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.