BILL REQ. #:  S-4712.1 

READ FIRST TIME 01/28/08.   

     AN ACT Relating to requiring certain borrower disclosures of yield spread premiums; amending RCW 19.146.030, 19.146.070, 19.146.010, and 31.04.102; and creating a new section.

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

NEW SECTION.  Sec. 1   The legislature acknowledges that the borrower, who receives the services of a mortgage broker in financing a mortgage on the borrower's primary residence, is entitled to know the total costs of his or her loan at the earliest time possible during the loan process. This knowledge will allow the borrower to compare all possible sources of financing for the source that best meets the borrower's needs and willingness to pay.
     The payment of a yield spread premium is customarily made from the lender to the mortgage broker, outside of the escrow closing process. Because of this industry practice, the cost of the yield spread premium often is neither subject to a calculation that is relevant to the buyer's costs nor otherwise readily discernable in any meaningful way.
     The relationship among the borrower, mortgage broker, and lender is sufficient to support the legislature's finding that the yield spread premium is a cost paid by the borrower for purposes of this act. This is because it is the borrower's repayment of the loan at an interest rate higher than par that gives value to the loan and consequently to the lender. That value is the yield spread premium, which is paid by the lender back to the mortgage broker, at least in part, for the mortgage broker's service to the lender in facilitating that above-par loan.
     Federal law, including the real estate settlement procedures act, allows a state to provide more protection to the borrower, so long as those protections are consistent with federal law. Since the yield spread premium is a cost paid by the borrower, that cost shall be reflected as such at the earliest time possible during the financing process.

Sec. 2   RCW 19.146.030 and 2006 c 19 s 5 are each amended to read as follows:
     (1) Within three business days following receipt of a loan application or any moneys from a borrower, a mortgage broker or loan originator on behalf of the mortgage broker shall provide to each borrower a full written disclosure containing an itemization and explanation of all fees and costs that the borrower is required to pay in connection with obtaining a residential mortgage loan, and specifying the fee or fees which inure to the benefit of the mortgage broker and other such disclosures as may be required by rule. A good faith estimate of a fee or cost shall be provided if the exact amount of the fee or cost is not determinable. This subsection ((shall not be construed to)) requires disclosure of the distribution or breakdown of loan fees, discount, or points between the mortgage broker and any lender or investor.
     (2) The written disclosure shall contain the following information:
     (a) The annual percentage rate, finance charge, amount financed, total amount of all payments, number of payments, amount of each payment, amount of points or prepaid interest and the conditions and terms under which any loan terms may change between the time of disclosure and closing of the loan; and if a variable rate, the circumstances under which the rate may increase, any limitation on the increase, the effect of an increase, and an example of the payment terms resulting from an increase. Disclosure in compliance with the requirements of the truth-in-lending act, 15 U.S.C. Sec. 1601 and Regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended, shall be deemed to comply with the disclosure requirements of this subsection;
     (b) The itemized costs of any credit report, appraisal, title report, title insurance policy, mortgage insurance, escrow fee, property tax, insurance, structural or pest inspection, and any other third-party provider's costs associated with the residential mortgage loan. Disclosure through good faith estimates of settlement services and special information booklets in compliance with the requirements of the real estate settlement procedures act, 12 U.S.C. Sec. 2601, and Regulation X, 24 C.F.R. Sec. 3500, as now or hereafter amended, shall be deemed to comply with the disclosure requirements of this subsection;
     (c) If applicable, the cost, terms, duration, and conditions of a lock-in agreement and whether a lock-in agreement has been entered, and whether the lock-in agreement is guaranteed by the mortgage broker or lender, and if a lock-in agreement has not been entered, disclosure in a form acceptable to the director that the disclosed interest rate and terms are subject to change;
     (d) A statement that if the borrower is unable to obtain a loan for any reason, the mortgage broker must, within five days of a written request by the borrower, give copies of any appraisal, title report, or credit report paid for by the borrower to the borrower, and transmit the appraisal, title report, or credit report to any other mortgage broker or lender to whom the borrower directs the documents to be sent;
     (e) Whether and under what conditions any lock-in fees are refundable to the borrower; and
     (f) A statement providing that moneys paid by the borrower to the mortgage broker for third-party provider services are held in a trust account and any moneys remaining after payment to third-party providers will be refunded.
     (3)(a) In addition to any other written disclosure requirements in this section, the mortgage broker or loan originator must make a written disclosure of the following:
     (i) The full transaction costs that will be incurred by the borrower if the mortgage broker receives a yield spread premium from the lender. Such transaction costs shall include, but are not limited to:
     (A) A higher annual percentage rate;
     (B) A variable or adjustable interest rate;
     (C) A prepayment penalty; or
     (D) A balloon payment; and
     (ii) The estimated yield spread premium, which shall be expressed as an exact dollar figure, not as a range of dollar figures.
     (b) The written disclosure required by this subsection (3) shall also include amortization schedules that illustrate: (i) The payments and complete costs of a loan if the mortgage broker receives a yield spread premium; and (ii) the payments and complete cost of a loan if the mortgage broker does not receive a yield spread premium. The department shall provide by rule an amortization schedule template, which satisfies this disclosure requirement.
     (c) The disclosures required by this subsection (3) must appear on the good faith estimate and on any closing documents.
     (4) If subsequent to the written disclosure being provided under this section, a mortgage broker or loan originator enters into a lock-in agreement with a borrower or represents to the borrower that the borrower has entered into a lock-in agreement, then no less than three business days thereafter including Saturdays, the mortgage broker or loan originator shall deliver or send by first-class mail to the borrower a written confirmation of the terms of the lock-in agreement, which shall include a copy of the disclosure made under subsection (2)(c) of this section.
     (((4))) (5) A mortgage broker or loan originator on behalf of a mortgage broker shall not charge any fee that inures to the benefit of the mortgage broker if it exceeds the fee disclosed on the written disclosure pursuant to this section, unless (a) the need to charge the fee was not reasonably foreseeable at the time the written disclosure was provided and (b) the mortgage broker or loan originator on behalf of a mortgage broker has provided to the borrower, no less than three business days prior to the signing of the loan closing documents, a clear written explanation of the fee and the reason for charging a fee exceeding that which was previously disclosed. However, if the borrower's closing costs on the final settlement statement, excluding prepaid escrowed costs of ownership as defined by rule, does not exceed the total closing costs in the most recent good faith estimate, excluding prepaid escrowed costs of ownership as defined by rule, no other disclosures shall be required by this subsection.

