By Ellis S.B. No. 848
74R5983 LJR-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the regulation of residential mortgage loans; imposing
1-3 civil penalties.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Title 16, Revised Statutes, is amended by adding
1-6 Article 490 to read as follows:
1-7 Art. 490. RESIDENTIAL MORTGAGE LENDING LICENSE ACT
1-8 CHAPTER 1. GENERAL PROVISIONS
1-9 Sec. 1.01. SHORT TITLE. This article may be cited as the
1-10 Residential Mortgage Lending License Act.
1-11 Sec. 1.02. PURPOSE OF ACT AND POLICY STATEMENT. The
1-12 origination, funding, purchasing, and brokering of residential
1-13 mortgage loans and the type of entities involved in residential
1-14 mortgage lending have undergone significant changes in recent
1-15 years, due in part to developments in the general economy,
1-16 specifically interest rate volatility, the sophistication of the
1-17 national secondary market for mortgage loans, and the market for
1-18 mortgage-backed securities. Residential mortgage lenders of every
1-19 type have increasingly relied on nonfinancial intermediaries, such
1-20 as mortgage brokers, to find customers. The legislature finds that
1-21 it is essential for the protection of the citizens of this state
1-22 and the stability of the state's economy that reasonable standards
1-23 governing the business practices of residential mortgage lenders
1-24 and their agents be enacted. The legislature further finds that
2-1 the obligations of lenders and their agents to consumers in
2-2 connection with funding, soliciting, processing, placing or
2-3 negotiating residential mortgages warrant the uniform regulation of
2-4 the residential mortgage lending process, including the
2-5 application, solicitation, funding, and servicing of residential
2-6 mortgage loans. The legislature directs the finance commission and
2-7 the banking commissioner to implement and enforce this Act.
2-8 Sec. 1.03. DEFINITIONS. (a) In this Act:
2-9 (1) "Advertisement" means the attempt by publication,
2-10 dissemination, or circulation to induce, directly or indirectly,
2-11 any person to enter into a loan brokerage agreement for a mortgage
2-12 to be secured by residential real property located in this state.
2-13 (2) "Affiliate" means:
2-14 (A) a company that, directly or indirectly,
2-15 controls, is controlled by, or is under common control with, a
2-16 licensee; or
2-17 (B) a company, including a real estate
2-18 investment trust, that is sponsored and advised on a contractual
2-19 basis by the licensee or a subsidiary or affiliate of the licensee.
2-20 (3) "Banking commissioner" means the Banking
2-21 Commissioner of Texas.
2-22 (4) "Borrower" means the person who seeks the services
2-23 of a broker, originator, or lender.
2-24 (5) "Broker" means a person who performs brokering
2-25 activities.
2-26 (6) "Brokering" means the act of assisting a borrower
2-27 in obtaining a loan secured by residential real property located in
3-1 this state in return for consideration to be paid by either the
3-2 borrower or the lender, including contracting for the delivery of
3-3 residential mortgage loans to a third-party lender or soliciting,
3-4 processing, placing, or negotiating residential mortgage loans.
3-5 (7) "Commitment" means a contract to provide
3-6 residential mortgage loan financing.
3-7 (8) "Control" means:
3-8 (A) the ownership or power to vote, directly or
3-9 indirectly, 25 percent or more of the outstanding shares of any
3-10 class of voting securities of a licensee or other company;
3-11 (B) the ability to control in any manner the
3-12 election of a majority of the board or individuals exercising
3-13 similar functions for a licensee or other company; or
3-14 (C) the power to exercise, directly or
3-15 indirectly, a controlling influence over the management or policies
3-16 of the licensee or other company as determined by the banking
3-17 commissioner after notice and an opportunity for hearing.
3-18 (9) "Department" means Banking Department of Texas.
3-19 (10) "Finance commission" means The Finance Commission
3-20 of Texas.
3-21 (11) "Full-service office" means office and staff in
3-22 this state reasonably adequate to efficiently conduct the business
3-23 of the licensee, including any matter relating to an application
3-24 for a residential mortgage loan or servicing an existing home
3-25 mortgage secured by residential real property.
3-26 (12) "Fund" means, for compensation or gain, either
3-27 directly or indirectly, to advance funds or commit to advance funds
4-1 for a residential mortgage loan.
4-2 (13) "Lender" means any person who lends money for or
4-3 invests money in residential mortgage loans.
4-4 (14) "Loan brokerage agreement" means a written
4-5 agreement by which a broker agrees to:
4-6 (A) obtain a residential mortgage loan for the
4-7 borrower;
4-8 (B) assist the borrower in obtaining a
4-9 residential mortgage loan; or
4-10 (C) consider funding a residential mortgage loan
4-11 to the borrower.
4-12 (15) "Originate" means to issue a commitment for and
4-13 funding of a residential mortgage loan.
4-14 (16) "Payments" means the amounts paid for loan
4-15 principal and interest, escrow reserves for taxes, insurance, and
4-16 other related reserves and reimbursement for lender advances.
4-17 (17) "Person" means an individual, corporation,
4-18 organization, government or governmental subdivision or agency,
4-19 business trust, estate, trust, partnership, association, or any
4-20 other legal entity, including a combination of legal entities
4-21 acting in concert.
4-22 (18) "Residential mortgage loan" means a loan to or
4-23 for the benefit of one or more individuals made primarily for
4-24 personal, family, or household use, primarily secured by a mortgage
4-25 on residential real property or by certificates of stock or other
4-26 evidence of ownership interests in and proprietary leases from
4-27 corporations or partnerships formed for the purpose of cooperative
5-1 ownership of residential real property.
