On January 10, 2025, the Maryland Office of Financial Regulation (OFR) issued guidance significantly expanding licensing requirements for assignees of residential mortgage loans in Maryland. The guidance stems from an April 2024 court ruling and raises important considerations for entities involved in the secondary mortgage market.
Maryland’s licensing laws did not explicitly require a license to purchase closed and funded residential mortgage loans. However, in April 2024, the Appellate Court of Maryland ruled that an assignee of a home equity line of credit was required to obtain a license to have the legal authority to bring a foreclosure action.
The OFR’s new guidance expands upon this ruling, asserting that any assignee of residential mortgage loans, including “passive trusts,” must obtain a license under Maryland mortgage lending laws in order to acquire or obtain assignments of any mortgage loans. This applies regardless of lien position and whether the loans are open- or closed-end extensions of credit. The court highlighted that exempting assignees from these requirements would undermine consumer protection statutes designed to ensure that entities involved in mortgage lending possess the requisite oversight.
Some key takeaways from the OFR’s guidance are:
- Passive trusts are subject to licensing requirements. The guidance defines a “passive trust” as a trust that acquires mortgage loans serviced by others, does not originate loans, and does not act as a mortgage broker or servicer. These trusts are now required to obtain a license to acquire or assign mortgage loans in Maryland.
- Emergency regulations facilitate licensing for mortgage trusts. The OFR has issued emergency regulations to streamline the licensing process for mortgage trusts, recognizing the potential impact of the new requirements on the secondary mortgage market.
- Enforcement is temporarily suspended, but action is recommended. While the OFR intends to suspend enforcement of these licensing obligations until April 10, 2025, the guidance recommends that affected parties should audit their portfolios and submit license applications promptly to ensure compliance.
Putting It Into Practice: This expansion of the applicability of licensing requirements could significantly impact the operations of state banks in Maryland. These banks may need to re-evaluate their procedures for acquiring and selling mortgage loans, raising the potential need for such banks to obtain additional licenses or adjust their loan trading practices. The guidance could also mean increased compliance costs and operational burdens for affected banks.