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                                                        PRINTER'S NO. 92

THE GENERAL ASSEMBLY OF PENNSYLVANIA


SENATE BILL

No. 94 Session of 1997


        INTRODUCED BY HOLL, JANUARY 21, 1997

        REFERRED TO BANKING AND INSURANCE, JANUARY 21, 1997

                                     AN ACT

     1  Amending the act of December 22, 1989 (P.L.687, No.90), entitled
     2     "An act providing for the regulation and licensing of
     3     mortgage bankers and mortgage brokers; imposing additional
     4     powers and duties on the Department of Banking and the State
     5     Real Estate Commission; and providing penalties," further
     6     providing for definitions, for loan correspondents and
     7     wholesale table funders, for license applications,
     8     requirements, exemptions, duration, fees, limitations,
     9     suspensions or revocations and for enforcement and penalties.

    10     The General Assembly of the Commonwealth of Pennsylvania
    11  hereby enacts as follows:
    12     Section 1.  The definition of "advance fee" in section 2 of
    13  the act of December 22, 1989 (P.L.687, No.90), known as the
    14  Mortgage Bankers and Brokers Act, is amended and the section is
    15  amended by adding definitions to read:
    16  Section 2.  Definitions.
    17     The following words and phrases when used in this act shall
    18  have the meanings given to them in this section unless the
    19  context clearly indicates otherwise:
    20     "Advance fee."  Any funds requested by or to be paid [to a
    21  mortgage broker] in advance of or during the processing of a

     1  mortgage loan application, excluding those fees paid by an
     2  applicant borrower directly to a credit agency reporting bureau,
     3  title company or real estate appraiser.
     4     "Branch."  An office or other place of business located in
     5  this Commonwealth or any other state, other than the principal
     6  place of business, where a person engages in the first mortgage
     7  loan business which falls under the scope of this act.
     8     * * *
     9     "First mortgage loan business."  A person is deemed to be
    10  engaged in the first mortgage loan business in this Commonwealth
    11  if that person advertises, causes to be advertised, solicits,
    12  negotiates or arranges in the ordinary course of business,
    13  offers to make or makes more than two first mortgage loans in a
    14  calendar year in this Commonwealth, whether directly or by any
    15  person acting for his benefit.
    16     * * *
    17     "Loan correspondent."  A person who, in the regular course of
    18  business, directly or indirectly originates and closes loans in
    19  his own name, utilizing funds provided by a wholesale table
    20  funder and simultaneously assigns the loans to the wholesale
    21  table funder. A loan correspondent may close a mortgage loan
    22  utilizing other funding sources, but only in an emergency
    23  circumstance where wholesale table funding is not available.
    24     "Lock-in agreement."  An agreement between a mortgage banker
    25  or loan correspondent and borrower whereby the licensee
    26  guarantees until a specified date the availability of a
    27  specified rate of interest or specified formula by which the
    28  rate of interest and/or a specific number of discount points
    29  will be determined, provided the loan is approved and closed by
    30  the specified date. If a specified date is not determinable, the
    19970S0094B0092                  - 2 -

     1  licensee may fulfill the requirement of this provision by
     2  setting forth with specificity the method by which the duration
     3  of the lock-in period will be determined.
     4     * * *
     5     "Principal place of business."  The primary office of the
     6  licensee located in this Commonwealth which is staffed on a
     7  full-time basis and at which books, records, accounts and
     8  documents are to be maintained.
     9     "Secretary."  The Secretary of Banking of the Commonwealth,
    10  or his designee.
    11     "Service a mortgage loan."  The collection or remittance of
    12  payments for another of the right to collect or remit payments
    13  for another of principal, interest, taxes, insurance and any
    14  other payments pursuant to a mortgage loan.
    15     "Tangible net worth."  Net worth less the following assets:
    16         (1)  That portion of any assets pledged to secure
    17     obligations of any person or entity other than that of the
    18     applicant.
    19         (2)  Any asset, except construction loans receivables
    20     secured by first mortgages from related companies, due from
    21     officers or stockholders of the applicant or related
    22     companies in which the applicant's officers or stockholders
    23     have an interest.
    24         (3)  That portion of the value of any marketable
    25     security, listed or unlisted, not shown at lower of cost or
    26     market, except for any shares of Federal National Mortgage
    27     Association stock required to be held under a servicing
    28     agreement, which should be carried at cost.
    29         (4)  Any amount in excess of the lower of the cost or
    30     market value of mortgages in foreclosures, construction loans
    19970S0094B0092                  - 3 -

