BILL REQ. #: S-1407.1
State of Washington | 63rd Legislature | 2013 Regular Session |
READ FIRST TIME 02/20/13.
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; and amending RCW 19.146.010, 19.146.020, 19.146.0201, 19.146.060, 19.146.220, and 19.146.240.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1 RCW 19.146.010 and 2010 c 35 s 13 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) "Application" means the same as in Regulation X, Real Estate
Settlement Procedures, 24 C.F.R. Sec. 3500.
(3) "Borrower" means any person who consults with or retains a
mortgage broker or loan originator in an effort to obtain or seek
advice or information on obtaining or applying to obtain a residential
mortgage loan, or a residential mortgage loan modification, for
himself, herself, or persons including himself or herself, regardless
of whether the person actually obtains such a loan.
(4) "Computer loan information systems" or "CLI system" means a
real estate mortgage financing information system that facilitates the
provision of information to consumers by a mortgage broker, loan
originator, lender, real estate agent, or other person regarding
interest rates and other loan terms available from different lenders.
(5) "Department" means the department of financial institutions.
(6) "Designated broker" means a natural person designated as the
person responsible for activities of the licensed mortgage broker in
conducting the business of a mortgage broker under this chapter and who
meets the experience and examination requirements set forth in RCW
19.146.210(1)(e).
(7) "Director" means the director of financial institutions.
(8) "Employee" means an individual who has an employment
relationship with a mortgage broker, and the individual is treated as
an employee by the mortgage broker for purposes of compliance with
federal income tax laws.
(9) "Federal banking agencies" means the board of governors of the
federal reserve system, comptroller of the currency, director of the
office of thrift supervision, national credit union administration, and
federal deposit insurance corporation.
(10) "Independent contractor" or "person who independently
contracts" means any person that expressly or impliedly contracts to
perform mortgage brokering services for another and that with respect
to its manner or means of performing the services is not subject to the
other's right of control, and that is not treated as an employee by the
other for purposes of compliance with federal income tax laws.
(11)(a) "Loan originator" means a natural person who for direct or
indirect compensation or gain, or in the expectation of direct or
indirect compensation or gain (i) takes a residential mortgage loan
application for a mortgage broker, or (ii) offers or negotiates terms
of a mortgage loan. "Loan originator" also includes a person who holds
themselves out to the public as able to perform any of these
activities. "Loan originator" does not mean persons performing purely
administrative or clerical tasks for a mortgage broker. For the
purposes of this subsection, "administrative or clerical tasks" means
the receipt, collection, and distribution of information common for the
processing of a loan in the mortgage industry and communication with a
borrower to obtain information necessary for the processing of a loan.
A person who holds himself or herself out to the public as able to
obtain a loan is not performing administrative or clerical tasks.
(b) "Loan originator" also includes a natural person who for direct
or indirect compensation or gain or in the expectation of direct or
indirect compensation or gain performs residential mortgage loan
modification services or holds himself or herself out as being able to
perform residential mortgage loan modification services.
(c) "Loan originator" does not include a person or entity that only
performs real estate brokerage activities and is licensed or registered
in accordance with applicable state law, unless the person or entity is
compensated by a lender, a mortgage broker, or other mortgage loan
originator or by any agent of such a lender, mortgage broker, or other
mortgage loan originator. For purposes of this chapter, the term "real
estate brokerage activity" means any activity that involves offering or
providing real estate brokerage services to the public, including:
(i) Acting as a real estate agent or real estate broker for a
buyer, seller, lessor, or lessee of real property;
(ii) Bringing together parties interested in the sale, purchase,
lease, rental, or exchange of real property;
(iii) Negotiating, on behalf of any party, any portion of a
contract relating to the sale, purchase, lease, rental, or exchange of
real property, other than in connection with providing financing with
respect to such a transaction;
(iv) Engaging in any activity for which a person engaged in the
activity is required to be registered or licensed as a real estate
agent or real estate broker under any applicable law; and
(v) Offering to engage in any activity, or act in any capacity,
described in (c)(i) through (iv) of this subsection.
(d) "Loan originator" does not include a person or entity solely
involved in extensions of credit relating to timeshare plans, as that
term is defined in section 101(53D) of Title 11, United States Code.
