(No ) (Approved December 30, 2010) AN ACT

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1 (H. B. 2863) (No ) (Approved December 30, 2010) AN ACT To adopt the Act to Regulate the Mortgage Loan Industry in Puerto Rico ; repeal Act No. 97 of June 5, 1973, as amended, known as the Mortgage Institutions Act ; impose penalties; and for other purposes. STATEMENT OF MOTIVES Act No. 97 of June 5, 1973, as amended, known as the Mortgage Institutions Act, was approved to regulate businesses engaged in granting mortgage loans to finance the acquisition of real property. These businesses are vested with high public interest, since they promote economic development and benefit our people. However, this is not the only law that regulates the various businesses that comprise the mortgage industry in Puerto Rico. The passage of time and the challenges that businesses that grant mortgage loans for the acquisition of real property face these days substantiate the need to pass legislation that is consistent with the changes that have transformed the industry. Such Legislation must be coherent, swift, and strict for the field it regulates to provide the assurance needed when doing business. In order to ensure the wellbeing of the people and provide trust and transparency in the mortgage industry, state regulators, the Conference of State Bank Supervisors (CSBC), and the American Association of Residential Mortgage Regulators (AARMR) have joined efforts to develop the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY to increase and centralize the information available to state regulators, the mortgage industry, and the general public on the licensure of bankers, mortgage brokers, and mortgage loan

2 originators. For the foregoing reasons, we deem it pertinent to adopt a new law to regulate the mortgage loan industry in Puerto Rico based on the requirement that every financial institution, mortgage loan broker, and originator must obtain a license through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY, among other requirements. Title V of Public Law , known as the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 or S.A.F.E. Mortgage Licensing Act of 2008, was approved on July 30 th, Such statute requires the licensing and registration of every mortgage loan originator through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY in the jurisdiction where it does business, or to be registered in the appropriate federal agency, as the case may be, in order to originate mortgage loans. Said statute also urges the states to establish a NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY for the mortgage loan industry, thus encouraging mortgage loan originators to act in the best interests of consumers and facilitating the collection and disbursement of consumer complaints on behalf of State and Federal mortgage regulators through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY. It is common knowledge that, under the constitutional system of the United States, both a federal law and a state law may apply when considering a single situation. As a general rule, the Supremacy Clause provides that, in case of conflict, the federal law shall prevail over state law unless the United States Congress provides otherwise. However, even when there is no conflict between federal and state legislation, the federal law shall supersede state legislation on specific issues when it is explicitly or implicitly provided for in the structure and purpose of federal law. Likewise, the Puerto Rico Federal Relations Act of June

3 22, 1952, provides that U.S. statutory laws that are not locally inapplicable shall have the same effect and validity in Puerto Rico as they have in the United States. The impact that these transactions have on this industry justifies the standardization of the system. In our jurisdiction, said standardization must be implemented through legislation, since it will entail the inclusion of Puerto Rico within the scope of the Federal Law. Increasing the uniformity in the mortgage industry throughout the states by means of this legislation is an essential element for the positive development of the mortgage industry in general. The activities carried out by the mortgage industry have a direct and immediate impact on consumers, as well as the economy, communities and neighborhoods, and the housing and real estate industries. Hence, reasonable standards to regulate the current practice of mortgage institutions, mortgage loan brokers, and mortgage loan originators must be implemented both for the protection of consumers and for the stability of said industry and the economy. This Legislative Assembly is aware that accessibility to mortgage credit is extremely important for citizens. Furthermore, we believe that the responsibility of the mortgage industry towards consumers regarding mortgage loan origination is significant enough to justify the regulation of the mortgage loan process. Acknowledging the importance of establishing and maintaining a secure and reliable financial industry, this Legislative Assembly deems it necessary to establish groundbreaking legislation to place Puerto Rico among those jurisdictions committed to protecting and providing assurance to consumers that require or need mortgage financing.

4 BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF PUERTO RICO: CHAPTER I GENERAL PROVISIONS AND DEFINITIONS Section Title.- This Act shall be known and may be cited as the Act to Regulate the Mortgage Loan Business in Puerto Rico. Section Definitions.- For purposes of this Act, the following definitions are adopted: (a) Liquid Assets : an asset that can be converted into cash in a short time, with little or no loss in value, including cash, bank deposits, and securities with a maturity date of less than three (3) months. (b) Mortgage Loan Servicing : the delivery of periodical account statements to the client; the processing of mortgage loan payments; the receipt of payments and the application thereof to the payments of principal of, interest on, and late fees of the loan, as well as deposits to any account or escrow accounts; payment of property taxes and insurance premiums during the entire term of a mortgage loan; the custody of records and documents related to the mortgage loan and the rendering of supplementary services; and compliance with the applicable laws, among others. (c) Federal Banking Agencies : the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Deposit Insurance Corporation. (d) Bank : an institution engaged in the banking business, including banks, savings and loan associations, savings and credit unions, or trust companies organized under the laws of the Government of Puerto Rico, the United States of

