What Happened?
In a highly anticipated and welcome development, on April 22, 2025, Maryland Governor Wes Moore signed into law the Maryland Secondary Market Stability Act of 2025 (emergency measures HB 1516 and its companion SB 1026) with an immediate effective date. The legislation is significant as it has the effect of modifying the formal guidance issued on January 10, 2025 by the Maryland Office of Financial Regulation (OFR) requiring assignees of residential mortgage loans, including passive trusts that acquire or take assignment of residential mortgage loans in Maryland, to become licensed in Maryland by April 10, 2025—later extended to July 6, 2025. The OFR’s January licensing mandate, which derived from the OFR’s interpretation of a Maryland Appellate Court decision in Estate of Brown v. Ward, 251 Md. App. 385 (2024), would have created a logistical nightmare for, among others, passive trusts holding Maryland loans in residential mortgage-backed securitizations. By custom, passive trusts holding residential mortgage loans do not obtain licenses, and no state legislature has required such licensure for trusts holding these loans. The OFR’s January 10 formal guidance contravenes the plain language of the licensing requirements of the Maryland Mortgage Lender Law and the Maryland Installment Loan Law that do not apply to assignees.
Why Does it Matter?
The legislation addresses the OFR’s overreach by expressly excluding “passive trusts” from Maryland’s mortgage licensing requirements. The legislation defines a “passive trust” as a
trust that
1) ACQUIRES OR IS ASSIGNED MORTGAGE LOANS IN WHOLE OR IN PART;
(2) DOES NOT MAKE MORTGAGE LOANS;
(3) IS NOT A MORTGAGE BROKER OR A MORTGAGE SERVICER; AND
(4) IS NOT ENGAGED IN THE SERVICING OF MORTGAGE LOANS, WHICH DOES NOT INCLUDE THE ACT OF TRANSMITTING OR DIRECTING PAYMENTS RECEIVED BY A MORTGAGE SERVICER.
The legislation defines “trust” as “any trust established under the laws of the State or any other state.” Hence, the “passive trust” must be an actual trust and not a non-trust corporate entity.
The legislation also includes a “Maryland Licensing Workshop” that is comprised of members of consumer groups, the banking and non-bank mortgage industry, and others appointed by the Governor to study Maryland’s licensing statutes and make recommendations regarding, among other things, whether expansion of the existing licensing requirements to persons not currently licensed is warranted. The legislation requires the working group to report its findings to the Governor by December 31, 2025.
What Do I Need to Do?
While the legislation spares passive trusts, including trusts in existing residential mortgage-backed securitizations, from having to become licensed in Maryland, secondary market purchasers of loans that do not utilize passive trusts to acquire or take assignment of residential mortgage loans in Maryland must become licensed as Maryland Mortgage Lenders by July 6, 2025.