Entities that solely own consumer residential mortgage loans and do not participate in the origination or servicing of those loans have more limited licensing requirements at the state level and are probably not subject to supervisory oversight by the CFPB.
A purchaser of residential mortgage loans is, however, directly subject to a limited number of federal consumer regulatory laws. For example, when a person becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, that person must provide a written transfer of ownership notice to the borrower within 30 days of the date of transfer. Purchasers of loans and owners of servicing rights are also subject to antidiscrimination laws and certain privacy and information security laws.
In contrast, the holder could be subject to certain state and federal consumer credit laws if it participated in the initial credit decision of the originator, such as loans purchased on a prior approval basis before the originator elects to make the loan, or provided the funds with which the originator made the loan. In these cases, the line between origination and purchase may be blurred, and, in some cases, the law treats the purchaser as an indirect lender. Many secondary market mortgage loan purchase programs are structured so that these laws are not triggered.
An entity that purchases a non-defaulted residential mortgage loan in good faith without knowledge of the violation of law is not legally subject to claims and defenses that may be asserted against the originator. There are, however, a few exceptions to this rule.
