808 KAR 12:021reg. Licensing and registration

      Section 1. Licensure as a Mortgage Loan Company or Mortgage Loan Broker. (1) A person applying for licensure as a mortgage loan company or mortgage loan broker shall submit the following:

      (a) A completed[Form MU1,] NMLS Company Form as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A completed[Form MU2,] NMLS Individual Form as available online at http://mortgage.nationwidelicensingsystem.org for each control person designated on the direct owners and executive officers section of the NMLS Company Form[Form MU1];

      (c) A reviewed or audited financial statement prepared by a certified public accountant in accordance with generally accepted accounting principles dated the previous year end to the date of submission of the NMLS Company Form[MU1]. A financial statement shall include a balance sheet, income statement, statement of cash flows, and all relevant notes. If applicant is a start-up company, an initial statement of condition and a pro-forma income statement shall be submitted instead[in lieu] of the financial statement;

      (d) An original bond furnished by a surety company authorized to conduct business in Kentucky. The name of the principal insured on the bond shall match exactly the full legal name of applicant. The bond shall be submitted on the following form in an amount not less than the amount required by KRS 286.8-060(1):

      1. For a mortgage loan company, Form ML-1, Surety Bond for Mortgage Loan Company; or

      2. For a mortgage loan broker, Form ML-2, Surety Bond for Mortgage Loan Broker;

      (e) A certified copy of the following:

      1. If a corporation, the Corporate Charter or Articles of Incorporation and Bylaws;

      2. If a limited liability company, the Articles of Organization and Operating Agreement; or

      3. If a partnership of any form, the Partnership Agreement;

      (f) A Certificate of Authority or a Certificate of Good Standing issued by the Kentucky Secretary of State dated not more than sixty (60) days prior to the submission of the NMLS Company Form[MU-1];

      (g) If applicant will be operating in Kentucky under a name other than its legal name, a file-stamped copy of the Certificate of Assumed Business Name issued by the Kentucky Secretary of State;

      (h) If required to do so by KRS 286.8-032(6), documentation that a managing principal designated by applicant has successfully completed the educational training set forth in KRS 286.8-032(6);

      (i) If the principal office will be located in a residence, a completed Form ML-6, Disclosure of Location at a Residence Form; and

      (j) The fees set forth in KRS 286.8-034(1).

      (2) A person applying for renewal of a mortgage loan company or mortgage loan broker license pursuant to KRS 286.8-034(3) and prior to December 1 shall submit[complete] the following:

      (a) The required updates and attestation ensuring that all information in the person’s record maintained by the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC is correct as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A completed Form ML-5, Annual Mortgage Activity Report; and

      (c) The fee set forth in KRS 286.8-034(3).

      (3) A person applying for renewal of a mortgage loan company or mortgage loan broker license through reinstatement pursuant to KRS 286.8-034(4) shall submit[complete] the following:

      (a) The required updates and attestation ensuring that all information in the person’s record maintained by the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC is correct as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A completed Form ML-5, Annual Mortgage Activity Report; and

      (c) The fees set forth in KRS 286.8-034(3) and 286.8-034(4).

 

      Section 2. Registration of a Branch. (1) A[No] branch shall not be approved unless it is controlled, managed, and supervised by the applicant's principal office.

      (2) A person applying for registration of a branch shall submit the following:

      (a) A completed[Form MU3,] NMLS Branch Form as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A copy of the lease or deed for the branch;

      (c) A completed Form ML-7, Branch Authorization Form;

      (d) If the branch will be located in a residence, a Form ML-6, Disclosure of Location at a Residence Form; and

      (e) The fee set forth in KRS 286.8-034(1)(b).

      (3) A person applying for renewal of a branch registration pursuant to KRS 286.8-034(3) and prior to December 1 shall submit the following:

      (a) The required updates and attestation ensuring that all information in the person’s record maintained by the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC is correct as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A completed Form ML-5, Annual Mortgage Activity Report; and

      (c) The fee set forth in KRS 286.8-034(3).