5 America, or any of its states or territories, or any foreign country, and authorized to do business in Puerto Rico by the corresponding entities. (e) Capital : the sum of all resources and assets used to create and start a business. It is the amount of money invested in a business by its owners, partners, or stockholders. (f) Service Fee : the amount of money, rate, discount, or commission that a mortgage institution, mortgage broker, or mortgage loan originator directly, indirectly, or disguised as a compensation for services rendered in such capacity charges to its customers. (g) Commissioner : the Commissioner of the Office of Financial Institutions of Puerto Rico. (h) Licensee : a person who holds a license as a financial institution issued by the Commissioner under this Act. (i) COSSEC : the Public Corporation for the Supervision and Insurance of Cooperatives in Puerto Rico. (j) Mortgage Broker : any natural or juridical person, whether for profit or not, that offers and contracts services to facilitate, process, or obtain mortgage loans for third parties to acquire real property in exchange for a service fee that may be direct, indirect, ostensible, concealed, or disguised from the person for whom the same is negotiated, processed, planned, granted, or obtained, as well as from any other person that is part of the transaction with whom a written agreement has been entered into. It shall also include any person who assists a consumer in obtaining or applying to obtain a mortgage loan by advising on loan terms, preparing loan packages, or collecting information on behalf of the consumer. (k) Real Estate Brokerage : any activity that involves offering or providing real estate brokerage services to the public, including acting as a real

6 estate agent, broker, or business for a buyer, seller, lessor, or lessee of real property, bringing together parties interested in the sale, purchase, lease, rental, or exchange of real property; negotiating, on behalf of any of the parties, any portion of a contract related to the sale, purchase, lease, rental, or exchange of real property, except with regards to financing in these type of transactions; participating in any activity for which a person engaged in the real estate business must be registered or licensed as a real estate agent or real estate broker under any applicable law; and offer to participate in any activity or act in any capacity as described in this definition. (l) Financial Statement : a document that shows the financial situation, the results of the operations, and the cash flow statement of an institution, and which has been prepared in accordance with generally accepted accounting principles or principles that may be adopted by certified public accountants. (m) Immediate Family Member : a spouse, child, sibling, parent, grandparent, or grandchild. This shall also include stepparents, stepchildren, stepsiblings, and adoptive relationships. (n) Financing : the delivery or remittance of a legal tender in Puerto Rico by a person to another to pay the price of goods or services received by a third party with the express obligation of said third party to repay the amount, with or without interest, to the person that delivered or remitted the same. (o) Mortgage : a legal instrument that describes and establishes encumbrances on real property to secure the payment of a debt. (p) Unique Identifier : an identification number or code assigned by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY to identify loan originators. (q) Individual : a natural person.

7 (r) Depository Institution : any bank, as defined in subsection (d) of this Section. (s) Mortgage Institution : any natural or juridical person whose main business or activity is to originate, finance, refinance, close, sell, and service mortgage loans on real property; furthermore, to act or serve as intermediary by offering his/her services to insurance companies, banks, trusts, pension funds, and other private or government investment entities or individuals that invest their assets, wholly or partially, in mortgage loans or in the granting thereof to finance or refinance the acquisition of real property located in Puerto Rico. (t) Act : Act to Regulate the Mortgage Loan Business in Puerto Rico. (u) License : a written authorization issued by the Commissioner or his/her representative, whereby a person is authorized to engage in mortgage lending, mortgage brokerage or mortgage loan origination activities in accordance with the provisions of this Act. (v) NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY : a system developed and maintained by the CONFERENCE OF STATE BANK SUPERVISORS and the AMERICAN ASSOCIATION OF RESIDENTIAL MORTGAGE REGULATORS to uniform State licensing applications, forms, systems, and processes applicable to the mortgage industry. (w) Mortgage Lending Business : business whereby one or more cash advances, or their equivalent, are made by a lender (commonly known as a mortgage creditor) that is secured by a mortgage deed that duly creates a lien on one or more real property and whereby the conditions and form of repayment or liquidation of the loan are set forth. It further includes mortgage loan servicing as defined in subsection (b) of this Section. (x) Office of the Commissioner of Financial Institutions : the Office of the Commissioner of Financial Institutions, created under Act No. 4 of October 11,