     1     or foreclosed property acquired by the applicant through
     2     foreclosure.
     3         (5)  Any investment shown on the balance sheet in the
     4     applicant's joint ventures, subsidiaries, affiliates or
     5     related companies which is greater than the value of the
     6     assets at equity.
     7         (6)  Goodwill.
     8         (7)  The value placed on insurance renewals or property
     9     management contract renewals or other similar intangibles of
    10     the applicant.
    11         (8)  Organization costs of the applicant.
    12         (9)  The value of any servicing contracts held by the
    13     applicant not determined in accordance with American
    14     Institute of Certified Public Accountants Statement of
    15     Position 76-2, dated August 25, 1976, or subsequent revision
    16     thereto.
    17         (10)  Any real estate held for investment where
    18     development will not start within two years from the date of
    19     its initial acquisition.
    20         (11)  Any leasehold improvements not being amortized over
    21     the lesser of the expected life of the asset or the remaining
    22     term of the lease.
    23         (12)  Any commitment fees paid or collected which are not
    24     recoverable through the closing or selling of loans.
    25     "Wholesale table funder."  A licensed mortgage banker or an
    26  entity exempt pursuant to section 3(b)(1), (10) or (12) who, in
    27  the regular course of business, provides the funding for the
    28  closing of mortgage loans through loan correspondents and who by
    29  assignment obtains title to such mortgage loans.
    30     Section 2.  Sections 3, 4, 5, 6, 7, 8(a), 9(a), 10(a), 11(d),
    19970S0094B0092                  - 4 -

     1  13(a), 14(a) and (b) and 18 of the act are amended to read:
     2  Section 3.  License requirements and exemptions.
     3     (a)  License required.--On and after the effective date of
     4  this act, no person shall act as a mortgage banker, loan
     5  correspondent or mortgage broker in this Commonwealth without a
     6  license as provided for in this act, provided, however, that any
     7  person licensed as a mortgage banker may also act as a loan
     8  correspondent or mortgage broker and any person licensed as a
     9  loan correspondent may also act as a mortgage broker without a
    10  separate license. A person licensed as a mortgage broker may
    11  only perform the services of a mortgage broker as defined in
    12  section 2.
    13     (b)  Exceptions.--The following persons shall not be required
    14  to be licensed under this act in order to conduct the activities
    15  of a mortgage banker or mortgage broker but shall be subject to
    16  those provisions of this act as specifically provided in this
    17  section:
    18         (1)  A State-chartered bank, bank and trust company,
    19     savings bank, private bank or national bank, a State or
    20     federally chartered savings and loan association, a federally
    21     chartered savings bank or a State or federally chartered
    22     credit union.
    23         (2)  An attorney authorized to practice law in this
    24     Commonwealth, who acts as a mortgage broker in negotiating or
    25     placing a mortgage loan in the normal course of legal
    26     practice.
    27         (3)  A person licensed pursuant to the provisions of the
    28     act of February 19, 1980 (P.L.15, No.9), known as the Real
    29     Estate Licensing and Registration Act, who is principally
    30     engaged in a third-party real estate brokerage business, but
    19970S0094B0092                  - 5 -

     1     only to the extent that he provides information, verbal or
     2     written, to or negotiates or places a mortgage loan for a
     3     buyer of real estate and is not compensated by the buyer or
     4     any other person for providing such information or
     5     negotiating or placing such mortgage loan. If he is
     6     compensated for providing such information or negotiating or
     7     placing such mortgage loan, he shall be subject to the
     8     provisions of sections 8, 10, 11 and 14(b), excluding section
     9     8(a)(1).
    10         (4)  A seller of a dwelling, if he has resided in the
    11     dwelling at least one year and as part of the purchase price
    12     receives a first mortgage executed by the purchaser.
    13         (5)  A person who either originates or negotiates less
    14     than [12] three mortgage loans in a calendar year in this
    15     Commonwealth, unless he is otherwise deemed to be engaged in
    16     the first mortgage loan business.
    17         (6)  Builders, when obtaining mortgages for their own
    18     construction or for the sale of their own construction.
    19         (7)  Any agency or instrumentality of the Federal
    20     Government or a corporation otherwise created by an act of
    21     the United States Congress, including, but not limited to,
    22     the Federal National Mortgage Association, the Government
    23     National Mortgage Association, the Veterans' Administration,
    24     the Federal Home Loan Mortgage Corporation and the Federal
    25     Housing Administration.
    26         (8)  The Pennsylvania Housing Finance Agency.
    27         (9)  A licensee under the act of April 8, l937 (P.L.262,
    28     No.66), known as the Consumer Discount Company Act, except
    29     that any such licensee who makes a mortgage loan other than
    30     under the provisions of that act shall be subject to the
    19970S0094B0092                  - 6 -

