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Georgia Residential Mortgage Law Amended to Combat Employment of Criminals | Ballard Spahr LLP

Governor Brian Kemp signed into law SB 470 on May 2, 2022 (the effective date), amending provisions of the Georgia Residential Mortgage Act, OCGA §§ 7-1-1000 and following., which prohibited a Georgia mortgage lender or mortgage broker from employing anyone convicted of a felony. The enactment of SB 470 is a major step toward solving a longstanding problem within the mortgage industry by significantly reducing the burden on Georgia mortgage lenders and mortgage brokers to continually monitor the felony convictions of their employees and avoid license application denial or license revocation.

Prior to the Effective Date, OCGA § 7-1-1004(h) expressly prohibited a Georgia mortgage lender or mortgage broker from employing anyone with a prior felony conviction. This provision stated, in its relevant part:

The Department shall not issue or may revoke a license or registration if it finds that the mortgage originator, mortgage broker or mortgage lender applicant or licensee, or anyone who is a director, manager, partner, officer, employee, or the ultimate equitable owner of 10% or more of the applicant, registrant or licensee Mortgage Broker or Lender or any person who directs the business or sets policy of the applicant, registrant or licensee Mortgage Broker or Lender permits, has been convicted of a crime in any jurisdiction or of a crime which, if committed in that state, would constitute a crime under the laws of that state (emphasis added).

The terms “agent” and “employee” were not defined in OCGA § 7-1-1000; however, the Georgia Department of Banking and Finance (the Department) has interpreted these terms to include any person employed by the Licensee/Registrar, whether or not they conduct residential mortgage business in Georgia on behalf of the Licensee/Registrant. or is otherwise in contact with Georgian borrowers. (that’s to say, janitorial staff, mail room employees, office services, etc.). As anyone in the industry will notice, OCGA § 7-1-1004(h) has had a significant impact on a Georgia mortgage lender licensee/registrant’s ability to do business. OCGA § 7-1-1004(h) not only required licensees/registrants to actively monitor the felony convictions of all employees on an ongoing basis, it also subjected licensees/registrants to severe penalties. they were inadvertently employing someone with a prior felony conviction. . The Department had the authority to deny a license or revoke a license for a Georgia mortgage lender or mortgage broker for such an error, which are reportable events that require the licensee/registrant to update their responses. to its disclosure questions and to provide a corresponding disclosure explanation. solve. As a result, the provision has had a widespread impact on licensees/registrants that has extended well beyond Georgia’s state borders.

Additionally, Georgia’s landmark ban on employing people with prior felony convictions has been “out of step” with the same requirements under the federal Safe and Fair Mortgage Licensing Enforcement Act of 2008 ( SAFE law). Under the SAFE Act, only a Mortgage Loan Originator (MLO) is required to submit to a criminal background check, and the MLO would only be considered ineligible for licensing if found guilty of a crime involving dishonesty, breach of trust, or money laundering against the employee or employee-controlled organizations, or agreements to enter into a pretrial diversion program or similar program in as part of the prosecution of these offenses within seven years of the criminal background check. The OCGA Department’s landmark interpretation of § 7-1-1004(h) raised the bar for Georgia mortgage companies, requiring all employees to submit to criminal background checks and penalizing the company for mortgages if an employee has been convicted of an action that would be considered a felony under Georgia law at any time during their lifetime.

Georgia lawmakers introduced SB 470 to correct this long-standing problem. He found overwhelming support in the Georgia House of Representatives (142 to 1) and the Senate (47 to 1). In short, SB 470 allows mortgage lenders and mortgage brokers in Georgia to employ convicted felons if those employees are not involved in certain mortgage-related activities. As of the effective date, OCGA §7-1-1004(h) provides:

The Ministry shall not issue or may revoke a license or registration if it finds that the Mortgage Originator, Mortgage Broker or Mortgage Lender applicant or licensee, or any person who is a director, officer , associated, agent, covered employeeor the ultimate equitable owner of 10% or more of the applicant, registrant or licensee Mortgage Broker or Lender or any person who directs the business or sets policy of the applicant, registrant or licensee Mortgage Broker or Lender license, has been convicted of a felony in any jurisdiction or of a felony which, if committed in that state, would constitute a felony under the laws of that state (emphasis added).

OCGA § 7-1-1000 also includes the following definition of a “covered employee,” limiting the number of employees to whom this provision applies:

“Covered Employee” means any employee of a Mortgage Lender or Mortgage Broker who is involved in residential mortgage-related activities for property located in Georgia and includes, but is not limited to, an originator, mortgage loan processor or underwriter, or other employee who has access to information about the origination, processing or underwriting of residential mortgage loans.

It should also be noted that OCGA § 7-1-1004(i) provides an alternative definition of “covered employees”, defining such persons as “employees who work in this state and also have the authority to seize, remove or to verify any information on any mortgage application form or document. It is not clear from the amended statutes which definition applies and, to the extent that two definitions of the term exist, when each of those definitions applies.

While this is a significant step forward in reducing the regulatory burden on Georgia mortgage lenders and mortgage brokers, it is not a perfect solution to the problem. Further legislative changes need to be made to clarify the types of employees who constitute “covered employees” and fully align Georgia’s residential mortgage law with the requirements of the federal SAFE Act. Amended OCGA Section 7-1-1004(h) generally limits the scope of the provisions to persons engaged in mortgage-related business and, ostensibly, the scope to employees located in Georgia who have the authority to enter, delete or verify any information on mortgage loan applications and documents; however, the amended laws can also be interpreted to prohibit Georgia mortgage lenders and mortgage brokers from employing felony persons if they have “access to information about the origination, processing, or underwriting of residential mortgages.” “. It remains to be seen how far the Ministry will extend the scope of this provision. For example, if a mailroom employee of a Georgia mortgage lender licensee/registrant could open a Georgian borrower’s file containing a residential mortgage application, the Department could require the licensee license/registrant ensures that the mailroom employee does not have a prior felony conviction or have their license revoked. Further, amended OCGA § 7-1-1004(h) and the new definitions of “covered employee” in OCGA §§ 7-1-1000 and 7-1-1004(i) do not limit the types of felony convictions. or the period during which a felony conviction materially occurred. Georgia Mortgage Lenders and Mortgage Brokers remain responsible for the employment of any “Covered Employee” who has a prior conviction that would constitute a crime under Georgia law at any time during their lifetime.

The practical impact of the amended laws should not be minimized. As of the effective date, mortgage lenders and mortgage brokers in Georgia can rest a little more peacefully knowing that they will not be subject to Department review if employees who have previously been convicted for felony – arguably, only those located outside of Georgia – do not engage in the activities of a “covered employee” for Georgian loans and do not have access to Georgian loan information. Nonetheless, we await new guidance or rules from the Department that clarify what constitutes a “covered employee” and limit the scope of felony convictions covered by the law.

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