Date of Adoption: November 10, 2000.

Purpose: To amend the WAC to reflect changes made to the statute in 1997 and add additional clarifying language regarding redisclosure of mortgage broker fees, deposits of checks into trust accounts and continuing education provided by Washington Association of Mortgage Brokers.

Citation of Existing Rules Affected by this Order: Amending WAC 208-660-010, 208-660-020, 208-660-025, 208-660-030, 208-660-040, 208-660-042, 208-660-045, 208-660-070, 208-660-080, 208-660-08015, 208-660-08025, 208-660-08030, 208-660-08040, 208-660-130, 208-660-140, 208-660-145, and 208-660-160.

Statutory Authority for Adoption: RCW 43.320.010, 19.146.223.

Adopted under notice filed as WSR 00-17-172 on August 23, 2000.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 1; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 3, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 5, Repealed 1.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 4, Repealed 0. Effective Date of Rule: Thirty-one days after filing.

November 16, 2000

John L. Bley

Director

OTS-2461.5

AMENDATORY SECTION(Amending WSR 96-04-028, filed 2/1/96, effective 4/1/96)

WAC 208-660-010   Definitions.   As used in this chapter, the following definitions apply, unless the context otherwise requires:

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

(2) "Affiliate" means any person who controls, is controlled by, or is under common control with, another person.

(3) "Application deposit" means a deposit in immediately available funds consisting of three hundred fifty dollars for each license applied for and one hundred seventy-five dollars for each branch office certificate applied for. For example, an applicant requesting a license and two branch office certificates must submit an application deposit of seven hundred dollars (calculated by adding three hundred fifty dollars to the product of two times one hundred seventy-five dollars).

(4) "Approved examination" means a written examination approved by the director.

(5) "Approved licensing or continuing education course" means a licensing or continuing education course approved by the director.

(6) "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.

(7) "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.

(8) "Branch office certificate" means a branch office license issued by the director to engage in the mortgage broker business as the branch office indicated in the certificate, pursuant to RCW 19.146.265.

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

(10) "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.

(11) "Certificate of satisfactory completion of an approved licensing course" means a certificate signed by the course provider verifying that the individual has attended at least forty hours of class of an approved licensing course.

(12) "Consumer Protection Act" means chapter 19.86 RCW.

(13) A person "controls" an entity if the person, directly or indirectly through one or more intermediaries, alone or in concert with others, owns, controls, or holds the power to vote twenty-five percent or more of the outstanding stock or voting power of the controlled entity.

(14) A person is "convicted" of a crime, irrespective of the pronouncement or suspension of sentence, if the person:

Is convicted of the crime in any jurisdiction;

Is 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 such a crime by the decision or judgment of a court or federal magistrate or by the verdict of a jury.

(15) "Department" means the department of financial institutions.

(16) "Designated broker" means a natural person designated by the applicant for a license or licensee who meets the experience, education, and examination requirements set forth in RCW 19.146.210(e).

(17) "Director" means the director of financial institutions.

(18) "Employee" means any natural person who:

Has an employment relationship, acknowledged by both the employee and the mortgage broker; and

Is treated as an employee by the mortgage broker for purposes of compliance with federal income tax laws.

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

(20) "Financial misconduct" means without limitation:

Any conduct prohibited by the Mortgage Broker Practices Act;

Any similar conduct prohibited by statutes governing mortgage brokers in other states; and

Any similar 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.

(21) A person "holds oneself out" by advertising or otherwise informing the public that the person engages in any of the activities indicated, including without limit through the use of business cards, stationery, brochures, rate lists or other promotional items.

(22) "Independent contractor" or "person who independently contracts" means any person that:

Expressly or impliedly contracts to perform mortgage broker activities for a licensee;

With respect to its manner or means of performing the activities, is not subject to the licensee's right of control; and

Is not treated as an employee by the licensee for purposes of compliance with federal income tax laws.

(23) "Investigation" means an examination undertaken for the purpose of detection of violations of this chapter or securing information lawfully required under this chapter.

(24) "License" means a license issued by the director to engage in the mortgage broker business.

(((24))) (25) "Licensee" or "licensed mortgage broker" means:

A mortgage broker licensed by the director; and

Any person required to be licensed pursuant to RCW 19.146.200 and 19.146.020.

(((25))) (26) "Loan originator" means a natural person:

Who is a mortgage broker employee who performs any mortgage broker activities; or

Who is retained as an independent contractor by a mortgage broker, or represents a mortgage broker, in the performance of any mortgage broker activities.