8 1985, as amended, known as the Financial Institutions Commissioner s Office Act. (y) Office : site where the licensee s main office is located and any other site where mortgage lending, mortgage brokerage, or mortgage loan origination are carried out, provided that such site shall not be a dwelling. Every office shall obtain the applicable Use Permit issued by the appropriate government agency. (z) Mortgage Loan Originator : an individual who, for compensation or gain or with the expectation of receiving compensation or gain, engages in the loan origination business through the receipt of a mortgage loan application, or who offers or negotiates the terms of a mortgage loan. Such term shall not include individuals engaged solely as loan processors or underwriters, except as provided in subsection (c) of Section 5.1 of Chapter V of this Act. Furthermore, it shall not include persons or entities that only perform real estate brokerage activities and are licensed or registered in accordance with the applicable law, unless such persons or entities are compensated by any lender, mortgage broker, or mortgage loan originator, or by any agent of such lender, mortgage broker, or mortgage loan originator; or to persons or entities solely involved in granting extensions of credit related to timeshare plans, as such term is defined in Section 101(53D) of Chapter 1 of Title 11, U.S. Code. (aa) Licensed Mortgage Loan Originator : an individual who meets the definition of mortgage loan originator and is not an employee of a depository institution, a subsidiary that is owned and controlled by a depository institution and regulated by a Federal banking agency, or an institution regulated by the FARM CREDIT ADMINISTRATION, and who is licensed by the Office of the Commissioner of Financial Institutions; and is registered with and maintains a unique identifier through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY.

9 (bb) Registered Mortgage Loan Originator : an individual who meets the definition of mortgage loan originator and is an employee of a depository institution, a subsidiary that is owned and controlled by a depository institution and regulated by a Federal banking agency, or an institution regulated by the FARM CREDIT ADMINISTRATION; and who is registered with and maintains a unique identifier by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY through the FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL. (cc) Net Worth : the total assets minus total liabilities. (dd) Person : any natural person engaged in mortgage loan origination activities or any natural or juridical person including, but not limited to individuals, partnerships, corporations, trusts, or any other juridical entity engaged in any activity related to mortgage lending or brokerage. (ee) Mortgage Loan : one or more cash advances or their equivalent, made by a lender (commonly known as a mortgage creditor) that is secured by a mortgage, note, or other consensual security interest on one or more real estate, and whereby the conditions and form of repayment or liquidation of the loan are set forth. (ff) Residential Mortgage Loan : any mortgage loan primarily for personal, family, or household use that is secured by a mortgage, note, or other consensual security interest on a residential real estate. (gg) Loan Processor or Underwriter : an individual who performs administrative, clerical, or support duties as an employee at the direction of and subject to the supervision or instruction of a registered mortgage loan originator or a mortgage loan originator licensed by the Office of the Commissioner of Financial Institutions. Administrative, clerical, or support duties may include, after receiving an application, the receipt, collection, distribution, and analysis of the information necessary for processing or underwriting a mortgage loan, and communication

10 with the consumer to obtain the information necessary for processing or underwriting a loan, to the extent that such communication does not include offering or negotiating residential mortgage loans rates or terms, or counseling consumers about residential mortgage loan rates or terms. Such individual shall not lead the public to believe, through advertising or the media (including printed material, brochures, signs, or other promotional items), or otherwise, that he/she can or will perform any of the activities of a mortgage loan originator. (hh) Nontraditional Mortgage Product : any mortgage product other than a thirty (30)-year fixed rate mortgage with a constant payment of principal and interest. (ii) Residential Real Estate : any real property located in Puerto Rico on which is constructed or intended to be constructed a dwelling. Section 1.3- Applicability.- (a) This Act shall apply to any person partially or totally engaged in mortgage lending, mortgage brokerage, or mortgage loan origination activities, as defined in this Act, for all purposes, which include financing the acquisition of residential real estate or refinancing residential mortgage loans. (b) Any person who, as of the date of approval of this Act, is operating a Mortgage Lending Business to finance the acquisition of real estate that is authorized under Act No. 97 of June 5, 1973, as amended, or offers Real Estate Brokerage services under Act No. 214 of October 14, 1995, as amended, known as the Act to Regulate the Financial Intermediation Business, may continue such business, provided that it meets all the requirements imposed under this Act within ninety (90) days after the approval thereof.

11 CHAPTER II LICENSE ISSUANCE GENERAL PROVISIONS Section License Requirement.- No person or individual, except for those excluded in Sections 3.1, 4.1, and 5.1 of this Act, shall engage in the business of mortgage lending, mortgage brokerage, or mortgage loan origination in Puerto Rico without first obtaining a license issued under this Act by the Commissioner as provided below. Section License Application.- (a) Any person interested in obtaining a license to engage in the business of mortgage lending, mortgage brokerage, or mortgage loan origination shall file an application containing all the required information with the Office of the Commissioner of Financial Institutions using the forms and system provided by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY. (b) The Commissioner may waive any application requirement and allow the furnishing of alternate information in lieu of the information generally required in the application if he/she determines that such action is consistent with the purposes of this Act. (c) The license application shall be filed together with the payment of any license, investigation, and application processing fee or fees fixed by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY, which shall be payable through such entity, at the time of filing such application. (d) Any application for a license to engage in the business of mortgage lending, mortgage brokerage, or mortgage loan origination filed with the Office of the Commissioner of Financial Institutions shall be subject to any investigation that the Commissioner deems appropriate and necessary to determine whether the applicant, or the partners, stockholders, directors, and executive officers, in the case of a juridical person, meet the requirements established in this Act.

