News

Anatomy of a Policy Win-The Mortgage Loan Originator Exemption Legislation

August 14th, 2018 by Don Bianchi

In the early morning hours of August 1, the Massachusetts Legislature’s 2017-2018 Session ended with a flurry of last minute bills.  Among these was an Economic Development Bill that contained a small provision that MACDC had sought: an exemption for employees of certain nonprofits from the requirement to obtain licensing as a mortgage loan originator – a requirement we believe is unnecessary, burdensome, and counter-productive.  While this was not the biggest, or most high-profile policy victory in MACDC history, it is one of which I am very proud because our success reflects on many of MACDC’s core strengths as an organization: strong relationships with and frequent communication with MACDC members; good working relationships with legislators and agency officials; strong collaborations with CHAPA and other allied organizations; and the capacity to do the necessary homework on the issue. 

 

Background: 

The need for the exemption stems from a state law enacted almost a decade ago, the third in a succession of laws (state and federal) aimed to protect consumers from predatory lenders so prevalent before and during the foreclosure crisis.  The commercial mortgage lending industry experienced major changes in the early-to mid-2000s, reflecting what we now look back on as the “housing bubble”: rapid home price appreciation coupled with a proliferation of mortgage lenders and mortgage products, including predatory loans made with complete disregard of borrowers’ ability to repay the loans, which resulted in a massive increase in foreclosures starting in 2006-2007.  MACDC and other affordable housing advocates clamored for a state law to protect consumers that resulted in the 2007 passage of  “An Act Protecting and Preserving Home Ownership” (Chapter 206 of the Acts of 2007), which, among other things, placed non-bank mortgage lenders under the regulation of the MA Division of Banks (DOB).  

In 2008, the U.S. Congress passed The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act), which requires states to enact legislation requiring licensing of mortgage loan originators (MLOs).  In recognition that administering publicly-funded loans (such as loans for home repair, or for down payment assistance) is very different from lending in a commercial context, the S.A.F.E. Act permits states to exempt employees of “bona fide nonprofits” from the MLO requirements, as detailed in Section 1008.103 of the federal regulations. 

Massachusetts passed a law adopting the S.A.F.E. Act in 2009, under Chapter 44 of the Acts of 2009.  Unfortunately, the Massachusetts legislation enacted to comply with the S.A.F.E. Act did not provide for the exemptions for certain nonprofits permitted under the federal regulations.  

Between 2008 and 2017, CDCs and other nonprofits who administered publicly funded programs relied on a 2008 Opinion Letter by the DOB, which stated that employees of nonprofits who administer exclusively publicly-funded loan programs were exempt from the licensing requirements on the basis that they are acting on behalf of government entities. In June 2017, however, the DOB issued an “Industry Letter," which stated that the 2009 MA legislation altered the regulatory requirements and that, in fact, as of July 31, 2009, any person who meets the definition of a MLO must be licensed as such, even if he, or she is employed by a nonprofit entity that is exempt from licensing.  In its letter, DOB acknowledged there was confusion with regard to the 2009 law and said that it would take no enforcement action on this until December 31, 2017, at which time those engaging in mortgage lending activity must be licensed. 

The process and the cost for an individual to obtain a license are significant.  They must pay a fee, receive at least 20 hours of pre-licensing education, pass a written test, and submit fingerprints for a criminal background check, among other requirements.  The costs to the individual (or to the nonprofit which employs them) for initial licensing is more than $1,000.  In addition, the employee must take annual continuing education courses.  If a licensed MLO person leaves the employ of the nonprofit, the new person hired must also be licensed.  Beyond being unnecessary and burdensome, the pre-licensing and continuing education provided to mortgage loan originators, if applied to employees of the nonprofits administering public programs, will likely come at the expense of learning the skills necessary to effectively and efficiently administer these public programs. 

The MLO education is tailored to ensuring that a commercial mortgage lender is trained on the various aspects of commercial lending: federal laws on topics including required disclosures and definitions of high-cost mortgages; understanding the wide variety of mortgage products, including subprime lending; ethical issues including redlining and predatory lending; and many other topics intended to provide profit-motivated mortgage lenders, whose employees are typically compensated based on the number of loans they make, with the legal and ethical standards they are required to follow.  In contrast, the lending programs administered by tax-exempt nonprofits on behalf of a municipality, for example, typically have loan terms and guidelines established by the public sector.  The loans are made with a charitable purpose; loan terms are favorable to the borrower, frequently at no interest, with repayment deferred until the home is sold or refinanced; and the compensation for the nonprofit is established by the municipality.