     1     provisions of sections 4(b)(2) and (3), 8, 10 and 14(b) of
     2     this act, excluding section 8(a)(1).
     3         (10)  Except for licensees described in paragraph (9),
     4     subsidiaries and affiliates of the following institutions:
     5     [Pennsylvania] State-chartered banks, bank and trust
     6     companies, savings banks, private banks, savings and loan
     7     associations and credit unions or national banks, federally
     8     chartered savings and loan associations, federally chartered
     9     savings banks and federally chartered credit unions, except
    10     that such subsidiaries and affiliates of institutions
    11     enumerated in this paragraph shall:
    12             (i)  be subject to the provisions of sections 8,
    13         9(a)(3), 10 and 14(b), excluding section 8(a)(1); [and]
    14             (ii)  deliver as required to the department annually
    15         copies of financial reports made to all supervisory
    16         agencies[.]; and
    17             (iii)  be registered with the department.
    18         (11)  Employees of a licensee or excepted persons acting
    19     for their employers.
    20         (12)  An insurance company, association or exchange
    21     authorized to transact business in this Commonwealth under
    22     the act of May 17, 1921 (P.L.682, No.284), known as The
    23     Insurance Company Law of 1921, and any subsidiaries and
    24     affiliates thereof, except that such subsidiaries and
    25     affiliates shall:
    26             (i)  be subject to the provisions of sections 8,
    27         9(a)(3), 10 and 14(b), excluding section 8(a)(1); [and]
    28             (ii)  deliver as required to the department annually
    29         copies of financial reports made to all supervisory
    30         agencies[.]; and
    19970S0094B0092                  - 7 -

     1             (iii) be registered with the department.
     2         (13)  Any person who makes a mortgage loan to an employee
     3     of that person as an employment benefit, given that person
     4     does not hold himself out to the public as a first mortgage
     5     lender.
     6         (14)  Nonprofit corporations making mortgage loans to
     7     promote home ownership or improvements for the disadvantaged,
     8     given that the corporation does not hold itself out to the
     9     public as a first mortgage lender.
    10     (c)  Loans for business or commercial purposes.--This act
    11  shall not apply to mortgage loans made for business or
    12  commercial purposes.
    13  Section 4.  Application for license.
    14     (a)  Contents.--An application for a license to act as a
    15  mortgage banker, loan correspondent or mortgage broker shall be
    16  on such forms as may be prescribed and provided by the
    17  department. Each application shall include the address or
    18  addresses where business is to be conducted, the full name,
    19  official title and business address of each director and
    20  principal officer of the business and any other information that
    21  may be required by the department. An applicant shall
    22  demonstrate to the department that policies and procedures have
    23  been developed to receive and process customer inquiries and
    24  grievances promptly and fairly.
    25     (b)  Mortgage banker's license.--The department shall issue a
    26  mortgage banker'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 approved by or meets the current criteria
    30     for approval of at least one of the following:
    19970S0094B0092                  - 8 -

     1             (i)  Federal National Mortgage Association.
     2             (ii)  Federal Home Loan Mortgage Corporation.
     3             (iii)  Federal Housing Administration.
     4         (2)  That he maintains or is approved for, and will
     5     continue to maintain as a licensee, a line of credit or
     6     equivalent mortgage-funding capability of not less than
     7     $1,000,000.
     8         (3)  That he has a minimum tangible net worth of $250,000
     9     at the time of application and will, at all times thereafter,
    10     maintain such minimum net worth, provided, however, that
    11     those applicants who were in business prior to [January 1,
    12     1987] June 20, 1990, may be licensed with a minimum tangible
    13     net worth of $100,000 if, in the opinion of the department,
    14     the applicant has established that it has an otherwise
    15     adequate financial structure and operating history.
    16         (4)  That he will maintain fidelity bond coverage in
    17     accordance with the guidelines established by the Federal
    18     National Mortgage Association or the Federal Home Loan
    19     Mortgage Corporation.
    20     (b.1)  Loan correspondent's license.--
    21         (1)  The department shall issue a loan correspondent's
    22     license applied for pursuant to this act if the applicant
    23     establishes that he has met the following conditions:
    24             (i)  That he is eligible to and will obtain and
    25         maintain a bond in the amount of $100,000, in a form
    26         prescribed by the department, prior to the issuance of
    27         the license from a surety company authorized to do
    28         business in this Commonwealth. The bond shall run to the
    29         Commonwealth of Pennsylvania and shall be for the use of
    30         the Commonwealth and any person or persons who obtain a
    19970S0094B0092                  - 9 -

