75R11801 CLG-F By Marchant H.B. No. 2352 Substitute the following for H.B. No. 2352: By Solomons C.S.H.B. No. 2352 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the registration of mortgage brokers. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Chapter 20, Title 132, Revised Statutes, is 1-5 amended by adding Article 9001 to read as follows: 1-6 Art. 9001. MORTGAGE BROKER REGISTRATION 1-7 Sec. 1. DEFINITIONS. In this article: 1-8 (1) "Commissioner" means the consumer credit 1-9 commissioner. 1-10 (2) "Mortgage" means a lien interest against real 1-11 estate created by a deed of trust, security deed, or other 1-12 instrument for debt. 1-13 (3) "Mortgage applicant" means a person who is 1-14 solicited to purchase or who purchases the services of a mortgage 1-15 broker. 1-16 (4) "Mortgage banker" means any person who makes, 1-17 services, or buys and sells mortgage loans with the person's own 1-18 funds. 1-19 (5) "Mortgage broker" means a person who, for 1-20 compensation, obtains or sells for another person a one-to-four 1-21 family residential mortgage or a person who, for compensation, 1-22 receives for another person an application from a prospective 1-23 borrower and places or attempts to place the application with a 1-24 mortgage banker or other lender for purposes of making a 2-1 one-to-four family residential mortgage. The term does not include 2-2 a person who delivers an application and other loan information for 2-3 a mortgage loan to a mortgage broker either on behalf of or at the 2-4 instruction of the prospective borrower. 2-5 (6) "Registrant" means a person who has been issued a 2-6 certificate of registration under this article. 2-7 Sec. 2. CERTIFICATE OF REGISTRATION REQUIREMENT. (a) A 2-8 person may not act as a mortgage broker without first having 2-9 obtained a certificate of registration from the commissioner for 2-10 the person's main office and for each other office to be maintained 2-11 by the person for the transaction of business as a mortgage broker 2-12 in this state. 2-13 (b) An employee of a registrant is not required to obtain a 2-14 certificate of registration. 2-15 (c) A certificate of registration is not required for: 2-16 (1) a bank, savings bank, or savings and loan 2-17 association, or a subsidiary or an affiliate of a bank, savings 2-18 bank, or savings and loan association; 2-19 (2) a state or federal credit union; 2-20 (3) a lender approved by the secretary of housing and 2-21 urban development for participation in a mortgage insurance program 2-22 under the National Housing Act, as amended (12 U.S.C. Section 1701 2-23 et seq.); 2-24 (4) a mortgage banker; or 2-25 (5) a person licensed under Chapter 3, Title 79, 2-26 Revised Statutes (Article 5069-3.01 et seq., Vernon's Texas Civil 2-27 Statutes), who makes, negotiates, or arranges a secondary mortgage 3-1 loan. 3-2 Sec. 3. APPLICATION FOR CERTIFICATE OF REGISTRATION. (a) 3-3 An application for a certificate of registration as a mortgage 3-4 broker must be in writing, under oath, and in the form prescribed 3-5 by the commissioner. The application must be accompanied by an 3-6 application fee of $150 for each office location to be maintained 3-7 by the applicant. 3-8 (b) The application fee is not refundable. 3-9 (c) If the applicant is a corporation or partnership, one of 3-10 the shareholders or partners, as appropriate, must be named in the 3-11 application as the person responsible for managing the operations 3-12 of the location or locations where business is to be transacted. 3-13 Sec. 4. QUALIFICATIONS. To be eligible for a certificate of 3-14 registration, a mortgage broker must: 3-15 (1) have at least one of the following minimum levels 3-16 of education, certification, or experience: 3-17 (A) an associate's degree in an area relating to 3-18 finance, banking, or business administration from an accredited 3-19 college or university, including an accredited community technical 3-20 college; 3-21 (B) the residential mortgage lender or certified 3-22 mortgage consultant certification, issued by the National 3-23 Association of Mortgage Brokers, or other certification similar in 3-24 scope and relevance; 3-25 (C) a real estate broker or salesman license 3-26 under The Real Estate License Act (Article 6573a, Vernon's Texas 3-27 Civil Statutes); 4-1 (D) an attorney licensed in this state; 4-2 (E) a certified public accountant licensed in 4-3 this state; or 4-4 (F) three years of experience: 