23.8088.01000
Sixty-eighth
Legislative Assembly HOUSE BILL NO. 1068
of North Dakota
Introduced by
Industry, Business and Labor Committee
(At the request of the Department of Financial Institutions)
1 A BILL for an Act to create and enact chapter 13-13 of the North Dakota Century Code, relating
2 to residential mortgage loan servicers; and to provide a penalty.
3 BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF NORTH DAKOTA:
4 SECTION 1. Chapter 13-13 of the North Dakota Century Code is created and enacted as
5 follows:
6 13-13-01. Administration.
7 The department of financial institutions shall administer and enforce this chapter. The
8 department has the power to promulgate rules and regulations having the force and effect of
9 law, reasonably necessary to carry out the provisions of this chapter, in accordance with chapter
10 28-32. Any hearing held and any orders issued pursuant to this chapter must be in accordance
11 with chapter 28-32. In addition to those powers set forth in chapter 28-32, the department has
12 additional powers as set forth in this chapter.
13 13-13-02. Definitions.
14 As used in this chapter, unless the context or subject matter otherwise requires:
15 1. "Allowable assets for liquidity" means those assets that may be used to satisfy the
16 liquidity requirements in this chapter, including unrestricted cash and cash equivalents
17 and unencumbered investment grade assets held for sale or trade, which include
18 mortgage-backed securities, obligations of government-sponsored enterprises, and
19 United States treasury obligations.
20 2. "Board of directors" means the formal body established by an applicant or licensee
21 that is responsible for corporate governance and compliance with this chapter.
22 3. "Commissioner" means the commissioner of the department of financial institutions.
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1 4. "Corporate governance" means the structure of the institution and how it is managed,
2 including the corporate rules, policies, processes, and practices used to oversee and
3 manage the institution.
4 5. "Government-sponsored enterprises" means the federal national mortgage association
5 (fannie mae), the government national mortgage association (ginnie mae), and the
6 federal home loan mortgage corporation (freddie mac).
7 6. "Interim serviced prior to sale" means the activity of collecting a limited number of
8 contractual mortgage payments immediately after origination on loans held for sale but
9 prior to the loans being sold into the secondary market.
10 7. "Internal audit" means the internal activity of performing independent, objective
11 assurance and consulting to evaluate and improve the effectiveness of company
12 operations, risk management, internal controls, and governance processes.
13 8. "Large servicer" means a residential mortgage servicer with servicing portfolios of
14 two thousand or more one-to-four unit residential mortgage loans serviced or
15 subserviced for others, excluding whole loans owned, and loans being "interim"
16 serviced prior to sale as of the most recent calendar year end, reported in the
17 nationwide multistate licensing system and registry mortgage call report, and that
18 operates in two or more states, districts, or territories of the United States either
19 currently or as of the prior calendar year end. For entities within a holding company or
20 affiliated group of companies’ applicability must be at the large servicer level. This
21 definition excludes servicers solely owning or conducting reverse mortgage servicing,
22 or both, or the reverse mortgage portfolio administered by the large servicer.
23 9. "Lender" means any person that extends money to a borrower with the expectation of
24 being repaid.
25 10. "Liquidity risk" means the potential that the servicer will be unable to meet its
26 obligations as they come due because of an inability to liquidate assets or obtain
27 adequate funding or that it cannot easily unwind or offset specific exposures.
28 11. "Mortgage call report" means the quarterly or annual report of residential real estate
29 loan origination, servicing, and financial information completed by companies licensed
30 in the nationwide multistate licensing system and registry.
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1 12. "Mortgage servicing rights" refers to the contractual right to service residential
2 mortgage loans on behalf of the owner of the associated mortgage in exchange for
3 specified compensation in accordance with the servicing contract.
4 13. "Mortgage servicing rights investor" means entities that invest in and own mortgage
5 servicing rights and rely on subservicers to administer the loans on their behalf.
6 Mortgage servicing rights investors are often referred to as master servicers.
7 14. "Nationwide multistate licensing system and registry" means the registry developed by
8 the conference of state bank supervisors and the American association of residential
9 mortgage regulators and owned and operated by the state regulatory registry, LLC, or
10 any successor or affiliated entity, for the licensing and registration of persons in
11 financial services industries.
