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Mortgage Compliance FAQ
Frequently Asked Questions
Do the Mortgage Brokers, Lenders, and Servicers Licensing Act and the Secondary Mortgage Loan Act require a licensee or registrant to have an actual physical office location in Michigan?
No. The Mortgage Brokers, Lenders, and Servicers Licensing Act and the Secondary Mortgage Loan Act do not require that an intended licensee or registrant have a physical location in the state of Michigan. However, a licensee or registrant is required to have a Michigan resident agent.
Is a licensee or registrant required to obtain authority to conduct business in Michigan?
Yes. If an intended licensee or registrant is a corporation, limited liability company, etc., authority to conduct business as a foreign entity, or an exemption, must be obtained from the Michigan Corporation Division of the Corporations, Securities, & Commercial Licensing Bureau.
What is the difference between a bank and a mortgage company?
Both banks and mortgage companies can make mortgage loans. Banks, however, can also take deposits of your money, which can be placed into a savings account or checking account, but mortgage companies cannot take deposits.
I applied for a mortgage loan and I think I was "red-lined." What should I do?
If you feel that your loan was denied because of the ethnic or racial characteristics of the neighborhood you live in or because of the geographic area in which the property in question is located, you can contact the Department of Insurance and Financial Services (DIFS) at 877-999-6442 and request a complaint form or access the complaint form on the DIFS website. Also, if you feel that your loan was denied because of your religion, race, color, national origin, age, sex, disability or familial or marital status, you can call the Michigan Department of Civil Rights at 800-482-3604 or visit its Fair Housing website. Credit discrimination may also be reported to the Federal Trade Commission. Further information, including how to report violations of the Equal Credit Opportunity Act, may be found on the Federal Trade Commission website.
My mortgage company refuses to give me a copy of my appraisal report. What can I do?
Regulation B, administered by the Consumer Financial Protection Bureau, requires that the lender provide you with a copy of your appraisal report, but only if you paid for it. The lender should provide a copy of such appraisal promptly upon completion, or three business days prior to consummation of the transaction, whichever is earlier. If a copy of the appraisal report has not been provided within this timeframe, you can contact us at 877-999-6442 and request a complaint form or access the complaint form on the Department of Insurance and Financial Services website. Upon receipt of the complaint form, we will contact the mortgage company on your behalf.
What is the highest rate of interest I can be charged on a mortgage loan?
For licensees and registrants under the Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA), MCL 445.1651 et seq., and the Secondary Mortgage Loan Act (SMLA), MCL 493.51 et seq., the maximum annual rate of interest allowed to be charged on a mortgage loan is 25%, inclusive of finance charges (APR). If you would like more information on interest rates in Michigan, please see the Michigan Statutory Interest Rate Ceilings on the Department of Insurance and Financial Services website.
How long should a licensee/registrant retain its records?
The Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA), section 21(2), MCL 445.1671, requires the licensee/registrant to retain all first mortgage loan documents, in its possession or control, until the mortgage loan is transferred or assigned, or for a period of 3 years from the date of closing, whichever occurs first. Therefore, if the licensee/registrant acts only as the broker, it must retain all documents, in its possession or control, related to the first mortgage transaction for 3 years from the date of closing.
For loans where the licensee/registrant acts as the lender, and the loan is transferred or assigned, the MBLSLA requires the licensee/registrant to retain copies of the promissory note, mortgage, land contract, truth-in-lending disclosure statements, and settlement statements for 3 years after the date the mortgage loan is transferred or assigned.
The MBLSLA further requires all other books, accounts, records, and documents pertaining to the licensee/registrant's business be maintained for not less than 3 years after the conclusion of the fiscal year of the licensee/registrant in which the book, account, record, or document was created.
The Secondary Mortgage Loan Act (SMLA), section 18, MCL 493.68, has document retention requirements similar to the MBLSLA. Documents kept pursuant to the SMLA are required to be maintained for a period of 2 years from date of closing, transfer or assignment, or conclusion of fiscal year in which they were created.
The MBLSLA and SMLA requires the licensee/registrant to retain all documents pertaining to a rejected application for a mortgage loan for the period of time required by state and federal law. DIFS interprets rejected applications to include withdrawn applications. The Mortgage Lending Practices Act of 1977 and Regulation B require documents relating to denied/withdrawn applications be retained for a period of 25 months.
Is there a list of specific items that must be maintained in mortgage loan files?
No. There is not a specific list of documents the licensee/registrant should maintain. DIFS recommends all documents pertaining to a mortgage loan file be maintained so that compliance with both state and federal law can be determined.
More specifically, section 21(1) of the Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA), MCL 445.1671, requires the licensee/registrant to maintain books, accounts, records, and documents to enable the commissioner to determine whether the business of the licensee/registrant is conducted in accordance with the act and rules promulgated under the act. Further, section 22(a) of the MBLSLA, MCL 445.1672, requires the licensee/registrant to comply with other state and federal laws.
