S-1698.1                   _______________________________________________

 

                                                     SENATE BILL 5829

                              _______________________________________________

 

State of Washington                              53rd Legislature                             1993 Regular Session

 

By Senators Moore and Prince

 

Read first time 02/16/93.  Referred to Committee on Labor & Commerce.

 

Licensing mortgage brokers, associate mortgage brokers, and loan originators.


          AN ACT Relating to mortgage brokers, associate mortgage brokers, and loan originators; amending RCW 19.146.005, 19.146.010, 19.146.020, 19.146.030, 19.146.070, and 19.146.110; adding new sections to chapter 19.146 RCW; creating a new section; prescribing penalties; providing an effective date; and providing an expiration date.

 

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

 

        Sec. 1.  RCW 19.146.005 and 1987 c 391 s 1 are each amended to read as follows:

          The legislature finds and declares that the brokering of residential real estate loans substantially affects the public interest.  The practices of mortgage brokers have had significant impact on the citizens of the state and the banking and real estate industries.  It is the intent of the legislature to establish a temporary state system of licensure in addition to rules of practice and conduct of mortgage brokers to promote honesty and fair dealing with citizens and to preserve public confidence in the lending and real estate community.

 

        Sec. 2.  RCW 19.146.010 and 1987 c 391 s 3 are each amended to read as follows:

          Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

          (1) "Affiliate" means any person who directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another person.

          (2) "Associate mortgage broker" means a person who is licensed as a mortgage broker under this chapter, works with a licensed mortgage broker as a branch manager of a branch office of that licensed mortgage broker, and whose license states that he or she is associated with that broker.  An associate mortgage broker must comply with all the requirements imposed upon mortgage brokers licensed under this chapter.

          (3) "Department" means the department of licensing.

          (4) "Director" means the director of licensing.

          (5) "Loan originator" means a natural person employed, either directly or indirectly, by a licensed mortgage broker, or a person who represents a licensed mortgage broker, in the performance of any acts specified in subsection (7) of this section.

          (6) "Lock-in agreement" means any written agreement with a borrower made by a mortgage broker or loan originator, in which the mortgage broker agrees that, for a period of time, a specific interest rate or other financing terms will be the rate or terms at which it will make a loan available to that borrower.

          (7) "Mortgage broker" means ((every)) any person who for compensation or gain, or in the expectation of compensation ((either directly or indirectly makes, negotiates, or offers to make or negotiate a residential mortgage loan)) or gain, directly or indirectly negotiates, places, assists in placement, finds, or offers to negotiate, place, assist in placement, or find residential mortgage loans for others.

          (((3))) (8) "Person" means a natural person, corporation, company, partnership, or association.

          (((4))) (9) "Residential mortgage loan" means any loan primarily for personal, family, or household use secured by a mortgage or deed of trust on residential real estate upon which is constructed or intended to be constructed a single family dwelling or multiple family dwelling of four or less units.

          (((5))) (10) "Third-party provider" means any person other than a mortgage broker or lender who provides goods or services to the mortgage broker in connection with the preparation of the borrower's loan and includes, but is not limited to, credit reporting agencies, title companies, appraisers, structural and pest inspectors, or escrow companies.

 

 

        Sec. 3.  RCW 19.146.020 and 1987 c 391 s 4 are each amended to read as follows:

          (1) Except as provided under subsection (2) of this section, the following are exempt from all provisions of this chapter:

          (((1))) (a) Any person doing business under the laws of this state or the United States relating to commercial banks, bank holding companies, ((mutual)) savings banks, trust companies, savings and loan associations, credit unions, consumer ((finance companies, industrial)) loan companies, insurance companies, or real estate investment trusts as defined in 26 U.S.C. Sec. 856 and the affiliates, subsidiaries, and service corporations thereof;

          (((2))) (b) An attorney licensed to practice law in this state who is not principally engaged in the business of negotiating residential mortgage loans when such attorney renders services in the course of his or her practice as an attorney;

          (((3))) (c) Any person doing any act under order of any court;

          (((4))) (d) Any person making or acquiring a residential mortgage loan solely with his or her own funds for his or her own investment without intending to resell the residential mortgage loans;

          (((5))) (e) A real estate broker or salesperson licensed by the state who obtains financing for a real estate transaction involving a bona fide sale of real estate in the performance of his or her duties as a real estate broker and who receives only the customary real estate broker's or salesperson's commission in connection with the transaction;

          (((6))) (f) Any mortgage broker approved and subject to auditing by the federal national mortgage association, the government national mortgage association, or the federal home loan mortgage corporation;

          (((7))) (g) Any mortgage broker approved by the United States secretary of housing and urban development for participation in any mortgage insurance program under the National Housing Act, 12 U.S.C. Sec. 1701, as now or hereafter amended; and

          (((8))) (h) The United States of America, the state of Washington, any other state, and any Washington city, county, or other political subdivision, and any agency, division, or corporate instrumentality of any of the entities in this subsection (1)(h).