(e) This subsection does not apply to employees of a housing
counseling agency approved by the United States department of housing
and urban development unless the employees of a housing counseling
agency are required under federal law to be licensed individually as
loan originators.
(12) "Loan processor" means an individual who performs clerical or
support duties as an employee at the direction of and subject to the
supervision and instruction of a person licensed, or exempt from
licensing, under this chapter.
(13) "Lock-in agreement" means an agreement with a borrower made by
a mortgage broker or loan originator, in which the mortgage broker or
loan originator 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.
(14) "Mortgage broker" means any person who for direct or indirect
compensation or gain, or in the expectation of direct or indirect
compensation or gain (a) assists a person in obtaining or applying to
obtain a residential mortgage loan or performs residential mortgage
loan modification services or (b) holds himself or herself out as being
able to assist a person in obtaining or applying to obtain a
residential mortgage loan or provide residential mortgage loan
modification services.
(15) "Mortgage loan originator" has the same meaning as "loan
originator."
(16) "Nationwide mortgage licensing system and registry" means a
mortgage licensing system developed and maintained by the conference of
state bank supervisors and the American association of residential
mortgage regulators for the licensing and registration of mortgage loan
originators.
(17) "Person" means a natural person, corporation, company, limited
liability corporation, partnership, or association.
(18) "Principal" means any person who controls, directly or
indirectly through one or more intermediaries, or alone or in concert
with others, a ten percent or greater interest in a partnership,
company, association, or corporation, and the owner of a sole
proprietorship.
(19) "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.
(20) "Residential mortgage loan modification" means a change in one
or more of a residential mortgage loan's terms or conditions. Changes
to a residential mortgage loan's terms or conditions include but are
not limited to forbearances; repayment plans; changes in interest
rates, loan terms, or loan types; capitalizations of arrearages; or
principal reductions.
(21) "Residential mortgage loan modification services" includes
negotiating, attempting to negotiate, arranging, attempting to arrange,
or otherwise offering to perform a residential mortgage loan
modification. "Residential mortgage loan modification services" also
includes the collection of data for submission to any entity performing
mortgage loan modification services.
(22) "S.A.F.E. act" means the secure and fair enforcement for
mortgage licensing act of 2008, or Title V of the housing and economic
recovery act of 2008 ("HERA"), P.L. 110-289, effective July 30, 2008.
(23) "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.
(24) "Third-party residential mortgage loan modification services"
means residential mortgage loan modification services offered or
performed by any person other than the owner or servicer of the loan.
(25) "Unique identifier" means a number or other identifier
assigned by protocols established by the nationwide mortgage licensing
system and registry.
Sec. 2 RCW 19.146.020 and 2009 c 528 s 2 are each amended to read
as follows:
(1) The following are exempt from all provisions of this chapter:
(a) Any person doing business under the laws of the state of
Washington or the United States, and any federally insured depository
institution doing business under the laws of any other state, relating
to commercial banks, bank holding companies, savings banks, trust
companies, savings and loan associations, credit unions, insurance
companies, or real estate investment trusts as defined in 26 U.S.C.
Sec. 856 and the affiliates, subsidiaries, and service corporations
thereof;
(b) Any person doing business under the consumer loan act is exempt
from this chapter only for that business conducted under the authority
and coverage of the consumer loan act;
(c) 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)). However, (i) all mortgage broker or loan
originator services must be performed by the attorney while engaged in
the practice of law; (ii) all mortgage broker or loan originator
services must be performed under a business that is publicly identified
and operated as a law practice; and (iii) all funds associated with the
transaction and received by the attorney must be deposited in,
maintained in, and disbursed from a trust account to the extent
required by rules enacted by the Washington supreme court regulating
the conduct of attorneys;
(d) Any person doing any act under order of any court, except for
a person subject to an injunction to comply with any provision of this
chapter or any order of the director issued under this chapter;
(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;
(f) 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)(f);
(g) A real estate broker who provides only information regarding
rates, terms, and lenders in connection with a CLI system, who receives
a fee for providing such information, who conforms to all rules of the
director with respect to the providing of such service, and who
discloses on a form approved by the director that to obtain a loan the
borrower must deal directly with a mortgage broker or lender. However,
a real estate broker shall not be exempt if he or she does any of the
following:
(i) Holds himself or herself out as able to obtain a loan from a
lender;
(ii) Accepts a loan application, or submits a loan application to
a lender;
(iii) Accepts any deposit for third-party services or any loan fees
from a borrower, whether such fees are paid before, upon, or after the
closing of the loan;
(iv) Negotiates rates or terms with a lender on behalf of a
borrower; or
(v) Provides the disclosure required by RCW 19.146.030(1);
(h) Registered mortgage loan originators, or any individual
required to be registered; and
(i) A manufactured or modular home retailer employee who performs
purely administrative or clerical tasks and who receives only the
customary salary or commission from the employer in connection with the
transaction.
