By Marchant H.B. No. 2352 75R5083 CLG-F 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 ARTICLE 9001. MORTGAGE BROKER REGISTRATION 1-7 Sec. 1. DEFINITIONS. In this article: 1-8 (1) "Borrower" means a person who is solicited to 1-9 purchase or who purchases the services of a mortgage broker. 1-10 (2) "Commissioner" means the consumer credit 1-11 commissioner. 1-12 (3) "Consumer reporting agency" means a person who, 1-13 for monetary fees, dues, or on a cooperative nonprofit basis, 1-14 regularly engages in whole or in part in the practice of assembling 1-15 or evaluating consumer credit information or other information on 1-16 consumers for the purpose of furnishing consumer reports to third 1-17 parties, and who uses any means or facility of interstate commerce 1-18 for the purpose of preparing or furnishing consumer reports. 1-19 (4) "Mortgage" means any indebtedness secured by a 1-20 deed of trust, security deed, or other lien on real property. 1-21 (5) "Mortgage banker" means any person who makes, 1-22 services, or buys and sells mortgage loans. 1-23 (6) "Mortgage broker" means a person who, in the 1-24 regular course of business, holds the person out as being able to 2-1 assist a borrower in obtaining a mortgage and charges or receives 2-2 money or other valuable consideration readily convertible into 2-3 money for providing that assistance regardless of the source of 2-4 that consideration. Assisting includes referring, suggesting, or 2-5 identifying potential providers of mortgage financing to 2-6 individuals or the general public for a fee or making, or making 2-7 and selling, loans secured by a mortgage on real estate but does 2-8 not include providing documentation services. Notwithstanding any 2-9 other law, a mortgage broker is not an agent or a fiduciary for the 2-10 borrower or any other party. The term does not include: 2-11 (A) a lender approved by the secretary of 2-12 housing and urban development for participation in a mortgage 2-13 insurance program under the National Housing Act, as amended (12 2-14 U.S.C. Section 1701 et seq.); 2-15 (B) a bank, savings bank, or savings and loan 2-16 association, or a subsidiary or an affiliate of a bank, savings 2-17 bank, or savings and loan association; 2-18 (C) a state or federal credit union; 2-19 (D) a budget and debt counseling service that is 2-20 a nonprofit organization and that receives a federal income tax 2-21 exemption under Section 501(a), Internal Revenue Code of 1986, as 2-22 an organization described by Section 501(c)(3) of that code; 2-23 (E) a consumer reporting agency that is in 2-24 substantial compliance with the Fair Credit Reporting Act, (15 2-25 U.S.C. Section 1681 et seq.), as amended; 2-26 (F) a mortgage banker; 2-27 (G) any political subdivision, or any 3-1 governmental or other public entity, corporation, or agency of the 3-2 United States or any state of the United States; 3-3 (H) a public or private college or university; 3-4 or 3-5 (I) a mortgage banker or mortgage broker in 3-6 another state that allows mortgage brokers of this state to 3-7 originate loans in the other state, subject to reasonable 3-8 limitations prescribed by the commissioner. 3-9 (7) "Person" means an individual or legal entity. 3-10 (8) "Registrant" means a person who has been issued a 3-11 certificate of registration under this article. 3-12 (9) "Secondary market transaction" means the sale, 3-13 transfer, or assignment of a mortgage, or release of rights in a 3-14 mortgage to a lender, either in closing or after closing. 3-15 Sec. 2. CERTIFICATE OF REGISTRATION REQUIREMENT. (a) A 3-16 person may not act as a mortgage broker on behalf of the person or 3-17 another person without first having obtained a certificate of 3-18 registration from the commissioner for the person's main office and 3-19 for each other office to be maintained by the person for the 3-20 transaction of business as a mortgage broker in this state. 3-21 (b) An employee of a registrant is not required to obtain a 3-22 certificate of registration before acting as a mortgage broker if 3-23 the registrant, in addition to the payment of wages or salaries, 3-24 pays social security and unemployment taxes, provides workers' 3-25 compensation coverage, and withholds federal income taxes on behalf 3-26 of the employee. 