Title: SL2005-0316
Subject: Session Law 2005-316
Category: Introduced Bill 2005

GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2005

SESSION LAW 2005-316
HOUSE BILL 237

AN ACT to update the mortgage lending act by allowing registration of limited loan officers of deFINED affiliated mortgage bankers and to establish additional supervision and enforcement authority for the commissioner of banks.

The General Assembly of North Carolina enacts:

SECTION 1.  G.S. 53‑243.01 reads as rewritten:
"§ 53‑243.01.  Definitions.
The following definitions apply in this Article:
(1)	Act as a mortgage broker. – To act, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, by accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan, negotiating the terms or conditions of a mortgage loan, issuing mortgage loan commitments or interest rate guarantee agreements to borrowers, or engaging in tablefunding of mortgage loans, whether such acts are done through contact by telephone, by electronic means, by mail, or in person with the borrowers or potential borrowers.
(2)	Act as a mortgage lender. – To engage in the business of making mortgage loans for compensation or gain.
(2a)	Affiliate. – Any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. § 1841), et seq., as amended from time to time. For purposes of this subdivision, the term control means ownership of all of the voting stock or comparable voting interest of the controlled person.
(2b)	Affiliated mortgage banker. – A licensed mortgage banker that meets the criteria of either sub‑subdivisions a., b., and c. of this subdivision or sub‑subdivisions d. and e. of this subdivision:
a.	The licensee, by itself or with its affiliates, is licensed in five or more states to engage in the mortgage lending business and (i) is supervised by a state or federal regulatory agency whose regulatory scheme has been determined by the Commissioner to be substantially similar to that of North Carolina, (ii) is organized and supervised  under the laws of a state that has adopted a model licensing law endorsed by the Commissioner; or (iii) is supervised by a state or federal agency that is a party to an interstate compact, or has otherwise entered into a cooperative reciprocal agreement by which the state or federal regulatory agency and the State of North Carolina, directly or by duly authorized act of the Commissioner, have mutually agreed to recognize state licensing laws which have specific enumerated criteria.
b.	The licensee, including its affiliates and wholly owned subsidiaries, has more than 100 employees that are licensed pursuant to this Article.
c.	The licensee has a consolidated net worth of one hundred million dollars ($100,000,000) or more, or if the licensee does not have the required net worth, its parent shall provide to the Commissioner (i) evidence satisfactory to the Commissioner that the parent has a net worth of one hundred million dollars ($100,000,000) or more, and (ii) an unconditional guarantee or comparable instrument of surety satisfactory to the Commissioner of the performance of the licensee of its obligations under this Article.
d.	The licensee is a direct or indirect wholly owned subsidiary of a bank holding company or financial services holding company subject to regulation by the Federal Reserve Board or the Office of Thrift Supervision.
e.	The licensee has a net worth of one hundred million dollars ($100,000,000) or, if the licensee does not have the required net worth, (i) its parent, if it is not a bank holding company or financial holding company, meets the requirements of sub‑subdivision c. of this subdivision or (ii) its parent, if such parent is a bank holding company or financial holding company, has total assets in excess of ten billion dollars ($10,000,000,000) and provides the Commissioner with the unconditional guarantee or comparable instrument of surety required by sub‑subdivision c. of this subdivision.
(3)	Branch manager. – The individual whose principal office is physically located in, who is in charge of, and who is responsible for the business operations of a branch office of a mortgage broker or mortgage banker.
(4)	Branch office. – An office of the licensee acting as a mortgage broker or mortgage banker that is separate and distinct from the licensee's principal office.
(5)	Commissioner. – The North Carolina Commissioner of Banks and the Commissioner's designees. For purposes of compliance with this Article by credit unions, Commissioner means the Administrator of the Credit Union Division of the Department of Commerce.
(6)	Control. –  Except as provided in subdivision (2a) of this section, "control" means the power to vote more than twenty percent (20%) of outstanding voting shares or other interests of a corporation, partnership, limited liability company, association, or trust.
(7)	Employee. – An individual, who has an employment relationship, acknowledged by both the individual and the mortgage broker or mortgage banker and is treated as an employee for purposes of compliance with the federal income tax laws.
