July 17, 2008
To All Interested Parties:
The Division of Banks (the "Division") has been asked by several interested parties about the ramifications of certain provisions of Chapter 206 of the Acts of 2007, An Act Protecting And Preserving Home Ownership ("Chapter 206"), on government-sponsored residential mortgage loan programs. In summary, the issues center on the licensing requirements for entities and their staff who make or arrange residential mortgage loans funded with public monies under contract with federal, state or municipal governments. Provisions of said Chapter 206 implicate the licensing requirements under Chapter 255E of the General Laws ("Chapter 255E") for such transactions for entities acting as a mortgage lender or a mortgage broker. The licensing requirements for loan originators under Chapter 255F of the General Laws ("Chapter 255F") are also implicated for staff persons of such entities. The issuance of a license under Chapter 255E and Chapter 255F is within the direct and sole jurisdiction of the Division.
The two provisions of Chapter 206 at issue are SECTION 12 and SECTION 15. SECTION 12 amended Chapter 255E, governing the licensing, examination and supervision of mortgage lenders and mortgage brokers in the Commonwealth. SECTION 15 of Chapter 206 established a new chapter of the General Laws, Chapter 255F, governing the licensing, examination and supervision of individuals who act as mortgage loan originators in the Commonwealth. Chapter 255F became effective on July 1, 2008. Both SECTIONS raised the issue of the elimination or lack of exemption for all nonprofit entities ("nonprofits") and their staff from licensure under the respective cited provisions of those statutes. This Opinion addresses these issues and sets out the definitive position for licensure by the Division.
Section 2 of Chapter 255E contains various exemptions from the licensing requirements for mortgage lenders and mortgage brokers. Two of these exemptions are the focus of this Opinion, given the issues raised to the Division. The first is the exemption related to government entities. In setting forth this exemption, said section 2 provides that "the provisions of this chapter shall not apply"to any instrumentality created by the United States or any state"" This exemption was not amended by Chapter 206 and remains in said section 2.
The second exemption previously set forth in said section 2, at issue, is related to certain nonprofit entities. Prior to its deletion by SECTION 12 of Chapter 206, the following exemption was contained in said section 2, "any nonprofit agency or corporation incorporated under the laws of the commonwealth for the purpose of assisting low to moderate income households in the purchase or rehabilitation of family residences of four units or less and which holds tax-exempt status granted under the provisions of Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code..."
The Division is aware that government entities dedicate public monies for residential housing programs to assist our citizens and the communities in which they live. The public purposes of these government programs are well-established. Examples of such programs include funds for lead paint abatement, septic system improvements, modifications for access to homes for people with disabilities, down payment assistance for first-time homebuyers and home improvements for low and moderate income households as well as other programs for the general protection of public health and safety. It is the continued operation of these programs that the Division has been asked to assess relative to the licensing requirements now established in the General Laws under Chapter 255E and Chapter 255F.
The Division fully acknowledges, respects and supports the statutory amendment that eliminated the broad exemption for nonprofit agencies and corporations set out in SECTION 12 of Chapter 206. It must, however, equally give weight to the continuing exemption in section 2 of Chapter 255E regarding government entities. The Division understands that government entities, at all levels, implement an array of public purpose programs relative to mortgage loans for residential properties. The Division is also aware that government entities contract with various organizations, including nonprofits, to arrange, place or make residential mortgage loans with these public funds, consistent with the government's eligibility standards for the particular loan program. The Division has considered the broad implications of the continuing exemption for government agencies in said section 2 for the issue currently presented to it.
For all of the above reasons, it is the position of the Division that the provisions of said chapter 255E shall not apply to a nonprofit agency or corporation incorporated under the laws of the Commonwealth which has a tax exempt status granted under the provisions of Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code, which exclusively makes or issues commitments for mortgage loans on residential property to be financed with public funds, or negotiates, places, assists in placement of, finds, or offers to negotiate, place, assist in placement of, or find mortgage loans on residential property to be financed with public funds only under a contract with a federal, state, or municipal government, any instrumentality thereof or any quasi-government entity as determined by the Commissioner. The making of a mortgage loan includes being named as the lender or mortgagee on the note, mortgage or other loan documents. The exemption provided herein applies to a nonprofit entity whose residential mortgage making or brokering activities are solely limited to government programs and the use of public funds.
Consistent with the above, it is also the position of the Division that a natural person who is employed by such a nonprofit corporation, which is exempt from licensing under said section 2 of chapter 255E as set out in this Opinion, is not required to be licensed as a mortgage loan originator under chapter 255F by operation of law. Under section 2 of chapter 255F, a license is required for a natural person who works for any entity which is defined as a licensed mortgage lender or mortgage broker under said section 2 of chapter 255E. Accordingly, a staff person of a nonprofit which has been determined to be exempt from licensing under chapter 255E by this Opinion is not working for a licensed entity and therefore is not required to be licensed under the provisions of said Chapter 255F.
The conclusions reached in this letter are based solely on the facts presented. Fact patterns which vary from that presented may result in a different position statement by the Division.
Joseph A. Leonard, Jr.
Deputy Commissioner of Banks and General Counsel