HOW TO AVOID FINES AND PENALTIES AS A
MORTGAGE BANKER OR BROKER IN NEW JERSEY
2006 MBA Regional Conference
Wayne Watkinson, Esq.
I. Potential Fines and Penalties.
-The Licensed Lenders Act provides that any person or licensee who engages in any conduct or practice prohibited by the Act is subject to a penalty not exceeding $5,000. N.J.S.A. 17:11C-48. Each violation constitutes a separate offense.
-In addition, the commissioner may order any licensee to refund any fee taken illegally or in violation of the Act.
II. Licensing
A. Solicitor Registrations.
Department Bulletin 05-22
-A mortgage solicitor who has been registered in affiliation with a licensee may not begin work for that licensee until the registration is entered into the Department's licensing system.
B. Unlicensed Branches
-Branch office is defined as any location where, in the regular course of business, (i) applications are received or distributed; (ii) underwriting decisions are made; (iii) commitments or lock-in agreements are issued; or (iv) fees received from consumers. N.J.A.C. 3:15-1.2
-Out-of-state branches must be licensed if they have direct contact with New Jersey consumers.
C. Illegal Net Branches
i. Cannot pay a separate business entity.
ii. Licensee must pay expenses of the office, such as cost of rent, office equipment and employee payments.
iii. Branch manager may not maintain a separate bank account.
iv. Branch manager may not maintain contractual relationships, including the lease.
v. Licensee may not sublease from the branch manager.
D. Change of Control-Must have prior approval from the Department before selling a controlling interest in the company (25%).
E. Lending without a License-New Jersey has no occasional exception for companies in the financial services industry. Before making first loan, the company must be licensed.
Advance Fee Loan Broker Law-N.J.S.A. 17:10B-1 et seq.-Unlicensed companies taking fees in advance are subject to fines of $7,500 for the first offense and $15,000 for subsequent offenses.
III. Fees and Charges
-Potential for refunds from date of last exam. All fees must be disclosed on the good faith estimate. New Jersey also requires an application disclosure be made prior to taking a fee, and this disclosure must include the refundability of the fees.
A. Brokers, or lenders acting as brokers, may only charge application fees and discount points. Brokers may not charge third party fees.
B. Lenders may only charge fees authorized (N.J.A.C. 3:1-16.2)
i. application fees;
ii. commitment fees;
iii. lock-in fees
iv. discount points
v. third party charges
No processing fees, document preparation fees or underwriting fees.
C. Attorney Fees of Lender- Attorney fees, other than for attorney review, require a specific request form signed by the borrower. N.J.S.A. 46:10A-6.
D. Overnight Delivery Fees- The charge for must equal cost of the service, and also requires a specific disclosure signed by the borrower.
E. Commitment Fees-May be charged only after a firm commitment has been issued. Commitment may not be subject to appraisal, credit or third party investor approval. N.J.A.C. 3:1-16.1.
F. Prepayment Penalties- Prepayment of a first or second mortgage loan may be made at any time without penalty. N.J.S.A. 46:10A-6.
IV. New Jersey Home Owners Security Act
A. Limits on Home Loans-Loans Secured by the borrower's principal residence.
1. A creditor may only charge a late fee on a home loan as follows:
a. Not in excess of 5% of the payment in default.
b. Only when a payment is 15 or more days past due.
c. Not more than once with respect to a single late payment. N.J.S.A. 46:10B-25 (d).
2. A creditor must provide a payoff within seven business days after the request, and a creditor may not charge a fee for informing or transmitting to any person the balance due to pay off a home loan or to provide a release upon prepayment. N.J.S.A. 46:10B-25(f).
3. A creditor shall treat every payment as posted on the date it is received. N.J.S.A. 46:10B-25(d)(5).
B. High Cost Home Loans-Must avoid making loans which unintentionally fall into high cost category.
1. Rate Threshhold- The identical threshold set by Federal Regulation Z for determining whether the mortgage loan is a "Section 32" high cost loan under federal law. In general, this limitation is reached when the APR exceeds by more than 8% (10% on subordinate -lien loans) the yield on Treasury Securities having comparable yields of maturity.
2. Points and fees threshold-The total points and fees payable by the borrower at or before the loan closing, excluding up to two bona fide discount points and any conventional prepayment penalty, exceeds:
(a) 4.5% of the total loan amount if the total loan amount is $40,000 or more;
(b) the lesser of 6% of the total loan amount or $1,000, if the total loan amount is less than $20,000; and
(c) 6% if the total loan amount is $20,000 or more but less than $40,000.
3. The composition of the points and fees threshold in New Jersey is different from the points and fees used to determine whether it is a high cost loan under Section 32 of federal law, and includes items such as the yield spread premium and seller paid points.
4. In addition to private remedies such as the Consumer Fraud Act, the Department may impose a civil penalty of up to $10,000 for each violation of NJHOSA. In addition, the Department may suspend, refuse to renew or revoke a license for violations of NJHOSA, or permanently remove an individual responsible for a violation from working in any capacity related to activities regulated by the Department.