3-27 Sec. 3. APPLICATION FOR CERTIFICATE OF REGISTRATION. (a) 4-1 An application for a certificate of registration as a mortgage 4-2 broker must be in writing, under oath, and in the form prescribed 4-3 by the commissioner. The application must be accompanied by an 4-4 application fee of $150 for each office location to be maintained 4-5 by the applicant. The application must provide: 4-6 (1) the street address for the location where business 4-7 is to be transacted; 4-8 (2) the name and address of, as appropriate: 4-9 (A) the sole proprietor; 4-10 (B) each partner; or 4-11 (C) each shareholder owning five percent or more 4-12 of the corporation; 4-13 (3) if the applicant is a partnership, a designation 4-14 of one of the partners named in the application as responsible for 4-15 managing the operations of the location or locations where business 4-16 is to be transacted; 4-17 (4) if the applicant is a corporation, a designation 4-18 of one of the shareholders named in the application as the person 4-19 responsible for managing the operations of the location or 4-20 locations where business is to be transacted; 4-21 (5) evidence that the sole proprietor or the partner 4-22 or shareholder designated in the application as the person 4-23 responsible for managing the operations of the location or 4-24 locations where the business is to be transacted: 4-25 (A) has earned at least an associate's degree in 4-26 an area relating to finance banking or business administration from 4-27 an accredited college or university, including an accredited 5-1 community technical college; 5-2 (B) has received the residential mortgage lender 5-3 or certified mortgage consultant certification, issued by the 5-4 National Association of Mortgage Brokers; or 5-5 (C) possesses at least three years of 5-6 experience: 5-7 (i) in the mortgage and lending field, 5-8 which may include employment with or as a mortgage broker or with a 5-9 financial institution, mortgage lending institution, or other 5-10 lending institution; or 5-11 (ii) that the commissioner determines is 5-12 equivalent to Paragraph (i); 5-13 (6) evidence of compliance with the financial 5-14 requirements of this article; 5-15 (7) in the case of a foreign corporation, evidence 5-16 that it maintains the qualifications required to transact business 5-17 in this state; and 5-18 (8) a statement that the applicant or a person named 5-19 in the application has not been convicted of or pleaded guilty to a 5-20 felony or any criminal offense involving fraud. 5-21 (b) On the filing of the application and payment of the 5-22 application fee, the commissioner shall investigate the applicant. 5-23 If investigation by the commissioner outside this state is 5-24 necessary to issue a certificate of registration to an applicant, 5-25 the commissioner may require the applicant to advance sufficient 5-26 money to cover the actual expenses of the investigation if it 5-27 appears that those expenses will exceed $350. The commissioner 6-1 shall provide the applicant with an itemized statement of the 6-2 actual expenses that the applicant is required to pay. 6-3 (c) The commissioner shall deliver all money received under 6-4 this section and Section 4 of this article to the comptroller for 6-5 deposit in a special account. Money in the account may be used 6-6 only to administer this article. 6-7 Sec. 4. ISSUANCE OF CERTIFICATE OF REGISTRATION. (a) The 6-8 commissioner shall issue a certificate of registration to the 6-9 applicant not later than the 10th day after the date of receipt of 6-10 the application unless the commissioner finds that the requirements 6-11 of this article are not satisfied or: 6-12 (1) the applicant's financial responsibility, 6-13 experience, character, and general fitness do not command the 6-14 confidence of the public and warrant the belief that the business 6-15 will be operated honestly and fairly in compliance with the 6-16 purposes of this article; or 6-17 (2) the applicant did not submit a list of all 6-18 employees who will be allowed to quote rates, fees, or terms to a 6-19 borrower. 