WSR 06-18-067

PROPOSED RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed September 5, 2006, 8:41 a.m. ]

     Original Notice.

     Preproposal statement of inquiry was filed as WSR 06-12-059.

     Title of Rule and Other Identifying Information: Regulating mortgage brokers and loan originators licensed under chapter 19.146 RCW and implementing chapter 19, Laws of 2006.

     Hearing Location(s): State of Washington, House of Representatives, John L. O'Brien Building, Hearing Room C, Olympia, Washington, 98504-0600, on October 26, 2006, at 1:00 - 3:00 p.m.

     Date of Intended Adoption: November 21, 2006.

     Submit Written Comments to: Jeannette Terry, P.O. Box 41200, 150 Israel Road, Olympia, WA 98504-1200, e-mail jterry@dfi.wa.gov, fax (360) 586-5068, by October 25, 2006.

     Assistance for Persons with Disabilities: Contact Jeannette Terry, P.O. Box 41200, 150 Israel Road, Olympia, WA 98504-1200, by October 9, 2006, TTY (360) 664-8126 or (360) 902-8786.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed rules repeal the old rules. The proposed rules implement the changes to the existing law by chapter 19, Laws of 2006. The new law goes into effect January 1, 2007. Some of the key changes include:

• Mortgage broker licenses will expire annually and must be renewed.
• Mortgage brokers must annually report the number and dollar volume of loans made in Washington each year.
• The responsibility of designated brokers to oversee company and loan originator activity is specifically established in the new law.
• Loan originators must have a license to originate loans; the license expires annually.
• Loan originators must complete continuing education courses annually.
• The department may examine mortgage brokers' books and records within the first five years of licensing, including branch offices.
• The director is authorized to investigate for violations or complaints.
     These changes will assist licensees in operating their businesses in compliance with the new law. The changes will assist loan originators in receiving and maintaining their licenses. The annual expiration of mortgage broker and loan originator licenses will assist the department in tracking the licensees' annual requirements of continuing education, and the reporting of loan numbers and volumes. The new rules will assist mortgage brokers in understanding and preparing for an examination.

     Reasons Supporting Proposal: Chapter 19, Laws of 2006, changed the existing law; the proposed rules implement the changes.

     Statutory Authority for Adoption: RCW 43.320.040, 19.146.223, chapter 19, Laws of 2006.

     Statute Being Implemented: Chapter 19, Laws of 2006.

     Rule is not necessitated by federal law, federal or state court decision.

     Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: The department intends to implement these rules prior to the effective date of the act to facilitate the timely licensing of loan originators.

     Name of Proponent: Department of financial institutions, governmental.

     Name of Agency Personnel Responsible for Drafting: Cindy Fazio, Catherine Mele-Hetter, Deb Bortner, 150 Israel Road, Olympia, WA, (360) 902-8800; Implementation and Enforcement: Chuck Cross, 150 Israel Road, Olympia, WA, (360) 902-8786.

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

Small Business Economic Impact Statement

     Introduction: This small business economic impact statement (SBEIS) is written in support of rules drafted by the department of financial institutions (the department) to address changes made in the 2006 legislative session to chapter 19.146 RCW, the Mortgage Broker Practices Act (MBPA). The department filed form CR-101 on June 3, 2006, to initiate this rule making.

     Background: During the 2006 legislative session, the Washington legislature passed EHB 2340 amending the MBPA. Governor Gregoire signed the bill into law on March 9, 2006, as chapter 19, Laws of 2006.

     Key changes to the MBPA include the following:

• Mortgage broker licenses must be renewed annually and will expire if not renewed.
• The department has the authority to examine mortgage brokers' books and records within the first five years of licensing, including branch office licensing.
• Mortgage brokers must annually report the number of loans and the dollar volume of loans made in Washington each year.
• Loan originators must have a license to originate loans; the license expires annually.
• Loan originators must complete continuing education courses annually.
     On March 10, 2006, the day after the bill was signed by the governor, the department notified all 1,896 licensed mortgage brokers that it intended to begin the negotiated rule-making process immediately, and intended to hold a series of rule drafting meetings, open to the public, during which the department would provide an opportunity for public comment.

     On June 26, 2006, the department sent a letter (see Exhibit A below) to all licensed mortgage brokers to request their assistance in determining the economic impact of the proposed MBPA rules on small businesses, as required by the Regulatory Fairness Act, chapter 19.85 RCW. In the letter licensees were directed to a questionnaire (see Exhibit B below) on the department's web site and given instructions on completing the online questionnaire. An opportunity to receive and complete the questionnaire in paper form was also provided. Each question in the questionnaire relating to the proposed rules was accompanied with a background statement briefly explaining the new rule and how the department would implement the rule. Licensees were then asked to estimate the cost of implementing the proposed rule. The questionnaire remained available to licensees from June 27 to July 15, 2006. Two hundred eighteen licensees responded to the questionnaire online. Two additional licensees requested and were given paper copies of the questionnaire which they completed and returned.

     A description of the results of the questionnaire is detailed below and spreadsheets with detailed responses are shown below as Exhibits C (mortgage brokers with fifty or fewer employees) and D (mortgage brokers with over fifty employees).

     Required Elements of SBEIS:

     Element 1 - A brief description of the reporting, record keeping, and other compliance requirements of the proposed rules and of the kinds of professional services that a small business is likely to need in order to comply with the requirements.

     Reporting and Record Keeping: The new law and the proposed rules require mortgage broker licensees to file an annual report with the department. The annual report must contain the number of residential mortgage loans closed by the licensee during the year, and the dollar value of those loans.

     The proposed rules also address the new examination requirement in the statute. Mortgage broker licensees will be required to provide the department certain requested preexamination information about the mortgage business, including a list of all the loan originators working for the licensee. The request for information is sent when the licensee is notified of an upcoming examination. The department will examine the records of that licensee approximately thirty days after notification.

     Although there are no new record-keeping requirements in the proposed rules, licensees may have to change their current record-keeping systems or hire professionals to set up systems to comply with the new reporting and examination requirements. Licensees already collect and maintain the information necessary to comply with these information requests but they have never had to manipulate their loan files to produce an annual report or prepare for an examination. The department examiners will accommodate many types of record-keeping systems when accessing records for an examination.

     Licensees were surveyed to determine if the new reporting and examination requirement would add costs to their business, and if so, how much. That information is contained in Exhibits C and D shown below. (Any empty space on the questionnaire is a result of an unanswered question.)

     Professional Services: The proposed rules do not require mortgage broker licensees to hire professional services to compile or prepare reports on the business records. Licensees and their staff can perform these functions. Nonetheless, many licensees will likely choose to hire additional office staff or outside professional services to help prepare annual reports, to compile loan and loan value data, or to prepare for an examination. After they become familiar with the requirements of the new rules, more licensees may begin to produce the information on their own. Licensees may also choose to upgrade or change record-keeping systems so they can more easily keep real time records and provide reports to the department electronically.

     In the questionnaire, mortgage broker licensees were asked to provide a cost estimate for hiring professional services to prepare the annual report and to assist in preparation for an examination. Licensees with fewer than fifty employees estimated the average annual costs of professional services associated with an examination to be $1,698.00. Licensees with more than fifty employees estimated the costs associated with professional services associated with an examination to be $20,523.00.

     More detailed information is contained in Exhibits C and D shown below. (Any empty space on the questionnaire is a result of an unanswered question.)

     Element 2 - An analysis of the costs of compliance for identified industries, including costs of equipment, supplies, and increased administrative costs.

     The annual report and examination requirements discussed above may also have an economic impact on mortgage broker licensees in increased costs for equipment and supplies, and increased administrative costs. Specific questions in the questionnaire targeted the equipment, supplies and administrative costs of complying with the department's expanded examination authority (up to five years after initial licensure for the main office and each branch) and the costs to maintain and provide records for the annual report provided to the department.

     The new law requires loan originators to be licensed beginning January 1, 2007. Mortgage broker licensees may have increased administrative costs if they choose to pay for their loan originators' licenses. Loan originator license fees are expected to be $125 annually, per license. The questionnaire included a question asking if the mortgage broker licensee intended to pay for their loan originators' licensing fees. If the answer was affirmative, the number of loan originators was multiplied by $125.00 to determine the cost.

     Mortgage broker licensees with fifty or fewer employees estimated the costs to license their loan originators at an average of $312 annually. About one-half (ninety-three out of one hundred eighty-five) of the respondents in this category said they would not pay their loan originators' licensing fees. Licensees with more than fifty employees estimated it would cost an average of $2,411 to license their loan originators. The data shows that the majority of larger mortgage brokers plan to pay for their loan originators' licensing fees.

     The proposed rules require loan originators to successfully complete at least two approved continuing education courses annually. Designated brokers must successfully complete at least three continuing education courses each year. In order to assess the added cost for continuing education, the questionnaire asked if the mortgage broker licensee intended to pay the cost for continuing education for its designated broker or loan originators. The small business licensees estimated an average cost of $480 to cover continuing education costs for their designated broker and loan originator, while the licensees with more than fifty employees estimated an average cost of $5,450. Again, the data shows that the larger mortgage broker licensees will be paying for the continuing education for their designated broker and loan originators while many of the smaller licensees will not.

     The department surveyed for one additional administrative cost. The proposed rules allow a company to advertise their business using only their doing-business-as (DBA) name as long as the licensee discloses their license number in the advertisement. The questionnaire asked the mortgage broker licensees to estimate any additional costs that would be incurred to use a DBA and disclose the license number (increased costs may include new stationery, business cards, signs, etc.).

     More detailed information is contained in Exhibits C and D shown below. (Any empty space on the questionnaire is a result of an unanswered question.)

     Element 3 - Whether compliance with the proposed rule will cause businesses to lose sales or revenue.

     The proposed rules do not affect the demand for services or in any way restrict the licensees' business opportunities. Some loan originators may be unable to pass the license test, and others may be found unfit for licensure due to felony or financial misconduct convictions. While it may disrupt a mortgage broker licensee's business, this "fallout" is not viewed as a restriction on business or revenue but is rather a result of the legislature requiring a showing of competency before a loan originator can offer this important service to the public.

     The SBEIS questionnaire asked mortgage broker licensees to estimate the costs to their company of department examinations of their books and records. The department estimates each mortgage broker licensee will be examined one time in the first five years of licensure. Licensees with compliance issues will be scheduled for follow-up examinations. During an examination, department staff will be at a licensee's company for a day or two reviewing loan files for compliance. The licensee may be asked to provide additional documents and information during that time. The time spent by a licensee preparing for the examination and the time examiners spend at the company could detract from sales or other revenue generating activity by requiring the mortgage broker or other person to help the examiner or answer questions. Licensees whose books and records are in good order and who operate in compliance with state and federal law will have a shorter examination which will cause less disruption to the business activities.

     Element 4 - A comparison of compliance costs for the small business segment and the large business segment of the affected industries, and whether the impact on small business is disproportionate.

     The total average estimated cost for a company with fifty employees or less to implement the proposed rules is $12,993 while the total average estimated cost for a company with over fifty employees is $33,705. The cost per employee to implement the rules for mortgage broker licensees with fewer than fifty employees averaged $2,982 while the cost per employee for larger mortgage broker licensees averaged $39 per employee. Although the total estimated costs for a smaller company ($12,993) is only a third of the cost for a large company ($33,705), the cost for the small company is disproportionate when viewed as a cost per employee.

     Smaller mortgage brokers' estimates of costs associated with the rules varied widely. Some respondents indicated they expected to retool their business operation as a result of the proposed rules. Others appear to plan minimal changes in operation as indicated by expenditures expected to be in the hundreds of dollars. Exhibit C shows this variety in expectations.

     Element 5 - Steps taken by the department under RCW 19.85.030(2) to reduce the costs of the proposed rule on small businesses, or reasonable justification for not doing so, addressing the specified mitigation steps.

     Reducing, modifying, or eliminating substantive regulatory requirements: The department began the process of reducing the impact of the new regulatory requirements on the mortgage industry as the legislation was being drafted. While the original draft legislation had a provision that allowed the department to examine a mortgage broker licensee over the life of the company, the department compromised with the industry to limit the examination to the first five years of licensure of the main office and each of the branches. The original draft of the legislation gave the department very broad authority over the scope of an examination to determine compliance with the MBPA. The department compromised with the industry, limiting the scope of the examination to reviewing trust accounts, loan files, and general business books and records, and to conducting interviews. The original draft of the legislation provided that the licensee would have to pay an hourly fee for its examination. The department compromised with the industry and agreed not to charge the licensee for the examination. Instead, the department agreed to charge loan originators a licensing fee that would fund the cost of the examination program. Additionally, the department agreed to give licensees thirty days advance notice of an examination to give the company an opportunity to prepare for the examination. The rules also provide the licensee an opportunity to resolve examination findings prior to an enforcement action. Finally, the department agreed that any violation finding with reference to yield spread premiums will be delayed until a second examination is performed.

     Simplifying, reducing or eliminating record-keeping and reporting requirements: The department originally proposed to have the mortgage industry report a substantial amount of information in their annual report. When significant opposition arose, the department agreed to an annual report containing only the total number of residential mortgage loans made by the mortgage broker and the total dollar value of those loans.

     Easing the burden of testing required for licensing: The new law and proposed rules require that loan originators take and pass a test before being licensed. To help loan originator candidates (and designated broker candidates) prepare for the prelicense test, the department proposes to publish 1,000 questions and their answers on the department web site as a study guide. One hundred of the questions will comprise the designated broker and loan originator licensing test.

     The department will implement risk-based examinations and will help small businesses prepare for the examination: The department intends to implement a priority system for the mortgage broker examinations. Whether multiple examinations will be necessary will be driven by factors such as the mortgage broker licensee's history of consumer complaints; responses to department directives; previous examination findings; maintenance of appropriate bond coverage; and the status of the designated broker (having passed the licensing test and completed required continuing education). Companies with positive examination findings and few if any issues will likely not be examined more than once in the first five years of licensure. This approach will focus the department resources on licensees needing regulatory attention. This increases consumer protection and reduces the impact of regulation on the well run mortgage broker companies.

     To mitigate the impact of the new examination program on mortgage broker licensees, the department plans to conduct outreach and education programs for the licensees. The department will hold public meetings around the state to prepare licensees for their examinations by discussing the examination process, the records examiners will ask for during the examination, the common errors made by mortgage broker licensees, the contents of the examination report and what action licensees must take in response to an examination report.

     The department is preparing and will publish its examination manual on the department's web site so licensees can see what examiners will expect of them before and during the examination. The manual contains many helpful forms for compiling information that licensees can incorporate into their record-keeping process. Mortgage brokers can also use the examination manual to guide outside certified professionals if they choose to hire a certified professional to conduct an examination of the business and then ask the department to accept that examination in lieu of conducting its own examination.

     The department will provide licensees with advance notice of an examination and provide them with a list of documents needed for the examination. Many initial examinations will be in the form of technical assistance examinations, focused on educating the licensee about record keeping for compliance with state and federal law.

     Element 6 - How the department will involve small business in rule development: On March 10, 2006, the day after the MBPA was signed by the governor, the department notified all 1,896 mortgage broker licensees that it intended to begin the negotiated rule-making process immediately. The notice informed the licensees that the department would be holding a series of open public meetings in order to provide an opportunity for comment on all aspects of the new rules. The department, and members of the mortgage broker commission, a statutorily mandated and appointed advisory body, met and outlined how they would cooperatively work to draft rules in a public and interactive manner.

     Between March 30 and August 9, 2006, the department held eleven public rules drafting sessions. Meeting schedules were published on the department's web site, in industry publications, and mailed to licensees. All licensees were invited to attend these work sessions and provide comments. In addition, the department published biweekly drafts of the rules as they were being drafted. Comments on the draft rules were solicited on line and at the public meetings. The SBEIS questionnaire itself, during its development, was made available and reviewed during two of the public meetings.

     Element 7 - List businesses affected:

     Directly affected: Mortgage brokers, loan originators.

     Potentially affected: Loan processors, lenders, appraisers, escrow agents, real estate agents.

     Entities that may benefit via increased business associated with implementation of the rule: Continuing education providers, test providers, accounting and bookkeeping firms, appraisers, certified professionals.


Exhibit A

June 26, 2006


Dear Mortgage Broker Company:


The Mortgage Broker Practices Act (MBPA), chapter 19.146 RCW, was modified in early 2006 by the Washington State Legislature. The Department of Financial Institutions (the department) has begun rule making to implement the new law.


Key changes to the MBPA go into effect January 1, 2007, and include the following:


•     Loan originators must have a license to originate loans; the license expires annually

•     Loan originators must complete continuing education courses annually

•     Mortgage broker licenses will expire annually and must be renewed

•     The department may examine mortgage brokers' books and records within the first five years of licensing, including branch office licensing

•     Mortgage brokers must annually report the number of loans and the dollar volume of loans made in Washington each year


Under the Regulatory Fairness Act, chapter 19.85 RCW, the department must assess the proposed rules' impact on small businesses. In order to make this assessment, the department must understand how the new rules may affect your business. To this end, the department has prepared a survey to gather the necessary information. We would like the president, CEO or Designated Broker of your company to respond to the survey. One response per licensed mortgage company is all we will accept. You can review and fill out the survey on the department web page.


To complete the survey, use this link: http://dfi.wa.gov/cs/mortgage.htm.


Copies of the new MBPA and the draft proposed rules can be found on the department's web site, http://dfi.wa.gov, under "Mortgage Brokers."


Please complete the electronic survey by July 15, 2006. If you would like a paper copy of the survey, please contact Dawn Morris at the department, at 360-902-0519. Thank you for your assistance.


Sincerely,
Whittier Johnson

Program Manager


Exhibit B


Small Business Economic Impact - Mortgage Broker Questionnaire

     1. Introduction

     In order to assist the department in determining the economic impact of the new Mortgage Broker Practices Act rules (MBPA rules) on licensed mortgage brokers, please complete and submit this questionnaire electronically by July 15, 2006. We will accept only one response from each licensed mortgage broker.


     *1. Please provide the following information:

     Company Name ____________

     Designated Broker ____________

     Email Address or Telephone Number __________


     *2. How many employees work for your mortgage broker company? ________


     2. Loan Originator Licensing

     The changes to the Mortgage Broker Practices Act include a requirement that beginning January 1, 2007, loan originators must have a license to originate loans. After that date mortgage brokers must only employ or contract with licensed loan originators. While the new law does not require mortgage brokers to pay loan officer licensing fees, some mortgage brokers may choose to do so.

     3. How many loan originators do you employ either as independent contractors or W-2 employees (include all locations)?

     _________

     4. Do you plan to pay your loan originators' license fees (loan originator annual license fees may be set at anywhere from $100 to $150)?

     &sqbul; Yes

     &sqbul; No

     5. You will need to provide the Department of Financial Institutions with a list of your loan originators when we examine your company. Please estimate your annual recordkeeping costs to keep this information.

     $ _______

     3. Loan Originator Continuing Education

     Loan originators will have to successfully complete two continuing education courses each year to maintain their license.

     6. Do you plan to pay for your loan originators' continuing education?

     &sqbul; Yes

     &sqbul; No

     7. What are your estimated annual loan originator continuing education costs? (Assume the cost of continuing education to be similar to that of your designated broker.)

     $ _______

     4. Examination Costs

     Amendments to the Mortgage Broker Practices Act allow the department to examine your books and records within the first five years you are licensed to check for compliance with state and federal laws. The department will not charge you for the cost of the examination. However, you will have to pay our travel expenses if you are located out of state.

     The department may request that you provide some or all of the following information to us for a pre-examination review:

•     A list of your loan originators

•     The total number of loans made during a specified time period

•     A list of all residential loan applications taken in the past two years

•     Bank statements for the past two years and/or trust account information and statements

•     An income statement and balance sheet for your company

•     A list of all loans refinanced for the same borrower in the last twelve months

•     A list of all states in which your mortgage broker company is licensed

•     All complaints filed against your company in the last two years

•     A copy of your advertising (broadcast scripts, print, etc.) from the last two years

•     A list of rescinded loans in the last two years

•     An organization chart for your company including ownership, management, affiliates, and subsidiaries

     Most on-site examinations are expected to last two days or less. Prior to the examination the department will contact you to arrange the date and time of the examination. Generally, you will not be examined more than once in five years. At the conclusion of the examination, the examiner(s) will meet with you (the designated broker or owner) to review the examination findings and provide insight into what the department will include in the examination report. After the department completes the examination report, you must respond to items noted by the examiner by explaining what has

been done to correct any problems noted.

     8. Please estimate your costs for reporting, recordkeeping, and other compliance requirements associated with your examination as described above:

     Reporting $ ______

     Recordkeeping $ ______

     Other Compliance Related to Examination $ ______

     Total Annual Costs $ ______

     9. Please estimate your costs of additional professional services you are likely to need in order to comply with the department's request for information as described above (accountants, consultants, bookkeeping, etc.).

     Annual Costs for Professional Services $ ______

     10. Please estimate your costs for equipment, supplies, labor, and increased administrative costs associated with an examination.

     Equipment $ ______

     Supplies $ ______

     Labor $ ______

     Other Administrative Costs Related to Examination $ _____

     Total Annual Costs $ ______

     5. Mortgage Loan Reporting

     The new law requires mortgage brokers to annually report to the department the number of residential mortgage loans made in Washington, including the dollar volume of those loans.

     11. How much will it cost your business to keep records of and report to the department annually the total number and dollar value of all of the residential mortgage loans you made during the year?

     Total Cost to Provide an Annual Report of Loans $ ______

     12. Please estimate your costs of additional professional services, equipment, supplies, and labor you are likely to need to keep records of and report to the department annually the total number and dollar value of all the loans you made during the year (professional services are things like accounting, computer specialist, administrative support, etc.).

     Professional Services $ ______

     Equipment $ ______

     Supplies (computer software, etc.) $ ______

     Labor (administrative support) $ ______

     Total Annual Costs $ ______

     6. Providing Your License Number

     New rules require you to provide your license number on all materials (advertising, letterhead, business cards, etc.) when you are conducting business using your DBA name without also using the name on your license.

     13. If you intend to use only your DBA name on certain materials, please estimate your cost of including your license number on those materials.

     Estimated Cost of Including License Number $ ______


Thank You for Completing the Questionnaire!


     We appreciate the time you took to provide us with this information.

     If you have any questions or concerns, please email dmorris@dfi.wa.gov.

     Return to Mortgage Brokers.