12 15. "Operating liquidity" means the funds necessary to perform normal business
13 operations, such as payment of rent, salaries, interest expense, and other typical
14 expenses associated with operating the entity.
15 16. "Records" means books, accounts, papers, records, and files, no matter in what
16 format they are kept, which are used in conducting business under this chapter.
17 17. "Residential mortgage loan servicing" means receiving any scheduled periodic
18 payments from a borrower pursuant to the terms of any federally related mortgage
19 loan, including amounts for escrow accounts under section 10 of the Real Estate
20 Settlement Procedures Act [12 U.S.C. 2609], and making the payments to the owner
21 of the loan or other third parties of principal and interest and such other payments with
22 respect to the amounts received from the borrower as may be required pursuant to the
23 terms of the mortgage servicing loan documents or servicing contract. In the case of a
24 home equity conversion mortgage or reverse mortgage as referenced in this section,
25 servicing includes making payments to the borrower.
26 18. "Reverse mortgage" means a loan collateralized by real estate, typically made to
27 borrowers over fifty-five years of age, which does not require contractual monthly
28 payments and is typically repaid upon the death of the borrower through the sale of
29 the home or refinance by the heirs.
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1 19. "Risk management assessment" means the functional evaluations performed under
2 the risk management program and reports provided to the board of directors under the
3 relevant governance protocol.
4 20. "Risk management program" means the policies and procedures designed to identify,
5 measure, monitor, and mitigate risk sufficient for the level of sophistication of the
6 residential mortgage loan servicer.
7 21. "Service or servicing a loan" means on behalf of the lender or investor of a residential
8 mortgage loan:
9 a. Collecting or receiving payments on existing obligations due and owing to the
10 lender or investor, including payments of principal, interest, escrow amounts, and
11 other amounts due;
12 b. Collecting fees due to the servicer;
13 c. Working with the borrower and the licensed lender or servicer to collect data and
14 make decisions necessary to modify certain terms of those obligations either
15 temporarily or permanently;
16 d. Otherwise finalizing collection through the foreclosure process; or
17 e. Servicing a reverse mortgage loan.
18 22. "Servicer" means the entity performing the routine administration of residential
19 mortgage loans on behalf of the owner or owners of the related mortgages under the
20 terms of a servicing contract.
21 23. "Servicing liquidity or liquidity" means the financial resources necessary to manage
22 liquidity risk arising from servicing functions required in acquiring and financing
23 mortgage servicing rights, hedging costs, including margin calls, associated with the
24 mortgage servicing rights asset and financing facilities, and advances or costs of
25 advance financing for principal, interest, taxes, insurance, and any other servicing-
26 related advances.
27 24. "Subservicer" means the entity performing the routine administration of residential
28 mortgage loans as agent of a servicer or mortgage servicing rights investor under the
29 terms of a subservicing contract.
30 25. "Tangible net worth" means total equity less receivables due from related entities, less
31 goodwill, and other intangibles less pledged assets.
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1 26. "Whole loans" means loans where a mortgage and the underlying credit risk is owned
2 and held on the balance sheet of the entity with all ownership rights.
3 13-13-03. Residential mortgage loan servicing license required.
4 Except as otherwise provided, a person other than a residential mortgage loan servicer
5 licensed and authorized under this chapter may not engage in residential mortgage loan
6 servicing, either as a servicer, subservicer, or mortgage servicing rights investor, in the state
7 without a residential mortgage loan servicer license issued by the commissioner. A person
8 engages in residential mortgage loan servicing in the state if the borrower resides in North
9 Dakota.
10 13-13-04. Entities exempted from licensing requirements.
11 This chapter does not apply to:
12 1. Banks;
13 2. Credit unions;
14 3. Savings and loan associations;
15 4. State or federal housing finance agencies;
16 5. Institutions chartered by the farm credit administration; or
17 6. Not-for-profit mortgage servicers.
18 13-13-05. Application for residential mortgage loan servicer license.
19 Every application for a residential mortgage loan servicer license, branch registration, or a
20 renewal, must be made upon forms designed and furnished by the department of financial
21 institutions and must contain any information which the department deems necessary and
22 proper. The department may further require any applicant to provide additional information that
23 is not requested on the application form. The applicant shall register with the North Dakota
24 secretary of state if so required.
