AN ACT Relating to mortgage brokers; and adding a new chapter to Title 19 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds and declares that the brokering of residential real estate loans substantially affects the public interest. The practices of mortgage brokers have significant impact on the citizens of the state and the banking and real estate industries. It is the intent of the legislature to establish rules of practice and conduct of mortgage brokers to assure honesty and fair dealing with citizens and to preserve public confidence in the lending and real estate community.

NEW SECTION. Sec. 2. This act shall be known and cited as the "mortgage broker registration act."

NEW SECTION. Sec. 3. 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) "Mortgage broker" means every person who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates, or offers to make or negotiate a residential mortgage loan.

(3) "Person" means a natural person, corporation, company, partnership, or association.

(4) "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.

(5) "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.

(6) "Director" means the director of licensing, or his duly authorized representative. The director shall be responsible for establishing registration filing requirements and guidelines after consultation with officials in the mortgage brokerage industry.

NEW SECTION. Sec. 4. The following are exempt from all provisions of this chapter:

(1) Any person doing business under the laws of this state or the United States relating to banks, bank holding companies, mutual savings banks, trust companies, savings and loan associations, credit unions, consumer finance companies, industrial loan companies, insurance companies, or real estate investment trusts as defined in 26 U.S.C. Sec. 856, and the affiliates, subsidiaries, and service corporations thereof;

(2) 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 the attorney's practice as an attorney;

(3) Any person doing any act under order of any court;

(4) Any person making or acquiring a residential mortgage loan solely with the person's own funds for the person's own investment without intending to resell the residential mortgage loans;

(5) 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 the real estate broker's 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;

(6) Any mortgage broker approved and subject to auditing by the federal national mortgage association, the government national mortgage association, or the federal home loan mortgage corporation;

(7) Any mortgage broker approved by the United States secretary of housing and urban development for participation in any mortgage insurance program under the national housing act, 12 U.S.C. Sec. 1701, as now or hereafter amended, or approved lender by the United States veteran's administration;

(8) 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.

NEW SECTION. Sec. 5. No person may engage in the business as a mortgage broker without first obtaining a certificate of registration from the department. The director shall issue certificates of registration under rules adopted by the director.

NEW SECTION. Sec. 6. Upon receipt of a loan application and before the receipt of any moneys from a borrower, a mortgage broker shall make a full, written disclosure to each borrower containing an itemization and explanation of all known fees and costs that the borrower is required to pay in connection with obtaining a residential mortgage loan as required in this section. A good faith estimate of a fee or cost shall be provided if the exact amount of the fee or cost is not determinable. The written disclosure shall contain the following information:

(1) The annual percentage rate, finance charge, amount financed, total amount of all payments, number of payments, amount of each payment, amount of points of prepaid interest, and a statement that the loan terms may change between the time of disclosure and closing of the loan; and if a variable rate, the circumstances under which the rate may increase, and limitation on the increase, the effect of an increase, and an example of the payment terms resulting from an increase. Disclosure in compliance with the requirements of the truth-in-lending act, 15 U.S.C. Sec. 1601, and regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended, shall be deemed to be full compliance with the disclosure requirements of this subsection;

(2) The estimated costs as required to be disclosed in compliance with the requirements of the real estate settlement procedures act, 12 U.S.C. Sec. 2601, and regulation X, 24 C.F.R. Sec. 3500, as now or hereafter amended;

(3) If applicable, the cost, terms, and conditions of any agreement, if any, to lock-in or commit the mortgage broker or lender to a specific interest rate or other financing term for any period of time up to and including the time the loan is closed;

(4) A statement providing that moneys paid by the borrower to the mortgage broker for third-party provider services are held in a separate account and any moneys remaining after payment due to third-party providers and mortgage brokers will be refunded.

A violation of the truth-in-lending act, regulation Z, 12 C.F.R. Sec. 226, the real estate settlement procedures act, and regulation X, 24 C.F.R. Sec. 3500, is a violation of this section for purposes of this chapter.

NEW SECTION. Sec. 7. A mortgage broker shall immediately deposit all money received from borrowers for third-party provider services in a separate account from the general operating account of the mortgage broker in a federally insured financial institution located in this state. The account shall be designated and maintained for the benefit of borrowers. A mortgage broker shall not in any way encumber the corpus of the separate account or commingle any other operating funds with funds in this separate account. Withdrawals from this account shall be only for the payment of bona fide services rendered by a third-party provider, mortgage broker, or for refunds to borrowers. Any interest earned on borrowers' funds in the account shall be refunded or credited to the borrowers at closing.

NEW SECTION. Sec. 8. A mortgage broker shall use generally accepted accounting principles. A mortgage broker shall maintain accurate, current , and readily available books and records at the mortgage broker's usual business location until at least six years have elapsed following the effective period to which the books and records relate.

NEW SECTION. Sec. 9. In connection with the preparation, negotiation, and brokering of a residential mortgage loan a mortgage broker shall not:

(1) Solicit or receive any fees which are nonrefundable, except as provided herein;

(2) Solicit or receive any fees for services rendered, preparation of documents, or transfer of documents in the borrower's file which were prepared or paid for by the borrower, except where the mortgage broker has obtained for the borrower a written commitment from a lender for a loan at the interest rate, fees, and loan term agreed upon by the borrower and mortgage broker and such fees are not otherwise prohibited by the truth-in-lending act, 15 U.S.C. Sec. 1601, and regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended. In the event of termination of the contract by the borrower, the mortgage broker will be entitled in addition to actual third-party provider fees incurred, a reasonable termination fee to compensate for time and efforts expended by the mortgage broker, such fee not exceeding two hundred fifty dollars unless otherwise agreed in writing with the borrowers;

(3) Except as provided in subsection (2) of this section, 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;

(4) Collect from the borrower any fees for third-party provider goods or services not provided, or which are higher than the actual costs of such goods or services charged by the third-party provider. Adjustments to be made at time of closing or termination of transaction;

(5) Solicit or contract with the public without having a written correspondent or loan brokerage agreement with at least one or more lenders;

(6) 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.

NEW SECTION. Sec. 10. All advertising of residential mortgage loans by a mortgage broker shall comply with the requirements of the truth-in-lending act, 15 U.S.C. Sec. 1601, and regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended. A violation of the truth-in-lending act or regulation Z, 12 C.F.R. Sec. 226, is a violation of this section for purposes of this chapter.

NEW SECTION. Sec. 11. The director may by order, upon notice to the mortgage broker, deny, suspend, or revoke the certificate of registration of any mortgage broker if the director finds that the applicant or any partner, officer, director, controlling person, or employee is guilty of violating any of the provisions of this chapter or any lawful rules or regulations made by the director pursuant thereto.

NEW SECTION. Sec. 12. The proceedings for revocation, suspension, or refusal to renew or accept an application for renewal of a mortgage broker's registration certificate, and any appeal therefrom or review thereof shall be governed by the provisions of chapter 34.04 RCW.

NEW SECTION. Sec. 13. Sections 1 through 12 of this act shall constitute a new chapter in Title 19 RCW.

NEW SECTION. Sec. 14. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.