(7a)	Exclusive mortgage broker. – An individual who acts as a mortgage broker exclusively for a single mortgage banker or single exempt person and who is licensed under the provisions of G.S. 53‑243.05(c)(1a).
(8)	Exempt person. – The term includes any of the following:
a.	Any agency of the federal government or any state or municipal government granting mortgage loans under specific authority of the laws of any state or the United States.
b.	Any employee of a licensee whose responsibilities are limited to clerical and administrative tasks for his or her employer and who does not solicit borrowers, accept applications, or negotiate the terms of loans on behalf of the employer.
c.	Any person authorized to engage in business as a bank or a wholly owned subsidiary of a bank, a farm credit system, savings institution, or a wholly owned subsidiary of a savings institution, or credit union or a wholly owned subsidiary of a credit union, under the laws of the United States, this State, or any other state. Except for G.S. 53‑243.11 and G.S. 53‑243.15, this Article does not apply to the exempt persons set forth in this sub‑subdivision (8)c.
d.	Any licensed real estate agent or broker who is performing those activities subject to the regulation of the North Carolina Real Estate Commission. Notwithstanding the above, an exempt person does not include a real estate agent or broker who receives compensation of any kind in connection with the referral, placement, or origination of a mortgage loan.
e.	Any officer or employee of an exempt person described in sub‑subdivision c. of this subdivision when acting in the scope of employment for the exempt person.
f.	Any person who, as seller, receives in one calendar year no more than five mortgages, deeds of trust, or other security instruments on real estate as security for a purchase money obligation.
g.	The North Carolina Housing Finance Agency as established by Article 122A of the General Statutes and the North Carolina Agricultural Finance Authority as established by Article 122D of the General Statutes.
h.	Any nonprofit corporation qualifying under section 501(c)(3) of the Internal Revenue Code which makes mortgage loans to promote home ownership or home improvements for the disadvantaged, provided that such corporation is not primarily in the business of soliciting or brokering mortgage loans.
i.	Any life insurance companies licensed to do business in North Carolina with regard to provisions concerning mortgage lenders.
(9)	Licensee. – A loan officer, limited loan officer, mortgage broker, or mortgage banker who is licensed pursuant to this Article.
(10)	Loan officer. – An individual who, in exchange for compensation as an employee of another person, accepts or offers to accept applications for mortgage loans. The definition of loan officer shall not include any exempt person described in sub‑subdivision (8)b. of this section.
(10a)	Limited loan officer. – An individual who, in exchange for compensation as an employee of an affiliated mortgage banker, directly solicits, negotiates, offers, or makes commitments for mortgage loans. The definition of limited loan officer shall not include any exempt person described in sub‑subdivision (8)b. of this section.
(11)	Make a mortgage loan. – To close a mortgage loan, to advance funds, to offer to advance funds, or to make a commitment to advance funds to a borrower under a mortgage loan.
(12)	Managing principal. – A person who meets the requirements of G.S. 53‑243.05(c) and who agrees to be primarily responsible for the operations of a licensed mortgage broker or mortgage banker.
(13)	Mortgage banker. – A person who acts as a mortgage lender as that term is defined in subdivision (2) of this section. However, the definition does not include a person who acts as a mortgage lender only in tablefunding transactions.
(14)	Mortgage broker. – A person who acts as a mortgage broker as that term is defined in subdivision (1) of this section. The term "mortgage broker" includes an exclusive mortgage broker, except when expressly provided otherwise.
(15)	Mortgage loan. – A loan made to a natural person or persons primarily for personal, family, or household use, primarily secured by either a mortgage or a deed of trust on residential real property located in North Carolina.
(15a)	Parent. – The person that controls an affiliated mortgage banker, as control is defined in subdivision (2a) of this section.
(16)	Person. – An individual, partnership, limited liability company, limited partnership, corporation, association, or other group engaged in joint business activities, however organized.
(17)	Qualified lender. – A person who is engaged as a mortgage lender in North Carolina and is either a supervised or a nonsupervised institution, as these terms are defined in 24 C.F.R. § 202.2, approved by the United States Department of Housing and Urban Development.