     1         judgment against the loan correspondent for failure to
     2         carry out the terms of any provision for which advance
     3         fees are paid. No bond shall comply with the requirements
     4         of this section unless it contains a provision that it
     5         shall not be canceled for any cause unless notice of
     6         intention to cancel is given to the department at least
     7         30 days before the day upon which cancellation shall take
     8         effect.
     9             (ii)  That he has a minimum tangible net worth of
    10         $100,000 at the time of application and will, at all
    11         times thereafter, maintain such minimum net worth.
    12             (iii)  Notwithstanding subparagraph (ii), an
    13         applicant who was in the business as a mortgage banker,
    14         mortgage broker or otherwise authorized to engage in the
    15         first mortgage loan business by the department prior to
    16         the effective date of this section who files an
    17         application within 90 days after the effective date of
    18         this section may be licensed for one year with a minimum
    19         tangible net worth of $50,000. Thereafter, for a period
    20         of one year, the applicant may continue to be licensed
    21         with a minimum tangible net worth of $75,000. Following
    22         that period, the applicant may continue to be licensed
    23         with a minimum tangible net worth of $100,000.
    24     (c)  Mortgage broker's license.--
    25         (1)  The department shall issue a mortgage broker's
    26     license applied for pursuant to this act if the applicant
    27     establishes that [he has met the following conditions:
    28         (1)  That] he is eligible to and will obtain and maintain
    29  a bond in the  amount of $100,000, in a form prescribed by the
    30  regulations of the department, prior to the issuance of the
    19970S0094B0092                 - 10 -

     1  license, from a surety company authorized to do business in this
     2  Commonwealth[, which bond shall run to the Commonwealth for the
     3  benefit of any person injured by the wrongful act, default or
     4  misrepresentation of the mortgage broker]. The bond shall run to
     5  the Commonwealth of Pennsylvania and shall be for the use of the
     6  Commonwealth and any person or persons against the mortgage
     7  broker for failure to carry out the terms of any provision for
     8  which advance fees are paid. If such person or persons shall be
     9  so aggrieved, he may, upon recovering judgment against such
    10  licensee, issue execution under such judgment and maintain an
    11  action upon the bond of the licensee in any court having
    12  jurisdiction for the amount claimed plus costs, provided the
    13  department assents thereto. No bond shall comply with the
    14  requirements of this section unless it contains a provision that
    15  it shall not be canceled for any cause unless notice of
    16  intention to cancel is given to the department at least 30 days
    17  before the day upon which cancellation shall take effect.
    18         [(2)  In lieu of the bond required by paragraph (1), the
    19     applicant may deposit, with the department or with the State
    20     Treasurer, bonds, notes, debentures or other obligations of
    21     the United States or any agency or instrumentality thereof if
    22     guaranteed by the United States, or such bonds, notes,
    23     debentures or other obligations of the Commonwealth or of a
    24     political subdivision thereof having a market value of at
    25     least $100,000; and it shall be the obligation of the
    26     licensee to see to it that the securities on deposit shall
    27     have a market value of at least $100,000 at all times. The
    28     depositor shall be entitled to receive all interest and
    29     dividends thereon, and shall have the right, with the
    30     approval of the department, to substitute other securities
    19970S0094B0092                 - 11 -

     1     for those deposited. Should the securities on deposit at any
     2     time have a market value of less than $100,000, the
     3     department may revoke the license as hereinafter provided.
     4     All securities deposited shall be held under the same
     5     conditions and subject to the same right of execution as the
     6     bond provided for in paragraph (1).
     7         (3)] (2)  Mortgage brokers who can demonstrate to the
     8     satisfaction of the department that they do not accept
     9     advance fees shall be exempt from the bond requirement of
    10     this subsection.
    11     (d)  Foreign corporation.--If the applicant is a foreign
    12  corporation, that corporation shall be authorized to do business
    13  in this Commonwealth in accordance with the law of this
    14  Commonwealth regulating corporations and shall maintain at least
    15  one office in this Commonwealth which is the office that shall
    16  be licensed as the principal place of business for the purposes
    17  of this act. A foreign corporation which will act only in the
    18  capacity of a wholesale table funder shall be exempt from the
    19  requirement that it maintain at least one office in this
    20  Commonwealth. The corporation shall file with the application an
    21  irrevocable consent, duly acknowledged, that suits and actions
    22  may be commenced against that licensee in the courts of this
    23  Commonwealth by the service of process of any pleading upon the
    24  department in the usual manner provided for service of process
    25  and pleadings by the statutes and court rules of this
    26  Commonwealth. The consent shall provide that this service shall
    27  be as valid and binding as if service had been made personally
    28  upon the licensee in this Commonwealth. In all cases where
    29  process or pleadings are served upon the department pursuant to
    30  the provisions of this section, such process or pleadings shall
    19970S0094B0092                 - 12 -

