January 30, 1974 (P.L.13, No.6), referred to as the 17 Loan Interest and Protection Law, and relevant Federal law, 18 including the Real Estate Settlement Procedures Act of 1974 19 (Public Law 93-533, 88 Stat. 1724), the Truth in Lending Act 20 (Public Law 90-321, 15 U.S.C. § 1601 et seq.) and the Equal 21 Credit Opportunity Act (Public Law 90-321, 88 Stat. 1521). 22 (2) In order to maintain a license: 23 (i) A secondary mortgage lender or secondary 24 mortgage loan broker shall demonstrate to the 25 satisfaction of the department that at least one 26 individual from each licensed office that is not a 27 mortgage originator and all mortgage originators employed 28 by the licensee have attended a minimum of six hours of 29 continuing education each year. 30 (ii) A mortgage originator licensee shall 20070S0488B1614 - 14 -
1 demonstrate to the satisfaction of the department that he 2 has attended a minimum of six hours of continuing 3 education each year. 4 (3) The department shall delineate the requirements for 5 prequalification education and testing and continuing 6 education by regulation, including by permitting in-house 7 prequalification education and testing and continuing 8 education. The department may review and approve education 9 programs and providers to satisfy the education requirements. 10 The department may charge providers of education programs a 11 fee, to be determined by the department, for department 12 review of education programs and providers. 13 (g) All applicants and licensees shall be required to 14 provide the department with written notice of the change in any 15 information contained in an application for a license or for any 16 renewal of a license within ten days of an applicant or licensee 17 becoming aware of such change. 18 (h) Licenses shall be issued for terms of 12 months and may 19 be renewed by the department each year on a schedule set by the 20 department upon application by the licensee and the payment of 21 any and all applicable renewal fees. The licensee shall 22 demonstrate to the department that it is conducting the 23 secondary mortgage loan business in accordance with the 24 requirements of this act and that the directors, officers, 25 partners, employees, agents and ultimate equitable owners of 10% 26 or more of the licensee continue to meet all of the initial 27 requirements for licensure required by this act unless otherwise 28 determined by the department. 29 Section 4. Section 5 of the act, amended June 26, 1995 30 (P.L.73, No.15), is amended to read: 20070S0488B1614 - 15 -
1 Section 5. Annual license fee. 2 [An applicant shall pay to the secretary at the time an 3 application is filed an initial license fee of $500 for the 4 principal place of business and an additional initial license 5 fee of $50 for each branch office in this Commonwealth, except 6 an applicant for a broker's agent license shall pay to the 7 secretary at the time an application is filed an initial license 8 fee of $250. On or before July 1 of each year and thereafter, a 9 licensee shall pay a license renewal fee of $200 for the 10 principal place of business and an additional license renewal 11 fee of $25 for each branch office in this Commonwealth. 12 Notwithstanding the provision of section 603-A(6) of the act of 13 April 9, 1929 (P.L.177, No.175), known as "The Administrative 14 Code of 1929," a broker's agent licensee shall pay an annual 15 license renewal fee of $200. No abatement of any license fee 16 shall be made if the license is issued for a period of less than 17 one year. The secretary shall be entitled to recover any cost of 18 investigation in excess of license or renewal fees from the 19 licensee, or from any person who is not licensed under this act 20 but presumed to be engaged in business contemplated by this 21 act.] 22 (a) An applicant shall pay to the department at the time an 23 application is filed an initial application fee as follows: 24 (1) For secondary mortgage lenders, $1,500 for the 25 principal place of business in this Commonwealth and an 26 additional fee of $1,500 for each branch office. 27 (2) For secondary mortgage loan brokers, $1,000 for the 28 principal place of business in this Commonwealth and an 29 additional fee of $250 for each branch office. 30 (3) For mortgage originators, $200 $100. <-- 20070S0488B1614 - 16 -
1 (b) Prior to each annual renewal of a license, a licensee 2 shall pay to the department a license renewal fee as follows: 3 (1) For secondary mortgage lenders, $750 for the 4 principal place of business in this Commonwealth and an 5 additional fee of $750 for each branch office. 6 (2) For secondary mortgage loan brokers, $500 for the 7 principal place of business in this Commonwealth and an 8 additional fee of $250 for each branch office. 9 (3) For mortgage originators, $200. 10 (c) For a licensee that employs 50 or more mortgage 11 originators, the initial application fee and license renewal fee 12 shall be $50 per mortgage originator, to a maximum of $10,000 13 total per year. 14 (d) No abatement of a licensee fee shall be made if the 15 license is issued for a period of less than one year. 16 Section 5. Section 6 of the act is amended to read: 17 Section 6. Issuance of license. 18 [(a) Within 60 days after an application is received, the 19 secretary shall either issue a license or, for any reason for 20 which he may suspend, revoke or refuse to renew a license as 21 provided for by section 19, refuse to issue a license. 22 (b) If the secretary refuses to issue a license, he shall 23 notify the applicant, in writing, of his denial, the reason 24 therefor and of the applicant's right to appeal from such action 25 to the Commonwealth Court of Pennsylvania. An appeal from the 26 secretary's refusal to approve an application for a license may 27 be filed within 30 days of notice thereof.] 28 (a) Within 60 days after a complete application is received, 29 the department shall either issue a license or, for any reason 30 for which the department may suspend, revoke or refuse to renew 20070S0488B1614 - 17 -
1 a license as provided for by section 19, refuse to issue a 2 license. Upon receipt of an application for license, the 3 department shall conduct such investigation of the applicant or 4 a director, officer, partner, employee, agent or ultimate 5 equitable owner of 10% or more of the applicant as it deems 6 necessary. The 60-day time limit specified in this subsection 7 may be extended by the department for an additional 30 days if 8 the department determines that such extension is necessary. The 9 department shall provide written notification to any applicant 10 whose application review has been extended and include the final 11 date by which a decision shall be rendered regarding the 12 application. 13 (b) If the department refuses to issue a license, it shall 14 notify the applicant in writing of the denial and the reason 15 therefor and of the applicant's right to appeal from such action 16 to the secretary. An appeal from the department's refusal to 17 approve an application for a license shall be filed by the 18 applicant within 30 days of notice thereof. 19 (c) Each license issued by the [secretary] department shall 20 specify: 21 (1) The name and address of the licensee, the address so 22 specified to be that of the licensee's principal place of 23 business within this Commonwealth. 24 (2) The licensee's reference number, which may remain 25 the same from year to year despite variations in annual 26 license numbers which may result from the renewal of licenses 27 by mechanical techniques. 28 (3) Such other information as the secretary shall 29 require in order to carry out the purposes of this act. 30 (d) (1) The department may deny a license if it finds that 20070S0488B1614 - 18 -