      (4) A person applying for renewal of a branch registration through reinstatement pursuant to KRS 286.8-034(4) shall submit the following:

      (a) The required updates and attestation ensuring that all information in the person’s record maintained by the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC is correct as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A completed Form ML-5, Annual Mortgage Activity Report; and

      (c) The fees set forth in KRS 286.8-034(3) and (4).

 

      Section 3. Registration of a Mortgage Loan Originator[or mortgage loan processor]. (1) A person applying for registration as a mortgage loan originator pursuant to KRS 286.8-255(2)[or mortgage loan processor] shall submit the following:

      (a) A completed[Form MU2,] NMLS Individual Form as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) A request to submit[to and bear the cost of] a Federal Bureau of Investigation[Investigations] background records check and a credit report to the department[permitted under KRS 286.8-255(8) and as part of an application for registration as a mortgage loan originator or mortgage loan processor pursuant to KRS 286.8-255(2)];

      (c) Certification that applicant has successfully completed all education and testing required by KRS 286.8-255; and

      (d) The fee set forth in KRS 286.8-255(2)(b).

      (2) A person applying for renewal of a mortgage loan originator[or mortgage loan processor] registration pursuant to KRS 286.8-255(4) shall submit the following:

      (a) The required updates and attestation ensuring that all information in the person’s record maintained by the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC is correct as available online at http://mortgage.nationwidelicensingsystem.org[A completed Form MU2 NMLS Individual Form];

      (b) A request to submit[to and bear the cost of] a Federal Bureau of Investigation[Investigations] background records check and a credit report to the department[permitted under KRS 286.8-255(8) and as part of a renewal or reinstatement application for registration as a mortgage loan originator or mortgage loan processor pursuant to KRS 286.8-255(4) or 286.8-255(5) if the applicant's Federal Bureau of Investigations background records check currently on file with the Kentucky Department of Financial Institutions is more than three (3) years old];

      (c) Certification that applicant has successfully completed all education and testing required by KRS 286.8-255 and 286.8-260; and

      (d) The fee set forth in KRS 286.8-255(4).

      (3) A person applying for renewal of a mortgage loan originator[or mortgage loan processor ]registration through reinstatement pursuant to KRS 286.8-255(5) shall submit the following:

      (a) The required updates and attestation ensuring that all information in the person’s record maintained by the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC is correct as available online at http://mortgage.nationwidelicensingsystem.org;

      (b) Certification that applicant has successfully completed all education and testing required by KRS 286.8-255 and 286.8-260;

      (c) A request to submit[to and bear the cost of] a Federal Bureau of Investigation[Investigations] background records check and a credit report to the department[permitted under KRS 286.8-255(8) and as part of a renewal or reinstatement application for registration as a mortgage loan originator or mortgage loan processor pursuant to KRS 286.8-255(4) or 286.8-255(5) if the applicant's Federal Bureau of Investigations background records check currently on file with the Kentucky Department of Financial Institutions is more than three (3) years old]; and

      (d) The fees set forth in KRS 286.8-255(4) and 286.8-255(5).

      (4) The cost of any Federal Bureau of Investigation background records check or credit report required by this section shall be borne by the applicant.

 

      Section 4. Mortgage Loan Originator Bond Requirements. In addition to the requirements set forth in this administrative regulation, an applicant applying for registration, renewal, or renewal through reinstatement as a mortgage loan originator shall provide proof that the mortgage loan originator holds or is covered by a bond furnished by a surety company authorized to conduct business in Kentucky. If the mortgage loan originator is procuring his or her own bond, the bond shall be submitted on the applicable Surety Bond for Individual Mortgage Loan Originators form and in an amount determined by annual loan origination as follows:

      (1) If the annual loan volume of the applicant is less than $10,000,000, the surety bond shall be in an amount not less than $15,000 and the applicant shall submit Form ML-3, Surety Bond for Individual Mortgage Loan Originators with an Annual Loan Origination Volume of Less than $10,000,000; or

      (2) If the annual loan volume of the applicant is $10,000,000 or more, the surety bond shall be in an amount not less than $20,000 and the applicant shall submit Form ML-4, Surety Bond for Individual Mortgage Loan Originators with an Annual Loan Origination Volume of $10,000,000 or Greater.