          (2) Those persons otherwise exempt under subsection (1) (f) and (g) of this section must comply with section 4 of this act.

 

          NEW SECTION.  Sec. 4.  It is unlawful for a mortgage broker or loan originator licensed under this chapter, or a mortgage broker otherwise exempted from this chapter under RCW 19.146.020(1) (f) or (g) in connection with a residential mortgage loan to:

          (1) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead borrowers or lenders;

          (2) Engage in any conduct that operates as a fraud upon any person;

          (3) Obtain property by fraud or misrepresentation;

          (4) Solicit or enter into a contract with a borrower that provides in substance that the mortgage broker may earn a fee or commission through the mortgage broker's "best efforts" to obtain a loan even through no loan is actually obtained for the borrower;

          (5) Solicit, advertise, or enter into a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting from a lender with whom the mortgage broker maintains a written correspondent or loan brokerage agreement under RCW 19.146.040;

          (6) Fail to make disclosures to loan applicants and noninstitutional investors as required by RCW 19.146.030 and any other applicable state or federal law;

          (7) Make, in any manner, any false or deceptive statement or representation with regard to the rates, points, or other financing terms or conditions for a residential mortgage loan;

          (8) Make any false statement in connection with any reports filed by a licensee, or in connection with any examination of the licensee's business;

          (9) Make any payment, directly or indirectly, to any fee appraiser third party of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property;

          (10) Fail to include the words "licensed mortgage broker" in all advertising for the broker's services that are directed at the general public after the effective date of the rules adopted under this chapter;

          (11) Pay any commission, share, split, or compensation in connection with mortgage brokerage services to any person not licensed under this chapter, unless the person is exempt under RCW 19.146.020 or such commission, share, split, or compensation is payment to a real estate broker or real estate salesperson under the federal real estate settlement procedures act or regulations adopted thereunder; or

          (12) Fail to comply with the requirements of the truth-in-lending act, 15 U.S.C. Sec. 1601 and Regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended, in all advertising of residential mortgage loans.

 

          NEW SECTION.  Sec. 5.  (1) A person may not engage in the business of a mortgage broker or act as a loan originator without first obtaining and maintaining a license under this chapter.

          (2) A person may not bring a suit or action for the collection of compensation as a mortgage broker or loan originator unless the plaintiff alleges and proves that he or she was a duly licensed mortgage broker or loan originator, or exempt from the license requirement of this chapter, at the time of offering to perform or performing any such an act or service regulated by this chapter.  This subsection does not apply to suits or actions for the collection or compensation for services performed prior to the effective date of this section.

 

          NEW SECTION.  Sec. 6.  (1) Application for a mortgage broker, associate mortgage broker, or loan originator license under this chapter shall be in writing and in the form prescribed by the director.  Unless waived by the director, the application shall contain at least the following information:

          (a) The name, address, date of birth, and social security number of the applicant, and any other names, dates of birth, or social security numbers previously used by the applicant;

          (b) If the applicant is a partnership or association, the name, address, date of birth, and social security number of each general partner or principal of the association, and any other names, dates of birth, or social security numbers previously used by the members;

          (c) If the applicant is a corporation, the name, address, date of birth, and social security number of each officer, director, registered agent, and each principal stockholder, and any other names, dates of birth, or social security numbers previously used by the officers, directors, registered agents, and principal stockholders;

          (d) The street address, county, and municipality where the principal business office is to be located;

          (e) Submission of a complete set of fingerprints taken by an authorized law enforcement officer; and

          (f) Such other information regarding the applicant's background, financial responsibility, experience, character, and general fitness as the director may require by rule.

          (2) At the time of filing an application for a license under this chapter, each applicant shall pay to the director the appropriate license fee in an amount determined by rule of the director to be sufficient to cover the department's costs in administering this chapter.  The director shall deposit the moneys in the mortgage broker fund created under section 19 of this act.

