Original Notice.

     Preproposal statement of inquiry was filed as WSR 09-12-094.

     Title of Rule and Other Identifying Information: The securities division proposes to amend the rules set forth in chapter 460-33A WAC, which provide an optional method of registration for "mortgage paper securities" as defined in WAC 460-33A-015(4). The proposed rules would strengthen investor suitability requirements; revise the calculation of the number of investors that may participate in a loan; establish requirements for participation agreements; revise net worth and bonding requirements; revise provisions regarding escrow accounts and escrow agreements; establish requirements for servicing agreements; codify the requirement for a disclaimer in advertisements; clarify the fiduciary duties of a mortgage broker-dealer; include additional "dishonest and unethical practices" in WAC 460-33A-090; clarify the requirements for appraisals; clarify investors' rights to receive information and access records concerning their investments; update record-keeping requirements at WAC 460-33A-115; and make other updates and changes.

     Hearing Location(s): Department of Financial Institutions (DFI), Securities Division, 150 Israel Road S.W., Tumwater, WA 98501, on April 24, 2012, at 10 a.m.

     Date of Intended Adoption: April 25, 2012.

     Submit Written Comments to: Jill Vallely, Associate General Counsel, DFI, Securities Division, P.O. Box 9033, Olympia WA 98507, e-mail jill.vallely@dfi.wa.gov, fax (360) 704-7035, by April 24, 2012.

     Assistance for Persons with Disabilities: Contact Carolyn Hawkey, P.O. Box 9033, Olympia, WA 98507-9033, by April 18, 2012, TTY (360) 664-8126 or (360) 902-8824.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The securities division proposes to amend the rules in chapter 460-33A WAC to address concerns that have surfaced during the course of routine examinations of mortgage broker-dealers and the investigation of complaints received from investors who purchased mortgage paper securities. The proposals would:

•	Revise the minimum financial thresholds for investors in mortgage paper securities set forth in WAC 460-33A-031;
•	Revise the calculation of the number of investors who may participate in a loan;
•	Establish the requirements for participation agreements, including basic contents and actions that may not be taken by a mortgage broker-dealer. The participation agreement must also allow investors to call meetings, prohibit the distribution of any excess proceeds from the sale of foreclosed property to the mortgage broker-dealer, prohibit payment of late fees to a mortgage broker-dealer on a loan that has been foreclosed, and bind a mortgage broker-dealer to the agreement's terms to the extent the mortgage broker-dealer maintains an interest in the loan or property acquired through foreclosure;
•	Revise the required amount of the surety bond that may be used to satisfy net worth requirements;
•	Require the escrow account agreement to provide that the escrow agent maintains independence, that the escrow account is subject to examination by the securities division, and that funds belonging to the mortgage broker-dealer may not be commingled in the account;
•	Revise the servicing agreement requirements to clarify that the mortgage broker-dealer who provides loan servicing owes a fiduciary duty to investors, to require that investors may access the books and records concerning their investments, to require mortgage broker-dealers provide quarterly reports to investors concerning loans in default, and to clarify that a mortgage broker-dealer is not entitled to collect late fees on a loan that has been foreclosed;
•	Codify the requirement for a disclaimer in advertisements;
•	Clarify the fiduciary duties owed by a mortgage broker-dealer to investors in mortgage paper securities;
•	Include additional "dishonest and unethical practices" in WAC 460-33A-090;
•	Clarify requirements for appraisals;
•	Clarify the right of investors to access books and records of the mortgage broker-dealer that concern the investor's investments;
•	Update and clarify the record-keeping requirements set forth in WAC 460-33A-115; and
•	Make other clarifications and changes.

     Reasons Supporting Proposal: The changes proposed should be adopted to better protect investors purchasing mortgage paper securities in registered offerings. The securities division believes these changes are necessary in light of recent examinations and investigations.

     Statutory Authority for Adoption: RCW 21.20.060, [21.20].070, [21.20].090, [21.20].100, [21.20].180, [21.20].210, [21.20].250, [21.20].270, and [21.20].450.

     Statute Being Implemented: Chapter 21.20 RCW.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: DFI, governmental.

     Name of Agency Personnel Responsible for Drafting: Jill Vallely, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760; Implementation: Scott Jarvis, Director, DFI, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760; and Enforcement: Bill Beatty, Director of Securities, 150 Israel Road S.W., Tumwater, WA 98501, (360) 902-8760.

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

     Mortgage paper securities are high risk investments. The rules concerning mortgage paper securities and mortgage broker-dealers have not been amended since 2001, yet the market for mortgage paper securities has undergone significant changes. In recent years, several mortgage broker-dealers licensed with the securities division to sell mortgage paper securities under chapter 460-33A WAC have ceased operations and faced financial difficulties. The securities division regularly examines its mortgage broker-dealers, and during these periodic examinations has noted certain issues that could be addressed by revision of the mortgage broker-dealer rules. In addition, the securities division enforcement section in recent years has received and investigated complaints from mortgage paper securities investors. These investigations highlighted areas of the rules which could be improved to increase investor protection and to reduce the potential for fraud.

     The securities division has involved its licensed mortgage broker-dealers throughout the rule-making process and has made changes to the proposed rules in response [to] their concerns. The securities division finds that the proposed rule amendments should be adopted in order to better protect investors purchasing mortgage paper securities in public offerings in Washington.

     Procedural Background: The securities division filed form CR-101 to initiate the rule making on June 1, 2009, and originally filed form CR-102 on February 10, 2010. The securities division held a hearing on a previous draft of the proposed rules on March 23, 2010. After reviewing the comments received during the hearing, the securities division revised its proposals and circulated the potential amendments to all then-licensed mortgage broker-dealers. The securities division received some feedback on those potential amendments. In December 2011, the securities division distributed a small business economic impact survey to its licensed mortgage broker-dealers. The securities division has made some additional changes to the proposed amendments and now intends to proceed with the rule making to amend chapter 460-33A WAC.

     Summary of Proposed Rule Amendments: The proposed rule amendments would amend twenty-one rule sections under chapter 460-33A WAC and create two new sections. The proposed changes are summarized as follows:

     Minimum Investor Suitability Requirements: The proposed rule making would amend WAC 460-33A-031 to change the minimum investor suitability requirements. Investors would be required to be accredited investors; or have a minimum net worth of either $250,000; or a net worth of $70,000 and $70,000 in annual income.

     In addition, investors who are not accredited investors will be limited to investments in mortgage paper securities that do not exceed twenty percent of the investor's net worth, provided that the investor's total investment in mortgage paper securities with any one borrower does not exceed twenty percent of the investor's net worth. In the alternative, investors who are not accredited investors will be limited to investments that do not exceed ten percent of the investor's income for the last year, provided that the investor's total investment in mortgage paper securities does not exceed twenty percent of the investor's net worth. The current rule allows an investor to qualify to invest without meeting any income or net worth thresholds if that investor is a sophisticated investor.

     Maximum Number of Investors in a Loan: The proposed rule making would amend WAC 460-33A-035 to change the calculation of the maximum number of investors who can participate in a loan. Where a loan is greater than $500,000 and is secured by a first lien, the maximum number of investors will be the number that results from dividing the loan amount by $50,000. Under the current rule, a loan may have a maximum of twenty-five investors if the loan is greater than $100,000 and is secured by a first lien.