 

      Section 5. Factors Used to Determine Approval or Disapproval of an Application. (1) An applicant seeking registration, renewal, or renewal through reinstatement under KRS 286.8-255 shall demonstrate the financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a determination that the applicant will operate honestly, fairly, lawfully, and efficiently within the purposes of the subtitle.

      (2) Each applicant shall authorize the commissioner to obtain a credit report containing a credit score to aid[aide] in making this determination.

      (3) The applicant shall have met the requirement of financial responsibility if he or she possessed a credit score of 600 or higher at the time of application. If the applicant possesses a credit score of less than 600, the commissioner may review the applicant’s credit report for the following information to make this determination:

      (a) Any outstanding judgments, excluding judgments arising solely from medical expenses for the applicant or an immediate family member;

      (b) Any outstanding tax liens or other governmental liens;

      (c) Any foreclosures occurring within five (5) years of the date of application or renewal;

      (d) Any bankruptcies occurring within five (5) years of the date of application or renewal; and

      (e) Any delinquent accounts occurring within five (5) years of the date of application or renewal.

      (4) The factors of character and general fitness shall be determined by the commissioner after review of all relevant information, including information shown on the applicant’s credit report,[such as bankruptcies, recent collections, and past due payments, as well as] the applicant’s criminal history, and any administrative or civil actions taken against the applicant[by other jurisdictions].

 

      Section 6. Electronic Submission of Filings and Fees through the Nationwide Mortgage Licensing System Operated by the State Regulatory Registry, LLC. (1) A person applying for licensure,[or] registration, renewal, or renewal through reinstatement pursuant to Sections 1, 2, 3, and 4 of this administrative regulation shall electronically submit the following with the State Regulatory Registry, LLC, at http://www.stateregulatoryregistry.org/NMLS, as part of the nationwide mortgage licensing system:

      (a) All forms, updates, attestations, and requests required by Sections 1, 2, 3, and 4 of this administrative regulation, as applicable;

      (b) Fingerprints and any other information or authorizations necessary to obtain the background records checks and credit reports referenced in Section 3 of this administrative regulation; and

      (c) All fees referenced in this administrative regulation.

      (2) All forms, documentation, fees, or information that are not available for electronic submission directly through the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC shall be submitted directly to the department.

      (3) Any fees assessed by the State Regulatory Registry, LLC, to process the electronic submissions referenced[set forth] in subsection (1) of this section shall be borne by the applicant.

 

      Section 7. Abandoned Applications. If any applicant fails to provide or respond to a request for additional information within ninety (90) days of submission to the department, the application shall be abandoned. Any applicant seeking licensing or registration after its application has been abandoned shall reapply and resubmit the required information.

 

      Section 8. Inactive Status for Members of the Armed Forces. (1) A member of the Armed Forces who holds a license or registration in good standing under this administrative regulation may request that the commissioner place the license or registration in inactive status during the period of time that the member is mobilized or deployed, and for a period of six (6) months following termination of the mobilization or deployment.

      (2) To request inactive status for a license or registration, a person shall complete Form ML-8, Request for Inactive Status Due to Military Service and submit it along with proof of mobilization or deployment to the commissioner for approval.

      (3) A person whose license or registration has been placed in inactive status shall not engage in the activity requiring the license or registration under KRS Chapter 286.8.

      (4) The fee set forth in KRS 286.8-255(4) shall not accrue against any person whose license or registration is in inactive status.