4-5 (i) in the mortgage and lending field, 4-6 which may include employment with or as a mortgage broker or with a 4-7 financial institution, mortgage lending institution, or other 4-8 lending institution; or 4-9 (ii) that the commissioner determines 4-10 meets a minimum comparable standard for education and experience; 4-11 (2) demonstrate evidence of compliance with the 4-12 financial requirements of this article; and 4-13 (3) have the financial responsibility, experience, 4-14 character, and general fitness to command the confidence of the 4-15 public and warrant the belief that the business will be operated 4-16 honestly and fairly in compliance with the purposes of this 4-17 article. 4-18 Sec. 5. MINIMUM NET ASSETS. (a) A registrant that conducts 4-19 business as a mortgage broker shall maintain net assets of at least 4-20 $25,000 and a surety bond in the amount of at least $25,000 or a 4-21 surety bond in the amount of at least $50,000. The term of the 4-22 surety bond must coincide with the term of the certificate of 4-23 registration. 4-24 (b) This section does not apply to a registrant who is 4-25 licensed to practice law in this state. 4-26 (c) In this section, "net assets" means the difference 4-27 between total assets and total indebtedness, as determined by 5-1 generally accepted accounting principles, except that assets of 5-2 doubtful or uncertain value are disallowed. 5-3 Sec. 6. CRIMINAL HISTORY RECORD INFORMATION. (a) On the 5-4 filing of the application and payment of the application fee by the 5-5 applicant, the commissioner is entitled to obtain from the 5-6 Department of Public Safety criminal history record information 5-7 maintained by the department that relates to a person who is an 5-8 applicant for a certificate of registration. 5-9 (b) Criminal history record information obtained under this 5-10 section is confidential and may not be released or disclosed to any 5-11 person except on court order or with the consent of the person who 5-12 is the subject of the criminal history record information. 5-13 Sec. 7. ISSUANCE OF CERTIFICATE OF REGISTRATION. (a) The 5-14 commissioner shall issue a certificate of registration to a person 5-15 who applies for the certificate not later than the 30th day after 5-16 the date of receipt of a completed application unless the 5-17 commissioner has reason to believe that the eligibility 5-18 requirements of this article are not satisfied or the applicant's 5-19 financial responsibility, experience, character, and general 5-20 fitness do not command the confidence of the public and warrant the 5-21 belief that the business will be operated honestly and fairly in 5-22 compliance with the purposes of this article. 5-23 (b) The commissioner shall notify an applicant in writing if 5-24 the application is denied. An applicant may appeal the decision by 5-25 submitting a written request for a hearing not later than the 30th 5-26 day after the date of the decision. 5-27 (c) A certificate of registration issued under this article 6-1 may be renewed annually on or before its expiration date by payment 6-2 of a renewal fee of $150 for each location of an office to be 6-3 maintained by the applicant and a finding by the commissioner that 6-4 the applicant meets the conditions set forth by Subsection (a) of 6-5 this section and that the applicant's certificate of registration 6-6 is not subject to an order of suspension or revocation by the 6-7 commissioner. If a renewal fee is submitted to the commissioner 6-8 after the registration expires but before the 181st day after the 6-9 expiration date of the registration, the fee must be accompanied by 6-10 a late renewal fee of $100 for each location of an office 6-11 maintained by the applicant for which the renewal fee is late. 6-12 (d) Before the 30th day preceding the effective date of an 6-13 address change, a registrant shall notify the commissioner in 6-14 writing of the new address. If a registrant intends to move the 6-15 business to a location outside the municipality in which it is 6-16 located, a new application must be filed accompanied by the 6-17 application fee and a relocation fee of $15 and a new certificate 6-18 must be obtained before conducting business at the new location. 6-19 (e) An application, renewal, late renewal, or relocation fee 6-20 may not be refunded after a certificate of registration has been 6-21 issued or renewed. 