1 the applicant or any person who is a director, officer, 2 partner, agent, employee or ultimate equitable owner of 10% 3 or more of the applicant has been convicted of a crime of 4 moral turpitude or felony in any jurisdiction or of a crime 5 which, if convicted in this Commonwealth, would constitute a 6 crime of moral turpitude or felony under the laws of this 7 Commonwealth. For the purposes of this act, a person shall be 8 deemed to have been convicted of a crime if the person: 9 (i) shall have pleaded guilty or nolo contendere to 10 a charge thereof before a court or Federal magistrate; or 11 (ii) shall have been found guilty thereof by the 12 decision or judgment of a court or Federal magistrate or 13 by the verdict of a jury, irrespective of the 14 pronouncement of sentence or the suspension thereof, 15 unless the plea of guilty or nolo contendere or the 16 decision, judgment or verdict shall have been set aside, 17 vacated, reversed or otherwise abrogated by lawful 18 judicial process. 19 (2) A license under this act shall be deemed to be a 20 "covered license" within the meaning of section 405 of the 21 act of May 15, 1933 (P.L.565, No.111), known as the 22 "Department of Banking Code." The department shall notify a 23 licensee if a covered individual within the meaning of 24 section 405 of the "Department of Banking Code" that is or 25 will be employed or contracted by the licensee has a criminal 26 background that renders the employee unfit for employment in 27 the secondary mortgage loan business. 28 (e) The department may deny a license or otherwise restrict 29 a license if it finds that the applicant or any person who is a 30 director, officer, partner, agent, employee or ultimate 20070S0488B1614 - 19 -
1 equitable owner of 10% or more of the applicant: 2 (1) has had a license application or license issued by 3 the department denied, not renewed, suspended or revoked; 4 (2) is the subject of an order of the department; 5 (3) has violated or failed to comply with any provision 6 of this act or any regulation, statement of policy or order 7 of the department; 8 (4) does not possess the financial responsibility, 9 character, reputation, integrity and general fitness to 10 command the confidence of the public and to warrant the 11 belief that the secondary mortgage loan business will be 12 operated lawfully, honestly, fairly and within the 13 legislative intent of this act and in accordance with the 14 general laws of this Commonwealth; or 15 (5) has an outstanding debt to the Commonwealth or any 16 Commonwealth agency. 17 (f) The department may impose conditions on the issuance of 18 any license under this act. If the department determines that 19 conditions imposed upon a licensee have not been fulfilled, the 20 department may take any action authorized under this act against 21 such licensee that the department deems necessary. In the case 22 of mortgage originator applicants, the department may issue 23 mortgage originator licenses effective immediately upon receipt 24 of an application, which licenses shall be conditional licenses 25 issued under this subsection. 26 Section 6. Sections 7 and 8 of the act are amended to read: 27 Section 7. License duration. 28 A license issued by the secretary shall: 29 (1) Be renewed [on June 30 of each year upon payment of 30 the annual renewal fee, and after a determination by the 20070S0488B1614 - 20 -
1 secretary that the licensee is conducting his business in 2 accordance with the provisions of this act] upon completion 3 of the requirements of section 4(h). No refund of any portion 4 of the license fee shall be made if the license is 5 voluntarily surrendered to the [secretary] department or 6 suspended or revoked by the [secretary] department prior to 7 its expiration date. 8 (2) Be immediately invalid if the licensee's [corporate 9 charter is voided in accordance with the provisions of any 10 law of this Commonwealth or any other state.] authority to 11 conduct business is voided under any law of this Commonwealth 12 or any other state, unless the licensee demonstrates to the 13 satisfaction of the department that the applicable court or 14 governmental entity was clearly erroneous in voiding the 15 licensee's authority to conduct business. 16 Section 8. Transfer of license. 17 A license shall not be assignable by operation of law or 18 otherwise [without the written consent of the secretary]. 19 Section 7. Section 9 of the act, amended July 7, 1989 20 (P.L.222, No.36) and June 26, 1995 (P.L.73, No.15), is amended 21 to read: 22 Section 9. Powers conferred on licensees. 23 (a) All secondary mortgage [loan] lender licensees shall 24 have power and authority: 25 (1) To make a secondary mortgage loan repayable in 26 installments, and charge, contract for and receive thereon 27 interest at a percentage rate not exceeding 1.85% per month. 28 No interest shall be paid, deducted or received in advance, 29 except that interest from the date of disbursement of funds 30 to the borrower to the first day of the following month shall 20070S0488B1614 - 21 -
1 be permitted in the event the first installment payment is 2 more than 30 days after the date of disbursement. Interest 3 shall not be compounded and shall be computed only on unpaid 4 principal balances. However, the inclusion of earned interest 5 in a new note shall not be considered compounding. For the 6 purpose of computing interest, a month shall be any period of 7 30 consecutive days. 8 (2) To collect fees or premiums for title examination, 9 abstract of title, title insurance, credit reports, surveys, 10 appraisals, notaries, postage (including messenger and 11 express carrier), tax service or other costs or fees actually 12 related to the processing of a secondary mortgage loan 13 application or granting of a secondary mortgage loan, when 14 such fees are actually paid or incurred by the licensee and 15 to collect fees or charges prescribed by law which actually 16 are or will be paid to public officials for determining the 17 existence of or for perfecting or releasing or satisfying any 18 security related to the loan and include these in the 19 principal of the secondary mortgage loan. 20 (3) To collect reasonable attorney's fees, of an 21 attorney licensed to practice in this Commonwealth, upon the 22 execution of the secondary mortgage loan provided that such 23 fees represent actual fees charged the licensee in connection 24 with said mortgage loan and said fees are evidenced by a 25 statement for services rendered addressed to the licensee and 26 include these in the principal of the secondary mortgage 27 loan. 28 (4) To collect reasonable attorney's fees, of an 29 attorney licensed to practice in the Commonwealth, in the 30 collection of a delinquent second mortgage loan and any court 20070S0488B1614 - 22 -