5-2 (19) "Residential real property" means:
5-3 (A) real property located in this state improved
5-4 by a one-to-four family dwelling used or occupied wholly or partly
5-5 as the residence of one or more persons; or
5-6 (B) unimproved real property located in this
5-7 state on which a dwelling described by Paragraph (A) of this
5-8 subdivision is to be constructed.
5-9 (20) "Service" means to collect or remit, or to have
5-10 the right or obligation to collect or remit, for a lender, note
5-11 owner, note holder, or for a person's own account payments,
5-12 interest, principal, and trust items, including hazard insurance
5-13 and taxes, on a residential mortgage loan under the terms of the
5-14 residential mortgage loan or provide loan payment follow-up,
5-15 delinquent loan follow-up, loan analysis, or any notifications to
5-16 the borrower that are necessary to enable the borrower to keep the
5-17 loan current and in good standing.
5-18 (b) The definitions should be liberally construed to
5-19 accomplish the purposes of this Act.
5-20 Sec. 1.04. RULES; SETTING OF FEES. (a) The finance
5-21 commission may adopt rules consistent with and necessary to
5-22 accomplish the purposes of this Act, including rules relating to:
5-23 (1) improper or fraudulent business practices or other
5-24 acts harmful to consumers in this state;
5-25 (2) the interpretation, implementation, and
5-26 enforcement of this Act;
5-27 (3) bonding requirements for licensees; and
6-1 (4) net worth requirements for residential mortgage
6-2 licensees.
6-3 (b) The finance commission by rule shall provide for
6-4 proportionate recovery from licensees of the cost of maintenance
6-5 and operation of the department and the cost of enforcement of this
6-6 chapter through ratable and equitable fees for examinations,
6-7 applications, and notices.
6-8 Sec. 1.05. LIMITATION ON BANKING COMMISSION. The banking
6-9 commissioner and employees of the department are prohibited from
6-10 being agents, shareholders, investors, officers, or directors in
6-11 any licensee or other person engaged in the business of residential
6-12 mortgage lending or brokerage in this state.
6-13 CHAPTER 2. LICENSES
6-14 Sec. 2.01. LICENSE REQUIREMENT. (a) A person may not
6-15 engage in the business of funding, originating, servicing, or
6-16 purchasing residential mortgage loans unless the person holds a
6-17 residential mortgage lending license issued under this Act.
6-18 (b) A person may not engage in the business of brokering
6-19 residential mortgage loans unless the person holds a residential
6-20 mortgage brokerage license issued under this Act.
6-21 (c) Licensees under this Act may solicit, broker, fund,
6-22 originate, service, and purchase residential mortgage loans only in
6-23 accordance with this Act.
6-24 (d) A person who is subject to this Act and does not hold
6-25 the appropriate license issued under this Act may not do any
6-26 business under a name or title, circulate or use any advertising,
6-27 make any representation, or give any information to a person that
7-1 indicates or reasonably implies that the person is acting within
7-2 the scope of this Act.
7-3 Sec. 2.02. LICENSE EXEMPTIONS. (a) The following are not
7-4 required to hold a license issued under this Act to engage in the
7-5 business of brokering, funding, originating, servicing, or
7-6 purchasing residential mortgage loans:
7-7 (1) a savings and loan association, savings bank,
7-8 credit union, or bank that is organized under the laws of this
7-9 state or the United States and authorized to do business in this
7-10 state;
7-11 (2) an insurance company authorized to transact
7-12 business in this state;
7-13 (3) an entity engaged solely in commercial mortgage
7-14 lending; or
7-15 (4) a person funding or acquiring residential mortgage
7-16 loans with the person's own funds for investment without intent to
7-17 make, acquire, or resell more than five residential mortgage loans
7-18 in any one calendar year.
7-19 (b) Employees of a licensee are not required to be
7-20 individually licensed.
7-21 Sec. 2.03. APPLICATION FOR LICENSE. (a) To obtain a
7-22 license for residential mortgage lending or a brokerage license, an
7-23 applicant must submit to the banking commissioner:
7-24 (1) an application in the form specified by the
7-25 banking commissioner;
7-26 (2) all application fees; and
7-27 (3) any deposit that the finance commission by rule
8-1 requires.
8-2 (b) The application must be subscribed and acknowledged by
8-3 the applicant or an officer of the applicant.
8-4 (c) The application must include:
8-5 (1) the names and complete business and residential
8-6 street addresses of each principal owner, partner, participant,
8-7 member, director, and principal officer;
8-8 (2) the street and post office address of the location
8-9 where the applicant's principal office is to be located;
8-10 (3) the street and post office address of each
8-11 location where the applicant's full-service offices are to be
8-12 located;
8-13 (4) the street and post office address of each other
8-14 location where the applicant will conduct any business;
8-15 (5) the name and qualifications of:
8-16 (A) the applicant; or
8-17 (B) each officer and director of the applicant
8-18 who will have charge of any aspect of the business and affairs of
8-19 the applicant's business;
8-20 (6) a complete and detailed statement of the financial
8-21 condition of the applicant as of a date not earlier than the 120th
8-22 day before the date of the application;
8-23 (7) as an exhibit or attachment, a complete list of
8-24 judgments entered against and bankruptcy petitions filed by or
8-25 against the applicant during the 10-year period preceding the date
8-26 the application is filed; and
8-27 (8) any other information required by rule or that the
9-1 banking commissioner reasonably requests.
9-2 Sec. 2.04. CONFIDENTIAL INFORMATION. Information provided
9-3 as required by this chapter relative to the financial condition and
9-4 business affairs of the applicant and financial information of its
9-5 management, partners, participants, and shareholders, except for
9-6 previously published statements and information, is confidential
9-7 and may not be released to the public or considered in the public
9-8 portion of the hearing under Section 2.06.
