On May 2, 2022, Georgia Governor Brian Kemp signed HB 891 and SB 470 into law. HB 891, effective July 1, 2022, updates various laws enforced by the Georgia Department of Banking and Finance (the “Department”), including by amending (1) certain exceptions to licensing under the Georgia Residential Mortgage Act (“GRMA”) and (2) the Georgia Installment Loan Act (“GILA”) introducing a new licensing requirement for servicing installment loans subject to the GILA. Similarly, SB 470, which became effective immediately, amends the GRMA’s provisions regarding crime limitations for mortgage licensee employees.
Changes in Licensing of Mortgage Originators and 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 relating to mortgage lending involves the creation of a new exemption from licensing under the GRMA for persons holding loans for securitization into a secondary market. Specifically, beginning July 1, 2022, any person who purchases or holds closed-end mortgage loans in a secondary market for the sole purpose of securitization is specifically exempt from licensing, provided that person holds each loan for less than seven days. Note that the law broadly defines “person” as any individual, sole proprietorship, corporation, LLC, partnership, trust, or any other group, however organized. As previously written, the new exemption language suggests that individuals holding loans longer than 7 days as part of the securitization process will not be able to invoke the exemption. Note that the GRMA’s existing definition of a “mortgage lender” includes a “person who directly or indirectly … holds or purchases a mortgage loan” and the GRMA includes an existing exception for any person who purchases a mortgage loan solely from a mortgage broker or mortgage lender as an investment and is not engaged in the business of arranging, originating, purchasing or administering mortgage loans.
HB 891 also amended an existing licensing exemption applicable to certain individuals under an exclusive written independent contractual agreement with a mortgage broker who is or is affiliated with an insurance company or broker dealer. Under the exemption, as amended, an individual who would otherwise require licensing is exempt from being licensed as a mortgage lender or broker if under an exclusive written independent contractual agreement with a licensed mortgage broker, so long as the mortgage broker meets certain enhanced criteria, including, among other things, (1) maintaining an active mortgage broker license, (2) maintaining full and direct financial responsibility for the individual’s mortgage activities, (3) maintaining full and direct responsibility for the individual’s education and handling of consumer complaints, and monitor the individual’s mortgage activity, (4) have securities listed for trading and meet certain market capitalization requirements, (5) be licensed as an insurance company or registered as a broker-dealer be certified; and (6) be a licensed mortgage lender or broker in ten or more states. The exemption previously applied to certain individuals employed by the subsidiary of certain financial holding companies. To maintain the exemption, the individual must, among other things, (1) be licensed as a mortgage lender in Georgia and solely for the licensee, the parent company if the licensee is a wholly owned subsidiary, or an affiliate of the licensee if both the affiliate and Licensee are wholly owned subsidiaries of the same parent company, and (2) are licensed as an insurance agent or registered as a broker dealer agent on Licensee’s behalf, the parent company if Licensee is a wholly owned subsidiary or an affiliate of Licensee if both the Affiliates and Licensee are wholly owned subsidiaries of the same parent company.
HB 891’s amendments to GRMA’s licensing regulations follow SB 470, which provided welcome changes to GRMA’s crime restrictions. As amended, the law of Georgia now provides that the ministry shall not grant or revoke a license or registration if it determines that the mortgage lender, broker or lender, or a person who is a director, officer, partner, insured employee, or chief officer is a legal owner of 10% or more of the mortgage broker or lender or a person directing the business or making policies of the mortgage broker or lender, applicant, registrant or licensee has been convicted of a felony in any jurisdiction or a felony, that if committed in Georgia would constitute a crime under Georgian law. Previously, Georgian law prohibited a licensee from retaining it any any person convicted of a crime who might be considered an employee or agent of Licensee. As amended, the employee restriction is relaxed and applies only to a “covered employee,” a redefined term to mean an employee of a mortgage lender or broker “who engages in and includes activities related to residential mortgage lending for Georgia real estate , but is not limited to, a mortgage originator, processor or underwriter or other employee who has access to information relating to the origination, processing or underwriting of residential mortgage loans.” Specifically, the limitation no longer applies to a “representative” of a Licensee .
Changes to Installment Loan Licensing
HB 891 also amended the GILA to require a license for persons engaged in the servicing of installment loans. Prior to the changes, GILA imposed a licensing requirement only on individuals who advertise, solicit, offer, or grant installment credit to individuals of $3,000 or less. As amended, any person servicing installment credit made by others, excluding credit made by affiliates, must also obtain a license. The amendments to HB 891 also added a number of new exemptions from licensing, including for (1) retail installment transactions conducted by retail installment sellers and retailers, as those terms are defined, and (2) transactions in which a Lender offers a consumer a line of credit greater than $3,000, but the consumer uses $3,000 or less of the line so long as there are no restrictions that would limit the consumer’s ability to draw more than $3,000 of the line at a time. In addition, the provisions of GILA relating to interest tax have been repealed and reenacted and now require installment lenders to pay the Department a fee of 0.125 percent of the gross loan amount for any loan granted on or after July 1, 2022 and such fee is due when taking out a loan subject to the GILA. This revised fee replaces the previous fee of three (3) percent of the total interest amount on collected loans. The law clarifies that the fee per loan is to be paid by the licensee and cannot be passed on to the borrower as an additional individual fee or fee. The manner in which a licensee pays the fee is subject to further clarification by the Department’s regulations.
Mortgage lenders and brokers should review the amended GRMA to determine if, and if so how, the changes affect their licensing requirements or their policies regarding employee background checks in Georgia. In addition, entities that administer GILA installment loans originated by non-affiliated companies are now required to obtain a license. Licensees should also be aware of the new per-loan fee requirements in place of the previous tax payment rules.