Georgia Amends Residential Mortgage and Installment Loan Laws | Alston and bird
On May 2, 2022, Georgia Governor Brian Kemp signed HB 891 and SB 470 in the law. HB 891, effective July 1, 2022, updates various laws enforced by the Georgia Department of Banking and Finance (the “Department”), including amending (1) certain licensing exemptions under the Georgia Residential Mortgage Act (“GRMA”), and (2) the Georgia Installment Loans Act (“GILA”) to impose a new licensing requirement for the service of installment loans subject to the GILA. Similarly, SB 470, which became effective immediately, amends GRMA provisions regarding criminal restrictions for employees of mortgage licensees.
Amendments to the Licensing of Lenders and Mortgage Brokers
HB 891 made several changes to Title 7 of the Georgia Code, including several changes to the GRMA, but perhaps one of the most notable changes with respect to mortgages involves the creation of a new exemption from licensed under the GRMA for persons holding loans for securitization in a secondary market. Specifically, effective July 1, 2022, any person who purchases or holds closed mortgages for the sole purpose of securitizing them in a secondary market is expressly exempt from licensing, provided that person holds the individual loans for less than seven months. days. Note that the law further defines “person” as any individual, sole proprietorship, corporation, LLC, partnership, trust, or other group, however organized. As written, the new wording of the exemption suggests that individuals holding loans under the securitization process for more than 7 days would not qualify for the exemption. Note that the GRMA’s existing definition of a “mortgage lender” includes a “person who directly or indirectly…holds or purchases mortgages” and the GRMA contains an existing exemption for anyone who purchases mortgages from a mortgage broker or mortgage lender solely as an investment and not in the business of brokering, originating, purchasing or servicing mortgage loans.
HB 891 also amended an existing exemption from licensure applicable to certain individuals under an exclusive independent written contractual agreement with a mortgage broker who is or is affiliated with an insurance company or broker. Under the exemption, as amended, an individual otherwise required to be licensed is exempt from obtaining a license as a lender or mortgage broker, when under an exclusive independent contractor written agreement with a licensed Mortgage Broker, so long as the Mortgage Broker meets certain expanded criteria, including, among others (1) maintaining an active Mortgage Broker license, (2 ) maintaining full and direct financial responsibility for the natural person’s mortgage business, (3) retaining full and direct responsibility for the education of natural persons, claims management and supervision of the mortgage business of the natural person, (4) have publicly traded securities and meet certain market capitalization requirements, (5) be licensed as an insurance company or registered as a a broker; and (6) be licensed as a mortgage lender or broker in ten or more states. The exemption previously applied to certain natural persons employed by the subsidiary of certain financial holding companies. In particular, to maintain the exemption, the individual must, among other things (1) be licensed as a mortgage originator in Georgia and work exclusively for the licensee, the parent company if the licensee is a wholly-owned subsidiary, or a subsidiary of the Licensee if the Affiliate and the Licensee are wholly-owned subsidiaries of the same parent company, and (2) be licensed as an insurance agent or registered as a brokerage agent on behalf of Licensee, Parent Company if Licensee is a wholly owned subsidiary, or an Affiliate of Licensee if Affiliate and Licensee are wholly owned subsidiaries of the same company mother.
HB 891’s changes to the GRMA’s licensing provisions follow SB 470, which made welcome changes to the GRMA’s restrictions on crimes. As amended, Georgia law now provides that the Department cannot issue or revoke a license or registration if it finds that the mortgage originator, broker or lender, or any person who is a director, officer , partner, covered employee or ultimate equitable owner of 10% or more of the Mortgage Broker or Lender or any person who directs the affairs or establishes the policy of the Mortgage Broker or Lender, Applicant, Registrant or Holder license, has been convicted of a felony in any jurisdiction or of a felony which, if committed in Georgia, would constitute a felony under Georgian law. Previously, Georgia law arguably prohibited a licensee from retaining any a person convicted of a crime who could be considered an employee or agent of the licensee. As amended, the employee restriction is relaxed to apply only to a “covered employee”, a newly defined term which refers to an employee of a lender or mortgage broker “involved in activities related residential mortgage loans for property located in Georgia and includes, but is not limited to, a mortgage loan originator, processor or underwriter, or other employee who has access to origination, processing or underwriting information residential mortgage loan. In particular, the restriction no longer applies to an “agent” of a licensee.
Changes to Installment Loan Licensing
HB 891 also amended GILA to require a license for persons engaged in servicing installment loans. Prior to the amendments, GILA imposed a licensing requirement only on persons who advertised, solicited, offered, or granted installment loans to individuals for amounts less than or equal to $3,000. As amended, anyone who handles installment loans made by others, excluding loans made by affiliated entities, is also required to obtain a license. The amendments to HB 891 also added a number of new license exemptions, including for (1) retail installment transactions conducted by retail installment sellers and retail sellers, as those terms are defined, and (2) transactions in which a lender offers a consumer a line of credit for more than $3,000, but the consumer uses $3,000 or less of the line, as long as there are no restrictions that would limit the consumer’s ability to use more than $3,000 of the margin at any given time. In addition, the interest tax provisions of GILA have been repealed and re-enacted and now require installment lenders to pay the Department a fee of 0.125% of the gross loan amount on each loan made beginning July 1. 2022, and such fee becomes due upon realization of any loan subject to GILA. This revised charge replaces the previous charge of three (3) percent of the total amount of interest on any loan collected. The law specifies that per-loan fees must be paid by the licensee and cannot be passed on to the borrower as an itemized additional fee or charge. The method by which a licensee pays fees is subject to further clarification via Department regulations.
Mortgage lenders and brokers should review the GRMA, as amended, to determine whether, and if so, how, the amendments affect their licensing requirements or their policies regarding employee background checks. Georgia. In addition, entities that service installment loans subject to GILA, which are created by non-affiliates, must now obtain a license. Licensees should also take note of the new fee-per-loan requirements instead of the previous fee payment regulations.