EXHIBIT C


COSTS FOR MORTGAGE BROKERS WITH 50 OR FEWER EMPLOYEES



Cost to MB to License LO Cost to Produce

LO List

Continuing Education Costs Exams: Rpting Records Other Total Exams Pro Svs Exams: Equip Supplies Labor Other Total Cost to Provide Records for Annual Report Costs for Annual Rpt: Professional Services, Equipment,Supplies, and Labor Costs to use DBA Only TOTAL Number Of Employees Cost Per Employee
1 $500 $0 $8,500 $5,000 $3,750 $1,000 $7,750 $0 $26,500 25 $1,060
2 $250 $100 $0 $1,400 $2,000 $2,050 $1,000 $2,850 $50 $9,700 2 $4,850
3 $1,750 $300 $0 $4,800 $750 $3,200 $300 $75 $3,000 $14,175 28 $506
4 $2,750 $100 $2,178 $1,300 $500 $2,300 $1,300 $800 $0 $11,228 50 $225
5 $0 $1,000 $0 $1,500 $500 $2,000 $350 $4,000 $2,500 $11,850 1 $11,850
6 $0 $150 $0 $500 $200 $150 $500 $500 $2,000 3 $667
7 $0 $0 $0 $0 $0 $0 $10 $0 $0 $10 1 $10
8 $500 $2,000 $2,400 $1,550 $1,000 $1,400 $300 $700 $0 $9,850 17 $579
9 $0 $0 $0 $7,600 $2,500 $2,050 $0 $0 $0 $12,150 1 $12,150
10 $0 $100 $9,600 $3,500 $2,500 $3,500 $250 $250 $3,500 $23,200 32 $725
11 $0 $0 $0 $0 $0 $0 $0 $0 $0 1 $-
12 $0 $0 $1,000 $2,000 $500 $450 $500 $400 $3,000 $7,850 6 $1,308
13 $2,625 $1,000 $0 $6,500 $3,000 $15,750 $250 $4,000 $500 $33,625 26 $1,293
14 $250 $15,000 $2,500 $14,000 $12,000 $5,000 $5,000 $7,500 $0 $61,250 4 $15,313
15 $0 $100 $0 $4,600 $4,000 $1,000 $500 $1,900 $3,000 $15,100 2 $7,550
16 $0 $0 $0 $250 $100 $0 $0 $350 5 $70
17 $500 $10 $500 $2,000 $1,000 $500 $250 $250 $0 $5,010 5 $1,002
18 $0 $500 $0 $3,600 $500 $1,400 $1,200 $0 $1,000 $8,200 50 $164
29 $0 $12,000 $250 $20,000 $10,000 $5,000 $10,000 $20,000 $5,000 $82,250 15 $5,483
20 $0 $100 $3,000 $5,000 $2,000 $500 $200 $1,000 $2,000 $13,800 26 $531
21 $375 $200 $600 $1,500 $500 $200 $200 $200 $0 $3,775 4 $944
22 $0 $200 $0 $0 $2,000 $800 $100 $100 $1,000 $4,200 14 $300
23 $0 $0 $0 $225 $300 $150 $50 $725 2 $363
24 $0 $150 $0 $1,000 $400 $500 $100 $300 $2,450 1 $2,450
5 $0 $0 $165 $5 $450 $1 $1 $102 $0 $724 1 $724
26 $0 $50 $0 $1,850 $2,120 $150 $550 $500 $5,220 2 $2,610
27 $0 $1,000 $0 $3,000 $5,000 $10,000 $3,000 $47,000 $1,500 $70,500 7 $10,071
28 $250 $500 $0 $1,500 $700 $1,100 $200 $450 $0 $4,700 2 $2,350
29 $0 $0 $0 $0 $0 $0 $25 $25 $0 $50 1 $50
30 $0 $300 $0 $1,300 $500 $850 $1,200 $1,200 $5,350 5 $1,070
31 $750 $1,000 $0 $15,000 $5,000 $2,500 $500 $3,500 $5,000 $33,250 8 $4,156
32 $0 $100 $0 $8,500 $2,500 $9,000 $20,000 $10 $40,110 2 $20,055
33 $0 $200 $0 $800 $1,000 $550 $100 $900 $3,550 1 $3,550
34 $0 $500 $0 $2,500 $1,500 $1,600 $100 $1,650 $1,500 $9,350 1 $9,350
35 $0 $50 $0 $2,200 $1,500 $700 $50 $200 $150 $4,850 1 $4,850
36 $0 $1,000 $0 $3,000 $2,000 $2,020 $1,000 $2,000 $0 $11,020 15 $735
37 $250 $0 $0 $3,000 $3,500 $1,500 $1,200 $5,000 $14,450 2 $7,225
38 $375 $0 $600 $1,000 $1,000 $500 $25 $500 $100 $4,100 6 $683
39 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 2 $-
40 $1,375 $250 $750 $6,740 $1,000 $1,200 $0 $1,300 $0 $12,615 12 $1,051
41 $0 $0 $0 $1,000 $1,500 $125 $0 $0 $100 $2,725 1 $2,725
42 $250 $1,500 $250 $1,950 $3,000 $1,250 $1,200 $1,700 $100 $11,200 3 $3,733
43 $0 $50 $0 $300 $1,500 $2,000 $0 $3,000 $0 $6,850 1 $6,850
44 $0 $20 $125 $300 $0 $300 $150 $100 $995 1 $995
45 $1,875 $6,000 $4,500 $7,500 $1,500 $3,000 $500 $500 $25,375 15 $1,692
46 $0 $50 $750 $1,000 $0 $500 $100 $500 $100 $3,000 3 $1,000
47 $125 $60 $150 $180 $120 $190 $300 $360 $1,485 2 $743
48 $0 $4,500 $1,500 $14,500 $2,500 $4,000 $400 $900 $2,500 $30,800 2 $15,400
49 $250 $1,000 $100 $1,350 5 $270
50 $125 $0 $0 $125 1 $125
51 $125 $50 $300 $800 $200 $1,400 $50 $300 $500 $3,725 3 $1,242
52 $500 $50 $0 $4,800 $2,000 $2,500 $500 $500 $1,500 $12,350 9 $1,372
53 $1,250 $500 $650 $4,550 $3,000 $2,150 $1,000 $13,100 13 $1,008
54 $3,500 $250 $1,000 $4,000 $0 $8,750 45 $194
55 $250 $500 $250 $1,700 $1,000 $1,100 $1,000 $1,100 $2,000 $8,900 5 $1,780
56 $125 $100 $250 $550 $1,000 $400 $500 $400 $1,500 $4,825 2 $2,413
57 $250 $0 $250 $5,000 $0 $0 $500 $600 $0 $6,600 12 $550
58 $1,250 $0 $750 $750 $2,250 $150 $2,250 $500 $7,900 2 $3,950
59 $1,875 $100 $0 $1,250 $1,000 $1,100 $1,600 $50 $6,975 15 $465
60 $0 $25 $0 $500 $0 $500 $25 $0 $25 $1,075 1 $1,075
61 $0 $5 $0 $600 $0 $1,350 $300 $610 $350 $3,215 4 $804
62 $375 $100 $825 $300 $250 $300 $100 $200 $600 $3,050 3 $1,017
63 $500 $200 $600 $1,500 $500 $600 $100 $500 $5,000 $9,500 7 $1,357
64 $0 $500 $0 $300 $1,000 $625 $100 $400 $2,925 3 $975
65 $0 $500 $0 $25,000 $0 $1,010 $200 $500 $1,500 $28,710 34 $844
66 $1,625 $100 $2,000 $4,000 $2,500 $4,000 $100 $2,500 $16,825 16 $1,052
67 $0 $0 $15,000 $10,000 $4,500 $1,000 $1,000 $0 $31,500 7 $4,500
68 $0 $200 $0 $7,800 $1,600 $1,600 $1,600 $12,800 6 $2,133
69 $125 $0 $150 $0 $0 $0 $0 $0 $300 $575 1 $575
70 $250 $1,200 $0 $3,000 $5,000 $35,000 $350 $19,350 $64,150 3 $21,383
71 $0 $3,000 $0 $6,000 $1,100 $500 $850 $10,000 $21,450 6 $3,575
72 $0 $0 $0 $350 $2,000 $500 $100 $850 $250 $4,050 1 $4,050
73 $0 $0 $0 $0 $0 $30 $0 $0 $85 $115 1 $115
74 $0 $300 $0 $600 $1,200 $700 $500 $1,000 $1,000 $5,300 2 $2,650
75 $0 $1,000 $1,200 $20,000 $10,000 $13,000 $1,000 $9,000 $15,000 $70,200 7 $10,029
76 $0 $100 $0 $4,500 $2,000 $2,300 $2,000 $2,000 $2,000 $14,900 14 $1,064
77 $0 $0 $0 $10,000 $5,000 $400 $10,000 $15,000 $0 $40,400 4 $10,100
78 $0 $1 $0 $650 $0 600,00 $100 $0 $0 $751 6 $125
79 $0 $0 $0 $950 $750 $500 $500 $500 $1,500 $4,700 1 $4,700
81 $375 $0 $1,200 $0 $250 $20 $0 $50 $1,895 3 $632
82 $250 $1,000 $0 $7,500 $2,500 $2,200 $500 $1,000 $5,000 $19,950 2 $9,975
83 $250 $400 $8,000 $4,800 $3,400 $14,000 $1,350 $0 $32,200 3 $10,733
84 $250 $1,000 $1,500 $9,000 $1,000 $1,700 $1,500 $6,700 $22,650 4 $5,663
85 $0 $500 $0 $1,000 $200 $300 $1,000 $500 $1,000 $4,500 10 $450
86 $0 $500 $0 $3,100 $1,500 $1,400 $100 $3,100 $15,000 $24,700 21 $1,176
87 $0 $100 $0 $2,000 $1,000 $1,200 $100 $900 $0 $5,300 8 $663
88 $0 $0 $0 $500 $0 $500 $50 $0 $1,050 5 $210
89 $0 $1,500 $0 $21,500 $2,500 $2,750 $1,500 $9,000 $1,500 $40,250 3 $13,417
90 $0 $0 $0 $200 $500 $0 $0 $0 $0 $700 5 $140
91 $1,500 $30 $9,600 $1,600 $350 $1,280 $500 $500 $15,360 12 $1,280
92 $0 $100 $0 $1,500 $1,000 $600 $500 $1,100 $0 $4,800 15 $320
93 $0 $2,700 $0 $5,700 $5,000 $5,800 $500 $2,800 $500 $23,000 1 $23,000
94 $0 $50 $0 $6,000 $1,000 $1,100 $500 $2,000 $10,650 14 $761
95 $0 $0 $0 $300 $350 $1,300 $500 $1,700 $1,000 $5,150 1 $5,150
96 $0 $0 $0 $2,000 $0 $1,900 $0 $0 $0 $3,900 8 $488
97 $0 $0 $300 $4,000 $1,200 $2,150 $350 $1,125 $1,250 $10,375 1 $10,375
98 $0 $5,000 $0 $10,000 $15,000 $5,500 $5,000 $15,000 $2,500 $58,000 12 $4,833
99 $625 $1,500 $750 $2,350 $500 $1,600 $100 $1,650 $0 $9,075 8 $1,134
100 $250 $50 $500 $3,300 $500 $3,750 $750 $3,650 $200 $12,950 3 $4,317
101 $0 $25 $0 $350 $100 $475 $25 $25 $200 $1,200 2 $600
102 $0 $100 $0 $3,000 $2,500 $1,700 $1,000 $3,500 $11,800 10 $1,180
103 $0 $5 $0 $600 $0 $200 $45 $300 $1,150 4 $288
104 $0 $0 $0 $500 $0 $0 $0 $0 $0 $500 2 $250
105 $0 $0 $0 $50 $0 $0 $0 $0 $0 $50 1 $50
106 $2,000 $500 $0 $2,500 $0 $2,000 $0 $0 $5,000 $12,000 35 $343
107 $0 $25 $0 $9,200 $100 $225 $100 $0 $9,650 12 $804
108 $0 $140 $0 $4,880 $1,400 $1,400 $1,680 $1,680 $0 $11,180 5 $2,236
109 $0 $0 $0 $3,600 $2,000 $20,500 $26,100 18 $1,450
110 $0 $300 $0 $5,000 $2,500 $3,600 $500 $500 $500 $12,900 15 $860
111 $0 $600 $0 $1,200 $2,000 $2,500 $1,200 $2,600 $600 $10,700 8 $1,338
112 $625 $0 $375 $3,470 $300 $6,670 $4,160 $1,310 $0 $16,910 7 $2,416
113 $0 $0 $0 $1,500 $1,200 $2,700 1 $2,700
114 $1,500 $1,500 $0 $3,000 $2,500 $1,200 $500 $2,700 $5,000 $17,900 5 $3,580
115 $875 $100 $500 $500 $500 $700 $250 $500 $3,925 9 $436
116 $375 $0 $800 $4,850 $3,600 $250 $400 $400 $10,675 5 $2,135
117 $0 $0 $0 $0 $0 $0 $0 $0 $0 3 $-
118 $0 $30 $2,400 $300 $500 $300 $60 $60 $3,650 18 $203
119 $375 $250 $500 $7,500 $2,500 $6,850 $1,200 $2,500 $21,675 3 $7,225
120 $0 $0 $0 $250 $0 $0 $100 $100 $0 $450 4 $113
121 $135 $10 $165 $1,650 $1,650 $3,400 $500 $1,300 $10,000 $18,810 1 $18,810
122 $2,750 $100 $100 $300 $500 $1,200 $100 $800 $100 $5,950 37 $161
123 $125 $125 1 $125
124 $375 $500 $125 $1,000 $3,500 $250 $3,600 $1,500 $10,850 3 $3,617
125 $0 $0 $0 $300 $0 $0 $100 $100 $100 $600 1 $600
126 $0 $100 $1,000 $3,000 $3,000 $2,100 $1,200 $3,400 $0 $13,800 10 $1,380
127 $0 $50 $0 $700 $400 $750 $50 $350 $700 $3,000 9 $333
128 $750 $900 $750 $1,500 $500 $660 $2,500 $1,900 $1,200 $10,660 3 $3,553
129 $0 $100 $0 $1,300 $1,500 $1,400 $900 $3,100 $0 $8,300 4 $2,075
130 $125 $50 $0 $850 $400 $400 $250 $500 $200 $2,775 1 $2,775
131 $125 $1,000 $500 $1,200 $1,200 $2,400 $1,000 $2,400 $9,825 1 $9,825
137 $0 $10,000 $0 $137,000 $15,000 $161,000 $323,000 19 $17,000
138 $125 $1,000 $500 $2,500 $1,500 $1,700 $500 $1,200 $9,025 4 $2,256
148 $0 $100 $1,500 $1,500 $1,000 $1,500 $5,600 13 $431
149 $2,375 $0 $2,375 26 $91
153 $0 $600 $0 $1,200 $1,200 $3,000 1 $3,000
154 $0 $1,500 $0 $4,650 $1,450 $1,900 $2,500 $12,000 6 $2,000
155 $625 $500 $1,500 $3,000 $2,500 $5,500 $13,625 4 $3,406
158 $0 $150 $0 $1,000 $1,000 $650 $150 $550 $3,500 2 $1,750
160 $0 $1,000 $0 $7,000 $1,000 $3,600 $12,600 4 $3,150
161 $0 $250 $0 $250 15 $17
162 $500 $100 $500 $500 $1,200 $1,700 $50 $4,550 2 $2,275
163 $125 $200 $600 $925 2 $463
164 $625 $750 $1,375 8 $172
166 $750 $150 $3,500 $4,400 7 $629
167 $0 $1,000 $0 $1,000 1 $1,000
168 $250 $100 $300 $650 6 $108
172 $125 $5,000 $1,000 $6,125 1 $6,125
173 $0 $0 $0 $500 $500 $0 $1,000 $1,000 $3,000 2 $1,500
174 $0 $500 $0 $500 23 $22
175 $0 $500 $0 $500 15 $33
176 $750 $100 $0 $850 10 $85
177 $250 $0 $400 $650 3 $217
178 $875 $2,000 $2,000 $4,875 7 $696
179 $500 $100 $250 $850 6 $142
180 $0 $5,100 $0 $5,100 2 $2,550
181 $625 $5,000 $5,625 6 $938
182 $0 $1,000 $2,000 $3,000 $1,000 $1,050 $8,050 12 $671
183 $875 $100 $0 $975 10 $98
184 $0 $0 $0 $100 $100 $1,000 $500 $0 $1,700 1 $1,700
185 $0 $100 $500 $300 $500 $500 $600 $900 $250 $3,650 2 $1,825
Average Average Average Average Average Average Average Average Average Average Average
$312 $763 $480 $4,388 $1,698 $2,046 $12,614 $2,465 $1,324 $12,993 $2,982

EXHIBIT D

COSTS FOR MORTGAGE BROKERS WITH MORE THAN 50 EMPLOYEES



Cost to

MB to License

Los

Cost to Produce

LO List

Continuing Education Costs Exam: Equip Supplies Labor Costs Exam

Prof Services

Cost to Provide Records for Annual Report Costs for

Annual Rpt: Professional Services, Equipment, Supplies, and Labor

Costs to use DBA only Total

Costs

# of Employ. Cost/

Employ.

$0 $3,000 $0 $2,500 $0 $500 $10,300 $16,300 60 $40
$0 $10,000 $0 $1,500 $5,000 $1,000 $0 $10,000 $27,500 857 $76
$1,250 $100 $2,500 $4,000 $2,500 $7,000 $12,500 $0 $29,850 100 $50
$0 $100 $0 $8,000 $1,000 $2,000 $8,000 $19,100 100 $0
$0 $350 $0 $650 $500 $50 $1,000 $25 $2,575 96 $79
$0 $2,000 $0 $3,200 $1,500 $1,500 $800 $0 $9,000 125 $0
$0 $1,200 $0 $500 $500 $0 $100 $5,000 $7,300 97 $25
$0 $50 $0 $880 $2,000 $150 $1,100 $0 $4,180 60 $40
$625 $300 $3,000 $11,025 $7,000 $1,500 $0 $23,450 135 $95
$0 $100 $0 $1,610 $1,000 $120 $120 $50 $3,000 120 $0
$0 $300 $0 $1,250 $250 $0 $0 $0 $1,800 89 $20
$0 $600 $0 $500 $800 $50 $355 $2,305 80 $65
$500 $3,000 $6,000 $20,000 $250,000 $3,000 $46,000 $500 $329,000 150 $50
$7,750 $2,000 $0 $0 $0 $1,000 $0 $10,750 102 $40
$17,500 $1,000 $10,000 $28,500 150 $0
$0 $50 $0 $50 56 $50
$0 $0 $0 170 $0
$4,250 $200 $4,450 89 $0
$0 $0 $0 280 $0
$3,125 $3,125 184 $181
$0 $250 $0 $250 105 $40
$3,125 $35,000 $10,000 $37,000 $     35,000 $30,000 $77,000 $5,000 $232,125 57 $21
$12,500 $1,000 $1,200 $1,600 $800 $100 $1,900 $1,500 $20,600 115 $15
Total Total Total Total Total Total Total Total
$50,625 $47,600 $32,700 $90,215 $302,850 $46,470 $148,875 $719,335
Average Average Average Average Average Average Average Average Average Average
$2,411 $3,189 $5,450 $6,448 $20,523 $3,426 $14,264 $3,154 $33,705 $39

     A copy of the statement may be obtained by contacting Jeannette Terry, P.O. Box 41200, 150 Israel Road, Olympia, WA 98504-1200, phone (360) 902-8786, fax (360) 586-5068, e-mail jterry@dfi.wa.gov.

     A cost-benefit analysis is not required under RCW 34.05.328. Not applicable to the proposed rules.

September 1, 2006

Chuck Cross

Director, Consumer Services

OTS-9121.3


NEW SECTION
WAC 208-660-005   Purpose, scope and coverage.   (1) What is the purpose of the Mortgage Broker Practices Act? The purpose of the Mortgage Broker Practices Act is to establish a state system of licensure and rules of practice and conduct for mortgage brokers and loan originators, to promote honesty and fair dealing with citizens, and to preserve public confidence in the lending and real estate community.

     (2) What is the purpose of the Mortgage Broker Practices Act rules? The purpose of these rules is to administer and interpret the Mortgage Broker Practices Act in order to govern the activities of licensed mortgage brokers, loan originators, and other persons subject to the act.

     (3) What is the scope and coverage of the Mortgage Broker Practices Act and these rules? There are four criteria to determine the scope and coverage of the Mortgage Broker Practices Act and these rules. All of the criteria must be met in order for a person or entity to fall under the scope and coverage of the act and these rules. The criteria are:

     (a) The persons or entities conducting business;

     (b) The type of transactions performed when conducting the business;

     (c) The identification of residential real estate; and

     (d) The location of the mortgage broker, loan originator, potential borrower, and residential real estate.

     (4) What persons or entities are covered? The Mortgage Broker Practices Act and these rules apply to all persons or entities defined as mortgage brokers under RCW 19.146.010(12), or loan originators under RCW 19.146.010(10). However, certain mortgage brokers and loan originators may be exempt from all or part of the act under RCW 19.146.020 as discussed in WAC 208-660-008.

     (5) What types of transactions are covered? The Mortgage Broker Practices Act and these rules cover the making or assisting in obtaining of any "residential mortgage loan" defined in RCW 19.146.010(15) and WAC 208-660-006. The terms "making" and "assisting" are defined under "mortgage broker" in WAC 208-660-006. Violations of RCW 19.146.0201, however, are not limited to residential mortgage loan transactions.

     (6) What is residential real estate? Residential real estate is real property upon which is constructed or intended to be constructed, a single family dwelling, or multiple family dwelling of four or less units. See examples in WAC 208-660-006, "residential real estate."

     (7) Does the location of the mortgage broker, loan originator, potential borrower, and residential real estate affect whether the transaction is covered under the Mortgage Broker Practices Act? If the mortgage broker, loan originator, potential borrower, or residential real estate is located in Washington, the transaction is covered by the Mortgage Broker Practices Act and these rules. However, the director may choose to defer to other jurisdictions where doing so would, in the director's sole discretion, achieve the purposes of the Mortgage Broker Practices Act.

     (8) What are some examples of transactions falling under the scope and coverage of the Mortgage Broker Practices Act and these rules?

     (a) A loan originator employed with Mortgage Broker, Inc. with a physical office in Redmond, Washington takes a loan application from a Kirkland, Washington resident for the purchase of a home located in Bellevue, Washington. Mortgage Broker, Inc. is not exempt from the Mortgage Broker Practices Act under RCW 19.146.020 (1)(a)(i). The home located in Bellevue meets the definition of residential real estate and the purchaser intends to reside in the home.

     (b) A loan originator with a physical office in Spokane, Washington takes a loan application from a Yakima, Washington resident for the purchase of a home located in Oregon. The mortgage broker is not exempt from the Mortgage Broker Practices Act under RCW 19.146.020 (1)(a)(ii). The home located in Oregon meets the definition of residential real estate and the purchaser intends to reside in the home.

     (c) A loan originator with a physical office in Reno, Nevada working for a Nevada mortgage broker takes a loan application from a Nevada resident for the purchase of a home located in Olympia, Washington. The mortgage broker is not exempt from the Mortgage Broker Practices Act under RCW 19.146.020 (1)(a)(ii). The home located in Washington meets the definition of residential real estate and the purchaser intends to reside in the home.

[]


NEW SECTION
WAC 208-660-006   Definitions.   What definitions are applicable to these rules? Unless the context clearly requires otherwise, the definitions in this section apply throughout these rules.

     "Act" means the Mortgage Broker Practices Act, chapter 19.146 RCW.

     "Advertising material" means any form of sales or promotional materials to be used in connection with the mortgage broker business.

     "Affiliate" means any person who directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with another person.

     "Application" means the same as in Regulation X, Real Estate Settlement Procedures, 24 C.F.R. Sec. 3500 as of the effective date of these rules, which is the submission, whether written or computer-generated, of a borrower's financial information in anticipation of a credit decision relating to a residential mortgage loan. If the submission does not state or identify a specific property, the submission is an application for a prequalification and not an application for a residential mortgage loan under this part. The subsequent addition of an identified property to the submission converts the submission to an application for a residential mortgage loan.

     For a refinance or purchase application that is not a prequalification, the credit report may be enough to constitute an application. The credit report date determines when the mortgage broker, or loan originator on behalf of the mortgage broker, has gathered sufficient information to make a credit decision. This may be a trigger for early disclosures when the property address is known.

     "Appraisal" means the act or process of developing an opinion of value, the act pertaining to an appraisal-related function, or any verbal or written opinion of value offered by an appraiser. The opinion of value by the appraiser includes any communication that is offered as a single point, a value range, a possible value range, exclusion of a value, or a minimum value.

     "Borrower" means any person who consults with or retains a mortgage broker or loan originator in an effort to obtain or seek advice or information on obtaining or applying to obtain a residential mortgage loan for himself, herself, or persons including himself or herself, regardless of whether the person actually obtains such a loan.

     "Branch office" means a fixed physical location such as an office, separate from the principal place of business of the licensee, where the licensee holds itself out as a mortgage broker.

     "Branch office license" means a branch office license issued by the director allowing the licensee to conduct a mortgage broker business at the location indicated on the license.

     "Certificate of passing an approved examination" means a certificate signed by the testing administrator verifying that the individual performed with a satisfactory score or higher.

     "Certificate of satisfactory completion of an approved continuing education course" means a certificate signed by the course provider verifying that the individual has attended an approved continuing education course.

     "Compensation or gain" means remuneration, benefits, or an increase in something having monetary value, including, but not limited to, moneys, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing moneys that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special or unusual bank or financing terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payments of another person's expenses, or reduction in credit against an existing obligation. "Compensation or gain" is not evaluated solely on a loan by loan basis.

     For example, a realtor advertising that buyers using their services will receive free loan origination assistance is doing so in the anticipation of "compensation or gain" through increased real estate business.

     "Computer loan information systems" or "CLI system" means a real estate mortgage financing information system that facilitates the provision of information to consumers by a mortgage broker, loan originator, lender, real estate agent, or other person regarding interest rates and other loan terms available from different lenders.

     For purposes of this definition, the CLI system includes computer hardware or software, an internet-based system, or any combination of these, which provides information to consumers about residential mortgage interest rates and other loan terms which are available from another person.

     "Computer loan information system provider" or "CLI provider" is any person who provides a computer loan information service, either directly, or as an owner-operator of a CLI system, or both.

     "Consumer Protection Act" means chapter 19.86 RCW.

     "Control" including the terms "controls," "is controlled by," or "is under common control" means the power, directly or indirectly, to direct or cause the direction of the management or policies of a person, whether through ownership of the business, by contract, or otherwise. A person is presumed to control another person if such person is:

     • A general partner, officer, director, or employer of another person;

     • Directly or indirectly or acting in concert with others, or through one or more subsidiaries, owns, holds with power to vote, or holds proxies representing, more than twenty percent of the voting interests of another person; or

     • Has similar status or function in the business as a person in this definition.

     "Convicted of a crime," irrespective of the pronouncement or suspension of sentence, means a person:

     • Has been convicted of the crime in any jurisdiction;

     • Has been convicted of a crime which, if committed within this state would constitute such a crime under the laws of this state;

     • Has plead guilty or no contest or nolo contendere or stipulated to facts that are sufficient to justify a finding of guilt to such a charge before a court or federal magistrate; or

     • Has been found guilty of a crime by the decision or judgment of a state or federal judge or magistrate, or by the verdict of a jury.

     "Department" means the department of financial institutions.

     "Designated broker" means a natural person designated as the person responsible for activities of the licensed mortgage broker in conducting the business of a mortgage broker under this chapter and who meets the experience and examination requirements set forth in RCW 19.146.210 (1)(e).

     "Director" means the director of financial institutions.

     "Discount points" or "points" mean a fee paid by a borrower to a lender to reduce the interest rate of a residential mortgage loan. Pursuant to Regulation X, discount points are to be reflected on line 802 of the good faith estimate and settlement statement as a percentage of the loan amount.

     "Division of consumer services" means the division of consumer services within the department of financial institutions, or such other division within the department delegated by the director to oversee implementation of the act and these rules.

     "Employee" means an individual who has an employment relationship with a mortgage broker, and the individual is treated as an employee by the mortgage broker for purposes of compliance with federal income tax laws.

     "Examination" or "compliance examination" means the examination performed by the division of consumer services, or such other division within the department delegated by the director to oversee implementation of the act and these rules to determine whether the licensee is in compliance with applicable laws and regulations.

     Federal statutes and regulations used in the act are:

     • "Alternative Mortgage Transaction Parity Act" means the Alternative Mortgage Transaction Parity Act (AMTPA), 12 U.S.C. Sec. 3801 et seq.