      (5) A person may reactivate an inactive license or registration by submitting a written request to the commissioner and attaching proof of compliance with KRS 286.8-255(10) and 286.8-260, if applicable. Upon receipt of a written request and confirmation of compliance with KRS 286.8-255(10) and 286.8-260, the commissioner shall issue an approval for reactivation.

 

      Section 9. Incorporation by Reference. (1) The following material is incorporated by reference:

      (a)[Form MU1, "NMLS Company Form" Version 8.8, Drafted 3/19/2012;

      (b) Form MU2, "NMLS Individual Form" Version 8.8, Drafted 3/19/2012;

      (c) Form MU3, "NMLS Branch Form" Version 8.8, Drafted 3/19/2012;

      (d)] Form ML-1, "Surety Bond for Mortgage Loan Company", updated 03/2015;

      (b)[(e)] Form ML-2, "Surety Bond for Mortgage Loan Broker", updated 03/2015;

      (c)[(f)] Form ML-3, "Surety Bond for Individual Mortgage Loan Originators with an Annual Loan Origination Volume of Less than $10,000,000", updated 03/2015;

      (d)[(g)] Form ML-4, "Surety Bond for Individual Mortgage Loan Originators with an Annual Loan Origination Volume of $10,000,000 or Greater", updated 03/2015;

      (e)[(h)] Form ML-5, "Annual Mortgage Activity Report", updated 03/2015;

      (f)[(i)] Form ML-6, "Disclosure of Location at a Residence Form", updated 03/2015;

      (g)[(j)] Form ML-7, "Branch Authorization Form", updated 03/2015; and

      (h)[(k)] Form ML-8, "Request for Inactive Status Due to Military Service", updated 03/2015.

      (2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601, Monday through Friday, 8 a.m. to 5 p.m. This material may also[(3)(a) The items in subsection (1)(a) to (c) may be obtained from http://mortgage.nationwidelicensingsystem.org.

      (b) The items in subsection (1)(d) to (k) may] be obtained from the department’s Web site at http://www.kfi.ky.gov.

 

CHARLES A. VICE, Commissioner

DAVID A. DICKERSON, Secretary

      APPROVED BY AGENCY: June 15, 2016

      FILED WITH LRC: June 15, 2016 at 9 a.m.

      PUBLIC HEARING AND PUBLIC COMMENT PERIOD: A public hearing on this administrative regulation shall be held on July 25, 2016, at 2:00 p.m., Eastern Standard Time, in the Department of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601. Individuals interested in being heard at this hearing shall notify this agency in writing no later than five (5) working days prior to the hearing of their intent to attend. If no notification of intent to attend the hearing is received by that date, the hearing may be canceled. The hearing is open to the public. Any person who wishes to be heard will be given an opportunity to comment on the proposed administrative regulation. A transcript of the public hearing will not be made unless a written request for a transcript is made. If you do not wish to be heard at the public hearing, you may submit written comments on the proposed administrative regulation. Written comments shall be accepted through close of business, August 1, 2016. Send written notification of intent to be heard at the public hearing or written comments on the proposed administrative regulation by the above date to the contact person:

      CONTACT PERSON: Jessica R. Sharpe, General Counsel, or Gary Stephens, Staff Attorney, Department of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601, phone [phone], fax [phone]

 

REGULATORY IMPACT ANALYSIS AND TIERING STATEMENT

 

1

Contact Person: Jessica R. Sharpe

      (1) Provide a brief summary of:

      (a) What this administrative regulation does: This administrative regulation establishes procedures for the licensure and registration of regulated mortgage entities and individuals with the Department and procedures for the electronic submission of filings and fees by regulated entities and individuals with the nationwide mortgage licensing system operated by State Regulatory Registry, LLC.

      (b) The necessity of this administrative regulation: This regulation is needed to comply with the statutes directing the commissioner of the Department to obtain information and documents from applicants that are necessary to make licensure and registration determinations pursuant to KRS Chapter 286.8.