     1  be served in triplicate; one copy shall be filed in the Office
     2  of the Secretary of Banking and the others shall be forwarded by
     3  the department, by certified or registered mail, return receipt
     4  requested, to the last known principal place of business in the
     5  Commonwealth and to the corporation's principal place of
     6  business.
     7     (e)  Education.--To maintain a mortgage banker's, a loan
     8  correspondent's or a mortgage broker's license, the applicant or
     9  licensee shall demonstrate to the satisfaction of the secretary
    10  that at least one person from each licensed office has fulfilled
    11  a minimum of six to the maximum of ten hours of such continuing
    12  education requirements each year as the secretary shall
    13  establish by regulation within three years of the effective date
    14  of this act.
    15  Section 5.  Annual license fee.
    16     (a)  General rule.--An applicant shall pay to the department
    17  at the time an application is filed an initial license fee of
    18  $500 for the principal place of business and an additional
    19  license fee of $50 for each branch office in this Commonwealth.
    20  On or before July 1 of each year and thereafter, a licensee
    21  shall pay a license renewal fee of $200 for the principal place
    22  of business and an additional license renewal fee of $25 for
    23  each branch office [in this Commonwealth]. An applicant for a
    24  license to operate as a loan correspondent shall pay the
    25  department the same fee for the initial license for principal
    26  place of business, each branch office and annual license renewal
    27  as provided for mortgage bankers licensed under section 603-A of
    28  the act of April 9, 1929 (P.L.177, No.175), known as The
    29  Administrative Code of 1929.
    30     (b)  Recovery of costs.--No abatement of any license fee
    19970S0094B0092                 - 13 -

     1  shall be made if the license is issued for a period of less than
     2  one year. The department shall be entitled to recover any cost
     3  of investigation in excess of license or renewal fees from the
     4  licensee or from any person who is not licensed under this act
     5  but who is presumed to be engaged in business contemplated by
     6  this act.
     7  Section 6.  Issuance of license.
     8     (a)  Time limit.--Within 60 days after [an] a complete
     9  application is received, the department shall either issue a
    10  license or, for any reason for which the department may suspend,
    11  revoke or refuse to renew a license as provided for by section
    12  13, refuse to issue a license. Upon receipt of an application
    13  for license, the department shall conduct such investigation as
    14  it deems necessary to determine that the applicant and its
    15  officers, directors and principals are of good character and
    16  ethical reputation.
    17     (b)  Appeal of denial.--If the department refuses to issue a
    18  license, it shall notify the applicant, in writing, of the
    19  denial and the reason therefor and of the applicant's right to
    20  appeal from such action to the Commonwealth Court. An appeal
    21  from the department's refusal to approve an application for a
    22  license shall be filed by the applicant within 30 days of notice
    23  thereof.
    24     (c)  Contents of license.--Each license issued by the
    25  department shall specify:
    26         (1)  The name and address of the licensee, the address so
    27     specified to be that of the licensee's principal place of
    28     business within this Commonwealth or, for a licensee acting
    29     only in the capacity of a wholesale table funder, either in
    30     or outside of this Commonwealth.
    19970S0094B0092                 - 14 -

     1         (2)  The licensee's reference number, which may remain
     2     the same from year to year despite variations in annual
     3     license numbers which may result from the renewal of licenses
     4     by mechanical techniques.
     5         (3)  Such other information as the department shall
     6     require to carry out the purposes of this act.
     7     (d)  Denial of license due to conviction.--The department may
     8  deny a license if it finds that the applicant or any person who
     9  is a director, officer, partner, agent, employee or ultimate
    10  equitable owner of 10% or more of the applicant has been
    11  convicted of a misdemeanor or felony in any jurisdiction or of a
    12  crime which, if convicted in this Commonwealth, would constitute
    13  a misdemeanor or felony under the laws of this Commonwealth. For
    14  the purposes of this act, a person shall be deemed to have been
    15  convicted of a crime if the person shall have pleaded guilty or
    16  nolo contendere to a charge thereof before a court or Federal
    17  magistrate or shall have been found guilty thereof by the
    18  decision or judgment of a court or Federal magistrate or by the
    19  verdict of a jury, irrespective of the pronouncement of sentence
    20  or the suspension thereof, unless the pleas of guilty or nolo
    21  contendere or the decision, judgment or verdict shall have been
    22  set aside, vacated, reversed or otherwise abrogated by lawful
    23  judicial process.
    24     (e)  Denial of license for other reason.--The department may
    25  deny a license or otherwise restrict a license if it finds that,
    26  within two years prior to or from the date of the application,
    27  the applicant or any person who is a director, officer, partner,
    28  agent, employee or ultimate equitable owner of 10% or more of
    29  the applicant:
    30         (1)  has had a license application or license issued by
    19970S0094B0092                 - 15 -