1 costs and fees actually incurred in the collection of such 2 loan account. 3 (5) To provide credit life, credit accident and health 4 and credit unemployment insurance. A borrower shall not be 5 compelled to purchase credit life, credit accident and health 6 or credit unemployment insurance as a condition of the 7 granting of a secondary mortgage loan and all contracts 8 utilized shall reflect a clear disclosure that the purchase 9 of credit life, credit accident and health or credit 10 unemployment insurance is not a prerequisite to obtaining a 11 loan; if, however, the borrower elects to obtain credit life, 12 credit accident and health or credit unemployment insurance, 13 the borrower shall consent thereto in writing. If borrowers 14 desire joint-life or joint accident and health insurance, all 15 such borrowers shall consent thereto in writing. Such 16 insurance shall be obtained from an insurance company 17 authorized by the laws of Pennsylvania to conduct business in 18 this Commonwealth. Any benefit or return to the licensee from 19 the sale or provision of such insurance shall not be included 20 in the computation of the maximum charge authorized under 21 this section and shall not be deemed a violation of this act 22 when the insurance is written pursuant to the laws of this 23 Commonwealth governing insurance. 24 (6) To require credit property insurance on security 25 against reasonable risks of loss, damage and destruction. The 26 amount and term of such insurance shall be reasonable in 27 relation to the amount and term of the loan contract and the 28 value of the security. A licensee shall not require property 29 insurance if to the licensee's knowledge, the borrower at the 30 time the loan is made has valid and collectible insurance 20070S0488B1614 - 23 -
1 covering the property to be insured and has furnished a loss 2 payable endorsement sufficient for the protection of the 3 licensee. Such insurance shall be obtained from an insurance 4 company authorized by the laws of Pennsylvania to conduct 5 business in this Commonwealth. Any benefit or return to the 6 licensee from the sale or provision of credit insurance shall 7 not be included in the computation of the maximum charge 8 authorized under this section and shall not be deemed a 9 violation of this act when the insurance is written pursuant 10 to the laws of this Commonwealth governing insurance. The 11 premium for any credit insurance may be included in the 12 principal amount of the secondary mortgage loan requested by 13 the borrower. However, such premiums shall be disclosed as a 14 separate item on the face of the principal contract document 15 and the licensee's individual borrower ledger records. No 16 licensee shall grant any secondary mortgage loan on the 17 condition, agreement or understanding that the borrower 18 contract with any specific person or organization for 19 insurance services as agent, broker or underwriter. 20 (7) To collect a fee for a subsequent dishonored check 21 or instrument taken in payment, not to exceed the service 22 charge permitted to be imposed under 18 Pa.C.S. § 4105(e)(3) 23 (relating to bad checks). 24 (8) To charge and collect an application fee not 25 exceeding 3% of the original principal amount of the loan. 26 The fee shall be fully earned at the time the loan is made 27 and may be added to the principal amount of the loan. No 28 application fee may be collected on subsequent advances made 29 pursuant to an open-end loan if the full fee of 3% of the 30 credit limit was collected at the time the loan was made. 20070S0488B1614 - 24 -
1 (9) To charge and collect a delinquency charge of $20 or 2 10% of each payment, whichever is higher, for a payment which 3 is in default for more than 15 days. 4 (b) All secondary mortgage loan broker licensees shall have 5 power and authority: 6 (1) To collect title examination, credit report, and 7 appraisal fees actually related to the granting of a 8 secondary mortgage loan when such fees are actually paid or 9 incurred by the licensee, and to include the fees in the 10 principal of the secondary mortgage loan which is being 11 negotiated or arranged. 12 (2) To charge a reasonable broker's fee as determined by 13 regulation of the Department of Banking if the fee is 14 disclosed to the person for whom the loan is being negotiated 15 or arranged. 16 Section 8. Section 10 of the act, amended December 17, 1986 17 (P.L.1696, No.203), July 7, 1989 (P.L.222, No.36), July 2, 1992 18 (P.L.387, No.82) and June 26, 1995 (P.L.73, No.15), is amended 19 to read: 20 Section 10. Licensee requirements: records; reports; 21 examinations; receipts; information to be 22 furnished borrower. 23 (a) A secondary mortgage [loan] lender licensee shall: 24 (1) Conspicuously display [its license] at each licensed 25 place of business[.] its license and copies of licenses of 26 all mortgage originators assigned to that location. In the 27 case of a mortgage originator, the license shall be 28 maintained in the immediate possession of the licensee 29 whenever the licensee is engaged in the mortgage loan 30 business. 20070S0488B1614 - 25 -
1 (2) Maintain at its principal place of business in this
2 Commonwealth, at a branch location or at such place within or
3 outside this Commonwealth, if agreed to by the [secretary,]
4 department either the original or a copy of the following
5 instruments, documents, accounts, books and records:
6 (i) Promissory note, contractual agreement, document
7 or instrument evidencing each borrower's secondary
8 mortgage loan indebtedness.
9 (ii) Mortgage, indenture or any other similar
10 instrument or document which creates a lien on the real
11 property which is taken as security for a secondary
12 mortgage loan.
13 (iii) Credit life and accident and health and
14 property insurance policy or a certificate of insurance
15 where such insurance is obtained in accordance with this
16 act.
17 (iv) Appraisal or search, where utilized.
18 (v) Individual ledger card or any other form of
19 record which shows all installment payments made by the
20 borrower and all other charges or credits to the
21 borrower's account.
22 (vi) Individual file in which the borrower's
23 application for a loan and any correspondence, including
24 collection letters, memorandums, notes or any other
25 written information pertaining to the borrower's account,
26 shall be kept.
