Alston & Bird Consumer Finance Blog

mortgage lending

Georgia Legislation Expands Consumer Financial Protections

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What Happened?

On May 13 and 14, Georgia Governor Brian Kemp signed into law three measures that amend or expand existing consumer financial protections for Georgians, and impact mortgage lending and servicing as follows:

  • HB 240, effectively immediately upon approval on May 13, prohibits unfair and deceptive practices related to mortgage trigger leads.
  • HB 241, effective July 1, clarifies allowable convenience fees applicable to loans made under the Georgia Residential Mortgage Act (“GRMA”) (as well as laws applicable to installment loans, retail installment and home solicitation sales contracts, motor vehicle sales financing contracts, and insurance premium finance companies).
  • HB 15, effective July 1, in addition to certain licensing amendments, amends the GRMA to impose capital, net worth, liquidity and corporate governance obligation on mortgage lenders and servicers. Noteworthy, the measure requires mortgage lenders and brokers to prepare an annual risk assessment delivered to its board of directors and make it available to the regulators upon request.

Why Is It Important?

Taken together, these pieces of legislation signal Georgia’s intent to enhance consumer protections with respect to mortgage lending and servicing.

Trigger Lead Legislation: HB 240 amends the state’s unfair and deceptive trade law, called the Fair Business Practices Act (“FBPA”).  First, the measure specifies that use of a mortgage trigger lead to solicit a consumer who has applied for a loan with a different mortgage lender or broker (as those terms are defined in the GRMA) is considered unfair or deceptive when it (1) fails to clearly state in the solicitation that the solicitor is not affiliated with the mortgage lender or broker the consumer initially applied with; (2) fails to comply with state and federal requirements to make a firm offer of credit to the consumer; (3) uses the information of consumers who have opted out of being contacted; or (4) offers rates, terms, or costs with the knowledge that they will subsequently be changed to the detriment of the consumer.  For purposes of this provision, a “mortgage trigger lead,” in accordance with the federal Fair Credit Reporting Act, is defined as a “consumer report triggered by an inquiry made with a consumer reporting agency in response to an application for credit.” Second, the measure amends the GRMA to include a new paragraph prohibiting mortgage lenders and brokers form engaging in unfair or deceptive practices as outlined in Section 10-1-393.20 of the Georgia Code.

Banking and Finance Laws: HB 15 implements a variety of changes to Georgia’s banking and finance laws. The measure amends requirements for mortgage lenders related to licensing, reporting to the Nationwide Multistate Licensing System and registry, quarterly and annual reporting obligations, and calculating liquidity and net worth. The measure also requires mortgage brokers and lenders to have a board of directors and outlines their responsibilities including designing governance frameworks, monitoring licensee compliance, accurately reporting, conducting internal audits, and establishing risk management programs. The measure creates two new sections of the GRMA of particular  relevance to mortgage lenders and mortgage brokers:

  • Section 7-1-1022 outlines capital, liquidity, and net worth requirements, to be reported in accordance with generally accepted accounting principles. If a licensed mortgage lender is a covered servicer (meaning that it has a servicing portfolio of 2,000 or more residential mortgages serviced or subserviced as reported in its most recent mortgage call report), it must maintain the requisite the capital, liquidity, and net worth outlined in the Federal Housing Finance Agency Eligibility Requirements for Enterprise Single-family Seller/Servicers. All other lenders must maintain a minimum net worth of $100,000 and evidence of $1 million of liquidity (which may include a warehouse line of credit).
  • Section 7-1-1023 mirrors the corporate governance requirements in the Model Capital, Liquidity and Risk Management Framework for non-bank lenders created by the Conference of State Bank Supervisors. Every mortgage lender and broker must establish a board of directors responsible for establishing a written corporate governance framework, monitoring the licensee’s compliance with said framework, reporting regularly, developing internal audit requirements, creating risk management programs and assessments, and conducting formal reviews. The adoption of financial and corporate governance standards for servicers also follows similar legislation in other states (including Connecticut and Maryland, and Iowa) on which we have previously reported.