     1     the department denied, suspended or revoked;
     2         (2)  is the subject of an order of the department
     3     denying, suspending or revoking a license as a mortgage
     4     banker, loan correspondent or mortgage broker; or
     5         (3)  has violated or failed to comply with any provision
     6     of this act or any rule or order of the department.
     7  Section 7.  License duration.
     8     A license issued by the department shall:
     9         (1)  Be renewed on July 1 of each year upon payment of
    10     the annual renewal fee and after a determination that the
    11     licensee is conducting business in accordance with the
    12     provisions of this act is made by the department. No refund
    13     of any portion of the license fee shall be made if the
    14     license is voluntarily surrendered to the department or
    15     suspended or revoked by the department prior to its
    16     expiration date.
    17         (2)  Be invalid if the mortgage banker's corporate
    18     charter is voided in accordance with the provisions of any
    19     law of this Commonwealth or any other state.
    20         (3)  Not be assignable or transferable by operation of
    21     law or otherwise without the written consent of the
    22     department.
    23  Section 8.  Licensee requirements.
    24     (a)  Requirements on licensee.--A licensee shall:
    25         (1)  Conspicuously display its license at each licensed
    26     place of business.
    27         (2)  Maintain, at its principal place of business within
    28     this Commonwealth, or at such place within or outside this
    29     Commonwealth if agreed to by the Secretary of Banking or the
    30     commission, either the original or a copy of such books,
    19970S0094B0092                 - 16 -

     1     accounts, records and documents, or electronic or other
     2     similar access thereto, of the business conducted under the
     3     license as may be prescribed by the department or commission
     4     to enable them to determine whether the business of the
     5     licensee is being conducted in accordance with the provisions
     6     of this act and the orders, rules and regulations issued
     7     under this act. The department, at its determination, shall
     8     have free access to and examine records maintained outside of
     9     this Commonwealth. The costs of the examination, including
    10     travel costs, shall be borne by the licensee. The secretary
    11     may deny or revoke the authority to maintain records outside
    12     of this Commonwealth for good cause in the interest of
    13     consumer protection for Commonwealth borrowers.
    14         (3)  Annually, before May 1, file a report with the
    15     department or commission which shall set forth such
    16     information as the department or commission shall require
    17     concerning the business conducted as a licensee during the
    18     preceding calendar year. The report shall be in writing,
    19     under oath, and on a form provided by the department.
    20         (4)  Be subject to examination by the department or
    21     commission at the discretion of the department or commission
    22     at which time the department or commission shall have free
    23     access, during regular business hours, to the licensee's
    24     place or places of business in this Commonwealth and to all
    25     instruments, documents, accounts, books and records which
    26     pertain to a licensee's mortgage loan business, whether
    27     maintained in or outside of this Commonwealth. The department
    28     or commission may examine a licensee at any time if the
    29     department or commission deems such examination to be
    30     necessary or desirable. The cost of any such examination
    19970S0094B0092                 - 17 -

     1     shall be borne by the licensee.
     2         (5)  Comply with all provisions of the act of January 30,
     3     1974 (P.L.13, No.6), referred to as the Loan Interest and
     4     Protection Law, provided, however, that this shall not be
     5     deemed an override of section 501 of the Depository
     6     Institutions Deregulation and Monetary Control Act of 1980
     7     (94 Stat. 161, 12 U.S.C. § 1735f-7 note).
     8         (6)  Comply with the provisions of the act of December
     9     23, 1983 (P.L.385, No.91), entitled "An act amending the act
    10     of December 3, 1959 (P.L.1688, No.621), entitled, as amended,
    11     'An act to promote the health, safety and welfare of the
    12     people of the Commonwealth by broadening the market for
    13     housing for persons and families of low and moderate income
    14     and alleviating shortages thereof, and by assisting in the
    15     provision of housing for elderly persons through the creation
    16     of the Pennsylvania Housing Finance Agency as a public
    17     corporation and government instrumentality; providing for the
    18     organization, membership and administration of the agency,
    19     prescribing its general powers and duties and the manner in
    20     which its funds are kept and audited, empowering the agency
    21     to make housing loans to qualified mortgagors upon the
    22     security of insured and uninsured mortgages, defining
    23     qualified mortgagors and providing for priorities among
    24     tenants in certain instances, prescribing interest rates and
    25     other terms of housing loans, permitting the agency to
    26     acquire real or personal property, permitting the agency to
    27     make agreements with financial institutions and Federal
    28     agencies, providing for the purchase by persons of low and
    29     moderate income of housing units, and approving the sale of
    30     housing units, permitting the agency to sell housing loans,
    19970S0094B0092                 - 18 -