Sec. 3   RCW 19.146.070 and 2006 c 19 s 8 are each amended to read as follows:
     (1) Except as otherwise permitted by this section, a mortgage broker shall not receive a fee, commission, or compensation of any kind in connection with the preparation, negotiation, and brokering of a residential mortgage loan unless a borrower actually obtains a loan from a lender on the terms and conditions agreed upon by the borrower and mortgage broker. A loan originator may not accept a fee, commission, or compensation of any kind from borrowers in connection with the preparation, negotiation, and brokering of a residential mortgage loan.
     (2) A mortgage broker may:
     (a) If the mortgage broker has obtained for the borrower a written commitment from a lender for a loan on the terms and conditions agreed upon by the borrower and the mortgage broker, and the borrower fails to close on the loan through no fault of the mortgage broker, charge a fee not to exceed three hundred dollars for services rendered, preparation of documents, or transfer of documents in the borrower's file which were prepared or paid for by the borrower if the fee is not otherwise prohibited by the Truth-in-Lending Act, 15 U.S.C. Sec. 1601, and Regulation Z, 12 C.F.R. Sec. 226, as now or hereafter amended; or
     (b) Solicit or receive fees for third party provider goods or services in advance. Fees for any goods or services not provided must be refunded to the borrower and the mortgage broker may not charge more for the goods and services than the actual costs of the goods or services charged by the third party provider.
     (3) A loan originator may not solicit or receive fees for a third-party provider of goods or services except that a loan originator may transfer funds from a borrower to a licensed mortgage broker, exempt mortgage broker, or third-party provider, if the loan originator does not deposit, hold, retain, or use the funds for any purpose other than the payment of bona fide fees to third-party providers.
     (4)(a) Any yield spread premium or equivalent compensation or gain paid between a mortgage broker and a lender prior to or after closing of a residential mortgage loan must be refunded directly to the borrower, if the amount of compensation is greater than the original good faith estimate provided under RCW 19.146.030 or a reasonable redisclosure.
     (b) The department shall declare by rule what constitutes a reasonable redisclosure for the purposes of this subsection (4).
     (c) For purposes of this subsection (4), "original good faith estimate" means either:
     (i) A good faith estimate that the borrower received at least thirty days prior to closing, if the borrower made the initial application more than thirty days prior to closing; or
     (ii) A good faith estimate that the borrower received within the time frame required by RCW 19.146.030, if the borrower made the initial application for a loan less than thirty days prior to closing.

