Unconsolidated Pennsylvania Statutes

Banks And Banking (TITLE 7)

SECONDARY MORTGAGE LOAN ACT

§ 6601. Short title.
§ 6602. Definitions.
§ 6603. License requirements and exemptions.
§ 6604. Application for license.
§ 6605. Annual license fee.
§ 6606. Issuance of license.
§ 6607. License duration.
§ 6608. Transfer of license.
§ 6609. Powers conferred by licenses.
§ 6610. Licensee requirements: records; reports; examinations; receipts; information to be furnished borrower.
§ 6611. Licensee limitations.
§ 6612. Prepayment.
§ 6613. Loan agreement or promissory note.
§ 6614. Prohibited clauses.
§ 6615. Open-end loans.
§ 6616. Authority of Secretary of Banking.
§ 6617. [Repealed.]
§ 6618. Surrender of license.
§ 6619. Suspension; revocation or refusal.
§ 6620. Scope of act.
§ 6621. Foreclosure, default, confession of judgment.
§ 6622. Penalties.
§ 6623. Preservation of existing powers.
§ 6624. Exclusions from act.
§ 6625. Interpretation of act.
§ 6626. Preservation of existing contracts.

§ 6601. Short title.

This act shall be known and may be cited as the "Secondary Mortgage Loan Act."

§ 6602. Definitions.

The following words and phrases when used in this act shall have, unless the context clearly indicates otherwise, the meanings given to them in this section:

"Advance fee."
Any funds requested by or to be paid to a secondary mortgage and loan broker in advance of or during the processing of a secondary mortgage loan application.
"Billing cycle."
In respect to open-end loans means the time interval between periodic billing dates. A billing cycle shall be considered monthly if the closing date of the cycle is the same date each month or does not vary by more than four days from such date.
"Broker's agent."
A category of secondary mortgage loan broker's license that is issued to individuals who broker secondary mortgage loans exclusively to one licensed secondary mortgage loan broker, designated as a sponsoring broker and who are not employees of such sponsoring broker.
"Licensee."
A person who is licensed under this act or a person excepted from the licensing provisions of this act in accordance with section 3 hereof.
"Open-end loan."
A secondary mortgage loan made by a licensee under this act pursuant to an agreement between the licensee and borrower whereby:
  1. the licensee may permit the borrower to obtain advances of money from the licensee from time to time or the licensee may advance money on behalf of the borrower from time to time as directed by the borrower;
  2. the amount of each advance, interest and permitted charges and costs are debited to the borrower's account and payments and other credits are credited to the same account;
  3. interest is computed on the unpaid principal balance or balances of the account outstanding from time to time;
  4. the borrower has the privilege of paying the account in full at any time without prepayment penalty or, if the account is not in default, in monthly installments of fixed or determinable amounts as provided in the agreement; and
  5. the agreement expressly states that it covers open-end loans pursuant to this act.
"Person."
An individual, association, joint venture or joint stock company, partnership, limited partnership, limited partnership association, a business corporation, nonprofit corporation, or any other group of individuals however organized.
"Secondary mortgage loan."
A loan in an original principal amount in excess of $5,000 which is secured in whole or in part by a lien upon any interest in real property created by a security agreement, including a mortgage, indenture, or any other similar instrument or document, which real property is subject to a prior mortgage and which is used as a dwelling, including a dual purpose or combination type dwelling which is also used as a business or commercial establishment and has accommodations for not more than four families, except that a loan which:
  1. is to be repaid in 90 days or less;
  2. is the result of the sale of a dwelling if title to the dwelling is in name of the seller and the seller has resided in said dwelling for at least one year and the buyer is purchasing said dwelling for his own residence and, as part of the purchase price, executes a second mortgage in favor of the seller;
  3. is not subject to the maximum legal rate of interest established by Section 201 or Section 301 of the act of January 30, 1974 (P.L. 13, No. 6) referred to as the Loan Interest and Protection Law, by reason of any of the exemptions provided in section 301 (f) of said act; or
  4. is made under any other law of the Commonwealth of Pennsylvania;

shall not be subject to the provision of this act.

