HOUSE BILL REPORT

SSB 5210

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 Reported by House Committee On:

Business & Financial Services

Title: An act relating to the department of financial institutions' regulation of mortgage brokers and clarifying the department's existing regulatory authority regarding residential mortgage loan modification services.

Brief Description: Regulating mortgage brokers.

Sponsors: Senate Committee on Financial Institutions, Housing & Insurance (originally sponsored by Senators Nelson and Hatfield; by request of Department of Financial Institutions).

Brief History:

Committee Activity:

Business & Financial Services: 3/20/13 [DP].

Brief Summary of Substitute Bill

Expands the authority of the Director of the Department of Financial Institutions to impose sanctions for violations of the Mortgage Brokers Practices Act (MBPA).
Modifies an exemption to the MBPA.
Removes a limitation on the period of time to seek recovery against the bond of a licensee.

HOUSE COMMITTEE ON BUSINESS & FINANCIAL SERVICES

Majority Report: Do pass. Signed by 13 members: Representatives Kirby, Chair; Ryu, Vice Chair; Parker, Ranking Minority Member; Vick, Assistant Ranking Minority Member; Blake, Chandler, Habib, Hawkins, Hudgins, Hurst, Kochmar, MacEwen and Stanford.

Minority Report: Without recommendation. Signed by 1 member: Representative Santos.

Staff: Jon Hedegard (786-7127).

Background:

The Department of Financial Institutions (DFI) regulates mortgage brokers and loan originators under the Mortgage Brokers Practices Act (MBPA).

Licensure of Mortgage Brokers.

In order to make a loan in Washington, mortgage brokers must be licensed. There are a number of exemptions from licensing under the MBPA. One exemption is 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.

Mortgage broker licenses expire annually. The Director of the DFI (Director) must adopt rules for the license renewal process.

Mortgage broker applicants must provide their fingerprints, personal history, business record, and other information required by the Director. The Director must submit the information for a state and federal criminal history background check. The Director may receive nonconviction information but may only disseminate that information to criminal justice agencies.

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. If the Director determines that the required bonds are not reasonably available, the Director must waive that requirement. A suit may be brought against the surety bond by either the Director or an aggrieved party for a violation of the MBPA or rules adopted by the Director to implement the MBPA. A suit must be brought within a year of the alleged violation.

Mortgage brokers must pay an annual fee to maintain licensure. If the fee is not paid, the DFI must initiate proceedings to revoke the license. Designated brokers of every licensee must complete continuing education requirements. Requirements for mortgage brokers generally include honesty, veracity, provision of required disclosures, and compliance with specific state and federal laws and rules. Mortgage brokers must maintain financial records for at least 25 months.

Loan Originators.

Loan originators are employed by, retained by, or represent a person required to have a mortgage broker license in the performance of specific activities relating to a residential mortgage loan. Loan originators must be licensed. Loan originator licenses expire and must be renewed. Loan originator licenses may not be assigned or transferred. Licensees seeking to renew their licenses must complete the required continuing education requirements.

The application must include the applicant's name, date of birth, social security number, fingerprints, personal history, business record, and other information required by the Director. The Director must submit information for a state and federal criminal history background check. The Director may receive nonconviction information but may only disseminate that information to criminal justice agencies.

Sanctions.

The Director may impose fines or order restitution for violations of specific provisions of the MBPA. The Director may prohibit an officer, principal, employee, loan originator, or mortgage broker from participating in the affairs of a licensed mortgage broker for violations of specific provisions of the MBPA.

Compliance Examinations.

The DFI may only examine the business of a mortgage broker once in the first five years of being licensed, including the licensing of a branch. The scope of the examination is limited to compliance with the laws and rules related to mortgage brokers. The scope or time-frame may be expanded upon the clear identification of a need to do so.

Investigations.

The DFI may, at any time, investigate a licensee or any other person in the business of mortgage brokering.

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Summary of Bill:

Modifications are made to the definitions of "borrower" and "mortgage broker."

Attorney Exemption.

The attorney exemption is modified. An attorney is exempt from licensing requirements if the following requirements are met:

all mortgage broker or loan originator services (services) must be performed by the attorney while engaged in the practice of law;
all services must be under a business that is publicly identified and operated as a law practice; and
all funds associated with the transaction and received by the attorney must be deposited in, maintained in, and disbursed from a trust fund to the extent required by rules regulating the conduct of attorneys.

The requirement that licensees must comply with specific federal laws is replaced with a general requirement to comply with applicable state and federal laws.

Mortgage brokers must maintain financial records for at least three years.

Sanctions.

The Director may impose fines or order restitution for any violations of the MBPA. The Director may prohibit an officer, principal, employee, loan originator or mortgage broker from participating in the affairs of a licensed mortgage broker for any violations of the MBPA.

Surety Bond.

The provision limiting the time to bring a suit against a licensee's surety bond to within a year of the alleged violation is removed.

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Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) The bill updates the MBPA. The attorney exemption from licensing requirements is modified. The bill is exactly the same as Substitute House Bill 1328 that was passed out of the House. The bill is requested by the DFI. The bill makes changes to the MBPA.

(Opposed) None.

Persons Testifying: Senator Nelson, prime sponsor; and Deb Bortner, Department of Financial Institutions.

Persons Signed In To Testify But Not Testifying: None.