State of Washington Enacts Substitute Senate Bill 5299
By Marlana Melendez, J.D.
DefinitionsTo prevent ambiguity, the statute lists definitions that are to be applied to the remaining sections. More details on the specific language used for each definition can be found in the statute.
Escrow Agents
Under Section 1 of the foregoing statute, a person must not engage in business as an escrow agent by performing any acts related to the functions of an escrow agent unless the escrow agent maintains a valid license. The statute sets forth many instances where the licensing requirement does not apply. For example, an attorney who performs escrow transactions during the course of his/her law practice does not need a license solely for performing escrow transactions.
Fraud within the Mortgage Lending Process
Relating to the concept of the mortgage lending process, it is unlawful for any person to employ a scheme, device, defraud, or materially mislead any borrower during the lending process. This section is not limited to these acts nor do they apply only to the borrower. This section was amended to include any party related to the mortgage lending process. Additionally, a person must not receive anything of value in connection with a residential mortgage closing that such person knew resulted from a violation of the foregoing unlawful acts.
Material misrepresentation, in particular, includes filing or causing the filing of a document where he or she knows contains a misrepresentation, misstatement, or omission. Each crime prosecuted under the section shall be punished separately.
A person who violates this statute or aides another in violations is guilty of a class B felony. In addition, mortgage fraud is a serious level III offense. The amendment clearly states that such violation is considered to be committed in the county in which the residential mortgage loan is being sought, the county in which the act was performed in furtherance of the violation, or in the county in which a document containing a misstatement, misrepresentation, or omission was filed. When it comes to civil damages, a person who violates the foregoing statute is liable for civil damages of five thousand dollars or actual damages, whichever is greater.
This code sets forth many instances that do not apply to the provisions of this statute. Some of the provisions include, but are not limited to, a person doing business under the laws of the state of Washington or the US, any person doing business under the consumer loan act, an attorney licensed to practice law in the state of Washington, any person doing any act under order of any court, or the United States. Non profit housing organizations brokering residential mortgage loans under housing programs that are funded by federal or state programs are also included as exempt from the provisions of this statute. If exempt from the provisions of the statute, such person may voluntarily submit an application to the director for a mortgage broker’s license. The director shall review such application and may grant or deny licenses to such applicants upon the same grounds and with the same fees as may be applicable to the persons required to be licensed under this statute.
Loan Originators
Loan originators, mortgage brokers, officers, directors, employees, independent contractors, or any other person related to this statute, must not directly or indirectly engage in the employment of a scheme, device, or to defraud or mislead borrowers or lenders. Similarly, the statute sets forth many acts constituting violations related to fraud, misrepresentation or omissions. Negligent acts are also considered violations.
Loan originators must also not solicit or accept from any borrower at or near the time a loan application is taken and in advance of any foreclosure of the borrower’s existing residential mortgage loan, any instrument of conveyance of any interest in the borrower’s primary dwelling that is the subject of the residential mortgage loan, or make a residential mortgage loan unless the loan is table funded.
A loan originator must provide disclosures to the borrower prior to providing mortgage services. In addition to other disclosures required by other laws, the loan originator must provide the following written disclosure:
THIS IS TO GIVE YOU NOTICE THAT I OR ONE OF MY ASSOCIATES HAVE/HAS ACTED AS A REAL ESTATE BROKER OR SALESPERSON REPRESENTING THE BUYER/SELLER IN THE SALE OF THIS PROPERTY TO YOU. I AM ALSO A LOAN ORIGINATOR, AND WOULD LIKE TO PROVIDE MORTGAGE SERVICES TO YOU IN CONNECTION WITH YOUR LOAN TO PURCHASE THE PROPERTY. YOU ARE NOT REQUIRED TO USE ME AS A LOAN ORIGINATOR IN CONNECTION WITH THIS TRANSACTION. YOU ARE FREE TO COMPARISON SHOP WITH OTHER MORTGAGE BROKERS AND LENDERS, AND TO SELECT ANY MORTGAGE BROKER OR LENDER OF YOUR CHOOSING.
A real estate broker or salesperson who also acts as a mortgage broker must carry his or her mortgage broker business records separate and apart from the real estate broker activities. Theses activities are separate and apart, even if they are conducted at an office location with a common entrance and mailing address.
The Application Process
The statute sets forth requirements for the application process where the borrower must provide full written disclosures of the costs and fees relating the residential mortgage loan.
The Contract
Every contract between a mortgage broker or a loan originator and a borrower must be in writing and contain the entire agreement of the parties within the four corners of the document. This contract is binding on the mortgage broker.
Mortgage Brokers & Loan Originators
Mortgage brokers must not receive any fee or compensation of any kind in connection with the preparation of a residential mortgage loan unless a borrower actually contains a loan from a lender on the terms and conditions agreed upon by the borrower and mortgage broker. The mortgage broker may; however, charge a fee not to exceed three hundred dollars for services rendered if the borrower fails to close on the loan through no fault of the mortgage broker.
When filing an application for a mortgage broker license, the application must contain information relating to applicant’s background, financial responsibility, experience, character, and general fitness. With the new amendment, the director may waive one or more requirements or permit an applicant to submit other information in lieu of the required information. Applicants must also furnish fingerprints and other information relating to his/her identity.
In addition, the new amendment requires each mortgage broker licensee to submit call reports through the nationwide mortgage licensing system and registry in a form and containing information prescribed by the director or as deemed necessary by the nationwide mortgage licensing system and registry.
A director is given a broad scope in enforcing all the laws and rules relating to the licensing of mortgage brokers and loan originators. The statute sets forth many of these rules and laws, including establishing fees sufficient to cover the costs of administering those laws and rules. A director may grant or deny a license and/or hold hearings. The director may impose fines, order restitutions and refunds, decline to reactivate an application for violations of an order, and revoke licenses. A failure to comply with a director’s decision results in a violation of the statute. With the new amendment, a director may recover the state’s costs and expenses for prosecuting violations including staff time spent preparing for and attending administrative hearings and reasonable attorneys’ fees.
If the licensee failed to comply with any directive, order, or subpoena issued by the director, the director may revoke or suspend only the particular license with respect to which grounds revocation or suspension occurs.
New Sections
In addition to the foregoing amendments, the statute adds the following new sections:
• A residential mortgage loan servicer licensee must operate in accordance with generally accepted accounting principles as determined by the director; and
• Upon showing the interests of borrowers in an application put forth by the director, the superior court may appoint a receiver to take over, operate, or liquidate any residential mortgage loan servicer.
More details relating to specific violations and definitions can be found in the State of Washington Senate Bill 5299. These provisions take effect on July 23, 2015.
Marlana Melendez, J.D. is Regulatory Compliance Consultant at Bankers Advisory. She is a graduate of University of South Florida, Tampa, and earned her Juris Doctor at New York School of Law. Marlana is admitted to the Bar in Massachusetts and New York. She can be reached at Marlana@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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