PA SELLER FINANCING LAW INVALID DUE TO LO COMP RULE
The LO Comp Rule went into effect on January 1, 2014, and is enforced by the Consumer Financial Protection Bureau (CFPB). It requires anyone taking or accepting an application or referring, recommending or steering a customer to a specific lender or credit product or program to obtain a loan originator license. This includes anyone looking to do seller financing.
Taking or accepting an application includes: filling out a customer's application, inputting customer's information into an online application, or taking the application.
Referring, recommending or steering includes: giving a customer a specific lender's application, recommending a specific lender or originator, influencing the customer's choice of lender or product, or recommending a specific credit product or program.
In order to provide seller financing at minimum taking an application and steering a customer to a specific lender will take place, which then triggers the need to obtain a mortgage loan originators license. We have had numerous conversation with the DoBS and there is no way around these changes at this time.
We highly encourage members who have engaged in seller financing in the past, and do not have a mortgage originators license, to stop all seller financing activities since the fines are in the 10's of thousands of dollars. Seller financing includes rent-to-own and lease purchase programs.
For those members who do not have a mortgage loan originators license and do not do seller financing
but do sell homes, you can do the following without having to have a mortgage loan originators license:
You cannot do the following without having a mortgage loan originators license:
- Provide the customer with a generic credit application, if the application is online they can use your computer to input the information and submit.
- Provide the customer with a list of lenders known to lend on manufactured/modular homes.
- Once the customer completes the credit application on their own, you can fax it or scan and email it to a lender that the customer picked off the list you provided.
- You can discuss rates and terms in a very generic conversation, but not in the sense of what the lenders are doing that are on the list you provided.
- Help the customer complete the generic credit application.
- tell the customer which lender to choose.
- Discuss specific rates and terms with the customer.
ANTI-MONEY LAUNDERING (“AML”) RULE
COMPLIANCE DATE – AUGUST 13, 2012
The Financial Crimes Enforcement Network (“FinCEN”) is a bureau of the U.S. Department of the Treasury. FinCEN receives and maintains financial transactions data and then both analyzes and disseminates that data for law enforcement purposes. FinCEN is empowered to act under the Currency and Financial Transactions Reporting Act of 1970, as amended by Title III of the USA PATRIOT Act of 2001 and other legislation, which legislative framework is commonly referred to as the "Bank Secrecy Act" (“BSA”). The BSA is the nation's first and most comprehensive federal AML and counter-terrorism financing statute.
In addition to collecting, analyzing, securing and disseminating FinCEN data to its law enforcement and regulatory partners, FinCEN itself is a financial institution regulator. FinCEN coordinates the enforcement of AML rules for more than 100,000 banks, credit unions, other financial intermediaries, casinos, , and even precious metal dealers that face the risk of being used by criminals to support illegal enterprises.
FinCEN has initiated several initiatives over the years. Until now, these initiatives have involved financial institutions and other intermediaries, such as broker-dealers and even investment advisors. FinCEN is now requiring residential mortgage loan originators to establish AML programs. On February 14, 2012, FinCen published the “Anti-Money Laundering Program (AML) and Suspicious Activity Report (SAR) Filing Requirements for Residential Mortgage Lenders and Originators” Final Rule in the Federal Register (a copy of the final Rule is attached). Non-bank companies that meet the definition of a residential mortgage lender and/or originator must comply with the rule by August 13, 2012.
Who Must Comply
A residential mortgage lender is defined as: the person to whom the debt arising from a residential mortgage loan is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement, or to whom the obligation is initially assigned at or immediately after settlement. The term “residential mortgage lender” shall not include an individual who finances the sale of the individual’s own dwelling or real property.
A residential mortgage originator is defined as:A person who accepts a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.
Though this is not the final test, any company who currently holds a banking license of any type will need to comply with this rule. For those companies that do not engage in lending activities but sell homes, you may have to comply as well. Review the list on page 9 of MHI’s template for additional guidance.
Consequences of a Failure to Comply
Over the last several years, many new regulatory structures have impacted our association. In this environment, it is easy to conclude the next regulation may be “make-work” and unimportant to our business operations. In this instance, members must realize that FinCEN and federal, state and financial institution regulators have treated BSA and AML deficiencies and violations very seriously. While it is impossible to predict what sanction regulators may impose upon a non-compliant residential mortgage lender, to date the sanctions for BSA and AML violations have been substantial. Both individuals and multi-billion dollar corporations have been subject to sanctions which have ranged from several thousand dollars to several million dollars. The message for members is clear: Ignore this rule making at your peril.
1. In order to help facilitate compliance among retailers and land-lease communities that fit the definition of a non-bank residential mortgage loan lender or originator, our national association, MHI, has asked its attorneys at McGlinchey Stafford to develop an Anti-Money Laundering and Suspicious Activity Reporting Program template. A copy of the template is available for PMHA members only – email email@example.com.