Likewise, section 17(1) of the Secondary Mortgage Loan Act (SMLA), MCL 493.67, requires the licensee/registrant to maintain books, accounts, records, and documents to enable the commissioner to determine whether the business of the licensee/registrant is conducted in accordance with the act and rules promulgated under the act. Further, section 25 of the SMLA, MCL 493.75, requires the licensee/registrant to comply with federal law.
Can mortgage files be maintained electronically?
Yes. The Mortgage Brokers, Lenders, and Servicers Licensing Act, section 21(1), MCL 445.1671, and the Secondary Mortgage Loan Act, section 17(2), MCL 493.67, allows mortgage files to be kept in an electronic format.
Where may mortgage loan documents be stored?
Books and records of the licensee/registrant may be kept at a location of its choosing. If the documents are not made available in the State of Michigan, the licensee/registrant is required to pay the reasonable travel, lodging, and meal expenses of the examiners that travel out-of-state to review them, as provided by the Mortgage Brokers, Lenders, and Servicers Licensing Act, section 21(1), MCL 445.1671, and the Secondary Mortgage Loan Act, section 17(3), MCL 493.67. Keep in mind, the federal Safeguards Rule requires records to be maintained in a safe and secure manner to limit unauthorized access to nonpublic personal information.
Does Michigan have any state-specific loan disclosures?
Yes. The Consumer Mortgage Protection Act (CMPA) requires that the special information booklet described in 12 CFR 1024.6, issued under the authority of the Real Estate Settlement Procedures Act of 1974 (RESPA), Public Law 93-533, be given at the time of application. It is the opinion of the Director that, taken in context, Section 6 of the Act applies to brokers of mortgage loans that are not otherwise lenders.
The Mortgage Lending Practices Act of 1977 requires lenders that have a physical presence in Michigan to make available for public distribution, at the institution's principal office and each branch office or service center, a pamphlet or document explaining in general terms the credit granting institution's criteria for the approval or denial of a loan application. Rule 445.1004 requires the pamphlet be made available where loan applications or loan inquiries are routinely received by the lender and where the public may obtain a copy without the aid of an employee of the lender.
The Mortgage Lending Practices Act of 1977 also requires lenders to post a "Notice to Inquirers and Loan Applicants" in a conspicuous place to reasonably apprise a loan inquirer or applicant of his or her rights under this act. Rule 445.1005 requires the text of the written notice to be printed in 18-pt. or larger font and the heading to be printed in 48-pt. or larger capital letter boldfaced font.
Where are copies of Michigan-specific disclosures found?
A copy of the special information booklet required under the Consumer Mortgage Protection Act (CMPA) can be obtained from the Consumer Financial Protection Bureau’s website under Downloadable Resources.
The Notice to Inquirers and Loan Applicants language may be copied directly from section 5 of the Mortgage Lending Practices Act of 1977, MCL 445.1605. The notice must contain DIFS' current phone number. As of 9/29/2010, the telephone number is 877-999-6442.
The pamphlet or document describing the lender's criteria for approval or denial of a loan, required under section 2(10) of the Mortgage Lending Practices Act, MCL 445.1602, must be created by the lender and tailored to fit its criteria. The pamphlet or other document must prominently state that a person has the right to make a loan inquiry and to file a "written application for a mortgage loan or home improvement loan and to receive a written response to the application.”
What laws does DIFS check for compliance with during an examination?
DIFS may check for compliance with all state and federal laws pertaining to mortgage activity, including, but not limited to:
Mortgage Brokers, Lenders, and Servicers Licensing Act (MCL 445.1651 - 445.1684)
Secondary Mortgage Loan Act (MCL 493.51 - 493.81)
Consumer Mortgage Protection Act (MCL 445.1631 - 445.1645)
Mortgage Lending Practices Act (MCL 445.1601 - 445.1614)
Mortgage Loan Originator Licensing Act (MCL 493.131 - 493.171)
Title 16 - Standards for Safeguarding Consumer Information (16 CFR 314)
Title 16 - Identity Theft Rules (16 CFR 681)
Copies of Title 16 can be found on the following websites:
Can a mortgage broker close loans in its name?
No. To close loans in its name, a mortgage entity must have lender authority under its license/registration. However, section 25 of the Mortgage Brokers, Lenders, and Servicers Licensing Act, MCL 445.1675, exempts a mortgage lender that in the aggregate with any affiliates makes 10 or fewer mortgage loans in a calendar year. The section 2(1)(c) of the Secondary Mortgage Loan Act, MCL 493.52, exempts a person that makes or negotiates 2 or fewer secondary mortgage loans in a calendar year.
Are referral fees to real estate agents, title companies, mortgage brokers, or others allowed in Michigan?
No. The Mortgage Brokers, Lenders, and Servicers Licensing Act and the Secondary Mortgage Loan Act require that licensees/registrants comply with Regulation X. Section 1024.14 of Regulation X prohibits the payment of referral fees. Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business.