(18)	Qualified person. – A person who is employed as a loan officer by a qualified lender, or by a mortgage banker or broker registered with the Commissioner under former Article 19 of this Chapter, or who is a general partner, manager, or officer of a qualified lender, registered mortgage banker, or registered mortgage broker.
(19)	Residential real property. – Real property located in the State of North Carolina upon which there is located or is to be located one or more single‑family dwellings or dwelling units.
(20)	Tablefunding. – A transaction where a licensee closes a loan in its own name with funds provided by others, and the loan is assigned simultaneously to the mortgage lender providing the funding within one business day of the funding of the loan."
SECTION 2.  G.S. 53‑243.02 reads as rewritten:
"§ 53‑243.02.  License required; licensee records.
(a)	Other than an exempt person, it is unlawful for any person in this State to act as a mortgage broker or mortgage banker, or directly or indirectly to engage in the business of a mortgage broker or a mortgage banker, without first obtaining a license from the Commissioner under the provisions of this Article.
(b)	It is unlawful for any natural person to engage in the solicitation and acceptance of applications for mortgage loans without first obtaining a license as a loan officer, limited loan officer, mortgage banker, or mortgage broker issued by the Commissioner under the provisions of this Article. It is unlawful for any person to employ, to compensate, or to appoint as its agent a loan officer unless the loan officer is licensed as a loan officer under this Article. Exempt persons shall not be subject to this subsection.
(c)	The license of a loan officer or limited loan officer is not effective during any period when that person is not employed by a mortgage  broker, affiliated mortgage banker, or mortgage banker licensed under this Article. The license of an exclusive mortgage broker is not effective during any period when that person is not authorized to act as a single licensee or exempt person pursuant to G.S. 53‑243.05(c)(1a).
When a loan officer or a limited loan officer ceases to be employed by a mortgage  broker, affiliated mortgage banker, or mortgage banker licensed under this Article, the loan officer, limited loan officer, and the mortgage  broker, affiliated mortgage banker, or mortgage banker licensed under this Article by whom that person is employed shall promptly notify the Commissioner in writing. When the authority of an exclusive mortgage broker to act on behalf of the principal licensee or exempt person identified in G.S. 53‑243.05(c)(1a) has been terminated, the exclusive mortgage broker and the licensee or exempt person for whom the exclusive mortgage broker is an agent shall promptly notify the Commissioner in writing. The mortgage broker, affiliated mortgage banker, mortgage banker, or exempt person's notice shall include a statement of the specific reason or reasons for, as applicable, the termination of the loan officer's or limited loan officer's employment or exclusive mortgage broker's authority.
A loan officer or limited loan officer shall not be employed simultaneously by more than one affiliated mortgage banker, mortgage broker, or mortgage banker licensed under this Article.
(d)	Each affiliated mortgage banker, mortgage broker, and mortgage banker licensed under this Article shall maintain on file with the Commissioner a list of all loan officers or limited loan officers who are employed with the affiliated mortgage banker, mortgage broker, or mortgage banker.
(e)	No person, other than an exempt person, shall hold himself or herself out as a mortgage banker, an affiliated mortgage banker, a mortgage broker, limited loan officer, or loan officer unless such person is licensed in accordance with this Article.
(f)	Any person who has completed and filed with the Commissioner the application and all documents required for licensure as a loan officer other than documents relating to the required examination and the mortgage lending fundamentals course may act as a loan officer during the period before action is taken on the application by the Commissioner, if:
(1)	The Commissioner has not denied, revoked, or taken any adverse action with respect to an application filed by or license held by such person during the five‑year period ending on the date of filing of the application;
(2)	The loan officer is employed by a licensed mortgage broker or mortgage banker, and the managing principal of such mortgage broker or mortgage banker (i) certifies to the Commissioner in writing that the managing principal reasonably believes that the application of the person for licensure as a loan officer meets or exceeds all of the relevant requirements of this Article for licensure and (ii) undertakes in writing that the managing principal and the employer will be responsible for the acts of the applicant during the period that such application is pending; and