(2) Any person otherwise exempted from the licensing provisions of
this chapter may voluntarily submit an application to the director for
a mortgage broker's license. The director shall review such
application and may grant or deny licenses to such applicants upon the
same grounds and with the same fees as may be applicable to persons
required to be licensed under this chapter.
(a) Upon receipt of a license under this subsection, the licensee
is required to continue to maintain a valid license, is subject to all
provisions of this chapter, and has no further right to claim exemption
from the provisions of this chapter except as provided in (b) of this
subsection.
(b) Any licensee under this subsection who would otherwise be
exempted from the requirements of licensing by this section may apply
to the director for exemption from licensing. The director shall adopt
rules for reviewing such applications and shall grant exemptions from
licensing to applications which are consistent with those rules and
consistent with the other provisions of this chapter.
Sec. 3 RCW 19.146.0201 and 2009 c 528 s 3 are each amended to
read as follows:
It is a violation of this chapter for a loan originator or mortgage
broker required to be licensed under this chapter to:
(1) Directly or indirectly employ any scheme, device, or artifice
to defraud or mislead borrowers or lenders or to defraud any person;
(2) Engage in any unfair or deceptive practice toward 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
though 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 person exempt from licensing under RCW
19.146.020(1)(f) or a lender with whom the mortgage broker maintains a
written correspondent or loan broker 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 or engage in bait
and switch advertising;
(8) Negligently make any false statement or knowingly and willfully
make any omission of material fact in connection with any reports filed
by a mortgage broker or in connection with any investigation conducted
by the department;
(9) Make any payment, directly or indirectly, to any appraiser of
a property, for the purposes of influencing the independent judgment of
the appraiser with respect to the value of the property;
(10) Advertise any rate of interest without conspicuously
disclosing the annual percentage rate implied by such rate of interest;
(11) Fail to comply with ((any requirement of the truth-in-lending
act, 15 U.S.C. Sec. 1601 and Regulation Z, 12 C.F.R. Sec. 226; the real
estate settlement procedures act, 12 U.S.C. Sec. 2601 and Regulation X,
24 C.F.R. Sec. 3500; the equal credit opportunity act, 15 U.S.C. Sec.
1691 and Regulation B, Sec. 202.9, 202.11, and 202.12; Title V,
Subtitle A of the financial modernization act of 1999 (known as the
"Gramm-Leach-Bliley act"), 12 U.S.C. Secs. 6801-6809; the federal trade
commission's privacy rules, 16 C.F.R. Parts 313-314, mandated by the
Gramm-Leach-Bliley act; the home mortgage disclosure act, 12 U.S.C.
Sec. 2801 et seq. and Regulation C, home mortgage disclosure; the
federal trade commission act, 12 C.F.R. Part 203, 15 U.S.C. Sec. 45(a);
the telemarketing and consumer fraud and abuse act, 15 U.S.C. Secs.