Note: If you choose this path, you will need to establish a training program for your staff as well as an independent annual testing program which can be internal (cannot be your AML compliance officer) or conducted by an outside third party. It is important that you do not simply take the template, place it on a shelf and thereafter ignore it. AML compliance is an active and ongoing process, and the template needs to be tailored to reflect your business operations and functions.
2. Hire a third-party consultant to develop your program. There are two companies very familiar with the manufactured housing industry that have programs ready to put into place that will comply with the AML rule. Their programs also include compliance with the Red Flag Rule, Safeguard Rule, Disposal Rule, USA Patriot Act and the OFAC Law.
They are: Rainmaker Software Rishel Consulting Group
Bill Carr – bill@getRain.com Ken Rishel – firstname.lastname@example.org
3. You may consider hiring an attorney familiar with the rule. PMHA has been working with Rob Bertram at McNees Wallace & Nurick LLC in Harrisburg, Pennsylvania. He can be reached at 717.237.5228 or email@example.com.
The AML Program must be in writing and reasonably designed to prevent the company from being used to facilitate money laundering or the financing of terrorist activities. It must be approved by senior management and include:
- Policies, procedures and internal controls based on the company’s assessment of its money laundering and terrorist financing risks.
- Designation of an AML Program Compliance Officer responsible for implementation of the program, updates to the program and education and training of the staff.
- Provisions for ongoing training of staff and their responsibilities under the AML program.
- Independent testing of the AML program.
- Management approval (written) of the AML program.
· The program must be in place by August 13, 2012.
On August 29, 2011, U.S. Department of Housing and Urban Development (HUD) issued their final interpretation on the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008, better known as the SAFE Act (click here). As a result of this interpretation the PA Department of Banking’s Secretary, Glenn Moyer, issued an interpretive letter on October 6, 2011 (click here) advising the lending industry in the Commonwealth, including those who sell and finance manufactured Homes, on how the HUD regulation would impact PA MLA activities. PMHA was able to meet with PA Banking to discuss the HUD regulations and how they may be helpful in giving the manufactured housing industry further relief from onerous licensing requirements.
To be licensed in PA under the Mortgage Licensing Act, you need to obtain an installment sellers license from the DoBS, a partially exempt registration from the NMSL and anyone working with consumers must have a mortgage loan originator's license from the NMLS.
ACT 1 - 2010
Governor Corbett signed HB 377 into law April 25, 2011. Act 1 which is effective immediately, removes the sprinkler mandate for residential homes and reforms the way the PA Construction code is adopted.
Key Provisions are:
- Permanently repeals the Sprinkler mandate for one and two family dwellings.
- Provides protection of lightweight floor systems with ½” drywall, 5/8” plywood or equivalent, and establishes exceptions for mechanical chase areas as well as exempts floors built with 2x10 or greater dimensional lumber and those systems built over crawlspaces without fuel fired appliances.
- Requires builders to offer sprinkler systems to buyers at the point of sale and provide them with information on the cost of the system as well as information from the State Fire Commissioner’s website on the benefits of installing an automatic sprinkler system. (Sample form, which we recommend that you use for modular homes as well a HUD homes, is available to PMHA Members at no cost, contact Toni 888-242-7642 or firstname.lastname@example.org)
- Provides energy efficiency trade-offs for log home manufacturers and builders to help them meet today’s energy requirements.
- Replaces the 2009 wall-bracing provisions with the 2006 provisions.
- Provides retroactivity for those homes with permits issued between January 1, 2011 and April 25, 2011. Note: If they elect to not have sprinklers they would have to meet the fire floor protection requirement.
- Ends automatic adoption of building codes proposed by the International Code Council (ICC).
- Requires a two-thirds vote of the Review and Advisory Council (RAC) for the adoption of any new code provision to be included in the UCC as opposed to the previous majority or 10 members.
- Requires RAC to conduct at least 3 public hearings; one in Harrisburg, one in the eastern region of the state and one in the western region to provide better opportunities for public input.
Red Flags Rule
Enforcement of the Federal Trade Commission’s “Red Flags” Rule is scheduled to begin on January 1, 2011, for financial institutions and creditors (to include manufactured housing retailers and community owners) subject to enforcement by the FTC. The Commission has previously delayed the enforcement of the Rule several times. The Rule was promulgated under the Fair and Accurate Credit Transactions Act, in which Congress directed the Commission and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft.
The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.
The Commission staff continues to provide guidance to entities within its jurisdiction through materials posted on the dedicated Red Flags Rule Website. The Commission also published a compliance guide for business, and created a template that enables low risk entities to create an identity theft program with an easy-to-use online form. FTC staff has also published numerous general and industry-specific articles, and released a video explaining the Rule. Click here to go to MHI's website for additional information and an easy to use template.