9-9 Sec. 2.05. APPROVAL. The banking commissioner shall approve
9-10 an application if the banking commissioner finds after reasonable
9-11 inquiry that:
9-12 (1) the applicant has the required net worth under
9-13 generally accepted accounting principles;
9-14 (2) the applicant or all members of the proposed
9-15 management of the applicant have sufficient mortgage lending or
9-16 brokerage experience, ability, standing, competence,
9-17 trustworthiness, and integrity to justify a belief that the
9-18 applicant will operate in good faith with the public and in
9-19 compliance with all laws;
9-20 (3) each owner or principal shareholder, general
9-21 partner, or participant has sufficient experience, ability,
9-22 standing, competence, trustworthiness, and integrity to justify a
9-23 belief that the applicant will be free from improper or unlawful
9-24 influence or interference with respect to the operation of the
9-25 business of the licensee;
9-26 (4) the applicant complies with the requirements of
9-27 this Act; and
10-1 (5) the applicant is acting in good faith and the
10-2 application contains no material misrepresentations.
10-3 Sec. 2.06. HEARING AND DECISION ON APPLICATION. (a) After
10-4 the application is complete and accepted for filing and all
10-5 required fees and deposits have been paid, the banking commissioner
10-6 shall determine whether the findings required by Section 2.05 of
10-7 this Act can be made, based on the application and the initial
10-8 investigation. The banking commissioner shall:
10-9 (1) approve the application; or
10-10 (2) mail written notice to the applicant that the
10-11 banking commissioner is inclined to deny the application, stating
10-12 the grounds for the proposed denial.
10-13 (b) The applicant may file a written request for hearing on
10-14 the application not later than the 21st day after the date on which
10-15 the notice under Subsection (a)(2) of this section is mailed to the
10-16 applicant. If a hearing is not requested as provided by this
10-17 subsection, the banking commissioner may immediately enter an order
10-18 denying the application, and the order is final and nonappealable.
10-19 (c) If the applicant requests a hearing under Subsection
10-20 (b), the department shall participate as the opposing party and the
10-21 banking commissioner shall conduct a hearing and as many prehearing
10-22 conferences and opportunities for discovery as the banking
10-23 commissioner considers advisable.
10-24 (d) After the hearing, the banking commissioner shall make a
10-25 finding on each item listed under Section 2.05 of this Act and
10-26 shall enter an order approving or denying the application.
10-27 (e) The banking commissioner may make approval of any
11-1 application conditional. The banking commissioner shall include
11-2 any conditions in the order approving the application, but the
11-3 banking commissioner may not issue the license until all conditions
11-4 are satisfied or otherwise resolved. A written commitment from the
11-5 applicant offered to and accepted by the banking commissioner as a
11-6 condition that the application will be approved is enforceable
11-7 against the applicant and is considered for all purposes an
11-8 agreement under this Act.
11-9 (f) An applicant may appeal an order denying the application
11-10 entered under Subsection (d) of this section by filing a petition
11-11 for judicial review under the substantial evidence rule in a
11-12 district court in Travis County as provided by Subchapter G,
11-13 Chapter 2001, Government Code.
11-14 Sec. 2.07. ISSUANCE OF LICENSE. (a) On approval of the
11-15 application and the applicant's satisfaction of the bond
11-16 requirements of Chapter 3, the banking commissioner shall issue a
11-17 license for each full-service office of the applicant.
11-18 (b) The banking commissioner shall retain a copy of each
11-19 license issued.
11-20 (c) On receipt of the license, a residential mortgage
11-21 licensee is authorized to engage in the business regulated by this
11-22 Act.
11-23 Sec. 2.08. LICENSE CONTENTS; TERM; POSTING. (a) A license
11-24 issued under this chapter must contain the full name and street
11-25 address of the licensee that is filed with the banking
11-26 commissioner.
11-27 (b) A license expires on the first anniversary of the date
12-1 of its issuance.
12-2 (c) A licensee shall post the license conspicuously in the
12-3 office of the licensee for which the license is issued.
12-4 Sec. 2.09. REGISTRATION OF BUSINESS LOCATIONS. (a) A
12-5 licensee shall notify the banking commissioner of a change of
12-6 location of its principal place of business in this state.
12-7 (b) A licensee may apply for authority to open and maintain
12-8 additional full-service offices by giving the banking commissioner
12-9 prior notice of its intention in the form prescribed by the banking
12-10 commissioner and paying a fee. On receipt of the notice and fee,
12-11 the banking commissioner shall issue a certificate for the
12-12 additional full-service office if the applicant is complying with
12-13 this Act.
12-14 (c) In addition to its principal place of business and
12-15 full-service offices, a licensee shall register with the banking
12-16 commissioner each other office, place of business, or location at
12-17 which the licensee conducts any business.
12-18 Sec. 2.10. TRANSFER AND ASSIGNMENT OF LICENSE; CHANGE OF
12-19 CONTROL. (a) A license issued under this Act is not transferable
12-20 and may not be assigned.
12-21 (b) Control of a licensee may not change without the prior
12-22 written consent of the banking commissioner.
12-23 (c) To acquire control of a licensee, a person must first
12-24 make written application to the banking commissioner and pay to the
12-25 banking commissioner an application fee. The application shall
12-26 contain information the banking commissioner considers necessary or
12-27 appropriate for the purpose of making the determination that the
13-1 person seeking control meets the requirements of an applicant for a
13-2 license under this Act.
13-3 (d) The banking commissioner shall approve or disapprove an
13-4 application for change of control of a licensee as if the person
13-5 seeking to acquire control were an applicant for license under this
13-6 Act.