6-20 (b) The commissioner shall determine which partners or 6-21 shareholders named in the application must meet the conditions set 6-22 forth by Subsection (a)(1) of this section. The determination must 6-23 be based on the extent and nature of the partner's or shareholder's 6-24 ownership interest in the applicant. 6-25 (c) A certificate of registration issued under this article 6-26 may be renewed annually on or before its expiration date and until 6-27 the 121st day after the expiration date by payment of a renewal fee 7-1 of $150 for each location of an office to be maintained by the 7-2 applicant and a finding by the commissioner that the applicant 7-3 meets the conditions set forth by Subsection (a) of this section 7-4 and that the applicant's certificate of registration is not subject 7-5 to an order of suspension or revocation by the commissioner. If a 7-6 renewal fee is submitted to the commissioner after the 121st day 7-7 after the expiration date of the registration, the fee must be 7-8 accompanied by a late renewal fee of $100 for each location of an 7-9 office maintained by the applicant for which the renewal fee is 7-10 late. 7-11 (d) Before the 30th day preceding the effective date of an 7-12 address change, a registrant shall notify the commissioner in 7-13 writing of the new address. If a registrant intends to move the 7-14 business to a location outside the municipality in which it is 7-15 located, a new application must be filed accompanied by the 7-16 application fee and a relocation fee of $15 and a new certificate 7-17 must be obtained before conducting business at the new location. 7-18 (e) An application, renewal, late renewal, or relocation fee 7-19 may not be returned after a certificate of registration has been 7-20 issued or renewed. 7-21 Sec. 5. MINIMUM NET WORTH. (a) A registrant that conducts 7-22 business as a mortgage broker shall maintain a net worth of at 7-23 least $25,000 and a surety bond in the amount of at least $25,000. 7-24 The term of the surety bond must coincide with the term of the 7-25 certificate of registration. 7-26 (b) If the commissioner determines that the registrant's net 7-27 worth is deficient or inflated, the commissioner by written notice 8-1 may require an audited financial statement by an independent 8-2 licensed certified accountant, the cost of which shall be paid by 8-3 the registrant. 8-4 (c) In this section, "net worth" means the difference 8-5 between total assets and total indebtedness, as determined by 8-6 generally accepted accounting principles, except that the following 8-7 items are disallowed: 8-8 (1) in the case of a corporation registered or seeking 8-9 registration under this article, real estate not owned in the name 8-10 of the corporation; 8-11 (2) assets of doubtful or uncertain value; and 8-12 (3) unsecured notes. 8-13 Sec. 6. EXAMINATION AND MAINTENANCE OF RECORDS. (a) As 8-14 often as the commissioner considers it necessary, the commissioner 8-15 may examine the registrant's records pertaining to business 8-16 transacted under this article. 8-17 (b) A registrant shall maintain for each borrower: 8-18 (1) each agreement between the registrant and the 8-19 borrower, including any retention agreement; 8-20 (2) receipts or other documentation acceptable to the 8-21 commissioner for any expenses charged to the borrower and paid on 8-22 behalf of the borrower by the registrant; 8-23 (3) a copy of the final settlement or closing 8-24 statement, arranged in chronological order, for each loan obtained 8-25 for a borrower by the registrant that includes: 8-26 (A) the amount of each type of fee paid to the 8-27 registrant; 9-1 (B) the identity of the person paying the fees; 9-2 and 9-3 (C) the amount of each type of fee charged to 9-4 the borrower; 9-5 (4) a listing of applications that have been approved, 9-6 rejected, or withdrawn and the identities of lenders to whom the 9-7 registrant has referred the borrower; and 9-8 (5) a copy of any check made payable to the registrant 9-9 from the borrower or other entity paying a fee to the registrant. 9-10 (c) A registrant shall segregate and keep records required 9-11 under this article separate from any other records of the 9-12 registrant. 9-13 (d) All books, records, data, and documents required to be 9-14 kept by a registrant shall be maintained in this state unless 9-15 written approval has been given, in advance, by the commissioner. 