Maryland Update on Licensing Guidance
概况
This week saw two positive developments in connection with the recently announced licensing requirements for assignees of residential mortgage loans and installment loans in Maryland. This Legal Update discusses both developments.
BACKGROUND
Guidance Is Issued
As we discussed in our Legal Update last month, the Maryland Office of Financial Regulation (OFR) started the year off by issuing formal guidance asserting that assignees of residential mortgage loans—including certain “passive trusts” that acquire or obtain assignments of residential mortgage loans in Maryland—must become licensed in Maryland prior to April 10, 2025, unless the assignee is expressly exempt under Maryland law. The guidance reflected the OFR’s understanding of an April 2024 decision by the Appellate Court of Maryland in Estate of Brown v. Ward, 261 Md. App. 385 (2024) that any assignee of any residential mortgage loan is required to obtain a Mortgage Lender license and an Installment Loan license is required if the mortgage loans are made subject to the Credit Grantor provisions, regardless of whether the loans are open- or closed-end extensions of credit.
Installment loans include secured or unsecured loans that are made subject to the Maryland Credit Grantor provisions (which authorize a lender that does not have authority under some other law to charge interest and finance charges that exceed the Maryland 8% APR usury limit).
Market Responds with Concern and Questions
In the month since its issuance, this guidance has caused significant turmoil in the Maryland residential mortgage markets, with certain industry participants suspending the purchase of Maryland mortgage loans in response to the guidance and others raising significant questions and concerns regarding the practical implications of obtaining licenses for assignees and, in particular, “passive trusts” as defined by the OFR’s guidance.
OFR’S RESPONSE THIS WEEK TO THE UPHEAVAL
Proposing Legislation That Sets Out Exceptions
The OFR has recently taken steps to address these concerns. First, the OFR worked with industry participants to develop proposed legislation, the Maryland Secondary Market Stability Act of 2025— two identical bills, Senate Bill 1026 and House Bill 1516, introduced on Monday, February 17, 2025.
With certain exceptions for student loan servicing and loans made by non-depository lenders licensed under the Maryland Consumer Loan Law, if the bills are enacted as drafted, the Maryland Mortgage Lender Law would not apply to a person, including a passive trust, that acquires or takes assignment of a mortgage loan,1 provided that the person does not otherwise (i) originate or broker mortgage loans, (ii) make or fund mortgage loans, or (iii) service mortgage loans for others, including by holding mortgage servicing rights to loans owned by another.
Similarly, the Installment Loan Act would not apply to a person that acquires or takes assignment of an installment loan, as long as the person (i) does not make installment loans and (ii) relies on another person to service or collect on the installment loans on their own behalf. The bills, as drafted, would take effect immediately on the date of enactment.
Extending Enforcement Deadline and Clarifying Exception for Certain Commercial Lenders
Additionally, the OFR issued an alert on February 18, 2025, in which it extended the enforcement deadline of the previously announced licensing guidance from April 10, 2025, until July 6, 2025, which is 90 days after the end of the Maryland General Assembly’s 2025 session. According to the alert, the “OFR believes that affected entities should be granted the opportunity to ascertain the outcome of the legislative action before engaging in the licensing process and incurring potential associated costs.”
The OFR also clarified that commercial lenders making loans exclusively for business purposes under Maryland’s installment loan statutes are not subject to the OFR’s licensing requirements under mortgage lending and installment loan licensing provisions.
PREVIOUS CLARIFICATION FROM OFR
These developments follow an earlier update to the OFR’s initial January 10 announcement, in which the OFR clarified its interpretation of the Ward decision as it relates to trusts created by instrumentalities of the government. Specifically, the OFR’s update announcement reiterated that, pursuant to Sections 11-501 and 11-502 of the Mortgage Lender Law, the new licensing guidance regarding assignees did not apply to corporate instrumentalities of the federal government, including Fannie Mae, Freddie Mac, Ginnie Mae or “any person engaged exclusively in the acquisition of all or any portion of a mortgage loan under any federal, State, or local governmental program of mortgage loan purchases.” In this way, the OFR articulated its position that any trusts created by these corporate instrumentalities of the federal government that are engaged in the acquisition of loans under federal programs of mortgage loan purchases are not subject to licensure by the OFR.
TAKEWAYS FOR MARKET PARTICIPANTS
As these recent actions demonstrate, interpretations continue to develop regarding the applicability of Maryland’s Mortgage Lender and Installment Law licensing requirements to assignees, including passive trusts, of loans covered by these statutes. Mortgage industry participants should closely monitor these developments to ensure they are ready to comply with any legislative changes and licensing guidance the OFR will ultimately enforce.
1 As used in this context, the term “mortgage loan” does not include a loan made pursuant to the Credit Grantor provisions. If a mortgage loan is made pursuant to the Credit Grantor provisions, it is considered an Installment Loan.