     Participation Agreements: The proposed rule making would create a new section, WAC 460-33A-036, which requires that the mortgage broker-dealer obtain a signed participation agreement from each investor prior to the release of funds from escrow. The rule specifies the information which must be contained in the participation agreement.

     Net Worth and Bonding Requirements: The proposed rule making would amend WAC 460-33A-040 to increase the face value of a surety bond used to satisfy net worth requirements. The current maximum face value of the surety bond is $100,000. The proposed rule change would increase the maximum face value of the surety bond that could be required to the greater of $100,000 or one percent of the amount of securities registered, up to a maximum face value of $250,000.

     Servicing Agreements: The proposed rule making would amend WAC 460-33A-065 to specify that certain provisions shall be contained in the servicing agreement, including a provision that the servicing agent must send quarterly notices to investors in the event of borrower default, and a provision that investors will not pay the mortgage broker-dealer late fees assessed on the borrower before foreclosure of a loan if those fees were not received from the borrower prior to foreclosure.

     Additional Provisions: In addition to the changes listed above, the proposed rules will:

•	Revise requirements for escrow accounts and escrow account agreements, including requiring the mortgage broker-dealer to keep evidence of investor payments;
•	Require that the mortgage broker-dealer provide the investor a copy of the recorded instrument within ten days of receipt by the mortgaged broker-dealer of the recorded instrument;
•	Require that the mortgage broker-dealer maintain a customer complaint file;
•	Require a legend be added to advertisements;
•	Clarify requirements for appraisals;
•	Clarify the fiduciary duties that mortgage broker-dealers owe to investors in mortgage paper securities;
•	Include additional "dishonest and unethical practices" in WAC 460-33A-090;
•	Clarify investors' right to access the books and records of the mortgage broker-dealer concerning their investments; and
•	Make other clarifications and changes.

     Need for Economic Impact Statement: RCW 19.85.030 provides that an agency shall prepare an SBEIS if the rules it is proposing would impose more than minor costs on businesses in an industry. Minor costs are defined by RCW 19.85.020 as a cost per business that is less than three-tenths of one percent of annual revenue or income, or one hundred dollars, whatever is greater; or one percent of annual payroll. The securities division determined that a small business economic impact may be required for this rule making.

     Survey of Mortgage Broker-Dealers: In order to gather the information to prepare an SBEIS, RCW 19.85.040 provides that an agency may survey a representative sample of affected businesses to assist in the accurate assessment of the costs of a proposed rule. To that end, the securities division prepared a small business economic impact survey to survey its licensed mortgage broker-dealers. The securities division currently has only one licensed mortgage broker-dealer.

     On December 12, 2011, the securities division sent a letter by regular mail and e-mail to the licensed mortgage broker-dealer to request assistance in determining the economic impact of the proposed amendments to the rules under chapter 460-33A WAC on small businesses. The letter directed the current licensee to complete and return an enclosed survey. Each question in the survey focused on a proposed rule amendment and provided a background statement briefly explaining the amendment. The licensee was asked to estimate the cost of implementing each proposed rule.

     The mortgage broker-dealer licensee completed the survey and also met with the securities division on February 16, 2012, to discuss the rule making and the economic impact survey. The results of the survey are discussed below.

     The proposed rule amendments make a variety of changes to the existing mortgage broker-dealer rules, some of which will create new record-keeping, reporting, or compliance requirements for licensees. Licensees already maintain certain records required of broker-dealers under WAC 460-21B-050 and 460-33A-115. As they do currently, licensees will need to demonstrate compliance with the amended rules by providing relevant records during periodic examinations of the mortgage broker-dealer by the securities division.

     New record-keeping and compliance requirements created by the rule making include: A requirement to maintain a customer complaint file; a requirement to maintain evidence of payment by investors; a requirement to maintain participation agreements; and a requirement to send quarterly notices to investors who have invested in loans that have gone into default.

     As a result of the rule amendments, mortgage broker-dealers may incur expenses by the need to review existing procedures, documents, and agreements to ensure compliance with the new rules. Though not required to do so by the proposed rules, licensees may choose to hire professional services to assist them. Licensees may hire legal or other professional services to create or revise participation agreements, servicing agreements, escrow agreements, quarterly statements, advertisements, suitability questionnaires, subscription agreements, and other documents and agreements used in the mortgage broker-dealer's business. They may also consult professional services for advice on establishing systems or methods to ensure compliance.

     In addition, the proposed rule making may have an economic impact on mortgage broker-dealers in the form of increased equipment, supplies, and administrative costs. These costs may relate to the sending of quarterly notices in the event of default, and providing a written notice of the recording of the recorded instrument and a copy of the recorded instrument. Further, licensees who meet the net worth requirement by having a surety bond will have increased expenses from the costs of maintaining a bond with a greater face value.

     Licensees were surveyed to determine if the new requirements would add costs to their business, and if so, how much. The survey asked specific questions regarding the costs of recordkeeping, professional services, equipment, supplies, and administrative costs.

     In response to the survey, the licensee checked "yes" to indicate that the changes to the servicing agreement would create additional costs. However, the licensee did not provide a cost estimate. The licensee also checked "yes" to indicate that the changes to the surety bond requirements would create additional costs. The licensee estimated that maintaining a surety bond with an increased face value will cost an additional $500 per year. The licensee maintains a surety bond though the licensee currently meets the net worth requirement without it.

     The licensee did not provide any estimates in the survey response regarding increased recordkeeping, equipment, supplies, or administrative costs, nor any estimates for increased costs of professional services.

     Whether Compliance with the Proposed Rule Will Cause Businesses to Lose Sales or Revenue: The proposed rules may result in mortgage broker-dealers losing sales or revenue. The proposed rule changes to the minimum suitability requirements may result in previous customers of a mortgage broker-dealer becoming ineligible to invest in future offerings of mortgage paper securities. In addition, these changes will decrease the size of the pool of potential investors for mortgage paper securities because fewer investors will meet the minimum requirements. This could make replacing investors who no longer meet the requirements more difficult. A mortgage broker-dealer could potentially lose sales or have diminished revenue as a result of the new suitability standards.

     In addition, the change in the calculation of the maximum number of investors who can participate in a loan may cause mortgage broker-dealers to lose sales or revenue. The rule change may result in investors in loans over $500,000 being required to invest larger amounts. A mortgage broker-dealer may have a more difficult time selling loan participations for loans over $500,000 if investors are not willing or able to invest a larger amount of money. As a result, a mortgage broker-dealer could lose revenue.

     The survey asked whether the proposed changes to the minimum suitability standards would result in a loss of business or revenue. The licensee estimated that $80,000 in revenue could be lost as a result of the proposed changes to the minimum suitability requirements. The survey also asked whether the proposed changes to the calculation of the maximum number of investors would result in a loss of business or revenue. The licensee did not provide an estimate for any loss of revenue that might be caused by the change in the maximum number of investors, but instead answered the survey question with a question mark.

     A comparison of compliance costs for the small business segment and the large business segment of the affected industries, and whether the impact on small business is disproportionate.

     RCW 19.85.040 requires that the securities division determine whether compliance with the proposed rules will have a disproportionate impact on small businesses by comparing the cost of compliance for small business with the costs of compliance for the ten percent of businesses that are the largest businesses required to comply with the proposed rules.