27 (vii) A general ledger containing all asset,
28 liability and capital accounts, or a trial balance of the
29 same accounts, which shall be maintained on a 60-day
30 currented basis. In addition thereto, a disbursements
20070S0488B1614 - 26 -
1 register, checkbook and related records as required by 2 the secretary shall be maintained on a current workday 3 basis. 4 (viii) A loan closing statement indicating the date, 5 amount and recipient of all loan proceeds, signed by the 6 borrowers to evidence approval of distribution of loan 7 proceeds and to acknowledge receipt of a copy of the loan 8 closing statement. 9 (ix) Such information as the department may require. 10 [(3) Annually, before May 1, file a report with the <-- 11 [secretary] department which shall set forth such information <-- 12 as the secretary shall require concerning the business 13 conducted as a licensee during the preceding calendar year. 14 The report shall be in writing, under oath and on a form 15 provided by the [secretary.] department. Licensees failing to <-- 16 file the required report by May 1 shall be subject to a 17 penalty of $100 for each day after May 1 until the report is 18 filed. 19 (3) ANNUALLY, ON A DATE DETERMINED BY THE DEPARTMENT, <-- 20 FILE WITH THE DEPARTMENT A REPORT WHICH SHALL SET FORTH THE 21 INFORMATION AS THE DEPARTMENT SHALL REQUIRE CONCERNING THE 22 BUSINESS CONDUCTED AS A LICENSEE DURING THE PRECEDING 23 CALENDAR YEAR. THE REPORT SHALL BE ON A FORM PROVIDED BY THE 24 DEPARTMENT. LICENSEES FAILING TO FILE THE REQUIRED REPORT AT 25 THE DATE REQUIRED BY THE DEPARTMENT MAY BE SUBJECT TO A 26 PENALTY OF $100 FOR EACH DAY AFTER THE DUE DATE THE REPORT IS 27 NOT FILED. 28 (4) Be subject to an examination by the [secretary] 29 department at [least once every two calendar years] the 30 discretion of the department, at which time the [secretary] 20070S0488B1614 - 27 -
1 department shall have free access, during regular business 2 hours, to the licensee's place or places of business in this 3 Commonwealth and to all instruments, documents, accounts, 4 books and records which pertain to the licensee's secondary 5 mortgage loan business. However, the [secretary] department 6 may examine the licensee at any time if the [secretary] 7 department deems such action necessary or desirable. The cost 8 of any such examination shall be borne by the licensee. 9 (5) Give to the borrower a copy of the promissory note 10 evidencing the loan and any second mortgage instrument or 11 other document evidencing the loan signed by the borrower. 12 (6) Give to the borrower written evidence of credit 13 life, credit and accident and health, credit unemployment and 14 property insurance, if any. 15 (7) When a payment is made in cash on account of a 16 secondary mortgage loan, give to the borrower at the time 17 such payment is actually received, a written receipt which 18 shall show the account number or other identification mark or 19 symbol, date, amount paid and upon request of the borrower 20 the unpaid balance of the account prior to and after the cash 21 payment. 22 (8) Upon written request from the borrower, give or 23 forward to the borrower within ten days from the date of 24 receipt of such request, a written statement of the 25 borrower's account which shall show the dates and amounts of 26 all installment payments credited to the borrower's account, 27 the dates, amounts and an explanation of all other charges or 28 credits to the account and the unpaid balance thereof. A 29 licensee shall not be required to furnish more than two such 30 statements in any 12-month period. 20070S0488B1614 - 28 -
1 (9) Include in all advertisements language indicating 2 the licensee is licensed by the department. 3 (10) In regard to mortgage originators: 4 (i) Maintain supervision and control of, and 5 responsibility for, the acts and omissions of all 6 mortgage originators employed by the licensee. 7 (ii) Maintain a list of all current and former 8 mortgage originators employed by the licensee and the 9 dates of such employment. 10 (iii) In the event that a licensee has evidence that 11 a mortgage originator employed by the licensee has 12 engaged in any activity that is illegal or in violation 13 of this act or any regulation or statement of policy 14 promulgated pursuant to this act, the licensee shall 15 provide the department with written notification of such 16 evidence and the licensee's proposed corrective measures 17 within 30 days. A licensee shall not be liable to a 18 mortgage originator in connection with such notification. 19 (b) A secondary mortgage loan broker licensee shall: 20 (1) Conspicuously display [its license] at each licensed 21 place of business[.] its license and copies of licenses of 22 all mortgage originators assigned to that location. In the 23 case of a mortgage originator, the license shall be 24 maintained in the immediate possession of the licensee 25 whenever the licensee is engaged in the mortgage loan 26 business. 27 [(2) Annually, before May 1, file with the [secretary] <-- 28 department a report which shall set forth such information as 29 the [secretary] department shall require concerning the <-- 30 business conducted as a licensee during the preceding 20070S0488B1614 - 29 -
1 calendar year. The report shall be in writing, under oath and 2 on a form provided by the secretary.] Licensees failing to <-- 3 file the required report by May 1 shall be subject to a 4 penalty of $100 for each day after May 1 until the report is 5 filed. 6 (2) ANNUALLY, ON A DATE DETERMINED BY THE DEPARTMENT, <-- 7 FILE WITH THE DEPARTMENT A REPORT WHICH SHALL SET FORTH THE 8 INFORMATION AS THE DEPARTMENT SHALL REQUIRE CONCERNING THE 9 BUSINESS CONDUCTED AS A LICENSEE DURING THE PRECEDING 10 CALENDAR YEAR. THE REPORT SHALL BE ON A FORM PROVIDED BY THE 11 DEPARTMENT. LICENSEES FAILING TO FILE THE REQUIRED REPORT AT 12 THE DATE REQUIRED BY THE DEPARTMENT MAY BE SUBJECT TO A 13 PENALTY OF $100 FOR EACH DAY AFTER THE DUE DATE THE REPORT IS 14 NOT FILED. 15 (3) Be subject to an examination by the [secretary] 16 department at [least once every two calendar years] the 17 discretion of the department, at which time the [secretary] 18 department shall have free access, during regular business 19 hours, to the licensee's place or places of business in this 20 Commonwealth and to all instruments, documents, accounts, 21 books and records which pertain to the licensee's secondary 22 mortgage loan broker business. The [secretary] department may 23 examine the licensee's place of business at any time if the 24 [secretary] department deems such action necessary or 25 desirable. The cost of any examination shall be borne by the 26 licensee. 27 (c) The licensee's accounting records must be constructed 28 and maintained in compliance with generally accepted accounting 29 principles and all of the aforementioned instruments, documents, 30 accounts, books and records shall be kept separate and apart 20070S0488B1614 - 30 -
1 from the records of any other business conducted by the licensee 2 and shall be preserved and kept available for investigation or 3 examination by the [secretary] department for at least two years 4 after a secondary mortgage loan has been paid in full, but in 5 the case of an open-end loan the two-year period is measured 6 from the date of each entry. The provisions of this section 7 shall not apply to any instrument, document, account, book or 8 record which is assigned, sold or transferred to another 9 secondary mortgage loan licensee nor shall the two-year 10 requirement apply to an instrument or document which must be 11 returned to the borrower at the time a secondary mortgage loan 12 is paid in full. 13 (d) If copies of instruments, documents, accounts, books or 14 records are maintained under subsection (a)(2) or (b)(3), they 15 may be photostatic, microfilm, optically imaged, magnetic or 16 electronic copies or copies provided in some other manner 17 approved by the [secretary] department. 18 Section 9. Section 11 of the act, amended July 7, 1989 19 (P.L.222, No.36) and June 26, 1995 (P.L.73, No.15), is amended 20 to read: 21 Section 11. Licensee limitations. 22 (a) A [secondary mortgage loan licensee and a secondary 23 mortgage loan broker] licensee shall not: 24 (1) Transact any business subject to the provisions of 25 this act under any other name except that designated in its 26 license or registered or otherwise qualified as a fictitious 27 business name. A mortgage originator may not use any name 28 other than the mortgage originator's personal legal name. A 29 licensee[, other than a broker's agent,] who changes its name 30 or place of business shall [immediately] notify the 20070S0488B1614 - 31 -