"Secondary mortgage loan broker."
A person who in the ordinary course of business, for a fee, directly or indirectly negotiates or arranges for others a secondary mortgage loan.
"Secretary."
The secretary of Banking of Pennsylvania including his deputies, or any other salaried employee of the Department of Banking appointed or designated by the secretary to perform the functions required for the administration or enforcement of this act.
"Sponsoring broker."
A licensed secondary mortgage loan broker who negotiates or arranges secondary mortgage loans on behalf of a broker's agent and provides indemnification of such broker's agent in order to protect borrowers from monetary damages which may be a result of doing business with a broker's agent.

§ 6603. License requirements and exemptions.

(a)

  1. No person shall engage in the business of making secondary mortgage loans in this Commonwealth except a business corporation organized under the laws of this C Commonwealth or any other state, after first obtaining a license from the secretary in accordance with the provisions of this act.
  2. No person shall engage in the business of being a secondary mortgage loan broker until after first obtaining a license from the secretary in accordance with the provisions of this act.
  3. A state chartered or National Bank, Bank and Trust Co., a savings bank, private bank, Savings Association or savings and loan association, having its principal place of business in this commonwealth, or an individual making loans to found the members, shall not be required to be licensed under this act in order to make loans secured by real property under this act.
  4. Any agency or instrumentality of the United States government or corporation otherwise created by an act of the United States Congress which engages in the business of purchasing secondary mortgage loans shall not be required to be licensed under this act in order to purchase of secondary mortgage loans from licensees under this act. They shall include but not be limited to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
  5. For the purpose of this act, a person is deemed to be engaged in the secondary mortgage loan business in the Commonwealth if:
    1. such person advertises, causes to be advertised, solicits, negotiates or arranges in the ordinary course of business, offers to make or makes more than two secondary mortgage loans in a calendar year in this Commonwealth, whether directly or by any person acting for his benefit, but this provision shall not prohibit advertising or solicitation by a licensee under a general corporate name, logo or trade mark; or
    2. such person in the ordinary course of business becomes the subsequent holder of more than two promissory notes or mortgages, indentures or any other similar instruments or documents received in a calendar year in connection with a secondary mortgage loan; provided, however, that a person will not be deemed to be engaged in the secondary mortgage loan business if such person becomes the subsequent holder of two or more promissory notes or mortgages, indentures or any other similar instruments or documents received in a calendar year in connection with a secondary mortgage loan solely as an investment and such person is not otherwise in the business of making or servicing such loans.

(b) A real estate broker licensed pursuant to the provisions of the law of this Commonwealth or an attorney authorized to practice law in this Commonwealth shall not be required to obtain a license to arrange a secondary mortgage loan in the normal course of the business of a real estate broker or attorney.

(c) A secondary mortgage loan broker who can demonstrate to the satisfaction of the secretary that he does not accept advance fees shall be exempt from the capital requirement of section 4(b).

(d) A person who is deemed to be engaged in the secondary mortgage loan business solely because he negotiates or arranges secondary mortgage loans for others need not obtain a secondary mortgage loan license but should be required to be licensed as a secondary mortgage loan broker.

(e) A secondary mortgage loan broker who is an individual exempt from the capital requirement of section 4(b) and who can also demonstrate to the satisfaction of the secretary that he solicits secondary mortgage loan applications exclusively for one secondary mortgage loan broker may apply for a broker's agent license subject to the requirements in section 4(d).

§ 6604. Application for license.

(a) An application for a secondary mortgage loan license or a secondary mortgage loan broker license should be on a form provided by the secretary. Among other things, the application shall set forth the following:

  1. the full name, corporate title and personal residence address of the officer and director of the proposed licensing corporation or the full name and address of each owner of the proposed broker license if it is not a corporation.
  2. any or all other business entities in which an equity or creditor interest is held by an officer or director of the proposed licensee corporation or by any owner of the proposed broker licensee if it is not a corporation.
  3. the dollar amount of such equity or creditor holdings.
  4. whether or not funds are or will be interchanged between the licensee and such business entities.
  5. the address or addresses where the secondary mortgage loan business is to be conducted.