     • "Equal Credit Opportunity Act" means the Equal Credit Opportunity Act (ECOA), 15 U.S.C. Sec. 1691 et seq., Regulation B, 12 C.F.R. Part 202.

     • "Fair Credit Reporting Act" means the Fair Credit Reporting Act (FCRA), 15 U.S.C. Sec. 1681 et seq.

     • "Federal Trade Commission Act" means the Federal Trade Commission Act, 15 U.S.C. Sec. 45(a).

     • "Gramm-Leach-Bliley Act" means the Gramm-Leach-Bliley Act (GLBA), at 15 U.S.C. Sec. 6801-6809, and the GLBA-mandated Federal Trade Commission (FTC) privacy rules, at 16 C.F.R. Parts 313-314.

     • "Home Equity Loan Consumer Protection Act" means the Home Equity Loan Consumer Protection Act, 15 U.S.C. Sec. 1637 and 1647.

     • "Home Mortgage Disclosure Act" means the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. Sec. 2801-2810, Regulation C, 12 C.F.R. Part 203.

     • "Home Ownership and Equity Protection Act" means the Home Ownership and Equity Protection Act (HOEPA), 15 U.S.C. Sec. 1639.

     • "Real Estate Settlement Procedures Act" means the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. Sec. 2601 et seq., Regulation X, 24 C.F.R. Part 3500 et seq.

     • "Telemarketing and Consumer Fraud and Abuse Prevention Act" means the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. Sec. 6101-6108, Telephone Sales Rule, 16 C.F.R. Part 310.

     • "Truth in Lending Act" means the Truth in Lending Act (TILA), 15 U.S.C. Sec. 1601 et seq., Regulation Z, 12 C.F.R. Part 226 et seq.

     "Federally insured financial institution" means a savings bank, savings and loan association, or credit union, whether state or federally chartered, or a federally insured bank, authorized to conduct business in this state.

     "Financial misconduct," for the purposes of the act, means a criminal conviction for any of the following:

     • Any conduct prohibited by the act;

     • Any conduct prohibited by statutes governing mortgage brokers in other states, or the United States, if such conduct would constitute a violation of the act;

     • Any conduct prohibited by statutes governing other segments of the financial services industry, including but not limited to the Consumer Protection Act, statutes governing the conduct of securities broker dealers, financial advisers, escrow officers, title insurance companies, limited practice officers, trust companies, and other licensed or chartered financial service providers; or

     • Any conduct commonly known as white collar crime, including, but not limited to, embezzlement, identity theft, mail or wire fraud, insider trading, money laundering, check fraud, or similar crimes.

     "Independent contractor" means any person that expressly or impliedly contracts to perform mortgage brokering services for another and that with respect to its manner or means of performing the services is not subject to the other's right of control, and that is not treated as an employee by the other for purposes of compliance with federal income tax laws.

     The following factors may be considered to determine if a person is an independent contractor:

     Is the person instructed about when, where and how to work?

     Is the person guaranteed a regular wage?

     Is the person reimbursed for business expenses?

     Does the person maintain a separate business?

     Is the person exposed to potential profits and losses?

     Is the person provided employee benefits such as insurance, a pension plan, or vacation or sick pay?

     "Licensee" means:

     • A mortgage broker licensed by the director; or

     • The principal(s) or designated broker of a mortgage broker; or

     • A loan originator licensed by the director; or

     • Any person subject to licensing under RCW 19.146.200; or

     • Any person acting as a mortgage broker or loan originator subject to any provisions of the act.

     "License application fee" means immediately available funds paid to the department for each mortgage broker, loan originator, or mortgage broker branch office license application.

     "Loan application" means the same as "application," in this section.

     "Loan originator" means a natural person who:

     • Takes a residential mortgage loan application for a mortgage broker; or

     • Offers or negotiates terms of a mortgage loan, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain. "Loan originator" also includes a person who holds themselves out to the public as able to perform any of these activities. "Loan originator" does not mean persons performing purely administrative or clerical tasks for a mortgage broker. For the purposes of this subsection, "administrative or clerical tasks" means the receipt, collection, and distribution of information common for the processing of a loan in the mortgage industry and communication with a borrower to obtain information necessary for the processing of a loan. A person who holds himself or herself out to the public as able to obtain a loan is not performing administrative or clerical tasks.

     For purposes of further defining "loan originator," "taking a residential mortgage loan application" includes soliciting, accepting, or offering to accept an application for a residential mortgage loan or assisting a borrower or offering to assist a borrower in the preparation of a residential mortgage loan application.

     For purposes of this definition, a person "holds themselves out" by advertising or otherwise informing the public that the person engages in any of the activities of a mortgage broker or loan originator, including the use of business cards, stationery, brochures, rate lists or other promotional items.

     "Loan originator licensee" means a natural person who is licensed as a loan originator or is subject to licensing under RCW 19.146.200 or who is acting as a loan originator subject to any provisions of the act.

     "Loan processor" means a natural person who performs clerical or support duties at the direction of and subject to the supervision and instruction of a licensed or exempt mortgage broker. The job responsibilities may include the receipt, collection and distribution of information common for the processing of a loan. The loan processor may also communicate with a borrower to obtain the information necessary for the processing of a loan, provided that such communication does not include offering or negotiating loan rates or terms, or counseling borrowers about loan rates or terms.

     "Lock-in agreement" means an agreement with a borrower made by a mortgage broker or loan originator, in which the mortgage broker or loan originator agrees that, for a period of time, a specific interest rate or other financing terms will be the rate or terms at which it will make a loan available to that borrower.

     "Mortgage broker" means any person who for compensation or gain, or in the expectation of compensation or gain:

     • Makes a residential mortgage loan or assists a person in obtaining or applying to obtain a residential mortgage loan; or

     • Holds himself or herself out as being able to make a residential mortgage loan or assist a person in obtaining or applying to obtain a residential mortgage loan.

     For purposes of this definition, a person "makes" a loan if: The loan is closed in their name, or they advance, offer to advance or make a commitment to advance funds to a borrower for a loan.

     For purposes of this definition, a person "assists a person in obtaining or applying to obtain a residential mortgage loan" by, among other things, counseling on loan terms (rates, fees, other costs), preparing loan packages, or collecting enough information on behalf of the consumer to anticipate a credit decision under Regulation X, 24 C.F.R. Part 3500, Sec. 3500.2(b).

     For purposes of this definition, a person "holds themselves out" by advertising or otherwise informing the public that they engage in any of the activities of a mortgage broker or loan originator, including the use of business cards, stationery, brochures, rate lists, or other promotional items.

     "Mortgage broker licensee" means a person that is licensed as a mortgage broker or is subject to licensing under RCW 19.146.200 or is acting as a mortgage broker subject to any provisions of the act.

     "Mortgage Broker Practices Act" means chapter 19.146 RCW.

     "Out-of-state applicant or licensee" means a person subject to licensing that maintains an office outside of this state.

     "Person" means a natural person, corporation, company, limited liability corporation, partnership, or association.

     "Prepaid escrowed costs of ownership," as used in RCW 19.146.030(4), means any amounts prepaid by the borrower for the payment of taxes, property insurance, interim interest, and similar items in regard to the property used as security for the loan.

     "Principal" means any person who controls, directly or indirectly through one or more intermediaries, or alone or in concert with others, a ten percent or greater interest in a partnership, company, association, or corporation, and the owner of a sole proprietorship.

     "Registered agent" means a person located in Washington appointed to accept service of process for a licensee.

     "Residential mortgage loan" means any loan primarily for personal, family, or household use secured by a mortgage or deed of trust on residential real estate upon which is constructed or intended to be constructed a single family dwelling or multiple family dwelling of four or less units.

     For purposes of this definition, a loan "primarily for personal, family, or household use" includes loan applications for a finance or refinance of a primary residence for any purpose, loan applications on second homes, and loan applications on nonowner occupied residential real estate provided the licensee has knowledge that proceeds of the loan are intended to be used primarily for personal, family or household use.

     "Residential real estate" is real property upon which is constructed or intended to be constructed, a single family dwelling or multiple family dwelling of four or less units.

     • Residential real estate includes, but is not limited to:

     – A single family home;

     – A duplex;

     – A triplex;

     – A fourplex;

     – A single condominium in a condominium complex;

     – A single unit within a cooperative;

     – A manufactured home when the home and real property together will secure the residential mortgage loan; or

     – A fractile, fee simple interest in any of the above.

     • Residential real estate does not include:

     – An apartment building or dwelling of five or more units;

     – A single piece of real estate with five or more single family dwellings unless each dwelling is capable of being financed independently of the other dwellings; or

     – Any dwelling on leased or rented land or space, such as dwellings in a manufactured home park unless the mortgage broker treats such property as residential real estate.

     "Table-funding" means a settlement at which a mortgage loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. The mortgage broker originates the loan and closes the loan in its own name with funds provided contemporaneously by a lender to whom the closed loan is assigned.

     "Third-party provider" means any person other than a mortgage broker or lender who provides goods or services to the mortgage broker in connection with the preparation of the borrower's loan and includes, but is not limited to, credit reporting agencies, title companies, appraisers, structural and pest inspectors, or escrow companies.

     A lender is considered a third party only when the lender provides lock-in arrangements to the mortgage broker in connection with the preparation of a borrower's loan.

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NEW SECTION
WAC 208-660-007   Good standing.   (1) What does good standing mean? For the purposes of the act and these rules, good standing means that the applicant, licensee, or other person subject to the act demonstrates financial responsibility, character, and general fitness sufficient to command the confidence of the community and to warrant a belief that the business will be operated honestly, fairly, and efficiently within the purposes of the act and these rules. In determining good standing the director will consider the following factors, and any other evidence relevant to good standing as defined in this rule:

     (a) Whether the applicant or licensee has paid all fees due to the director.

     (b) Whether the licensee has filed their mortgage broker annual report.

     (c) Whether the licensee has filed and maintained the required surety bond or had its surety bond canceled or revoked for cause.

     (d) Whether the licensee has maintained a designated broker in compliance with the act and these rules.

     (e) Whether the applicant, licensee, or other person subject to the act has had any license, or any authorization or ability to do business under any similar statute of this or any other state, suspended, revoked, or restricted within the prior five years.

     (f) Whether the applicant, licensee, or other person subject to the act has been convicted of a felony, or a gross misdemeanor involving dishonesty or financial misconduct, within the prior seven years.

     (g) Whether the licensee or other person subject to the act, is, or has been subject to a cease and desist order or an injunction issued pursuant to the act, or the Consumer Protection Act, or has been found through an administrative, civil, or criminal proceeding to have violated the provisions of the act or rules, or the Consumer Protection Act, chapter 19.86 RCW.

     (h) Whether the director has filed a statement of charges, or there is an outstanding order by the director to cease and desist against the licensee or other person subject to the act.

     (i) Whether there is documented evidence of serious or significant complaints filed against the licensee, or other person subject to the act, and the licensee or other person subject to the act has been notified of the complaints and been given the opportunity to respond.

     (j) Whether the licensee has allowed the licensed mortgage broker business to deteriorate into a condition that would result in denial of a new application for a license.

     (k) Whether the licensee, or other person subject to the act has failed to comply with an order, directive, subpoena, or requirement of the director or director's designee, or with an assurance of discontinuance entered into with the director or director's designee.

     (l) Whether the licensee or other person subject to the act has interfered with an investigation or disciplinary proceeding by willful misrepresentation of facts before the director or director's designee, or by the use of threats or harassment against a client, witness, employee of the licensee, or representative of the director for the purpose of preventing them from discovering evidence for, or providing evidence in, any disciplinary proceeding or other legal action.

     (2) Under what circumstances may the department conduct a good standing review of an applicant, mortgage broker licensee, designated broker, or exempt mortgage broker? The department may conduct a good standing review when:

     (a) Processing an application for a new mortgage broker branch office license.

     (b) Processing an application for appointment of a different designated broker (both the licensed mortgage broker, including those individuals to whom the license was granted, and the proposed designated broker must meet good standing).

     (c) Processing a request for recognition as an exempt mortgage broker under RCW 19.146.020(4).

     (3) When will an applicant, licensee, or other person subject to the act receive notice from the department of their failure to meet a determination of good standing? The department will notify the applicant, licensee, or other person subject to the act that they have failed to meet the department's good standing requirement within ten business days of the department's receipt of any application or request that requires a determination of good standing. See subsection (2) of this section.

     (4) What recourse does an applicant, licensee, or other person subject to the act have when the department has determined that they are not in good standing? The applicant, licensee, or other person subject to the act may request a brief adjudicative proceeding under the Administrative Procedure Act, chapter 34.05 RCW, to challenge the department's determination.

     (5) What department determinations may be challenged through a brief adjudicative proceeding? Subsection (1)(a) through (l) of this section may be challenged through a brief adjudicative process.

     (6) What specific sections of the Administrative Procedure Act are adopted by the director to administer brief adjudicative proceedings? The director adopts RCW 34.05.482 through 34.05.494 to administer brief adjudicative proceedings requested by an applicant or licensee, or conducted at the director's discretion.

     (7) Who conducts the brief adjudicative proceeding? Brief adjudicative proceedings are conducted by a presiding officer designated by the director. The presiding officer must have department expertise in the subject matter, but must not have personally participated in the department's determination of good standing, or work in the department's division of consumer services, or such other division within the department delegated by the director to oversee implementation of the act and these rules.

     (8) When and how will the presiding officer issue a decision? Within ten business days of the final date for submission of materials, or oral argument, if any, the presiding officer must make a written initial order.

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NEW SECTION
WAC 208-660-008   Exemption from licensing.   (1) If I am licensed as an insurance agent under RCW 48.17.060, must I have a separate license to act as a loan originator or mortgage broker? Yes. You will need a separate license as a loan originator or mortgage broker if you are a licensed insurance agent and you do any of the following:

     (a) Take a residential mortgage loan application for a mortgage broker;

     (b) Offer or negotiate terms of a mortgage loan for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain;

     (c) Make a residential mortgage loan, or assist a person in obtaining or applying to obtain a residential mortgage loan, for compensation or gain; or

     (d) Hold yourself out as being able to perform any of the above services.

     (2) Are insurance companies exempt from the Mortgage Broker Practices Act? Yes. Insurance companies authorized to transact the business of insurance in this state by the Washington state office of the insurance commissioner are exempt from the Mortgage Broker Practices Act.

     (3) If I make residential mortgage loans under the Consumer Loan Act, chapter 31.04 RCW, am I exempt from the Mortgage Broker Practices Act? If you are licensed under the Consumer Loan Act, any loans covered by that act are exempt from the Mortgage Broker Practices Act. Complying with the Consumer Loan Act includes abiding by the requirements and restrictions of that act and counting all loans originated and made under that act for purposes of your annual assessment.

     (4) If I am an exempt mortgage broker because my business has been approved by and is subject to audit by Fannie Mae or Freddie Mac, am I subject to licensing or any other sections of the act? You are not required to have a license, but you are subject to RCW 19.146.0201 through 19.146.080, and the rules associated with those sections of the act. Those sections include prohibited practices, certain required disclosures, the requirement of a writing for agreements, trust fund requirements, books and records requirements, limitations on fees or compensation, and the requirement to provide the consumer with certain information they have paid for. You are also subject to the investigation and enforcement authority of the director.

     (5) If I am an exempt mortgage broker because my business has been approved by and is subject to audit by Fannie Mae or Freddie Mac, are my loan originators subject to licensing or any other sections of the act? Your loan originator employees are not required to have a license, but they are subject to RCW 19.146.0201 through 19.146.080, and the rules associated with those sections of the act. Those sections include prohibited practices, certain required disclosures, the requirement of a writing for agreements, trust fund requirements, books and records requirements, limitations on fees or compensation, and the requirement to provide the consumer with certain information they have paid for. Your loan originator employees are also subject to the investigation and enforcement authority of the director.

     Your independent contractor loan originators are not exempt under this section.

     (6) Am I exempt from the Mortgage Broker Practices Act if I make or acquire residential mortgage loans solely with my own funds for my own investment without intending to resell the residential mortgage loans? You are exempt from the licensing requirements, but you are subject to RCW 19.146.0201 through 19.146.080, and the rules associated with those sections of the act. Those sections include prohibited practices, certain required disclosures, the requirement of a writing for agreements, trust fund requirements, books and records requirements, limitations on fees or compensation, and the requirement to provide the consumer with certain information they have paid for. You are also subject to the investigation and enforcement authority of the director.

     For purposes of this section, intent to resell residential mortgage loans is determined by your ability and willingness to hold the residential mortgage loans, indicated by, but not limited to, such measures as whether you have sold loans in the past, whether the loans conform to established secondary market standards for the sale of loans, and whether your financial condition would reasonably allow you to hold the residential mortgage loans.

     (7) If I am an exempt mortgage broker because I am making or acquiring residential mortgage loans solely with my own funds for my own investment without intending to resell the residential mortgage loans, are my loan originators subject to licensing or any other sections of the act? Your loan originator employees are not required to have a license, but they are subject to RCW 19.146.0201 through 19.146.080, and the rules associated with those sections of the act. Those sections include prohibited practices, certain required disclosures, the requirement of a writing for agreements, trust fund requirements, books and records requirements, limitations on fees or compensation, and the requirement to provide the consumer with certain information they have paid for. Your loan originator employees are also subject to the investigation and enforcement authority of the director.

     Your independent contractor loan originators are not exempt under this section.

     (8) As an attorney, must I have a mortgage broker or loan originator license to assist a person in obtaining or applying to obtain a residential mortgage loan in the course of my practice?

     (a) If you are a licensed attorney and if the mortgage broker activities are incidental to your professional duties as an attorney, you are exempt from the Mortgage Broker Practices Act under RCW 19.146.020 (1)(c).

     (b) Whether an exemption is available to you depends on the facts and circumstances of your particular situation. For example, if you hold yourself out publicly as being able to perform the services of a mortgage broker or loan originator, or if your fee structure for those services is different from the customary fee structure for your professional legal services, the department will consider you to be principally engaged in the mortgage broker business and you will need a mortgage broker or loan originator license before performing those services. A "customary" fee structure for the professional legal service does not include the receipt of compensation or gain associated with obtaining a residential mortgage loan on the property.

     (9) As a licensed real estate broker or salesperson, must I have a mortgage broker or loan originator license when I assist the purchaser in obtaining financing for a residential mortgage loan involving a bona fide sale of real estate? You are exempt from the act under RCW 19.146.020 (1)(g) if you only receive the customary real estate commission in connection with the transaction. A "customary" real estate commission does not include receipt of compensation or gain associated with the financing of the property. A "customary" real estate commission only includes the agreed upon commission designated in the listing or purchase and sale agreement for the bona fide sale of the subject property.

     (10) Under what circumstances will the director approve an exemption under RCW 19.146.020(4) for the exclusive agents working as loan originators of an affiliate of a bank that is wholly owned by the bank holding company that owns that bank?

     (a) The director will provide a written exemption from loan originator licensing for the exclusive agents of an affiliate of a bank that is wholly owned by the bank holding company that owns the bank if the director finds that the affiliate is licensed and is in "good standing" with the department and the affiliate has procedures in place, as evidenced by a written "plan of business," to reasonably assure the department that:

     (i) The exclusive agents of the affiliate of a bank operate exclusively as loan originators for the affiliate and not for other mortgage brokers;

     (ii) The affiliate of the bank requires continuing education for the exclusive agents that meets the same or similar requirements approved by the director for licensed loan originators;

     (iii) The affiliate of the bank will notify the department if the affiliate terminates an exclusive agent because the exclusive agent:

     (A) Has had any license, or any authorization to do business under any similar statute of this or any other state, suspended, revoked, or restricted within the prior five years; or

     (B) Has been convicted of a felony, or a gross misdemeanor involving dishonesty or financial misconduct, within the prior seven years; or

     (C) Has been subject to a cease and desist order or an injunction issued pursuant to the act, or the Consumer Protection Act, or has been found through an administrative, civil, or criminal proceeding to have violated the provisions of the act or rules, or the Consumer Protection Act, chapter 19.86 RCW.

     (b) To qualify for this exemption, the affiliate must make a written request to the department and submit a "plan of business" with the request. After receipt of this request, the department will notify the affiliate in writing within ten business days whether the affiliate's exclusive agents qualify for the exemption, or if the department will conduct additional review of the affiliate and the "plan of business." The affiliates must receive the department's notice of qualification for exemption before the affiliate's exclusive agents take any action that would subject them to licensing under the act.

     (c) The exemption granted by the director remains valid as long as the affiliate complies in all material respects with its "plan of business" and the affiliate remains in good standing with the department.

     (11) What are the responsibilities of a mortgage broker that is exempt from the licensing provisions of the act? The owners of companies exempt from licensing under RCW 19.146.020 (1)(e), (g), or (4), are responsible for:

     (a) Complying with RCW 19.146.0201 through 19.146.080, and 19.146.235;

     (b) Ensuring compliance with the act by all entities representing the exempt mortgage broker; and

     (c) Notifying the director of any change affecting the mortgage broker's exempt status under the act.

     (12) Are the independent contractors of a mortgage broker exempt under RCW 19.146.020 (1)(b), (c), (e), and (g) themselves exempt? No. After January 1, 2007, an independent contractor working as a loan originator for a mortgage broker exempt under RCW 19.146.020 (1)(b), (c), (e), and (g) must hold a loan originator license.

     (13) What other persons or entities are exempt from the Mortgage Broker Practices Act?

     (a) Any person doing any act under order of any court except for a person subject to an injunction to comply with any provision of the act or any order of the director issued under the act.

     (b) The United States of America, the state of Washington, any other state, and any Washington city, county, or other political subdivision, and any agency, division, or corporate instrumentality of any of the entities in this subsection (b).

     (14) When is a CLI provider exempt from the licensing requirements of the act? A CLI provider is exempt from the licensing requirements of the act:

     (a) When the CLI provider meets the general statutory requirements under RCW 19.146.020 (1)(a), (c), (d), (e), (g), or (h); or

     (b) When a real estate broker or salesperson licensed in Washington, acting as a CLI provider and a real estate agent, obtains financing for a real estate transaction involving a bona fide sale of real estate and does not receive either:

     (i) A separate fee for the CLI service; or

     (ii) A sales commission greater than that which would be otherwise customary in connection with the sales transaction; or

     (c) When a person, acting as a CLI provider:

     (i) Provides only information regarding rates, terms, and lenders;

     (ii) Complies with all requirements of subsection (16) of this section;

     (iii) Does not represent or imply to a borrower that they are able to obtain a residential mortgage loan from a mortgage broker or lender;

     (iv) Does not accept a loan application, assist in the completion of a loan application, or submit a loan application to a mortgage broker or lender on behalf of a borrower;

     (v) Does not accept any deposit for third-party services or any loan fees from a borrower in connection with a loan, regardless of when the fees are paid;

     (vi) Does not negotiate interest rates or terms of a loan with a mortgage broker or lender on behalf of a borrower; and

     (vii) Does not provide to the borrower a good faith estimate or other disclosure(s) required of mortgage brokers or lender(s) by state or federal law.

     (d) If the CLI provider is not exempt under (a), (b), or (c) of this subsection, the CLI provider is not required to have a mortgage broker license if the CLI provider does not receive any fee or other compensation or gain, directly or indirectly, for performing or facilitating the CLI service.

     (15) When is a CLI provider required to have a mortgage broker license?

     (a) If a CLI provider, who is not otherwise exempt from the licensing requirements of the act, performs any act that would otherwise require that they be licensed, including accepting a loan application, or submitting a loan application to a mortgage broker or lender, the CLI provider must obtain a mortgage broker license.

     (b) Example - License required: A CLI provider uses an internet-based CLI system in which an abbreviated application is available for online completion by borrower. Once the borrower presses "submit," the information collected in the abbreviated application is forwarded to lender. The information contains the borrower's name, Social Security number, contact information, purpose of the loan sought (e.g., purchase, refinance, home equity, second mortgage), size of loan requested, annual salary, and a self-declaration of total unsecured debt. The electronic entries made by the borrower are then used by lender to electronically populate "form fields" and to initiate lender's loan application. A loan originator for the lender then follows up with borrower to complete the loan application. On or after closing, CLI provider receives a CLI service fee.

     (c) Example - License not required: A CLI provider uses an internet-based CLI system in which various interactive informational tools are present, including an online "prequalification" tool. Based upon borrower's self-declared data input, borrower receives an indication of borrower's "maximum affordable loan amount," based upon standard norms of debt-to-income ratio and loan-to-value ratio, and also subject to verification of information, availability and suitability of loan products, and independent underwriting by any lender. The borrower indicates a desire for follow-up from one or more lenders by inputting personal contact information and pressing "submit." A number of lenders receive only the personal identity information of borrower and not any financial information. However, the CLI system has been programmed (and may be continuously reprogrammed) to route personal contact information to certain lenders based upon borrower's "prequalification" data input and the lending criteria of each of the lenders for whom CLI provider has a relationship. None of borrower's self-declared financial information is actually submitted to any of the lenders whose criteria match borrower's profile. Loan originators from lender A and lender B initiate contact with borrower based solely on borrower's contact information. Lender A and lender B, through their assigned loan originators, contact borrower with the object of beginning and hopefully completing a loan application. In this example, CLI provider has not taken a loan application.

     (16) Must the CLI provider provide any disclosures?

     (a) Yes. If a borrower using or accessing the CLI services pays for the CLI service, either directly or indirectly, the CLI provider must give the following disclosure:

     (i) The amount of the fee the CLI provider charges the borrower for the service;

     (ii) That the use of the CLI system is not required to obtain a residential mortgage loan; and

     (iii) That the full range of loans available may not be listed on the CLI system, and different terms and conditions, including lower rates, may be available from others not listed on the system.

