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