      (c) How this administrative regulation conforms to the content of the authorizing statutes: KRS 286.8-140(1) provides that the commissioner of the Department may prescribe administrative regulations as are deemed to be necessary and appropriate to accomplish the basic purposes of KRS Chapter 286.8. KRS 286.8-032, KRS 286.8-034, and KRS 286.8-100 provide that an application for a license, branch, or renewal of a license or branch shall meet certain requirements and contain information required by the commissioner. KRS 286.8-255 provides that an application for a registration shall meet certain requirements and contain such information as the commissioner determines necessary. KRS 286.8-255 also requires applicants to satisfy certain minimum standards for registration. KRS 286.8-285 provides that the commissioner may participate in the Nationwide Mortgage Licensing System and Registry ("NMLS"). KRS 286.8-140(4) provides that the commissioner may require filings and fees required under KRS Chapter 286.8 to be electronically filed with the State Regulatory Registry, LLC, and may accept uniform procedures designed to implement a uniform national mortgage regulatory system.

      (d) How this administrative regulation currently assists or will assist in the effective administration of the statutes: This regulation assists in the effective administrative of the statutes by setting forth procedures for licensure and registration pursuant to KRS Chapter 286.8, and for the electronic submission of filings and fees with the NMLS.

      (2) If this is an amendment to an existing administrative regulation, provide a brief summary of:

      (a) How the amendment will change this existing administrative regulation: This amendment removes references to the registration of mortgage loan processors and changes the requirement for when mortgage loan originators must submit a Federal Bureau of Investigation background records check as part of an application or renewal application. The amendment also makes corrections and eliminates unnecessary language as it relates to the submission of background records checks and credit reports, the character and fitness review of mortgage loan originators, and the use of uniform procedures for licensees and registrants.

      (b) The necessity of the amendment to this regulation: On April 13, 2016, Senate Bill 97, 2016 Kentucky Acts, Chapter 129, was enacted, amending KRS Chapter 286.8 to no longer require registration with the Department of Financial Institutions for mortgage loan processors and required that background records checks and credit reports be submitted by mortgage loan originators as part of each application or renewal application filed with the Department. The current regulation references mortgage loan processors as persons who are required to register with the Department. It also allows for the submission of a Federal Bureau of Investigation background records check upon renewal only once every three years. Without this amendment, the regulation would be inconsistent with KRS Chapter 286.8 upon the effective date of Senate Bill 97, 2016 Kentucky Acts, Chapter 129. Also, this amendment corrects errors and eliminates unnecessary language.

      (c) How the amendment conforms to the content of the authorizing statute: This administrative regulation sets forth the procedures for licensure, registration, and electronic submission of filings and fees with the NMLS pursuant to KRS Chapter 286.8.

      (d) How the amendment will assist in the effective administration of the statutes: The amendment will provide consistency between the regulation and KRS Chapter 286.8 upon the effective date of Senate Bill 97, 2016 Kentucky Acts, Chapter 129.

      (3) List the type and number of individuals, businesses, organizations, or state and local governments affected by this administrative regulation: This administrative regulation affects mortgage loan originators, mortgage loan processors, mortgage loan companies and mortgage loan brokers that are registered or licensed by the Department. There are approximately 92 mortgage loan brokers and 326 mortgage loan companies licensed by the Department. There are approximately 571 mortgage loan processors and 6,635 mortgage loan originators registered with the Department.

      (4) Provide an analysis of how the entities identified in question (3) will be impacted by either the implementation of this administrative regulation, if new, or by the change, if it is an amendment, including:

      (a) List the actions that each of the regulated entities identified in question (3) will have to take to comply with this administrative regulation or amendment: This amendment will require mortgage loan originators to submit to a Federal Bureau of Investigation background records check annually upon renewal instead of once every three years upon renewal.

