HOUSE BILL REPORT

HB 1749

As Reported by House Committee On:

Financial Institutions & Insurance

Title: An act relating to regulating the business practices of mortgage brokers for compliance with the secure and fair enforcement for mortgage licensing act of 2008.

Brief Description: Regulating the business practices of mortgage brokers for compliance with the secure and fair enforcement for mortgage licensing act of 2008.

Sponsors: Representatives Bailey and Kirby.

Brief History:

Committee Activity:

Financial Institutions & Insurance: 2/3/09, 2/12/09 [DPS].

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 11 members: Representatives Kirby, Chair; Kelley, Vice Chair; Bailey, Ranking Minority Member; Parker, Assistant Ranking Minority Member; Hurst, McCoy, Nelson, Roach, Rodne, Santos and Simpson.

Staff: Jon Hedegard (786-7127)

Background:

The Department of Financial Institutions (DFI) licenses mortgage brokers and loan originators under the Mortgage Broker Practices Act (MBPA). The MBPA has provisions regarding licensing, continuing education, prohibited practices, examinations, investigations, and criminal, civil, and administrative penalties for mortgage brokers and loan originators.

The DFI currently requires all mortgage brokers and loan originators to file license applications through the Nationwide Mortgage Licensing System (NMLS). The NMLS was created in 2004 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. The NMLS began operations in January of 2008. According to the NMLS, 42 states are current members or have signed a Statement of Intent regarding their participation in the NMLS.

On July 30, 2008 President Bush signed House Resolution 3221 (P.L. 110-289). Title V of House Resolution 3221 is referred to as the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). Under the SAFE Act, all states must have a system of licensing in place for residential mortgage loan originators by August 1, 2009, that meets national definitions and minimum standards, including:

• criminal history and credit background checks;

• pre-licensure education;

• pre-licensure testing;

• continuing education;

• net worth, surety bond or recovery fund; and

• licensing mortgage loan originators through a Nationwide Mortgage Licensing System and Registry (NMLS&R).

The Secretary of the U.S. Department of Housing and Urban Development is required to establish and maintain a backup licensing and registration system for loan originators operating in a state that:

• does not have a licensing and registering system for loan originators that meets the requirements of the SAFE Act; or

• does not participate in the NMLS&R.

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Summary of Substitute Bill:

The definition of "loan originator" is modified. Additionally, new definitions are created.

Applications for a mortgage broker or a mortgage loan originator license must be made through the NMLS&R. An application for a mortgage broker or a mortgage loan originator license must include fingerprints and other specific background information. The Director of the Department of Financial Institutions (Director) may adopt rules regarding licensing. Applicants must use a form prescribed by the Director. The Director may establish contracts with the NMLS&R to collect and maintain records and fees related to licensees.

An applicant must:

• complete minimum pre-licensing education requirements approved and administered by the NMLS&R; and

• pass a test developed by the NMLS&R and administered by a provider approved by the NMLS&R.

A mortgage loan originator licensee must meet minimum continuing education requirements approved and administered by the NMLS&R. The Director must establish other standards by rule for license renewal.

The Director must establish a process for mortgage loan originators to challenge the information entered into the NMLS&R by the Director.

A mortgage broker must maintain a minimum bond amount. The Director may establish a range of bond amounts based on the dollar amount of loans originated by the licensee.

Each mortgage loan originator must register with and maintain a unique identifier.

The information and materials used for the NMLS&R are subject to existing state and federal laws even after provided to the NMLS&R. Information may be shared by the Director with other governmental agencies and regulatory associations without a loss of any privilege or confidentiality under the law.

Specific entities and their employees are exempt from the MBPA.

Substitute Bill Compared to Original Bill:

Adds definitions of "mortgage loan originator" and "unique identifier." Requires a loan originator to register with and maintain a unique identifier. Exempts the employees of manufactured or modular homes who only perform administrative or clerical tasks. Delays the effective date of sections which require licensure of some mortgage loan originators, sections that require applications using the NMLS&R , and sections that require mortgage loan originator prelicensure education, testing, and continuing education until January 1, 2010. Delays the requirement that certain previously exempt mortgage loan originators becomes licensed until July 1, 2010.

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Appropriation: None.

Fiscal Note: Available.

Effective Date of Substitute Bill: The bill takes effect 90 days after adjournment of session in which bill is passed, except sections 4, 9, 12 14, and 17, relating to requiring licensure and applications using the NMLS&R, and sections 6, 7, 8 and 11, relating to mortgage loan originator prelicensure education, testing, and continuing education, which take effect on January 1, 2010.

Staff Summary of Public Testimony:

(In support) This bill is similar to House Bill 1621. If the state does not act, the federal government will step in and regulate mortgage brokers. Local regulation is better for consumers and businesses. This addresses the same types of issues as House Bill 1621. The Legislature reformed the regulation of mortgage brokers in 2007. Industry worked with the DFI on many of these issues. Because of that work, many of the protections and structures are in place already. Mortgage brokers in Washington are in a better place than mortgage brokers in other states. There were some technical issues that have been resolved. This is a logical next step for the regulation of mortgage brokers. In 2007 mortgage professionals worked with the DFI and the Legislature. Mortgage professionals would like to thank the DFI and the Legislature for working again on these important issues.

(With concerns) People who sell manufactured housing are not normally thought to be real estate professionals. There is a concern that current bill definitions and exemptions do not clearly exclude people who sell manufactured housing. There is an exemption for persons who sell real property but a manufactured home is generally viewed as personal property when sold. People who sell manufactured housing are not loan originators but would be considered loan originators if they merely provided a form. Oregon looked at this issue in the context of the SAFE Act and provided an exemption for people who sell manufactured housing. At this point, a thorough discussion with the DFI is the next step.

Persons Testifying: (In support) Representative Bailey, prime sponsor; Deb Bortner, Department of Financial Institutions; and Marty Lough and Steve Buckner, Washington Association of Mortgage Professionals.

(With concerns) Mike Ryherd, Northwest Housing Association.

Persons Signed In To Testify But Not Testifying: None.