SENATE BILL REPORT

SB 6406

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As of January 19, 2010

Title: An act relating to licensing residential mortgage loan servicers through the national mortgage licensing service and clarifying the existing authority of the department of financial institutions to regulate residential mortgage loan modification services under the consumer loan act and mortgage broker practices act.

Brief Description: Concerning regulation and licensing of residential mortgage loan servicers and services.

Sponsors: Senators Franklin, Benton, Hobbs, McDermott and Berkey; by request of Department of Financial Institutions.

Brief History:

Committee Activity: Financial Institutions, Housing & Insurance: 1/20/10.

SENATE COMMITTEE ON FINANCIAL INSTITUTIONS, HOUSING & INSURANCE

Staff: Alison Mendiola (786-7483)

Background: In 2009 the Legislature passed bills significantly altering the licensing provisions for mortgage loan originator licensees under the Consumer Loan Act (CLA) and the Mortgage Brokers Practices Act (MBPA). The CLA and the MBPA both require the following from mortgage loan originator licensees:

The Department of Financial Institutions (DFI) has regulatory oversight of CLA and MBPA licensees. There are a host of required disclosures, reporting, record-keeping, and prohibited practices in the CLA and the MBPA. Noncompliance may lead to disciplinary, civil, or criminal actions.

There are additional statutory requirements for residential mortgage lending and disclosure requirements for residential mortgage loan servicing.

Summary of Bill: Consumer Loan Act (CLA). The definition of mortgage loan originator is altered to include persons who, for compensation, perform or hold themselves out as being able to perform residential loan modifications.

The following new definitions are added to the CLA:

No person may service residential mortgage loans without being licensed or exempt from licensing under the CLA. Licensing includes fees, background checks, and financial responsibility requirements. An applicant or a principal of an applicant for a CLA license may not have provided unlicensed residential mortgage loan modification services in the five years prior to the license application. The Director of the DFI (Director) may deny a license for revocation or suspension if a license related to lending, settlement services, or loan servicing was suspended by this state, another state, or the federal government within five years of the date of the application.

The Director may take actions, including disciplinary actions, against licensees that are residential mortgage loan servicers.

The Director may impose a different yearly assessment on a person servicing a residential mortgage loan than is imposed on other CLA licensees.

A residential mortgage loan servicer under the CLA must:

Third-party residential loan modification service providers are limited to an advance fee of $750 and may not charge total fees in excess of what is usual and customary or that are not unreasonable in light of the services provided.

Provisions related to mortgage fraud are expanded to include persons modifying a residential mortgage loan.

Mortgage Brokers Practices Act (MBPA). The definition of loan originator is altered to include persons who, for compensation, perform or hold themselves out as being able to perform residential loan modifications.

The following new definitions are added to the MBPA:

No person may service residential mortgage loans without being licensed or exempt from licensing under the MBPA. An applicant, a principal of an applicant, or a designated broker of an applicant for a MBPA license (as a mortgage broker or loan originator) may not have provided unlicensed residential mortgage loan modification services in the five years prior to the license application.

A residential mortgage loan servicer under the MBPA must:

Appropriation: None.

Fiscal Note: Available.

[OFM requested ten-year cost projection pursuant to I-960.]

Committee/Commission/Task Force Created: No.

Effective Date: The bill takes effect on July 1, 2010.