12 (e) The Commissioner may extend the period provided by law or Regulations to consider a license application. (f) Any incomplete application shall be treated as not filed. Section Surety Bond.- (a) Every applicant for a license to engage in the business of mortgage lending, mortgage brokerage, or mortgage loan origination shall post a bond that ensures faithful compliance with the provisions of this Act and the rules or regulations to be adopted thereunder by the Commissioner. Said surety bond shall serve as a guarantee to any person, including the Office of the Commissioner of Financial Institutions, and shall be in the amount provided in Section 3.4 of Chapter III, Section 4.4 of Chapter IV, and Section 5.4 of Chapter V, respectively. The surety bond shall be renewed annually. (b) The surety bond may consist of: (1) a surety bond issued by an insurance company authorized by the Office of the Insurance Commissioner to do business in Puerto Rico, which bond may be subject to cancellation only through a written notice to the Commissioner not less than thirty (30) days prior to the cancellation thereof; (2) bonds, notes, or other evidence of indebtedness of the Government of Puerto Rico, its municipalities and public corporations, provided that they shall be accepted at all times at eighty percent (80%) of its market value; (3) certificates of deposit issued to the name of the Commissioner by banks authorized to do business in Puerto Rico; or (4) letters of credit issued in the name of the Commissioner by authorized banks. (c) The securities deposited as surety bonds may be registered, with respect to its principal, in the name of the petitioner and shall include a separate endorsement in the name of the Commissioner of Financial Institutions, wherein

13 the securities endorsed are described. Said assets may not be withdrawn without the express authorization of the Commissioner. (d) The Commissioner may require a licensee to submit a new surety bond whenever a claim is filed against the surety bond in effect. Section Return of Application or Denial of License.- (a) After analyzing the filed application, the Commissioner may deny the same for any of the following reasons: (1) the application was not filed in accordance with the provisions and requirements of this Act or the regulations that may be promulgated thereunder; (2) the application lacks the information or documents required for its evaluation; (3) authorization is requested to engage in a business not authorized in Puerto Rico. (b) In the event that the Commissioner returns the application, the amount paid on account of investigation and license fees shall be refunded to the applicant. (c) After analyzing the application to engage in the business of mortgage lending, mortgage loan brokerage, or mortgage loan origination, and conducting the corresponding investigation, the Commissioner may deny a license application if he/she deems that the applicant failed to meet any of the requirements established in this Act to obtain a license: if he/she discovers that the applicant submitted false, incorrect, or deceitful information in the license application; or if the applicant has been convicted of any crime that involves moral turpitude, including, but not limited to fraud, deceit, forgery, or money laundering, among others. (d) An applicant who has been denied a license to engage in the business of mortgage lending, mortgage loan brokerage, or mortgage loan origination may

14 request reconsideration to the Commissioner within twenty (20) days following the notice of the denial. (e) In the event that the Commissioner denies the license, the amount paid on account of investigation fees shall be retained by the Commissioner and the amount paid on account of license fees shall be refunded to the applicant. Section Issuance of License.- (a) Upon filing the application and paying the fees, the Commissioner shall conduct the investigations deemed necessary and, if he/she determines that the applicant meets all the requirements and that the application should be approved, the Commissioner shall issue a license to the applicant, which shall represent the authorization to operate in accordance with the provisions of this Act. (b) No other license shall be issued unless it is certified that the original license has been lost or destroyed, or if there has been a change of address, in which case the licensee shall return the original license. (c) Every holder of a license to engage in the business of mortgage lending, mortgage loan brokerage, or mortgage loan origination shall begin its operations within a term not greater than ninety (90) days as of the date in which the Commissioner issued the license. If the licensee is unable to begin operations within the term herein established, he/she shall request an extension to the Commissioner and explain the reasons therefor. The Commissioner shall determine if there is valid justification for granting the extension and shall notify the same to the licensee within fifteen (15) days after the request for the extension. In the event that the Commissioner fails to comply with such term for notification, it shall be understood that an extension has been granted for thirty (30) additional days. In no case shall more than two additional thirty (30)-day extensions be requested.

