One regulator's reading of a 2024 ruling rattled Maryland's mortgage market - then the top court weighed in
Maryland's top court ruled on Tuesday that a passive trust simply holding home loans never needed a state mortgage lender license to operate.
The decision from the Supreme Court of Maryland ended a licensing scare that had unsettled the secondary market and, by one regulator's account, pushed some firms to pull back from the state.
Start with the loan. A homeowner in Mount Airy, Maryland, took out a home mortgage loan in 2006, backed by a note and deed of trust. On May 5, 2021, the loan was assigned to Towd Point Mortgage Trust 2016-4, U.S. Bank National Association as Indenture Trustee. In plain terms, that trust is a "passive trust" - it holds the loan but does not make, broker, or service mortgages.
When the homeowner filed for bankruptcy, the trust, known in the case as Towd, filed a claim for interest and fees on top of principal. The homeowner objected. She argued the trust could collect principal only, because it was not licensed under the Maryland Mortgage Lender Law. The trust agreed it was unlicensed but said it never needed a license in the first place.
The bankruptcy court sent the legal question up to Maryland's high court. Writing for the court, the chief justice gave a clean answer: a passive trust did not have to be licensed, before or after the law changed.
The logic matters for anyone in the loan-buying business. The Mortgage Lender Law requires a license only from a "mortgage lender" - defined as a mortgage broker, someone who makes a mortgage loan, or a mortgage servicer. A trust that only holds a loan fit none of those three. So, the licensing rule never reached it.
The dispute traced back to a 2024 appellate ruling, Estate of Brown v. Ward, which found passive trusts could need a license under a separate credit-grantor statute called OPEC. The Office of Financial Regulation read that decision broadly - as covering all mortgage loans - and in early 2025 issued emergency rules requiring assignees, including passive trusts, to get licensed.
That move unsettled the market. In a February 2025 filing, the Office reported that "Some industry members have responded by suspending mortgage operations in Maryland, with others indicating they may follow." Lawmakers then passed the Secondary Market Stability Act of 2025 to carve out passive trusts. The Act's lead sponsor in the state Senate said it "will help restore stability to the mortgage market."
The court found the 2024 ruling only ever applied to OPEC, not the Mortgage Lender Law - so there was no exemption to restore. It answered the first certified question "no," declined to reach the others, and split costs between the parties.
The bottom line for the secondary market: in Maryland, parking a mortgage loan in a passive trust does not, on its own, trigger the state's mortgage lender licensing requirement.