Convenience Fees: HB 241 revises the general provisions of Georgia contract law to amend requirements for merchants and lenders seeking to utilize convenience fees when processing electronic payments. The measure sets a floor for convenience fees, allowing merchants to charge whichever is greater — $5.00 or the average actual cost (defined as the amount paid by a lender to a third party or the amount incurred by a third party) of a specific type of payment made by electronic means. These provisions apply to banking and financial institutions, as well as lenders of retail installment loans, home solicitation sales contracts, vehicle financing contracts, and insurance premium finance agreements.

What To Do Now?

Licensed mortgage lenders and mortgage brokers should familiarize themselves with the requirements under the newly amended GRMA and FBPA, particularly the prohibitions on deceptive or unfair practices when using mortgage trigger leads or extending credit.

Mortgage lenders and mortgage brokers should also understand the newly updated licensing, reporting, governance, and liquidity requirements to ensure compliance with Georgia’s updated banking and finance regulations.

When utilizing convenience fees, lenders and merchants should verify that such fees do not exceed the maximum amount and should implement the requisite payment processing options. The $5.00 minimum may allow changes in pricing structures for some lenders and merchants.

*We would like to thank Summer Associate Elise Hall for her contribution to this blog post.

Update on New Maryland Law Clarifying Exemptions for Certain Mortgage Trusts

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What Happened?

As we previously advised you, in 2024, the Maryland Appellate Court in Estate of H. Gregory Brown v. Carrie M. Ward, et al., No. 1009, (App. Ct. Sept. Term 2023), ruled that a statutory trust that held a defaulted home equity line of credit (a “HELOC”) must be licensed as both an installment lender and a mortgage lender under Maryland law prior to proceeding to foreclosure on the HELOC.  The relevant parties did not appeal the decision.  Following this ruling, on January 10, 2025, the Maryland Office of Financial Regulation (the “OFR”) issued formal guidance on licensing requirements for mortgage trusts and a notice of emergency regulations to conform to the Brown decision. The guidance mandated that absent an exemption, all assignees of Maryland residential mortgage loans, including trusts, must be licensed as Maryland Installment Lenders or Maryland Mortgage Lenders.  While the formal guidance and emergency regulations took effect upon promulgation by the OFR on January 10, 2025, the OFR suspended enforcement of the emergency regulations until April 10, 2025 — later extended to July 6, 2025.

Why Does it Matter?

On April 22, 2025, Maryland Governor Wes Moore signed into law the Maryland Secondary Market Stability Act of 2025 (emergency measures HB 1516 and its companion SB 1026) with an immediate effective date. The legislation expressly excludes passive trusts from Maryland’s mortgage licensing requirements and defines a “passive trust” as a trust that: (1) acquires or is assigned mortgage loans in whole or in part; (2) does not make mortgage loans; (3) is not a mortgage broker or a mortgage servicer; and (4) is not engaged in the servicing of mortgage loans, which does not include the act of transmitting or directing payments received by a mortgage servicer.

On May 29, 2025, in response to the enactment of the Maryland Secondary Market Stability Act of 2025, OFR rescinded its prior guidance issued on January 10, 2025, and all related advisories (issued on January 31, 2025, and February 18, 2025) and enforcement deadlines concerning licensing requirements for trusts holding mortgage loans. The OFR also formally withdrew the previous emergency and proposed regulations relating to the licensing of mortgage trusts.

The OFR also clarified that commercial lenders making loans exclusively for business purposes under Maryland’s installment loan statutes, as defined by Md. Code Ann., Fin. Inst. § 11-301, are not subject to OFR’s licensing requirements under mortgage lending and installment licensing provisions.