Sec. 4   RCW 19.146.010 and 2006 c 19 s 2 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Affiliate" means any person who directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another person.
     (2) "Application" means the same as in Regulation X, Real Estate Settlement Procedures, 24 C.F.R. Sec. 3500.
     (3) "Borrower" means any person who consults with or retains a mortgage broker or loan originator in an effort to obtain or seek advice or information on obtaining or applying to obtain a residential mortgage loan for himself, herself, or persons including himself or herself, regardless of whether the person actually obtains such a loan.
     (4) "Computer loan information systems" or "CLI system" means a real estate mortgage financing information system that facilitates the provision of information to consumers by a mortgage broker, loan originator, lender, real estate agent, or other person regarding interest rates and other loan terms available from different lenders.
     (5) "Department" means the department of financial institutions.
     (6) "Designated broker" means a natural person designated as the person responsible for activities of the licensed mortgage broker in conducting the business of a mortgage broker under this chapter and who meets the experience and examination requirements set forth in RCW 19.146.210(1)(e).
     (7) "Director" means the director of financial institutions.
     (8) "Employee" means an individual who has an employment relationship with a mortgage broker, and the individual is treated as an employee by the mortgage broker for purposes of compliance with federal income tax laws.
     (9) "Independent contractor" or "person who independently contracts" means any person that expressly or impliedly contracts to perform mortgage brokering services for another and that with respect to its manner or means of performing the services is not subject to the other's right of control, and that is not treated as an employee by the other for purposes of compliance with federal income tax laws.
     (10) "Loan originator" means a natural person who (a) takes a residential mortgage loan application for a mortgage broker, or (b) offers or negotiates terms of a mortgage loan, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain. "Loan originator" also includes a person who holds themselves out to the public as able to perform any of these activities. "Loan originator" does not mean persons performing purely administrative or clerical tasks for a mortgage broker. For the purposes of this subsection, "administrative or clerical tasks" means the receipt, collection, and distribution of information common for the processing of a loan in the mortgage industry and communication with a borrower to obtain information necessary for the processing of a loan. A person who holds himself or herself out to the public as able to obtain a loan is not performing administrative or clerical tasks.
     (11) "Lock-in agreement" means an agreement with a borrower made by a mortgage broker or loan originator, in which the mortgage broker or loan originator agrees that, for a period of time, a specific interest rate or other financing terms will be the rate or terms at which it will make a loan available to that borrower.
     (12) "Mortgage broker" means any person who for compensation or gain, or in the expectation of compensation or gain (a) makes a residential mortgage loan or assists a person in obtaining or applying to obtain a residential mortgage loan or (b) holds himself or herself out as being able to make a residential mortgage loan or assist a person in obtaining or applying to obtain a residential mortgage loan.
     (13) "Person" means a natural person, corporation, company, limited liability corporation, partnership, or association.
     (14) "Principal" means any person who controls, directly or indirectly through one or more intermediaries, or alone or in concert with others, a ten percent or greater interest in a partnership, company, association, or corporation, and the owner of a sole proprietorship.
     (15) "Residential mortgage loan" means any loan primarily for personal, family, or household use secured by a mortgage or deed of trust on residential real estate upon which is constructed or intended to be constructed a single family dwelling or multiple family dwelling of four or less units.
     (16) "Third-party provider" means any person other than a mortgage broker or lender who provides goods or services to the mortgage broker in connection with the preparation of the borrower's loan and includes, but is not limited to, credit reporting agencies, title companies, appraisers, structural and pest inspectors, or escrow companies.
     (17) "Yield spread premium" means a direct payment by the lender to the mortgage broker that is based on the difference between the interest rate at which the broker originates the residential mortgage loan and the wholesale par rate for which the borrower qualifies.

Sec. 5   RCW 31.04.102 and 2002 c 346 s 1 are each amended to read as follows:
     (1) For all loans made by a licensee that are not secured by a lien on real property, the licensee must make disclosures in compliance with the truth in lending act, 15 U.S.C. Sec. 1601 and regulation Z, 12 C.F.R. Sec. [Part] 226, and all other applicable federal laws and regulations.
     (2) For all loans made by a licensee that are secured by a lien on real property, the licensee shall provide to each borrower within three business days following receipt of a loan application a written disclosure containing an itemized estimation and explanation of all fees and costs that the borrower is required to pay in connection with obtaining a loan from the licensee. A good faith estimate of a fee or cost shall be provided if the exact amount of the fee or cost is not available when the disclosure is provided. Disclosure in a form which complies with the requirements of the truth in lending act, 15 U.S.C. Sec. 1601 and regulation Z, 12 C.F.R. Sec. [Part] 226, the real estate settlement procedures act and regulation X, 24 C.F.R. Sec. 3500, and all other applicable federal laws and regulations, as now or hereafter amended, shall be deemed to constitute compliance with this disclosure requirement. Each licensee shall comply with all other applicable federal and state laws and regulations, including the disclosures required by chapter 19.146 RCW.
     (3) In addition, for all loans made by the licensee that are secured by a lien on real property, the licensee must provide to the borrower an estimate of the annual percentage rate on the loan and a disclosure of whether or not the loan contains a prepayment penalty within three days of receipt of a loan application. The annual percentage rate must be calculated in compliance with the truth in lending act, 15 U.S.C. Sec. 1601 and regulation Z, 12 C.F.R. Sec. [Part] 226. If a licensee provides the borrower with a disclosure in compliance with the requirements of the truth in lending act within three business days of receipt of a loan application, then the licensee has complied with this subsection. If the director determines that the federal government has required a disclosure that substantially meets the objectives of this subsection, then the director may make a determination by rule that compliance with this federal disclosure requirement constitutes compliance with this subsection.