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Consumer Protection Measures Strengthening State Mortgage Regulations Signed in Law

Mandate License for Mortgage Servicers and Impose Fines of Up $25,000 for Violators; Sets Provisions for Out-of-State Mortgage Lenders

Two measures aiming to strengthen consumer protections for residential mortgages and to develop a solutions-driven strategy in response to New Jersey’s residential foreclosure crisis were signed into law Monday.

One law (A-4997), the “Mortgage Servicers Licensing Act,” is sponsored by Assembly Democrats Yvonne Lopez (D-Middlesex), Vincent Mazzeo (D-Atlantic) and Carol Murphy (D- Burlington) and requires anyone working as a mortgage servicer to obtain a license from the Commissioner of Banking and Insurance for each main office and each branch office where business is conducted, unless the person is exempt under provisions outlined in the bill.

“A home is one of the most expensive purchases that a consumer makes in a lifetime,” said Lopez. “So it only makes sense that the person securing the purchaser’s mortgage be licensed and properly credentialed. This serves as a safeguard against fraud on many levels for consumers.”

The law defines a mortgage servicer as any person, wherever located, who performs certain functions for the holder of a residential mortgage loan secured by real property located in New Jersey. License applicants will be required to meet specific financial, character and fitness requirements and be mandated to file information annually regarding the mortgages serviced in the state. The law also stipulates that mortgage servicers file a surety bond, fidelity bond, and evidence of coverage with the Commissioner.

“A major part of the foreclosure crisis has been mortgages that were serviced by individuals who were not properly trained and in many cases, simply operated using unethical practices,” said Mazzeo. “This new law creates a checks and balances of sorts as it pertains to mortgage services.”

A mortgage servicer exempted from licensure will still be required to maintain records of each residential mortgage loan transaction and produce related records as requested. Upon assigning the servicing rights on a residential mortgage loan, the servicer will be required to make certain disclosures to the mortgagor as per the law. In addition, a mortgage servicer will need to maintain a schedule of fees charged to mortgagors. The bill also prohibits certain unfair and deceptive trade practices.

“There are thousands of New Jerseyans who poured their hard-earned money, savings and in some cases, inheritance into purchasing a home only to see these funds vanish due to a poorly serviced mortgage,” said Murphy. “These are lost funds that could take decades for these homebuyers to recover.”

The law authorizes the commissioner to investigate and examine mortgage servicers and suspend, revoke, or refuse to renew a mortgage servicer license for reasons defined in the bill. Violators can be penalized with a crime of the third degree and be subject to civil penalties of up to $25,000. The law will take effect in 90 days.

The second new law (A-4998) clarifies provisions of the “New Jersey Residential Mortgage Lending Act.” Sponsored by Assemblyman Benjie Wimberly (D-Bergen, Passaic) and Assemblywoman Patricia Egan Jones (D-Camden, Gloucester), it sets guidelines whereby out-of-state residential mortgage lenders, residential mortgage brokers and mortgage loan originators will need to be licensed as per the provisions defined in the act. Specifically, the act regulates the New Jersey mortgage loan origination activities of mortgage companies and their individual mortgage loan originators (MLOs). It also establishes licensing requirements for mortgage companies and MLOs; sets the qualifications needed to obtain those licenses; lists the fees mortgage companies may charge consumers; regulates how mortgage companies may deal with consumers; gives New Jersey Department of Banking and Insurance supervisory and enforcement authority over mortgage companies and MLOs; and imposes mortgage companies various reporting requirements.

“Mortgage lenders must be held to the same standards, regardless of whether they are located in New Jersey or elsewhere,” said Wimberly. “They must be authorized to operate here, monitored and held accountable.”

“Establishing these types of guidelines is necessary to ensure that the mortgage services consumers receive are not compromised,” said Egan Jones.

The law will take effect immediately.

Both laws were introduced on February 7, 2019.