(((26))) (27) "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 upon which it will make a loan available to the borrower.

(((27))) (28) "Material litigation" means any conviction in the prior seven years for a felony, or for a gross misdemeanor involving dishonesty or financial misconduct, and any litigation pending at any time during the prior seven years that would be relevant to the director's ruling on an application for a license, including but not limited to, the following types of litigation:

Criminal actions involving felony charges.

Criminal or civil actions involving dishonesty or financial misconduct.

(((28))) (29) "Mortgage broker" means any person that for compensation or gain, or in the expectation of compensation or gain:

Makes a residential mortgage loan or assists a person in obtaining a residential mortgage loan; or

Holds himself or herself out as being able to do so.

(((29))) (30) "Mortgage Broker Practices Act" means chapter 19.146 RCW and chapter ((50-60)) 208-660 WAC.

(((30))) (31) "Out-of-state applicant or licensee" means an applicant for a license or licensee that does not maintain a physical office within this state.

(((31))) (32) "Person" means a natural person, corporation, company, partnership, limited liability company, or association.

(((32))) (33) "Prepaid escrowed costs of ownership," as used in RCW 19.146.030(5), means any amounts prepaid by the borrower for the payment of taxes, property insurance, interim interest, and similar items in regard to the security property.

(((33))) (34) "Principal" means any person who controls, directly or indirectly through one or more intermediaries, 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.

(((34))) (35) "RCW" means the Revised Code of Washington.

(((35))) (36) "Real Estate Settlement Procedures Act" means the Real Estate Settlement Procedures Act, 12 U.S.C. Sections 2601 et seq., and Regulation X, 24 C.F.R. Sections 3500 et seq.

(((36))) (37) "Registered agent" means a person or persons located within this state that is appointed to accept service of process for an out-of-state licensee.

(((37))) (38) "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.

(((38))) (39) "Subsidiary" means a corporation, company, partnership, or association that is controlled by another.

(((39))) (40) "Third-party provider" means any third party, other than a mortgage broker or lender, that provides goods or services to the mortgage broker in connection with the preparation of a borrower's loan and includes, but is not limited to, credit reporting agencies, title insurance companies, appraisers, structural and pest inspectors, or escrow companies. However, "third-party provider" does include a third-party lender, to the extent it provides lock-in arrangements to the mortgage broker in connection with the preparation of a borrower's loan.

(((40))) (41) "Transfer" means a sale, transfer, assignment, or other disposition, whether by operation of law in a merger or otherwise.

(((41))) (42) "Truth in Lending Act" means the Truth in Lending Act, 15 U.S.C. Sections 1601 et seq., and Regulation Z, 12 C.F.R. Sections 226 et seq.

[Recodified as 208-660-010, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-010, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-010, filed 1/7/94, effective 2/7/94.]

(a) Any person doing business under the laws of ((this)) the state of Washington or the United States relating to commercial banks, bank holding companies, savings banks, trust companies, savings and loan associations, credit unions, consumer loan companies, insurance companies, or real estate investment trusts as defined in 26 U.S.C. Sec. 856 and the affiliates, subsidiaries, and service corporations thereof;

(b) An attorney licensed to practice law in this state who is not principally engaged in the business of negotiating residential mortgage loans when such attorney renders services in the course of his or her practice as an attorney;

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

(d) Any person making or acquiring a residential mortgage loan solely with his or her own funds for his or her own investment without intending to resell the residential mortgage loans. For purposes of this section, intent to resell residential mortgage loans is determined by the person's ability and willingness to hold the residential mortgage loans, indicated by, but not limited to, such measures as whether the person has sold loans in the past, whether the loans conform to established secondary market standards for the sale of loans, and whether the person's financial condition would reasonably allow them to hold the residential mortgage loans.

(e) A real estate broker or salesperson licensed by the state who obtains financing for a real estate transaction involving a bona fide sale of real estate in the performance of his or her duties as a real estate broker and who receives only the customary real estate broker's or salesperson's commission in connection with the transaction;

(((e))) (f) Any mortgage broker approved and subject to auditing by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

(g) 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 (1)(((e))) (g); and

(((f))) (h) A real estate broker who:

(i) In connection with a ((CLO)) CLI system, provides only information regarding rates, terms, and lenders;

(ii) Receives a fee for providing such information;

(iii) Conforms to these rules with respect to the providing of such information; and

(iv) Discloses on a form approved by the director that to obtain a loan the borrower must deal directly with a mortgage broker or lender.

