AN
ACT Relating to mortgage insurance; adding a new chapter to Title 61 RCW; and
providing an effective date.
BE IT ENACTED BY THE
LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1. As
used in this chapter:
(1)
"Institutional third party" means the federal national mortgage
association, the federal home loan mortgage corporation, the government
national mortgage association, and other substantially similar institutions,
whether public or private, provided the institutions establish and adhere to
rules applicable to the right of cancellation of mortgage insurance, which are
the same or substantially the same as those utilized by the institutions named
in this subsection.
(2)
"Mortgage insurance" means insurance, including mortgage guarantee
insurance, against financial loss by reason of nonpayment of principal,
interest, and other sums agreed to be paid in a residential mortgage
transaction.
(3)
"Residential mortgage transaction" means entering into a loan for
personal, family, household, or purchase money purposes that is secured by a
deed of trust or mortgage on owner-occupied, one-to-four unit, residential real
property located in the state of Washington.
NEW
SECTION. Sec. 2. (1)
If a borrower is required to obtain and maintain mortgage insurance as a
condition of entering into a residential mortgage transaction, the lender shall
disclose to the borrower whether and under what conditions the borrower has the
right to cancel the mortgage insurance in the future. This disclosure shall
include:
(a)
Any identifying loan or insurance information, or other information, necessary
to permit the borrower to communicate with the servicer or lender concerning
the private mortgage insurance;
(b)
The conditions that are required to be satisfied before the mortgage insurance
may be canceled; and
(c)
The procedures required to be followed by the borrower to cancel the mortgage
insurance.
The
disclosure required in this subsection shall be made in writing at the time the
transaction is entered into.
(2)
For residential mortgage transactions with mortgage insurance, the lender, or
the person servicing the residential mortgage transaction if it is not the
lender, annually shall provide the borrower with:
(a)
A notice containing the same information as required to be disclosed under
subsection (1) of this section; or
(b)
A statement indicating that the borrower may be able to cancel the mortgage
insurance and that the borrower may contact the lender or loan servicer at a
designated address and phone number to find out whether the insurance can be
canceled and the conditions and procedures to effect cancellation.
The
notice or statement required by this subsection shall be provided in writing in
a clear and conspicuous manner in or with each annual statement of account.
(3)
The notices and statements required in this section shall be provided without
cost to the borrower.
(4)
Any borrower in a residential mortgage transaction who is harmed by a violation
of this section may obtain injunctive relief, may recover from the party who
caused such harm by failure to comply with this section up to three times the
amount of mortgage insurance premiums wrongly collected, and may recover
reasonable attorneys' fees and costs of such action.
(5)
This section does not apply to any mortgage funded with bond proceeds issued
under an indenture requiring mortgage insurance for the life of the loan or to
loans insured by the federal housing administration or the veterans
administration.
(6)
Subsection (1) of this section applies to residential mortgage transactions
entered into on or after July 1, 1998. Subsection (2) of this section applies
to any residential mortgage transaction existing on the effective date of this
section or entered into on or after the effective date of this section.
(7)
A lender or person servicing a residential mortgage transaction who complies
with federal requirements, as now or hereafter enacted, prescribing mortgage
insurance disclosures and notifications shall be deemed in compliance with this
section.
NEW
SECTION. Sec. 3. (1)
Except when a statute, regulation, rule, or written guideline promulgated by an
institutional third party applicable to a residential mortgage transaction
purchased in whole or in part by an institutional third party specifically
prohibits cancellation during the term of indebtedness, the lender or servicer
of a residential mortgage transaction may not charge or collect future payments
from a borrower for mortgage insurance, and the borrower is not obligated to
make such payments, if all of the following conditions are satisfied:
(a)
The borrower makes a written request to terminate the obligation to make future
payments for mortgage insurance;
(b)
The residential mortgage transaction is at least two years old;
(c)
The outstanding principal balance of the residential loan is not greater than
eighty percent of the current fair market value of the property and is:
(i)
For loans made for the purchase of the property, less than eighty percent of
the lesser of the sales price or the appraised value at the time the
transaction is entered into; or
(ii)
For all other residential mortgage transactions, less than eighty percent of
the appraised value at the time the residential loan transaction was entered
into.
The
lender or servicer may request that a current appraisal be done to verify the
outstanding principal balance is less than eighty percent of the current fair
market value of the property; unless otherwise agreed to in writing, the lender
or servicer selects the appraiser and splits the cost with the borrower;
(d)
The borrower's scheduled payment of monthly installments or principal,
interest, and any escrow obligations is current at the time the borrower
requests termination of his or her obligation to continue to pay for mortgage
insurance, those installments have not been more than thirty days late in the
last twelve months, and the borrower has not been assessed more than one late
penalty over the past twelve months;
(e)
A notice of default has not been recorded against the property as the result of
a nonmonetary default in the previous twelve months.
(2)
This section applies to residential mortgage transactions entered into on or
after July 1, 1998.
(3)
This section does not apply to:
(a)
Any residential mortgage transaction that is funded in whole or in part
pursuant to authority granted by statute, regulation, or rule that, as a
condition of that funding, prohibits or limits termination of payments for
mortgage insurance during the term of the indebtedness; or
(b)
Any mortgage funded with bond proceeds issued under an indenture requiring
mortgage insurance for the life of the loan.
(4)
If the residential mortgage transaction will be or has been sold in whole or in
part to an institutional third party, adherence to the institutional third party's
standards for termination of future payments for mortgage insurance shall be
deemed in compliance with this section.
(5)
A lender or person servicing a residential mortgage transaction who complies
with federal requirements, as now or hereafter enacted, governing the
cancellation of mortgage insurance shall be deemed in compliance with this
section.
NEW
SECTION. Sec. 4. On or
after July 1, 1998, no borrower entering into a residential mortgage
transaction in which the principal amount of the loan is less than eighty
percent of the fair market value of the property shall be required to obtain
mortgage insurance. Fair market value for a purchase money loan is the lesser
of the sales price or the appraised value. This section shall not apply to
residential mortgage transactions in an amount in excess of the maximum limits
established by institutional third parties where the borrower and the lender
have agreed in writing to mortgage insurance.
A
lender or person servicing a residential mortgage transaction who complies with
federal requirements, as now or hereafter enacted, governing the requirement of
obtaining mortgage insurance shall be deemed in compliance with this section.
NEW
SECTION. Sec. 5. 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.
NEW
SECTION. Sec. 6. This
act takes effect July 1, 1998.
NEW SECTION. Sec. 7.
Sections 1 through 6 of this act constitute a new chapter in Title 61 RCW.