(3)	The person is currently or has within the six‑month period prior to the date of the application been employed as and acting as a loan officer for an exempt entity which entity is exempt by virtue of an exemption claimed under G.S. 53‑243.01(8)c.
(g)	The Commissioner may deny or suspend the rights of a mortgage broker or mortgage banker to employ a loan officer acting under subsection (f) of this section if the Commissioner finds that the mortgage broker or mortgage banker, or the managing principal thereof, makes the certification or undertaking set forth in subdivision (2) of subsection (f) of this section not in good faith."
SECTION 3.  G.S. 53‑243.05(c)(1) reads as rewritten:
"(c)	In addition to the requirements under subsection (a) of this section, each applicant for licensure as a mortgage broker or mortgage banker at the time of application and at all times thereafter shall comply with the following requirements:
(1)	Except as provided for in subdivision (1a) of this subsection, if the applicant is a sole proprietor, the applicant shall have at least three years of experience in residential mortgage lending or other experience or competency requirements as the Commissioner may impose. Experience as an exclusive mortgage broker or as a limited loan officer shall not constitute mortgage‑lending experience under this subdivision."
SECTION 4.  G.S. 53‑243.05(e) reads as rewritten:
"(e)	Every applicant for initial licensure shall pay a filing fee of one thousand dollars ($1,000) for licensure as a mortgage broker or mortgage banker or fifty dollars ($50.00) for licensure as a loan  officer or limited loan officer, in addition to the actual cost of obtaining credit reports and State and national criminal history record checks."
SECTION 5.  Article 19A of Chapter 53 of the General Statutes is amended by adding a new section to read:
"§ 53‑243.05A.  Licensing for limited loan officers; qualifications, revoked, suspended, or barred.
(a)	An affiliated mortgage banker shall notify the Commissioner when it hires a limited loan officer on forms prescribed by the Commissioner. The form shall contain any information the Commissioner deems necessary including the name, social security number, address, and business location of the limited loan officer. Limited loan officers employed by an affiliated mortgage banker shall:
(1)	Be at least 18 years of age.
(2)	Work exclusively for an affiliated mortgage banker. The affiliated mortgage banker who hires the limited loan officer shall:
a.	Supervise the limited loan officer as required by this Article.
b.	Sign the notification form regarding the hiring of the applicant.
c.	Certify the applicant is qualified as a limited loan officer subject to background checks, training, testing, and fundamental education requirements.
d.	Be jointly and severally liable for any and all claims and damages of any type, including punitive damages pursuant to Chapter 1D of the General Statutes arising out of the limited loan officer's mortgage lending activities, as allowed by law.
(b)	An applicant for a limited loan officer license may act provisionally as a limited loan officer during the pendency of the application before the Commissioner for up to 60 days after submission of the completed forms identified in subsection (a) of this section and a written undertaking by the employing affiliated mortgage banker that it will be responsible for all the applicant's mortgage banking activities.
(c)	Systems, programs, and procedures used by the affiliated mortgage banker for employment background checks, training, testing, and education by the affiliated mortgage banker shall be submitted to and reviewed by the Commissioner who may approve those which are comparable and functionally equivalent to those for loan officers under G.S. 53‑243.05 and G.S. 53‑243.07. The Commissioner must be notified of any material changes or modifications to such approved systems, programs, and procedures. The Commissioner may approve those systems, programs, and procedures used by the affiliated mortgage banker for these purposes that meet or exceed programs otherwise accredited by the Commissioner or that have been approved for the affiliated mortgage banker by at least five other states in which the affiliated mortgage banker is licensed and whose licensing requirements are substantially similar to those of North Carolina.
(d)	Except as specified in this section, limited loan officers are subject to licensing standards and disciplinary authority in the same way as loan officers under this Article.
(e)	A person whose license is revoked, suspended, or barred under this section is prohibited from participating in the mortgage lending business in this State."
SECTION 6.  G.S. 53‑243.08 reads as rewritten:
"§ 53‑243.08.  Managing principals and branch managers.