9-16 All records shall be kept up-to-date and shall be available at all 9-17 times during normal business hours for review by the commissioner. 9-18 (e) If books, records, data, or documents of a registrant 9-19 are located outside this state, the registrant, on the request of 9-20 the commissioner, shall pay in advance the estimated costs, as 9-21 determined by the commissioner, of the examination of those items 9-22 outside this state. After the actual costs of the out-of-state 9-23 examination have been determined, any money in excess of costs as 9-24 itemized by the commissioner shall be returned to the registrant. 9-25 (f) A registrant shall maintain records pertaining to 9-26 business transacted under this article for at least two years after 9-27 the final entry on those records. 10-1 (g) All information obtained by the commissioner or an 10-2 employee or other agent of the commissioner by reason of the 10-3 person's official position, including information obtained in the 10-4 course of examining a registrant or investigating an applicant for 10-5 a certificate of registration, is confidential. That information 10-6 remains confidential for all purposes except when it is necessary 10-7 for the commissioner to take official action regarding the affairs 10-8 of the registrant or in connection with criminal proceedings. 10-9 Sec. 7. PROHIBITIONS. A registrant or applicant for a 10-10 certificate of registration under this article may not: 10-11 (1) obtain a certificate of registration through a 10-12 false or fraudulent representation or make a substantial 10-13 misrepresentation in a registration application; 10-14 (2) make a false promise through advertising or other 10-15 means or engage in a continued course of misrepresentation; 10-16 (3) engage in conduct that constitutes improper, 10-17 fraudulent, or dishonest dealings; 10-18 (4) fail to notify the commissioner if the registrant 10-19 or applicant, in a court of competent jurisdiction of this state or 10-20 another state or in a federal court, is convicted of or pleads 10-21 guilty to a felony or a criminal offense involving fraud; or 10-22 (5) fail to use fees collected in advance of closing 10-23 for the purposes for which the fees were paid. 10-24 Sec. 8. FEES. (a) Except as provided by this section, a 10-25 registrant may not charge or receive, directly or indirectly, a fee 10-26 for assisting a borrower in obtaining a mortgage, until all of the 10-27 services that the registrant has agreed to perform for the borrower 11-1 are completed, and the proceeds of the mortgage loan have been 11-2 disbursed to or on behalf of the borrower. 11-3 (b) Before completion of all services, a registrant may 11-4 charge and receive the following fees for services in assisting a 11-5 borrower to obtain a mortgage: 11-6 (1) a fee to obtain a report from a credit reporting 11-7 agency; 11-8 (2) a fee for notary services; 11-9 (3) a fee authorized by law to record, file, or 11-10 release a security interest or mortgage; 11-11 (4) a fee for the performance of a title search, 11-12 appraisal of the real estate, or survey of the real estate; 11-13 (5) fees for locking in an interest rate, issuing a 11-14 commitment letter, and processing a loan or a loan application in 11-15 connection with obtaining or refinancing a mortgage loan, provided 11-16 that the fees do not exceed an amount equal to 1-1/2 percent of the 11-17 mortgage loan amount for which the borrower is applying; and 11-18 (6) a fee paid directly by the borrower to a state or 11-19 federal governmental agency or instrumentality for processing a 11-20 mortgage application relating to a government-sponsored or 11-21 guaranteed mortgage program. 11-22 (c) If a fee is paid by a borrower for the performance of 11-23 any of the services described by Subsection (b)(4) of this section 11-24 and the registrant is unable to assist in obtaining a mortgage for 11-25 the borrower, the registrant shall return to the borrower the 11-26 original documents prepared by the bona fide third party at the 11-27 time that the request for the mortgage is refused or denied. 12-1 (d) For purposes of this section, "bona fide third party" 12-2 means a person who is not an employee of, related to, or affiliated 12-3 with the registrant and who is not used for the purpose of 12-4 circumvention or evasion of this section. 