15 The license shall become null if operations do not begin within the term established in this subsection or within the term of any extension granted by the Commissioner. Section Renewal of License.- (a) Every license shall remain in effect until its expiration, which shall be at the end of every calendar year, or until the same has been surrendered, revoked, cancelled, or suspended. (b) Every licensee shall renew the license in strict compliance with the applicable laws and regulations, the payment of the corresponding annual fee, and the filing of any other information that the Commissioner may require. (c) Every licensee shall submit the license renewal application pursuant to the rules and procedures established by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY as of the date of the filing and in accordance with the provisions of this Act. (d) Every license renewal application shall be filed on or before December 1 st of each year through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY. The renewal application shall include: (1) Evidence that the licensee s guarantee or surety bond is in effect and was posted in accordance with the provisions of Section 2.3 of this Chapter. If the Commissioner determines that the guarantee or surety bond posted is inadequate, insufficient, or has been partially used or exhausted, he/she may direct the posting of a new surety bond or supplementary surety bond, or the deposit of new or additional guarantees for the purpose of ensuring compliance with this Act or the rules and regulations that may be adopted thereunder, through an order to such effect to be issued within thirty (30) days after the licensee has been served notice;

16 (2) those documents required in Section 3.6 of Chapter III, Section 4.6 of Chapter IV, or Section 5.8 of Chapter V, as applicable; and (3) any other information, documents, or reports that the Commissioner may require to keep up to date the information and the documents enclosed with the license renewal application. (e) Any license renewal application filed after December 1 st shall entail a penalty not greater than five hundred dollars ($500). License renewal applications filed after January 1 st of each year shall not be considered. (f) The Commissioner may deny a license renewal application if he/she deems that the licensee: (1) has failed to meet with any of the requirements established in this Act to obtain a license; (2) has furnished false, incorrect, or misleading information in the renewal application; (3) has failed to pay any fine or penalty imposed by the Office of the Commissioner of Financial Institutions by means of final Resolution or Order; (4) has failed to pay any invoice on account of any investigations conducted by the Office of the Commissioner of Financial Institutions regarding the operations thereof; (5) has failed to comply with the provisions of any Resolution or Order of the Office of the Commissioner of Financial Institutions; (6) has failed to remit any payment or provide any document or information required by the Office of the Commissioner of Financial Institutions that is not subject to any adjudication procedure.

17 Section Surrender, Revocation, Cancellation, or Suspension of License.- (a) Any licensee may surrender his/her license through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY, but shall notify his/her decision to the Commissioner at least thirty (30) days before it becomes effective. (b) The Commissioner may order and conduct an inspection of the business prior to accepting the surrender of the license. If it is determined after the inspection that the licensee committed a violation of law, the Commissioner may revoke the license and impose the corresponding penalty pursuant to the provisions of this Act. (c) The Commissioner may call the person who has surrendered the license to a meeting where the latter shall be required to deliver the license and pay any outstanding debts with the Office of the Commissioner of Financial Institutions. (d) The Commissioner may revoke, cancel, or suspend a license for any violation of this Act or the rules and regulations that may be promulgated thereunder if it is determined that any fact exists which if it had existed or had been known to exist at the time the license was issued, would have warranted the denial thereof, or if it is discovered that the licensee has submitted false, incorrect, or misleading information. The Office of the Commissioner of Financial Institutions shall carry out the actions related to the revocation, cancellation, or suspension of licenses through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY, pursuant to the powers and faculties conferred thereto by Act No. 4 of October 11, 1985, as amended, known as the Financial Institutions Commissioner s Office Act, and Act No. 170 of August 12, 1988, as amended, known as the Commonwealth of Puerto Rico Uniform Administrative Procedures Act.

18 (e) No surrender, revocation, cancellation, or suspension of any license shall impair or affect the obligations derived from any valid contract existing between the licensee and other persons. CHAPTER III MORTGAGE LENDING BUSINESS Section Applicability and Excluded Entities.- (a) This Chapter shall apply to every person engaged in the mortgage lending business, as defined in Section 1.2 of Chapter I of this Act. (b) The following persons shall not be subject to the provisions of this Chapter: (1) banks authorized to operate in Puerto Rico that are regulated by a federal banking agency; (2) federal agencies; (3) agencies, municipalities, and instrumentalities of the Government of Puerto Rico; (4) employee retirement systems of the Government of Puerto Rico and its instrumentalities; (5) insurance companies authorized by the Commissioner of Insurance of the Commonwealth of Puerto Rico to do business in Puerto Rico; and (6) natural persons who grant or originate residential mortgage loans when the total amount of the loans granted or originated in the previous twelve (12) months does not exceed one hundred thousand dollars ($100,000).

