Affinity relationships or co-branded relationships shall not be considered mortgage brokering when a contractual agreement exists between a mortgage lender and a third party, and under the terms of that agreement the third party allows the lender access to its customers, perhaps under the third party's brand name, but the third party does not perform mortgage brokering duties as defined in section "l" below, and where compensation is paid to that third party in compliance with federal and state law.

These two definitions differ with respect to whether they include "closing a mortgage loan" under the term "making a mortgage loan." The substantive difference in the definitions is whether "table funding", (closing a loan in a given name, and immediately assigning it to the mortgage lender) is regulated as mortgage lending or mortgage brokering. Under option 1, table funding could be regulated as mortgage brokering activity, while under option 2, table funding would fall under mortgage lending.

We have created two definitions in place of one. "Escrow funds" are defined as the traditional impound accounts used by mortgage lenders and mortgage servicers to pay taxes and insurance. "Trust funds" are defined below as money entrusted to a mortgage lender or mortgage broker during the origination of a mortgage loan for payment of third party services necessary to originate the loan, including but not limited to appraisal fees, credit report fees, and other fees for services required to originate the loan.

These three options allow AARMR members to determine whether they wish to attempt to regulate the mortgage lending, mortgage brokering, and/or mortgage servicing activities of the wholly-owned subsidiaries of financial institutions and registered financial institution holding companies. The Office of Thrift Supervision has taken the position that wholly-owned subsidiaries of federal thrifts are exempt from the licensing requirements of state laws. AARMR members should carefully weigh the decision to extend their regulatory authority over the subsidiaries of financial institutions and should review existing case law on the matter. However, an argument can be made that the Regulators of financial institutions are primarily concerned with the safety and soundness of the deposits, not with the consumer protection issues surrounding mortgage lending, mortgage brokering, and mortgage servicing. AARMR members normally place a much stronger emphasis on consumer protection and this focused emphasis should be considered in drafting provisions regarding preemption. In addition, the argument can be made that financial institution Regulators will only carefully examine the activities of subsidiaries if they pose a material risk to the safety and soundness of the financial institution. Under these conditions, consumers will not be adequately protected from unfair and deceptive business practices.

These options allow AARMR members to decide whether natural persons who are employed as independent contractors should be separately licensed, or whether they may operate under the license and bond of a licensee. Such natural person may operate as an independent contractor as a loan officer, processor, closer, or underwriter.

This provision would presumably only be employed in those states with existing law governing the making of subordinate mortgage loans. Regulators and the industry have a common interest in consolidating the regulation of both first and subordinate mortgage loans under a single statutory framework.

NOTE: This Act creates three separate types of licenses for mortgage lenders, mortgage brokers, and mortgage servicers, so that states may pick and choose that scope of licensing which is most appropriate to their circumstances. Additionally, this can also be used for those states that wish to license individual independent contractors.

These two options provide the AARMR member with the option of periodic renewal of the license, perhaps annually or on a biennial basis or issuing a license of indefinite term.

The ECOA requires that records be maintained for a twenty-five (25) month period and consistency with federal law would be of benefit to the licensee. Some states, however, may require an examination be completed every three or more years. The Regulator wants to be certain that they have the ability to review all accounts, documents, and other records made between regulatory examinations. AARMR members should determine the time frame that best meets their circumstances.

The license number or other evidence of licensing may be displayed conspicuously on the Homepage of an Internet site, or may be accessed through a conspicuously displayed link to another page that displays a list of all of the states in which the licensee is licensed.

The minimum net worth standard is left for each state to determine. A state may wish to create a different standard for each type of license, to adopt a sliding scale based upon the volume of business conducted, or provide for a surety bonding alternative in lieu of a net worth requirement.

This would only be appropriate if the mortgage broker licensee is not permitted to make a mortgage loan and does not have a net worth requirement.

A Regulator may wish to require an increase in the surety bond amount in lieu of the requirement to maintain escrow funds in a financial institution with an office in this state.

The ECOA requires that records be maintained for a twenty-five (25) month period and consistency with federal law would be of benefit to the licensee. Some states, however, may require an examination be completed every three or more years. The Regulator wants to be certain that they have the ability to review all accounts, documents and other records made between regulatory examinations. AARMR members should determine the time frame that best meets their circumstances.

This provision allows the Regulator discretion to levy a civil penalty not to exceed five thousand ($5,000) dollars for a violation of this Act, including the option of levying no penalty.