12-5 Sec. 9. ADVERTISING. (a) Each advertisement placed, or 12-6 caused to be placed, by a registrant, must clearly state the 12-7 identity of the registrant in a manner that prevents confusion with 12-8 the name of an unrelated registrant. A registrant must be 12-9 identified by the trade name, service mark, or business name that 12-10 is filed with the commissioner, as well as by the number on the 12-11 certificate of registration. 12-12 (b) Each advertisement must give the address that is on the 12-13 certificate of registration. An advertisement may not provide only 12-14 a telephone number or a newspaper or post office box address. 12-15 (c) A registrant may not place, or cause to be placed, an 12-16 advertisement that: 12-17 (1) states that loans or referrals will be made within 12-18 a specified time after the loan application is received; 12-19 (2) indicates that special terms, reduced rates, 12-20 guaranteed rates, particular rates, or any other special feature of 12-21 mortgage loans are available unless the advertisement clearly 12-22 states any limitations that apply; 12-23 (3) uses unqualified superlatives, including "lowest 12-24 rates," "lowest costs," "lowest payment plan," or "cheapest loan," 12-25 or makes offers that cannot be reasonably fulfilled or 12-26 substantiated; 12-27 (4) uses the words "new," "reduced," or similar words 13-1 in connection with costs after the 90th day after the date that 13-2 those costs become effective; or 13-3 (5) indicates that mortgage loans are available to 13-4 borrowers with "previous bankruptcy," "no credit," "bad credit," or 13-5 similar language unless the advertisement clearly states any 13-6 limitations that apply, including any limitation as to interest 13-7 rates. 13-8 (d) Each registrant shall maintain in each registered 13-9 location a scrapbook or file of all newspaper, magazine, direct 13-10 mailing, and roadside advertising, and scripts of radio and 13-11 television commercials, for a period of at least one year after the 13-12 date the advertisement is published or disseminated. 13-13 Sec. 10. SUSPENSION, REVOCATION, OR REFUSAL OF LICENSE; 13-14 INVESTIGATIONS; CEASE AND DESIST ORDERS. (a) After notice and 13-15 opportunity for a hearing, the commissioner may suspend, revoke, or 13-16 refuse to issue or renew a certificate of registration if the 13-17 commissioner finds a violation of Section 8(c) or Section 5, 6, 7, 13-18 or 9 of this article or a rule adopted under those sections. 13-19 (b) The commissioner may investigate alleged violations of 13-20 this article, or the rules adopted under this article, and 13-21 complaints concerning those alleged violations. The commissioner 13-22 may make application to any state district court for an order 13-23 enjoining such a violation and, on a showing by the commissioner 13-24 that a person has committed, or is about to commit, such a 13-25 violation, the court shall grant an injunction, restraining order, 13-26 or other appropriate relief. 13-27 (c) In conducting any investigation under this section, the 14-1 commissioner by subpoena may compel witnesses to testify in 14-2 relation to any matter over which the commissioner has 14-3 jurisdiction, and may require the production of any book, record, 14-4 or other document pertaining to that matter. If a person fails to 14-5 file a statement or report, obey a subpoena, give testimony, 14-6 produce a book, record, or other document as required by such a 14-7 subpoena, or fails to permit photocopying of a book, record, or 14-8 other document subpoenaed, a district court, on application by the 14-9 commissioner, shall compel obedience as if the subpoena were issued 14-10 by the court. 14-11 (d) If the commissioner determines that a person is engaged 14-12 in, or is believed to be engaged in, activities that may constitute 14-13 a violation of this article, the commissioner, after notice and a 14-14 hearing, may issue a cease and desist order. 14-15 Sec. 11. CIVIL ACTIONS; INJUNCTIVE RELIEF; CRIMINAL 14-16 PROSECUTIONS. (a) A borrower injured by a violation of Section 2, 14-17 Section 6(b), Section 7, or Section 8 of this article may bring an 14-18 action for recovery of damages. 