19 Section License Requirements.- To obtain a license to engage in the mortgage lending business in Puerto Rico under this Chapter, the applicant shall: (a) have a capital of at least two hundred fifty thousand dollars ($250,000) when applying for a license, to be determined pursuant to generally accepted accounting principles; provided, however, that as of January 1 st, 2012, and subsequently for 2013, 2014, and 2015, the applicant shall have a capital of at least two hundred seventy-five thousand dollars ($275,000); three hundred thousand dollars ($300,000); three hundred twenty-five thousand dollars ($325,000); and three hundred fifty thousand dollars ($350,000), respectively; (b) hold at least one hundred fifty thousand dollars ($150,000) in liquid assets for the administration of the main office, and at least one hundred thousand dollars ($100,000) in liquid assets for every additional authorized office; as of 2012, it shall be required to have at least two hundred thousand dollars ($200,000) in liquid assets for the administration of the main office, and one hundred twentyfive thousand dollars ($125,000) in liquid assets for every required additional office; (c) furnish evidence of good standing; moral probity and financial solvency; experience; minimum education requirement, namely, a bachelor s degree from an accredited university in Puerto Rico, the United States, or a foreign university duly accredited by an institution in Puerto Rico or the United States or, in lieu thereof, ten (10) years of experience in the industry; character and general fitness of the applicant, partners, directors, and executive officers; and no felony convictions involving fraud or a related crime in Puerto Rico or the United States such as to command the confidence and to warrant a determination that the applicant s business shall operate honestly and efficiently and that it shall be in the best public interest;

20 (d) meet the minimum surety bond requirement described in Section 3.4 of this Chapter. Section License Application.- (a) Every application for a license to engage in the mortgage lending business shall include the annual license fees in the amount of two thousand five hundred dollars ($2,500) per office; in the case of a new license, it shall include an investigation fee in the amount of one thousand two hundred fifty dollars ($1,250), and the application processing fees established by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY to be paid to said entity on the date of filing. If the license is issued after June 30 of any year, the annual license fee shall be in the amount of one thousand two hundred fifty dollars ($1,250) for that year. (b) In the event that the investigation fees exceed the aforementioned amount, the Commissioner shall notify the applicant who shall remit fifty percent (50%) of the estimated value of the remaining investigation to the Office of the Commissioner of Financial Institutions and pay the remainder upon the conclusion of the investigation. It shall be the Commissioner s responsibility to ensure that the investigations are conducted promptly, taking into consideration the cost that this represents to the Financial Institution. (c) The license application shall include: (1) a financial statement showing that capital and liquid asset requirements set forth in subsections (a) and (b) of Section 3.2 of this Chapter were met; (2) a list of all mortgage loan originators contracted by the applicant, including any information required by the Commissioner; (3) a copy of the surety bond required in Section 3.4 of this Chapter.

21 Section Surety Bond.- Every applicant for a license to engage in the mortgage lending business in Puerto Rico shall file a surety bond in the amount of five hundred thousand dollars ($500,000) if the applicant plans to do business in a single office. Every additional office shall entail a ten thousand dollar ($10,000)-increase in the surety bond. However, the Commissioner may require a higher surety bond based on the volume of business of the applicant and his/her financial situation. Section Issuance of License.- (a) The Office of the Commissioner of Financial Institutions shall issue one (1) license for each office. Each license shall include the name of the licensee, the street address of the office where business shall be conducted, the date of issue, and the effective date of the license. The license to engage in the mortgage lending business shall not be transferrable and shall be displayed in a conspicuous place in the office to be viewed by the public. (b) A licensee may only engage in the mortgage lending business under this chapter in or from the authorized office. Nothing provided herein shall be construed as to limit the loans that any licensee may grant to those who are residents of the community where the office is located. Said license shall not be used in an office with an address other than the one indicated thereon, in a place shared with any other business, or where other commercial transactions are conducted. (c) If a licensee wishes to move an authorized office, he/she shall notify the Commissioner through the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY not less than forty-five (45) days prior to the date on which the operations in the new office shall begin. If no objection is received from the Commissioner within fifteen (15) days after filing the notice of transfer, said transfer shall be deemed to be authorized. The Commissioner may modify this

22 term by means of an administrative determination whenever necessary in his/her judgment. (d) A licensee may engage in the mortgage lending business in any office or place of business in which other commercial transactions are conducted only when there is a previous written and justified authorization from the Commissioner. The Commissioner may revoke the authorization if he/she determines that carrying out those other transactions enables or conceals noncompliance with the provisions of this Act, pursuant to Act No. 4 of October 11, 1985, as amended, known as the Financial Institutions Commissioner s Act, and Act No. 170 of August 12, 1988, as amended, known as the Uniform Administrative Procedures Act. Section License Renewal.- (a) In addition to the provisions of Section 2.5 of Chapter II of this Act, every application to renew a license to engage in the mortgage lending business shall enclose the annual license fees in the amount of two thousand five hundred dollars ($2,500) per office and the application processing fees established by the NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY to be paid through said entity on the date of the filing. (b) The license renewal application shall include: (1) an audited financial statement showing that capital and assets minimum requirements set forth in subsections (a) and (b) of Section 3.2 of this Chapter were met; (2) an updated list of all mortgage loan brokers and originators contracted by the applicant, including any information as established by the Commissioner.