13-7 CHAPTER 3. ADMINISTRATION AND OPERATION REQUIREMENTS
13-8 Sec. 3.01. FIDELITY BOND. (a) A licensee shall obtain and
13-9 maintain a fidelity bond to cover a person appointed or elected to
13-10 a position the duties of which:
13-11 (1) include receipt of payments and management or use
13-12 of money belonging to a licensee engaged in the activities of
13-13 originating, servicing, or purchasing mortgage loans;
13-14 (2) require regular entries in the books or other
13-15 records of a licensee; or
13-16 (3) permit access to or custody of any money or
13-17 securities of the licensee or a third party.
13-18 (b) Each fidelity bond must:
13-19 (1) be obtained before the person assumes a position
13-20 described by Subsection (a);
13-21 (2) be issued by a fidelity insurance company licensed
13-22 to do business in this state; and
13-23 (3) insure any loss the licensee may sustain in money
13-24 or other property from a dishonest or criminal act of or omission
13-25 by a person required by this section to be bonded, whether the
13-26 person acted alone or in concert with another.
13-27 (c) The banking commissioner may at any time require one or
14-1 more additional bonds.
14-2 Sec. 3.02. SURETY BOND. (a) A licensee also shall maintain
14-3 a surety bond for recovery of expenses, fines, or fees levied by
14-4 the banking commissioner under this Act.
14-5 (b) The bond must be:
14-6 (1) payable to the banking commissioner;
14-7 (2) conditioned on the licensee's compliance with any
14-8 applicable final order of the banking commissioner; and
14-9 (3) issued by an insurance company authorized to do
14-10 business in this state and approved by the banking commissioner.
14-11 Sec. 3.03. GENERAL BOND REQUIREMENTS. (a) This section
14-12 applies to a bond required under Section 3.01 or 3.02 of this Act.
14-13 (b) Each bond must:
14-14 (1) be in the form and amount prescribed by the
14-15 banking commissioner; and
14-16 (2) provide that the bond may not be canceled before:
14-17 (A) the 30th day after the date on which written
14-18 notice of the cancellation is received by the banking commissioner;
14-19 or
14-20 (B) an earlier date approved by the banking
14-21 commissioner.
14-22 (c) A licensee shall maintain on file at all times with the
14-23 banking commissioner a true copy of each bond required under this
14-24 Act, including all riders and endorsements executed after the
14-25 effective date of the bond.
14-26 Sec. 3.04. GENERAL OBLIGATIONS OF LICENSEE. A licensee
14-27 shall:
15-1 (1) maintain staff reasonably adequate to meet the
15-2 requirements of this Act, including staff at each full-service
15-3 office adequate to maintain good business practices such as
15-4 adequate, organized, and accurate books and records, ample phone
15-5 lines, adequate hours of business, staff training and supervision,
15-6 and a mechanism to resolve consumer inquiries, complaints, and
15-7 problems;
15-8 (2) maintain, for a period of at least 36 months, the
15-9 business records and any other information required by rule
15-10 regarding each mortgage loan made or brokered by the licensee;
15-11 (3) file with the banking commissioner in accordance
15-12 with this Act each required report;
15-13 (4) comply with all applicable tax return filing
15-14 requirements including those required for each of the three years
15-15 preceding the date the application is filed;
15-16 (5) disburse funds according to the agreements of the
15-17 licensee and make a good faith effort to complete closings in a
15-18 timely manner;
15-19 (6) account for or deliver to the owner any personal
15-20 property, including money or a fund, deposit, check, draft,
15-21 mortgage, or other document or thing of value, that has come into
15-22 the possession of the licensee, and that the licensee is not
15-23 entitled to retain, at the time required by law, agreed upon
15-24 between the licensee and other person, or in the absence of a fixed
15-25 time, on demand of the person entitled to such accounting and
15-26 delivery;
15-27 (7) advise the banking commissioner in writing of any
16-1 material adverse change in the information contained in the most
16-2 recent audit under Section 3.05 of this Act not later than the 31st
16-3 day after the date of the change;
16-4 (8) comply with this Act and orders issued and rules
16-5 adopted under this Act or any other applicable law;
16-6 (9) engage in educational programs and activities, not
16-7 less than annually, sufficient to maintain the mortgage lending or
16-8 brokering ability, competence, and skills to properly engage in the
16-9 business activities regulated by this Act;
16-10 (10) submit to periodic examination by the banking
16-11 commissioner as required by this Act; and
16-12 (11) advise the banking commissioner in writing of any
16-13 judgment entered against, or bankruptcy petition filed by or
16-14 against, the licensee not later than the 10th day after the date of
16-15 the judgment or filing.
16-16 Sec. 3.05. ACCOUNTING BASIS; ANNUAL AUDIT. (a) The books
16-17 and accounts of a licensee must be maintained on an accrual basis
16-18 in accordance with generally accepted accounting principles.
16-19 (b) A licensee shall cause its books and accounts to be
16-20 audited by a disinterested certified public accountant at the end
16-21 of the licensee's fiscal year but in no event later than the first
16-22 anniversary of the date of the last audit conducted under this Act.
16-23 (c) The audit must be sufficiently comprehensive in scope to
16-24 permit the expression of an opinion on the financial statements in
16-25 the report and must be performed in accordance with generally
16-26 accepted auditing standards. A licensee whose only licensed
16-27 activity is that of brokering residential mortgage loans may, with
17-1 the prior approval of the banking commissioner, cause the audit
17-2 required by this section to be performed by a certified public
17-3 accountant and certified by the licensee.
17-4 (d) The audit report shall be filed with the banking
17-5 commissioner not later than the 120th day after the last day of the
17-6 licensee's fiscal year. The report must be certified by the
17-7 certified public accountant conducting the audit.