Each mortgage broker or mortgage banker licensed under this Article shall have a managing principal who operates the business under that person's full charge, control, and supervision. Mortgage bankers and mortgage brokers, other than exclusive mortgage brokers, may operate branch offices subject to the requirements of this Article. Each principal and branch office of a mortgage broker or mortgage banker licensed under this Article, shall have a branch manager who meets the experience requirements under  G.S. 53‑243.05(c)(1); provided, that an affiliated mortgage banker may designate a branch manager who does not meet the experience requirements so long as at or before the designation, it certifies that the person has been employed by the affiliated mortgage banker for at least one year as a loan officer, limited loan officer, or in a comparable position in another state. The managing principal for a licensee's business may also serve as the branch manager of one of the licensee's branch offices. Each mortgage broker or mortgage banker licensed under this Article shall file a form as prescribed by the Commissioner indicating the business's designation of managing principal and branch manager for each branch and each individual's acceptance of the responsibility. Each mortgage broker or mortgage banker licensed under this Article shall notify the Commissioner of any change in its managing principal or branch manager designated for each branch. Any licensee who does not comply with this provision shall have the licensee's license suspended pursuant to G.S. 53‑243.12 until the  licensee complies with this section. Any individual licensee who operates as a sole proprietorship shall be considered a managing principal for the purposes of this Article."
SECTION 7.  G.S. 53‑243.12(a) reads as rewritten:
"(a)	The Commissioner may, by order, deny, suspend, revoke, or refuse to issue or renew a license of a licensee or applicant under this Article or may restrict or limit the activities relating to mortgage loans of any licensee or any person who owns an interest in or participates in the business of a licensee, if the Commissioner finds both of the following:
(1)	That the order is in the public interest.
(2)	That any of the following circumstances apply to the applicant, licensee, or any partner, member, manager, officer, director, loan officer, limited loan officer, managing principal, or any person occupying a similar status or performing similar functions or any person directly or indirectly controlling the applicant or licensee. The person:
a.	Has filed an application for license that, as of its effective date or as of any date after filing, contained any statement that, in light of the circumstances under which it was made, is false or misleading with respect to any material fact.
b.	Has violated or failed to comply with any provision of this Article, rule adopted by the Commissioner, or order of the Commissioner.
c.	Has been convicted of any felony, or, within the past 10 years, has been convicted of any misdemeanor involving mortgage lending or any aspect of the mortgage lending business, or any offense involving breach of trust, moral turpitude, or fraudulent or dishonest dealing.
d.	Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the mortgage lending business.
e.	Is the subject of an order of the Commissioner denying, suspending, or revoking that person's license as a mortgage broker or mortgage banker.
f.	Is the subject of an order entered within the past five years by the authority of any state with jurisdiction over that state's mortgage brokerage or mortgage banking industry denying or revoking that person's license as a mortgage broker or mortgage banking industry or denying or revoking that person's license as a mortgage broker or mortgage banker.
g.	Does not meet the qualifications or the financial responsibility, character, or general fitness requirements under G.S. 53‑243.05 or any bond or capital requirements under this Article.
h.	Has been the executive officer or controlling shareholder or owned a controlling interest in any mortgage broker or mortgage banker who has been subject to an order or injunction described in sub‑subdivision d., e., or f. of this subdivision.
i.	Has failed to pay the proper filing or renewal fee under this Article. However, the Commissioner may enter only a denial order under this sub‑subdivision, and the Commissioner shall vacate the order when the deficiency has been corrected.
j.	Has falsely certified attendance or completion of hours at an approved mortgage lending continuing education course."
SECTION 8.  This act is effective when it becomes law.
In the General Assembly read three times and ratified this the 16^th day of August, 2005.

	s/	 Marc Basnight
	 President Pro Tempore of the Senate

	s/	 James B. Black
	 Speaker of the House of Representatives

	s/	 Michael F. Easley
	 Governor

Approved 12:11 p.m. this 25^th day of August, 2005

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