23 Section Prohibitions.- (a) No person, licensee, member of the board of directors, member of the committees, executive officer, official, employee, or agent of the licensee may: (1) falsely or deceitfully advertise, display, distribute, or radio broadcast or allow the advertisement, display, distribution or radio broadcasting of any information on the types, rates, or terms and conditions of mortgage loans. If the types, rates, or terms and conditions are published in the advertisements, they shall comply with the applicable laws and state and federal regulations; (2) make promises to clients with the intent to persuade them to do business, knowing or with good reason to believe that said promise cannot be kept; (3) use misrepresentation in order to induce or persuade a person to conduct a business transaction; (4) act in representation of more than one party in a transaction without the express consent of all the parties; (5) unduly retain, unless otherwise agreed upon, any amount of money or document pertaining to a transaction, or fail to inform a client of his/her right or of any amount of money or document that is part of a transaction; (6) induce a party into a transaction to terminate a contract and enter into a new one when the objective of such new contract is to obtain personal gain or benefit the mortgage institution; (7) commit misappropriation or embezzlement of the funds under his/her custody; (8) falsify or cause any person to falsify documents that are part of a transaction; (9) offer and mortgage a nonexistent property or offer and mortgage a property without the consent of the owner thereof or when the deed of the property is not clearly established;

24 (10) charge a double commission, one to the seller and another to the buyer of a property with funds acquired through mortgage loans when this has not been expressly agreed on by the parties; (11) deposit clients funds together with his/her own funds; (12) refuse to reimburse any deposit, after deducting a reasonable sum for the expenditures incurred when the contemplated transaction is conducted; (13) charge fees that could be considered excessive to keep money in escrow accounts with the sole purpose of affording the lender greater protection in the mortgage loan; (14) fail to provide clients with a substantially accurate itemization of the costs of the mortgage loan or loans at least twenty-four (24) hours before the granting thereof, when the client so requires; (15) refuse to provide any registration, documents, or information under his/her custody with regard to transactions involving real property that the Office of the Commissioner of Financial Institutions wishes to examine; (16) fail to keep an accounting system that clearly shows all transactions in such a way that enables the Commissioner to conduct the investigations he/she deems necessary; (17) allow or induce a client to sign a blank loan application or have the same available in a place other than the site of the authorized business, so as to be subsequently completed by the broker or the mortgage institution; (18) submit, publish, or make false reports or entries with the intent to deceit or defraud any person or agent authorized by the Commissioner to evaluate the business of the mortgage institution; (19) be involved in illegal or unfair competition practices.

25 (b) Likewise, any person who takes part, incites, or cooperates in the commission of the acts listed herein shall commit a violation, regardless of whether the person obtained personal gain or not. Section Duties of the Licensee.- (a) Any person engaged in the mortgage lending business to finance or refinance the acquisition of real property shall be required to: (1) provide services that are satisfactory to their clients in all their offices and in any other place that facilitates the transaction for the client and according to the best and soundest practices prevailing in Puerto Rico. There shall be no discrimination whatsoever based on race, color, sex, birth, origin, or social status, or political or religious beliefs; (2) provide an amortization schedule at the client s request and free of charge when granting a mortgage loan; (3) verify that every person who renders services in connection with the mortgage loan has the license or authorization enabling him/her to offer said services as required by the applicable laws and regulations; (4) file accurate and timely operational reports, as may be requested by the Office of the Commissioner of Financial Institutions; (5) keep any documents that the Commissioner determines through Regulations available. All licensees may destroy their books, records, files, or documents five (5) years after the last entry was made in said books, records, files, or documents, or as of the date on which any obligation ceases to be enforceable in accordance with the documents in his/her power. All licensees shall establish operating procedures, systems, and processes for the destruction of documents that ensure the following:

26 (a) that the destruction of documents is carried out in accordance with the document retention and destruction policy adopted by the licensees; (b) that the destruction of documents ceases if the Office of the Commissioner of Financial Institutions serves written notice to the licensee requesting that certain documents, which shall be identified in said notice, be preserved; provided, however, that if notice is served after the five (5)-year period, and the financial institution has already destroyed said documents after such period, the financial institution shall not be penalized; (c) that the destruction of documents ceases if the licensee is notified of a complaint or claim, or administrative or judicial order or requirement that prevents the destruction of specific documents according to the applicable local and federal regulations; (d) that the destruction of the documents is permanent so as to prevent subsequent use thereof. Said procedures shall be subject to inspection by the examiners of the Office of the Commissioner of Financial Institutions. (b) It shall be the duty of the licensee to maintain a Registry of Destroyed Documents per calendar year in which a general description of the documents destroyed shall be kept. The Registry of Destroyed Documents may be kept in electronic format, which shall have back-up in the event of a technical glitch, and the same shall be available for inspection by the Office of the Commissioner of Financial Institutions. The Registry of Destroyed Documents shall be preserved by the licensee for a period of at least fifteen (15) years as of December 31 st of the corresponding year. Not later than January 31 st of each year, an official of the licensee shall certify that the Annual Registry corresponding to the preceding year contains the required information of all the documents that were destroyed in said

27 year, which complied with the retention period established in the policy, as well as with the applicable local and federal regulations. Said certification shall be kept by the licensee for a period of at least fifteen (15) years as of December 31 st of the year to which it corresponds, and the same shall be available for inspection by the Office of the Commissioner of Financial Institutions. (c) All licensees operating in Puerto Rico shall submit the reports required by the Office of the Commissioner of Financial Institutions in the form and including the contents established by the Commissioner through order or regulations. Section Reports from Mortgage Lending Licensees.- All licensees shall submit the reports required by NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY in the form and including the content established by said entity. Section Transfer of Capital or Control.- (a) No sale, acquisition, assignment, transfer, exchange, or any other type of conveyance or acquisition of voting capital stock issued by any corporation, or of interest in a partnership engaged in mortgage lending in Puerto Rico under this Act shall be conducted which results in the control or change in control of said corporation or partnership. Neither shall there be a sale, assignment, exchange, or any type of transfer of any individual business, whether in whole or in part, provided that the owner, president, or other authorized executive officer of said entity or individual business has acknowledged the same, notified the Commissioner of the details of the proposed operation, and obtained the latter s approval. For purposes of this Section, the term control means the power to direct or have a decisive influence, either directly or indirectly, in the administration or the determination of the norms of the corporation or partnership engaged in

28 mortgage lending. A change in the ownership of voting shares that results in the direct or indirect ownership by a stockholder or affiliated stockholders of less than ten percent (10%) of the outstanding voting stock, or the direct or indirect interest in a partnership engaged in the mortgage lending business of less than ten percent (10%) shall not be considered as a change in control. If there were any doubts as to whether such operation resulted in the control or change of control of a corporation or partnership, the pertinent information shall be submitted to the Commissioner, who shall determine if the proposed transaction constitutes a change in control. (b) Any sale, assignment, merger, trade, exchange, or any other transfer of voting capital stock, interest, or participation in the capital of a licensee that entails a change in control shall be null without the previous written authorization of the Commissioner. In cases of change in control, the licensee shall request the Commissioner s approval of any transaction proposal thirty (30) days in advance and it shall be the duty of the owner, president, or other authorized official of the licensee to submit a report, which may be in the form of a letter and shall contain: (1) the name and address of the transferor and the buyer; (2) the nature of the transaction; (3) the resolution of the Board of Directors or the agreement of the partners approving the proposed transaction and change of control; (4) the purchase-sale agreement or other juridical business that indicates the total voting stocks issued; the number of stocks involved in the transaction; the total number of voting stocks held by the owner and the buyer or assignee, or the proportion of the partnership s capital owned by the seller or assignor, buyer or assignee; the number of outstanding voting stock issued by the corporation or the partnership s capital on the date the proposed operation if

29 submitted; the name of the buyer, buyers, or acquirers of the rights over the stocks involved in the transaction; and the total sales price; (5) the reasons for the transaction; (6) a statement of personal history, résumé, a 2x2 photograph, and the financial statements of every person that acquires ten percent (10%) or more of the voting stock or interest in said partnership who, indeed, has the power to directly or indirectly lead the institution or partnership, and an official identification with a photo and signature; and (7) the investigation fees in the amount of one thousand two hundred fifty dollars ($1,250). As soon as the Commissioner receives notice of a proposed operation that will result in the control or change of control of a corporation or partnership engaged in mortgage lending, it shall be the duty of the Commissioner to conduct any investigations he/she deems necessary regarding: (1) the reputation, experience, and financial responsibility of the buyer or assignee; (2) if such reputation, experience, and financial responsibility justifies the belief that the business shall be administered in a sound, legal, and fair manner within the purposes of this Act; and (3) if the proposed change shall be convenient and beneficial for the community within which the business shall operate and if it shall not affect the public interest. (c) The Commissioner may require such additional information as he/she may deem necessary to determine if the transaction would be detrimental to the financial security and solvency of the licensee or if it would violate any applicable law, rule, or regulations, in which case the Commissioner may deny the authorization; any person to whom an authorization is denied shall be entitled to