BILL REQ. #:  H-5022.1 

     AN ACT Relating to residential mortgage loans; 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 definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Adjustable rate mortgage" or "ARM" means a payment option ARM or a hybrid ARM (commonly known as a 2/28 or 3/27 loan).
     (2) "Borrower" means any person who consults with or retains a person subject to this chapter in an effort to seek information about obtaining a residential mortgage loan, regardless of whether that person actually obtains such a loan.
     (3) "Department" means the department of financial institutions.
     (4) "Director" means the director of the department of financial institutions.
     (5) "Financial institution" means commercial banks and alien banks subject to regulation under Title 30 RCW, savings banks subject to regulation under Title 32 RCW, savings associations subject to regulation under Title 33 RCW, credit unions subject to regulation under chapter 31.12 RCW, consumer loan companies subject to regulation under chapter 31.04 RCW, and mortgage brokers and lenders subject to regulation under chapter 19.146 RCW.
     (6) "Residential mortgage loan" means an extension of credit secured by residential real property located in this state upon which is constructed or intended to be constructed, a single-family dwelling or multiple-family dwelling of four or less units. It does not include a reverse mortgage or a borrower credit transaction that is secured by rental property. It does not include a bridge loan. It does not include loans to individuals making or acquiring a residential mortgage loan solely with his or her own funds for his or her own investment. For purposes of this subsection, a "bridge loan" is any temporary loan, having a maturity of one year or less, for the purpose of acquisition or construction of a dwelling intended to become the borrower's principal dwelling.
     (7) "The interagency guidance on nontraditional mortgage product risks" means the guidance document issued in September 2006 by the office of the comptroller of the currency, the board of governors of the federal reserve system, the federal deposit insurance corporation, the office of thrift supervision, and the national credit union administration, and the guidance on nontraditional mortgage product risks released in November 2006 by the conference of state bank supervisors and the American association of residential mortgage regulators.
     (8) "The statement on subprime mortgage lending" means the guidance document issued in June 2007 by the office of the comptroller of the currency, the board of governors of the federal reserve system, the federal deposit insurance corporation, the office of thrift supervision, and the national credit union administration, and the statement on subprime mortgage lending released in July 2007 by the conference of state bank supervisors, the American association of residential mortgage regulators, and the national association of consumer credit administrators.

NEW SECTION.  Sec. 2   A mortgage broker, designated broker, loan originator, and other persons working with or for mortgage brokers must act in the borrower's best interest and in the utmost good faith toward the borrower, and shall not compromise a borrower's right or interest in favor of another's right or interest, including a right or interest of the mortgage broker. A mortgage broker, designated broker, loan originator, and other persons working with or for mortgage brokers shall not accept, provide, or charge any undisclosed compensation or realize any undisclosed remuneration that inures to the benefit of the mortgage broker on an expenditure made for the borrower.

NEW SECTION.  Sec. 3   (1) Financial institutions subject to this chapter must use sound underwriting principles, including:
     (a) Determining that a borrower has the ability to repay the loan;
     (b) Verifying a borrower's income; and
     (c) Factoring the escrow for property taxes and property insurance into the loan.
     (2) Financial institutions subject to this chapter must adopt and adhere to the interagency guidance on nontraditional mortgage product risks and the statement on subprime mortgage lending.
     (3) The department shall adopt rules to implement this chapter and ensure that financial institutions subject to this chapter are using sound underwriting principles.

NEW SECTION.  Sec. 4   A financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty or fee that extends beyond:
     (1) Sixty days prior to the initial reset period of an adjustable rate mortgage; or
     (2) Five years after the date of the closing of the loan.

NEW SECTION.  Sec. 5   (1) If the borrower has a loan that will be refinanced, the financial institution must provide the borrower with a written side-by-side comparison chart prior to making the loan that shows the following provisions of the proposed and the existing loans:
     (a) The monthly payments;
     (b) Interest rates;
     (c) The length of the loan; and
     (d) Whether the loan is a fixed-rate mortgage or adjustable rate mortgage.
     (2) The financial institution is required to review the chart required in subsection (1) of this section with the borrower prior to making the loan.
     (3) This section only applies to a financial institution that is subject to this chapter.

NEW SECTION.  Sec. 6   Sections 1 through 5 of this act are codified in chapter 19.--- RCW (the new chapter created in House Bill No. 2770 or Senate Bill No. 6728.) If neither bill is enacted, sections 1 through 5 of this act constitute a new chapter in Title 19 RCW.