25 13-13-06. Fee to accompany application for residential mortgage loan servicer
26 license.
27 The application for license must be in writing, under oath, and in the form prescribed by the
28 commissioner. The application must give the location or locations where the business is to be
29 conducted and must contain any further information the commissioner requires, including the
30 names and addresses of the partners, officers, directors, trustees, and the principal owners or
31 members, and will provide the basis for the investigation and findings contemplated under
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1 section 13-13-05. At the time of making an application, the applicant shall include payment in
2 the sum of four hundred dollars, which is not subject to refund, as a fee for investigating the
3 application, and the sum of four hundred dollars for a license fee.
4 13-13-07. Financial condition.
5 This section applies to large servicers as defined in subsection 9 of section 13-13-02.
6 1. A large servicer must maintain capital and liquidity in compliance with this section.
7 2. For the purposes of complying with the capital and liquidity requirements of this
8 section, all financial data must be determined in accordance with generally accepted
9 accounting principles.
10 3. A large servicer that meets the federal housing finance agency eligibility requirements
11 for enterprise single-family seller or servicers for capital, net worth ratio, and liquidity,
12 regardless of whether the servicer is approved for government-sponsored enterprises
13 servicing, meets the requirements of subsections 1 and 2 of this section. Large
14 servicers shall maintain written policies and procedures implementing the capital and
15 servicing liquidity requirements of this section. Such policies and procedures must
16 include a sustainable written methodology for satisfying the requirements of this
17 subsection and be available to the commissioner upon request.
18 4. Large servicers shall maintain sufficient allowable assets for liquidity in addition to the
19 amounts required for servicing liquidity to cover normal business operations. Large
20 servicers shall have sound cash management and business operating plans that
21 match the size and sophistication of the institution to ensure normal business
22 operations. Management must develop, establish, and implement plans, policies, and
23 procedures for maintaining operating liquidity sufficient for the ongoing needs of the
24 institution. The plans, policies, and procedures must contain sustainable, written
25 methodologies for maintaining sufficient operating liquidity and be available to the
26 commissioner upon request.
27 13-13-08. Financial condition for applicant or licensee not subject to 13-13-07.
28 1. An applicant or licensee not subject to 13-13-07 which is operating as an approved
29 servicer by one or more government-sponsored enterprises must maintain liquidity to
30 include operating reserves, and tangible net worth that meet the standards set by the
31 entity. If approved by more than one entity, the applicant or licensee must meet the
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1 highest standard of the entities for which they are approved. Applicants or licensees
2 with a combined portfolio are subject to this standard.
3 2. An applicant or licensee with a portfolio of loans not subject to any government-
4 sponsored enterprises requirements must maintain liquidity to include operating
5 reserves of 0.00035 times the unpaid principal balance of the portfolio and maintain a
6 minimum tangible net worth as set forth in paragraph a of this subsection or, in lieu of
7 the tangible net worth, maintain a one million dollar surety bond.
8 a. Minimum tangible net worth, based on nationwide portfolio:
9 0-199 loans $100,000
10 200-299 loans $200,000
11 300-399 loans $300,000
12 400-499 loans $400,000
13 500-599 loans $500,000
14 600-699 loans $600,000
15 700-799 loans $700,000
16 800-899 loans $800,000
17 900-999 loans $900,000
18 1,000 plus loans $1,000,000
19 b. An applicant or licensee servicing North Dakota residential mortgage accounts
20 may apply to the commissioner to waive or adjust one or more of these capital or
21 liquidity requirements. In considering such a request, the commissioner will
22 consider the number and types of loans being serviced and whether the licensee
23 has a positive net worth and adequate operating reserves. For purposes of this
24 section, "operating reserves" are funds set aside in anticipation of future
25 payments or obligations and are included in liquidity.
26 c. Licensees subject to this section must annually or more frequently report, as
27 prescribed by the commissioner, on liquidity, including operating reserves, and
28 tangible net worth.
29 13-13-09. Corporate governance.
30 This section applies to large servicers as defined in section 13-13-02.
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1 1. Large servicers shall establish and maintain a board of directors responsible for its
2 oversight. For large servicers that are not approved to service loans by a government-
3 sponsored enterprise, or where these federal agencies have granted approval for a
4 board alternative, an institution may establish a similar body constituted to exercise