6101 to 6108; and the federal trade commission telephone sales rule, 16
C.F.R. Part 310, as these acts existed on January 1, 2007, or such
subsequent date as may be provided by the department by rule, in any
advertising of residential mortgage loans, or any other applicable
mortgage broker or loan originator activities covered by the acts. The
department may adopt by rule requirements that mortgage brokers and
loan originators comply with other applicable federal statutes and
regulations in any advertising of residential mortgage loans, or any
other mortgage broker or loan originator activity)) state and federal
laws applicable to the activities governed by this chapter;
(12) Fail to pay third-party providers no later than thirty days
after the recording of the loan closing documents or ninety days after
completion of the third-party service, whichever comes first, unless
otherwise agreed or unless the third-party service provider has been
notified in writing that a bona fide dispute exists regarding the
performance or quality of the third-party service;
(13) Collect, charge, attempt to collect or charge or use or
propose any agreement purporting to collect or charge any fee
prohibited by RCW 19.146.030 or 19.146.070;
(14)(a) Except when complying with (b) and (c) of this subsection,
act as a loan originator in any transaction (i) in which the loan
originator acts or has acted as a real estate broker or salesperson or
(ii) in which another person doing business under the same licensed
real estate broker acts or has acted as a real estate broker or
salesperson;
(b) Prior to providing mortgage services to the borrower, a loan
originator, in addition to other disclosures required by this chapter
and other laws, shall provide to the borrower the following written
disclosure:
THIS IS TO GIVE YOU NOTICE THAT I OR ONE OF MY ASSOCIATES HAVE/HAS ACTED AS A REAL ESTATE BROKER OR SALESPERSON REPRESENTING THE BUYER/SELLER IN THE SALE OF THIS PROPERTY TO YOU. I AM ALSO A LOAN ORIGINATOR, AND WOULD LIKE TO PROVIDE MORTGAGE SERVICES TO YOU IN CONNECTION WITH YOUR LOAN TO PURCHASE THE PROPERTY.
YOU ARE NOT REQUIRED TO USE ME AS A LOAN ORIGINATOR IN CONNECTION WITH THIS TRANSACTION. YOU ARE FREE TO COMPARISON SHOP WITH OTHER MORTGAGE BROKERS AND LENDERS, AND TO SELECT ANY MORTGAGE BROKER OR LENDER OF YOUR CHOOSING; and
Sec. 4 RCW 19.146.060 and 2006 c 19 s 7 are each amended to read
as follows:
(1) A mortgage broker shall use generally accepted accounting
principles.
(2) Except as otherwise provided in subsection (3) of this section,
a mortgage broker shall maintain accurate and current books and records
which shall be readily available at a location available to the
director until at least ((twenty-five months)) three years have elapsed
following the effective period to which the books and records relate.
(3) Where a mortgage broker's usual business location is outside of
the state of Washington, the mortgage broker shall, as determined by
the director by rule, either maintain its books and records at a
location in this state, or reimburse the director for his or her
expenses, including but not limited to transportation, food, and
lodging expenses, relating to any examination or investigation
resulting under this chapter.
(4) "Books and records" includes but is not limited to:
(a) Copies of all advertisements placed by or at the request of the
mortgage broker which mention rates or fees. In the case of radio or
television advertisements, or advertisements placed on a telephonic
information line or other electronic source of information including
but not limited to a computer database or electronic bulletin board, a
mortgage broker shall keep copies of the precise script for the
advertisement. All advertisement records shall include for each
advertisement the date or dates of publication and name of each
periodical, broadcast station, or telephone information line which
published the advertisement or, in the case of a flyer or other
material distributed by the mortgage broker, the dates, methods, and
areas of distribution; and
(b) Copies of all documents, notes, computer records if not stored
in printed form, correspondence or memoranda relating to a borrower
from whom the mortgage broker has accepted a deposit or other funds, or
accepted a residential mortgage loan application or with whom the
mortgage broker has entered into an agreement to assist in obtaining a
residential mortgage loan.
Sec. 5 RCW 19.146.220 and 2006 c 19 s 13 are each amended to read
as follows:
(1) The director may enforce all laws and rules relating to the
licensing of mortgage brokers and loan originators, grant or deny
licenses to mortgage brokers and loan originators, and hold hearings.
(2) The director may impose fines or order restitution against
licensees or other persons subject to this chapter, or deny, suspend,
decline to renew, or revoke licenses for:
(a) Violations of orders, including cease and desist orders;
(b) False statements or omission of material information on the
application that, if known, would have allowed the director to deny the
application for the original license;
(c) Failure to pay a fee required by the director or maintain the
required bond;
(d) Failure to comply with any directive, order, or subpoena of the
director; or
(e) Any violation of this chapter.
