On December 22, 2016, the Kentucky Department of Financial Institutions (“DFI”) released a Memorandum (“Memorandum”) regarding licensing requirements for “master servicers” and “sub servicers” in Kentucky. The Memorandum, which was addressed to all entities involved in the servicing of loans secured by residential real property in Kentucky, clarified the DFI’s position that “master servicers” are required to obtain the Kentucky Mortgage Company License.
For purposes of the Memorandum, “master servicer” is defined as any entity or individual that owns the right to perform servicing of a mortgage loan. A master servicer typically reserves the legal right to either perform the servicing itself or to do so through a sub servicer. Further, the Memorandum states that a “sub servicer” does not own the right to perform servicing, but performs servicing on behalf of a master servicer, generally premised upon duties enumerated in a contract between the sub servicer and master servicer.
Pursuant to Ky. Rev. Stat. Ann. § 286.8, a license is required for a “mortgage loan company,” which includes any person who directly or indirectly services mortgage loans, or holds oneself out as being able to do so, unless exempt. According to the Memorandum, the DFI is of the opinion that a master servicer constitutes a “mortgage loan company” because it both holds itself out as being able to service loans and it indirectly services loans through a sub servicer. As such, a master servicer is required to obtain the Kentucky Mortgage Company License. Note that the Memorandum clarifies that a sub servicer is also required to obtain a license because it actually performs the servicing of the loan.
Accordingly, based on the foregoing, entities that hold mortgage servicing rights on Kentucky loans are required to obtain the Mortgage Company License. The Memorandum indicates that master servicers and sub servicers with loans secured by Kentucky residential real property have until March 1, 2017 to obtain the Mortgage Company License, unless exempt.
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