     (b) Each CLI provider must give the borrower a copy of the disclosure form when the first CLI service is provided to the borrower. The form must be signed and dated by the borrower and a copy maintained as part of the CLI provider's books and records for at least two years.

     (17) Are CLI system providers subject to enforcement under the act? Yes. CLI system providers are responsible for any violations of the act and will be subject to any applicable fines or penalties.

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MORTGAGE BROKERS
NEW SECTION
WAC 208-660-155   Mortgage brokers -- General   (1) May I make residential mortgage loans in Washington without a license? No. Mortgage brokers and loan originators must have a valid Washington license, or be exempt from licensing pursuant to RCW 19.146.020, in order to originate residential mortgage loans. There is no "one-time one loan" exception.

     (2) May I originate a Washington residential mortgage loan using the license of an already licensed or exempt Washington mortgage broker and then split the proceeds with that mortgage broker? No. Mortgage broker licenses may only be used by the entity named on the license. Mortgage broker licenses may not be transferred, sold, traded, assigned, loaned, shared, or given to any other person.

     (3) As a licensed mortgage broker, am I responsible for the actions of my employees and independent contractors? Yes. You are responsible for any conduct violating the act or these rules by any person you employ, or engage as an independent contractor, to work in the business covered by your license.

     (4) Who at the licensed mortgage broker company is responsible for the licensee's compliance with the act and these rules? The designated broker, principals, and owners with supervisory authority are responsible for the licensee's compliance with the act and these rules.

     (5) Under what circumstances may a mortgage broker charge the borrower a fee, commission, or other compensation for services rendered by the mortgage broker in obtaining a loan for the borrower? The mortgage broker may charge the borrower a fee, commission, or other compensation for the preparation, negotiation, and brokering of a residential mortgage loan when the loan is closed on the terms and conditions agreed upon by the borrower and the mortgage broker.

     (6) Under what circumstances may a mortgage broker charge the borrower a fee, commission, or other type of compensation for services rendered when the loan does not close at all, or does not close on the terms and conditions agreed upon by the borrower and the mortgage broker? A mortgage broker may charge a fee, and may bring a suit for collection of the fee, not to exceed three hundred dollars, for services rendered, for the preparation of documents, or for the transfer of documents in the borrower's file which were prepared for, or paid for by, the borrower if:

     (a) The mortgage broker has obtained a written commitment from a lender on the same terms and conditions agreed upon by the borrower and the mortgage broker; and

     (b) The borrower fails to close on a loan through no fault of the mortgage broker; and

     (c) The fee is not otherwise prohibited by the Truth in Lending Act.

     (7) As a mortgage broker, may I solicit or accept fees from a borrower in advance to pay third-party providers? Yes. However, prior to accepting the funds, you must provide the borrower in writing a notice identifying the specific third-party provider goods and services the funds are to be used for. Additionally, you must not charge the borrower more for the third-party provider goods and services than the actual costs of the goods and services charged by the provider. Once you have the funds you must then:

     (a) Deposit the funds in a trust account pursuant to the act and these rules (see WAC 208-660-410 on Trust accounting);

     (b) Refund any fees collected for goods or services not provided.

     (8) What is a "written commitment from a lender on the same terms and conditions agreed upon by the borrower and mortgage broker"? The written commitment is a written agreement or contract between the mortgage broker and lender containing mutually acceptable loan provisions and terms. The lender must be one with whom the mortgage broker maintains a written correspondent or loan brokerage agreement as required by RCW 19.146.040(2). The mutually acceptable loan provisions and terms must be the same terms and conditions set forth in the most recent good faith estimate signed by both the borrower and the mortgage broker.

     (9) What action must a mortgage broker take to activate a loan originator license? To activate a loan originator license, the licensed mortgage broker must confirm with the department that the loan originator will be working for the licensed mortgage broker.

     (10) What action must a mortgage broker take to terminate a working relationship with a loan originator? The licensed mortgage broker must notify the department it is terminating the working relationship with the loan originator.

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NEW SECTION
WAC 208-660-163   Mortgage brokers -- Licensing.   (1) How do I apply for a mortgage broker license?

     (a) Appoint a designated broker. You must appoint a designated broker who meets the requirements of WAC 208-660-250.

     (b) Submit an application. You must fill out an application in a form prescribed by the director. Submit the application with the appropriate attachments to the department for review.

     (c) Pay the application and license fees. You will have to pay an application fee to cover the department's cost of processing and reviewing application. You must also pay a separate annual license fee. See WAC 208-660-550, Department fees and costs.

     (d) Prove your identity. You must provide information about the identity of owners, principals, officers, and the designated broker, including fingerprints.

     (e) Provide a surety bond. Mortgage brokers must have a surety bond of twenty to sixty thousand dollars depending on the average number of loan originators representing the mortgage broker. See WAC 208-660-175 (1)(e).

     (2) What information will the department consider when deciding whether to approve a mortgage broker license application? The department considers the financial responsibility, character, and general fitness of the applicant, principals, and the designated broker.

     (3) Why does the department consider financial responsibility, character, and general fitness before issuing a mortgage broker license? One of the purposes of the act is to ensure that mortgage brokers and loan originators deal honestly and fairly with the public. Applicants, principals, and designated brokers who have demonstrated their financial responsibility, character, and general fitness to operate their businesses honestly, fairly, and efficiently are more likely to deal honestly and fairly with the public.

     (4) What specific information will the department consider to determine if the mortgage broker business will be operated honestly, fairly, and in compliance with applicable law?

     (a) Whether the applicant, licensee, or other person subject to the act has had any license, or any authorization to do business under any similar statute of this or any other state, suspended, revoked, or restricted within the prior five years.

     (b) Whether the applicant, licensee or other person subject to the act has been convicted of a felony, or a gross misdemeanor involving dishonesty or financial misconduct, within the prior seven years.

     (c) Whether the licensee or other person subject to the act is, or has been, subject to a cease and desist order or an injunction issued pursuant to the act, or the Consumer Protection Act, or has been found through an administrative, civil, or criminal proceeding to have violated the provisions of the act or rules, or the Consumer Protection Act, chapter 19.86 RCW.

     (d) Whether the director has filed a statement of charges, or there is an outstanding order by the director to cease and desist against the licensee or other person subject to the act.

     (e) Whether there is documented evidence of serious or significant complaints filed against the licensee, or other person subject to the act, and the licensee or other person subject to the act has been notified of the complaints and been given the opportunity to respond.

     (f) Whether the licensee has allowed the licensed mortgage broker business to deteriorate into a condition that would result in denial of a new application for a license.

     (g) Whether the licensee or other person subject to the act has failed to comply with an order, directive, subpoena, or requirement of the director or director's designee, or with an assurance of discontinuance entered into with the director or director's designee.

     (h) Whether the licensee or other person subject to the act has interfered with an investigation, or disciplinary proceeding by willful misrepresentation of facts before the director or director's designee, or by the use of threats or harassment against a client, witness, employee of the licensee, or representative of the director for the purpose of preventing them from discovering evidence for, or providing evidence in, any disciplinary proceeding or other legal action.

     (5) What will happen if my mortgage broker license application is incomplete? The department will reject and return the entire application package to you with a notice identifying the incomplete, missing, or inaccurate information. You must follow the department's directions to correct the problems. You can then resubmit the application package.

     (6) How do I withdraw my application for a mortgage broker license? Send the department a written request, in a form prescribed by the department, to withdraw your mortgage broker license application.

     (7) When will the department consider my mortgage broker license application package abandoned? If you do not respond to the department within ten business days from the date of the department's second request for information, your application is considered abandoned. You may reapply by submitting a new application per subsection (1) of this section.

     (8) What are my rights if the director denies my application for a mortgage broker license? You have the right to request an administrative hearing pursuant to the Administrative Procedure Act, chapter 34.05 RCW. To request a hearing, you must notify the department within twenty days from the date of the director's notice to you that your license application has been denied, that you wish to have a hearing.

     Upon denial of your mortgage broker license application, and provided the department finds no unlicensed activity, the department will return your surety bond, and refund the license fee and any unused portion of the application fee.

     (9) What Washington law protects my rights when my application for a mortgage broker license is denied, or my mortgage broker license is suspended or revoked? The Administrative Procedure Act, chapter 34.05 RCW, governs the proceedings for license application denials, cease and desist orders, license suspension or revocation, the imposition of civil penalties or other remedies ordered by the department, and any appeals or reviews of those actions.

     (10) May I advertise my business while I am waiting for my mortgage broker license application to be processed? No. It is a violation of the act for nonlicensed, nonexempt mortgage brokers or loan originators to hold themselves out as mortgage brokers or loan originators in Washington.

     (11) May I originate Washington residential mortgage loans while waiting for my mortgage broker license application to be processed? No. You may not originate loans prior to receiving your mortgage broker license.

     (12) How do I change information on my mortgage broker license? You must file a license amendment application with the department, in a form prescribed by the department. You must file the application thirty days before the effective date of the change.

     (13) When does a mortgage broker license expire? The mortgage broker license expires annually. The expiration date is shown on the license. If the license is an interim license, it may expire in less than one year.

     (14) When may the department issue interim mortgage broker licenses? To prevent an undue delay, the director may issue interim mortgage broker licenses, including branch office licenses, with a fixed expiration date. The license applicant must have substantially met the initial licensing requirements, as determined by the director, to receive an interim license.

     For purposes of this section, undue delay includes the adjustment of license expiration or renewal dates to coincide with the implementation of systems designed to assist in licensing uniformity and provide data repositories of licensing information.

     One example of having substantially met the initial licensing requirements is: Submitting a complete application, paying all application fees, and the department having received and reviewed the result of the applicant's background check.

     (15) May the department issue replacement licenses with an expiration date? Yes. In order to create and maintain a licensing system with expiration or renewal dates that are uniform, the department may issue new licenses with expiration dates to existing license holders. The new licenses will expire annually.

     (16) How do I renew my mortgage broker license?

     (a) Before the license expiration date you must:

     (i) File the mortgage broker annual report, and any other required notices, with the director. See WAC 208-660-400, Reporting requirements.

     (ii) Show evidence that your designated broker completed the required annual continuing education.

     (iii) Verify the surety bond is adequate for the average number of loan originators, including all locations.

     (iv) Pay the annual license assessment fee.

     (b) The renewed license is valid for the term listed on the license or until surrendered, suspended, or revoked.

     (17) If I let my mortgage broker license expire must I apply to get a new license? If you complete all the requirements for renewal within forty-five days of the expiration date, you may renew an expired license. However, if you renew your license during this forty-five day grace period, in addition to paying the annual assessment on your license, you must pay an additional fifty percent of your annual assessment. See subsection (15) of this section for the license renewal requirements.

     During this forty-five day window, your license is expired and you must not conduct any business under the act that requires a license until your license has been renewed.

     Any renewal requirements received by the department must be evidenced by either a United States Postal Service postmark or a department "date received" stamp within the forty-five days. If you fail to comply with the renewal request requirements within forty-five days, you must apply for a new license.

     (18) May I still conduct my mortgage broker business if my mortgage broker license has expired? No. If your mortgage broker license expires, you must not conduct any business under the act that requires a license until you renew your license.

     (19) What should I do if I wish to close my mortgage broker business? You may surrender the mortgage broker license by notifying the department, in a form prescribed by the department, of your intention to stop doing mortgage loan business in Washington. Surrendering your license does not change your civil or criminal liability, or your liability for any administrative actions arising from any acts or omissions occurring before you surrender your license. Contact the Washington department of revenue to find out how to handle any unclaimed funds in your trust account.

     (20) May I transfer, sell, trade, assign, loan, share, or give my mortgage broker license to another person or company? No. A mortgage broker license authorizes only the person named on the license to conduct the business at the location listed on the license. See also WAC 208-660-155(2).

     (21) Must I display my mortgage broker license? Yes. Your mortgage broker license must be prominently displayed in your place of business.

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NEW SECTION
WAC 208-660-175   Mortgage brokers -- Surety bond.   (1) What are the surety bond requirements for licensed mortgage brokers?

     (a) Mortgage brokers must at all times have a valid surety bond on file with the director. The surety bond must be provided on a form prescribed by the department.

     (b) The surety bond amount must be between twenty thousand dollars and sixty thousand dollars depending on the annual average number of loan originators representing the mortgage broker.

     (c) When the mortgage broker initially applies for a license, the dollar amount of the surety bond must be sufficient to cover the number of licensed loan originators you intend to employ in your first year of business.

     (d) The surety bond must list the full name and any trade or doing-business-as names used by the mortgage broker. The surety bond must list the licensee's main physical address including street number, street name and direction, suite number, city, county, and state.

     (e) The surety bond must be signed by a principal of the mortgage broker as well as an authorized representative of the insurance company listed as surety. The power-of-attorney must identify the signing representative as authorized by the insurance company. The insurance company must include their surety bond number and seal on the surety bond form.

     The following chart shows the surety bond amount required for the annual average number of loan originators:

Average Number of Loan Originators Minimum Required Bond Amount
up to 3.0 $20,000
more than 3.0, up to 6.0 $30,000
more than 6.0, up to 9.0 $40,000
more than 9.0, up to 15.0 $50,000
more than 15.0 $60,000

     (2) May I provide security in a form other than a surety bond? No. Beginning January 1, 2007, the director will not accept an alternative to a surety bond.

     (3) Who provides mortgage broker surety bonds? To purchase a surety bond, contact your insurance broker. A list of insurance companies that underwrite Washington surety bonds in Washington is available from the Washington state office of the insurance commissioner's web site.

     (4) What do I do with the surety bond once I receive it from my insurance company? You must sign the original surety bond. Then include the surety bond and the attached power-of-attorney with your license application package.

     (5) What happens to my mortgage broker license if my surety bond is canceled? Failure to maintain a surety bond is a violation of the act and may result in an enforcement action against you.

     (6) May I change surety bond companies? Yes. You may change your insurance provider at any time. Your current insurance company will issue a cancellation notice for your existing surety bond. The cancellation notice may be effective no less than thirty days following the director's receipt of the cancellation notice.

     Prior to the cancellation date of the existing surety bond, you must have on file with the department a replacement surety bond. The replacement surety bond must be in effect on or before the cancellation date of the prior surety bond.

     (7) Why must I carry a surety bond to have a mortgage broker license? The surety bond protects the state and any persons who suffer loss by reason of violations of any provision of the act or these rules by the licensee, its employees, or independent contractors.

     (8) Who may make a claim against a licensed mortgage broker's surety bond? Any person, including a third-party service provider, who has been injured by a violation of the act, may make a claim against a bond.

     (9) How may I make a claim against a licensed mortgage broker's surety bond? The department can provide you with the name of a licensed mortgage broker's surety bond provider. Contact the surety bond company and follow its required procedures to make your claim.

     (10) How may I make a claim against a certificate of deposit, an irrevocable letter of credit, or other instrument that the director has permitted to be filed instead of a surety bond? File your claim against a certificate of deposit, an irrevocable letter of credit, or other instrument directly with the department, in a form prescribed by the department. After January 1, 2007, the department will only accept surety bonds; any claims arising over violations occurring after January 1, 2007, will be against a bond.

     (11) How long does the bond claim procedure take? The time to complete a bond claim may vary among bonding companies. If the claimant is not a borrower, final judgment will not be entered prior to one hundred eighty days after the claim is filed.

     (12) When must I file a bond claim? A bond claim must be filed within one year of the date of the act that causes the claim.

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NEW SECTION
WAC 208-660-180   Mortgage brokers -- Main office.   (1) Must a licensed mortgage broker have a designated broker? Yes. Licensed mortgage broker companies must have a designated broker at all times.

     (2) How many designated brokers may a mortgage broker have? The mortgage broker must have a qualified designated broker at all times. The mortgage broker may appoint only one individual to be the designated broker at any given time. The designated broker need not be a principal of the licensee.

     It is a prudent business practice to have more than one qualified individual working for the licensee who could be appointed as the designated broker.

     (3) If my designated broker leaves, may I continue to operate my mortgage broker business? Yes. You may continue to operate your mortgage broker business. However, you must notify the department within five business days of the loss of or change of your designated broker. You must then replace the designated broker within thirty days. If you need more than thirty days to replace the designated broker, you must seek approval from the department. Failure to replace your designated broker, or receive approval from the director for an extension, may result in an enforcement action against you.

     (4) What must I do to replace my designated broker? You must apply, in a form prescribed by the department, for approval of the new designated broker. The new designated broker must meet the requirements of WAC 208-660-250(1) and the new designated broker and the licensee including those individuals to whom the license was granted, must meet the good standing requirements of WAC 208-660-007.

     (5) What must I do if I sell all or part of my mortgage broker company? See WAC 208-660-400(13).

     (6) After my mortgage broker license is approved, may I change my business structure? Yes. You must follow the notification requirements of WAC 208-660-400(12).

     (7) May a licensed mortgage broker share an office with a licensed real estate broker? Yes. A licensed mortgage broker may share an office with a licensed real estate broker. The mortgage broker location must be licensed as a main or branch mortgage broker office.

     (8) If a licensed mortgage broker shares an office with a licensed real estate broker, what must the mortgage broker do to notify the public that the office is shared? The licensed mortgage broker must clearly identify the mortgage broker business as separate from the real estate business to the public on any signage, advertising, or other material identifying the businesses.

     (9) May I add a trade name (or "DBA") to my mortgage broker license? Yes. You may add a trade or "DBA" name to the mortgage broker license if you first apply to the department, in a form prescribed by the department, and receive department approval. When the department has approved the trade name, you must conduct business under that trade name in at least one of the two following ways:

     (a) Use your license name together with the trade name; or

     (b) Use your mortgage broker license number together with the trade name.

     (10) May I conduct my mortgage broker business from more than one location? Yes. You may establish one or more branch offices under your license. See WAC 208-660-195 for information on licensing branch offices.

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NEW SECTION
WAC 208-660-195   Mortgage brokers -- Branch offices.   (1) May I open branch offices under my mortgage broker license? Yes. A licensed mortgage broker may submit license application(s) to the department to establish branch office(s) under the existing mortgage broker license. Each branch office must be licensed and must pay an annual license fee. See WAC 208-660-550, Department fees and costs.

     (2) If my branch offices are under separate ownership, does that limit my liability for their activities? No. Licensed mortgage brokers are responsible for the activity and violations at their branch offices regardless of the structure or label given the branch offices. Licensure of a branch office creates a direct line of responsibility from the main office to the branch.

     (3) How do I apply for a mortgage broker branch office license? As the licensed mortgage broker, you must apply to the department for a branch office license and receive a branch office license before operating from any location other than your licensed location. The application for a mortgage broker branch office license must be in a form prescribed by the director. The licensed mortgage broker must be in good standing, and may need to increase the amount of the surety bond. You will have to pay application and annual assessment fees. See WAC 208-660-550, Department fees and costs.

     (4) What does the department consider when reviewing an application for a branch office license? The department considers:

     (a) Whether the mortgage broker is in good standing. See WAC 208-660-007.

     (b) Whether the amount of the mortgage broker's surety bond is sufficient to cover the loan originators that will be working from the branch office.

     (c) Whether the physical address listed in the application can be verified as a branch office location.

     (5) Must I display my branch office license? Yes. Your mortgage broker branch office license must be prominently displayed in the branch office.

     (6) If I am an internet company, how do I display my license? You must display your license information, as it appears on your license, including any or all business names, and the license number, on your web site. The information must also include a list of the states in which you are licensed.

     (7) How do I change information on my mortgage broker branch office license? You must file a license amendment application with the department, in a form prescribed by the department. You must file the application within thirty days of the change occurring.

     (8) Does my branch office license expire? The license expires annually. The expiration date is shown on the license. If the license is an interim license, it may expire in less than one year.

     (9) How do I renew my mortgage broker branch office license?

     (a) Before the expiration date, the licensed mortgage broker must:

     (i) Verify the surety bond is adequate for the licensee's average number of loan originators.

     (ii) Pay the branch office annual assessment fee.

     (b) The renewed mortgage broker branch office license is valid for the term listed on the license or until surrendered, suspended, or revoked.

     (10) If my mortgage broker branch office license expires, must I apply for a new license? If you complete all the requirements for renewal within forty-five days of the expiration date you may renew an existing license. However, if you renew your license during this forty-five day grace period, in addition to paying the annual assessment on your branch office license, you must pay an additional fifty percent of your annual assessment for that branch. See subsection (9) of this section for the license renewal requirements.

     During this forty-five day window, your license is expired and you must not conduct any business under the act that requires a license until your license has been renewed.

     Any renewal requirements received by the department must be evidenced by either a postmark or "date received" stamp within the forty-five days. If you fail to comply with the renewal request requirements within forty-five days, you must reapply for a new license.

     (11) If my mortgage broker branch office license has expired, may I still conduct my mortgage broker business from that location? No. Once the mortgage broker branch office license has expired, you must not conduct any business under the act that requires a license until you renew your license.

     (12) If my mortgage broker main office license expires, may I still conduct my mortgage broker business from a branch office? No. Once the mortgage broker main office license expires, you must not conduct any business under the act that requires a license from any location until you renew the main office license.

     (13) May I add a trade name (or "DBA") to my mortgage broker branch office license? Yes. You may add a trade name, or "DBA" name, to the mortgage broker branch office license if you first apply to the department, in a form prescribed by the director, and receive department approval. The branch office trade name must at all times be identified as connected with the mortgage broker's license name as it appears on the mortgage broker license. When the department has approved the trade name, you must conduct business under that trade name in at least one of the two following ways:

     (a) Use your license name together with the branch office trade name; or

     (b) Use the branch office trade name and mortgage broker branch office license number together.

     (14) How must I identify my mortgage broker branch office(s)? The branch office must be prominently identified as a branch or division of the licensed mortgage broker so as not to appear to be an independent enterprise.

     (15) Does my branch office have to be a physical location? Yes. The physical location may be at a commercial or residential address but does not have to be in Washington. See WAC 208-660-420, Out-of-state mortgage brokers and loan originators.

     (16) Must I have a branch manager? No. Although you may appoint one, the act does not require a branch manager. The licensee and designated broker are responsible for the business conducted at all locations.

     (17) Must I have a designated broker at each branch? No. The licensed mortgage broker may have only one designated broker who is responsible for the mortgage broker business at all locations.

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DESIGNATED BROKERS
NEW SECTION
WAC 208-660-250   Designated brokers -- General.   (1) How do I become a designated broker?

     (a) You must pass the designated broker test. See WAC 208-660-260, Designated brokers -- Testing.

     (b) You must be appointed to the designated broker position by the licensed mortgage broker through an application and approval process with the department.

     (c) You must have a minimum of two years' experience lending or originating residential mortgage loans.

     (i) The work experience must be in one or more of the following, within the last five years:

     (A) As a mortgage broker or designated broker of a mortgage broker; or

     (B) As a mortgage banker, responsible individual, or manager of a mortgage banking business; or

     (C) As a loan originator with responsibility primarily for originating loans secured by a lien on residential real estate; or

     (D) As a branch manager of a lender with responsibility primarily for loans secured by a lien on residential real estate; or

     (E) As a manager or supervisor of mortgage loan originators; or

     (F) As a mortgage processor, underwriter, or quality control professional; or

     (G) As a regulator, examiner, investigator, compliance expert, or auditor, whose primary function is the review of mortgage companies and their compliance processes, and the department determines your background is sufficient.

     (ii) The work experience must be evidenced by a detailed work history and:

     (A) W-2 Federal Income Tax Reporting Forms in the designated broker appointee's name; or

     (B) 1099 Federal Income Tax Reporting Forms in the designated broker appointee's name; or

     (C) Corporate tax returns signed by the designated broker appointee for a licensed or exempt residential mortgage company.

     (d) In addition to supplying the application information, both you and the licensed mortgage broker must be in good standing with the department.

     (2) May I work as the designated broker for more than one company? Yes. You may be the designated broker for more than one licensee.

     (3) Must the designated broker also hold a loan originator's license? A designated broker approved by the department will be given a loan originator license if they do not already have one. If the designated broker already has a loan originator license, that license will be added to the licensed mortgage broker's list of loan originators.

     (4) May I work as the designated broker for one licensee and a licensed loan originator for another licensee? Yes. If you want to originate loans for a mortgage broker different from the mortgage broker for whom you are the designated broker, you must apply to the department for an additional loan originator license.

     (5) May a designated broker hire employees or independent contractors apart from the employees or independent contractors working for the mortgage broker licensee? No. Only the mortgage broker licensee can have employees or independent contractors. This prohibition against a designated broker having employees or independent contractors includes clerical or administrative personnel whose work is related to the mortgage broker licensee's activities, and loan processors.

     (6) As a designated broker, what reporting requirements must I comply with? See Section H, Reporting requirements.

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NEW SECTION
WAC 208-660-260   Designated brokers -- Testing.   (1) Must I pass a test prior to becoming a designated broker? Yes. You must take and pass a test prior to becoming a designated broker.

     (2) After passing the designated broker test, will I have to take it again? You must retake the designated broker test if you have not been approved by the department and have not worked as a designated broker within the past five years.

     (3) After passing the designated broker test, will I have to take the loan originator test to get a loan originator license? If you passed the designated broker test, and have worked as an approved designated broker in the past five years, you will be given a loan originator license without taking the loan originator test.

     (4) Where can I get information about the designated broker test? The department will publish the names and contact information of approved testing providers on the department web site.

     (5) What topics may be covered in the designated broker test? The department will publish a list of designated broker test topics on the department's web site.