What to Do Now

Please be advised that the Maryland Secondary Market Stability Act of 2025 and the OFR’s rescission of its prior guidance and previous emergency and proposed regulations applies only to residential mortgage loans, and does not address other loan categories such as consumer loans not secured by real estate.  

Secondary market purchasers of loans that do not use passive trusts to acquire or take assignment of residential mortgage loans in Maryland must become licensed as Maryland mortgage lenders by July 6, 2025. However, there can be no assurance that other states will not pass laws or issue regulations, or courts of law will require licensing, even retrospectively, which may adversely affect the Mortgage Loans.

HUD Revises Borrower Residency Requirements for FHA-Insured Mortgages

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What Happened?

On March 26, 2025, the U.S. Department of Housing and Urban Development (HUD or the Department) issued Mortgagee Letter 2025-09 (ML 2025-09), which updates HUD’s residency requirements for borrower eligibility for mortgages insured by the Federal Housing Administration (FHA). The provisions of ML 2025-09 apply to all FHA Title II Single Family forward and Home Equity Conversion Mortgage (HECM) programs.

HUD indicated that it issued its updated residency requirements in response to (and to align with) recent executive actions by the President “that emphasize the prioritization of federal resources to protect the financial interests of American citizens and ensure the integrity of government-insured loan programs.”  The Department stated that “[c]urrently, non-permanent residents are subject to immigration laws that can affect their ability to remain legally in the country,” which “poses a challenge for FHA as the ability to fulfill long-term financial obligations depends on stable residency and employment.” The update “ensures that FHA’s mortgage insurance programs are administered in accordance with [the Trump] Administration[’s] priorities while fulfilling its mission of providing access to homeownership.”

The provisions of ML 2025-09 may be implemented immediately but are required to be implemented for all FHA-insured mortgages with case numbers assigned on or after May 25, 2025.

Why Does it Matter?

ML 2025-09 removes the Non-permanent Resident sections of the FHA Single Family Housing Policy Handbook 4000.1 (the Handbook), in its entirety, eliminating eligibility for non-permanent resident borrowers, and updating the requirements for permanent residents in the following sections of the Handbook:

  • Residency Requirements (II.A.1.b.ii(A)(9));
  • Residency Requirements (II.B.2.b.ii(A)(4));
  • Non-credit Qualifying Exemptions (II.A.8.d.vi(C)(1)(a)); and
  • Special Documentation and Procedures for Non-credit Qualifying Streamline Refinances (II.A.8.d.vi(C)(5)(b)).

The mortgagee letter clarifies that the burden is on the lender to “determine the residency status of the borrower based on information provided on the mortgage application and other applicable documentation” and notes that a Social Security card is insufficient to prove immigration or work status. Rather, “[t]he U.S. Citizenship and Immigration Services (USCIS) within the Department of Homeland Security provides evidence of lawful permanent resident status.”

In addition to limiting eligibility to U.S. citizens and lawful permanent U.S. residents, ML 2025-09 clarifies that a borrower with citizenship in the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau may also be eligible for FHA-insured financing provided the borrower satisfies the same requirements, terms, and conditions as those for U.S. citizens, and the mortgage file includes evidence of such citizenship.

Under the revised guidance, individuals who may be eligible for FHA-insured loans with case numbers assigned on or after May 25, 2025 are limited to (1) U.S. citizens, (2) lawful permanent U.S. residents, and (3) citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau.

Notably, because ML 2025-09 applies prospectively to FHA-insured mortgages with a case number assigned on or after May 25, 2025, the revised requirements would not appear to impact the servicing of existing FHA-insured mortgages made to non-permanent residents, such as the availability of loss mitigation assistance.

What Do I Need to Do?

FHA-approved mortgage lenders should review their policies, procedures, and controls and make any necessary updates to implement the requirements of ML 2025-09 for all FHA-insured mortgages that will have a case number assigned on or after May 25, 2025. Alston & Bird’s Consumer Financial Services Team is actively engaged and monitoring these developments and can assist with any compliance concerns regarding these changes to HUD requirements.