          (3) Each applicant for a mortgage broker's license shall file and maintain a surety bond, in an amount of forty thousand dollars or such lower amount the director deems adequate to protect the public interest, executed by the applicant as obligor and by a surety company authorized to do a surety business in this state as surety, whose liability as surety shall not exceed the penal sum in the aggregate.  The bond shall run to the state of Washington as obligee for the use and benefit of the state and of any person or persons who may have a cause of action against the obligor under this chapter.  The bond shall be conditioned that the obligor as licensee will faithfully conform to and abide by this chapter and all rules adopted under this chapter.  The bond must pay to the state and any person or persons having a cause of action against the obligor all moneys that may become due and owing to the state and those persons under and by virtue of this chapter.  In lieu of a surety bond, the applicant may, upon approval by the director, file with the director a certificate of deposit, an irrevocable letter of credit, or such other instrument as approved by the director by rule, drawn in favor of the director for an amount equal to the required bond.

 

          NEW SECTION.  Sec. 7.  (1) The director shall issue and deliver a loan originator license to an applicant if, after investigation, the director makes the following findings:

          (a) The applicant has paid the required license fees;

          (b) The applicant has complied with section 6 of this act;

          (c) The applicant has not had a license issued under this chapter or any similar state statute suspended or revoked within five years of the filing of the present application;

          (d) The applicant has not been convicted of a felony within seven years of the filing of the present application; and

          (e) The applicant has demonstrated financial responsibility, experience, character, and general fitness such as to command the confidence of the community and to warrant a belief that the business will be operated honestly, fairly, and efficiently within the purposes of this chapter.

          (2) The director shall issue and deliver a mortgage brokers or associate mortgage brokers license to an applicant if, after investigation, the director makes the following findings:

          (a) The applicant satisfies the requirements of subsection (1) of this section;

          (b) The applicant has filed and maintained the surety bond or approved alternative under section 6(3) of this act; and

          (c) The applicant has at least two years of experience in the residential mortgage loan industry.

          (3) If the supervisor does not find the conditions of subsection (1) of this section have been met, the supervisor shall not issue the license.  The supervisor shall notify the applicant of the denial and return to the applicant the bond or approved alternative and any remaining portion of the license fee that exceeds the departments actual cost to investigate the license.

          (4) A license issued pursuant to this chapter is valid from the date of issuance.

          (5) A licensee may surrender a license by delivering to the director written notice of surrender, but the surrender does not affect the licensee's civil or criminal liability arising from acts or omissions occurring before such surrender.

 

          NEW SECTION.  Sec. 8.  (1) The director shall enforce all laws and rules relating to the licensing of mortgage brokers, associate mortgage brokers, and loan originators, grant or deny licenses to mortgage brokers, associate mortgage brokers, and loan originators, and hold hearings.  The director may impose any one or more of the following sanctions:  Suspend or revoke licenses, deny applications for licenses, or fine violators under this chapter.  In addition, the director may issue an order directing a licensee to cease and desist from conducting business in a manner that is injurious to the public or violates any provision of this chapter.

          (2) The director may take those actions specified in subsection (1) of this section if the director finds any of the following:

          (a) The licensee has failed to pay a fee due the state of Washington, to maintain in effect the bond or approved alternative required under this chapter, or to comply with any specific order or demand of the director lawfully made and directed to the licensee in accordance with this chapter; or

          (b) The licensee has violated any provision of this chapter or a rule adopted under this chapter; or

          (c) The licensee made false statements on the application or omitted material information that, if known, would have allowed the director to deny the application for the original license.

          (3) The director shall establish by rule standards for licensure of applicants licensed in other jurisdictions.

 

          NEW SECTION.  Sec. 9.  The director may issue rules to govern the activities of licensed mortgage brokers, licensed associate mortgage brokers, and loan originators, consistent with this chapter.

 

          NEW SECTION.  Sec. 10.  The proceedings for denying license applications, issuing cease and desist orders, and suspending or revoking licenses issued pursuant to this chapter and any appeal therefrom or review thereof shall be governed by the provisions of the administrative procedure act, chapter 34.05 RCW.

 

          NEW SECTION.  Sec. 11.  For the purposes of investigating complaints arising under this chapter, the director may at any time, either personally or by a designee, examine the business, including but not limited to the books, accounts, records, and files used therein, of every licensee and of every person engaged in the business of mortgage brokering, whether such a person shall act or claim to act under or without the authority of this chapter.  For that purpose the director and designated representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all such persons.  The director or designated person may require the attendance of and examine under oath all persons whose testimony may be required about the loans or the business or subject matter of any such investigation.

 

        Sec. 12.  RCW 19.146.030 and 1987 c 391 s 5 are each amended to read as follows:

          (1) Upon receipt of a loan application and before the receipt of any moneys from a borrower, a mortgage broker shall provide to each borrower a written notice listing all of the lenders with whom it maintains a written correspondent or loan brokerage agreement and make a full written disclosure to each borrower containing an itemization and explanation of all fees and costs that the borrower is required to pay in connection with obtaining a residential mortgage loan.  A good faith estimate of a fee or cost shall be provided if the exact amount of the fee or cost is not determinable.