     (6) How soon after failing the designated broker test may I take it again? After failing the test three consecutive times you must wait at least fourteen days before taking the test again.

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NEW SECTION
WAC 208-660-270   Designated brokers -- Continuing education.   (1) Where can I get information about continuing education? The department will publish a list of course providers and professional organizations offering approved courses of education. The course providers and professional organizations will have detailed information about the continuing education courses they offer.

     (2) As a designated broker, how many clock hours of continuing education must I have? The continuing education requirement for designated brokers will be in the form of approved courses. While the individual clock hours may vary, you must complete three courses, of no less than three hours each, annually. You may receive credit for one course by attending three mortgage broker commission meetings.

     (3) As a designated broker, may I take the same approved course multiple times to meet my annual continuing education requirement? No. You may not take the same approved course in the same or successive years to meet the annual requirements for continuing education.

     (4) If I teach an approved continuing education course may I use my course as credit toward my annual continuing education requirement? Yes. As an instructor of an approved continuing education course, you may receive credit for your annually required designated broker continuing education courses from the course(s) you teach. You will receive credit at the rate of one course taught equaling two continuing education course credits.

     (5) How do I receive credit toward my continuing education requirement when I teach an approved continuing education course? When you renew your license and seek to get credit for continuing education, submit your approved continuing education course material for the course(s) you taught during the year. The department will credit you with completing two continuing education courses for each one approved course you teach.

     (6) Is ethics a required continuing education course for designated brokers? Yes. You must take an ethics continuing education course in your first year of acting as a designated broker. However, if you teach an approved continuing education course on ethics during your first year working as a designated broker, teaching that course will satisfy your ethics continuing education requirement.

     (7) As a designated broker, if I take a continuing education course approved for multiple jurisdictions, will the department accept it as part of my continuing education requirement? If any state has continuing education requirements or standards at least as stringent as Washington's, that state's notification of satisfactory completion of continuing education may be approved by the department as meeting the continuing education requirements under the act and these rules.

     (8) If I accumulate more than the required designated broker continuing education course credits during a year, may I carry-over the excess credit to the next year? No. Continuing education courses only apply to the year in which they are taken.

     (9) How do I provide the department with proof of the continuing education courses I have completed? You must provide the department with proof of your satisfactory completion of the course, in a form prescribed by the department.

     (10) If I fail to complete the required continuing education, what happens to my license? Your license will expire and you will not be able to continue conducting any business under the act. See WAC 208-660-350(20) to renew your license within forty-five days of it expiring.

     (11) If the department reissues my license and the new expiration date does not coincide with the prior annual assessment period, will the department still give me credit for the continuing education courses I have taken in preparation for meeting the old annual assessment date? Yes. The department will give you credit for the continuing education courses you have taken. You will not lose any credits due to the department's license expiration date adjustment.

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LOAN ORIGINATORS
NEW SECTION
WAC 208-660-300   Loan originators -- General.   (1) If I work as a loan originator for more than one mortgage broker, may I take an application from a borrower without identifying one specific mortgage broker? No. You may take an application for only one mortgage broker at a time in any one transaction. Prior to presenting yourself to a specific borrower as licensed to originate mortgage loans, you must state who you represent. You must clearly identify the mortgage broker by name and address on the application, on all disclosures, authorization forms, and other material provided to the borrower. There must be no confusion by the borrower as to which mortgage broker you are representing at any given time.

     (2) May a loan originator transfer loan files to a mortgage broker other than the mortgage broker the loan originator is associated with? No. Only the borrower may submit a written request for the release of information to the licensed mortgage broker to transmit the borrower's selected information to another mortgage broker or lender. Loan files are the property of the mortgage broker named on the loan application and the mortgage broker must keep the original files and documents. The licensed mortgage broker must transmit the information within five business days after receiving the borrower's written request.

     (3) May I act as a loan originator and a real estate agent in the same transaction or for the same borrower in different transactions? Yes, you may be both the loan originator and real estate broker or salesperson in the same transaction, or for the same borrower in different transactions. When either of these occur, you must provide to the borrower the following written disclosure:

"THIS IS TO GIVE YOU NOTICE THAT I OR ONE OF MY ASSOCIATES HAVE/HAS ACTED AS A REAL ESTATE BROKER OR SALESPERSON REPRESENTING THE BUYER/SELLER IN THE SALE OF THIS PROPERTY TO YOU. I AM ALSO A LOAN ORIGINATOR AND WOULD LIKE TO PROVIDE MORTGAGE SERVICES TO YOU IN CONNECTION WITH YOUR LOAN TO PURCHASE THE PROPERTY.
YOU ARE NOT REQUIRED TO USE ME AS A LOAN ORIGINATOR IN CONNECTION WITH THIS TRANSACTION. YOU ARE FREE TO COMPARISON SHOP WITH OTHER MORTGAGE BROKERS, AND LENDERS, AND TO SELECT ANY MORTGAGE BROKER, OR LENDER OF YOUR CHOOSING."

     (4) As a loan originator, may I be paid directly by the borrower for my services? No. As a loan originator, you may not be paid any compensation or fees directly by the borrower.

     (5) May a loan originator charge the borrower a fee, commission, or other compensation for preparing, negotiating, or brokering a loan for the borrower? No. A loan originator may not charge the borrower a fee, commission, or compensation of any kind in connection with the preparation, negotiation, and brokering of a residential mortgage loan.

     (6) May a loan originator bring a lawsuit against a borrower for the collection of compensation? No. Only licensed mortgage brokers, or exempt mortgage brokers, may bring collection actions against borrowers to collect compensation.

     (7) May I work as a licensed loan originator for a mortgage broker located out of the state? Yes. You may originate loans for any mortgage broker you are affiliated with who is licensed under Washington law.

     (8) May a licensed loan originator hire employees or independent contractors to assist in the mortgage broker licensee's activities? No. Only the mortgage broker licensee can have employees or independent contractors. This prohibition against loan originators hiring employees or independent contractors includes clerical or administrative personnel whose work is related to the mortgage broker licensee's activities, and loan processors.

     (9) Do loan processors have to be licensed as loan originators? No. Loan processors are not required to have a loan originator license provided they work under the supervision and instruction of a licensed or exempt mortgage broker and do not hold themselves out as able to conduct the activities of a mortgage broker or loan originator. However, a loan processor may not work as an independent contractor unless licensed as a mortgage broker, mortgage broker branch office, or loan originator.

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NEW SECTION
WAC 208-660-350   Loan originators -- Licensing.   (1) How do I apply for a loan originator license?

     (a) Pass a licensing test. You must take and pass a test that assesses your knowledge of the mortgage business and related regulations. See WAC 208-660-360, Loan originators -- Testing.

     (b) Submit an application. The application form will be prescribed by the director.

     (c) Prove your identity. You must provide information to prove your identity.

     (d) Pay the application and license fees. You must pay an application fee to cover the department's cost of processing and reviewing applications. You must also pay a separate annual assessment fee. See WAC 208-660-550, Department fees and costs.

     (2) In addition to reviewing my application, what else will the department consider to determine if I qualify for a loan originator license?

     (a) General fitness and prior compliance actions. The department will investigate your background to see that you demonstrate the experience, character, and general fitness that commands the confidence of the community and creates a belief that you will conduct business honestly and fairly within the purposes of the act. This investigation may include a review of the number and severity of complaints filed against you, or any person you were responsible for, and a review of any investigation or enforcement activity taken against you, or any person you were responsible for, in this state, or any jurisdiction.

     (b) License suspensions or revocations. You are not eligible for a loan originator license if you have been found to be in violation of the act or the rules, or have had a license issued under the act or any similar state statute suspended or revoked within five years of the filing of the present application.

     (c) Criminal history. You are not eligible for a loan originator license if you have been convicted of a gross misdemeanor involving dishonesty or financial misconduct, or a felony, within seven years of the filing of the present application.

     (3) May I originate residential mortgage loans in Washington without a loan originator license? Persons conducting the business of a loan originator without an active loan originator license must fall under one of the following categories of exemption from loan originator licensing:

     (a) Persons conducting residential mortgage loan business exclusively for any exempt person under RCW 19.146.020 (1)(a)(i); or

     (b) The exclusive agents conducting residential mortgage loan business for any exempt person under RCW 19.146.020 (1)(a)(ii); or

     (c) The bona fide employees conducting residential mortgage loan business exclusively for any exempt person under RCW 19.146.020 (1)(b), (e), (g) or (h); or

     (d) Those persons exempt under RCW 19.146.020 (1)(c) or (d).

     (4) What will happen if my loan originator license application is incomplete? The department will reject and return the entire application package to you with a notice identifying the incomplete, missing, or inaccurate information. You must follow the department's directions to correct the problems. You may then resubmit the application package.

     (5) How do I withdraw my application for a loan originator license? Provide the department with a request to withdraw your application in a form prescribed by the director.

     (6) When will the department consider my loan originator license application to be abandoned? If you do not respond within ten business days to the department's second request for information, your loan originator license application is considered abandoned. Failure to provide the requested information will not affect new applications filed after the abandonment. You may reapply by submitting a new application package.

     (7) What happens if the department denies my application for a loan originator license, and what are my rights if the license is denied? The department will notify you if your application is denied. You will receive a refund of any unused portion of the application fee.

     If your license application lists any mortgage brokers, the department will also notify the mortgage brokers of the license denial.

     Under the Administrative Procedure Act, chapter 34.05 RCW, you have the right to request an administrative hearing on the denial. To request a hearing, notify the department, in writing, within twenty days from the date of the director's notice to you notifying you your license application has been denied.

     (8) How will the department provide me with my loan originator license? The department may use any of the following methods to provide you with your loan originator license:

     (a) A printed paper license sent to you by regular mail.

     (b) A license sent to you electronically that you may print.

     (c) A license verification available on the department's web site and accessible for viewing by the public.

     (9) May I transfer, sell, trade, assign, loan, share, or give my loan originator license to someone else? No. A loan originator license authorizes only the person named on the license to conduct the business at the location listed on the license.

     (10) How do I change information on my loan originator license? You must file a license amendment application with the department, in a form prescribed by the department within thirty days of the change occurring.

     (11) If I am employed by a bank or other exempt entity may I apply for and receive a loan originator license? Yes, you may apply for a license at any time. However, if you are not working for a licensed mortgage broker, your license will be considered inactive.

     (12) What is an inactive loan originator's license? If a person holds a loan originator license but is not working with a licensed mortgage broker, they hold an inactive license. A person holding an inactive license may not hold themselves out as a licensed loan originator.

     (13) When my loan originator's license is inactive, am I subject to the director's enforcement authority? Yes. Your license is granted under specific authority of the director and under certain situations you may be subject to the director's authority even if you are not doing any activity covered by the act.

     (14) When my loan originator license is inactive, must I continue to pay annual fees, and complete continuing education for that year? Yes. You must comply with all the annual licensing requirements or you will be unable to renew your inactive loan originator license.

     (15) May I originate loans from a web site when my license is inactive? You may not originate loans, or engage in any activity that requires a license under the act, while your license is inactive.

     (16) How do I activate my loan originator license? When the department receives a notice, in a form prescribed by the department, from a licensed mortgage broker establishing a working relationship with you, your loan originator license will become active. The department will notify you and all mortgage brokers you are working with of the new working relationship established by the licensed mortgage broker.

     (17) When may the department issue interim loan originator licenses? To prevent an undue delay, the director may issue interim loan originator licenses with a fixed expiration date. The license applicant must have substantially met the initial licensing requirements, as determined by the director, to receive an interim license.

     For purposes of this section, undue delay includes the adjustment of license expiration or renewal dates to coincide with the implementation of systems designed to assist in uniformity and provide data repositories of licensing information.

     One example of having substantially met the initial licensing requirements is: Submitting a complete application, paying all application fees, and the department having received and reviewed the results of the applicant's background check.

     (18) When does my loan originator license expire? The loan originator license expires annually. The expiration date is shown on the license. If the license is an interim license, it may expire in less than one year.

     (19) How do I renew my loan originator license?

     (a) Before the license expiration date you must:

     (i) Pay the annual assessment fee; and

     (ii) Meet the continuing education requirement.

     (b) The renewed license is valid until it expires, or is surrendered, suspended or revoked.

     (20) If I let my loan originator license expire, must I apply to get a new license? If you complete all the requirements for renewal within forty-five days of the expiration date you may renew an existing license. However, if you renew your license during this forty-five day grace period, in addition to paying the annual assessment on your license, you must pay an additional fifty percent of your annual assessment. See subsection (18) of this section for the license renewal requirements.

     During this forty-five day window, your license is expired and you must not conduct any business under the act that requires a license until you renew your license.

     Any renewal requirements received by the department must be evidenced by either a United States Postal Service postmark or department "date received" stamp within the forty-five days. If you fail to comply with the renewal request requirements within forty-five days, you must reapply for a new license.

     (21) May I still originate loans if my loan originator license has expired? No. Once your license has expired you may no longer conduct the business of a loan originator as defined in the act and these rules.

     (22) What happens to the loan applications I originated before my loan originator license expired? Existing loan applications must be processed by the licensed mortgage broker or another licensed loan originator working for the mortgage broker.

     (23) May I surrender my loan originator's license? Yes. You may surrender your license before the license expires by notifying the department, in a form prescribed by the department.

     Surrender of your loan originator license does not change your civil or criminal liability, or your liability for any administrative actions arising from acts or omission occurring before the license surrender.

     (24) Must I display my loan originator license where I work as a loan originator? No. Neither you nor the mortgage broker company is required to display your loan originator license. However, evidence that you are licensed as a loan originator must be made available to anyone who requests it.

     (25) If I operate as a loan originator on the internet, must I display my license number on my web site? Yes. You must display your license number, and the license number and name as it appears on the license of the licensed mortgage broker you represent, on the web site.

     (26) Must I include my loan originator license number on any documents? You must include your license number immediately following your name on solicitations, including business cards, advertisements, and residential mortgage loan applications.

     (27) When must I disclose my loan originator license number? In the following situations you must disclose your loan originator license number and the name and license number of the mortgage broker you are associated with:

     (a) When asked by any party to a loan transaction, including third party providers;

     (b) When asked by any person you have solicited for business, even if the solicitation is not directly related to a mortgage transaction;

     (c) When asked by any person who contacts you about a residential mortgage loan;

     (d) When taking a residential mortgage loan application.

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NEW SECTION
WAC 208-660-360   Loan originators -- Testing.   (1) Must I pass a test prior to becoming a loan originator? Yes. You must take and pass a test prior to becoming a loan originator.

     (2) Where may I find information about the loan originator test? The department will publish the names and contact information of approved testing providers on the department web site.

     (3) How much does the loan originator test cost? Testing costs are set by contract between the test provider and the department and may be modified from time to time. The department will publish the current testing fee with the testing provider contact information.

     (4) How do I register to take the loan originator test? The department will publish registration information with the testing provider contact information.

     (5) What topics may be covered in the loan originator test? The department will publish a list of loan originator test topics on the department's web site.

     (6) After passing the loan originator test, will I have to take it again? You must retake the loan originator test if you have not been a loan originator within the past five years.

     (7) How soon after failing the loan originator test may I take it again? After failing the test three consecutive times, you must wait at least fourteen days before taking the test again.

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NEW SECTION
WAC 208-660-370   Loan originators -- Continuing education.   (1) Where may I get information about continuing education for loan originators? The department will publish a list of the approved professional organizations that provide continuing education on the department's web site. The professional organizations will have detailed information about the continuing education courses they offer.

     (2) How many clock hours of loan originator continuing education must I have each year? The continuing education requirement will be in the form of approved courses. While the individual clock hours may vary, you must complete two courses, of no less than three hours each, annually. Alternatively, you may attend three mortgage broker commission meetings instead of completing one continuing education course.

     (3) As a loan originator, may I take the same approved course multiple times to meet my annual continuing education requirement? No. You may not take the same approved course in the same or successive years to meet the annual requirements for continuing education.

     (4) If I teach an approved continuing education course may I use my course as credit toward my annual loan originator continuing education requirement? Yes. As an instructor of an approved continuing education course, you may receive credit for your annually required loan originator continuing education courses from the course(s) you teach. You will receive credit at the rate of one course taught equaling two continuing education course credits.

     (5) How do I receive credit toward my continuing education requirement when I teach an approved continuing education course? When you renew your license and seek to get credit for continuing education, submit to the department documentation evidencing approval of the continuing course you taught. The department will credit you with completing two continuing education courses for each one approved course you teach.

     (6) Is ethics a required continuing education course for loan originators? Yes. You must take an ethics continuing education course in your first year of holding a loan originator license. However, if you teach an approved continuing education course on ethics during your first year of holding a loan originator license, that will satisfy your ethics continuing education requirement for that year.

     (7) If I take a loan originator continuing education course approved for multiple jurisdictions, will the department accept it as part of my continuing education requirement? If any state has continuing education requirements or standards at least as stringent as Washington's, their continuing education courses may be approved by the department as meeting the continuing education requirements under the act and these rules.

     (8) If I accumulate more than the required loan originator continuing education course credits during a year, may I carry-over the excess credit to the next year? No. Continuing education courses only apply to the year in which they are taken.

     (9) If I fail to complete the required continuing education, what happens to my loan originator license? Your license will expire and you will not be able to continue conducting any business under the act. See WAC 208-660-350(20) to renew your license within forty-five days of it expiring.

     (10) How will I know which courses and providers satisfy the continuing education requirement? The department will approve continuing education courses offered by course providers and will approve professional organizations offering courses. The providers, their courses and contact information will be listed on the department's web site.

     (11) How do I provide the department with proof of the continuing education courses I have completed? You must provide the department with proof of your satisfactory completion of the course, in a form prescribed by the department.

     (12) If the department reissues my license and the new expiration date does not coincide with the prior annual assessment period, will the department still give me credit for the continuing education courses I have taken in preparation for meeting the old annual assessment date? Yes. The department will give you credit for the continuing education courses you have taken. You will not lose any credits due to the department's license expiration date adjustment.

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NEW SECTION
WAC 208-660-400   Reporting requirements and notices to the department.   (1) As a licensed mortgage broker, what annual report must I provide to the department? You must file a mortgage broker annual report, in a form prescribed by the director. The report must include:

     (a) The total number of residential mortgage loans secured by Washington real estate that you originated and closed in the prior calendar year; and

     (b) The total dollar volume (principal loan amounts) of the residential mortgage loans secured by Washington real estate that you originated and closed in the prior calendar year.

     (2) When must I provide the mortgage broker annual report to the department? You must provide the completed report to the department by May 1st of each year beginning in 2007.

     (3) What period of time must the mortgage broker annual report cover? The mortgage broker annual report must cover the prior calendar year from January 1st to December 31st.

     (4) What action will the department take if I fail to file my mortgage broker annual report by May 1st of each year?

     (a) When the report is over thirty days late, the department may begin an enforcement action against you.

     (b) When your license is due for renewal, the department will not renew it if you have not filed your annual report.

     (5) How do I notify the department when I want to change information on my mortgage broker or loan originator license? You must file a license amendment application with the department, in a form prescribed by the department within thirty days of the change occurring.

     (6) As a designated broker or loan originator, must I notify the department if I change my residential address or telephone number? Yes. Whether your license is active or inactive, you must notify the department in a form prescribed by the department within thirty days of a change in your residential address and telephone number.

     (7) As a designated broker or loan originator must I notify the department if I change my name? Yes. Whether your license is active or inactive, you must notify the department in a form prescribed by the department within thirty days of a name change.

     (8) Must I notify the department of the physical address of my mortgage broker books and records? Yes. You must provide the physical address of your mortgage broker books and records in your initial license application. If the location of your books and records changes, you must provide the department, in a form prescribed by the department, with the new physical address within five business days of the change.

     (9) Must I notify the department if my designated broker leaves, or is no longer my designated broker? Yes. You must notify the department, in a form prescribed by the department, within five business days of the loss of or change of status of your designated broker. See WAC 208-660-180(3).

     (10) When and how do I change the information about my registered agent? Within five business days of the change, you must file a statement of change with the department, in a form prescribed by the department.

     (11) If I am a registered agent under the act, must I notify the department if I resign? Yes. You must provide the department with your statement of resignation letter at least thirty-one days prior to the intended effective date. You must also provide a copy of the resignation letter to the licensed mortgage broker. The department will terminate your appointment thirty-one days after receiving your resignation letter.

     (12) Must I notify the department if I change the business structure of my company? When must I notify the department? If the change to your business adds officers, directors, or principal stockholders owning ten percent or more of the company, you must notify the department, in a form prescribed by the department, at least thirty days prior to the change. The department will consider the qualifications of the new people and notify you whether or not the proposed change is acceptable.

     (13) What are my responsibilities when I sell my business?

     (a) At least thirty days prior to the effective date of sale, you must notify the department of the pending sale, in a form prescribed by the director.

     (b) You must surrender your license and complete the year's annual report.

     (c) You must give written notice to borrowers, and to anyone who has applied for a loan, advising them of the change in ownership.

     (d) You must give written notice to third party providers advising them of the change in ownership and bringing accounts payable current.

     (e) You must maintain your records as required under the act and these rules.

     (f) You must reconcile the trust account and return any funds to the borrowers or others to whom they belong, or transfer funds into a new trust account at the borrower's direction. If excess funds still remain and are unclaimed, follow the procedures provided by the department of revenue's unclaimed property division.

     (14) Must I notify the department if I cease doing business in this state? You must notify the department within twenty days after you cease doing business in the state by filing a Mortgage Broker Closure Form and the annual report.

     (15) Must I notify the department of changes to my trust account? Yes. You must notify the department within five business days of any change in the status, location, account number, or other particulars of your trust account, made by you or the federally insured financial institution where the trust account is maintained. A change in your trust account includes the addition of a trust account.

     (16) Must I notify the department of changes to my Washington master business license? Yes. You must notify the department within five business days of any changes to your Washington master business license made by you or the agency issuing the license.

     (17) Must I notify the department of changes to my standing with the Washington secretary of state? Yes. You must notify the department within five business days of any changes to your standing with the Washington secretary of state made by you or the secretary of state.

     (18) What must I do if my licensed mortgage broker company files for bankruptcy?

     (a) Chapter 7 bankruptcy. If you are a licensed mortgage broker that files for a Chapter 7 bankruptcy, you must:

     (i) Notify the director and surrender your mortgage broker license within ten business days of filing the bankruptcy.

     (ii) Provide the department with a mortgage broker annual report for the calendar year preceding the filing within ten business days of filing the bankruptcy.

     (b) Chapter 11 bankruptcy. If your licensed mortgage broker company files for a Chapter 11 bankruptcy, you must notify the director within ten business days of filing the bankruptcy.

     (c) Chapter 13 bankruptcy. If your licensed mortgage broker company files for a Chapter 13 bankruptcy, you must:

     (i) Notify the director and surrender your mortgage broker license within ten business days of filing the bankruptcy.

     (ii) Provide the department with a mortgage broker annual report for the calendar year preceding the filing within ten business days of filing the bankruptcy.

     (19) If I am a designated broker and file for personal bankruptcy, what are my reporting responsibilities? A designated broker must notify the department in writing within ten business days of filing for bankruptcy protection.

     (20) If I am a designated broker and file for personal bankruptcy, what action may the department take? The director may require the licensed mortgage broker to replace you with another designated broker.

     (21) If I am a loan originator and file for personal bankruptcy, what are my reporting responsibilities? A licensed loan originator must notify the director in writing within ten business days of filing for bankruptcy protection.

     (22) If I am a loan originator and file for personal bankruptcy, what action may the department take? Depending on the circumstances, the director may revoke or condition your license.

     (23) When may I apply for a license after surrendering one due to my personal bankruptcy filing? If you surrendered your license, you may apply for a license at any time. However, the department may deny your license application for three years after the bankruptcy has been discharged provided that no new bankruptcies have occurred or are in progress.

     (24) When may I apply for a license after the department has revoked my license due to my personal bankruptcy filing? The director will not issue a license to any person who has had their license revoked within five years of applying. While you may apply at any time, the application will be denied until the five years have elapsed. For this reason it is important for you to consider a surrender of your license rather than allowing it to be revoked.

     (25) Who in the mortgage broker company must notify the department if they are charged with or convicted of a crime? Licensees, whether on active or inactive license status, must notify the department in writing within ten business days of being:

     (a) Charged by indictment or information with any felony, or a gross misdemeanor involving dishonesty or financial misconduct in any jurisdiction.

     (b) Convicted of any felony, or any gross misdemeanor involving dishonesty or financial misconduct in any jurisdiction.

     (c) Convicted outside of Washington for any crime that if charged in Washington would constitute a felony, or gross misdemeanor for dishonesty or financial misconduct.

     (26) Who in the mortgage broker company must notify the department if they are the subject of an administrative enforcement action? Licensees, whether holding active or inactive licenses, must notify the department in writing within ten business days of the occurrence if:

     (a) Charged with any violations by an administrative authority in any jurisdiction; or

     (b) The subject of any administrative action, including a license revocation action, in any jurisdiction.

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NEW SECTION
WAC 208-660-410   Trust accounting.   (1) What are trust funds? Trust funds are all funds received from borrowers, or on behalf of borrowers, for payments to third-party providers. The funds are considered to be held in trust immediately upon receipt. Trust funds include, but are not limited to, borrower deposits for appraisal fees, credit report fees, title report fees, and similar fees to be paid for services rendered by third-party providers in the borrower's loan transaction.

     (2) Are lock-in agreement fees paid by a borrower to the mortgage broker considered trust funds? Yes, these fees are considered trust funds and must be deposited in the mortgage broker's trust account, unless the check is made payable to the lender. If the check is made payable to the lender, the mortgage broker has a duty to exercise ordinary care to see that the check is not used for any unauthorized purpose. The mortgage broker must deliver the check to the lender pursuant to any agreement with the lender, or within three business days of receiving the funds.

