The Maryland Office of Financial Regulation (OFR) issued new guidance and emergency regulations extending mortgage lender licensure requirements to include acquirers and assignees of residential mortgage loans on Maryland properties. This guidance stems from the Maryland Appellate Court’s decision in Estate of Brown v. Ward (April 2024), extending the licensing obligations—previously understood to apply to brokers, originating lenders and servicers—to all parties who acquire or are assigned Maryland mortgage loans. The OFR explicitly states those parties include “mortgage trusts, including passive trusts,” unless expressly exempted.
The new guidance took effect immediately when released on January 10, 2025, but the OFR has indicated that enforcement actions will be suspended until April 10, 2025, allowing time for acquirers and assignees (and, yes, even passive trusts) to apply for the necessary licenses “without undue burden.”
Formal Guidance and Emergency Regulations
While the OFR had not previously interpreted Maryland’s Mortgage Lender Law to apply to assignees of mortgage loans, this new guidance, and the emergency regulations introduced to implement this guidance, “clarify” that licensing requirements now extend to assignees and mortgage trusts (yes, that’s right, even passive trusts). As background, the OFR indicates this clarification recognizes the reasoning in Estate of Brown, where the Court determined that an assignee of a HELOC subject to the open-end credit grantor (OPEC) provisions required a mortgage lender license based on (1) the inclusion of assignees in the definition of credit grantor under the OPEC scheme and (2) the common law principle “that an assignee inherits the rights and obligations of the original lender, including the duty to be licensed under Maryland law.”
The OFR’s guidance, however, goes further than the Estate of Brown decision. The OFR extends the Estate of Brown rationale to require a license under either the Maryland Mortgage Lender Law or the Installment Loan Law for any entity acquiring or assigned any mortgage loan.
Additionally, the emergency regulations make minor adjustments to accommodate the licensing of passive trusts:
- Principal Officer Requirements: The regulations clarify that for passive trusts, the principal officer (who must have at least three years of experience in the mortgage business) can be the trustee, or if the trustee is an entity, an individual deemed a principal officer of the trustee under the criteria of the existing regulation.
- Net Worth Requirements for Passive Trusts: Passive trusts can meet the net worth requirement by providing evidence that they hold or will hold sufficient assets to satisfy the requirement within 90 days of licensure, if the trust’s only assets are mortgage loans that it has not yet acquired.
Estate of Brown v. Ward
In Estate of Brown, the Court ruled that a consumer could use a defense against foreclosure because the assignee of the related HELOC was not licensed under the Maryland Credit Grantor provisions. The Court determined that the assignee—despite not originating the loan—was still required to be licensed to take advantage of the streamlined foreclosure process available to licensed entities.
The Court’s reasoning relied heavily on the statutory definition of “credit grantor” under Maryland law, which was amended to make a “correction” in 1990 to, among other things, include assignees in this definition. The court interpreted this to mean that the licensure requirement – which applies to a credit grantor that “makes” a loan – applies to assignees, in line with the principle that an assignee generally takes on the same rights and obligations as the assignor. This interpretation relied on the Court’s decision in Nationstar Mortgage LLC v. Kemp (2021), which concluded that assignees were subject to statutory usury and fee provisions applicable to “licensees” because assignees inherit the same responsibilities under the law as the original lender. The Estate of Brown decision extended this rationale to hold that because assignees succeed to the same rights and obligations as the assignor there was no indication that the legislature intended to exclude assignees from the licensure provisions.
Next Steps for Acquirers or Assignees of Maryland Mortgage Loans
For those involved in transactions involving Maryland mortgage loans (we’re looking at you sponsors securitizing Maryland mortgage loans), your immediate first step should be to carefully review your activities to determine whether licensure is required and if any exemptions apply. The importance of this first step was emphasized through the OFR’s January 31 bulletin which confirmed that “neither the [Estate of Brown] decision, nor OFR Guidance, overrides the[] statutory exemptions and exclusions” included in the licensure schemes (one of which exists for GSEs and trusts created by GSEs).
Key steps to consider include:
- Identify the acquirer or assignee of the loan: Is it a statutory trust, limited liability company or corporation that is a separate legal entity or a common law trust that is not?
- Check for applicable exemptions: While no express exemption for trusts is provided, ask if any other exemptions could apply to the trust in your structure.
- Determine how the loan is being assigned: In the case of a trust, is the acquisition or assignment structured to transfer title to loan to the trust itself or to a trustee on behalf of a trust?
- Assess how title is being recorded: In the case of a trust, is title being recorded in the name of the trust or in the name of the trustee (which is the more typical approach)?
Working through these steps will help determine if the acquirer or assignee is within the scope of the OFR’s guidance and emergency regulations and/or whether an exemption may apply.
With less than 50 business days between now and when the OFR may pursue enforcement actions on April 10, 2025, those who currently hold or may in the future acquire or be assigned Maryland mortgage loans and those who sponsor mortgage trusts or other entities to do so should strongly consider preparing for licensure. That may mean the following:
- Register for the Nationwide Multistate Licensing System (NMLS): Maryland license applications must be submitted through the Nationwide Multistate Licensing System (NMLS), and an NMLS account is required.
- Determine the “principal officer” to be identified on the license application: A principal officer with at least three years of mortgage lending experience must be designated.
- Engage in discussions with your trustees if you have a mortgage trust and determine the “principal officer” may be the trustee or a principal officer of the trustee: Coordination with the trustees of mortgage trust (yes, including passive trusts) will be critical to navigating the licensure requirements and related application, especially if you determine that the principal officer will be an employee of the trustee.
- Ensure compliance with net worth requirements: Passive trusts must be able to satisfy the statutory net worth requirement by providing evident of the assets that will be held within 90 days of licensure.
While we are actively participating in the preparation of a legislative proposal intended to further clarify Maryland’s mortgage lender licensure laws in a way that does not unduly impair the secondary trading and the securitization of Maryland mortgage loans, the legislative process can be unpredictable. Start now, rather than passively waiting for April 10, 2025 to arrive. As always, Hunton stands ready to help you navigate these and other regulatory challenges.