          (2) The written disclosure shall contain the following information:

          (((1))) (a) The annual percentage rate, finance charge, amount financed, total amount of all payments, number of payments, amount of each payment, amount of points or prepaid interest and the conditions and terms under which any loan terms may change between the time of disclosure and closing of the loan; and if a variable rate, the circumstances under which the rate may increase, any limitation on the increase, the effect of an increase, and an example of the payment terms resulting from an increase.  Disclosure in compliance with the requirements of the Truth-in-Lending Act, 15 U.S.C. Sec. 1601 and Regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended, shall be deemed to comply with the disclosure requirements of this subsection;

          (((2))) (b) The itemized costs of any credit report, appraisal, title report, title insurance policy, mortgage insurance, escrow fee, property tax, insurance, structural or pest inspection, and any other third-party provider's costs associated with the residential mortgage loan.  Disclosure through good faith estimates of settlement services and special information booklets in compliance with the requirements of the Real Estate Settlement Procedures Act, 12 U.S.C. Sec. 2601, and Regulation X, 24 C.F.R. Sec. 3500, as now or hereafter amended, shall be deemed to comply with the disclosure requirements of this subsection;

          (((3))) (c) If applicable, the cost, terms, duration, and conditions of ((an agreement to lock-in or commit the mortgage broker or lender to a specific interest rate or other financing term for any period of time up to and including the time the loan is closed)) a lock-in agreement and whether a lock-in agreement has been entered;

          (((4))) (d) A statement that if the borrower is unable to obtain a loan for any reason, the mortgage broker must, within five days of a written request by the borrower, give copies of any appraisal, title report, or credit report paid for by the borrower to the borrower, and transmit the appraisal, title report, or credit report to any other mortgage broker or lender to whom the borrower directs the documents to be sent;

          (((5))) (e) The name of the lender and the nature of the business relationship between the lender providing the residential mortgage loan and the mortgage broker, if any:  PROVIDED, That this disclosure may be made at any time up to the time the borrower accepts the lender's commitment; and

          (((6))) (f) A statement providing that moneys paid by the borrower to the mortgage broker for third-party provider services are held in a trust account and any moneys remaining after payment to third-party providers will be refunded.

          A violation of the Truth-in-Lending Act, Regulation Z, the Real Estate Settlement Procedures Act, and Regulation X is a violation of this section for purposes of this chapter.

 

        Sec. 13.  RCW 19.146.070 and 1987 c 391 s 9 are each amended to read as follows:

          (1) Except as otherwise permitted by this section, a mortgage broker shall not receive a fee, commission, or compensation of any kind in connection with the preparation, negotiation, and brokering of a residential mortgage loan unless a borrower actually obtains a loan from a lender on the terms and conditions agreed upon by the borrower and mortgage broker.

          (2) A mortgage broker may:

          (a) If the mortgage broker has obtained for the borrower a written commitment from a lender for a loan on the terms and conditions agreed upon by the borrower and the mortgage broker, and the borrower fails to close on the loan through no fault of the mortgage broker, charge a fee not to exceed three hundred dollars for services rendered, preparation of documents, or transfer of documents in the borrower's file which were prepared or paid for by the borrower if the fee is not otherwise prohibited by the Truth-in-Lending Act, 15 U.S.C. Sec. 1601, and Regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended; or

          (b) Solicit or receive fees for third party provider goods or services in advance.  Fees for any goods or services not provided must be refunded to the borrower and the mortgage broker may not charge more for the goods and services than the actual costs of the goods or services charged by the third party provider.

          (((3) A mortgage broker may not:

          (a) Solicit or enter into a contract with a borrower that provides in substance that the mortgage broker may earn a fee or commission through the mortgage broker's "best efforts" to obtain a loan even though no loan is actually obtained for the borrower; or

          (b) Solicit, advertise, or enter into a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting.))

 

          NEW SECTION.  Sec. 14.  (1) Any person injured by a violation of this chapter may bring an action against the surety bond of the licensed mortgage broker.

          (2) Any person injured by a violation of this chapter may bring a civil action in a court of competent jurisdiction for recovery of damages.  Judgment shall be entered for actual damages and in no case shall be less than the amount paid by the borrower to the licensed mortgage broker plus reasonable attorneys' fees and costs.

          (3) The remedies provided under this section are cumulative and nonexclusive and do not affect any other remedy available at law.

 

          NEW SECTION.  Sec. 15.  Responsibility for any loan originator in conduct covered by this chapter shall rest with the licensed mortgage broker to which such licensees shall be licensed.