     The securities division cannot prepare a comparison of the anticipated costs of the rule making for small businesses versus large businesses because there is only one licensed mortgage broker-dealer. No other businesses will be directly affected by the rule amendments. The securities division therefore cannot determine whether the rule making will have a disproportionate economic impact on small businesses.

     Steps taken by the department under RCW 19.85.030(2) to reduce the costs of the proposed rule on small businesses, or reasonable justification for not doing so, addressing the specified mitigation steps.

     Investor Protection Purpose: In drafting the rule amendments, the securities division attempted to balance the business concerns of licensed mortgage broker-dealers with the securities division's mission to protect the investing public and promote confidence in the capital markets. The securities division identified areas of its rules which could be improved to increase protections for investors and to reduce the potential for fraud. These determinations were made as a result of complaints received by the enforcement section regarding mortgage paper securities and mortgage broker-dealers, and as a result of observations made during periodic examinations of mortgage broker-dealers conducted by the securities division. While the proposed rule changes may increase costs to licensees, the securities division believes the costs will be justified by the increased protection for investors.

     As a result of feedback received from affected businesses, the securities division made adjustments to its initial draft of the rules. Several of these adjustments were made in order to reduce the cost of compliance for mortgage broker-dealers. These changes are detailed below. The securities division does not believe that it can reduce costs further and still accomplish the investor protection purpose of the rule making.

     Reducing, Modifying, or Eliminating Substantive Regulatory Requirements: The securities division created an initial draft of revised rules under chapter 460-33A WAC on which it held a hearing and accepted comments. Based on the feedback received, the securities division made certain revisions in preparing a new draft of the proposed rules.

     The securities division relaxed the restrictions contained in earlier proposals on the amount of an investor's net worth that may be invested in mortgage paper securities sold by a single mortgage broker-dealer or in mortgage paper securities that involve a single borrower or the borrower's affiliates. This compromise will lessen the impact the changes to the minimum suitability requirement may have on revenue of mortgage broker-dealers.

     Similarly, the securities division altered its initial proposal regarding net worth requirements for mortgage broker-dealers. The securities division had initially proposed to eliminate the $1,000,000 cap on the net worth requirement so that the required amount of net worth would increase as the amount of mortgage paper securities sold by a mortgage broker-dealer increases. In addition, the securities division proposed that the surety bond, which mortgage broker-dealers may use to meet net worth requirements, should increase from having a maximum face value of $100,000 to having a face value of the greater of $100,000 or one percent of the amount of securities registered. After receiving comments regarding the cost of such changes to licensees, the securities division decided to keep the net worth requirement capped at $1,000,000. Taking the suggestion of a licensee, the securities division now proposes to cap the amount of the surety bond at $250,000. The cap on both the net worth and surety bond will keep costs lower for licensees than the initial proposals would have, but will still increase protection of investors.

     The securities division also proposed changes to the requirements for servicing agreements which it revised in response to comments received. For instance, that securities division had initially proposed that there be an annual renewal of servicing agreements. Comments indicated that this would require the hiring of additional personnel. In response, the securities division removed the proposal to require annual renewing of servicing agreements.

     Simplifying, Reducing or Eliminating Record-Keeping and Reporting Requirements: The securities division had initially proposed that mortgage broker-dealers provide quarterly reports to investors in loans in default, and that mortgage broker-dealers also provide reports at any other time investors requested. Comments received indicated that allowing an investor to request more than one report per quarter would be burdensome. The securities division decided to change its proposal to remove the provision that would allow investors to request a report at any time. By limiting the number of reports to one per quarter, the costs to the mortgage broker-dealer will be reduced.

     Mortgage broker-dealer licensees currently must file annual financial statements within ninety days of the mortgage broker-dealer's fiscal year end. In its revised draft, the securities division decided to extend the deadline for filing annual financial reports to one hundred twenty days after the fiscal year end. This change will assist licensees who may have difficulty providing the financial reports within ninety days of the end of the fiscal year.

     How the Department Will Involve Small Business in Rule Development: Since the beginning of the rule-making process in 2009, the securities division has involved its mortgage broker-dealer licensees in the rule-making process, and has revised its initial proposals in response to comments received from the licensees.

     On June 1, 2009, the securities division sent copies of the notice of preproposal statement of inquiry (CR-101) concerning the possible amendment of the mortgage paper securities rules to all currently licensed mortgage broker-dealers. At the time, there were eight licensed mortgage broker-dealers. The notice invited licensees to attend an information meeting on July 22, 2009, so that the securities division could share ideas for rule changes and get feedback from licensees. Four licensees attended the meeting in person, with a fifth licensee participating by telephone.

     The securities division took the feedback received at the meeting into account when drafting the initial draft of the proposed rules. The proposed rules were filed with the notice of proposed rule making (CR-102) on February 10, 2010. The securities division held a hearing on the proposed rules on March 23, 2010. Two mortgage broker-dealer licensees attended the hearing. The securities division also received written comments from two licensees.

     Following the rule-making hearing, the securities division revised the proposed draft of the rule amendments in response to the comments received. On June 10, 2010, the securities division provided the revised draft to all current licensees along with an explanation of the changes and a summary of the comments received. At this time, there were six licensees. The securities division requested comments on the revised draft, and received comments from one licensee.

     The securities division next prepared a survey to determine the economic impact of the proposed rule making on mortgage broker-dealer licensees. In February 2012, the securities division met with its one remaining licensee to discuss the proposed rules. The securities division made minor changes to its proposed draft in response to the licensee's comments. The securities division will continue to seek the feedback of the licensee as the rule-making process continues.

     In addition to involving its mortgage broker-dealer licensees in the rule-making process, the securities division distributed the CR-101 and the initial CR-102 notices to the interested persons list for securities registration and exemptions. The persons on the list may include small businesses and those that advise small businesses. The filings provided instructions for how an interested person may participate in the mortgage broker-dealer rule-making process by submitting comments or attending the rule-making hearing. The securities division will continue to send notices filed in the mortgage broker-dealer rule making to the interested persons list.

     A List of the Industries That Will Be Required to Comply with the Rule: Mortgage broker-dealers registered to sell mortgage paper securities under chapter 460-33A WAC will be directly affected by the proposed rule changes. The securities division currently has only one licensed mortgage broker-dealer. The securities division had more licensed mortgage broker-dealers in the past and may have more in the future.

     An Estimate of the Number of Jobs That Will Be Created or Lost as a Result of Compliance with the Proposed Rule: The securities division surveyed its mortgage broker-dealer licensee to determine whether the proposed rule making could result in the addition or elimination [of] any jobs. The licensee who responded to the survey indicated that one to two jobs could be eliminated. The licensee did not anticipate that any jobs would be created as a result of the rule making.

     A copy of the statement may be obtained by contacting Jill Vallely, DFI, Securities Division, P.O. Box 9033, Olympia, WA 98501, phone (360) 902-8760, fax (360) 704-7035, e-mail jill.vallely@dfi.wa.gov.

     A cost-benefit analysis is not required under RCW 34.05.328. DFI is not one of the agencies listed in RCW 34.05.328.