Privacy Act Notice
The Federal Trade Commission (FTC) and the federal banking regulatory agencies have jointly issued a new model privacy notice.
This new notice was created to develop a more understandable template for privacy notices issued by retailers and other financial institutions. Though the use of the model form is not required, it will provide a safe harbor indicating compliance with notice requirements under the Gramm-Leach-Bliley Privacy Act and implementing rules.
We recommend retailers transitioning to the new notices as soon as possible.
Model forms are available below in Word format - please tailor the forms to your business:
for Privacy Model Form without Opt Out click here.
for Privacy Model Form with Opt Out option click here.
Also, compliance guidelines and additional information can be found here.
How to Become a Retailer
Pennsylvania law requires individuals selling new and preowned manufactured homes to be licensed by the Department of State, Bureau of Professional and Occupational Affairs, Vehicle Board.
New Homes - the Board of Vehicle Act prohibits a manufacturer from selling their homes to anyone without a valid vehicle dealer's license. Anyone holding a license to sell new homes is also allowed to sell preowned homes. The license renews every two years. Any time the location, address or ownership of the licensed sales center changes or a manufacturer is added or dropped from the retailer's inventory, the Vehicle Board must be notified and re-licensing may be required.
Preowned Homes - In 1996, the law was changed to lessen licensing requirements for individuals wanting to sell preowned homes only. The license renews every two years. The law does allow an individual to sell up to 5 homes a year without licensure, note this is for preowned homes only and the homes must be titled in the seller's name. Also, any time the business would change their mind and decide to sell new homes they would need to apply for re-licensing and make sure they can meet the 5000 square foot display area requirement and have a franchise agreement from at lease one manufacturer.
Salespeople - The law also requires the retailer (dealer) to license their salespeople. An individual can work for only one sales center (dealership) at a time. Any time a sales person leaves employment of a retailer they will need to advise the vehicle board by returning the license with a note that they are no longer employed by the sales center (dealership). Salespeople leaving one sales center for employment at another will need to apply for re-licensing with the new sales center. Failing to do so can result in fines and penalties for both the sales center and the salesperson.
There are no state licensing requirements for individuals looking to sell modular (industrialized) homes, they are treated the same as site builders.
Interested in becoming Retailer? Contact Toni at PMHA by email or call (888) 242-7642 to request a "Dealer Licensing Kit" or you can view the Dealer Licensing Kit by clicking here.
PA One Call (Dig Info)
Before you dig, call PA One Call for a clear and accurate marking of underground utility lines. Click here for more information.
Already received an invoice from PA One Call System...and you are a member of PMHA...Don't pay it we will pay it for you! Click here for more information.
Effective October 20, 2008, HUD is requiring all retailers to provide, before the execution of a sale or lease agreement, a written disclosure statement to the purchaser that outlines our Pennsylvania installation program. DCED has specially prepared brochures that meet this requirement. On the back panel of the brochure there is a large white space - use this area to place a stamp or label identifying your retail center. We encourage you to have the consumer sign this area indicating they have received this required notification and then place a signed copy in the customer's file should a question arise in the future.
Click here for the Installation Brochure
Contact Tracy by email or (888) 242-7642 to request additional copies by mail.
Under the Manufactured Home Dispute Resolution Program - Final Rule, manufacturers and retailers are required to provide separate dispute resolution program consumer notifications as specified by 24 CFR Part 3282, § 3282.207(e) and Part 3288, § 3288.5 respectively, effective February 8, 2008. A copy of 24 CFR can be viewed here. Click here for more information.
Retailers are required to provide a separate "Retailer Dispute Resolution Notification" at the time of signing a contract for sale or lease of a new manufactured home. Retailers are required to either include the specified notice "clearly in a separate section on consumer dispute resolution information at the top of the sales contract," or lease, or in a separate document. The notice must include the language and headings, verbatim, as written in the revised § 3288.5 for sales and lease transactions. The required language for "Retailer Dispute Resolution Notification" can be viewed here.
Home Improvement Consumer Protection Act (HICPA)
The Home Improvement Consumer Protection Act (HICPA) was adopted by Pennsylvania General Assembly in October 2008, signed by the Governor as Act 132 of 2008 and is effective July 1, 2009.
The law establishes a mandatory registration program for contractors who offer or perform "home improvements" on behalf of a "home owner" in Pennsylvania. This does not include construction on a new home. The law established a financial threshold to determine who would be required to be registered. If in a given year you earn $5,000 or greater performing home improvements for consumers you will be required to be registered. For more information and details on how to register click here.
In addition to being registered, you will have to provide written contracts for all jobs amounting to a cost of $1,000 or greater. Sample contracts are available to PMHA members. Contact Tracy by email or call (888) 242-7642.