(3) The director may impose fines on an employee, loan originator,
independent contractor, or agent of the licensee, or other person
subject to this chapter for:
(a) Any violations of ((RCW 19.146.0201 (1) through (9) or (13),
19.146.030 through 19.146.080, 19.146.200, 19.146.205(4), or
19.146.265)) this chapter; or
(b) Failure to comply with any directive or order of the director.
(4) The director may issue orders directing a licensee, its
employee, loan originator, independent contractor, agent, or other
person subject to this chapter to cease and desist from conducting
business.
(5) The director may issue orders removing from office or
prohibiting from participation in the conduct of the affairs of a
licensed mortgage broker, or both, any officer, principal, employee, or
loan originator of any licensed mortgage broker or any person subject
to licensing under this chapter for:
(a) Any violation of ((19.146.0201 (1) through (9) or (13),
19.146.030 through 19.146.080, 19.146.200, 19.146.205(4), or
19.146.265)) this chapter;
(b) False statements or omission of material information on the
application that, if known, would have allowed the director to deny the
application for the original license;
(c) Conviction of a gross misdemeanor involving dishonesty or
financial misconduct or a felony after obtaining a license; or
(d) Failure to comply with any directive or order of the director.
(6) Each day's continuance of a violation or failure to comply with
any directive or order of the director is a separate and distinct
violation or failure.
(7) The director shall establish by rule standards for licensure of
applicants licensed in other jurisdictions.
(8) The director shall immediately suspend the license or
certificate of a person who has been certified pursuant to RCW
74.20A.320 by the department of social and health services as a person
who is not in compliance with a support order. If the person has
continued to meet all other requirements for reinstatement during the
suspension, reissuance of the license or certificate shall be automatic
upon the director's receipt of a release issued by the department of
social and health services stating that the licensee is in compliance
with the order.
Sec. 6 RCW 19.146.240 and 1997 c 106 s 15 are each amended to
read as follows:
(1) The director or any person injured by a violation of this
chapter may bring an action against the surety bond or approved
alternative of the licensed mortgage broker who committed the violation
or who employed or engaged the loan originator who committed the
violation.
(2)(a) The director or any person who is damaged by the licensee's
or its loan originator's violation of this chapter, or rules adopted
under this chapter, may bring suit upon the surety bond or approved
alternative in the superior court of any county in which jurisdiction
over the licensee may be obtained. Jurisdiction shall be exclusively
in the superior court. ((Any such action must be brought not later
than one year after the alleged violation of this chapter or rules
adopted under this chapter.)) Except as provided in subsection (2)(b)
of this section, in the event valid claims of borrowers against a bond
or deposit exceed the amount of the bond or deposit, each borrower
claimant shall only be entitled to a pro rata amount, based on the
amount of the claim as it is valid against the bond or deposit, without
regard to the date of filing of any claim or action. If, after all
valid borrower claims are paid, valid claims by nonborrower claimants
exceed the remaining amount of the bond or deposit, each nonborrower
claimant shall only be entitled to a pro rata amount, based on the
amount of the claim as it is valid against the bond or deposit, without
regard to the date of the filing or any claim or action. A judgment
arising from a violation of this chapter or rule adopted under this
chapter shall be entered for actual damages and in no case be less than
the amount paid by the borrower to the licensed mortgage broker plus
reasonable attorneys' fees and costs. In no event shall the surety
bond or approved alternative provide payment for any trebled or
punitive damages.
(b) Borrowers shall be given priority over the director and other
persons in distributions in actions against the surety bond. The
director and other third parties shall then be entitled to distribution
to the extent of their claims as found valid against the remainder of
the bond. In the case of claims made by any person or entity who is
not a borrower, no final judgment may be entered prior to one hundred
eighty days following the date the claim is filed. This provision
regarding priority shall not restrict the right of any claimant to file
a claim ((within one year)).
(3) The remedies provided under this section are cumulative and
nonexclusive and do not affect any other remedy available at law.