     (3) Must I have a trust account if I receive funds from borrowers for the payment of third-party providers? Yes. All funds received from borrowers, or on behalf of borrowers, for payments to third-party providers are trust funds and are considered held in trust immediately upon receipt. You must deposit those funds in a trust account in your name as it appears on your license, or if exempt in the name of the exempt broker, in a federally insured financial institution's branch located in this state within three business days of receiving the funds. The funds must remain on deposit until disbursed to the third party provider except as permitted by the act and these rules. The mortgage broker is responsible for depositing, holding, disbursing, accounting for and otherwise safeguarding the funds in accordance with the act and these rules.

     (4) Must I have a trust account if I do not receive any trust funds? No. If you do not accept trust funds at any point before, during, or after a loan transaction, a trust account is not required.

     (5) Must I have a trust account if I am a mortgage broker exempt from licensing under the act? Mortgage brokers exempt under RCW 19.146.020 (1)(a), (b), (c), (d), (f), (h) are not required to have a trust account even if they receive trust funds. Mortgage brokers exempt under RCW 19.146.020 (1)(e) and (g), and 19.146.020(4) are required to comply with RCW 19.146.050 and these rules.

     (6) What does it mean to receive trust funds "on behalf of borrowers"? Trust funds are identified by purpose rather than source. Funds received by the mortgage broker from the borrower for the payment of third-party provider services are trust funds. Funds received from relatives of borrowers, the seller in a real estate transaction, or an escrow company or lender reimbursing a mortgage broker for payments advanced are trust funds. Funds deposited to a borrower's subaccount by the mortgage broker are funds received on behalf of the borrower and are trust funds.

     (7) What forms of payment must trust funds take? Trust funds may be in any form that allows deposit into the trust account, including, but not limited to, cash, check, or any electronic transmission of funds, including, but not limited to bank wires, ACH authorization, credit card or debit transactions, or on-line payments through a web site.

     (8) How do I receive trust funds through electronic transmission?

     (a) The trust funds must be transmitted directly from the borrower, or other person on behalf of the borrower, into your trust account, in a federally insured financial institution located in the state of Washington.

     (b) Each electronic transmission must be evidenced by a record including a traceable identifying name or number supplied by the federally insured financial institution or transferring entity. Electronic transmissions must be included in the monthly trust account reconciliation.

     (9) When must I deposit trust funds? You must deposit all funds you receive, that are required to be held in trust, before the end of the third business day following your receipt of the funds.

     (10) How must I document deposits?

     (a) You must document all deposits to the trust account(s) by having a bank deposit slip which has been validated by bank imprint, or an attached deposit receipt which bears the signature of an authorized representative of the mortgage broker indicating that the funds were actually deposited into the proper account(s).

     (b) You must post the receipt of funds by wire transfer or any means other than cash, check, or money order in the same manner as other receipts. Any such transfer of funds must include a traceable identifying name or number supplied by the federally insured financial institution or transferring entity. You must also retain a receipt for the deposit of the funds which must contain the traceable identifying name or number supplied by the federally insured financial institution or transferring entity.

     (11) May I deposit funds other than trust funds into my trust account? You may deposit your own funds into the trust account(s) to prevent a disbursement in excess of an individual borrower's subaccount, provided that the exact sum of deficiency is deposited and detailed records of the deposit and its purpose are maintained in the trust ledger and the trust account(s) check register. Any deposits of your own funds into the trust account(s) must be held in trust in the same manner as funds paid by borrowers for the payment of third-party providers and treated accordingly in compliance with the act and these rules.

     (12) May a loan originator accept trust funds? A loan originator may not solicit or receive fees for a third-party provider of goods or services except that a loan originator may transfer funds from a borrower to a licensed mortgage broker, exempt mortgage broker, or third-party provider, if the loan originator does not deposit, hold, retain, or use the funds for any purpose other than the payment of bona fide fees to third-party providers. The funds must be in the form of a check made payable to a licensed mortgage broker, exempt mortgage broker, or third-party provider. The loan originator must transfer the borrower's funds to the licensed mortgage broker, exempt mortgage broker, or third-party provider within one business day of receiving the check from the borrower.

     (13) May a mortgage broker accept and hold a check from a borrower that is made payable to a third party and intended to be used to pay for third-party provider services without depositing the check into a trust account? Yes. The check must be payable to a specific third-party provider. The payee line may not be left blank. The mortgage broker has a duty to exercise ordinary care to see that the check is not used for any unauthorized purpose. The mortgage broker must deliver the check to the third-party provider within the time frames and requirements established in RCW 19.146.0201(12).

     (14) May a loan originator accept and hold a check from a borrower that is made payable to a third party and intended to be used to pay for third-party provider services? A loan originator may only hold a borrower's check for the purpose of transferring the funds from the borrower to the licensed mortgage broker, exempt mortgage broker, or third-party provider. The loan originator must transfer the borrower's funds to the licensed mortgage broker, exempt mortgage broker, or third-party provider within one business day of receiving the check from the borrower.

     (15) Is a lender or mortgage broker, or agent or employee of a lender or mortgage broker, considered a third party? A lender is considered a third party only when the lender provides lock-in arrangements to the mortgage broker in connection with the preparation of a borrower's loan.

     (16) If a mortgage broker receives funds from a third party, such as a closer, or a lender, as reimbursement for advancements for the payment of third-party services, are these funds considered trust funds? Yes, all funds received by the mortgage broker on behalf of the borrower for the payment of third-party services are considered trust funds.

     (17) What books and records must I keep regarding my trust account? You must maintain as part of your books and records:

     (a) A trust account deposit register and copies of all validated deposit slips or signed deposit receipts for each deposit to the trust account;

     (b) A record of all invoices for payments made on behalf of a borrower including but not limited to payments for appraisals, credit reports, title cancellations, and verification of deposit;

     (c) A ledger for each trust account. Each ledger must contain a separate subaccount ledger sheet for each borrower from whom funds are received for payment of third-party providers. Each receipt and disbursement pertaining to such funds must be posted to the ledger sheet at the time the receipt or disbursement occurs. Entries to each ledger sheet must show the date of deposit, identifying check or instrument number, amount and name of remitter. Offsetting entries to each ledger sheet must show the date of check or electronic transmission, check number or identifying electronic transmission number, amount of check or electronic transmission, name of payee and invoice number if any. Canceled or closed ledger sheets must be identified by time period and borrower name or loan number;

     (d) A trust account check register consisting of a record of all deposits to and disbursements from the trust account whether by check or electronic transmission;

     (e) Reconciled trust account bank statements;

     (f) A monthly trial balance of the ledger of trust accounts, and a reconciliation of the ledger of trust accounts with the related bank statement(s) and the related check register(s). The reconciled balance of the trust account(s) must at all times equal the sum of:

     (i) The outstanding amount of funds received from or on behalf of borrowers for payment of third-party providers; and

     (ii) The outstanding amount of any deposits into the trust fund of the mortgage broker's own funds in accordance with subsection (11) of this section; and

     (g) A printed and dated source document file to support any changes to existing accounting records.

     Any alternative records you propose for use must be approved in advance by the director.

     (18) What is a "subaccount"? A "subaccount" is a recordkeeping segregation of each borrower's funds held in the mortgage broker's single deposit trust account that holds the aggregated funds for the mortgage broker's clients. Alternatively, the mortgage broker may establish a separate bank account for each borrower. When added together, individual subaccounts must exactly equal the total of funds held in trust.

     (19) May I transfer funds between a borrower's subaccounts? If a borrower has more than one loan application pending with a mortgage broker, the mortgage broker must maintain a separate subaccount ledger for each loan application. The borrower must consent to any transfer of trust account funds between the individual subaccounts associated with these pending loan applications. The consent must be maintained in the borrower's loan file and referenced in the borrower's subaccount ledger sheets.

     (20) May I be reimbursed for funds that I have advanced into the trust account?

     (a) If you deposit your own funds into the trust account as provided in subsection (11) of this section, you may receive reimbursement for such deposit at closing into your general business bank account provided:

     (i) All third-party provider's charges associated with your deposit have been paid;

     (ii) The HUD-1 Settlement Statement provided to the borrower clearly reflects the line item, "deposit paid by broker," and the amount deposited;

     (iii) The HUD-1 Settlement Statement provided to the borrower clearly reflects the line item, "reimbursement to broker for funds advances," and the amount reimbursed; and

     (iv) Any funds disbursed by escrow at closing to you for payment of unpaid third-party providers' expenses charged or to be charged to you are deposited into the borrower's subaccount of the trust account.

     (b) If you deposit your own funds into the trust account as provided in subsection (11) of this section, and the loan does not close, the funds remain the property of the borrower.

     (21) May I disburse trust funds through electronic transmission? Yes. You may disburse trust funds from the trust account by electronic transmission. Each electronic transmission must be evidenced by a record including a traceable identifying name or number supplied by the federally insured financial institution or transferring entity.

     Electronic transmission(s) must be included in the monthly trust account reconciliation.

     (22) How must I handle trust account disbursements?

     (a) Disbursements from trust accounts may be by electronic transmission or manual check. If a manual check is used, the check must on its face identify the specific third-party provider transaction or borrower refund, except as specified in this section. If an electronic transmission is used, each transmission must be evidenced by a record including a traceable identifying name or number supplied by the federally insured financial institution or transferring entity.

     (b) Disbursements may be made from the trust account(s) for the payment of bona fide third-party providers' services rendered in the course of the borrower's loan origination, if the borrower has consented in writing to the payment. Such consent may be given at any time during the application process and in any written form, provided that it contains sufficient detail to verify the borrower's consent to the use of trust funds. No disbursement on behalf of the borrower may be made from the trust account until the borrower's or broker's deposit of sufficient funds into the trust account(s) is available for withdrawal.

     (23) What are the requirements concerning the checks I write from my trust account? You must use checks that are prenumbered by the supplier (printer) unless you use an automated check writing system which numbers all checks in sequence. All trust account checks must have the words "trust account" on the front. If you use an automated program that writes checks, the check number must appear in the magnetic coding which also identifies the account number for readability by federally insured financial institution computers and the program may assign suffixes or subaccount codes before or after the check number for identification.

     (24) What disbursements are prohibited? Among other prohibited disbursements, no disbursement may be made from a borrower's subaccount:

     (a) In excess of the amount held in the borrower's subaccount (commonly referred to as a disbursement in excess);

     (b) In payment of a fee owed to any employee of the mortgage broker or in payment of any business expense of the mortgage broker;

     (c) For payment of any service charges related to the management or administration of the trust account(s);

     (d) For payment of any fees owed to the mortgage broker by the borrower, or to transfer funds from the subaccount to any other account; and

     (e) For the payment of fees owed to the broker under RCW 19.146.070 (2)(a).

     (25) When may a mortgage broker transfer excess funds from a borrower subaccount?

     (a) A mortgage broker may, in the case of a closed and funded transaction, transfer excess funds remaining in the individual borrower's subaccount into the mortgage broker's general business bank account in full or partial payment of fees owed to the mortgage broker upon determination that all third-party providers' expenses have been accurately reported in the loan closing documents and have been paid in full, and that the borrower has received credit in the loan closing documents for all funds deposited in the trust account.

     (b) Each mortgage broker must maintain a detailed audit trail for any disbursements from the borrower's subaccount(s) into the mortgage broker's general business bank account, including documentation in the form of a final HUD-1 Settlement Statement form showing that credit has been received by the borrower in the closing and funding of the transaction. The disbursements must be made by a check drawn on the trust account and deposited directly into the mortgage broker's general business bank account.

     (26) What if there are funds remaining in a borrower's subaccount after all third-party providers have been satisfied? Any remaining funds in a borrower's subaccount must be returned to the borrower within five business days of the determination that all payments to third-party providers owed by the borrower have been satisfied.

     (27) What if the mortgage broker cannot locate a borrower in order to remit excess funds in the borrower's subaccount? The mortgage broker must follow the procedures provided by the department of revenue's unclaimed property division to handle any trust funds held for a borrower who cannot be located.

     (28) Is a mortgage broker responsible for all disbursements out of its trust account? Yes. A mortgage broker is responsible for all disbursements from the trust account whether disbursed by personal signature, signature plate, signature of another person authorized to act on its behalf, or any authorized electronic transfer.

     (29) If the mortgage broker receives a check from closing that includes both its fee and a payment or payments for third-party providers, how does it lawfully handle the funds? The mortgage broker may either:

     (a) Split the check at the teller window at the time of deposit and route any moneys due to third-party providers to an approved trust account, and moneys due it to its general account; or

     (b) Deposit the entire check into the trust account. After paying any and all moneys due to third-party providers and insuring that the borrower has received credit for all funds deposited in the trust account, the mortgage broker may transfer excess funds remaining in the individual borrower's subaccount into the mortgage broker's general business bank account. This amount must be equal to the fee disclosed on the final HUD-1 Settlement Statement, less any amounts already received by the mortgage broker, and must be duly recorded in the trust subaccount ledger. The mortgage broker may not transfer moneys from the trust account to its general business bank account before the loan is closed.

     (30) Is the mortgage broker allowed to transfer funds out of its trust account for any reason other than for payment to a third-party provider? The mortgage broker may transfer the borrower's funds out of the trust account by check back to the borrower or to any party so instructed in writing by the borrower. A mortgage broker, when complying with these rules, may transfer excess trust funds to itself; however, failure to comply with these rules is a serious violation punishable by imprisonment, other penalties, or both as authorized by the act.

     (31) How do I pay a third-party appraisal cost if escrow disburses the funds to me and I don't have a trust account? You must return the funds to escrow for proper disbursement, or maintain a trust account for such incidental occurrences.

     (32) If I choose not to have a trust account, and a closing agent did not follow written instructions and issued a check to me after closing that has fees in it for third-party providers, may I deposit the check into my business account and pay those third-party providers immediately? No. You must not deposit those fees into your business account under any circumstances.

     (33) After closing, if an escrow agent, title company, or lender wires funds into my general account that are intended for third-party services, will the department take action against me for a violation of the trust fund requirements? Provided that the number of times funds are mistakenly wired to your general account is immaterial compared to the total number of loans you closed and you can provide proof that you took the following steps, the department will not take action against you for a violation of the trust account requirements under RCW 19.146.050:

     (a) You gave the escrow agent, title company, or lender clear written instruction not to send funds intended for third-party providers to you; and you forwarded all funds mistakenly wired to your general account to the proper party on or before the end of the third business day after receipt; or

     (b) You provided accurate wire instruction for the trust account and the funds transmitter caused the error by incidentally placing the funds into the general account, and within one day you transfer all trust funds to your trust account.

     (34) How does a mortgage broker disburse funds from a subaccount when there is more than one borrower due to receive those funds? When disbursing funds back to the borrowers, a mortgage broker must make the trust account disbursement check payable to all borrowers with the term "and" written between each borrower's name. When disbursing funds to another party instructed by the borrowers, all borrowers must sign the written notice of instruction.

     (35) May mortgage brokers using an interest-bearing trust account keep the interest? No. Mortgage brokers using an interest bearing account must refund or credit to the borrower the interest earned on the borrower's subaccount. The refund or credit to the borrower may be made either at closing or upon withdrawal or denial of the borrower's loan application.

     (36) Are there any separate requirements for a computerized accounting system? Yes. The requirements are as follows:

     (a) Your computer system must provide the capability to back up data files;

     (b)(i) You must print the following documents at least once per month and retain them as part of your books and records:

     (A) Trust account deposit register;

     (B) Trust account check register;

     (C) Trial balance ledger;

     (ii) You must print each subaccount at closure and retain the closure document as part of your books and records;

     (c) You must ensure that all written checks are included within your computer accounting system; and

     (d) You must print your computer-generated reconciliations of the trust account at least once each month and retain the printouts as a part of your books and records.

     (37) Are there penalties for violating trust account requirements under RCW 19.146.050? A violation of this section is a class C felony and may be punishable by imprisonment. In addition, a mortgage broker or other person violating this section may be subject to penalties as enumerated under RCW 19.146.220.

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NEW SECTION
WAC 208-660-420   Out-of-state mortgage brokers and loan originators.   (1) May I be a licensed mortgage broker in Washington without a physical office in Washington? Yes. You are not required by the act to have a physical location in Washington.

     (2) May I be a licensed mortgage broker in Washington and have branch offices both in Washington and outside of Washington? Yes. However, each of your branch offices that offer Washington residential mortgage loans must hold a Washington license, even if the location is outside Washington.

     (3) May my mortgage broker business be conducted entirely on the internet? Yes. But you must have a license for all locations including those that offer loans by mail or internet.

     (4) May I work as a loan originator in Washington if I do not have a physical location in Washington? Yes. You may originate Washington loans from any location licensed under the act, inside or outside of Washington.

     (5) May I work as a licensed loan originator for a mortgage broker that is out of the state? Yes, as long as the location from which you work is licensed under the act.

     (6) If my mortgage broker business is not located in Washington, where must I keep my records? If your business is located outside of Washington, you may either maintain the books and records at a location in Washington, or pay the department's travel expenses to the out-of-state location to examine the books and records. Travel expenses may include, but are not limited to, transportation, meals, and lodging.

     (7) What additional requirements must I comply with if my business does not have a physical location in Washington? You must continuously maintain a registered agent in Washington and provide the department with the registered agent's name, physical and mailing address, and written consent to be the registered agent.

     (8) How do I change the information about my registered agent? You must file a statement of change with the department within five business days from the change. The statement of change must contain:

     (a) Your name and license number.

     (b) If the agent's office location has changed, the new physical address.

     (c) If the registered agent has changed, the name and physical address of the new registered agent. The director will send a request directly to the new agent to obtain written consent to the appointment.

     (9) If I am a registered agent under the act, what must I do to resign as registered agent?

     (a) Provide the department with a statement of resignation at least thirty-one days prior to the intended effective date of your resignation.

     (b) Provide a copy of the statement of resignation to the licensed mortgage broker.

     (c) The department will terminate your appointment on the thirty-first day after the date on which the statement of resignation was delivered.

     (10) Where must the director initiate lawsuits arising under the act against out-of-state licensees? Lawsuits initiated by the director under the act must be initiated in the superior court of Thurston county.

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NEW SECTION
WAC 208-660-430   Disclosure requirements.   (1) What disclosures must I make to borrowers and when? Within three business days of receiving a borrower's loan application, or receiving money from a borrower for third-party provider services, you, as a mortgage broker or loan originator on behalf of a mortgage broker, must make all disclosures required by RCW 19.146.030 (1), (2), and (3). The disclosures must be in a form acceptable to the director.

     (2) What is the disclosure required under RCW 19.146.030(1)? A full written disclosure containing an itemization and explanation of all fees and costs that the borrower is required to pay in connection with obtaining a residential mortgage loan, and specifying the fee or fees which inure to the benefit of the mortgage broker. A good faith estimate of a fee or cost must be provided if the exact amount of the fee or cost is not determinable. This subsection does not require disclosure of the distribution or breakdown of loan fees, discount, or points between the mortgage broker and any lender or investor.

     The specific content of the disclosure required under RCW 19.146.030(1) is identified in RCW 19.146.030(2).

     (3) What is the disclosure required under RCW 19.146.030(2)? Mortgage brokers must disclose the following content:

     (a) The annual percentage rate, finance charge, amount financed, total amount of all payments, number of payments, amount of each payment, amount of points or prepaid interest and the conditions and terms under which any loan terms may change between the time of disclosure and closing of the loan; and if a variable rate, the circumstances under which the rate may increase, any limitation on the increase, the effect of an increase, and an example of the payment terms resulting from an increase.

     Disclosure in compliance with the requirements of the Truth-in-Lending Act and Regulation Z, as now or hereafter amended, is considered compliance with the disclosure content requirements of this subsection; however, RCW 19.146.030(1) governs the delivery requirement of these disclosures;

     (b) The itemized costs of any credit report, appraisal, title report, title insurance policy, mortgage insurance, escrow fee, property tax, insurance, structural or pest inspection, and any other third-party provider's costs associated with the residential mortgage loan. Disclosure through good faith estimates of settlement services and special information booklets in compliance with the requirements of the Real Estate Settlement Procedures Act, and Regulation X, as now or hereafter amended, is considered compliance with the disclosure content requirements of this subsection; however, RCW 19.146.030(1) governs the delivery requirement of these disclosures;

     (c) If applicable, the cost, terms, duration, and conditions of a lock-in agreement and whether a lock-in agreement has been entered, and whether the lock-in agreement is guaranteed by the mortgage broker or lender, and if a lock-in agreement has not been entered, disclosure in a form acceptable to the director that the disclosed interest rate and terms are subject to change;

     (d) A statement that if the borrower is unable to obtain a loan for any reason, the mortgage broker must, within five days of a written request by the borrower, give copies of any appraisal, title report, or credit report paid for by the borrower, to the borrower, and transmit the appraisal, title report, or credit report to any other mortgage broker or lender to whom the borrower directs the documents to be sent;

     (e) Whether and under what conditions any lock-in fees are refundable to the borrower; and

     (f) A statement providing that moneys paid by the borrower to the mortgage broker for third-party provider services are held in a trust account and any moneys remaining after payment to third-party providers will be refunded.

     (4) How do I disclose my mortgage broker fees on the good faith estimate and settlement statement? You must disclose or direct the disclosure of your fees on lines 808 through 811 of the good faith estimate and HUD-1/1A settlement statement or similar document.

     (5) Are there additional disclosure requirements related to interest rate lock-ins? Yes. Pursuant to RCW 19.146.030(3), if subsequent to the written disclosure being provided under this section, a mortgage broker or loan originator enters into a lock-in agreement with a borrower or represents to the borrower that the borrower has entered into a lock-in agreement, then no less than three business days thereafter including Saturdays, the mortgage broker or loan originator must deliver or send by first-class mail to the borrower a written confirmation of the terms of the lock-in agreement, which must include a copy of the disclosure made under subsection (3)(c) of this section.

     (6) What must I disclose to the borrower if they do not choose to enter into a lock-in agreement? If a lock-in agreement has not been entered into, you must disclose to the borrower that the disclosed interest rate and terms are subject to change.

     (7) Will a lock-in agreement always guarantee the interest rate and terms? No. A lock-in agreement may or may not be guaranteed by the mortgage broker or lender. The lock-in agreement must clearly state whether the lock-in agreement is guaranteed by the mortgage broker or lender.

     (8) Must a mortgage broker enter into a lock-in agreement with a borrower? No. The statute does not require a mortgage broker to enter into a lock-in agreement with a borrower.

     (9) Are there any model forms that suffice for the disclosure content under RCW 19.146.030(2)? Yes. The following model forms are acceptable forms of disclosure:

     (a) For RCW 19.146.030 (2)(a), mortgage brokers are encouraged to use the federal truth-in-lending disclosure form for mortgage loan transactions provided under the Truth-in-Lending Act and Regulation Z, as now or hereafter amended. However, the federal truth-in-lending disclosure only suffices for the content of disclosures under RCW 19.146.030 (2)(a). The delivery of disclosures is governed by RCW 19.146.030(1).

     (b) For RCW 19.146.030 (2)(b), mortgage brokers are encouraged to use the federal good faith estimate disclosure form provided under the Real Estate Settlement Procedures Act and Regulation X, as now or hereafter amended. However, the federal good faith estimate disclosure only suffices for the content of disclosures under RCW 19.146.030 (2)(b). The delivery of disclosures is governed by RCW 19.146.030(1).

     (c) For RCW 19.146.030 (2)(c), (d), (e), (f) and (3), the department encourages mortgage brokers to use the department published model disclosure forms that can be found on the department's web site.

     (10) May my mortgage broker fees increase following the disclosures required under RCW 19.146.030(1)? Pursuant to RCW 19.146.030(4), a mortgage broker must not charge any fee that inures to the benefit of the mortgage if it exceeds the fee disclosed on the initial written "good faith estimate" disclosure required in RCW 19.146.030 (1) and (2)(b), unless:

     (a) The need to charge the fee was not reasonably foreseeable at the time the written disclosure was provided; and

     (b) The mortgage broker has provided to the borrower, no less than three business days prior to the signing of the loan closing documents, a clear written explanation of the fee and the reason for charging a fee exceeding that which was previously disclosed.

     (11) Are there any situations in which fees that benefit the mortgage broker can increase without additional disclosure? Yes, there are two possible situations where an increase in the fees benefiting the mortgage broker may increase without the requirement to provide additional disclosures. These situations are:

     (a) The additional disclosure is not required if the borrower's closing costs, excluding prepaid escrowed costs of ownership, on the final settlement statement do not exceed the total closing costs, excluding prepaid escrowed costs of ownership, in the most recent good faith estimate provided to the borrower. For purposes of this section "prepaid escrowed costs of ownership" mean any amounts prepaid by the borrower for the payment of taxes, property insurance, interim interest, and similar items in regard to the property used as security for the loan; or

     (b) The fee or set of fees that benefit the mortgage broker are disclosed as a percentage of the loan amount and the increase in fees results from an increase in the loan amount, provided that:

     (i) The increase in loan amount is requested by the borrower; and

     (ii) The fee or set of fees that are calculated as a percentage of the loan amount have been disclosed on the initial written disclosure as both a percentage of the loan amount and as a dollar amount based upon the assumed loan amount used in the initial written disclosure; and

     (iii) The total aggregate increase in the fee or set of fees that benefit the mortgage broker as a result of the increase in loan amount is less than seven hundred fifty dollars.