 

New York Passes New Removal Procedures for Officers, Directors, Trustees, and Partners of Any Entity Regulated by Department of Financial Services

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What Happened?

On December 21, 2024, New York Governor Kathy Hochul, signed into law, S7532, which repealed the existing section of the Banking Law addressing the removal of officers, directors, and trustees of banking organizations, bank holding companies and foreign banks (“covered individuals”), and enacted a new section providing a clearer process for removing such individuals and expanding the scope of the removal authority to apply to all entities regulated by the New York Department of Financial Services (“the Department”).

Repealed Section:

The former provisions regarding the removal of covered individuals were limited to banking organizations, bank holding companies, and foreign banks.

The Superintendent of the Department (“the Superintendent”) was authorized to bring an action to the Banking Board (“the Board”) to remove an officer, director, or trustee whenever it found that such individual:

  • violated any law or regulation of the Superintendent of financial services, or
  • “continued unauthorized or unsafe practices . . . after having been ordered or warned to discontinue such practices.”

Note that the Banking Board has not existed since the Department of Financial Services was created in 2011.

The Board would then serve notice of the action to the covered individual to appear before the Board to show why they should not be removed from office. A copy of this notice would be sent to each director or trustee of the banking organization and to each person in charge of and each officer of a branch of a foreign banking corporation.

If after a three-fifths vote by the Board members the Board found that the individual committed such violations, an order would be issued to remove the individual from office.

The removal became effective upon service of the order. The order and findings were not made public, and were only disclosed to the removed individual and the directors or trustees of the banking organization involved. Any such removed individual that participated in the management of such banking organization without permission from the Superintendent would be guilty of a misdemeanor.

Newly Enacted Section:

The new provision expands the removal authority of the Superintendent to apply to all entities regulated by the Department (“covered entities”), including: banks, trust companies, limited purpose trust companies, private banks, savings banks, safe deposit companies, savings and loan associations, credit unions, investment companies, bank holding companies, foreign banking corporations, licensed lenders, licensed cashers of checks, budget planners, mortgage bankers, mortgage loan servicers, mortgage brokers, licensed transmitters of money, and student loan servicers.

The Superintendent is authorized to bring an action to remove such individuals whenever it finds reason to believe that they:

  • caused, facilitated, permitted, or participated in any violation by a covered entity of a law or regulation, order issued by the Superintendent or any written agreement between such covered entity or covered individual and the Superintendent;
  • engaged or participated in any unsafe or unsound practice in connection with any covered entity; or
  • engaged or participated in any willful material act or omitted to take any material act that directly contributed to the failure of a covered entity.

The notice and hearing provisions were changed to allow the Superintendent to serve a statement of charges against the covered individual and a notice of an opportunity to appear before the Superintendent to show cause why they should not be removed from office. A copy of such notice must now be sent to the affected covered entity, instead of the directors or trustees of the covered entity and persons in charge of foreign bank branches.

Additionally, the threshold for removal was changed. Instead of being removed by a three-fifths vote of a board that no longer exists, the covered individual may be removed if, after notice and hearing: (1) the Superintendent finds that the covered individual has engaged in the unlawful conduct, or (2) if the individual waives a hearing or fails to appear in person or by authorized representative.

The order of removal is effective upon service to the individual. The order must also be served to any affected covered entity along with the statement of charges. The order remains in effect until amended, replaced, or rescinded by the Superintendent or a court of competent jurisdiction. Such removed individual is prohibited from participating in the “conduct of the affairs” of any covered entity unless they receive written permission from the Superintendent. If the individual violates such prohibition, they are guilty of a misdemeanor.

Furthermore, the Superintendent is now authorized to suspend the covered individual from office for a period of 180 days pending the determination of the charges if the Superintendent has reason to believe that:

  • a covered entity has suffered or will probably suffer financial loss that impacts its ability to operate in a safe and sound manner;
  • the interests of the depositors at a covered entity have been or could be prejudiced; or
  • the covered individual demonstrates willful disregard for the safety and soundness of a covered entity.