     1     providing for the promulgation of regulations and forms by
     2     the agency, prescribing penalties for furnishing false
     3     information, empowering the agency to borrow money upon its
     4     own credit by the issuance and sale of bonds and notes and by
     5     giving security therefor, permitting the refunding,
     6     redemption and purchase of such obligations by the agency,
     7     prescribing remedies of holders of such bonds and notes,
     8     exempting bonds and notes of the agency, the income
     9     therefrom, and the income and revenues of the agency from
    10     taxation, except transfer, death and gift taxes; making such
    11     bonds and notes legal investments for certain purposes; and
    12     indicating how the act shall become effective,' providing for
    13     homeowner's emergency assistance."
    14         (7)  Provide for periodic accounting of any escrow
    15     accounts held by the licensee to the borrowers not less than
    16     annually, showing the amounts received from the borrower and
    17     the amounts disbursed.
    18         (8)  Refund all fees, other than those fees paid by the
    19     licensee to a third party, paid by an applicant borrower when
    20     a mortgage loan is not produced within the time specified by
    21     the mortgage banker, loan correspondent or mortgage broker at
    22     the rate, term and overall cost agreed to by the borrower,
    23     provided, however, that this provision shall not apply when
    24     the failure to produce a loan is due solely to the borrower's
    25     negligence, his refusal to accept and close on a loan
    26     commitment or his refusal or inability to provide information
    27     necessary for processing, including, but not limited to,
    28     employment verifications and verifications of deposits. The
    29     licensee shall disclose to the borrower, in writing, at the
    30     time of a loan application which fees paid or to be paid are
    19970S0094B0092                 - 19 -

     1     nonrefundable.
     2         (9)  Ensure that all lock-in agreements shall be in
     3     writing and shall contain at least the following provisions:
     4             (i)  The expiration date of the lock-in, if any.
     5             (ii)  The interest rate locked in, if any.
     6             (iii)  The discount points locked in, if any.
     7             (iv)  The commitment fee locked in, if any.
     8             (v)  The lock-in fee, if any.
     9         (10)  Include in all advertisements language indicating
    10     that the licensee is licensed by the department.
    11     * * *
    12  Section 9.  Licensee limitations.
    13     (a)  Prohibitions.--A licensee shall not:
    14         (1)  Transact any business subject to the provisions of
    15     this act under any other name except those designated in its
    16     license. A licensee that changes its name or place or places
    17     of business shall immediately notify the department, which
    18     shall issue a certificate, if appropriate, to the licensee
    19     which shall specify the licensee's new name or address.
    20         (2)  Conduct any business other than any business
    21     regulated by the department in any place of business licensed
    22     pursuant to this act without at least 90 days' prior written
    23     notification to the department.
    24         (3)  Disburse the proceeds of a mortgage loan in any form
    25     other than cash, electronic fund transfer, certified check or
    26     cashier's check[.] for purchase money mortgage loans and
    27     portions of nonpurchase money mortgage loans designated to
    28     pay one or more existing liens held by another.
    29         (4)  In the case of a loan correspondent, service
    30     mortgage loans.
    19970S0094B0092                 - 20 -

     1         (5)  In the case of a mortgage broker, commit to close or
     2     close, mortgage loans in its own name, service mortgage
     3     loans, enter into lock-in agreements or collect lock-in fees,
     4     provided, however, that a mortgage broker can provide a
     5     lender's lock-in agreement to a borrower on behalf of that
     6     lender and collect lock-in fees on the lender's behalf
     7     payable to that lender.
     8     * * *
     9  Section 10.  Authority of department or commission.
    10     (a)  Department regulations.--Except as provided in
    11  subsection (b), the department shall have the authority to issue
    12  rules and regulations and orders as may be necessary for the
    13  proper conduct of the business of a mortgage banker, loan
    14  correspondent or a mortgage broker and for the enforcement of
    15  this act[. Initial rules and regulations shall be issued by the
    16  department within 180 days after the effective date of this
    17  subsection.], including, but not limited to, cease and desist
    18  orders, notices of fines and such other orders as the department
    19  in its discretion may issue.
    20     * * *
    21  Section 11.  Fees.
    22     * * *
    23     (d)  Licensing option.--A real estate broker or salesperson
    24  who is also a bona fide mortgage broker, mortgage banker or loan
    25  correspondent who holds himself out publicly as such shall have
    26  the option of being licensed and regulated by the department, in
    27  which case he shall not be subject to the fee limitations
    28  provided for in this section or the rules and regulations
    29  promulgated by the commission hereunder.
    30     * * *
    19970S0094B0092                 - 21 -