6-22 (f) A certificate of registration issued under this article 6-23 is not transferable and may not be assigned. Ownership or control 6-24 of a registrant may not change without the approval of the 6-25 commissioner. 6-26 Sec. 8. INVESTIGATION AND INSPECTION OF RECORDS. (a) On 6-27 receipt of a written complaint or other probable cause to believe 7-1 that a person is violating a provision of state law to which this 7-2 article applies, the commissioner may request the person to furnish 7-3 information and records relating to a transaction or business 7-4 practice alleged to be in violation of the law. If a person fails 7-5 to comply with a request, the commissioner may conduct an 7-6 investigation to determine whether a violation has occurred. 7-7 (b) All information obtained by the commissioner or an 7-8 employee or other agent of the commissioner by reason of the 7-9 person's official position, including information obtained in the 7-10 course of inspecting or investigating an applicant for a 7-11 certificate of registration, is confidential. That information 7-12 remains confidential for all purposes except for lawful use by the 7-13 commissioner regarding the affairs of the registrant or in 7-14 connection with criminal proceedings. 7-15 Sec. 9. PROHIBITIONS. A registrant or applicant for a 7-16 certificate of registration under this article may not: 7-17 (1) obtain a certificate of registration through a 7-18 false or fraudulent representation or make a substantial 7-19 misrepresentation in a registration application; 7-20 (2) publish or cause to be published an advertisement 7-21 that is misleading, is likely to deceive the public, or in any 7-22 manner tends to create a misleading impression because it fails to 7-23 identify as a registrant the person causing the advertisement to be 7-24 published; 7-25 (3) engage in conduct that constitutes improper, 7-26 fraudulent, or dishonest dealings; 7-27 (4) fail to notify the commissioner if the registrant 8-1 or applicant, in a court of competent jurisdiction of this state or 8-2 another state or in a federal court, is convicted of or enters a 8-3 plea of guilty or nolo contendere to a felony or a criminal offense 8-4 involving fraud; 8-5 (5) fail to use fees collected in advance of closing 8-6 for the purposes for which the fees were paid; or 8-7 (6) charge or receive, directly or indirectly, a fee 8-8 for assisting a mortgage applicant in obtaining a mortgage until 8-9 all of the services that the registrant has agreed to perform for 8-10 the mortgage applicant are completed, and the proceeds of the 8-11 mortgage loan have been disbursed to or on behalf of the mortgage 8-12 applicant except as provided by Section 10 of this article. 8-13 Sec. 10. FEE ASSESSMENT AND DISCLOSURE. (a) Before 8-14 completion of all services, a registrant may charge and receive, 8-15 unless prohibited by law, the following fees for services in 8-16 assisting a mortgage applicant to obtain a mortgage: 8-17 (1) a fee to obtain a credit report; 8-18 (2) a fee for the appraisal of the real estate; 8-19 (3) a fee paid directly by the mortgage applicant to a 8-20 state or federal governmental agency or instrumentality for 8-21 processing a mortgage application relating to a 8-22 government-sponsored or guaranteed mortgage program; or 8-23 (4) subject to Subsection (b) of this section, fees 8-24 for locking in an interest rate, issuing a commitment letter, and 8-25 processing a loan or a loan application in connection with 8-26 obtaining or refinancing a mortgage loan. 8-27 (b) A registrant may not charge and receive a fee for 9-1 locking in an interest rate, issuing a commitment letter, or 9-2 processing a loan or a loan application unless there is a written 9-3 agreement signed by the mortgage applicant and registrant that 9-4 contains: 9-5 (1) the expiration date of the locked-in interest 9-6 rate; 9-7 (2) the principal amount of the mortgage loan; 9-8 (3) the term of the mortgage loan; 9-9 (4) an identification of the property; 9-10 (5) the initial interest rate; 9-11 (6) the discount or points to be paid; 9-12 (7) the amounts and payment terms of the fee for the 9-13 locked-in interest rate and commitment fee; 9-14 (8) a statement of whether a fee described by 9-15 Subdivision (7) of this subsection is refundable and, if so, the 9-16 terms and conditions necessary to obtain the refund; and 9-17 (9) sources and amount or computation of amount to be 9-18 paid to a mortgage broker by a person other than the mortgage 9-19 applicant. 