Restoring the Securities Industry Exemption From Mortgage Broker Licensing
A legacy of the financial crisis a decade ago, Congress enacted the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), which gave states one year to pass legislation requiring licensure of mortgage loan originators according to national standards. In response the Florida legislature amended Chapter 494, Florida Statutes in 2009 to create the Florida Mortgage Brokerage and Mortgage Lending Act. Administered by the Office of Financial Regulation through its Division of Consumer Finance, the amended law provides for the licensing of individuals acting as loan originators, as well as providing for licensing of mortgage brokers and mortgage lenders.
The SAFE Act also gave the United States Department of Housing and Urban Development (“HUD”) authority to oversee states’ compliance with the SAFE Act. In July of 2011 HUD adopted its final SAFE Act Rule. Under this rule, the mere referral of a borrower to a lender does not raise a licensing obligation unless the referring party has actually taken an application for a loan. Florida’s amended Chapter 494 adopts the SAFE Act’s definition of loan originator, but expands it to include an “individual who, directly or indirectly, solicits or offers to solicit a mortgage loan.” In addition, the 2009 amendments to Chapter 494 repealed an exemption from licensing under Part II of Chapter 494 as a mortgage broker for a “securities dealer registered under the provisions of s. 517.12, when dealing with its corporate or individual clients in the normal course of its securities business.”
Against this background, the Office of Financial Regulation determined in 2016 that even though HUD’s SAFE Act Rule does not consider a general referral or recommendation to constitute “offering or negotiating loan terms” so as to require a loan originator license, Florida’s broader definition including the phrase “indirectly solicits,” always requires licensure when these incidental activities are compensated.
This week HB 193, a bi-partisan effort by Representative Richard Stark (D-Weston) and Senator Dennis Baxley (R-Ocala) was sent to the Governor. The legislation restores the exemption from mortgage broker licensure for Florida licensed securities dealers, investment advisers and their registered associated persons acting in the course of their investment business and excludes these activities from the description of loan origination. Should mortgage finance questions arise in the course of investment business, advisers could answer limited questions about mortgage loans without fear of being held to have acted without required licensing. Being able to refer a client to a mortgage lender, trained and licensed to be knowledgeable about mortgage financing, the array of mortgage products and daily pricing of mortgage loans, provides a benefit to the consumer and to the lender. For this benefit, the investment professional should be compensated. These professionals are already licensed by the Office of Financial Regulation’s Division of Securities. Requiring an additional license from its Division of Consumer Finance should be limited to instances where mortgage loan origination is more than merely incidental to their regular business.
A similar bill passed the Florida Legislature in 2017, but unrelated language added during the process of passage was unacceptable to the Governor, resulting in a veto of the whole bill. In his veto message, Governor Scott recognized the need for the securities industry’s exemption from unnecessary regulation, but felt this was outweighed by his other objections. No such objectionable language appears in this year’s bill.