S-4072               _______________________________________________

                                                   SENATE BILL NO. 6417

                        _______________________________________________

State of Washington                              50th Legislature                              1988 Regular Session

By Senator McCaslin

Read first time 1/20/88 and referred to Committee on Financial Institutions & Insurance.

AN ACT Relating to financial institutions; adding a new chapter to Title 61 RCW; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1.     Unless the context clearly requires otherwise, the definitions in this section shall apply throughout this chapter.

          (1) "Borrower" means a person who becomes obligated on a residential loan agreement, either directly or indirectly, and includes, but is not limited to, mortgagors, grantors under deeds of trust, vendees under conditional land sales contracts, and persons who purchase real property securing a residential loan agreement, whether the person assumes the loan or purchases the property subject to the loan.

          (2) "Direct reduction provisions" or "capitalization provision" means any provision which is part of a residential loan agreement, whether incorporated into the agreement or as part of a separately executed document, whereby the borrower makes periodic prepayment of property taxes, insurance premiums, and similar charges to the lender or the lender's designee, who applies the prepayments first to accrued interest and then to the principal amount of the loan, and upon payment of the charges, adds the amount of the payment to the principal amount of the loan.

          (3) "Escrow account" means an account which is a part of a residential loan agreement, whether incorporated into the agreement or as part of a separately executed document, whereby the borrower makes periodic prepayment to the lender or the lender's designee of taxes, insurance premiums, and similar charges, and the lender or the lender's designee pays the charges from the account on the due dates.

          (4) "Lender" means a bank or trust company under Title 30 RCW, a credit union under chapter 31.12 RCW, a mutual savings bank under Title 32 RCW, and a savings and loan association under Title 33 RCW.

          (5) "Lender's reserve provision" means a provision which is a part of a residential loan agreement, whether incorporated into the agreement or as part of a separately executed document, whereby the borrower prepays, pledges, or otherwise commits cash or other assets owned by the borrower in advance of due dates for payments of property taxes, insurance premiums, and similar charges relating to the property securing the loan in order to assure timely payment of the charges and protect the lender's security interest in the property, and includes, but is not limited to, escrow accounts, direct reduction provisions, capitalization provisions, and pledges of savings accounts.

          (6) "Residential loan agreement" or "residential loan" means an agreement providing for a loan on single or multifamily residential property, mobile homes, and manufactured housing, occupied by the borrower, in the amount of one hundred fifty thousand dollars or less, secured in whole or in part by real property, a mobile home, or manufactured housing, or any interest therein, located in this state, and includes, but is not limited to, mortgages, deeds of trust, and conditional land sales contracts.

NEW SECTION. Sec. 2.     (1) If a lender's reserve provision is established whereby the borrower makes deposits into any escrow account, the lender shall pay interest to the borrower in the manner provided in subsection (2) of this section.

          (2) The lender shall pay interest at a rate that is not less than the percentage rate contained in the residential mortgage loan agreement under which the reserve account is established.  Interest shall be computed on the average daily balance in the account and shall be paid quarterly by crediting to the account the amount of interest due.

          (3) (a)  This section does not apply to a residential loan agreement for which federal law or regulation prohibits the payment of interest on deposits under a lender's reserve provision.

          (b) This section does not apply to a residential loan agreement made by the state of Washington or made, or held, for sale to, or sold to, the state of Washington.

NEW SECTION. Sec. 3.     Sections 1 and 2 of this act shall constitute a new chapter in Title 61 RCW.

NEW SECTION. Sec. 4.     This act shall take effect January 1, 1989.