9-20 (c) If a fee is paid by a mortgage applicant for the 9-21 performance of the service described by Subsection (a)(2) of this 9-22 section and the registrant is unable to assist in obtaining a 9-23 mortgage for the mortgage applicant, the registrant shall return to 9-24 the mortgage applicant the original documents prepared by the bona 9-25 fide third party at the time that the request for the mortgage is 9-26 refused or denied. 9-27 (d) For purposes of this section, "bona fide third party" 10-1 means a person who is not an employee of, related to, or affiliated 10-2 with the registrant and who is not used for the purpose of 10-3 circumvention or evasion of this section. 10-4 Sec. 11. SUSPENSION, REVOCATION, OR REFUSAL OF LICENSE; 10-5 INVESTIGATIONS; CEASE AND DESIST ORDERS. (a) After notice and 10-6 opportunity for a hearing, the commissioner may suspend, revoke, or 10-7 refuse to issue or renew a certificate of registration if the 10-8 commissioner finds: 10-9 (1) the registrant has failed to pay a fee or charge 10-10 properly imposed by the commissioner under this article; 10-11 (2) the registrant, knowingly or without the exercise 10-12 of due care, has violated a provision of this article or a rule or 10-13 order made under this article; 10-14 (3) the existence of a fact or condition that clearly 10-15 would have justified the commissioner in refusing to issue the 10-16 certificate of registration, if the fact or condition existed at 10-17 the time the original application for the certificate of 10-18 registration was made; 10-19 (4) the registrant has aided, abetted, or conspired 10-20 with a person to circumvent the requirements of this article; 10-21 (5) the financial responsibility, experience, 10-22 character, or general fitness of the registrant or the registrant's 10-23 owners and managers does not command the confidence of the public 10-24 or warrant the belief that the business will be operated lawfully, 10-25 fairly, and within the purposes of this article; or 10-26 (6) the registrant has failed to maintain the minimum 10-27 financial requirements of this article. 11-1 (b) The commissioner may investigate alleged violations of 11-2 this article, or the rules adopted under this article, and 11-3 complaints concerning those alleged violations. The commissioner 11-4 may make application to any state district court for an order 11-5 enjoining such a violation and, on a showing by the commissioner 11-6 that a person has committed or is about to commit such a violation, 11-7 the court shall grant an injunction, restraining order, or other 11-8 appropriate relief. 11-9 (c) In the course of an investigation, the commissioner by 11-10 subpoena may compel the attendance and testimony of witnesses and 11-11 the production of any book, record, or other document. The 11-12 commissioner is entitled to examine the book, record, or other 11-13 document at the registrant's office or place of business and to 11-14 require that copies of the book, record, or other document relating 11-15 to the matter in question be made as considered necessary. The 11-16 copies must be verified by affidavit of the person or an officer of 11-17 the person who is the subject of the document. When certified by 11-18 the commissioner, the copies may be admissible in evidence in an 11-19 investigation or hearing under this article or other law to which 11-20 this article applies or an appeal to district court. For this 11-21 purpose, the commissioner may sign subpoenas, administer oaths and 11-22 affirmations, examine witnesses, and receive evidence. 11-23 (d) If a person fails to obey a subpoena, the district court 11-24 that has jurisdiction over the witness, on application by the 11-25 commissioner, may issue an order compelling a person to obey the 11-26 subpoena or to testify or produce any book, record, or other 11-27 document relating to the matter. The filing of an application to 12-1 enforce a subpoena shall be treated by the district court in the 12-2 same manner as a motion filed in a civil suit pending in the court. 12-3 The district court shall set the application for hearing and notice 12-4 of the filing of the application, and the hearing shall be served 12-5 on the person to whom the subpoena is directed. 12-6 (e) If the commissioner determines that a person is engaged 12-7 in, or is believed to be engaged in, activities that may constitute 12-8 a violation of this article, the commissioner, after notice and a 12-9 hearing, may issue a cease and desist order. 