17-8 (e) If any licensee does not cause an audit to be made in
17-9 accordance with this section, the banking commissioner may cause
17-10 the audit to be made at the licensee's expense. The banking
17-11 commissioner shall select a certified public accountant to perform
17-12 the audit by advertising for bids or by other fair and impartial
17-13 means established by rule.
17-14 (f) In lieu of the audit required by this section, the
17-15 banking commissioner may accept any audit made in conformance with
17-16 the audit requirements of the United States Department of Housing
17-17 and Urban Development.
17-18 (g) The work papers of a certified public accountant
17-19 employed by the licensee for purposes of this section shall be made
17-20 available to the banking commissioner on request and may be
17-21 reproduced by the banking commissioner.
17-22 Sec. 3.06. NET WORTH REQUIREMENT. (a) Except as provided
17-23 by this section, a licensee must have and maintain a net worth
17-24 according to generally accepted accounting principles of not less
17-25 than $200,000.
17-26 (b) If the licensee's only licensed activity is that of
17-27 brokering residential mortgage loans, the licensee must have and
18-1 maintain a net worth according to generally accepted accounting
18-2 principles of not less than $25,000.
18-3 (c) In lieu of the net worth requirement established by this
18-4 section, the banking commissioner may accept evidence that the
18-5 licensee is in compliance with the net worth requirements of the
18-6 United States Department of Housing and Urban Development.
18-7 Sec. 3.07. ADVERTISING. (a) A person conducting business
18-8 regulated under this Act, regardless of whether the person is
18-9 required to hold a license under this Act, may not advertise in any
18-10 manner that:
18-11 (1) is false, misleading, or deceptive; or
18-12 (2) attempts in any manner to indicate or imply that
18-13 the interest rates or charges of the person for loans are
18-14 recommended, approved, set, or established by the state or by this
18-15 Act.
18-16 (b) Each advertisement of a licensee must contain the name
18-17 and office street address of the licensee that is on file with the
18-18 banking commissioner.
18-19 Sec. 3.08. TRANSFER OF SERVICING; NOTICES. (a) If the
18-20 servicing of a residential mortgage is transferred or sold by a
18-21 licensee, notice must be given to the mortgagor simultaneously with
18-22 the transfer.
18-23 (b) The notice must include the exact name, street address,
18-24 and telephone number of:
18-25 (1) the person who will answer the mortgagor's
18-26 questions relating to the residential mortgage; and
18-27 (2) the person to whom not less than the next three
19-1 months' payments are to be submitted.
19-2 Sec. 3.09. DISCRIMINATION OR REDLINING PROHIBITED. A
19-3 licensee may not, solely because of the age, color, disability,
19-4 gender, marital status, national origin, race, or religion of an
19-5 applicant or borrower or because of the geographic location of the
19-6 proposed security:
19-7 (1) refuse to grant a residential mortgage loan; or
19-8 (2) vary the terms of a residential mortgage loan or
19-9 the application procedures for a residential mortgage loan.
19-10 Sec. 3.10. ESCROW FUNDS. (a) This section applies to each
19-11 person who conducts the business of residential mortgage lending in
19-12 this state, regardless of whether the person is required to be
19-13 licensed under this Act.
19-14 (b) Escrow funds for any purpose authorized by a residential
19-15 mortgage loan contract are subject to and must satisfy all
19-16 applicable federal requirements. The escrow funds may not be
19-17 commingled with any funds of the person conducting the business of
19-18 residential mortgage lending.
19-19 (c) All escrow funds shall be placed in an escrow or impound
19-20 account in a federally insured savings and loan association,
19-21 savings bank, credit union, or bank that is organized under the
19-22 laws of this state or the United States, including a Federal Home
19-23 Loan Bank or a Federal Reserve Bank, and authorized to do business
19-24 in this state.
19-25 (d) The escrow funds may be removed from the account only
19-26 to:
19-27 (1) make payments authorized by the borrower, allowed
20-1 by the mortgage loan contract, or required by federal or state law;
20-2 (2) make refunds to the mortgagor;
20-3 (3) transfer the funds to another qualified
20-4 institution;
20-5 (4) forward the funds to the appropriate servicer;
20-6 (5) fulfill another purpose authorized by the
20-7 residential mortgage loan contract; or
20-8 (6) comply with an order of the banking commissioner
20-9 or of a court of competent jurisdiction.
20-10 Sec. 3.11. SOURCE OF FUNDS NOTICE. At the time of filing a
20-11 completed residential mortgage loan application a licensee whose
20-12 services to a borrower are limited to brokering must disclose in
20-13 the loan brokerage agreement disclosure statement that the broker
20-14 does not make loans and that the loan funds are provided by another
20-15 person.
20-16 Sec. 3.12. FEE DISCLOSURE. (a) Before a borrower signs a
20-17 completed residential mortgage loan application, the borrower and
20-18 the licensee must execute, sign, and date a loan brokerage
20-19 agreement that complies with this section. A copy of the loan
20-20 brokerage agreement shall be given to the borrower not later than
20-21 the third business day after the date on which the loan brokerage
20-22 agreement is signed by both parties.
20-23 (b) The loan brokerage agreement must contain:
20-24 (1) a clear and conspicuous statement that, on
20-25 request, a copy will be made available to the borrower and the
20-26 borrower's attorney for review before signing;
20-27 (2) an explicit description of the services the
21-1 licensee agrees to perform for the borrower, the fee for each
21-2 service, an indication of each fee that is refundable, and the
21-3 requirements for obtaining the refund;
21-4 (3) a clear and conspicuous statement of the
21-5 conditions under which the borrower is obligated to pay the
21-6 licensee; and
21-7 (4) a provision that if the licensee makes a
21-8 materially false or misleading statement or omission in the
21-9 agreement, the borrower on written notice may:
21-10 (A) void the agreement;
21-11 (B) recover the amount paid to the broker for
21-12 which services have not been performed; and
21-13 (C) recover actual costs, including attorney's
21-14 fees, for enforcing the borrower's rights under the loan brokerage
21-15 agreement.