1 [secretary who] department within ten days of the change 2 which shall issue a certificate, if appropriate, to the 3 licensee, which shall specify the licensee's new name or 4 address. [A broker's agent who changes its name or place of 5 business shall notify the secretary in writing at least 15 6 days prior to making such change in name or place of 7 business.] 8 (2) [Charge] In the case of a secondary mortgage lender 9 or secondary mortgage loan broker, charge, contract for, 10 collect or receive charges, fees, premiums, commissions or 11 other considerations in excess of those authorized by the 12 provisions of this act. 13 (3) Unless the secondary mortgage lender licensee shall 14 retain responsibility for servicing the loan, assign, sell or 15 transfer a secondary mortgage loan to any person except a 16 secondary mortgage lender licensee or a person excepted from 17 the licensing provisions of this act in accordance with 18 section 3 hereof without written permission of the 19 [secretary] department. 20 (4) Advertise, cause to be advertised or otherwise 21 solicit whether orally, in writing, by telecast, by broadcast 22 or in any other manner[: 23 (i) That it is licensed by, or that its business is 24 under the supervision of, the Commonwealth of 25 Pennsylvania or the Department of Banking except that a 26 licensee may advertise that it is "licensed pursuant to 27 the Secondary Mortgage Loan Act," provided, however, that 28 for the purpose of raising capital, no such advertisement 29 shall be permitted if it is to be used in connection with 30 a public solicitation for such funds except as otherwise 20070S0488B1614 - 32 -
1 required by the act of December 5, 1972 (P.L.1280, 2 No.284), known as the "Pennsylvania Securities Act of 3 1972," or regulations promulgated under said acts, to be 4 disclosed in any prospectus. 5 (ii) Any] any statement or representation which is 6 false, misleading or deceptive. 7 (5) Conduct any business other than any business 8 regulated by the [secretary] department in any place of 9 business licensed pursuant to this act [if the secretary 10 determines such other business to be inappropriate] without 11 at least 90 days' prior written notification to the 12 department. 13 (6) Require a borrower to pay, to the licensee or any 14 other person, a broker's fee, finder's fee, commission, 15 premium or any other charges for obtaining, procuring or 16 placing of a secondary mortgage loan, except as provided in 17 this act. This restriction shall not prohibit a secondary 18 mortgage [loan] lender licensee from paying a fee to a 19 secondary mortgage loan broker in connection with the 20 placement or procurement of a secondary mortgage loan, nor 21 prohibit a borrower from requesting or directing a licensee 22 to pay such a fee from the proceeds of a loan or include it 23 in the amount to be financed. 24 (7) In the case of a mortgage originator: 25 (i) Accept any fees from consumers in the mortgage 26 originator's own name. A mortgage originator may accept 27 fees payable to the mortgage originator's employer 28 licensee and fees payable to third-party entities on 29 behalf of the mortgage originator's employer licensee. A 30 mortgage originator may not accept advance fees payable 20070S0488B1614 - 33 -
1 to the mortgage originator's employer licensee unless 2 such licensee is authorized to collect advance fees under 3 this act. 4 (ii) Fail to include in all advertising the name of 5 the mortgage originator's employer. 6 (b) Nothing contained in this act shall prohibit any 7 licensee from closing any loans made under the provisions of 8 this act in the offices of attorneys-at-law licensed by and 9 located in this Commonwealth or of title insurance companies or 10 agencies licensed by and located in this Commonwealth. 11 Section 10. Sections 12 and 15 of the act, amended June 26, 12 1995 (P.L.73, No.15), are amended to read: 13 Section 12. Prepayment. 14 (a) A secondary mortgage lender licensee shall permit a 15 borrower to pay partially or wholly any contract or any 16 installment on a contract, without penalty, prior to the due 17 date. 18 (b) When a secondary mortgage loan is paid in full the 19 secondary mortgage lender licensee shall: 20 (1) Cancel any insurance provided by the licensee in 21 connection with the loan and refund to the borrower, in 22 accordance with regulations promulgated by the Pennsylvania 23 Insurance Department, any unearned portion of the premium for 24 such insurance. 25 (2) Stamp or write on the face of the loan agreement or 26 promissory note evidencing the borrower's secondary mortgage 27 loan indebtedness "Paid in Full" or "Cancelled", the date 28 paid and, within 60 days, return the loan agreement or 29 promissory note to the borrower. 30 (3) Release any lien on real property and cancel the 20070S0488B1614 - 34 -
1 same of record and, at the time the loan agreement or 2 promissory note evidencing the borrower's secondary mortgage 3 loan indebtedness is returned, deliver to the borrower such 4 good and sufficient assignments, releases or any other 5 certificate, instrument or document as may be necessary to 6 vest the borrower with complete evidence of title, insofar as 7 the applicable secondary mortgage loan is concerned, to the 8 real property. 9 Section 15. Open-end loans. 10 (a) A secondary mortgage lender licensee may make open-end 11 loans and may contract for and receive thereon interest and 12 charges set forth in section 9. 13 (b) A secondary mortgage lender licensee shall not compound 14 interest by adding any unpaid interest authorized by this 15 section to the unpaid principal balance of the borrower's 16 account: Provided, however, That the unpaid principal balance 17 may include the additional charges authorized by section 9. 18 (c) Interest authorized by this section shall be deemed not 19 to exceed the maximum interest permitted by this act if such 20 interest is computed in each billing cycle by any of the 21 following methods: 22 (1) by converting the monthly rate to a daily rate and 23 multiplying such daily rate by the applicable portion of the 24 daily unpaid principal balance of the account, in which case 25 the daily rate shall be 1/30 of the monthly rate; 26 (2) by multiplying the monthly rate by the applicable 27 portion of the average monthly unpaid principal balance of 28 the account in the billing cycle, in which case the average 29 daily unpaid principal balance is the sum of the amount 30 unpaid each day during the cycle divided by the number of 20070S0488B1614 - 35 -
1 days in the cycle; or 2 (3) by converting the monthly rate to a daily rate and 3 multiplying such daily rate by the average daily unpaid 4 principal balance of the account in the billing cycle, in 5 which case the daily rate shall be 1/30 of the monthly rate. 6 (d) For all of the above methods of computation, the billing 7 cycle shall be monthly and the unpaid principal balance on any 8 day shall be determined by adding to any balance unpaid as of 9 the beginning of that day all advances and other permissible 10 amounts charged to the borrower and deducting all payments and 11 other credits made or received that day. 12 (e) The borrower may at any time pay all or any part of the 13 unpaid balance in his account without prepayment penalty; or, if 14 the account is not in default, the borrower may pay the unpaid 15 principal balance in monthly installments. Minimum monthly 16 payment requirements shall be determined by the secondary 17 mortgage lender licensee and set forth in the secondary mortgage 18 open-end loan agreement. 19 (f) A secondary mortgage lender licensee may contract for 20 and receive the fees, costs and expenses permitted by this act 21 on other secondary mortgage loans, subject to all the conditions 22 and restrictions set forth, with the following variations: 23 (1) If credit life or disability insurance is provided 24 and if the insured dies or becomes disabled when there is an 25 outstanding open-end loan indebtedness, the insurance shall 26 be sufficient to pay the total balance of the loan due on the 27 date of the borrower's death in the case of credit life 28 insurance, or all minimum payments which become due on the 29 loan during the covered period of disability in the case of 30 credit disability insurance. The additional charge for credit 20070S0488B1614 - 36 -
1 life insurance or credit disability insurance shall be
2 calculated in each billing cycle by applying the current
3 monthly premium rate for such insurance, as such rate may be
4 determined by the Insurance Commissioner, to the unpaid
5 balances in the borrower's account, using any of the methods
6 specified in subsection (c) for the calculation of loan
7 charges.
