The Arkansas State Legislature modified the Fair Mortgage Lending Act in February to “comply with recent developments in Federal Law and other purposes.” Federal law was recently amended to allow for Temporary Mortgage Loan Originator (MLO) Authority as defined under the Economic Growth, Regulatory Relief, and Consumer Protection Act or S.2155. The “other purposes” reason in the Arkansas law modification appears to be the easing of several regulatory burdens. The industry should embrace these changes since it will now be easier to operate in Arkansas.
Mortgage Loan Originator Temporary Authority
The mortgage industry is eagerly waiting for the Nationwide Multistate Licensing System (NMLS) to implement the new temporary MLO authority on November 24, 2019. The modifications to the act provide additions to definitions and clarifications that a “transitional loan officer” is allowed under Arkansas law.
The act now defines “transitional loan officer” as someone who is “authorized to act as a loan officer subject to the transitional loan officer license.” The federal definition in S.2155 and the clarifications provided on the NMLS Resource Center grant an authority to the eligible individual who has applied for a mortgage loan officer license but that such authority, on its own, is not a license. Under the modification to the act, in Arkansas, the licensed transitional loan officer is “not subject to reapplication, renewal or extension” and this temporary authority is only granted for 120 days. The act follows the spirit of S.2155; however, there is variation in the terms “transitional” and “temporary authority.” Additionally, Arkansas codifies that this authority is a license within the state of Arkansas.
The next impactful edit to the act is the change in who is considered a control person of the company. Previously, in Arkansas, anyone who has the right to vote 10 percent of the voting securities of the company would be considered a control person. With the modification to the act, a control person is now anyone who has the right to vote 25 percent or more of the voting securities of a company.
This is a major positive change for mortgage brokers, mortgage bankers and mortgage servicers operating in Arkansas. However, we note that this change is not consistent with the NMLS Guidebook standard, which requires disclosure of any 10 percent or more direct control persons or owners on the NMLS. Additionally, any mortgage companies operating nationwide will still need to meet other stricter definitions relating to control persons, owners and who must be disclosed on the NMLS.
Manufactured Home Dealers
The modification to the act expands the exemption for Manufactured Home Retailers or their employees beyond only administrative and clerical tasks. The Manufactured Home Dealer and its employees may now assist beyond administrative and clerical tasks as long as they “do not receive compensation or financial gain for engaging in loan officer activities that exceeds the amount of compensation or financial gain that could be received in a comparable cash transaction for a manufactured home.” The Manufactured Home Dealer must provide an affiliated business arrangement disclosure form to inform the consumer of any affiliation with a mortgage banker, and the dealer must refer at least one unaffiliated creditor that did not directly negotiate terms of the mortgage loan to a consumer.
Finally, the act allows the Arkansas Securities Department to accept financial statements that are prepared internationally as long as they are prepared according to standards of the International Financial Reporting Standards Foundation and the International Accounting Standards Board. This change is a recognition of the growing international ownership of large mortgage lenders or servicers.
Mortgage bankers, mortgage lenders and mortgage servicers are encouraged to review the legislation to consider how these changes may impact your business model. For more information about the Fair Mortgage Lending Act changes, please contact Bob Niemi, Amy Magdanz Rose or Haydn Richards.