(b) The applicant for a secondary mortgage loan licence shall have a minimum legal capitalization of $200,000. At the time of applying for a license under this act, and at all times thereafter, the minimum paid in legal capital shall be $200,000. An applicant for a secondary mortgage loan broker license shall have a minimum legal capitalization of $25,000 at the time of applying for a license under this act and all times thereafter.

(c) If the applicant is a foreign corporation, said corporation shall be authorized to do business in this Commonwealth in accordance with the law of this Commonwealth regulating corporations. Such corporations shall file with the application an irrevocable consent, duly acknowledged, that suits and actions may be commenced against such licensee in the courts of this Commonwealth by the service of process or any pleading upon the Secretary in the usual manner provided for service of process and pleadings by the statutes and court rule of this Commonwealth. Said consent shall provide that such service shall be as valid and binding as if service had been made personally upon the licensee in this Commonwealth. In all cases where process or pleadings are served upon the secretary pursuant to the provisions of this section, such process or pleadings shall be served in duplicate, one of which should be filed in the office of the secretary and the other shall be forwarded by the secretary, by certified or registered mail, return receipt, to the last known principal place of business of the licensee a to whom such process or pleadings are directed.

(d) The applicant for a secondary mortgage loan broker license may apply for a broker's agent license subject to the following:

  1. The applicant must be an individual.
  2. The applicant must be exempt from the capital requirement of subsection (b) by satisfying the secretary that no advance fees whatsoever are accepted or collected, and no fees may be accepted or collected from borrowers.
  3. The applicant must demonstrate to the satisfaction of the secretary that he solicits secondary mortgage loan applications exclusively for one licensed secondary mortgage loan broker known as the sponsoring broker.
  4. The principal office location of the holder of a broker's agent license must be a Pennsylvania licensed principal or branch place of business of the sponsoring broker.
  5. The holder of a broker's agent license, if he uses advertising to solicit or obtain customers for his secondary mortgage loan brokerage business, may not advertise in his own name alone but shall advertise his own name only in conjunction with the name of the sponsoring broker.

(e) The sponsoring broker shall enter into an indemnification agreement in a form provided by the secretary to protect borrowers from any monetary damages which may result from doing business with a broker's agent.

§ 6605. Annual license fee.

An applicant shall pay to the secretary at the time an application is filed an initial license fee of $500 for the principal place of business and an additional initial license fee of $50 for each branch office in this Commonwealth, except an applicant for a broker's agent license shall pay to the secretary at the time an application is filed an initial license fee of $250. On or before July 1 of each year and thereafter, a licensee shall pay a license renewal fee of $200 for the principal place of business and an additional license renewal fee of $25 for each branch office in this Commonwealth. Notwithstanding the provision of section 603-A(6) of the act of April 9, 1929 (P.L.177, No.175), known as "The Administrative Code of 1929," a broker's agent licensee shall pay an annual license renewal fee of $200. No abatement of any license fee shall be made if the license is issued for a period of less than one year. The secretary shall be entitled to recover any cost of investigation in excess of license or renewal fees from the licensee, or from any person who is not licensed under this act but presumed to be engaged in business contemplated by this act.

§ 6609. Powers conferred by licenses.

(a) All secondary mortgage loan licensees shall have power and authority:

  1. To make a secondary mortgage loan repayable in installments, and the charge, contract for and receive their own interest at a percentage rate not exceeding 1.85% per month. No interest shall be paid, deducted or receive in advance, except that interest from the date of disbursement of funds to the bar to the first day of the following month shall be permitted in the event the first installment payment is made more than 30 days after the date of disbursement. Interest shall not be compounded and should be computed only on unpaid principal balances. However, the inclusion of your interest and new note shall not be considered, pounding. For the purpose of computing interest, a month shall be any period of 30 consecutive days.
  2. To collect fees or premiums for title examination, abstract of title, title insurance, credit reports, surveys, appraisals, notaries, postage (including messenger and express carrier), tax service or other costs or fees actually related to the processing of a secondary mortgage loan application or granting of a secondary mortgage loan, when such fees are actually paid or incurred by the licensee and to collect fees or charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the loan and include these in the principal of the secondary mortgage loan.
  3. To collect reasonable attorney's fees, of an attorney licensed to practice in this Commonwealth, upon the execution of the secondary mortgage loan provided that a such fees represent actual fees charged the licensee in connection with said mortgage loan and said fees are evidenced by a statement for services rendered addressed to the licensee and include these in the principal of the secondary mortgage loan.
  4. To collect reasonable attorney's fees, of an attorney licensed to practice in the Commonwealth, in the collection of a delinquent second mortgage loan and any court costs and fees actually incurred in the collection of such loan account.
  5. To provide credit life, credit accident and health and credit unemployment insurance. A borrower shall not be compelled to purchase credit life, credit accident and health or credit unemployment insurance as a condition of the granting of a secondary mortgage loan and all contracts utilized shall reflect a clear disclosure that the purchase of credit life, credit accident and health or credit unemployment insurance is not a prerequisite to obtaining a loan; if, however, the borrower elects to obtain credit life, credit accident and health or credit unemployment insurance, the borrower shall consent thereto in writing. If borrowers desire joint-life or joint accident and health insurance, all such borrowers shall consent thereto in writing. Such insurance shall be obtained from an insurance company authorized by the laws of Pennsylvania to conduct business in this Commonwealth. Any benefit or return to the licensee from the sale or provision of such insurance shall not be included in the computation of the maximum charge authorized under this section and shall not be deemed a violation of this act when the insurance is written pursuant to the laws of this Commonwealth governing insurance.
  6. To require credit property insurance on security against reasonable risks of loss, damage and destruction. The amount of and term of such insurance shall be reasonable in relation to the amount and term of the loan contract and the value of the security. A licensee shall not require property insurance if to the licensee's knowledge, the borrower at the time the loan is made has valid and collectible insurance covering the property to be insured and has furnished a loss payable endorsement sufficient for the protection of the licensee. Such insurance shall be obtained from an insurance company authorized by the laws of Pennsylvania to conduct business in this Commonwealth. Any benefit or return to the licensee from the sale or provision of credit insurance shall not be included in the computation of the maximum charge authorized under this section and shall not be deemed a violation of this act when the insurance is written pursuant to the laws of this Commonwealth governing insurance. The premium for any credit insurance may be included in the principal amount of the secondary mortgage loan requested by the borrower. However, such premiums shall be disclosed as a separate item on the face of a principal contract document and the licensee's individual borrower ledger records. No licensee shall grant any secondary mortgage loan on the condition, agreement or understanding that the borrower contract with any specific person or organization for insurance services as agent, broker or underwriter.
  7. To collect a fee for a subsequent dishonored check or instrument taken in payment, not to exceed the service charge permitted to be imposed under 18 Pa. C.S. 4105(e)(3) (relating to bad checks).
  8. To charge and collect an application fee not exceeding 3% of the original principal amount of the loan. The fee shall be fully earned at the time the loan is made and may be added to the principal amount of the loan. No application fee may be collected on subsequent advances made pursuant to an open-end loan if the full fee of 3% of the credit limit was collected at the time the loan was made.
  9. To charge and collect a delinquency charge of $20 or 10% of each payment, whichever is higher, for a payment which is in default for more than 15 days.

(b) All secondary mortgage loan broker licensees shall have power and authority:

  1. To collect a title examination, credit report, and appraisal fees actually related to the granting of a secondary mortgage loan when such fees are actually paid or incurred by the licensee, and to include the fees in the principal of the secondary mortgage loan which is being negotiated or arranged.
  2. To charge a reasonable brokers fee as determined by regulation of the Department of Banking if the fee is disclosed to the person for whom the loan is being negotiated or arranged.

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Secondary Mortgage Loan Act / Judiciary@att.net / last revised March 2000