SENATE BILL REPORT

SB 5373

BYSenators Bottiger and Rasmussen; by request of Attorney General

Regulating mortgage brokers.

Senate Committee on Financial Institutions

Senate Hearing Date(s):February 6, 1987

Senate Staff:Stephanie Yates (786-7416)

AS OF FEBRUARY 4, 1987

BACKGROUND:

Financing of mortgages is typically available through financial institutions, mortgage bankers, and mortgage brokers.  Mortgage bankers differ from mortgage brokers in the following ways:  mortgage bankers generally use their own funds for a mortgage loan, then sell the mortgage on the secondary market, but retain servicing of the mortgage.  In contrast, mortgage brokers arrange for financing by matching a borrower with a lender, but seldom retain servicing of the mortgage.

Presently, Washington has no statutory provisions governing mortgage brokers.

SUMMARY:

The mortgage broker practices act is established.  A mortgage broker is defined as any person who for compensation makes, negotiates, or offers to make a residential real property mortgage loan.  State and federal financial institutions, attorneys, real estate brokers, and mortgage brokers approved by the secondary market or the federal department of housing and urban development are exempt from the provisions of the act.

Prior to receipt of any payments from the borrower, a mortgage broker must make a full written disclosure to the borrower.  The disclosure must include the following:  a good faith estimate of the fees and costs; the annual percentage rate, finance charge, and other details about the loan; itemized costs of any services charged to the borrower; terms and conditions of any lock-in of the rate; the commission or fee to be received by the mortgage broker for arranging the loan; the name of the lender; and a statement that payment for third party services will be held in trust.

Prior to entering into a contract with a borrower or making any public solicitations, the broker must have a written agreement from a lender.

The broker must place payments for third-party services into a trust account.

The broker must use generally accepted accounting practices and maintain the business books and records for a period of six years.

A mortgage broker is prohibited from receiving any fee or commission until the borrower actually obtains a loan, unless otherwise provided by the act.  A fee not exceeding $100 may be charged by the mortgage broker for preparation of documents, provided that the mortgage broker has obtained a written commitment from a lender for a loan on the terms and conditions to which the borrower and mortgage broker have agreed. A mortgage broker is prohibited from making a contract providing that the broker may earn a fee for "best efforts."  A mortgage broker is prohibited from advertising any financing terms for which the broker does not have a written commitment from a lender. 

A violation of the act is a violation of the consumer protection act.  A violation of the provision requiring funds for third party services to be placed in trust is a class C felony.  A violation of the remainder of the act is a gross misdemeanor.

Fiscal Note:      none requested