Maryland has relieved the most pressing industry worries about recent licensing added for mortgage assignees with a new exemption for some entities. But certain secondary market participants should still conduct legal reviews of whether they have additional responsibilities.
Gov. Wes Moore signed legislation this week specifically exempting passive mortgage-backed securities trusts from the new licensing
The move is significant because the trust component of the licensing mandate was the biggest concern for the industry, said Stephen Ornstein, an attorney at Alston & Bird, and author of
"The urgent issue was not having to get trusts licensed. In the residential lending space it's unheard of," he told this publication.
What's still at stake
The trust exemption added under Maryland's new Secondary Market Stability Act doesn't mean the industry can ignore the new licensing enforcement that's been pending altogether.
The exemption that Moore signed into law turned out to be narrower than an earlier version, according to
The exemption is specifically for "a trust that acquires or is assigned a mortgage loan and does not make mortgage loans, act as a mortgage broker or mortgage servicer or engage in the servicing of mortgage loans," they said.
State-level licensing for mortgage assignees that are not trusts does exist in other jurisdictions is not consistent throughout all 50 jurisdictions.
Industry reaction
A coalition of housing and securities groups that included the Structured Finance Association had responded to the inclusion of MBS trusts in Maryland licensing earlier this year with alarm upon seeing it interrupt both loan purchases and foreclosure by their members.
The coalition had argued that the court decision that led to the Maryland Office of Financial Regulation's licensing action should not have been so broadly interpreted.
The licensing guidance originally stemmed from a state appeals-court decision in the lawsuit Estate of Brown v. Ward in which a home-equity line of credit foreclosure got dismissed because the assignee, which was as trust, did not have an installment loan license.
Maryland's Office of Financial Regulation interpreted lender responsibilities to extend even further to even closed-end first mortgages in response to the lawsuit.
"The Maryland legislation exempts passive trusts holding Maryland mortgages from the licensing requirements promulgated via emergency regulation by the state's Office of Financial regulation. That represents a positive development for the Maryland mortgage market, and resolves the principal concerns of secondary market participants," said Dallin Merrill, director of MBS policy at the Structured Finance Association, in an email.
"At the same time, the expanded licensing requirements will now apply to ownership structures other than passive trusts. And there are still some open questions about the applicability of the licensing regulations in other contexts. We expect to continue to work with the Maryland office of financial regulation to resolve outstanding concerns and questions," he added.
Private mortgage market ramifications
The new exemption came on top of an earlier clarification in which the OFR indicated government-related instrumentalities like Fannie Mae and Freddie Mac were not subject to the licensing requirement.
Maryland had added that exemption earlier this year, according to
A broader exemption for trusts in the smaller private MBS market also was important given that the Trump administration has been generally scaling back the public sector. There also are plans to