12-10 Sec. 12. CIVIL ACTIONS; INJUNCTIVE RELIEF; CRIMINAL 12-11 PROSECUTIONS. (a) A mortgage applicant injured by a violation of 12-12 this article may bring an action for recovery of damages and 12-13 reasonable attorney's fees and court costs. 12-14 (b) The commissioner, the attorney general, or a mortgage 12-15 applicant may bring an action to enjoin a violation of this 12-16 article. 12-17 (c) The remedies provided by this section are in addition to 12-18 any other remedy provided by law. 12-19 (d) In a proceeding or action brought under this article the 12-20 burden of proving an exemption is on the person claiming the 12-21 benefit of the exemption. 12-22 (e) A person does not violate this article with respect to 12-23 an act taken or omission made in reliance on a written notice, 12-24 written interpretation, or written report from the commissioner, 12-25 unless a subsequent amendment to the article or rules adopted under 12-26 the article affect the commissioner's notice, interpretation, or 12-27 report. 13-1 (f) On disbursement of mortgage proceeds to or on behalf of 13-2 the mortgage applicant, the registrant that assisted the mortgage 13-3 applicant to obtain the mortgage is considered to have completed 13-4 the performance of the registrant's services for the mortgage 13-5 applicant and owes no additional duties or obligations to the 13-6 mortgage applicant with respect to the mortgage. This subsection 13-7 does not limit or preclude the liability of a registrant for 13-8 failing to comply with this article or a rule adopted under this 13-9 article, for failing to comply with a provision of or duty arising 13-10 under an agreement with a mortgage applicant or lender under this 13-11 article, or for violating any other state or federal law. 13-12 Sec. 13. RULEMAKING POWERS. (a) The commissioner may adopt 13-13 rules consistent with and necessary to accomplish the purposes of 13-14 this article, including rules relating to: 13-15 (1) improper or fraudulent business practices or other 13-16 acts harmful to consumers in this state; and 13-17 (2) the interpretation, implementation, and 13-18 enforcement of this article. 13-19 (b) The commissioner may adopt rules to prohibit false, 13-20 misleading, or deceptive practices by registrants but may not adopt 13-21 any other rules restricting competitive bidding or advertising by 13-22 registrants. In adopting rules to prohibit false, misleading, or 13-23 deceptive practices by registrants, the commissioner may not 13-24 restrict: 13-25 (1) the use of any medium for advertising; 13-26 (2) the personal appearance of or voice of a person in 13-27 an advertisement; 14-1 (3) the size or duration of an advertisement; or 14-2 (4) the registrant's advertisement under a trade name. 14-3 (c) The commissioner by rule shall provide for proportionate 14-4 recovery from registrants of the cost of applications, renewals, 14-5 and investigation. 14-6 Sec. 14. ACCOUNT. (a) The commissioner shall deliver all 14-7 money received under this article to the comptroller for deposit in 14-8 a special account in the general revenue fund. 14-9 (b) Money in the account may be used only to administer this 14-10 article. 14-11 Sec. 15. EFFECT ON TEXAS CREDIT SERVICES ORGANIZATIONS ACT. 14-12 A registrant is exempt from the requirements of Chapter 18, 14-13 Business & Commerce Code, to the extent that the registrant does 14-14 not charge a fee for any service regulated under that chapter. 14-15 Sec. 16. SECONDARY MARKET TRANSACTIONS. This article does 14-16 not prohibit a mortgage broker from receiving compensation from a 14-17 party other than the mortgage applicant for the sale, transfer, 14-18 assignment, or release of rights on the closing of a mortgage 14-19 transaction, provided that the compensation is disclosed in writing 14-20 to the mortgage applicant. 14-21 SECTION 2. (a) This Act takes effect September 1, 1997. 14-22 (b) A person is not required to be registered under Article 14-23 9001, Revised Statutes, as added by this Act, before January 1, 14-24 1998. 14-25 SECTION 3. The importance of this legislation and the 14-26 crowded condition of the calendars in both houses create an 14-27 emergency and an imperative public necessity that the 15-1 constitutional rule requiring bills to be read on three several 15-2 days in each house be suspended, and this rule is hereby suspended.