8 (2) No credit life or disability insurance written in
9 connection with a secondary mortgage open-end loan shall be
10 cancelled by the licensee because of delinquency of the
11 borrower in the making of the required minimum payments on
12 the loan unless one or more of such payments is past due for
13 a period of 90 days or more; and the licensee shall advance
14 to the insurer the amounts required to keep the insurance in
15 force during such period, which amounts may be debited to the
16 borrower's account.
17 (3) The amount, terms and conditions of any insurance
18 against loss or damage to property must be reasonable in
19 relation to character and value of the property insured and
20 the maximum anticipated amount of credit to be extended.
21 (g) Notwithstanding any other provisions in this act to the
22 contrary, a secondary mortgage lender licensee may retain any
23 security interest in real or personal property until the open-
24 end account is terminated, provided that if there is no
25 outstanding balance in the account and there is no commitment by
26 the licensee to make advances, the licensee shall within ten
27 days following written demand by the borrower deliver to the
28 borrower a release of the mortgage or a request for reconveyance
29 of the deed of trust on any real property taken as security for
30 a loan and a release of any security interest in personal
20070S0488B1614 - 37 -
1 property. The licensee shall include on all billing statements 2 provided in connection with an open-end credit loan a statement 3 that the licensee retains a security interest in the borrower's 4 real property whenever such security interest has not been 5 released. 6 (h) Paragraphs (7) and (8) of subsection (a) of section 10, 7 sections 12 and 13 shall not apply to open-end loans. 8 (i) A secondary mortgage lender licensee may charge, 9 contract for, receive or collect on any revolving loan account 10 an annual fee not to exceed $50 per year. 11 Section 11. Section 16 of the act, amended July 7, 1989 12 (P.L.222, No.36), is amended to read: 13 Section 16. Authority of [Secretary of Banking] department. 14 [The secretary shall have authority to: 15 (1) Issue rules and regulations governing the 16 capitalization, public funding and the records to be 17 maintained by licensees, and such general rules and 18 regulations and orders as may be necessary for insuring the 19 proper conduct of the business and for the enforcement of 20 this act. 21 (2) Examine any instrument, document, account, book, 22 record or file for a licensee or any other person, or make 23 such other investigations as he shall deem necessary to 24 administer the provisions of this act. 25 (3) Conduct administrative hearings on any matter 26 pertaining to this act, issue subpoenas to compel the 27 attendance of witnesses and the production of instruments, 28 documents, accounts, books and records at any such hearing, 29 which may be retained by the secretary until the completion 30 of all proceedings in connection with which they were 20070S0488B1614 - 38 -
1 produced, and administer oaths and affirmations to any person 2 whose testimony is required. In the event a person fails to 3 comply with a subpoena issued by the secretary or to testify 4 on any matter concerning which he may be lawfully 5 interrogated, on application by the secretary, the 6 Commonwealth Court may issue an order requiring the 7 attendance of such person, the production of instruments, 8 documents, accounts, books or records or the giving of 9 testimony.] 10 (a) The department shall have the authority to: 11 (1) Examine any instrument, document, account, book, 12 record or file of a licensee or any person having a 13 connection to the licensee or make such other investigation 14 as may be necessary to administer the provisions of this act. 15 Pursuant to this authority, the department may remove any 16 instrument, document, account, book, record or file of a 17 licensee to a location outside of the licensee's office 18 location. The costs of the examination shall be borne by the 19 licensee or the entity subject to the examination. 20 (2) Conduct administrative hearings on any matter 21 pertaining to this act, issue subpoenas to compel the 22 attendance of witnesses and the production of instruments, 23 documents, accounts, books and records at any such hearing. 24 The instruments, documents, accounts, books and records may 25 be retained by the department until the completion of all 26 proceedings in connection with which the materials were 27 produced. The department may administer oaths and 28 affirmations to persons whose testimony is required. In the 29 event a person fails to comply with a subpoena issued by the 30 department or to testify on a matter concerning which he may 20070S0488B1614 - 39 -
1 be lawfully interrogated, on application by the department, 2 the Commonwealth Court may issue an order requiring the 3 attendance of the person, the production of instruments, 4 documents, accounts, books and records and the giving of 5 testimony. 6 (3) Request and receive information or records of any 7 kind, including reports of criminal history record 8 information from any Federal, State, local or foreign 9 government entity regarding an applicant for a license, 10 licensee or person related in any way to the business of the 11 applicant or licensee, at a cost to be paid by the applicant 12 or licensee. 13 (4) Require a licensee or nonlicensee to pay the 14 department's costs incurred while conducting an investigation 15 of the licensee or nonlicensee for purposes of issuance or 16 renewal of a license or for any violation of this act, 17 regardless of whether such costs are in excess of license 18 fees or renewal fees paid by a licensee. 19 (5) Issue regulations, statements of policy or orders as 20 may be necessary for the proper conduct of the secondary 21 mortgage loan business by licensees, the issuance and renewal 22 of licenses and the enforcement of this act. 23 (6) Prohibit or permanently remove an individual 24 responsible for a violation of this act from working in his 25 present capacity or in any other capacity related to 26 activities regulated by the department. 27 (7) Order a person to make restitution for actual 28 damages to consumers caused by any violation of this act. 29 (8) Issue cease and desist orders that are effective 30 immediately, subject to a hearing as specified in subsection 20070S0488B1614 - 40 -