Are reverse mortgages covered under the Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA)?
Yes. The definition of a mortgage loan in the MBLSLA includes a reverse mortgage, as it is a loan secured by real property, if the property is located within this state and used, or improved for use, as a dwelling and designed for occupancy by 4 or fewer families.
What State of Michigan laws regulate advertising of mortgage loans?
Section 22a of the Mortgage Brokers, Lenders, and Servicers Licensing Act, MCL 445.1672a, prohibits a licensee or registrant from directly or indirectly making a false, misleading, or deceptive advertisement regarding mortgage loans or the availability of mortgage loans. Further, a licensee or registrant may not advertise any size of loan, security required for a loan, rate of charge, or other condition of lending except with the full intent of making loans at those rates, or lower rates, and under those conditions.
Section 26 of the Secondary Mortgage Loan Act, MCL 493.76, prohibits a licensee or registrant from willfully or knowingly making a false, misleading, or deceptive advertisement regarding secondary mortgage loans or the availability of secondary mortgage loans. Further, a licensee or registrant cannot advertise any size of loan, security required for a loan, rate of charge, or other condition of lending except with the intent of making loans at those rates, or lower rates, and under those conditions.
Section 4 of the Consumer Mortgage Protection Act, MCL 445.1634, lists prohibited conduct for a person making a mortgage loan. Section 4(3) prohibits any person from directly or indirectly making any false, deceptive, or misleading statement or representation in connection with a mortgage loan, including, but not limited to, the borrower's ability to qualify for a mortgage loan or the value of the dwelling that will secure repayment of the mortgage loan. Section 4(5) further provides that a statement or representation is deceptive or misleading if it has the capacity to deceive or mislead a borrower or potential borrower. The Director will consider any of the following factors in deciding whether a statement or representation is deceptive or misleading:
- the overall impression that the statement or representation reasonably creates
- the particular type of audience to which the statement is directed
- whether it may be reasonably comprehended by the segment of the public to which the statement is directed
Section 35(c) of the Mortgage Loan Originator Licensing Act, MCL 493.165(c), states a MLO may not directly or indirectly make a false, misleading, or deceptive advertisement regarding mortgage loans or the availability of mortgage loans.Section 41 of the Mortgage Loan Originator Act, MCL 493.171, requires the unique identifier of any person originating a residential mortgage loan to be clearly shown on all residential mortgage loan application forms, solicitations, or advertisements, including business cards or websites.
Are electronic signatures permissible on loan documents?
Are brokers who are exempt from the bond requirement permitted to take an applicant's credit card number and pass it on to the lender or appraisal management company without violation of section 4(1) of the MBLSLA?
The taking of credit card information does not constitute receiving funds from a prospective borrower before the closing of the mortgage loan. Accordingly, the exempt broker (because they agree not to take fees from the applicants prior to closing) would not violate Section 4(1) of the MBLSLA by doing so.
Does the State of Michigan allow a licensed mortgage loan originator to be a licensed real estate agent on the same transaction and receive dual compensation?
Yes. Currently there are no Michigan mortgage laws that prohibit a person from working in a dual capacity (representing the buyer of a property as the real estate agent and then assisting the buyer to obtain a mortgage loan as a mortgage loan originator). In addition, please review Section 1024.15 of Regulation X regarding affiliated business arrangement disclosures and Section 6 of the Mortgage Brokers, Lenders, and Servicers Licensing Act, MCL 445.1656, regarding registration.
Are website domain names required to be registered as a trade name or DBA?
Neither the Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA) nor the Secondary Mortgage Loan Act (SMLA) require website domain names to be registered as a trade name or DBA. Websites maintained by individual loan officers should be under the direct oversight of the company that sponsors the mortgage loan originator. All marketing and advertising material, including websites and social media, should disclose the licensed company name (e.g., ABC Mortgage), licensed company’s NMLSR ID number, and the individual loan officer’s NMLSR ID number. The web domain name should not be used on its own in marketing or advertising.
Are shared office locations permissible?
Yes, shared office locations are permissible. Please stay informed of the Federal Trade Commission’s Standards for Safeguarding Customer Information (the Safeguards Rule) to ensure appropriate safeguards are in place to protect the security of customer information. In addition, DIFS recommends that anyone sharing office locations retain a written rental or lease agreement and that the rent is allocated to each party at fair market value.
Which tax record option (Form 1099 or W-2) is most appropriate to use when compensating a Mortgage Loan Originator (MLO)?
In Michigan, licensees and registrants may compensate an MLO via Form W-2 or 1099 in accordance with requirements established by the United States Department of Treasury, through the Internal Revenue Service (IRS). The IRS rules determine which form option is most appropriate based on the classification (employee or independent contractor) of the MLO. For additional guidance and to ensure that you are correctly classifying your MLOs, you should consult an attorney or tax professional familiar with employment law.