March 14, 2012

Scott Jarvis

Director

OTS-2890.6

AMENDATORY SECTION(Amending WSR 01-23-002, filed 11/7/01, effective 12/8/01)

WAC 460-33A-015   Definitions.   As used in this chapter:

     (1) "Mortgage broker-dealer" means a person who is defined as a "broker-dealer" in RCW 21.20.005(3) and who effects transactions in mortgage paper securities registered under the provisions of this chapter.

     (2) "General offering circular" means a disclosure document that gives a general description of what is involved in the purchase of mortgage paper securities and the business of offering the mortgage paper securities including a description of the mortgage broker-dealer.

     (3) "Mortgage salesperson" means a person other than a mortgage broker-dealer who is defined as a "salesperson" in RCW 21.20.005(2) and who represents a mortgage broker-dealer in effecting offers or sales of mortgage paper securities registered under the provisions of this chapter.

     (4) "Mortgage paper securities" means notes and ((bonds, or)) other debt securities secured by mortgages or trust deeds on real or personal property or by a vendor's interest in a property sales contract or options granting the right to purchase any of the foregoing, including any guarantee of or interest in the foregoing.

     (5) "Specific offering circular" means a disclosure document describing the specific mortgage paper securities offering, which is meant to accompany the general offering circular.

     (6) "Financial institution" means any bank, trust company, savings bank, national banking association, savings and loan association, building and loan association, mortgage banker, credit union, insurance company, or other similarly regulated financial institution, or holding company for any of the foregoing.

     (7) "Construction loan" means a loan in which twenty-five percent or more of the loan proceeds will be used to fund future improvements to real estate securing the loan.

     (8) "Income-producing properties" means real property that produces income on a regular basis.

     (9) "Participation agreement" means the agreement entered into by investors in mortgage paper securities that sets forth the rights and responsibilities of the investors as to each other and as to others and that may provide for the delegation of authority and responsibility for the management of the loan underlying the mortgage paper securities, the management of property acquired by the investors through foreclosure, and other assigned duties.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-015, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-015, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-015, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-015, filed 10/20/86; 83-15-043 (Order SDO-90-83), § 460-33A-015, filed 7/19/83; 83-03-025 (Order SDO-7-83), § 460-33A-015, filed 1/13/83.]

Note:

Persons intending to rely upon RCW 21.20.320(5) should consult WAC 460-44A-075.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-017, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-017, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-017, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-017, filed 1/13/83.]

     (1) The general offering circular;

     (2) A sample specific offering circular;

     (3) The mortgage paper escrow and trust agreement;

     (4) The participation agreement;

     (5) The mortgage paper service agreement;

     (((5))) (6) The mortgage broker-dealer's articles of incorporation and bylaws or articles of organization;

     (((6))) (7) Sample documents to include any note, bond, mortgage, deed of trust, master deed of trust, real or personal property contract, indenture, guaranty, or other such instrument;

     (((7))) (8) The financial statements of the mortgage broker-dealer, including a balance sheet, profit and loss statement, and statement of cash flow as set forth in RCW 21.20.210(14). Pursuant to RCW 21.20.210 (14)(c), if the estimated proceeds of the mortgage paper securities offering, together with the proceeds from registered offerings during the year preceding the date of filing of the mortgage paper securities offering, exceed one million dollars, said financial statements shall be audited. If such proceeds exceed five million dollars, said financial statements for the previous two fiscal years shall be audited;

     (((8))) (9) The subscription and ((acknowledgement)) acknowledgment agreements;

     (((9))) (10) An opinion of counsel, if requested, on the legality and validity of the mortgage paper securities being issued;

     (((10))) (11) An opinion of counsel, if requested, regarding the application of the usury laws to the mortgage paper securities being offered;

     (((11))) (12) Such other information as the director may prescribe or request.

[Statutory Authority: RCW 21.20.450 and 21.20.210(14). 96-11-025, § 460-33A-020, filed 5/6/96, effective 6/6/96. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-020, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.180(8), 21.20.210(14) and 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-020, filed 10/20/86. Statutory Authority: RCW 21.20.450. 83-03-025 (Order SDO-7-83), § 460-33A-020, filed 1/13/83.]

     (3))) have reasonable grounds to believe that either:

     (a) The investor is an accredited investor as defined in WAC 460-44A-501; or

     (b) The following requirements are satisfied:

     (i) The investor has a minimum net worth of either:

     (A) Two hundred fifty thousand dollars; or

     (B) Seventy thousand dollars provided the investor has a minimum annual income of seventy thousand dollars; and

     (ii) The prospective investment by the investor qualifies for one of the following:

     (A) The investment in the mortgage paper securities being offered does not exceed twenty percent of the investor's net worth, or joint net worth with that person's spouse: Provided, That the investor's total investment in mortgage paper securities involving any one borrower or the borrower's affiliates may not exceed twenty percent of the investor's net worth, or joint net worth with that person's spouse; or

     (B) The investment in the mortgage paper securities being offered does not exceed ten percent of the investor's (including spouse) taxable income for federal tax purposes for the last year: Provided, That the investor's total investment in mortgage paper securities involving any one borrower or the borrower's affiliates may not exceed twenty percent of the investor's net worth, or joint net worth with that investor's spouse.

     (2) For purposes of subsections (1)(b)(i)(A) and (B) of this section, net worth shall be determined exclusive of home, home furnishings and automobiles.

     (3) The mortgage broker-dealer shall document its determination that an investment in mortgage paper securities is ((appropriate)) suitable for each investor in accordance with WAC 460-33A-115 (1)(f).

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-031, filed 11/7/01, effective 12/8/01; 89-17-078 (Order SDO-124-89), § 460-33A-031, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-031, filed 10/20/86.]

     (1) Offerings involving construction loans may not be sold using the rules of this chapter unless the loan to value ratio, as determined utilizing the current value of the property without considering future improvements, is within the limits established by subsection (7) of this section.

     (2) Offerings involving the mortgage broker-dealer, its officers, agents, affiliates, and persons controlling the mortgage broker-dealer or affiliates may not be sold as part of the optional registration of the rules of this chapter unless the registration with the director includes a full description of these transactions. An offering "involves" the persons listed where the person is the owner, the borrower, or has an interest in the proceeds other than fees, commissions, or mark-ups.

     (3) Offerings involving documents reserving the right to subordinate the position of any investor to any mortgage, trust deed or lien created at or after the sale.

     (4) Offerings involving pooling or participations involving more than ten investors may not be sold under the optional registration of the rules of this chapter. However, where ((only first liens are involved and the note amount equals or exceeds one hundred thousand dollars)) the amount of the loan is greater than five hundred thousand dollars and the loan is secured by a first lien, the registrant may sell to ((up to twenty five investors)) the number of investors that results from dividing the loan amount by fifty thousand dollars. A husband and wife and their dependents may be counted as one investor.

     (5) Offerings in which the real property or other collateral securing the notes((, bonds)) or other obligations is not within this state unless the general offering circular contains disclosure of all material facts concerning the relevant laws of the state in which the real property is situated and a risk factor discussing the risks of investing in out-of-state real estate.