1 (b) within 14 days of the issuance of the order. 2 (9) Impose such other conditions as the department deems 3 appropriate. 4 (b) A person aggrieved by a decision of the department may 5 appeal the decision of the department to the secretary. The 6 appeal shall be conducted under 2 Pa.C.S. Ch. 5 Subch. A 7 (relating to practice and procedure of Commonwealth agencies). 8 (c) The department may maintain an action for an injunction 9 or other process against a person to restrain and prevent the 10 person from engaging in an activity violating this act. 11 (d) A decision of the secretary shall be a final order of 12 the department and shall be enforceable in a court of competent 13 jurisdiction. The department may publish final adjudications 14 issued under this section, subject to redaction or modification 15 to preserve confidentiality. 16 (e) A person aggrieved by a decision of the secretary may 17 appeal the decision under 2 Pa.C.S. Ch. 7 Subch. A (relating to 18 judicial review of Commonwealth agency action). 19 (f) An order issued against a licensee is applicable to the 20 mortgage originators employed by the licensee. 21 Section 12. Sections 18 and 19 of the act are amended to 22 read: 23 Section 18. Surrender of license. 24 Upon satisfying the [secretary] department that all creditors 25 have been paid or that other arrangements satisfactory to the 26 creditors and the [secretary] department have been made, a 27 licensee may surrender its license to the [secretary] department 28 by delivering its license to the [secretary] department with 29 written notice that the license is being voluntarily surrendered 30 but such an action by a licensee shall not affect the licensee's 20070S0488B1614 - 41 -
1 civil or criminal liability for acts committed prior to the date 2 on which the license was surrendered. 3 Section 19. Suspension; revocation or refusal. 4 [(a) The secretary may suspend, revoke or refuse to renew 5 any license issued pursuant to this act after giving 30 days 6 written notice forwarded to the licensee's principal place of 7 business, by registered or certified mail, return receipt, 8 stating the contemplated action and the reason therefor, if he 9 shall find, after the licensee has had an opportunity to be 10 heard, that the licensee has: 11 (1) Made any material misstatement in his application. 12 (2) Failed to comply with or violated any provision of 13 this act or any rule, regulation or order promulgated by the 14 secretary pursuant thereto. 15 The hearing and notice provisions of this section shall not 16 apply if the licensee's corporate charter is voided in 17 accordance with the provisions of any law of this or any other 18 state, in which event the secretary may suspend or revoke the 19 license forthwith. 20 (b) The secretary may subsequently reinstate a license which 21 has been suspended or revoked or renew a license which he had 22 previously refused to renew if the condition which warranted the 23 original action has been corrected, and he has reason to believe 24 that such condition is not likely to occur again and that the 25 licensee is worthy of such reinstatements.] 26 (a) The department may suspend, revoke or refuse to renew 27 any license issued pursuant to this act, if any fact or 28 condition exists or is discovered which, if it had existed or 29 had been discovered at the time of filing of the application for 30 such license, would have warranted the department in refusing to 20070S0488B1614 - 42 -
1 issue such license or if a licensee or director, officer, 2 partner, employee or owner of a licensee has: 3 (1) Made any false or material misstatement in an 4 application or any report or submission required by this act 5 or any department regulation, statement of policy or order. 6 (2) Failed to comply with or violated any provision of 7 this act or any regulation, statement of policy or order 8 promulgated or issued by the department pursuant to this act. 9 (3) If licensed under section 4(b.1), accepted an 10 advance fee without establishing or maintaining the capital 11 required by section 4(b.1). 12 (4) Become insolvent; the liabilities of the applicant 13 or licensee exceed the assets of the applicant or licensee or 14 that the applicant or licensee cannot meet the obligations of 15 the applicant or licensee as they mature or is in such 16 financial condition that the applicant or licensee cannot 17 continue in business with safety to the customers of the 18 applicant or licensee. 19 (5) Engaged in dishonest, fraudulent or illegal 20 practices or conduct in any business or unfair or unethical 21 practices or conduct in connection with the secondary 22 mortgage loan business. 23 (6) Been convicted of or pleaded guilty or nolo 24 contendere to a crime of moral turpitude or felony. 25 (7) Permanently or temporarily been enjoined by a court 26 of competent jurisdiction from engaging in or continuing any 27 conduct or practice involving any aspect of the secondary 28 mortgage loan business. 29 (8) Become the subject of an order of the department 30 denying, suspending or revoking a license under the 20070S0488B1614 - 43 -
1 provisions of this act. 2 (9) Become the subject of a United States Postal Service 3 fraud order. 4 (10) Failed to comply with the requirements of this act 5 to make and keep records prescribed by regulation, statement 6 of policy or order of the department, to produce such records 7 required by the department or to file any financial reports 8 or other information the department by regulation, statement 9 of policy or order may require. 10 (11) Become the subject of an order of the department 11 denying, suspending or revoking a license under the 12 provisions of any other law administered by the department. 13 (12) Demonstrated negligence or incompetence in 14 performing any act for which the licensee is required to hold 15 a license under this act. 16 (13) Failed to complete the qualifying or continuing 17 education as required by section 4(f). 18 (14) In the case of a secondary mortgage lender or 19 secondary mortgage loan broker, conducted the secondary 20 mortgage loan business through an unlicensed mortgage 21 originator. 22 (15) Failed to comply with the terms of any agreement 23 under which the department authorizes a licensee to maintain 24 records at a place other than the licensee's principal place 25 of business. 26 (b) The department may subsequently reinstate a license 27 which has been suspended or revoked or renew a license which had 28 previously been refused for renewal if the condition which 29 warranted the original action has been corrected and the 30 department has reason to believe that such condition is not 20070S0488B1614 - 44 -