 

The Effort to Obtain the Exemption for Certain Nonprofits: 

Therefore, CDCs and other nonprofits administering publicly funded loans faced the prospect of embarking upon the costly and time-consuming process of obtaining MLO licenses for their employees, who were engaged in activity that the federal government had acknowledged was distinct from commercial lending.  While working to educate its members on the process for obtaining licensing for their employees, MACDC also embarked on a campaign to exempt nonprofits from the licensing requirements, as allowed by the S.A.F.E. Act. In November 2017, MACDC and its allies met with the DOB CommissionerCommissioner McGinnis noted that while existing state law did not provide a nonprofit exemption, he agreed with us that certain nonprofits should be exempt from the MLO licensing requirements and said that DOB would support legislation to provide for an exemptionLater that month, the DOB notified MACDC and others that, in recognition of the concerns that have been raised, DOB would suspend enforcement of the MLO licensing requirements until June 30, 2018. 

In the course of the months that followed, MACDC worked with CHAPA, the Regional Housing Network of MA (RHN), and Habitat for Humanity Greater Boston.  MACDC helped draft legislative language that was ultimately deemed acceptable to the DOB, the Mass Mortgage Bankers Association (MMBA), and our allies.  It would exempt two categories of lenders: bona fide nonprofit homeownership organizations (Habitat and its affiliates), and other tax-exempt nonprofits who lend exclusively public funds.  This second exemption would codify into State Law the exemption expressed in the DOB’s 2008 Opinion Letter.  Some CDCs, Community Development Financial Institutions (CDFIs), and other nonprofits who lend private money would continue to be subject to the MLO licensing requirements.  Recognizing that stand-alone legislation may not succeed, we were successful in obtaining the Senate’s approval to include the MLO licensing exemption in its version of the Economic Development Bill.  Because it was not included in the House version of the bill, the provision was the subject of negotiation between the House and Senate right up until the last hours of the legislative session.  Fortunately, the exemption provision was included in the final version of the bill and was signed into law by the Governor. 

 

Reasons We Succeeded: 

  • Frequent Communication with MACDC Members: 

MACDC Members called our attention to the June 2017 Industry Letter, and to the challenges it created for their programs and those they serve.  We worked closely with our members on understanding the costs and the process associated with licensing and kept them informed about our efforts to secure legislation to provide an exemption.  When the time came for members to make calls to legislators to advocate for inclusion of the exemption language in the Economic Development legislation, the response from members was overwhelming, with over 50 calls placed to legislators.  

  •  Good Working Relationships with Legislators, Agency Officials, and Allies: 

MACDC and our allies reached out to the DOB in the summer and fall of 2017, culminating in the November meeting with the new DOB Commissioner, where he agreed to work with us on a legislative remedy.  MACDC worked with its allies, the DOB, and the MMBA to come up with legislative language comfortable to all.  We joined forces with Habitat for Humanity Greater Boston, developing a relationship that proved essential in eventual passage of the legislation and establishing the basis for future cooperation.  We utilized, and nurtured, the good working relationships that MACDC, RHN, CHAPA, and Habitat had with legislators to advance legislation which was ultimately adopted. 

  •  Doing our Homework on the Policies in MA and Other States, and on the federal level: 

MACDC and our allies researched the exemptions allowed in the S.A.F.E., existing MA law, and the exemption legislation enacted by other States.  This enabled us to approach our interactions with the DOB, the MA Legislature, our Members, and others with a thorough understanding of why an exemption was reasonable and necessary, legislative language to achieve the exemption, and how to be most effective in our advocacy. 

 

MACDC is grateful to our allies, the DOB and MMBA, and the numerous legislators who supported our efforts.  We are particularly grateful to the following legislators: Speaker DeLeo, Senate President Spilka, and Senate President Emerita Chandler; Representatives Coppinger, Sanchez, Wagner, Peake and Kulik; and Senators Cyr, Eldridge, Lesser and Welch. 

Commenting Closed

State Legislature Wraps Up 2017/18 Session

August 6th, 2018 by Joe Kriesberg

The Massachusetts State Legislature wrapped up the 2017/18 legislative session on July 31 and in the final flurry of activity, there was some good news for community developers and some disappointing news. On July 27, MACDC sent a letter to legislative leaders requesting action on six items.