     1  Section 13.  Suspension, revocation or refusal.
     2     (a)  Departmental action.--The department may suspend, revoke
     3  or refuse to renew any license issued pursuant to this act after
     4  giving 30 days' written notice forwarded to the licensee's
     5  principal place of business, by registered or certified mail,
     6  return receipt requested, stating the contemplated action and
     7  the reason therefor, if the department shall find, after the
     8  licensee has had an opportunity to be heard, that the licensee
     9  has:
    10         (1)  Made any material misstatement in his application.
    11         (2)  Failed to comply with or violated any provision of
    12     this act or any rule, regulation or order promulgated by the
    13     department pursuant to this act.
    14         (3)  If licensed under section 4(c)(3), accepted an
    15     advance fee.
    16         (4)  Become insolvent, either in the sense that the
    17     liabilities of the applicant or licensee exceed the assets of
    18     the applicant or licensee or that the applicant or licensee
    19     cannot meet the obligations of the applicant or licensee as
    20     they mature, or is in such financial condition that the
    21     applicant or licensee cannot continue in business with safety
    22     to the customers of the applicant or licensee.
    23         (5)  Engaged in dishonest, fraudulent or illegal
    24     practices or conduct in any business or unfair or unethical
    25     practices or conduct in connection with the mortgage
    26     business.
    27         (6)  Been convicted of a misdemeanor or of a felony.
    28         (7)  Filed an application for a license which, as of the
    29     date the license was issued or as of the date of an order
    30     denying, suspending or revoking a license, was incomplete in
    19970S0094B0092                 - 22 -

     1     any material respect or contained any statement that was, in
     2     light of the circumstances under which it was made, false or
     3     misleading with respect to any material fact.
     4         (8)  Permanently or temporarily been enjoined by a court
     5     of competent jurisdiction from engaging in or continuing any
     6     conduct or practice involving any aspect of the mortgage
     7     business.
     8         (9)  Become the subject of an order of the department
     9     denying, suspending or revoking a license as a mortgage
    10     banker, mortgage broker or loan correspondent.
    11         (10)  Become the subject of a United States Postal
    12     Service fraud order that is currently effective and was
    13     issued within the last five years.
    14         (11)  Failed to comply with the requirements of this act
    15     to make and keep records prescribed by rule or order of the
    16     department, to produce such records required by the
    17     department or to file any financial reports or other
    18     information the department by rule or order may require.
    19         (12)  Become the subject of an order of the department
    20     denying, suspending or revoking a license under the
    21     provisions of any other law administered by the department.
    22         (13)  Failed to comply with a cease and desist order
    23     entered after notice and opportunity for hearing and issued
    24     by the department within the last five years.
    25         (14)  Demonstrated negligence or incompetence in
    26     performing any act for which the licensee is required to hold
    27     a license under this act.
    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
    19970S0094B0092                 - 23 -

     1  state, in which event the department may suspend or revoke the
     2  license.
     3     * * *
     4  Section 14.  Penalties.
     5     (a)  Nonlicensees.--Any person who is not licensed by the
     6  department or is not exempted from the licensing requirements in
     7  accordance with the provisions of this act and who engages in
     8  the business of a mortgage banker, loan correspondent or
     9  mortgage broker commits a felony of the third degree.
    10     (b)  Nonlicensees subject to the provisions of this act.--Any
    11  person who is subject to the provisions of this act, even though
    12  not licensed hereunder, or any person who is not licensed by the
    13  department or is not exempt from the licensing requirements, who
    14  violates any of the provisions to which it is subject shall be
    15  subject to a fine levied by the department or commission of up
    16  to $2,000 for each offense. Any such nonlicensed person who
    17  commits three or more offenses may, at the discretion of the
    18  department or commission, be prohibited from engaging in the
    19  business of a mortgage broker or mortgage banker unless licensed
    20  under this act.
    21     * * *
    22  Section 18.  Scope of act.
    23     The provisions of this act shall apply to [any]:
    24         (1)  Any mortgage loan which is:
    25             [(1)] (i)  negotiated, offered or otherwise
    26         transacted within this Commonwealth, in whole or in part,
    27         whether by the ultimate lender or any other person;
    28             [(2)] (ii)  made or executed within this
    29         Commonwealth; or
    30             [(3)] (iii)  notwithstanding the place of execution,
    19970S0094B0092                 - 24 -

     1         secured by real property located in this Commonwealth.
     2         (2)  Any person who engages in the first mortgage loan
     3     business in this Commonwealth.
     4     Section 3.  This act shall take effect in 60 days.


















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