1 likely to occur again and the licensee satisfies the 2 requirements of this act. 3 Section 13. Section 20 of the act, amended July 2, 1992 4 (P.L.387, No.82) and June 26, 1995 (P.L.73, No.15), is amended 5 to read: 6 Section 20. Scope of act. 7 (a) The provisions of this act shall apply to any secondary 8 mortgage loan [(except loans secured by real property made 9 pursuant to a license issued under any other law of this 10 Commonwealth)] which: 11 (1) is negotiated, offered, or otherwise transacted 12 within this Commonwealth, in whole or in part, whether by the 13 ultimate lender or any other person; 14 (2) is made or executed within this Commonwealth; or 15 (3) notwithstanding the place of execution, is secured 16 by real property located in this Commonwealth. 17 (a.1) The provisions of this act shall apply to any person 18 who engages in the secondary mortgage loan business in this 19 Commonwealth. 20 (b) Notwithstanding subsection (a), the secretary may 21 license a branch office in another state provided that the 22 licensee maintains a place of business in this Commonwealth 23 which is licensed under the provisions of this act. 24 [(c) Nothing contained in this act shall prohibit any 25 licensee from closing any loans made under the provisions of 26 this act in the offices of attorneys-at-law licensed by and 27 located in this Commonwealth or of title insurance companies or 28 agencies licensed by and located in this Commonwealth. 29 (d) If a secondary mortgage loan is made in good faith in 30 conformity with an interpretation of this act by the appellate 20070S0488B1614 - 45 -
1 courts of the Commonwealth or in compliance with a rule, 2 regulation, order, interpretation or other issuance promulgated 3 by the secretary, no provisions of this act imposing any penalty 4 shall apply, notwithstanding that, after such contract is made, 5 such interpretation, rule or regulation is amended, rescinded or 6 determined by judicial or other authority to be invalid for any 7 reason.] 8 Section 14. Section 21 of the act is amended to read: 9 Section 21. Foreclosure, default, confession of judgment. 10 With regard to foreclosure, default, right to cure a default 11 and confession of judgment, nothing contained in this act shall 12 be deemed to supersede section 403, 404 or 407 of the act of 13 January 30, 1974 (P.L.13, No.6), referred to as the Loan 14 Interest and Protection Law, which shall apply to all loans made 15 pursuant to this act. The lien granted or provided in connection 16 with a secondary mortgage loan shall not be deemed to constitute 17 a sale of the property with regard to any prior existing lien, 18 for the purpose of permitting foreclosure of or execution on 19 such prior lien. 20 Section 15. Section 22 of the act, amended June 26, 1995 21 (P.L.73, No.15), is amended to read: 22 Section 22. Penalties. 23 [(a) Any person who is not licensed by the secretary or 24 exempted from the licensing requirements in accordance with the 25 provisions of this act and who shall engage in the business of 26 negotiating or making secondary mortgage loans and charge, 27 collect, contract for or receive interest, fees, premiums, 28 charges or other considerations which aggregate in excess of the 29 interest that the lender would otherwise be permitted by law to 30 charge if not licensed under this act on the amount actually 20070S0488B1614 - 46 -
1 loaned or advanced, or on the unpaid principal balances when the 2 contract is payable by stated installments, shall be guilty of a 3 misdemeanor, and upon conviction thereof, shall be sentenced to 4 pay a fine of not less than $500 or more than $5,000, and/or 5 undergo imprisonment not less than six months nor more than 6 three years, in the discretion of the court. This subsection 7 shall not apply to real property secured loans made by a 8 licensee under the act of April 8, 1937 (P.L.262, No.66), known 9 as the "Consumer Discount Company Act." 10 (b) Except as the result of unintentional error, a 11 corporation licensed under the provisions of this act or any 12 director, officer, employee or agent who shall violate any 13 provision of this act or shall direct or consent to such 14 violations, shall be subject to a fine of $2,000 for the first 15 offense, and for each subsequent offense a like fine and/or 16 suspension of license. A licensee shall have no liability for 17 unintentional error if within 15 days after discovering an error 18 the licensee notifies the person concerned of the error and 19 makes adjustments in the account as necessary to assure that the 20 person will not be required to pay any interest, fees, premiums, 21 charges or other considerations which aggregate in excess of the 22 charges permitted under this act. 23 (b.1) A sponsoring broker or broker's agent who violates any 24 provision of this act shall be subject to a fine to be levied by 25 the Department of Banking of up to $2,000 for each offense. 26 (c) If a contract is made in good faith in conformity with 27 an interpretation of this act by the appellate courts of the 28 Commonwealth or in compliance with a rule or regulation 29 officially promulgated by the secretary no provision of this 30 section imposing any penalty shall apply, notwithstanding that 20070S0488B1614 - 47 -
1 after such contract is made, such interpretation, rule or 2 regulation is amended, rescinded, or determined by judicial or 3 other authority to be invalid for any reason. 4 (d) The lien granted or provided in connection with a 5 secondary mortgage loan shall not be deemed to constitute a sale 6 of the property with regard to any prior existing lien, for the 7 purpose of permitting foreclosure of or execution on such prior 8 lien.] 9 (a) Any person who is not licensed by the department or is 10 not exempted from the licensing requirements in accordance with 11 the provisions of this act and who engages in the secondary 12 mortgage loan business commits a felony of the third degree. 13 (b) Any person who is subject to the provisions of this act, 14 even though not licensed hereunder, or any person who is not 15 licensed by the department or is not exempt from the licensing 16 requirements, who violates any of the provisions to which it is 17 subject shall be subject to a fine levied by the department or 18 commission of up to $10,000 for each offense. 19 (c) Any person licensed under this act or any director, 20 officer, employee or agent of a licensee who violates this act 21 or directs or consents to such violations shall be subject to a 22 fine levied by the department of up to $10,000 for each offense. 23 Section 16. Sections 23 and 24 of the act are repealed: 24 [Section 23. Preservation of existing powers. 25 Nothing in this act shall be construed as restricting the 26 powers otherwise conferred by law upon financial institutions, 27 such as State and national banks, State and Federal savings and 28 loan associations, savings banks and insurance companies, to 29 engage in the secondary mortgage business as defined in section 30 2, and no such financial institution, in exercising any power 20070S0488B1614 - 48 -
1 otherwise so conferred upon it, shall be subject to any 2 provision of this act. A State-chartered or national bank, bank 3 and trust company, savings bank or savings and loan association 4 located in this State shall have all the powers of a licensee 5 under this act but shall not be subject to the license 6 requirement or any other provision of this act relating to the 7 requirements imposed on licensees. 8 Section 24. Exclusions from act. 9 No provisions of this act shall apply to Federally-chartered 10 or State-chartered credit unions.] 11 Section 17. This act shall take effect in 90 days. B2L07MSP/20070S0488B1614 - 49 -