          In addition, a licensed associate mortgage broker at a branch office shall bear responsibility for loan originators operating at that branch office.

 

          NEW SECTION.  Sec. 16.  No license issued under the provisions of this chapter shall authorize any person other than the person to whom it is issued to do any act by virtue thereof nor to operate in any other manner than under his or her own name except:

          (1) A licensed mortgage broker may operate and/or advertise under a name other than the one under which the license is issued by obtaining the written consent of the director to do so; and

          (2) A broker may establish one or more branch offices under a name or names different from that of the main office if the name or names are approved by the director, so long as each branch office is clearly identified as a branch or division of the main office.  No broker may establish branch offices under more than three names.  Both the name of the branch office and of the main office must clearly appear on the sign identifying the office, if any, and in any advertisement or on any letterhead of any stationery or any forms, or signs used by the mortgage firm on which either the name of the main or branch offices appears.

 

          NEW SECTION.  Sec. 17.  Every licensed mortgage broker must have and maintain an office in this state accessible to the public which shall serve as his or her office for the transaction of business.  Any office so established must comply with the zoning requirements of city or county ordinances and the broker's license must be prominently displayed therein.

 

          NEW SECTION.  Sec. 18.  A licensed mortgage broker may apply to the director for authority to establish one or more branch offices under the same name as the main office upon the payment of a fee as prescribed by the director by rule.  The director shall issue a duplicate license for each of the branch offices showing the location of the main office and the particular branch.  Each duplicate license shall be prominently displayed in the office for which it is issued.  Each branch office shall be required to have a branch manager who shall be a licensed associate mortgage broker authorized by the mortgage broker to perform the duties of a branch manager.

 

          NEW SECTION.  Sec. 19.  All fees paid under the provisions of this chapter shall be placed in the mortgage brokers' licensing account hereby created in the custody of the state treasury.  All money derived from fees imposed under this chapter shall be deposited in the account.  Expenditures from the account may be used solely for department costs and for the benefit of licensees under this chapter.  Only the director of licensing or the director's designee may authorize expenditures from the account.  The account is subject to allotment procedures under chapter 43.88 RCW, but no appropriation is required for expenditures.

 

        Sec. 20.  RCW 19.146.110 and 1987 c 391 s 13 are each amended to read as follows:

          Any person who violates any provision of ((RCW 19.146.005 through 19.146.040 or 19.146.060 through 19.146.100)) this chapter other than RCW 19.146.050 or any rule or order of the director shall be guilty of a misdemeanor punishable under chapter 9A.20 RCW.  Any person who violates RCW 19.146.050 shall be guilty of a class C felony under chapter 9A.20 RCW.

 

          NEW SECTION.  Sec. 21.  (1) The joint select committee on mortgage lending is created.  Membership of the committee shall consist of four members from the senate, two from each caucus, appointed by the president of the senate, and four members from the house of representatives, two from each caucus, appointed by the speaker of the house of representatives.

          (2) The committee shall review state and federal statutes governing mortgage brokers and mortgage bankers and shall prepare a report:

          (a) Summarizing state and federal statutes governing mortgage brokers and mortgage bankers;

          (b) Identifying the type and magnitude of complaints arising with regard to the practices of mortgage brokers and mortgage bankers operating within this state;

          (c) Reviewing the detrimental and beneficial effects of state licensure of mortgage brokers and mortgage bankers; and

          (d) Containing any recommended legislation that adopts an ongoing state system of licensure for all mortgage brokers or creates a state licensure program for mortgage bankers.

          (3) Any proposed legislation that contains any licensure recommendations should discuss the following issues:

          (a) Minimum experience, training, and educational requirements for licensees;

          (b) Sufficient surety bonding levels to protect residents of this state; and

          (c) Proper location with state government to delegate state regulatory authority.

          (4) In preparing its report, the committee shall solicit comments from the mortgage broker and mortgage banking industries, the department of licensing, the attorney general's office, other state regulators, and the mortgage loan consumers.

          (5) The committee shall submit its report to the legislature by December 15, 1993.

 

          NEW SECTION.  Sec. 22.  The director shall take steps and adopt rules necessary to implement the sections of this act by their effective dates.

 

          NEW SECTION.  Sec. 23.  If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

 

          NEW SECTION.  Sec. 24.  Sections 4 through 11, 14 through 19, and 21 of this act are each added to chapter 19.146 RCW.

 

          NEW SECTION.  Sec. 25.  This act shall take effect October 31, 1993.

 

          NEW SECTION.  Sec. 26.  This act shall expire April 30, 1994, except for section 2 of this act.

 


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