21-16 (c) The loan brokerage agreement shall be the only agreement
21-17 between the borrower and licensee with respect to a single loan.
21-18 The licensee shall also provide to the borrower disclosure
21-19 statements required to comply with applicable federal and state
21-20 laws.
21-21 Sec. 3.13. FEES AND CHARGES BEFORE CLOSING. (a) A licensee
21-22 whose services to a borrower are limited to brokering may not
21-23 require a borrower to pay any fee or charge before the closing of
21-24 the residential mortgage loan other than:
21-25 (1) charges to be incurred by the licensee on behalf
21-26 of the borrower for services from third parties necessary to
21-27 process the application, such as credit reports and appraisals; and
22-1 (2) an application fee.
22-2 (b) A licensee who is a lender may not require a borrower to
22-3 pay any fee or charge before the closing of the residential
22-4 mortgage loan other than:
22-5 (1) a fee or charge authorized under Subsection (a) of
22-6 this section;
22-7 (2) a fee for guaranteeing a specified mortgage
22-8 interest rate; and
22-9 (3) a commitment fee.
22-10 (c) A fee for guaranteeing a specified mortgage interest
22-11 rate may not be charged by a lender unless there is a written
22-12 agreement signed by the borrower and licensee that contains:
22-13 (1) the expiration date of the guarantee;
22-14 (2) the principal amount of the mortgage loan;
22-15 (3) the term of the mortgage loan;
22-16 (4) an identification of the property;
22-17 (5) the initial interest rate;
22-18 (6) the discount or points to be paid;
22-19 (7) the amounts and payment terms of the fee for the
22-20 guarantee and commitment fee; and
22-21 (8) a statement of whether a fee described by
22-22 Subdivision (7) of this subsection is refundable and, if so, the
22-23 terms and conditions necessary to obtain the refund.
22-24 (d) A commitment fee may not be charged unless there is a
22-25 commitment in writing signed by the licensee and the borrower
22-26 containing:
22-27 (1) the terms and conditions of the residential
23-1 mortgage loan; and
23-2 (2) the terms and conditions of the commitment,
23-3 including:
23-4 (A) the expiration date of the commitment;
23-5 (B) the period during which the commitment is
23-6 irrevocable and may be accepted by the borrower, which may not be
23-7 less than seven days after the date of commitment or date of
23-8 mailing, whichever is later;
23-9 (C) the amount and payment terms of the
23-10 commitment fee;
23-11 (D) a statement of whether the commitment fee is
23-12 refundable and, if so, the terms and conditions necessary to obtain
23-13 a refund; and
23-14 (E) any conditions that must be satisfied before
23-15 closing.
23-16 (e) Fees or charges collected under this section other than
23-17 a fee or charge authorized under Subsection (a) or (b) of this
23-18 section shall be refunded if a valid commitment or closing is not
23-19 produced under circumstances that are not the fault of the
23-20 borrower.
23-21 CHAPTER 4. EXAMINATION AND INVESTIGATION
23-22 Sec. 4.01. EXAMINATION OF LICENSEE AND AFFILIATES. (a)
23-23 Except as otherwise provided by rule, the banking commissioner
23-24 shall examine each licensee annually or more often as the banking
23-25 commissioner considers necessary to safeguard the public interest,
23-26 to determine compliance with this Act, and to enforce this Act.
23-27 All books, records, documents, and operations of a licensee are
24-1 subject to examination. The banking commissioner may examine under
24-2 oath any officer, director, employee, or agent of the employee.
24-3 (b) The banking commissioner shall prepare a report of each
24-4 examination and deliver a copy of the report to the licensee. Each
24-5 principal, officer, and director of the licensee shall take
24-6 appropriate steps to correct each violation of this Act contained
24-7 in the report.
24-8 (c) The banking commissioner may examine an affiliate of a
24-9 licensee on the same terms as the licensee if the banking
24-10 commissioner has reasonable cause for the examination based on
24-11 interaffiliate transactions discovered during examination of the
24-12 licensee.
24-13 (d) An employee of the department may not participate in any
24-14 manner in the examination of or other regulatory act relating to a
24-15 licensee if the employee is an obligor on a loan being serviced by
24-16 the licensee. The finance commission may adopt rules relating to
24-17 employee practices prohibited by this subsection.
24-18 (e) The examination required in Subsection (a) of this
24-19 section may be waived by the banking commissioner if:
24-20 (1) the only business of the licensee covered by this
24-21 Act is the servicing of residential mortgage loans in this state;
24-22 (2) the licensee does not service at any time more
24-23 than 250 residential mortgage loans for residential real property
24-24 in this state; and
24-25 (3) the banking commissioner does not have any
24-26 regulatory concerns regarding the licensee.
24-27 Sec. 4.02. INFORMATION FROM INVESTIGATION IS CONFIDENTIAL.
25-1 (a) Information obtained, either directly or indirectly, by the
25-2 department relating to the financial condition or business affairs
25-3 of a licensee or a shareholder, participant, officer, director,
25-4 manager, or affiliate of a licensee, other than information
25-5 obtained from published financial statements, and all related files
25-6 and records of the department:
25-7 (1) are confidential; and
25-8 (2) may not be disclosed by the banking commissioner
25-9 or an officer or employee of the department, except as expressly
25-10 provided by this Act or a rule adopted under this Act.
25-11 (b) Information obtained by the department from a federal
25-12 regulatory agency that is confidential under federal law may not be
25-13 disclosed except as provided under federal law.
