HOUSE BILL REPORT
ESHB 80
BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Zellinsky, Locke, Winsley, Lux, Crane, Chandler, Holland, Belcher, Betrozoff, Lewis and Dellwo; by request of Attorney General)
Regulating mortgage brokers.
House Committe on Financial Institutions & Insurance
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. (11)
Signed by Representatives Lux, Chair; Zellinsky, Vice Chair; Chandler, Crane, Day, Dellwo, Ferguson, Niemi, Nutley, Silver, Winsley.
House Staff:Harry Reinert (786-7110)
AS PASSED HOUSE MARCH 11, 1987
BACKGROUND:
Financing of mortgages has undergone dramatic change over the past ten years. The deregulation of much of the banking industry has led to the creation of a new class of business, mortgage brokering. The other participants in mortgage lending are financial institutions and mortgage bankers. Mortgage bankers differ from mortgage brokers in two significant ways. Mortgage bankers generally provide the initial funds for a mortgage and then sell the mortgage on the secondary market. Mortgage brokers seldom use their own funds to make a loan. Instead the broker finds a lender to make the loan. Mortgage bankers also usually retain responsibility for servicing the mortgage. This entails collecting payments, assuring that property tax and insurance payments are made, and following up on past due payments. The mortgage broker seldom gets involved in servicing mortgages. Generally, once the broker has arranged for financing and the loan transaction is completed, the broker is no longer involved.
Washington State has no current statutory provisions governing mortgage brokers.
SUMMARY:
The mortgage broker practices act is established. A mortgage broker is defined as any person who for compensation makes, negotiates, or offers to make a residential real property mortgage loan. State and federal financial institutions, attorneys, real estate brokers, and mortgage brokers approved by the secondary market or the federal department of housing and urban development are exempt from the provisions of the act.
Prior to receipt of any payments from the borrower, a mortgage broker must make a full written disclosure to the borrower. The disclosure must include: a good faith estimate of the fees and costs; the annual percentage rate, finance charge, and other details about the loan; itemized costs of any services charged to the borrower; terms and conditions of any lock-in of the rate; the name of the lender; and a statement that payment for third party services will be held in trust. The name of the lender may be disclosed at the time the borrower accepts the commitment. The broker must also advise the borrower of the right to receive copies of title reports, appraisals, and audit reports if a loan is not made.
Prior to entering into a contract with a borrower or making any public solicitations, the broker must have a written agreement from a lender. The broker must place payments for third-party services into a trust account. The broker must use generally accepted accounting practices and maintain the business books and records for a period of six years.
The mortgage broker is prohibited from receiving any fee or commission until the borrower actually obtains a loan, unless otherwise permitted by the act. The broker may receive a fee of up to one hundred dollars if the borrower fails to close on a loan for which the lender has made a commitment. The broker may also charge in advance for third party services. The broker is prohibited from making a contract that provides the broker may earn a fee for "best efforts," marking up the fees of third party providers, and advertising any financing terms that the broker does not have a written commitment for from a lender. Mortgage brokers must comply with the federal truth-in-lending act.
If the borrower is unable to obtain a loan through the broker, the mortgage broker must give the borrower copies of any appraisal, title report, or credit report paid for by the borrower. The broker must also transmit the original documents to any other mortgage broker or lender to whom the borrower directs they be sent.
Violation of the act is a violation of the consumer protection act. Except for violation of the trusting provisions, violation of the act is a gross misdemeanor. Violation of the provisions requiring funds for third party providers to be placed in trust is a class C felony.
EFFECT OF SENATE AMENDMENT(S): The amendment changes the requirement that deposits for third-party provider services be deposited immediately to a requirement that the deposits be made prior to the end of the next business day. The maximum charge that a mortgage broker may assess for failure to close a loan is increased from $100 to $300. The penalty for violation of the act other than the trusting provision is lowered from a gross misdemeanor to a misdemeanor.
Fiscal Note: Attached.
House Committee ‑ Testified For: Juli Daniel, Jay Uchida, Attorney General's Office.
House Committee - Testified Against: Ed Moger, Washington Association of Mortgage Brokers; Kirk Shuster, Washington Association of Mortgage Brokers; Doug Erickson, Meritor Mortgage Corporation; Bob Porter, Pacific West Mortgage Corporation.
House Committee - Testimony For: There have been numerous complaints to the Consumer Protection Division about mortgage broker practices. This bill provides for full disclosure to potential borrowers and prohibits certain kinds of practices which have been subject to frequent complaints.
House Committee - Testimony Against: The bill does not go far enough in protecting against unethical practices. Some provisions of the bill will work a hardship on many mortgage brokers.
VOTE ON FINAL PASSAGE:
Yeas 82; Nays 5; Absent 8; Excused 3
Voting Nay: Representatives Day, P. King, R. King, Meyers and Wang
Absent: Representatives Belcher, Betrozoff, Bristow, Gallagher, Rayburn, Todd, K. Wilson and Winsley
Excused: Representatives Schoon, Vekich and Wineberry