Maryland has enacted significant changes to its mortgage licensing framework that every private lender operating in the state must understand. Following the Maryland Appellate Court’s decision in Estate of Brown v. Ward in April 2024, the Maryland Office of Financial Regulation (OFR) issued emergency regulations and guidance on January 10, 2025, that expanded the scope of entities required to hold a mortgage lender license. These changes have immediate implications for mortgage trusts, passive trusts, and assignees involved in Maryland lending transactions.
Background: The Estate of Brown v. Ward Decision
The Estate of Brown v. Ward ruling prompted the OFR to reexamine which entities fall within the licensing requirements of the Maryland Mortgage Lender Law. Prior to this decision, there was ambiguity regarding whether certain trust structures and loan assignees were subject to licensing obligations. The appellate court’s interpretation clarified that the law’s reach extends more broadly than many market participants had previously assumed.
In response, the OFR issued emergency regulations and accompanying guidance that formalized this broader interpretation and set a compliance timeline for affected entities.
Key Changes Under the New OFR Guidance
The emergency regulations clarify several important points under the Maryland Mortgage Lender Law:
Expanded Licensing Requirements
Licensing requirements now explicitly extend to mortgage trusts, including passive trusts that hold mortgage loans. Previously, many passive trust structures operated under the assumption that they were not subject to licensing because they did not actively originate or service loans. The new guidance eliminates this assumption.
Assignees of mortgage loans in Maryland are also now clearly within the scope of the licensing requirements. This means that secondary market participants who acquire Maryland mortgage loans must evaluate whether they need to obtain a license under the Mortgage Lender Law.
Enforcement Timeline
Although the new regulations took effect immediately upon publication on January 10, 2025, the OFR announced that it would not initiate enforcement actions until April 10, 2025. This three-month grace period was intended to give lenders, trusts, and assignees time to evaluate their licensing obligations and submit applications through the NMLS system.
Lenders and secondary market participants who have not yet assessed their compliance status under the new guidance should treat this as an urgent priority.
Implications for Business Purpose Lenders
A critical question for private lenders is whether the expanded licensing requirements apply to business purpose loan transactions. The OFR’s guidance is broad in its interpretation of the Mortgage Lender Law, but there are important distinctions that may limit its impact on lenders focused exclusively on commercial and business purpose lending.
Maryland Secondary Mortgage Loan Law
Under the Maryland Secondary Mortgage Loan Law, a business purpose loan could trigger licensing and compliance requirements if all three of the following conditions are met:
- The loan is made to a natural person or an entity other than a corporation
- The loan amount is $75,000 or less
- The loan is secured by a junior lien on a one-to-four family residential property
Maryland Credit Grantor Closed-End Provisions
Under the Maryland Credit Grantor Closed-End Provisions of the Maryland Installment Loans Law, compliance may be required in two scenarios:
Practical Assessment for Private Lenders
For private lenders who primarily originate business purpose loans with principal amounts exceeding $75,000 and secured by non-owner-occupied commercial or investment properties, the likelihood of triggering these specific compliance obligations is relatively low. However, lenders who occasionally originate smaller loans, lend to individual borrowers rather than corporate entities, or finance properties with junior lien positions should carefully evaluate each transaction against these thresholds.
It is also important to note that the OFR guidance does not specifically address situations where business purpose lenders may remain exempt from the Mortgage Lender Law’s broader licensing requirements. Lenders who were previously outside the scope of these laws may still be unaffected, but a formal assessment is advisable given the expanded interpretive framework.
Steps Lenders Should Take
1. Audit your Maryland loan portfolio. Identify any loans that may fall within the scope of the expanded licensing requirements, paying particular attention to trust structures, loan assignments, and transactions involving natural person borrowers.
2. Evaluate your entity structure. If you use trust vehicles to hold Maryland mortgage loans, determine whether those trusts now require independent licensing under the Mortgage Lender Law.
3. Review your secondary market activities. If you purchase or are assigned Maryland mortgage loans, assess whether you need to obtain a license as an assignee.
4. Prepare NMLS applications if necessary. Lenders and entities that determine they are subject to the new requirements should begin the NMLS application process promptly.
5. Monitor ongoing regulatory developments. The OFR may issue additional guidance or clarifications as the industry adjusts to the new framework. Subscribe to regulatory updates to stay current.
Stay Compliant With Experienced Legal Guidance
Maryland’s evolving mortgage licensing landscape underscores the complexity of multi-state lending compliance. Private lenders operating across state lines must continuously monitor regulatory developments and adapt their operations accordingly. What was once a clear exemption in one state can change with a single court ruling or regulatory action.
Geraci LLP’s banking and finance attorneys advise private lenders on licensing obligations, regulatory compliance, and multi-state lending strategies. If you have questions about how Maryland’s new mortgage licensing requirements affect your business, contact our team today.
Geraci LLP | (949) 403-3488 | 90 Discovery, Irvine, CA 92618