     (6) Offerings involving notes((, bonds,)) or other obligations secured by a single mortgage, deed of trust or real estate contract or a single group of mortgages, deeds of trust or real estate contracts that are not identical in their underlying terms, including the right to direct or require foreclosure, rights to and rate of interest, and other incidents of being ((a lender)) an investor, and the sale to each ((purchaser or)) investor is not upon the same terms; provided however, an offering may be subject to adjustment for the face or principal amount or percentage interest purchased and for interest earned or accrued.

     (7) Offerings in which the aggregate principal amount of the notes((, bonds)) or other obligations sold, together with the unpaid principal amount of any encumbrances upon the real property senior thereto, exceed the following percentages of the current market value (as determined by WAC 460-33A-105) of the real property:

     (a) Single-family residences - Eighty percent.

     (b) Commercial and income-producing properties - Seventy percent.

     (c) Unimproved property which has been zoned for commercial or residential development - Fifty percent. For purposes of this section, "unimproved property" includes real property with structures that cannot be legally occupied, do not substantially conform with the appraisal of the property prepared pursuant to WAC 460-33A-105, or otherwise lack the functional attributes or basic amenities customarily found in the type of structures in question.

     (d) Other real property - Forty percent.

     (8) Offerings involving real estate paper in which a default in any note((, bond)) or other obligation will not be a default in all notes((, bonds)) or other obligations concerning a specific loan.

     (9) ((Offerings in which the following actions may be taken on behalf of the investors without the consent of investors holding a majority percentage of the unpaid dollar amount of notes, bonds, or obligations:

     (a) Consenting to the sale or transfer by the borrower of the collateral securing the loan, or the substitution of a new borrower;

     (b) Approving any modification to the loan which decreases the rate of interest payable to the investors;

     (c) Deferring or forgiving the payment of any principal or interest;

     (d) Making any agreements concerning the release, substitution, or exchange of any collateral, or any portion of the collateral, for the loan;

     (e) Entering into any agreement to reduce the principal amount of the loan (except for actual payments of principal);

     (f) Making any concession with respect to compliance with any material obligations imposed by the instruments evidencing or securing the loan; or

     (g) Extending or renewing the loan.

     (10))) Loans in which investors are required to designate the servicing agent as their attorney-in-fact with respect to documents and instruments, other than those described below, which would otherwise require signing or other action by the investors:

     (a) Escrow instructions concerning the closing and collection of the loan;

     (b) Instruments necessary to substitute investors; and

     (c) Partial or full satisfaction or release of the deed of trust or other security instrument pursuant to the provisions of the deed of trust or security agreement upon receipt of the appropriate payment.

     (((11))) (10) Offerings in which the investors holding a majority percentage of the unpaid ((dollar)) amount of any loan may not remove the servicing agent.

     (((12))) (11) A registrant requesting a modification under this section must request it in writing and must provide satisfactory evidence that the interest of the public will be adequately protected.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-035, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-035, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-035, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-035, filed 1/13/83.]

     (2) The participation agreement shall address the following:

     (a) The rights of investors to interest on the loan and other amounts derived from the loan and the property securing the loan;

     (b) The rights and responsibilities of investors to contribute additional funds;

     (c) Any restrictions on transfer;

     (d) Any rights of first refusal;

     (e) The intended tax treatment of an investment in mortgage paper securities and income derived therefrom;

     (f) The nature and the extent of the authority of the mortgage broker-dealer to negotiate any loan modifications or workouts with borrowers, or to seek or negotiate the sale or lease of real property acquired by investors through foreclosure of their lien; and

     (g) The requirements for amending the participation agreement.

     (3) The participation agreement shall provide that the following actions may not be taken on behalf of the investors without the consent of investors holding a majority percentage of the unpaid amount of notes or other obligations:

     (a) Consenting to the sale or transfer by the borrower of the collateral securing the loan, or the substitution of a new borrower;

     (b) Approving any modification to the loan that decreases the rate of interest payable to the investors;

     (c) Deferring or forgiving the payment of any principal, interest, or other amounts due in connection with the loan;

     (d) Making any agreements concerning the release, substitution, or exchange of any collateral, or any portion of the collateral, for the loan;

     (e) Entering into any agreement to reduce the principal amount of the loan (except for actual payments of principal);

     (f) Making any concession with respect to compliance with any material obligations imposed by the instruments evidencing or securing the loan; or

     (g) Extending or renewing the loan.

     (4) The participation agreement shall provide that to the extent the mortgage broker-dealer owns an interest in the loan, the mortgage broker-dealer, or any successor or assignee, shall be bound by the terms of the participation agreement.

     (5) The participation agreement shall provide that investors holding interests representing at least ten percent of the unpaid amount of the loan, or that hold interests representing at least ten percent of the property acquired by investors through foreclosure, may call a meeting of the investors in the loan.

     (6) The participation agreement shall provide that in the event a loan is foreclosed and the property that secures the loan is sold, the excess of the sale proceeds after payment of expenses and repayment of any funds advanced by the mortgage broker-dealer or others shall be distributed to the investors, including the mortgage broker-dealer to the extent it owned an interest in the loan and owns an interest in the property, in proportion to their respective interests in the loan. The participation agreement shall not provide for any such excess to be distributed to the mortgage broker-dealer except to the extent the mortgage broker-dealer owned an interest in the loan and owns an interest in the property.

     (7) The participation agreement shall not provide for the payment of late fees, default interest, or other fees and expenses that are assessed against a borrower who has defaulted on a loan, but that are not paid prior to foreclosure, to the mortgage broker-dealer once a loan has been foreclosed. The mortgage broker-dealer may, however, be compensated at a reasonable rate for services performed in pursuing foreclosure and the management or sale of property acquired by investors through foreclosure.

     (8) The participation agreement shall not provide for the indemnification of the mortgage broker-dealer by the investors for acts or omissions that constitute a violation of the Securities Act of Washington, chapter 21.20 RCW, or the rules adopted thereunder.

[]

     (1) The mortgage broker-dealer shall provide investors a written disclosure document when making a recommendation to investors to sell REO.

     (2) The disclosure document required by subsection (1) of this section shall include an appraisal ((or updated appraisal)) meeting the requirements of WAC 460-33A-105 and dated within twelve months of the recommendation unless:

     (a) A real estate broker's opinion of value dated within twelve months of the recommendation is obtained pursuant to WAC 460-33A-038;

     (b) In offering the mortgage paper securities to the current owners, the loan-to-value ratio was established by relying on the tax assessment valuation pursuant to WAC 460-33A-105(6). In this instance, the specific offering circular required by subsection (1) of this section may use the current tax assessment valuation; or

     (c) The investors, excluding the mortgage broker-dealer and its affiliates, holding a majority percentage interest in the unpaid ((dollar)) amount of the notes((, bonds)) or other obligations consent to the waiver of this requirement. The mortgage broker-dealer may not require investors to consent to this waiver prior to issuing its recommendation to sell REO.

     (3) Regardless of whether an appraisal is required or furnished pursuant to subsection (2) of this section, investors holding a majority percentage interest in the unpaid ((dollar)) amount of the notes((, bonds)) or other obligations may direct the mortgage broker-dealer to obtain an appraisal or a new appraisal that is dated within twelve months of the mortgage broker-dealer's recommendation. The costs of such an appraisal shall be the responsibility of the mortgage paper security investors unless the mortgage broker-dealer agrees to pay for the appraisal.