25-14 (c) A member of the finance commission may not be given
25-15 access to the files and records of the department and confidential
25-16 information may not be disclosed to any member of the finance
25-17 commission, except that the banking commissioner may disclose to
25-18 the finance commission information, files, and records pertinent to
25-19 a hearing or matter pending before the finance commission.
25-20 (d) If the banking commissioner considers it necessary or
25-21 proper to the enforcement of the laws of this state, another state,
25-22 or the United States or in the best interest of the public, the
25-23 banking commissioner may disclose confidential information to any
25-24 other department of this state, another state, the United States,
25-25 or any related agency or instrumentality.
25-26 (e) Confidential information that is provided to a licensee
25-27 remains the confidential property of the department. That
26-1 information may not be made public or disclosed in any manner by
26-2 the recipient, or by its officers, directors, managers, employees,
26-3 or agents, to any person not officially connected to the recipient
26-4 as an officer, director, employee, attorney, auditor, or
26-5 independent auditor, except as authorized by rule adopted under
26-6 this Act. Any other disclosure or use of the information except as
26-7 expressly permitted by the banking commissioner may be subject to
26-8 an enforcement order under Section 5.02 of this Act or to the
26-9 penalties provided by Section 37.10, Penal Code.
26-10 (f) Discovery of confidential information from a person
26-11 subject to this Act pursuant to subpoena or other legal process
26-12 must comply with rules adopted under this Act and any other
26-13 applicable law. The rules may restrict release of confidential
26-14 information to that part of the information directly relevant to
26-15 the legal dispute at issue and may require that a protective order,
26-16 in the form and under the circumstances specified by the rules, be
26-17 issued by a court of competent jurisdiction before the release of
26-18 confidential information.
26-19 (g) Notwithstanding any other law, the banking commissioner
26-20 may refuse to release any information, including files or records,
26-21 in the custody of the department if, in the opinion of the banking
26-22 commissioner, release of the information might jeopardize an
26-23 ongoing investigation of potentially unlawful activities.
26-24 Sec. 4.03. INVESTIGATION BY BANKING COMMISSIONER. (a) The
26-25 banking commissioner may issue and serve subpoenas and subpoenas
26-26 duces tecum to compel the attendance of witnesses and the
26-27 production of books, accounts, records and other documents and
27-1 materials relevant to an examination or investigation. The banking
27-2 commissioner or a duly authorized representative may administer
27-3 oaths and affirmations to any person.
27-4 (b) If a person does not comply with a subpoena or subpoena
27-5 duces tecum issued or caused to be issued by the banking
27-6 commissioner, the banking commissioner may petition a district
27-7 court in Travis County for:
27-8 (1) an order requiring the subpoenaed person to:
27-9 (A) appear and testify; and
27-10 (B) produce the books, accounts, records, and
27-11 other documents specified in the subpoena duces tecum, if
27-12 appropriate; and
27-13 (2) other appropriate relief.
27-14 Sec. 4.04. COLLECTION OF FEES BY LICENSEE. A person who is
27-15 required by this Act to hold a license to engage in or offer to
27-16 engage in any act or service may not bring or maintain an action in
27-17 any court of this state to collect compensation for the performance
27-18 of the services subject to this Act unless the person alleges and
27-19 proves that the person was the holder of a license under this Act
27-20 at all times during the performance of those services.
27-21 CHAPTER 5. ENFORCEMENT
27-22 Sec. 5.01. PROHIBITED ACTIVITIES. (a) A person, regardless
27-23 of whether the person is required to be licensed under this Act,
27-24 may not knowingly:
27-25 (1) provide or offer to provide for any borrower
27-26 brokering or lending services under any arrangement or agreement
27-27 with a person who is violating this Act;
28-1 (2) fail to disburse funds in accordance with a
28-2 commitment;
28-3 (3) accept any fees at closing that were not disclosed
28-4 in writing before the closing;
28-5 (4) accept attorney's fees at closing in excess of the
28-6 fees that have been or will be remitted to the person's attorney;
28-7 (5) require the borrower to be represented by a
28-8 particular attorney;
28-9 (6) unreasonably refuse to issue or unreasonably delay
28-10 the issuance of a satisfaction of mortgage after the mortgage has
28-11 been fully satisfied;
28-12 (7) obtain any agreement or instrument in which blanks
28-13 are left to be filled in after execution;
28-14 (8) obtain any exclusive dealing or exclusive agency
28-15 agreement from any borrower;
28-16 (9) delay closing of any mortgage loan for the purpose
28-17 of increasing interest, costs, fees, or charges payable by the
28-18 borrower;
28-19 (10) pay, directly or indirectly, an appraiser for any
28-20 government or private money lending agency with which an
28-21 application for a home mortgage has been filed for the purpose of
28-22 influencing the independent judgment of the appraiser with respect
28-23 to the value of any real property that is to be covered by any home
28-24 mortgage;
28-25 (11) make any false promise likely to influence or
28-26 persuade anyone;
28-27 (12) pursue a course of misrepresentation and false
29-1 promises in any manner, including through an agent, a solicitor, or
29-2 advertising; or
29-3 (13) misrepresent, circumvent, or conceal, through any
29-4 kind of subterfuge or device, any material fact relating to a
29-5 transaction to which the person is a party.
29-6 (b) If the banking commissioner finds, from examination,
29-7 investigation, or review of reports submitted by a licensee or from
29-8 a reliable person that the business and affairs of a licensee are
29-9 not being conducted in accordance with this Act, the banking
29-10 commissioner may issue an order requiring immediate compliance with
29-11 this Act, specifying a reasonable date for performance.