      (b) In complying with this administrative regulation or amendment, how much will it cost each of the entities identified in question (3): This amendment will require mortgage loan originators to bear the cost of a Federal Bureau of Investigation background records check annually upon renewal instead of once every three years upon renewal. The cost of each records check is approximately $40.

      (c) As a result of compliance, what benefits will accrue to the entities identified in question (3): This amendment will ensure that each entity is in compliance with KRS Chapter 286.8 and the amendments made to KRS Ch. 286.8 by SB 97, 2016 Kentucky Acts, Chapter 129, which becomes effective in July 2016.

      (5) Provide an estimate of how much it will cost to implement this administrative regulation:

      (a) Initially: No net change anticipated.

      (b) On a continuing basis: No net change anticipated.

      (6) What is the source of the funding to be used for the implementation and enforcement of this administrative regulation: It is anticipated that additional funding is not necessary to implement or enforce this regulation.

      (7) Provide an assessment of whether an increase in fees or funding will be necessary to implement this administrative regulation, if new, or by the change if it is an amendment: It is anticipated that an increase in fees or funding will not be necessary to implement this regulation.

      (8) State whether or not this administrative regulation establishes any fees or directly or indirectly increases any fees: This amendment does not establish or increase fees.

      (9) TIERING: Is tiering applied? Yes, tiering is currently applied to mortgage loan originators in that the amount required for the respective surety bond is based upon the total annual loan volume of the individual mortgage loan originator. This amendment makes no change to the current tiering of mortgage loan originators.

 

FISCAL NOTE ON STATE OR LOCAL GOVERNMENT

 

      1. What units, parts or divisions of state or local government (including cities, counties, fire departments, or school districts) will be impacted by this administrative regulation? The Kentucky Department of Financial Institutions will be impacted by this administrative regulation.

      2. Identify each state or federal statute or federal regulation that requires or authorizes the action taken by the administrative regulation. The statutory authority for this administrative regulation is found in KRS Chapter 286.8, specifically KRS 286.8-032, 286.8-034, 286.8-100, 286.8-140(1), 286.8-140(4), 286.8-255, 286.8-285 and Senate Bill 97, 2016 Kentucky Acts, Chapter 129.

      3. Estimate the effect of this administrative regulation on the expenditures and revenues of a state or local government agency (including cities, counties, fire departments, or school districts) for the first full year the administrative regulation is to be in effect. For the first full year this administrative regulation is in effect, this amendment is anticipated to have no net impact on the expenditures or revenues of a state or local government agency.

      (a) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for the first year? This amendment will not generate revenue in the first year.

      (b) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for subsequent years? This amendment will not generate revenue in subsequent years.

      (c) How much will it cost to administer this program for the first year? It is anticipated that there will be no additional net cost to administer this program for the first year.

      (d) How much will it cost to administer this program for subsequent years? It is anticipated that there will also be no additional net cost to administer this program in subsequent years.

      Note: If specific dollar estimates cannot be determined, provide a brief narrative to explain the fiscal impact of the administrative regulation.

      Revenues (+/-): None.

      Expenditures (+/-): None anticipated.

      Other Explanation: None.

Notation

      RELATES TO: KRS 286.8-010, 286.8-020, 286.8-030(1), 286.8-036[286.8-032, 286.8-034], 286.8-060, 286.8-070, 286.8-080, 286.8-090(1),[286.8-100, 286.8-140(4), 286.8-255,] 286.8-260, 286.8-290[286.8-285, 286.295]

      STATUTORY AUTHORITY: KRS 286.8-032, 286.8-034, 286.8-100, 286.8-140(1), 286.8-140(4), 286.8-255, 286.8-285

      NECESSITY, FUNCTION, AND CONFORMITY: KRS 286.8-140(1) authorizes the commissioner to promulgate administrative regulations necessary to accomplish the basic purposes of KRS Chapter 286.8. This administrative regulation establishes procedures for licensure, registration, and electronic submission of filings and fees with the nationwide mortgage licensing system operated by the State Regulatory Registry, LLC.