     (4) The disclosure document required by subsection (1) of this section shall disclose the following:

     (a) A summary of the purchase and sale agreement;

     (b) The estimated expenses and other disbursements from the sale proceeds together with the estimated net proceeds to investors if the sale is approved;

     (c) A summary of property marketing completed prior to receipt of the purchase and sale agreement;

     (((c))) (d) Estimated marketing period necessary to obtain fair market value of the property established by the current appraisal, if an appraisal is required under subsection (2) or (3) of this section;

     (((d))) (e) Current appraised value or a real estate broker's opinion of value pursuant to WAC 460-33A-038 of the property, as well as the appraised value of the property at the time the loan was originated, if an appraisal or opinion of value is required under subsection (2) or (3) of this section;

     (((e))) (f) Current tax assessed value of the property, as well as the tax assessed value at the time the loan was originated;

     (((f))) (g) A summary of the reasons for which the mortgage broker-dealer is making the recommendation to investors to accept the purchase and sale agreement;

     (((g))) (h) A summary of the options available to investors should they elect to reject the purchase and sale agreement;

     (((h))) (i) The right of investors to obtain upon written request a list of all investors holding an interest in the property subject to the purchase and sale agreement and their respective addresses; and

     (((i))) (j) The right of investors holding a majority percentage of the interest in the property to remove the mortgage broker-dealer as the servicing agent in accordance with WAC 460-33A-035(11).

     (5) If the terms of the purchase and sale agreement include seller financing, the disclosure document required in this section shall disclose the following in addition to the disclosure required under subsection (4) of this section:

     (a) A loan application completed by the prospective buyer;

     (b) The credit report of the prospective buyer;

     (c) The financial statements of the prospective buyer, if available;

     (d) A comparison of the loan terms in the original offering with those proposed in the purchase and sale agreement; and

     (e) A summary of the options available to an individual investor who does not wish to participate in the loan should investors holding a majority percentage of the interest in the property accept the purchase and sale agreement.

     (6) The disclosure document required in this section shall be sent to all the investors holding an interest in the property subject to the purchase and sale agreement at their last known addresses at least ten days prior to the closing date of the sale.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-037, filed 11/7/01, effective 12/8/01.]

     (a) A minimum tangible net worth, as determined by generally accepted accounting principles, of the greater of one hundred thousand dollars or ten percent of the amount of securities registered pursuant to this chapter up to a maximum of one million dollars; or

     (b) File a surety bond in ((the face amount of one hundred thousand dollars satisfactory to the securities administrator)) a form acceptable to the securities administrator with a face amount of the greater of one hundred thousand dollars or one percent of the amount of securities registered pursuant to this chapter up to a maximum of two hundred fifty thousand dollars; or

     (c) In the event the mortgage broker-dealer and any affiliate does not handle the funds of ((lenders)) investors and borrowers, minimum tangible net worth of five thousand dollars, as determined by generally accepted accounting principles.

     (2) Every mortgage broker-dealer must maintain a positive net worth at all times.

     (3) Every mortgage broker-dealer((s failing)) that fails to ((maintain the above mentioned minimum)) comply with the net worth requirements set forth in this section must inform the securities division of such failure within seventy-two hours at which time all sales of securities must be suspended.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-040, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-040, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.060 and 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-040, filed 10/20/86. Statutory Authority: RCW 21.20.450. 83-03-025 (Order SDO-7-83), § 460-33A-040, filed 1/13/83.]

     (2) Escrow agent. The escrow account shall be maintained in a financial institution as set forth in WAC 460-33A-015(6), with an escrow agent registered under chapter 18.44 RCW, or with some other independent escrow agent acceptable to the director. The entity acting as the escrow agent must be independently audited or examined, in a manner acceptable to the director, on a regular basis. ((All checks by which purchases or investments are made shall be made payable to the escrow account.))

     (3) Disbursements from escrow account. All necessary disbursements shall be made from the escrow account. ((No person acting as a mortgage broker-dealer or its agent shall accept any purchase or investment funds for mortgage paper securities in advance of the time necessary to fund the loan transaction. No such fund shall be maintained in such account for longer than sixty days without disbursing the funds and the escrow agreement must provide that funds maintained in such)) Funds held in the escrow account shall be returned to ((the)) investors on the sixty-first day from deposit in the account if the funds have not previously been disbursed following the recordation of the applicable instrument in accordance with WAC 460-33A-060(1).

     (4) Interest on funds held in escrow account. No interest earned on escrow account funds shall be paid to the mortgage broker-dealer or its affiliates. ((The escrow agreement must provide that funds may be disbursed from the escrow account only to a specific loan escrow, where funds will be disbursed only upon closing and recordation, or to return the funds to the lenders or investors.

     (2) The escrow agreements shall provide that the funds will not be subject to the mortgage broker-dealer's creditors.

     (3) The account shall be subject to an audit at any reasonable time by the securities division.)) (5) Prohibition on commingling funds of mortgage broker-dealer in escrow account. Funds belonging to the mortgage broker-dealer shall not be commingled in the escrow account except insofar as the mortgage broker-dealer purchases mortgage paper securities for its own account. Payments to which a mortgage broker-dealer is entitled in connection with a particular loan or sale of mortgage paper securities shall be promptly distributed to the mortgage broker-dealer upon the closing of the loan or the recordation of the applicable instrument in accordance with WAC 460-33A-060(1).

     (6) Contents of escrow agreement. The escrow account required to be maintained pursuant to WAC 460-33A-055 shall be governed by an agreement that provides:

     (a) Funds may be disbursed from the escrow account only to a specific loan escrow, where funds will be disbursed only upon closing and recordation, or to return the funds to the investors;

     (b) Funds will not be held in the escrow account for more than sixty days without disbursing the funds and that funds maintained in such account shall be returned to the investor on the sixty-first day from deposit in the account;

     (c) Funds held in the escrow account will not be subject to the mortgage broker-dealer's creditors;

     (d) The escrow agent agrees that the escrow account is subject to examination at any reasonable time by the securities division; and

     (e) The escrow agent agrees to follow the law of escrow and maintain its independence from all parties to the agreement, including the mortgage broker-dealer.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-055, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-055, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-055, filed 8/17/89, effective 9/17/89. Statutory Authority: RCW 21.20.250 and 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-055, filed 10/20/86. Statutory Authority: RCW 21.20.450. 83-03-025 (Order SDO-7-83), § 460-33A-055, filed 1/13/83.]

     (2) Notice to investors. Every person acting as a mortgage broker-dealer or its agent selling mortgage paper securities must provide notice of recording to the investor within ten days of receipt by the mortgage broker-dealer of the recorded instrument. The notice must be in writing and must include a copy of the recorded instrument.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-060, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-060, filed 1/13/83.]

