Economic Recovery Loan Modification Programs Impact Mortgage Brokers

This is the fourteenth in a series of brief articles that Moye White is sending to its clients and friends to provide practical advice about the opportunities and challenges presented by today's economy.

On March 4, 2009, US Treasury Secretary Geithner authorized home mortgage lenders to begin modifying home loans under the US’s new “Making Homes Affordable” program. Earlier in the week Citibank also described terms of a separate loan modification program applicable to individuals who have lost their jobs. In order to stabilize the residential housing market, it seems likely that the business of modifying loans will accelerate.

Real estate professionals, including real estate agents and attorneys, should be aware that activity related to the promotion or negotiation of loan modifications, whether under these programs or otherwise, may require licensing under Colorado’s mortgage broker laws. Moye White encourages its clients that may have some involvement with the loan modifications to review their practices and seek clarification on their licensing obligations.

Since January, 1, 2008, mortgage brokers in Colorado must be licensed by the Director of the Department of Regulatory Agencies under Colorado’s Mortgage Broker Licensing Act. A mortgage broker in Colorado is any person who directly supervises individuals that “negotiate, originate, or offer or attempt to negotiate or originate for a borrower, and for a commission or other thing of value, a residential mortgage loan to be consummated and funded by a mortgage lender.” Colorado law exempts a number of persons from licensing, including employees of federally regulated banks and savings and loans. However, many professionals who may find themselves assisting in loan modification programs might nonetheless find themselves subject to regulation.

On December 11, 2008 the Director issued a revised statement making clear that individuals offering or negotiating loan modifications—and their supervisors—are, at a minimum, indirectly acting as mortgage brokers and are subject to the State’s licensing requirements. If a real estate broker engages in the activities of providing loan modification services (except in the case of facilitating a “short sale”) the state will require the real estate broker to obtain separate licensure as a mortgage broker. An attorney who renders services in the course of practice, who is licensed in Colorado, and who is not primarily engaged in the business of negotiating residential mortgage loans or loan modifications does not need to be licensed as a mortgage broker, but the State will require him or her to comply with all non-licensing provisions of current mortgage broker law.

All individuals who directly or indirectly negotiate loan modifications for borrowers and their direct supervisors are required to comply with all other provisions of Colorado mortgage broker law including:

  • A duty of good faith and fair dealing in all communications and transactions with borrowers;
  • A prohibition against making any promises that influence a person to detrimentally rely on the promise when the broker did not intend to keep such promise;
  • A prohibition against soliciting or entering into a contract with a borrower that provides that the mortgage broker may earn a fee or commission through the mortgage broker’s “best efforts” to obtain a loan even though no loan is actually obtained; and
  • Allowing a fee to be charged in the event that certain loans are not closed, through no fault of the mortgage broker and after certain disclosures.

As a general matter, individuals who act as housing counselors for HUD-approved counseling agencies are not covered by the mortgage broker licensing requirements.

For more information contact: Dom Sekich or Ted White , Chair , Transactions Section at (303) 292-2900.

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Moye White LLP has prepared this bulletin to provide general information; however this bulletin does not provide legal advice and does not create an attorney-client relationship between the reader and Moye White. No legal or business decision should be based solely on the content of this bulletin.