By Patterson S.B. No. 962
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.