     (2) The service agreement shall ((require)) provide:

     (a) That payments received on the note, bond or obligation be immediately deposited to a trust account and in accordance with the provisions of this rule;

     (b) That such payments shall not be commingled with the assets of the servicing agent or used for any transaction other than the transaction for which the funds are received;

     (c) That payments received on the note, bond or obligation shall be transmitted to the ((purchasers or lenders)) investors pro rata according to their respective interests within thirty-one days after receipt thereof by the agent. If the source for such payment is not the maker of the note, bond or obligation, the agent will inform the ((purchasers or lenders)) investors of the source for payment. A broker or servicing agent who transmits to the ((purchasers or lenders)) investors such broker's and/or servicing agent's own funds to cover payments due from the borrower but unpaid may recover the amount of such advances from the trust fund when the past due payment is received; ((and))

     (d) That the servicing agent will file a request for notice of default upon any prior encumbrances and promptly notify the ((purchasers or lenders)) investors of any default on such prior encumbrances or on the note or ((notes)) other obligations subject to the servicing agreement;

     (e) That any fee to be collected by the servicing agent shall be reasonable in relation to the services performed;

     (f) That the servicing agent may not accept, provide, or charge any undisclosed compensation or realize any undisclosed remuneration;

     (g) That in the event a borrower defaults on a loan or the investors acquire property that secured a loan, the servicing agent shall send, at least once every calendar quarter or ninety-day period, each investor a statement setting forth all income and expenses incurred in connection with the loan or the property during that period, or since the last statement, within fifteen days after the end of the calendar quarter or ninety-day period or receipt of an investor's request for a statement, until such time that the default has been cured or the property has been sold, at which time a final statement shall be provided to each investor;

     (h) That any provision providing for the indemnification of the servicing agent shall not provide for indemnification by the investors for acts or omissions that constitute a violation of the Securities Act of Washington, chapter 21.20 RCW, or the rules adopted thereunder;

     (i) That whenever the servicing agreement requires the consent or approval of the investors, the investors shall have a minimum of fifteen days from the date the request for consent or approval is sent by the servicing agent to approve or disapprove of the matter in writing unless a shorter period of time is permitted under this chapter or consented to in writing by investors holding interests representing a majority interest in the unpaid amount of the loan; and

     (j) That the servicing agent will, upon request by an investor, provide a list of the investors holding an interest in a loan to the investor, along with the respective percentage interests in that loan held by each investor and their most recent mailing addresses on file with the servicing agent.

     (3) The servicing agreement shall not provide for the payment of late fees, default interest, or other fees and expenses that are assessed against a borrower who has defaulted on a loan, but that are not paid prior to foreclosure, to the mortgage broker-dealer once a loan has been foreclosed. The mortgage broker-dealer may, however, be compensated at a reasonable rate for services performed in pursuing foreclosure and the management or sale of property acquired by investors through foreclosure.

     (4) Every person acting as a mortgage broker-dealer, or an agent or affiliate thereof, that provides servicing on loans sold as mortgage paper securities owes the duties of a fiduciary to each investor.

     (5) Any notices to investors concerning the servicing of the loan in which they have invested, or property that has been acquired by investors through foreclosure, shall be sent to each investor at the investor's last known address.

[Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-065, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-065, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-065, filed 1/13/83.]

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-070, filed 11/7/01, effective 12/8/01; 86-21-107 (Order SDO-140-86), § 460-33A-070, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-070, filed 1/13/83.]

     (2) Every mortgage broker-dealer or its agent shall file with the director ((five)) seven calendar days prior to use, true copies of all advertising materials. If not disallowed by written notice or otherwise within ((five)) seven calendar days from the date filed, the material may be disseminated. No person shall use any such material in any way after the director gives written notice that such material contains any statement or omission that is false or misleading.

     (3) All advertisements concerning the offer or sale of mortgage paper securities that are not rated by a nationally recognized statistical rating organization or insured against loss shall include the following legend: Mortgage paper securities are not rated or insured against loss and may be subject to substantial risks that are further described in the general and specific offering circulars. Past performance is not a guarantee of future results. Investors are urged to read the general and specific offering circulars prior to investing.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-075, filed 11/7/01, effective 12/8/01; 86-21-107 (Order SDO-140-86), § 460-33A-075, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-075, filed 1/13/83.]

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-081, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.070 and 21.20.450. 95-16-026, § 460-33A-081, filed 7/21/95, effective 8/21/95.]

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-086, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.070 and 21.20.450. 95-16-026, § 460-33A-086, filed 7/21/95, effective 8/21/95.]

     (1) To cause investors to sign reconveyances of title, quit claim deeds, or any other like instruments before such instruments are required in connection with some transaction such as payoff or foreclosure.

     (2) To fail to deliver, within a reasonable time, to the investor proceeds, received by the mortgage broker-dealer, of sale, refinancing, or foreclosure of an obligation owned by the investor.

     (3) To engage in any dishonest or unethical practice as set forth in WAC 460-21B-060 or 460-22B-090.

     (4) To fail to comply with the material terms of agreements between the mortgage broker-dealer and the investors in mortgage paper securities.

     (5) To obtain an agreement from investors in mortgage paper securities that provides for the indemnification of the mortgage broker-dealer or its affiliates by investors for violations of the Securities Act of Washington, chapter 21.20 RCW, or the rules adopted thereunder.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-090, filed 11/7/01, effective 12/8/01; 86-21-107 (Order SDO-140-86), § 460-33A-090, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-090, filed 1/13/83.]

     (2) In the event a conflict arises in connection with a mortgage broker-dealer acting as an agent for both mortgage borrowers and ((purchasers of)) investors in mortgage paper securities, every mortgage broker-dealer shall resolve the conflict in favor of the ((purchasers of)) investors in mortgage paper securities;

     (3) A mortgage broker-dealer shall disclose any potential and actual conflicts of interest it may have in mortgage paper securities transactions to the prospective investors in mortgage paper securities;

     (4) A mortgage broker-dealer must comply with the material terms of agreements with investors in mortgage paper securities, including servicing and participation agreements;

     (5) A mortgage broker-dealer must use reasonable care in performing its duties; and

     (6) A mortgage broker-dealer has a duty to allow reasonable access to each investor to pertinent records concerning loans in which the investor has invested and property in which the investor has acquired an interest through foreclosure.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-095, filed 11/7/01, effective 12/8/01.]

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-100, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-100, filed 1/13/83.]

     (2) The appraisal shall be prepared and reported in accordance with the Uniform Standards of Professional Appraisal Practice promulgated by The Appraisal Foundation.

     (3) The appraisal shall reflect the value of the property on an "as is" basis not ((an)) "((as built)) subject to repair," ((basis)) "per plans and specifications," or otherwise.

     (((3))) (4) The appraisal shall conform to the following requirements:

     (a) The appraisal shall be prepared by a competent, independent appraiser acceptable to the administrator; and

     (b) The appraiser shall be appropriately licensed ((or certified)) in conformance with the ((Certified)) The Real Estate Appraiser Act, chapter 18.140 RCW.

     (((4) An)) (5) The effective date of the appraisal ((made)) must be within the twelve-month period prior to the sale of the mortgage paper security ((is sufficient)).

     (((5))) (6) The written consent of any appraiser who is named as having prepared an appraisal in connection with the mortgage paper securities offering shall be kept on file by the mortgage broker-dealer.

     (((6))) (7) In lieu of the appraisal required by this section, the mortgage broker-dealer may elect to rely on the most recent tax assessment valuation of each parcel of real property.

