In a prior Legal Update, we discussed the introduction of legislation in the Maryland General Assembly that would amend Maryland law to address guidance issued by the Maryland Office of Financial Regulation ("OFR"). That guidance asserted that assignees of residential mortgage loans, including certain "passive trusts," were required to hold a Mortgage Lender license and, in certain circumstances, an Installment Loan license. The legislative "fix" is near the finish line, although the enrolled legislation is narrower than what was originally introduced in February with the support of the OFR.
On April 7, 2025, the Maryland General Assembly voted in favor of House Bill 1516, which would address the OFR guidance on licensing for secondary market assignees by enacting an exemption from the Maryland Mortgage Lender Law and Maryland Installment Loan Law for a "passive trust." The enrolled bill, which will now go to the governor for his signature, defines a "passive trust" as a trust that acquires or is assigned a mortgage loan and does not make mortgage loans, act as a mortgage broker or mortgage servicer, or engage in the servicing of mortgage loans (which the enrolled legislation clarifies "does not include the act of transmitting or directing payments received by a mortgage servicer"). The bill separately provides that its intent is "to clarify existing exemptions under State law." While the enrolled bill will, if enacted, create an express exemption from licensing under the Mortgage Lender Law and Installment Loan Law for "passive trusts" that acquire mortgage loans, the enrolled bill is narrower than the original version of the bill that was introduced in the legislature in February; the original draft of the legislation would have exempted any assignee of mortgage loans or installment loans from licensing, including a trust.
The Maryland legislature is required to submit the enrolled bill to the governor for approval within 20 days from April 7, 2025. Once the bill is submitted to the governor, the governor will have 30 days to sign the bill into law. If the governor does not either sign or veto the legislation within the 30-day period, the bill will automatically become law. Because the legislature has designated the bill as an emergency measure, and the bill has been passed by a three-fifths majority in each house of the legislature, the bill will take effect immediately once it is enacted into law. We expect that the governor will sign the bill into law, but the OFR's guidance that trusts must obtain a license to acquire and hold mortgage loans will remain in effect until the law is enacted and takes effect (although the OFR's "no action" position on enforcing the licensing requirement remains in effect through July 6, 2025).
Mortgage industry participants should continue to closely monitor the status of the legislation and any additional licensing guidance that may be issued by the OFR.
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