14-19 (b) Damages awarded under Subsection (a) of this section may 14-20 not be less than the amount paid by the borrower to the mortgage 14-21 broker, plus reasonable attorney's fees and court costs. The 14-22 borrower may not be awarded punitive damages. 14-23 (c) The commissioner, the attorney general, or a borrower 14-24 may bring an action to enjoin a violation of this article. 14-25 (d) The commissioner may initiate criminal proceedings under 14-26 this article by presenting any evidence of a criminal violation to 14-27 the prosecuting attorney of the county in which the offense may be 15-1 prosecuted. If the prosecuting attorney does not prosecute the 15-2 violation, or at the request of that prosecuting attorney, the 15-3 commissioner may present any evidence of a criminal violation to 15-4 the attorney general, who may proceed in the prosecution. 15-5 (e) The remedies provided by this section are in addition to 15-6 any other remedy provided by law. 15-7 (f) In a proceeding or action brought under this article the 15-8 burden of proving an exemption is on the person claiming the 15-9 benefit of the exemption. 15-10 (g) A person does not violate this article with respect to 15-11 an act taken or omission made in reliance on a written notice, 15-12 written interpretation, or written report from the commissioner, 15-13 unless a subsequent amendment to the article or rules adopted under 15-14 the article affect the commissioner's notice, interpretation, or 15-15 report. 15-16 (h) On disbursement of mortgage proceeds to or on behalf of 15-17 the borrower, the registrant that assisted the borrower to obtain 15-18 the mortgage is considered to have completed the performance of the 15-19 registrant's services for the borrower and owes no additional 15-20 duties or obligations to the borrower with respect to the mortgage. 15-21 This subsection does not limit or preclude the civil or criminal 15-22 liability of a registrant for failing to comply with this article 15-23 or a rule adopted under this article, for failing to comply with a 15-24 provision of or duty arising under an agreement with a borrower or 15-25 lender under this article, or for violating any other state or 15-26 federal law. 15-27 Sec. 12. RULEMAKING POWERS. The commissioner may adopt 16-1 rules to administer and enforce this article. 16-2 Sec. 13. MORTGAGE BROKER ADVISORY COMMISSION. An advisory 16-3 commission shall be established to assist in the implementation and 16-4 administration of this article. The commission consists of six 16-5 members. The Texas Association of Mortgage Brokers shall appoint 16-6 three of the members from the mortgage brokerage industry. The 16-7 commissioner shall appoint one member and the governor shall 16-8 appoint two members. 16-9 Sec. 14. EFFECT ON TEXAS CREDIT SERVICES ORGANIZATIONS ACT. 16-10 A registrant is exempt from the requirements of Chapter 18, 16-11 Business & Commerce Code, to the extent that the registrant does 16-12 not charge a fee for any service regulated under that chapter. 16-13 Sec. 15. CONTINUING EDUCATION. A registrant must complete 16-14 eight hours of continuing education a year. The commissioner by 16-15 rule shall approve courses for continuing education credit. 16-16 Sec. 16. SECONDARY MARKET TRANSACTIONS. This article does 16-17 not prohibit a mortgage broker from receiving compensation from a 16-18 party other than the borrower for the sale, transfer, assignment, 16-19 or release of rights on the closing of a mortgage transaction. 16-20 Sec. 17. PENALTIES. (a) A person commits an offense if the 16-21 person violates Section 2, 7, or 8(a) or (b) of this article. 16-22 (b) An offense under this section is a Class A misdemeanor. 16-23 SECTION 2. (a) This Act takes effect September 1, 1997. 16-24 (b) A person is not required to be registered under Article 16-25 9001, Revised Statutes, as added by this Act, before January 1, 16-26 1998. 16-27 SECTION 3. The importance of this legislation and the 17-1 crowded condition of the calendars in both houses create an 17-2 emergency and an imperative public necessity that the 17-3 constitutional rule requiring bills to be read on three several 17-4 days in each house be suspended, and this rule is hereby suspended.