     (((7))) (8) The specific offering circular shall disclose the ratio of the aggregate principal amount of the notes((, bonds)) or other obligations sold, together with the unpaid principal amount of any encumbrances upon the real property senior thereto, compared to the most recent tax assessment valuation of the real property or the appraised amount, if an appraisal was obtained pursuant to this section. If the loan to value ratio is disclosed based on the appraised value of the real property, the specific offering circular shall also disclose the most recent tax assessment valuation of the real property.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-105, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-105, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-105, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-105, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-105, filed 1/13/83.]

     (1) Total number of sales, as principal or agent, subject to the rules of this chapter during the period, and

     (2) Total dollar volume of such sales.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-110, filed 11/7/01, effective 12/8/01; 86-21-107 (Order SDO-140-86), § 460-33A-110, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-110, filed 1/13/83.]

     (1) A file for each loan which the mortgage broker-dealer has funded through sales of mortgage paper securities and other asset-backed securities, including securities not registered pursuant to chapter 460-33A WAC, which file shall contain the following:

     (a) A copy of each appraisal or tax assessment valuation ((required by WAC 460-33A-105));

     (b) Copies of all documents of title representing current interests in the real property securing the loan;

     (c) Copies of title insurance policies and any other insurance policies on the real property securing the loan;

     (d) Evidence of payments for the purchase of securities in the loan to include copies of checks submitted by investors, ACH payments, and records of other electronic payments;

     (e) A copy of the signed participation agreement for each investor;

     (f) The ((acknowledgement)) acknowledgment of receipt by each investor of the specific and general offering circulars or other disclosure materials;

     (((e))) (g) The subscription agreement for each investor;

     (((f))) (h) A copy of the investor suitability questionnaire for each investor and documentation of the mortgage broker-dealer's determination that an investment in mortgage paper securities or other asset-backed securities is suitable for each investor in accordance with RCW 21.20.702 and WAC 460-33A-031. If the mortgage broker-dealer has not verified the suitability of an investment in mortgage paper securities for ((a purchaser)) an investor within the prior twelve months, the mortgage broker-dealer shall conduct a reasonable inquiry to verify that further investment in mortgage paper securities is suitable based on the criteria set forth in WAC 460-33A-031 and document such a determination. As an alternative to maintaining this documentation in the loan files, the mortgage broker-dealer may maintain this documentation in separate files provided a list of all investors participating in the loan is included in the loan file with an indication of the location of this documentation for each investor;

     (((g))) (i) The specific offering circular for the offering or other offering materials provided in sales of asset-backed securities;

     (((h))) (j) All correspondence with investors relating to the loan;

     (((i))) (k) The loan application of the borrower and all supporting documents such as the credit report on the borrower;

     (((j))) (l) Copies of all service agreements with investors relating to the loan;

     (((k))) (m) Copies of the escrow instructions and settlement statements relating to the loan;

     (((l))) (n) Copies of all real estate broker's opinions of value obtained in accordance with WAC 460-33A-038 and their written consent to use their opinions of value in connection with an offering of mortgage paper securities.

     (2) A file for each loan for which the mortgage broker-dealer is soliciting funds through the sale of mortgage paper or other asset-backed securities, which file shall contain the same items required under subsection (1) of this section except for those items which are not yet available because the mortgage paper or asset-backed security has not yet been sold.

     (3) A file containing copies of all service agreements required under WAC 460-33A-065.

     (4) Ledgers (or other records) reflecting all assets, liabilities, income, expense, and capital accounts.

     (5) Ledgers, accounts (or other records) itemizing separately each cash account of every customer including, but not limited to, all funds in the mortgage broker's escrow and trust account, all proceeds of sale, refinancing, foreclosure, or similar transaction involving the real or personal property securing a loan funded by sales of mortgage paper, and all moneys collected from the borrower on behalf of the investors.

     (6) A record of the proof of money balances of all ledger accounts in the form of trial balances and a record of the computation of net liquid assets as of the trial balance date pursuant to WAC 460-33A-040. Such trial balances and computations shall be prepared currently at least once a month.

     (7) A questionnaire or application for employment executed by each agent of such broker-dealer, which questionnaire or application shall be approved in writing by an authorized representative of such broker-dealer and shall contain at least the following information with respect to each such person:

     (a) His or her name, address, Social Security number, and the starting date of his or her employment or other association with the broker-dealer.

     (b) His or her date of birth.

     (c) The educational institutions attended by him or her and whether or not he or she graduated therefrom.

     (d) A complete, consecutive statement of all his or her business connections for at least the preceding ten years, including his or her reason for leaving each prior employment, and whether the employment was part time or full time.

     (e) A record of any denial of a certificate, membership or registration, and of any disciplinary action taken, or sanction imposed, upon him or her by any federal or state agency, or by any national securities exchange or national securities association, including a record of any finding that he or she was a cause of any disciplinary action or had violated any law.

     (f) A record of any denial, suspension, expulsion or revocation of a certificate, membership or registration of any broker-dealer with which he or she was associated in any capacity when such action was taken.

     (g) A record of any permanent or temporary injunction entered against him or her or any broker-dealer with which he or she was associated in any capacity at the time such injunction was entered.

     (h) A record of any arrests, indictments or convictions for any felony or any misdemeanor, except minor traffic offenses, of which he or she has been the subject.

     (i) A record of any other name or names by which he or she has been known or which he or she has used.

     (8) A file containing all written complaints and memoranda prepared by the mortgage broker-dealer summarizing each oral complaint received from investors in mortgage paper securities or other securities sold by the mortgage broker-dealer.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-115, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-115, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-115, filed 10/20/86.]

     (2) Every mortgage broker-dealer shall provide investors in mortgage paper securities and their agents and attorneys access to the books and records required to be maintained by WAC 460-33A-115 (1) and (2), except for the records set forth in WAC 460-33A-115 (1)(d) through (h) to the extent those records concern investments in mortgage paper securities by persons other than the requestor, concerning loans in which the investors have invested. Every mortgage broker-dealer shall provide investors in mortgage paper securities and their agents and attorneys the opportunity to inspect and copy books and records during ordinary business hours at the mortgage broker-dealer's principal office if the investor or its agent or attorney gives the mortgage broker-dealer notice of the investor's demand at least five business days before the date on which the shareholder wishes to inspect and copy. A mortgage broker-dealer may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished.

     (3) Every mortgage broker-dealer shall furnish to an investor in mortgage paper securities, and to the legal representative of a deceased investor or investor under legal disability:

     (a) Without demand, any information concerning the mortgage paper securities purchased that is reasonably required for the proper exercise of the investor's rights under the participation agreement or this chapter; and

     (b) On demand, any other information concerning the mortgage paper securities purchased, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.

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     (2) Each mortgage broker-dealer shall notify the director of the employment of any new agent in Washington and of the termination of employment of any agent in Washington, giving the full name and Social Security number of the individual involved, the date of employment or termination, and the location of the office in which he or she was or will be employed by submitting a completed ((NASD)) FINRA Form U-4 to the director or the director's designee within twenty-one days after the event occurs.

     (3) Each mortgage broker-dealer shall notify the director of the termination of employment of any agent in Washington by submitting a completed ((NASD)) FINRA Form U-5 to the director or the director's designee, within thirty days after the event occurs.

[Statutory Authority: RCW 21.20.450. 01-23-002, § 460-33A-125, filed 11/7/01, effective 12/8/01. Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-125, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-125, filed 10/20/86.]

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