SENATE BILL REPORT

ESHB 80

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Zellinsky, Locke, Winsley, Lux, Crane, Chandler, Holland, Belcher, Betrozoff, Lewis and Dellwo; by request of Attorney General)

Regulating mortgage brokers.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions

Senate Hearing Date(s):March 27, 1987

Majority Report:  Do pass as amended.

      Signed by Senators Moore, Chairman; Bottiger, Fleming, McDermott, Metcalf.

Senate Staff:Stephanie Yates (786-7416)

                  March 27, 1987

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS, MARCH 27, 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:  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 name of the lender; and a statement that payment for third party services will be held in trust.  The name of the lender may be disclosed at the time the borrower accepts the commitment.  The broker must also advise the borrower of the right to receive copies of title reports, appraisals, and audit reports if a loan is not made.

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.

The mortgage broker is prohibited from receiving any fee or commission until the borrower actually obtains a loan, unless otherwise permitted by the act.  The broker may receive a fee of up to one hundred dollars if the borrower fails to close on a loan for which the lender has made a commitment.  The broker may also charge in advance for third party services.  The broker is prohibited from making a contract that provides the broker may earn a fee for "best efforts," marking up the fees of third party providers, and advertising any financing terms that the broker does not have a written commitment for from a lender.  Mortgage brokers must comply with the federal truth-in-lending act.

If the borrower is unable to obtain a loan through the broker, the mortgage broker must give the borrower copies of any appraisal, title report, or credit report paid for by the borrower.  The broker must also transmit the original documents to any other mortgage broker or lender to whom the borrower directs they be sent.

Violation of the act is a violation of the consumer protection act.  Except for violation of the trusting provisions,  violation of the act is a gross misdemeanor.  Violation of the provisions requiring funds for third party providers to be placed in trust is a class C felony.

SUMMARY OF PROPOSED SENATE AMENDMENT:

A violation of any provision except the trust provision constitutes a misdemeanor.

Fiscal Note:      available

Senate Committee - Testified: Jay Uchida, Assistant Attorney General; Ed Rutter, Summit Savings, Bellevue; Sandra Paul, Quality Mortgage and Escrow Services, Renton