Pennsylvania is Not a Brick and Mortar State Anymore

In a move that reverses the current trend of greater regulation, Pennsylvania eliminated its requirement that mortgage bankers, correspondent mortgage lenders, and mortgage brokers be required to maintain at least one office in Pennsylvania. Your company’s books and records can be maintained at your principal place of business or in another office, provided you obtain prior permission from the Banking Department.

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New Pennsylvania Regulations

Pennsylvania has some new regulations that are about to come into effect.

The first regulation requires that you submit to the PA Banking Department a copy of your internal procedure regarding how you will perform an analysis of how the borrower will repay the mortgage loan at the fully-indexed rate. The procedure must state, at the minimum, that you will verify and document the borrowers' income and fixed expenses, that you will not rely on the sale or refinance of the house to repay the loan, and that you will not ignore facts or circumstances that raise a red flag that the borrowers may not be able to repay the loan. Your procedure can also use other factors to determine whether the borrowers can repay the loan. If the loan is FHA or VA, there is a presumption that the borrowers can repay. All records, worksheets and supporting documentation used in the ability to repay analysis must be kept in the borrowers' loan file. A copy of your internal procedure must be emailed to the PA Banking Department by March 20, 2009.

Also taking effect on March 20, 2009, is a regulation that requires that, within 3 days after you take an application, you need to send the borrowers a new disclosure. The disclosure must state:

1. whether the lender will be escrowing for taxes and homeowners' insurance;
2. that you cannot lock-in the interest rate;
3. whether the loan contains an adjustable rate, negative am, prepayment penalty, or a balloon payment.

If the terms of the loan change so that the initial disclosure is incorrect, you must re-disclose as soon as you know of the change. If the lender is providing the borrower with this disclosure, then you do not need to provide it. The borrower is supposed to sign it within 10 days after you send the disclosure. You must keep a copy in the borrowers' file.

New Licensing Law in Pennsylvania

A new law was just signed into existence which will completely replace the existing licensing scheme. The new law will take effect on November 4, 2008.

Under the new law, there will not be separate licenses for first and second mortgages. Additionally, all mortgage loan solicitors will be required to get a license. The requirements for loan officers will include 12 hours of pre-exam education, an exam, a criminal background check and continuing education. One officer from each licensee will need to take the pre-licensing education and pass the exam. Lastly, Pennsylvania will join the list of states whose licensing records will be part of the Nationwide Mortgage License System (NMLS). The transition to the NMLS will start on November 1, 2008.

The Pennsylvania Department of Banking will be issuing more information about the specifics of complying with the new law. As the information becomes available, I will write more blog entries on the new law.