    Here is how we fared:
  1. The legislature overrode the Governor's Veto of the so-called Chapter 206 money that provides grants to CDCs and others for home-ownership education and foreclosure prevention.   This action fixes the language that defines the program and provides $2.05 million for the line-item, a $500,000 increase over last year.
  2. The legislature enacted language to exempt bona fide nonprofits from the onerous and unnecessary Mortgage Loan Originator (MLO) licensing requirements.  This was an issue of great concern to many MACDC members that operate home-ownership programs such as down-payment assistance and lead paint abatement loans.  TO make this happen, we worked closely with our impacted members, CHAPA, Habitat for Humanity, the Division of Banks and the Mass. Mortgage Bankers Association.
  3. The legislature authorized $1.25 million in capital funds for CDFIs that lend to small businesses.  We had hoped to secure $5 million, but this will still provide important capital to many of our members.
  4. The Governor's Housing Choice bill did not pass.  The House and Senate could not agree on a path forward regarding zoning and housing production.  The House wanted to pass the Governor’s bill. The Senate wanted to add some zoning reforms for which we had advocated.  They could not reach an agreement.  This is very disappointing as so many people worked so hard over the past two years to enact meaningful housing production and zoning reform.
  5. Legislation to enable the creation of Community Benefit Districts also did not pass.  MACDC has worked with the Massachusetts Smart Growth Alliance for four years to get this bill enacted so this too was disappointing.  
  6. The Legislature did not act on the Governor's Supplemental Budget request which included $10 million in CPA matching funds.  That could still be done in informal session later this year.

The Legislature also adopted strong legislation to regulate and tax Short Term Rentals, like Airbnb.  We are urging the Governor to sign this into law. The legislature also created an economic mobility commission that will look at best practices for helping affordable housing residents gain economic stability.

Considering that MACDC had already won our three top policy priorities for the year we are very pleased with what has been accomplished over the past two years (the Community Investment Tax Credit legislation, the Affordable Housing Bond Bill and restored funding for the Small Business Technical Assistance program).

MACDC is thankful to our members for the calls, emails, and visits that they made to advocate for this agenda.  We are grateful to have so many amazing partners like CHAPA, the Mass. Smart Growth Alliance, and the Metropolitan Area Planning Council with whom we work closely.  And, of course, we have many friends in the House and Senate – far too many to list here – that do the hard work inside the building to turn good ideas into law.

Commenting Closed

MACDC Members Awarded Rental Round Awards for 9 Projects

August 1st, 2018 by Don Bianchi

On July 25, Governor Baker announced the award of $57 million in subsidy funding as well as state and federal housing tax credits that will generate more than $240 million in subsidized private equity.  When completed, these 19 projects will create or preserve 1,463 units, including 1,312 affordable units, with 227 of these affordable units reserved for households earning less than 30% of area median income. 

 

MACDC Members were well represented among the awardees, with 9 receiving awards, resulting in the creation or preservation of 463 units, including 430 affordable units: 

  • Jamaica Plain NDC will build 44 new affordable units at 25 Amory Street near the Jackson Square MBTA Station in Jamaica Plain;
  • Codman Square NDC’s Four Corners project will provide 31 newly-constructed affordable units of transit-oriented development in Dorchester;
  • NeighborWorks Southern Mass will construct 48 units of family housing, including 30 affordable units and 18 units for families with incomes up to 110% of area median income, at its transit-oriented Downtown Brockton project;
  • A 62-unit senior project, including 57 affordable units, will be constructed by Jewish Community Housing for the Elderly at 370 Harvard Street in Brookline;
  • Just-a-Start will combine preservation of existing affordable units along with newly constructed units, at Squirrelwood in Cambridge, and thereby provide 88 units, 78 of them affordable.
  • The Women’s Institute for Housing and Economic Development will construct 58 units of affordable senior housing at Shirley Commons on the Fort Devens site;
  • Bentley Apartments in Great Barrington, developed by CDC of South Berkshire, will provide 45 newly constructed affordable units for families;
  • Valley CDC will blend preservation and construction at the Sergeant House Expansion in Northampton, and provide 31 affordable units, along with supportive services for residents who need them;
  • B’nai B’rith Housing will construct 56 affordable units for seniors at Coolidge at Sudbury. 

 

These projects will meet critical housing needs in communities across the Commonwealth.  MACDC will continue to advocate for other policies that support providing a wide range of affordable housing opportunities to families in the Commonwealth. 

Commenting Closed
Subscribe to News