29-12 Sec. 5.02. ENFORCEMENT. (a) The banking commissioner may
29-13 issue an enforcement order if the banking commissioner determines
29-14 that a licensee is in material violation of this Act or if the
29-15 banking commissioner finds that a licensee:
29-16 (1) has committed a crime involving moral turpitude or
29-17 fraudulent or dishonest dealing or that a final judgment has been
29-18 entered against the licensee in a civil action on grounds of fraud,
29-19 misrepresentation, or deceit that has not been previously reported
29-20 to the banking commissioner;
29-21 (2) is engaging or has engaged in any conduct that is
29-22 cause for denial of a license;
29-23 (3) did not comply with a final order of the banking
29-24 commissioner;
29-25 (4) did not pay in a timely manner any fee, charge, or
29-26 fine imposed under this Act;
29-27 (5) conducted the business of licensee in a manner
30-1 that constitutes a pattern of substantially underestimating the
30-2 maximum closing costs;
30-3 (6) is insolvent;
30-4 (7) misused, wrongfully applied, or misappropriated
30-5 any trust funds or escrow funds;
30-6 (8) has had a license to practice any profession or
30-7 occupation revoked, suspended, or otherwise acted against,
30-8 including having an application for a license denied by a licensing
30-9 authority of this state or another state, territory, or country for
30-10 fraud, dishonest dealing, or any other act of moral turpitude; or
30-11 (9) followed a course of conduct that demonstrates
30-12 gross negligence or incompetence in performing an act for which the
30-13 licensee is required to hold a license under this Act.
30-14 (b) The enforcement order may impose one or more of the
30-15 following penalties:
30-16 (1) revocation of a license;
30-17 (2) suspension of a license subject to reinstatement
30-18 upon satisfaction of all reasonable conditions specified by the
30-19 banking commissioner;
30-20 (3) placement of the licensee on probation for a
30-21 specified period subject to all reasonable conditions specified by
30-22 the banking commissioner;
30-23 (4) reprimand of the licensee;
30-24 (5) imposition of a fine not to exceed $5,000 for each
30-25 separate violation; and
30-26 (6) appointment of a receiver or conservator.
30-27 (c) A licensee shall be subject to the disciplinary actions
31-1 under this Act for violations by an officer, director, shareholder,
31-2 joint venturer, partner, ultimate equitable owner, or employee of
31-3 the licensee.
31-4 Sec. 5.03. ENFORCEMENT ORDER REQUIREMENT. (a) An order
31-5 issued under Section 5.02 of this Act must state:
31-6 (1) the grounds for the order with reasonable
31-7 certainty; and
31-8 (2) the order's effective date, which may not be
31-9 before the 21st day after the date the order is mailed or
31-10 delivered.
31-11 (b) A proposed enforcement order shall be served on the
31-12 licensee by serving any director, officer, or employee at the
31-13 licensee's business location by personal delivery or by certified
31-14 mail, return receipt requested.
31-15 (c) If the licensee does not request a hearing in writing
31-16 before the effective date of the proposed order, the order is final
31-17 and nonappealable.
31-18 (d) A requested hearing on a proposed order shall be held
31-19 not later than the 30th day after the date the written request for
31-20 hearing is received by the department unless the parties mutually
31-21 agree to a later hearing date. The department shall participate as
31-22 the opposing party and the banking commissioner shall conduct the
31-23 hearing and as many prehearing conferences and opportunities for
31-24 discovery as the banking commissioner considers advisable and in
31-25 accordance with governing law. During the pendency of the hearing
31-26 and unless the banking commissioner gives prior written approval
31-27 otherwise, the licensee may not accept any new business.
32-1 (e) Information relating to the financial condition and
32-2 business affairs of the licensee, except for previously published
32-3 statements and information, is confidential and may not be released
32-4 to the public or considered in the public portion of the hearing.
32-5 (f) Based on the record, the banking commissioner shall
32-6 either issue or refuse to issue the proposed order. The issued
32-7 order may contain any modifications that the record shows are
32-8 necessary or desirable.
32-9 (g) If a hearing has been held, the banking commissioner has
32-10 entered an order adverse to the licensee, and the order has become
32-11 final, the applicant may appeal the final order by filing a
32-12 petition for judicial review under the substantial evidence rule in
32-13 a district court in Travis County in accordance with Subchapter G,
32-14 Chapter 2001, Government Code.
32-15 Sec. 5.04. EMERGENCY SUSPENSION. The banking commissioner,
32-16 on good cause shown that an emergency exists, may suspend a license
32-17 for a period not exceeding 30 days, pending investigation.
32-18 Sec. 5.05. REINSTATEMENT OR ISSUANCE OF NEW LICENSE. The
32-19 banking commissioner may reinstate a suspended license or issue a
32-20 new license to a licensee whose license has been revoked.
32-21 Sec. 5.06. PUBLICATION OF NOTICE OF DISCIPLINARY ACTION.
32-22 Whenever the banking commissioner issues a final order to revoke or
32-23 suspend a license issued under this Act or for a licensee to pay a
32-24 fine, the banking commissioner shall publish notice of that order
32-25 in the Texas Register and a newspaper of general circulation in the
32-26 county in which the licensee is located and shall serve a copy of
32-27 that order upon the licensee.
33-1 SECTION 2. This Act takes effect September 1, 1995, except
33-2 that a person is not required to hold a license under Article 490,
33-3 Revised Statutes, as added by this Act, to engage in the business
33-4 of brokering, funding, originating, servicing, or purchasing
33-5 residential mortgage loans in this state until September 1, 1996.
33-6 SECTION 3. The importance of this legislation and the
33-7 crowded condition of the calendars in both houses create an
33-8 emergency and an imperative public necessity that the
33-9 constitutional rule requiring bills to be read on three several
33-10 days in each house be suspended, and this rule is hereby suspended.