The suspension may be extended for additional periods of 180 days if the hearing is not completed within the previous period due to the request of the covered individual.

Why Does it Matter?

Prior to the update, the Superintendent only had the power to remove individual officers, directors, or trustees from office in various bank organizations. The new law expands this removal power to all entities regulated by the Department.

The amended statute creates an additional penalty for individuals who caused, facilitated, permitted, or participated in the violation of the Banking Law in their positions of power of a regulated entity. Such individuals may be removed from their positions and prohibited from participating in the management of any regulated entity, until they receive written permission from the Superintendent. If they violate the prohibition, they are guilty of a misdemeanor, which can be punished by imprisonment for up to 364 days or by a fine set by the Superintendent.

What Do I Need To Do?

Entities regulated by the Department that are now covered under this section should be aware that violations of law by a licensee may also lead to the removal of certain high-level individuals within the organization. If removed, such individuals would also be prohibited from managing any regulated entity until the Superintendent provides written permission to do so. Affected entities and individuals should take care to ensure compliance with the law to avoid these new penalties.

CFPB’s War on Mortgage Fees Continues

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What Happened?

Immediately following President Biden’s State of the Union Address announcing plans to lower homebuyer and refinancing costs, the CFPB issued a blog post seeking public input on how mortgage closing costs impact consumers. The CFPB also announced that it will work to monitor closing costs and, “as necessary, issue rules and guidance to improve competition, choice and affordability.” Significantly, the CFPB also signaled that it will continue to use its supervision and enforcement tools for companies that fail to comply with the law.

Why Is It Important?

The CFPB is putting companies on notice that the Bureau will be taking a close look at the total loans costs for originating a residential mortgage loan, including origination fees, appraisal fees, credit report fees, title insurance, discount points, and other fees. In particular, the CFPB is paying “significant attention to the recent rise in discount points,” and seems concerned with the lack of competition in connection with certain fees, such as lender’s title insurance and credit reports. The CFPB also has expressed concerns with how companies may charge lender credits and fees that are financed into the loan amount (through higher interest rates or mortgage insurance payments).

While the CFPB’s blog post does not identify any specific laws, it does provide some clues. First, the Bureau is concerned that some closing costs are high and increasing due to lack of competition. According to the Bureau, “[b]orrowers are required to pay for many of the costs associated with closing a home loan but cannot pick the provider and do not benefit from the service.” Taking unreasonable advantage of the inability of a consumer to protect their interests in selecting or using a consumer financial product or service could be construed as abusive under the Dodd-Frank Act’s UDAAP statute.

Because certain fees are fixed and don’t fluctuate with the loan size or interest rate, the Bureau is concerned that such fees could disproportionately impact borrowers with smaller loans, such as low-income borrowers, first-time borrowers, or Black or Hispanic borrowers.  This could present a fair lending problem under the Equal Credit Opportunity Act. Indeed, the CFPB already has announced that, pursuant to its authority to prevent unfair, deceptive, and abusive acts or practices (“UDAAPs”), the Bureau will begin examining institutions for alleged discriminatory conduct that the Bureau deems to be unfair.

Of course, Congress passed the Dodd-Frank Act to address many of the above concerns, and the TRID Rule already attempts to ensure that consumers are provided with greater and more timely information on the nature and costs of the residential real estate settlement process and are protected from unnecessarily high settlement charges.

What Do I Need to Do?

The CFPB is sending a strong message to the industry that closing fees will be receiving scrutiny from the CFPB.  And knowing that the CFPB has been on a hiring spree in its enforcement division, now is a good time to take a close look at the fees being charged from both a UDAAP and fair lending perspective.  The team at Alston & Bird has deep knowledge on mortgage fees and is happy to assist with such a review.