     (12) What action may the department take if I disclose my mortgage broker fees on the good faith estimate and HUD-1/1A statement on lines other than 808 through 811? If you fail to disclose your mortgage broker fees as required, the department may request, direct, or order you to refund those fees to the borrower. For example, if you disclose your mortgage broker fees as loan origination fees or discount points, the department may find that this is a deceptive practice and take action against you as indicated.

     (13) May the department take action against a mortgage broker when mortgage broker fees are disclosed incorrectly on the HUD-1/1A and the incorrect disclosure was made by an independent escrow agent, title company, or lender? If the mortgage broker can show the department that they disclosed their fees correctly on the good faith estimate, and have instructed the independent escrow agent, title company, or lender to disclose the fees correctly on the HUD-1/1A, and the independent escrow agent, title company, or lender has not followed the instructions, the department may not take action against the mortgage broker.

     (14) What action may the department take if I fail to provide additional disclosures as required under RCW 19.146.030(4)? Generally, the department will request, direct, or order you to pay restitution to borrowers that have paid fees to you in excess of the amounts initially disclosed.

     (15) How will the department determine whether borrowers have paid fees to me in excess of the amounts initially disclosed for which the department might request, direct or order restitution? Generally, the department will make its determination by answering the following questions:

     (a) Has an initial good faith estimate disclosure of costs been provided to the borrower in accordance with RCW 19.146.030 (1) and (2)(b)?

     (b) Were any subsequent good faith estimate disclosures of costs provided to the borrower no less than three days prior to the signing of the loan closing documents?

     (c) How were the costs disclosed in each good faith estimate (e.g., dollar amount, percentage, or both)?

     (d) Did the total costs, excluding prepaid escrowed costs of ownership, on the final settlement statement exceed the total closing costs, excluding prepaid escrowed costs of ownership, in the most recent good faith estimate provided to the borrower no less than three days prior to the signing of the loan closing documents?

     (e) If the costs at closing did exceed the most recent disclosure of costs was the need to charge the fee reasonably foreseeable at the time the written disclosure was provided?

     (f) If the costs at closing did exceed the most recent disclosure of costs did the mortgage broker provide a clear written explanation of the fee and the reason for charging a fee exceeding that which was previously disclosed, no less than three business days prior to the signing of the loan closing documents?

     (16) If I failed to provide the initial good faith estimate disclosure under RCW 19.146.030 (1) and (2)(b) what action may the department take? If you have not provided the initial good faith estimate disclosure as required, including both delivery and content requirements, the department may request, direct or order you to pay restitution to the borrower in the amount of all fees that inured to your benefit.

     (17) If I received trust funds from a borrower, but failed to provide the disclosures as required in RCW 19.146.030 (1) and (2), what action may the department take? If you did not provide the disclosures as required, including both delivery and content requirements, the department may request, direct or order you to refund to the borrower any trust funds they have paid regardless of whether you have already expended those trust funds on third-party service provider services.

     (18) Under what circumstances must I redisclose the initial disclosures required under the act? Generally, any loan terms or conditions that change must be redisclosed, prior to closing, to the borrower. Some examples are:

     (a) Adjustable rate loan terms, including index, margin, and any changes to the fixed period.

     (b) The initial fixed period.

     (c) Any balloon payment requirements.

     (d) Interest only options and any changes to the options.

     (e) Lien position of the loan.

     (f) Terms and the number of months or years for amortization purposes.

     (g) Prepayment penalty terms and conditions.

     (h) Any other term or condition that may be specific to a certain loan product.

     (19) Must I provide the written disclosures required under RCW 19.146.030 if all I do is obtain a credit report on a consumer who has identified a specific property for a purchase and sales agreement or contract, or a refinance loan? Yes. At that point, you have collected enough information on behalf of the consumer for you to anticipate a credit decision under RESPA's Regulation X, 24 CFR Sections 3500 et seq. and you must provide the consumer with all required disclosures. See the definition of "application" in these rules.

     (20) If a loan application is canceled within three days of application must I provide the disclosures required under RCW 19.146.030? If you have not used any borrower trust funds and those funds have been returned to the borrower in conformance with these rules, the disclosures pursuant to RCW 19.146.030 are not required.

     (21) Is a mortgage broker that table funds a loan exempt from disclosures? No. A mortgage broker must provide all disclosures required by the act, and disclose all fees as required by Regulation X, regardless of the funding mechanism used in the transaction.

     (22) What must I disclose to a potential borrower when I advertise my business or services to them using information about their current loan? You must disclose the source from which you obtained the information about the borrower's current loan when the information was not obtained by soliciting, making a residential loan, or assisting that potential borrower in obtaining or applying to obtain a residential mortgage loan.

     (23) What must I provide to the borrower if I am unable to complete a loan for them and they have paid for services from third-party providers? If you are unable to complete a loan for the borrower for any reason, and if the borrower has paid you for third-party services, and the borrower makes a written request to you, you must provide the borrower with copies of the product from any third-party service provider, including, but not limited to, an appraisal, title report, or credit report. You must provide the copies within five business days of the borrower's request.

     The borrower may also request that you provide the originals of the documents to another mortgage broker or lender of the borrower's choice. By furnishing the originals to another mortgage broker or lender, you are conveying the right to use the documents to the other broker or lender. You must, upon request by the other broker or lender, provide written evidence of the conveyance. You must provide the originals to the mortgage broker or lender within five business days of the borrower's request.

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NEW SECTION
WAC 208-660-440   Advertising.   (1) Am I responsible for ensuring that my advertising material is accurate, reliable, and in compliance with the act? Yes. Each mortgage broker is responsible for ensuring the accuracy and reliability of the advertising material.

     (2) A licensee is prohibited from advertising with envelopes or stationery that contain an official-looking emblem designed to resemble a government mailing or that suggest an affiliation that does not exist. What are some examples of emblems or government-like names, language, or nonexistent affiliations that will violate the state and federal advertising laws? Some examples include, but are not limited to:

     (a) An official-looking emblem such as an eagle, the Statue of Liberty, or a crest or seal that resembles one used by any state or federal government agency.

     (b) Envelopes designed to resemble official government mailings, such as IRS or U.S. Treasury envelopes, or other government mailers.

     (c) Warnings or notices citing government codes or form numbers not required by the U.S. Postmaster to be shown on the mailing.

     (d) The use of the term "official business," or similar language implying official or government business, without also including the name of the sender.

     (e) Any suggestion or representation that the solicitor is affiliated with any agency, bank, or other entity that it does not actually represent.

     (3) When I am advertising interest rates, the act requires me to conspicuously disclose the annual percentage rate (APR) implied by the rate of interest. What does it mean to "conspicuously" disclose the APR? The type size of the APR must be the same size or larger than any other rates stated in the advertisement.

     (4) The act prohibits me from advertising an interest rate unless that rate is actually available at the time of the advertisement. How may I establish that an advertised interest rate was "actually available" at the time it was advertised? Whenever a specific interest rate is advertised, the mortgage broker must retain a copy of the lender's "rate sheet," or other supporting rate information, and the APR calculation for the advertised interest rate.

     (5) Must I quote the annual percentage rate when discussing rates with a borrower? Yes. You must quote the annual percentage rate and other terms of the loan if you give an oral quote of an interest rate to the borrower. TILA's Regulation Z, 12 CFR, part 226.26 provides guidance for using the annual percentage rate in oral disclosures.

     (6) May a mortgage broker or loan originator advertise rates or fees as the "lowest" or "best"? No. Rates described as "lowest," "best," or other similar words cannot be proven to be actually available at the time they are advertised. Therefore, they are a false or deceptive statement or representation prohibited by RCW 19.146.0201(7).

     (7) When I advertise, or present a business card to a potential borrower, must I make the disclosures required under the act and these rules? No. You are not required to make disclosures until you accept a residential mortgage loan application, or until you assist a borrower in preparing an application.

     (8) May I solicit using advertising that suggests or represents that I am affiliated with a state or federal agency, municipality, federally insured financial institution, trust company, building and loan association, when I am not; or that I am an entity other than who I am? No. It is an unfair and deceptive act or practice and a violation of the act for you to suggest or represent that you are affiliated with a state or federal agency, municipality, federally insured financial institution, trust company, building and loan association, or other entity you do not actually represent; or to suggest or represent that you are any entity other than who you are.

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NEW SECTION
WAC 208-660-450   Recordkeeping requirements.   (1) What business books and records must I keep to comply with the act? The following books and records for your business must be available to the department.

     (a) Mortgage transaction documents.

     (i) All forms of loan applications, written or electronic (the Fannie Mae 1003 is an example);

     (ii) The initial rate sheet or other supporting rate information;

     (iii) The last rate sheet, or other supporting rate information, if there was a change in rates, terms, or conditions prior to settlement;

     (iv) All written disclosures required by the act and federal laws and regulations. Some examples of federal law disclosures are: The good faith estimate, truth in lending disclosures, Equal Credit Opportunity Act disclosures, affiliated business arrangement disclosures, and RESPA servicing disclosure statement;

     (v) Documents and records of compensation paid to employees and independent contractors;

     (vi) An accounting of all funds received in connection with loans, including a trust account statement with supporting data;

     (vii) Rate lock agreements and the supporting rate sheets or other rate supporting document;

     (viii) Settlement statements (the final HUD-1 or HUD-1A);

     (ix) Broker loan document requests (may also be known as loan document request or demand statements) that include any prepayment penalties, terms, fees, rates, yield spread premium, loan type and terms;

     (x) Records of any fees refunded to applicants for loans that did not close;

     (xi) All file correspondence and logs; and

     (xii) All mortgage broker contracts with lenders and all other correspondence with the lenders.

     (b) Advertisements. All advertisements placed by or at the request of the mortgage broker that mention rates or fees, and the corresponding rate sheets for the advertised rates. The copies must include newspaper and print advertising, scripts of radio and television advertising, telemarketing scripts, all direct mail advertising, and any advertising distributed directly by delivery, facsimile, or computer network. The record of each advertisement must include the date or dates of publication, the name of the publisher if advertised by newsprint, radio, television or telephone information line, or in the case of a flyer, the dates, methods and areas of distribution.

     (c) Trust accounting records. See WAC 208-660-410, Trust accounting.

     (d) Other. All other books, accounts, records, papers, documents, files, and other information relating to the mortgage broker operation. Examples include, but are not limited to, personnel files, company policy and procedure documents, training materials, records evidencing compliance with applicable federal laws and regulations, and complaint correspondence and supporting documents. See also the department's Mortgage Broker Examination Manual, available on the department web site.

     (2) What books and records must I keep for my trust account? See WAC 208-660-410, Trust accounting.

     (3) How long must I keep my books and records to comply with the act?

     (a) You must keep the books, accounts, records, papers, documents, files, and other information relating to the mortgage broker operation for a minimum of twenty-five months.

     (b) It may be a prudent business practice to keep your books and records longer than twenty-five months. For example, if a consumer's loan becomes an adjustable rate mortgage after a two-year fixed mortgage rate term, the consumer may become unhappy that the terms of their mortgage have changed and file a complaint against you. The department must begin an investigation into the complaint. If you do not have the records to show proof of proper disclosures and all other compliance with state and federal laws, the department may rely solely on the consumer's records as evidence in the case.

     (4) Where must I keep my business records?

     (a) You must keep all books and records in a location that is on file with and readily available to the department during normal business hours. In the event of a department examination, the location must have the work space and resources that are conducive to business operations. A readily available location may include places of business, personal residences, computers, safes, or vaults. See WAC 208-660-400(8) for the reporting requirements if the address changes.

     (b) If your usual business location is outside of Washington, you may either maintain the books and records at a readily available location in Washington, or pay the department's expenses to travel to the location to examine the books and records stored out-of-state. Travel costs may include, but are not limited to, transportation costs, meals, and lodging.

     (5) May I keep my books and records electronically? Yes. You may keep the required records described in subsection (1) of this section by electronic display equipment if you can meet all of the following requirements:

     (a) The equipment must be made available to the department for the purposes of an examination or investigation;

     (b) The records must be stored exclusively in a nonrewriteable and nonerasable format;

     (c) The hardware or software needed to display the records must be maintained during the required retention period under subsection (3) of this section.

     If the department requests the books and records in hard copy, you must provide it in that form and within the time frame requested or directed by the department.

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NEW SECTION
WAC 208-660-500   Prohibited practices.   (1) What may I request of an appraiser? You may request an area or market survey. While there are no strict definitions of these terms, generally they refer to general information regarding a region, area, or plat. The information usually includes the high, low and average sales price, numbers of properties available for sale or that have been sold within a set period, marketing times, days on market, absorption rate or the mixture of different property types in the specified area, among other possible components. An area survey does not contain sufficient information or is not so defining as to allow an appraiser or reader to determine the value of a specified property or property type.

     (2) How may I discuss property values with an appraiser, prior to the appraisal, without the discussion constituting improperly influencing the appraiser? You may inform the appraiser of your opinion of value, the borrower's opinion of value, or the list or sales price of the property. You are prohibited from telling the appraiser the value you need or that is required for your loan to be successful.

     (3) What business practices are prohibited? The following business practices are prohibited:

     (a) Directly or indirectly employing any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person.

     (b) Engaging in any unfair or deceptive practice toward any person.

     (c) Obtaining property by fraud or misrepresentation.

     (d) Soliciting or entering into a contract with a borrower that provides in substance that the mortgage broker may earn a fee or commission through the mortgage broker's "best efforts" to obtain a loan even though no loan is actually obtained for the borrower.

     (e) Charging discount points on a loan which does not result in a reduction of the interest rate. Some examples of discount point misrepresentations are:

     (i) A mortgage broker or lender charging discount points on the good faith estimate or settlement statement payable to the mortgage broker or any party that is not the actual lender on the resident mortgage loan.

     (ii) Charging loan fees or mortgage broker fees that are represented to the borrower as discount points when such fees do not actually reduce the rate on the loan, or reflecting loan origination fees or mortgage broker fees as discount points.

     (iii) Charging discount points that are not mathematically determinable as the same direct reduction of the rate available to any two borrowers with the same program and underwriting characteristics on the same date of disclosure.

     (f) Failing to clearly disclose to a borrower whether the payment advertised or offered for a residential mortgage loan includes amounts for taxes, insurance, or other products sold to the borrower. This prohibition includes the practice of misrepresenting, either orally or in writing, a loan payment that includes only principal and interest as a loan payment that includes principal, interest, tax, and insurance.

     (g) Failing to provide the exact pay-off amount of a loan you own or service as of a certain date five or fewer business days after being requested in writing to do so by a borrower of record or their authorized representative.

     (h) Failing to record a borrower's payment, on a loan you own or service, as received on the day it is delivered to any of the licensee's locations during its regular working hours.

     (i) Negligently making any false statement or willfully making any omission of material fact in connection with any application or any information filed by a licensee in connection with any application, examination or investigation conducted by the department.

     (j) Purchasing insurance on an asset secured by a loan without first attempting to contact the borrower by mailing one or more notices to the last known address of the borrower in order to verify that the asset is not otherwise insured.

     (k) Willfully filing a lien on property without a legal basis to do so.

     (l) Coercing, intimidating, or threatening borrowers in any way with the intent of forcing them to complete a loan transaction.

     (m) Failing to reconvey title to collateral, if any, within thirty days when the loan is paid in full unless conditions exist that make compliance unreasonable.

     (n) Failing to make disclosures to loan applicants and noninstitutional investors as required by RCW 19.146.030 and any other applicable state or federal law.

     (o) Making, in any manner, any false or deceptive statement or representation with regard to the rates, points, or other financing terms or conditions for a residential mortgage loan or engage in bait and switch advertising or other deceptive advertising practices.

     Bait and switch means a deceptive practice of soliciting or promising a loan at favorable terms, but later "switching" or providing a loan at less favorable terms. While bait and switch will be determined by the facts of a case, the following examples, alone or in combination, may exhibit a bait and switch practice:

     (i) A deceptive change of loan program from fixed to variable rate.

     (ii) A deceptive increase in interest rate.

     (iii) The misrepresentation of discount points. This may include discount points that have a different rate buydown effect than promised, or origination fees that a borrower has been led to believe are discount points affecting the rate.

     (iv) A deceptive increase in fees or other costs.

     (v) A deceptive disclosure of monthly payment amount. This practice may involve soliciting a loan with payments that do not include monthly amounts for taxes and insurance or other reserved items, while leading the borrower to believe that such amounts are included.

     (vi) Additional undisclosed terms such as prepayment penalties or balloon payments, or deceiving borrowers about the effect of disclosed terms.

     (vii) Additional layers of financing not previously disclosed that serve to increase the overall cost to the borrower. This practice may involve the surprise combination of first and second mortgages to achieve the originally promised loan amount.

     (viii) Leading borrowers to believe that subsequent events will be possible or practical when in fact it is known that the events will not be possible or practical.

     (ix) Advertising or offering rates, programs, or terms that are not actually available at the time. See WAC 208-660-440(4).

     (p) Negligently making any false statement or knowingly and willfully make any omission of material fact in connection with any reports filed by a mortgage broker or in connection with any investigation conducted by the department.

     (q) Making any payment, directly or indirectly, to any appraiser of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property.

     (r) Advertising a rate of interest without conspicuously disclosing the annual percentage rate implied by the rate of interest.

     (s) Failing to comply with the federal statutes and regulations in RCW 19.146.0201(11).

     (t) Failing to pay third-party providers within the applicable time lines.

     (u) Collecting or charging, or attempting to collect or charge, or use or propose any agreement purporting to collect or charge any fees prohibited by the act.

     (v) Acting as a loan originator and real estate broker or salesperson, or acting as a loan originator in a manner that violates RCW 19.146.0201(14).

     (w) Failing to comply with any provision of RCW 19.146.030 through 19.146.080 or any rule adopted under those sections.

     (4) May I charge a loan origination fee or discount points when I originate but do not make a loan? No. You may not charge a loan origination fee or discount points as described in Regulation X, Part 3500, Appendix A.

     (5) What mortgage broker fees may I charge? You may charge a mortgage broker fee that was agreed upon between you and the borrower as stated on a good faith estimate disclosure form or similar document provided that such fee is disclosed in compliance with the act and these rules.

     (6) How do I disclose my mortgage broker fees on the good faith estimate and settlement statement? You must disclose or direct the disclosure of your fees on lines 808 through 811 of the HUD-1/1A Settlement Statement or similar document.

     (7) May I charge the borrower a fee that exceeds the fee I initially disclosed to the borrower? Pursuant to RCW 19.146.030(4), you may not charge any fee that benefits you if it exceeds the fee you initially disclosed unless:

     (a) The need to charge the fee was not reasonably foreseeable at the time the initial disclosure was provided; and

     (b) You have provided to the borrower, no less than three business days prior to the signing of the loan closing documents, a clear written explanation of the fee and the reason for charging a fee exceeding that which was previously disclosed. See WAC 208-660-430 for specific details, disclosures, and exceptions implementing RCW 19.146.030(4).

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DIRECTOR AND DEPARTMENT POWERS
NEW SECTION
WAC 208-660-510   Director and department powers -- Examination authority.   (1) Why is the department authorized to examine my business? The department is authorized to examine your business to determine your compliance with the act.

     (2) When may the department examine my business? The department may examine your business if you have obtained a mortgage broker main or branch office license within the last five years.

     (3) How many times may the department examine my business in a five-year period? Your business may be examined once during the first five years of licensing. This applies to the main office and each branch office. However, if violations are found during an examination, the department may conduct additional examinations to follow up with the correction of these violations. The time frame of any additional examination will depend, in part, on the department's assessment of the continuing risk associated with the violations found during the previous examination.

     (4) Will the department give me advance notice of an examination?

     (a) The department will give you advance notice of at least thirty days of a routine examination to allow you to compile the requested documents and prepare for the examiner's arrival. However, you and the department may agree on an earlier date for the examination. Extensions of time beyond that are at the director's discretion.

     (b) The department will not give you advance notice of "for cause" examinations. "For cause" means the department may have reason to believe you have violated the act.

     (5) What are the protocols for an examination of my business? The examination protocols are detailed in the department's Mortgage Broker Examination Manual. The manual is available on the department's web site.

     The basic protocols include, but are not limited to:

     (a) Frequency of examinations. The department's examination frequency will be determined using appropriate measurements of risk and random selection.

     The primary purpose for measuring risk to determine the examination schedule and frequency cycle is to help the department identify those mortgage brokers whose compliance practices display potential weaknesses requiring examination attention. These same measurements of risk assist the department in determining the need for expanding the scope of an examination or expanding the initial examination time period. The protocols for measuring risk may include, but are not limited to:

     (i) The history of licensing;

     (ii) Known enforcement issues or problems;

     (iii) The number and severity of complaints;

     (iv) The licensee's responsiveness to department inquiries;

     (v) The licensee's volume of loan activity;

     (vi) The number of licensed locations and staff size;

     (vii) Prior examination or investigation results; and

     (viii) The existence of internal and external systems and controls to ensure compliance.

     (b) Advance notice. You will receive a department notice listing the documents the department will examine at your business. Your preparation before the arrival of the department examiners will help the examination proceed more efficiently. The department will make every effort to minimize the impact of the examination on your business.

     (c) A preexamination meeting at your business. The department examiner(s) will meet with you upon arrival at your business location.

     (d) The on-site review at your business. The department examiner will conduct the examination of your business.

     (e) An exit meeting after you have provided all the requested information, and the examiner has completed the preliminary analysis. The examiner(s) may request additional information from you. After receiving that information and completing the preliminary analysis, the examiner may discuss the preliminary analysis with you.

     (f) Post examination work and report. The department examiner will prepare an examination report and submit the report and examination file to the review examiner. After making any necessary changes, the department will deliver the report to you.

     (g) Notification of violations and opportunity for response. The department will document in the examination report any violations or deficiencies identified during the examination. You will have an opportunity to respond to the examination findings and any violations or deficiencies.

     (h) A possible referral to enforcement. Any violation of the act or these rules may be referred to enforcement. An enforcement action may result in a suspension or revocation of your license, the imposition of fines, the payment of restitution, or a ban from the mortgage broker industry.

     (6) What is the scope of the examination of my business? In general, the scope of the examination will include, but is not limited to:

     (a) Reviewing trust accounting compliance.

     (b) Reviewing loan files.

     (c) Conducting interviews to better understand the business, solicitation practices, transactional events, disclosure compliance, and complaint resolution.

     (d) Reviewing the business books and records, including employee records.

     (7) When would the department expand the scope of an examination of my business? If, during an examination, the department finds a clear need to expand the scope of the examination, it may do so. Two examples of a clear need to expand the scope of an examination are:

     (a) When the department finds an apparent violation of trust accounting.

     (b) When apparent violations of the prohibited practices section of the act are discovered. See RCW 19.146.0201 for prohibited practices.

     (c) When there are clear systemic violations requiring greater review than is possible in a routine examination.

     These examples are illustrative only and do not limit the circumstances under which the department may decide to expand the scope of an examination.

     (8) Will I receive notice if the department decides to expand the scope of the examination of my business? Yes. The department will provide you with five business days' written notice if examination findings clearly identify the need to expand the scope of the examination. See subsection (7) of this section for examples of when the department may decide to expand the scope of the examination.

     The expanded examination may include a different location and may go beyond the initial five-year time limit.

     (9) Will I have to pay for an examination of my business?

     (a) If you are located in Washington, you do not have to pay for the costs of the examination.

     (b) If you are located outside of Washington, you will have to pay for the examiner's travel costs. Travel costs include, but are not limited to, transportation costs, meals, and lodging. Travel reimbursement rates are established by the Washington state office of financial management.

     The department will send you an invoice and you will have thirty days to reimburse the department for the examination travel costs. See WAC 208-660-550, Department fees and costs.

     (10) May the department consider reports made by independent certified professionals instead of conducting their own examination of a mortgage broker business? Yes. Instead of examining a mortgage broker's business, the department may consider the reports of independent certified professionals who have examined the mortgage broker using the same standards used by the department (see the standards in the department's Mortgage Broker Examination Manual). The department may then prepare a report of examination that incorporates all or part of the independent certified professional's reports, or the examiner may expand the scope of the examination.

     (11) What are the pros and cons of hiring my own independent certified professional versus waiting for a department examination? The department's cost of examination will not be charged to you directly, although you may experience some minor business interruption. If you hire your own independent certified professional, you will incur the cost of that examination; however, you will control the time and manner in which the examination is conducted. The greatest benefits you may derive from hiring your own independent certified professional are:

     (a) Early notice of problems you may encounter during an examination;

     (b) The ability to correct deficiencies or problems at an early stage when the greatest benefit of correction may be derived;

     (c) The early implementation of a sound compliance program; and

     (d) The ability to control the timing for your convenience.

     (12) If I want the department to consider an independent certified professional's report instead of examining my business, how must I make that request, and who submits the report to the department? When you receive notice from the department that your business is scheduled for an examination, you must notify the department that you wish the department to consider the report of an independent certified professional instead of the department examining your business. The independent certified professional must then submit their report directly to the department, in a form acceptable to the department.

     (13) How may the department determine if the independent certified professional's report meets the standards of examination established by the department? The department will compare the sufficiency of the report submitted by the independent certified professional to the requirements in the department's examination manual. If the report is missing any of the requirements from the manual, the department may require the licensee to provide the missing information.

     (14) If the independent certified professional's report is missing information, how may the department obtain the missing information? The department may interview, obtain records from, or otherwise contact the licensee, or with the licensee's permission contact the independent certified professional, if additional information is required for the department's review of the report.

     (15) What will the department do if the independent certified professional's report is not sufficient? If the department determines the report is not sufficient, the department will notify the licensee and schedule an examination of the business.

