DEPARTMENT OF REGULATORY AGENCIES
DIVISION OF REAL ESTATE
MORTGAGE LOAN ORIGINATORS
4CCR 725-3
[REPEALED]
1-1-7 LOAN MODIFIER LICENSURE AND THE REQUIRED USE OF A LOAN MODIFICATION CONTRACT

Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado, and to all persons who have requested to be advised of the intention of the Board of Mortgage Loan Originators to promulgate rules.

Section 1. 	Authority
Section 2.	Scope and Purpose
Section 3. 	Applicability
Section 4. 	Definitions
Section 5. 	1-1-7 Loan Modifier Licensure and the Required Use of a Loan Modification Contract 
Section 6. 	Enforcement

Section 1. 	Authority
The statutory basis for this rule, entitled 1-1-7 Loan Modifier Licensure and the Required Use of a Loan Modification Contract, is § 12-61-910.3, C.R.S.
The notice proposes to add rule 1-1-7.  The rule requires licensure for individual loan modifiers, direct managers of loan modifiers and establishes requisite use of a loan modification contract.

Section 2.	Scope and Purpose
The Board of Mortgage Loan Originators finds that a rule regarding loan modifications is necessary in order to provide clarity to the industry.  The Board has learned of individuals negotiating loan modification terms for borrowers and has received many inquiries regarding the applicability of current mortgage loan originator licensing law.  Specifically, individuals are communicating directly with borrowers and borrowers’ lenders in order to negotiate terms of a loan modification.  In many instances, Colorado consumers are being charged high up front fees regardless of services rendered.  The Board has also learned that consumers are being advised to cease making mortgage payments, even when already delinquent on payments.  Additionally, there are existing loan modification services that are offered by U.S. Department of Housing and Urban Development (HUD) approved non-profit 501(c)3 agencies which employ housing counselors around the State of Colorado.  Such HUD-approved services are offered by housing counselors for free and are not associated with any compensation or other benefit from the borrower to the housing counselor.  The purpose of this rule is to clearly notify loan modifiers (those who engage in the act of directly or indirectly negotiating a loan modification) of the applicability of Colorado mortgage broker law and to require use of a loan modification contract.
Section 3.	Applicability
This rule applies to all individuals required to be licensed pursuant to §§ 12-61-902 and 12-61-903, C.R.S.
Section 4.	Definitions
A.	“HUD approved housing counseling agency” means an agency which is either a private or public nonprofit organization that is exempt from taxation under section 501(A) pursuant to section 501(C), of the internal revenue code of 1996, 26, U.S.C. 501(A) and 501(C), and approved by the U.S. Department of Housing and Urban Development, in accordance with Housing Counseling Program Handbook 7610.1 and Code of Federal Regulations Title 24, Part 214.   
B.	“Short sale” means the sale of a real property for less than the mortgage loan balance. In the settlement of the short sale transaction the existing mortgage is extinguished. Any deficiency created from the settlement of the transaction may be transformed into a promissory note, charged off, forgiven, or pursued as a judgment against the previous owner.

C.	“Loan modification” means a temporary or permanent change in one or more of the terms of a mortgagor's existing loan, allows the loan to be reinstated, and often results in a more affordable mortgage payment. The borrower retains ownership of the real property and the mortgage note and deed of trust remain intact. 

D.	“Loan modifiers” means an individual who in the course of the person's business, vocation, or occupation offers to assist, provide or negotiate on behalf of a borrower to facilitate the receipt of a loan modification from the borrower’s current mortgage lender, generally for a fee or other thing of value.  

Section 5.	1-1-7 Loan Modifier Licensure and the Required Use of a Loan Modification Contract

1.	Section 12-61-902(6)(a), C.R.S. defines mortgage loan originator as an individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.  It is the Board’s position that individuals offering or negotiating loan modifications meet the definition of a mortgage loan originator.  Pursuant to section 12-61-903(1)(a), Colorado Revised Statutes, all persons who meet the definition of a mortgage loan originator are required to be licensed.  As a result, individuals who directly or indirectly take residential loan modification applications or who negotiate, offer or attempt to negotiate or offer loan modifications are required to be licensed as mortgage loan originators and are required to be licensed as state-licensed loan originators by July 31, 2010. 
 
2.	Pursuant to section 12-61-902(7), C.R.S., individuals who directly supervise individuals who take residential loan modification applications or individuals who negotiate, offer or attempt to negotiate or offer loan modifications are required to be licensed as mortgage loan originators and as state-licensed loan originators by July 31, 2010.

3.	All individuals required to be licensed shall comply with all other provisions of the Colorado Mortgage Loan Originator Licensing Act and all Board rules. 

4.	Individuals taking loan modification applications or offering or negotiating loan modifications are required to use a loan modification contract which complies with the Mortgage Loan Originator Licensing Act and the Foreclosure Protection Act.

5.	The Board has created the Colorado Loan Modification Services Contract to ensure compliance with the aforementioned laws.  This contract may be found on the Division of Real Estate’s website at http://www.dora.state.co.us/real-estate/mortgage/MBForms.htm.  Loan modifiers shall use this form or an alternate form, if such alternate form clearly includes all information required on the suggested form, as determined by the Board.

6.	The Colorado Loan Modification Services Contract prescribed by this regulation shall be completed when an application is taken.

7.	This rule shall not be construed to include employees of HUD approved housing counseling agencies who are providing advice or general information on loan modifications in an ancillary manner relating to their general housing counseling services or duties.

8.	The Board’s position on this matter shall not be construed to include employees of mortgage loan servicing companies operating on behalf of the borrowers’ mortgage lenders. 

9.	Licensed Real Estate Brokers engaged in licensed activities when performing services within the above defined short sale transactions do not need to maintain a license as a mortgage loan originator. If a real estate broker engages in the activities of providing loan modification services (those not included in the activities of short sales) as defined above, loan modification services are defined as outside the scope of licensed real estate broker activities and as such separate licensure as a mortgage loan originator as defined in MLO 1.5 Position Statement. 

10.	As set forth in section 12-61-904(1)(d), C.R.S., an attorney who renders services in the course of practice, who is licensed in Colorado, and who is not primarily engaged in the business of negotiating residential mortgage loans or loan modifications is not required to be licensed as a mortgage loan originator, but is required to comply with all non-licensing provisions of current mortgage loan originator law set forth in sections 12-61-901 through 12-61-915, C.R.S. 

Section 6. 	Enforcement

1.	Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the following sanctions allowable under Colorado law, including, but not limited to:

a.	Cease and desist orders;
b.	Permanent injunctions;
c.	Revocation;
d.	Refusal to renew a license;
e.	Refusal to issue a license;
f.	Imposition of fines; and
g.	Restitution for any financial loss.  [REPEALED]