     (16) What will the department do if the independent certified professional's report is sufficient? If the department determines the report is sufficient, the department will prepare a report of examination that incorporates all or part of the independent certified professional's report.

     (17) May the department retain professionals or specialists to examine a licensee? Yes. The department, at its own expense, may retain attorneys, accountants, or other professionals or specialists as examiners, auditors, or investigators to examine a licensee.

     (18) Do I receive any reports from the examination? Yes.

     (a) When you have provided all the requested information, and the examiner has completed the preliminary analysis, the examiner will issue an exit report of examination containing preliminary examination findings.

     (b) After additional department review, including the consideration of new information, if any, the department will issue a final report of examination.

     (19) Must I do anything as a result of the examination? Yes. You will receive instructions from the department on the actions you must take. For example, if adverse findings or deficiencies were cited in the report of examination, you must respond to those findings.

     (20) How do I respond to findings in a report of examination? You must respond in writing within thirty days of the date the department issues the report of examination. Your response must address any deficiencies noted in the report and describe the corrective actions you have taken.

     (21) What will happen if I do not respond to the report of examination? If you fail to respond to the report of examination, you may be referred to enforcement where further administrative actions may be taken against you.

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NEW SECTION
WAC 208-660-520   Director and department powers -- Investigation authority.   (1) What is an investigation? An investigation is an inquiry to determine compliance with the act and rules, to assess allegations of wrongdoing, or to evaluate the licensing qualifications of persons subject to the act. The inquiry may involve extensive research, fact gathering, the issuance of directives and subpoenas, witness interviews, and financial and legal analysis. Depending on the results of these efforts, an investigation may result in the pursuit of an enforcement action. An investigation may proceed at the same time as other matters and may continue during an enforcement action.

     (2) How often may the department investigate my mortgage broker or loan originator operations? For the purpose of investigating violations or complaints, the department may investigate your business as often as necessary to carry out the purpose of the act.

     (3) Will the department give advance notice before requiring me to make my books and records available for its investigation? The department is not required to give you advance notice before an investigation. However, the department may provide advance notice before an investigation if doing so would be in the best interests of all parties involved, including the department.

     (4) From whom may the department obtain information in an investigation? The department may obtain information from any person whose testimony may be pertinent to the loans, business, or subject matter of an investigation.

     (5) How may the department obtain information during an investigation? The department may direct, subpoena, or order a person to submit to a deposition, or produce written information.

     (6) What information may the department obtain during an investigation? The department may obtain books, accounts, records, files, and any other documents the department deems relevant to the investigation.

     (7) What businesses may the department investigate? The department may investigate the business of any person who is engaged in the business of mortgage brokering, whether the person is a licensee or whether the person acts or claims to act under, or without the authority of, the act.

     (8) May the director retain professionals or specialists to assist in an investigation, and if so, will I have to pay for those services? Yes. The department may hire attorneys, accountants or other professionals as needed to conduct or assist in an investigation. The cost for these services will be assessed in accordance with WAC 208-660-550(5), Investigations.

     (9) When may the department charge a mortgage broker or loan originator an investigation fee? The department may charge an investigation fee when it investigates the books and records of any mortgage broker or loan originator subject to the act.

     (10) Are there circumstances in which the department will investigate a mortgage broker or loan originator but will not charge an investigation fee? Yes. The department will not charge an investigation fee in a complaint investigation if it is determined that no violation occurred, or when the mortgage broker or loan originator implements a remedy satisfactory to the complainant and the department, and no department order has been issued.

     (11) How is the amount of the investigation fee determined? The amount of the investigation fee is the number of hours expended by the department related to the investigation multiplied by an hourly rate established by the department. See WAC 208-660-550, Department fees and costs.

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NEW SECTION
WAC 208-660-530   Director and department powers -- Enforcement authority.   (1) What is a directive? A directive is a formal request for information from the director. A directive may request the recipient to appear in person to testify or present specific documents or items. A directive may be entitled "directive" or "subpoena."

     (2) What is an administrative enforcement action? An administrative enforcement action is a formal action, generally initiated by a statement of charges filed by the department against persons who allegedly violated the act. Enforcement actions seek various sanctions, including, but not limited to, license revocation or suspension, business practice prohibition, or fines; and may include ordering restitution for consumers, recovery of the department's investigation costs, or all of the above.

     (3) What other types of enforcement action may the department pursue against me or my license? The department may pursue criminal or civil referrals to the attorney general, prosecuting attorneys, or federal authorities, and may initiate civil actions in superior court.

     (4) What does it mean to be found in violation of the act and rules? For the purposes of evaluating the licensing qualifications of an applicant, any of its principals, or the designated broker, "found in violation of the act and rules" means at least one of the following orders has been issued:

     (a) A superior court order stating the applicant, any of its principals, or the designated broker violated any of the provisions of the act or rules; or

     (b) A final administrative order after the completion of an administrative hearing and the filing of an initial decision of an administrative law judge stating the applicant, any of its principals, or the designated broker violated any of the provisions of the act or rules; or

     (c) An administrative order stating the applicant, any of its principals, or the designated broker violated any of the provisions of the act or rules.

     The order containing the finding described above must not have been entered within five years of the filing of the present application. However, if the violation resulted in a conviction of a gross misdemeanor involving dishonesty or financial misconduct, or a felony, the finding must not have been entered within seven years of the filing of the present application.

     (5) May the department sanction me for committing violations in another jurisdiction? The department may seek sanctions against you for committing a violation in another jurisdiction if the violation could be a basis for the department to seek sanctions under the act or rules. Possible sanctions include those found in RCW 19.146.220.

     (6) May I be subject to a daily fine for violating the act? Yes. Each licensed mortgage broker and each of its principals, officers, designated brokers, loan originators, employees, independent contractors, and agents must comply with the applicable provisions of the act. Each violation of any applicable provision of the act, or of any order, directive, or requirement of the director may, at the discretion of the director, subject the violator to a fine of up to one hundred dollars for each offense. Each day's continuance of the violation is a separate and distinct offense. In addition, the director may exercise discretion and by order assess other penalties for a violation of the act.

     (7) Under what circumstances will the department hold a designated broker, principal, or owner who has supervisory authority responsible for the actions of others that violate the act? A designated broker, principal, or owner with supervisory authority is responsible for any conduct violating the act by a licensee, employee, or independent contractor if they:

     (a) Directed or instructed the conduct that was in violation of the act, or had knowledge of the specific conduct, and approved or allowed the conduct; or

     (b) Knew, or by the exercise of reasonable care and inquiry should have known, of the conduct in time to prevent it, or minimize the consequences, and did not.

     (8) When conduct violating the act has occurred, what may the department consider when assessing the responsibility of the designated broker, principal, and owner with supervisory authority? The department may consider the following in an effort to determine who is responsible when a violation of the act has occurred. The following list is not limiting or exhaustive of the factors the department may consider:

     (a) The adequacy of any background and experience investigation conducted prior to hiring or contracting with any person;

     (b) The adoption of policies and procedures for:

     (i) Supervision and training;

     (ii) Regularly reviewing work performed;

     (iii) Training in the requirements of the act and rules;

     (iv) Monitoring continuing education requirements and compliance under the act;

     (v) Acting on reports of alleged misconduct;

     (c) Adopting a system of review for implementation and compliance with the policies and procedures;

     (d) Providing copies of the act and rules; and

     (e) The frequency and completeness of review conducted on work performed by any person subject to the act.

     (9) Do I have the right to have an attorney represent me at an adjudicative hearing and in any superior court proceeding? Yes. You may have an attorney represent you at your own expense, or you may represent yourself.

     (10) Are there any criminal penalties related to violations of the act? Yes. Violations of RCW 19.146.050 are class C felonies with a maximum penalty of five years in prison or a fine of ten thousand dollars, or both. Violations of RCW 19.146.235(9) are class B felonies with a maximum penalty of ten years in prison or a fine of twenty thousand dollars, or both. All other violations of the act are misdemeanors with a maximum penalty of ninety days in jail or a fine of not more than one thousand dollars, or both.

     (11) Under the act, is it a crime for any person subject to examination or investigation to knowingly withhold, abstract, remove, mutilate, destroy, or secrete any books, records, computer records, or other information? Yes. Knowingly withholding, abstracting, removing, mutilating, destroying, or secreting books, records, computer records, or other information is a class B felony punishable under RCW 9A.20.021 (1)(b).

     (12) Is a mortgage broker responsible for the payment of third-party services even if the borrower has agreed to pay the fee? Yes. If a mortgage broker or loan originator orders the third-party service, then the mortgage broker is responsible for paying for the service. However, the mortgage broker or loan originator is not responsible for paying the fee if the third-party service provider agrees in writing to accept the fee from the borrower.

     (13) When must third-party services be paid? Third-party service providers must be paid no later than thirty days after the related loan closing documents are filed, or within ninety days of the service, whichever is sooner, unless:

     (a) The third-party service provider agrees in writing to a different payment arrangement; or

     (b) The third-party provider has been notified in writing that a bona fide dispute exists regarding the performance or quality of the third-party service.

     (14) What is a "bona fide" dispute between a mortgage broker and third-party provider? A dispute related to the performance or quality of the third-party service that has been reported in writing to the third-party service provider. The report must specify the disputed areas of performance or quality.

     (15) When must a dispute regarding the performance or quality of a third-party service be reported? The report of a dispute regarding the performance or quality of the third-party service must be made in writing and provided to the third-party service provider before the payment for the services becomes due; that is, no later than thirty days after the related loan closing documents are filed, or within ninety days of the service, whichever is sooner.

     (16) What is a temporary cease and desist order issued by the department? A temporary cease and desist order is an administrative enforcement action by the director, or designee, ordering a mortgage broker or loan originator to stop conducting business, or to stop doing some specific act.

     (17) When does the department use temporary cease and desist orders? A temporary cease and desist order may be used when the department determines that a mortgage broker or loan originator is violating the act in a manner that is likely to cause substantial injury to the public.

     (18) What happens to my mortgage broker or loan originator license if the department of social and health services (DSHS) certifies me as out of compliance with a support order under RCW 74.20A.320?

     (a) The director will immediately suspend your license without the opportunity for a hearing if the department receives notice from DSHS that you are out of compliance with their support order regulations.

     (b) The director will send you a document entitled "Notice of Suspension for Noncompliance with Child Support Order." Your license is suspended from the date of the notice. The suspension of your license remains in effect until the director is notified by DSHS of your compliance with their order. You must not perform any services under the act that require licensing while your license is suspended.

     (19) If the director suspends my license after notice from DSHS that I am not in compliance with a support order, may my license be reinstated?

     (a) The director will reinstate your license when the department has received written notice from DSHS of your compliance, and verified that you meet all licensing requirements under the act.

     (b) The department will send you a notice entitled "Notice of Cancellation of Suspension for Noncompliance with Child Support Order." Your license is reinstated from the date of the notice.

     (20) Who may I contact if I have questions about how DSHS determines I am out of compliance with a support order? Contact DSHS if you have questions about a DSHS certification of your noncompliance with a support order. Reference their case number when you contact them.

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NEW SECTION
WAC 208-660-540   Director and department powers -- General authority.   Reserved.

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NEW SECTION
WAC 208-660-550   Department fees and costs.   (1) The department intends to increase its fees and costs each year for several bienniums. The department intends to initiate rule making each biennium for this purpose. This rule provides for an automatic annual increase in the rate of fees and costs each fiscal year during the 2007-2009 biennium.

     (a) On July 1, 2007, and July 1, 2008, these fees and costs, as increased in the prior fiscal year, will increase by a percentage rate equal to the fiscal growth factor for the then current fiscal year. As used in this section, "fiscal growth factor" has the same meaning as the term is defined in RCW 43.135.025.

     (b) The director may round off a rate increase under subsection (1) of this section. However, no rate increase may exceed the applicable fiscal growth factor.

     (c) By June 1 of each year, the director will make available a chart of the new rates that will take effect on the immediately following July 1.

     (2) Mortgage broker licenses.


Mortgage broker - license application fee $370.00
Mortgage broker - annual assessment (due upon initial licensing, then an annual renewal fee, per location) $530.00
Mortgage broker late renewal assessment (fifty percent of annual assessment) $265.00
Mortgage broker branch office - license application fee $185.00
Mortgage broker branch office - annual assessment (renewal fee, per location) $530.00
Mortgage broker - amendment No fee

     (3) Loan originator licenses.


Loan originator - license application fee $125.00
Loan originator - annual assessment (not due until first renewal; then an annual renewal fee, per license) $125.00
Loan originator late renewal assessment (fifty percent of annual assessment) $62.50
Loan originator - additional licenses (associations with additional mortgage brokers) $75.00
Loan originator - annual assessment (renewal fee of additional licenses) $75.00
Loan originator - cancel association with any mortgage broker No fee
Loan originator - amendment No fee
     When the realignment of license expiration or renewal dates results in a partial year of licensing, the department will impose a proportionate fee structure to accommodate that realignment.

     (4) Examinations.

     (a) In Washington. The department does not charge a licensee located in Washington for the costs of an examination.

     (b) Outside of Washington. The department will charge the licensee for travel costs.

     (c) If the department hires professionals, specialists, or both to examine an out-of-state licensee, the professional, specialist, or both will be considered examiners for the purpose of billing the licensee for travel costs.

     (5) Investigations.

     (a) The department will charge forty-seven dollars and seventy-eight cents per hour for an examiner's time devoted to an investigation.

     (b) The department will bill the licensee for the costs of services from attorneys, accountants, or other professionals or specialists retained by the director to aid in the investigation.

     (6) Travel costs. If the mortgage business is out-of-state, the department will charge the business the travel costs associated with an examination or investigation. Travel costs include, but are not limited to, transportation costs (airfare, rental cars), meals, and lodging.

     (7) How is the annual assessment calculated? The assessment is a flat rate per license.

     (8) How does the department use license application fees? The fees collected by the department are used to pay the costs of administering the act.

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NEW SECTION
WAC 208-660-600   Administration and facilitation of continuing education.   (1) Who may offer continuing education courses to principals, designated mortgage brokers, and loan originators? Continuing education may be offered by:

     (a) Course providers with courses of education approved by the director; or

     (b) Course providers with courses of education approved by professional organizations approved by the director.

     (2) What does it mean to offer and administer a course of education? Offering and administering a course of education is the creation of a curriculum and the administrative processes to operate and maintain the curriculum. See the department's approval standards in subsections (7) and (13) of this section.

     (3) What is a "course of education" under the act? A course of education is formal training that satisfies all or part of the continuing education requirements of the act and these rules.

     (4) What is a "course provider" under the act? A course provider is a person or organization that provides continuing education. Course providers may provide education that meets the requirements of the act and these rules by applying for and receiving approval from the department for a specific course of education.

     (5) What is a "professional organization" under the act? A professional organization is an organization with at least ten members created for the primary purpose of furthering the professional interests of its members, protecting the public interest, or both. Education must be an essential element of the professional organization's purpose. A professional organization must have the director's approval to offer and administer courses of education.

     (6) If I am a course provider not affiliated with a professional organization, how do I obtain approval for my courses of education? You must apply to the department for course approval. If the department approves the course, you will be issued a certificate of approval that will be effective for two years from the date of issuance.

     (7) What standard is required and what will the department review when considering approval of continuing education provided by course providers not affiliated with professional organizations? Continuing education courses must provide the course taker with a working knowledge of, and competency in, the subject matter. To ensure this standard, the department will review the following when considering approval of education courses:

     (a) The instructor's experience and qualifications;

     (b) Whether the instructor or proposed course of education has been approved, denied, or rescinded by the department in the past; and

     (c) The course materials and lesson plans for the proposed courses. Each course must run a minimum of three hours; the materials and lesson plans must have the content to support a presentation of this length.

     (8) If I am a course provider with courses of education approved by a professional organization, may I also offer courses of education unaffiliated with the professional organization? Yes. However, your courses of education unaffiliated with the professional organization must be approved by the department.

     (9) May the department rescind approval of a course provider's course of education? Yes. The department may rescind approval of a course of education upon a determination that the course of education does not meet the standards in subsections (7) and (13) of this section.

     (10) What action must a course provider take if notified by the department that its course of education has been rescinded? The course provider must immediately:

     (a) Cease advertising or soliciting for the course of education;

     (b) Inform registered course takers of the department's rescission of course approval, and cancel the course of education; and

     (c) Refund any fees paid by course takers for the course.

     (11) May a course provider appeal the department's decision to deny or rescind course approval? Yes. A course provider may appeal the department's decision to deny or rescind a course. The course provider must appeal the decision to the department within twenty days of being notified by the department of the decision.

     (12) If a course provider has appealed the department's denial or rescission of a course of education, must it still take the immediate action in subsection (10) of this section? Yes. A course provider appealing a department decision about a course of education must comply with subsection (10) of this section.

     (13) What standards will the department review when considering approving professional organizations to offer and administer courses of education under the act and rules? The department will review the following:

     (a) A description of the course of education curriculum that satisfies the content of continuing education under subsection (20) of this section;

     (b) Whether the professional organization has sufficient procedures and guidelines to:

     (i) Establish a course(s) of education and approve a course provider(s);

     (ii) Audit and evaluate an approved course(s) of education and course provider(s);

     (iii) Remove courses and providers from the professional organization's curriculum;

     (iv) Provide board reconsideration of denial or removal of a course of education or a course provider;

     (v) Ascertain the identity of course of education takers;

     (vi) Issue certificates of satisfactory completion, that include, at a minimum, the course taker's name, the course provider's name, the course title, and the date of course completion;

     (vii) Collect, hold, disburse and refund course of education fees;

     (c) Whether the professional organization requires members to adhere to an established code of conduct or ethics.

     (14) Is the department liable for a professional organization's decision to approve, deny, or revoke authorization for a course provider to offer courses of education? No. The department is not liable for a professional organization's decision to approve, deny, or revoke a course provider's authorization to provide courses of education for the professional organization.

     (15) Is the department liable for a course provider's contractual relationship with a professional organization? No. Course providers independently contract with professional organizations and the department is not liable for the consequences of that relationship.

     (16) May the department remove a professional organization's authorization to offer and administer courses of education? Yes. The department may rescind a professional organization's authorization to offer and administer courses of education upon a determination that the professional organization fails to meet subsection (13) of this section.

     (17) What action must a professional organization take if notified by the department that its authorization has been rescinded? The professional organization must immediately:

     (a) Cease advertising or soliciting for all courses of education;

     (b) Inform registered course takers of the department's rescission of approval, and cancel the courses of education; and

     (c) Refund any fees paid by course takers for the courses.

     (18) May a professional organization appeal the department's decision to deny or rescind authorization? Yes. A professional organization may appeal the department's decision to deny or rescind the professional organization's authorization to approve course providers. The professional organization must appeal the decision to the department within twenty days of being notified by the department of the decision.

     (19) If a professional organization has appealed the department's denial or rescission of authorization, must it still take the immediate action in subsection (17) of this section? Yes. A professional organization appealing a department decision about a course provider or course of education must comply with subsection (10) of this section.

     (20) What topics must be included as continuing education courses? Continuing education courses must include some or all of the topics listed below. Courses may be designed to cover a range of topics or they may focus in detail on a single topic.

     (a) General. Ethics in the mortgage industry.

     The responsibilities and liabilities of the profession.

     Arithmetical computations common to mortgage lending including without limitation, the computation of annual percentage rate, finance charge, amount financed, payment and amortization.

     (b) Compliance and internal audit standards.

     Proper use and application of the department's published standards and guidelines for examinations.

     Internal audit and compliance practices, standards, methods and procedures.

     Developing policies and procedures for regulatory compliance.

     Responding to regulatory inquiries, directives, subpoenas and enforcement orders.

     Training and supervision of mortgage professionals.

     Establishing, managing, reconciling and reviewing a trust account (trust account compliance under the act and these rules).

     (c) Washington law and associated regulations.

     The Mortgage Broker Practices Act.

     The Consumer Protection Act.

     The Escrow Agent Registration Act.

     The Usury Act.

     Unfair practices with respect to real estate transactions (RCW 49.60.222).

     Mortgage, deed of trust, and real estate contract statutes set forth in Title 61 RCW.

     Real estate and appraisal law, including without limitation, the provisions of chapters 18.85 and 18.140 RCW.

     Washington principal and agent law.

     Any subsequent act or regulation applying to mortgage brokers.

     (d) Federal law and associated regulations.

     The Real Estate Settlement Procedures Act.

     Truth in Lending Act.

     Equal Credit Opportunity Act.

     Fair Credit Reporting Act.

     Fair Housing Act.

     Home Mortgage Disclosure Act.

     Community Reinvestment Act.

     Gramm-Leach Bliley Act.

     Home Ownership Protection Act.

     Bank Secrecy Act.

     Appraisal regulations.

     Underwriting.

     Any subsequent act or regulation applying to mortgage brokers.

     (e) Mortgage services and products.

     Conventional.

     Reverse mortgages.

     FHA mortgages.

     VA mortgages.

     Nonprime mortgages.

     Other products or services deemed relevant to continuing education by the department.

     (21) May the department audit or review a course of education? Yes. The department may audit or review any continuing education course by registering for the course or attending the course of education unannounced by presenting the course provider with official identification prior to the start of the course. The department will not be charged any fee for official audit or review of the course of education.

     (22) How long does department approval of continuing education courses last, and may the approval be renewed? Approval of a continuing education course is valid for two years. Approval may be renewed by applying to the director forty-five days prior to expiration of a current approval and providing detailed information about the course(s) and instructor(s) if they are to be changed.

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NEW SECTION
WAC 208-660-700   Mortgage broker commission.   (1) What is the role of the mortgage broker commission (commission)? The commission acts in an advisory capacity to the director on mortgage broker issues. The commission advises the director on the characteristics and needs of the mortgage broker profession.

     (2) Who serves on the commission?

     (a) The director appoints the seven members of the commission for two-year terms. Commission members must have at least five years' experience in the business of residential mortgage lending. The experience must be within the past five years from the date of appointment. When appointing a commission member, the director will consider the recommendations from professional organizations that represent mortgage brokers and loan originators.

     (b) Of the seven voting members of the commission, at least three members of the commission must be licensed mortgage brokers, at least two must be licensed loan originators who are not designated brokers, and at least one must be a mortgage broker who is exempt from licensure under RCW 19.146.020(1).

     (c) The director or a designee serves as an ex officio, nonvoting member of the commission.

     (3) How do interested parties apply for a position on the commission? In November of each year the department sends a notification to all mortgage brokers to advise them that the director is accepting applications for appointment to the commission. The director will accept applications in the form of a cover letter and resume until December 15th. The director will select the number of applicants needed to fill the vacancies by January 31st so the appointee(s) can attend the February meeting of the commission.

     (4) What are some of the actions the commission may take? The commission may:

     (a) Adopt and meet according to a regular schedule;

     (b) Attend special meetings if called by the chairperson;

     (c) Hear testimony, and advise the director on proposed changes to the act; and

     (d) Advise the director on the licensing of mortgage brokers and loan originators.

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NEW SECTION
WAC 208-660-800   Forms.   Reserved.

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REPEALER

     The following sections of the Washington Administrative Code are repealed:
WAC 208-660-010 Definitions.
WAC 208-660-020 Statutory exemptions.
WAC 208-660-025 Computer loan information services and systems.
WAC 208-660-030 Application procedure for mortgage broker license.
WAC 208-660-035 Interim licenses.
WAC 208-660-040 Experience requirements.
WAC 208-660-042 Continuing education requirement.
WAC 208-660-045 Approval of courses and examinations.
WAC 208-660-050 Demand for criminal history information.
WAC 208-660-060 Department's fees and assessments.
WAC 208-660-061 Fee increase.
WAC 208-660-062 Waiver of fees.
WAC 208-660-070 Branch office application procedure.
WAC 208-660-080 Surety bond and approved alternatives -- General requirements.
WAC 208-660-08005 Alternatives to the surety bond.
WAC 208-660-08010 Establishment of trust account for borrower funds to pay third-party providers.
WAC 208-660-08015 Designation of trust account(s).
WAC 208-660-08020 Required trust account records and procedures.
WAC 208-660-08025 Trust account deposit requirements.
WAC 208-660-08030 Trust account disbursement requirements.
WAC 208-660-08032 Approved methods of disbursement to and from trust accounts.
WAC 208-660-08035 Computerized accounting system requirements.
WAC 208-660-08040 Automated check writing systems.
WAC 208-660-085 Alternatives to the surety bond.
WAC 208-660-090 License standards for applicants licensed in other jurisdictions.
WAC 208-660-09005 Registered agent and agent's office.
WAC 208-660-09010 Change of registered agent or agent's office.
WAC 208-660-09015 Resignation of registered agent.
WAC 208-660-09020 Service on licensee.
WAC 208-660-100 License standards for associations.
WAC 208-660-110 Transfers by, or changes in principal or designated broker of, a licensee.
WAC 208-660-120 Employees and independent contractors of licensees.
WAC 208-660-125 Recordkeeping and other requirements for advertising materials.
WAC 208-660-130 Disclosure required to borrower.
WAC 208-660-140 General recordkeeping requirements.
WAC 208-660-145 Forwarding appraisal, title report and credit report.
WAC 208-660-150 Disclosure of significant developments.
WAC 208-660-160 License application denial or condition; license suspension or revocation.
WAC 208-660-165 Fines and penalties for violation of the Mortgage Broker Practices Act.
WAC 208-660-170 Transitional rule.
WAC 208-660-190 Prohibited practices -- Improperly influencing appraisals.
WAC 208-660-200 Mortgage broker fees allowed.
WAC 208-660-210 Mortgage brokerage commission.

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