However, a real estate broker is not exempt from the Mortgage Broker Practices Act if he or she does any of the following:

(A) Holds himself or herself out as able to obtain a loan from a lender;

(B) Accepts a loan application, or submits a loan application to a lender;

(C) Accepts any deposits for payment to a third-party provider, or accepts any loan fees from a borrower, whether such fees are paid before, upon, or after the closing of the loan;

(D) Negotiates rates or terms with a lender on behalf of a borrower; or

(E) Provides the disclosures required by RCW 19.146.030(1).

(2)(a) The persons described in (b) and (c) of this subsection are exempt from the Mortgage Broker Practices Act except that they:

(i) Must comply with RCW 19.146.0201 through 19.146.090, Part D of chapter ((50-60)) 208-660 WAC, and WAC ((50-60-125, 50-60-130, 50-60-140, 50-60-165, 50-60-190, and 50-60-200)) 208-660-125, 208-660-130, 208-660-140, 208-660-165, 208-660-190, and 208-660-200;

(ii) Are subject to the director's authority to take enforcement action for any violation of applicable provisions of the Mortgage Broker Practices Act, pursuant to RCW 19.146.220, 19.146.221, and 19.146.227; and

(iii) Are subject to the director's authority to obtain and review books and records that are relevant to any investigation of such a violation pursuant to the first paragraph of RCW 19.146.235, and WAC ((50-60-060)) 208-660-060(4).

(b) Any person making or acquiring a residential mortgage loan solely with his or her own funds for his or her own investment without intending to resell the mortgage loan.

(c) Any mortgage broker approved and subject to auditing by the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation.

[Recodified as 208-660-020, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-020, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-020, filed 1/7/94, effective 2/7/94.]

"((CLO)) CLI system" means computer hardware or software which facilitates the provision of ((CLO)) CLI services to consumers.

"((CLO)) CLI service provider" means a party who provides ((CLO)) CLI services to consumers. The term does not include any person or entity exempted from chapter 19.146 RCW by RCW 19.146.020 (1)(a) through (g).

"((CLO)) CLI system provider" means a party who provides a ((CLO)) CLI system.

(2) ((CLO)) CLI service providers may be subject to licensing. Unless otherwise exempt under RCW 19.146.020, any person providing ((CLO)) CLI services is subject to licensing as a mortgage broker under chapter 19.146 RCW, if the person or broker:

(a) Holds himself or herself out as able to obtain a residential mortgage loan for a consumer from a lender;

(b) Accepts a loan application from a consumer, assists a consumer in completion of a loan application, or submits a loan application on behalf of a consumer to a mortgage broker or lender;

(c) Accepts deposits from a consumer for payment of third-party services or any fees in connection with a loan, whether the fees are paid before, upon, or after the closing of the loan;

(d) Negotiates the interest rates or terms of a loan with the mortgage broker or lender on behalf of a consumer; or

(e) Provides to the consumer a good faith estimate or other disclosure required of mortgage brokers or other lenders by state or federal law.

(3) Providers of ((CLO)) CLI services must make disclosures. If the consumer of the ((CLO)) CLI service pays for the ((CLO)) CLI service either directly or indirectly, the ((CLO)) CLI service provider shall give a disclosure statement to the consumer. The disclosure statement shall state:

(a) The amount of the ((CLO)) CLI fee which the ((CLO)) CLI service provider charges the consumer for the ((CLO)) CLI service;

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

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

(4) Disclosure statement must be provided to consumer and retained by the ((CLO)) CLI service provider. Each ((CLO)) CLI service provider must give the consumer a copy of the disclosure form when the first ((CLO)) CLI service is provided to the consumer. The consumer shall sign and date the disclosure statement as evidence that the consumer received the form. ((CLO)) CLI service providers must retain copies of written disclosure statements signed by consumers at an in-state office for two years.

(5) Mortgage brokers may provide ((CLO)) CLI systems--Conditions. A licensed mortgage broker may provide ((CLO)) CLI systems. Prior to providing any ((CLO)) CLI system, a mortgage broker subject to licensing must notify the director in writing of its intent to provide the service. The notification shall include:

(a) Copies of any and all agreements between the licensee and the ((CLO)) CLI service provider, including any and all business names and addresses where ((CLO)) CLI services will be provided;

(b) Copies of any and all ((CLO)) CLI disclosure statements which the ((CLO)) CLI service provider shall give to consumers in connection with the provision of the ((CLO)) CLI services.

(6) ((CLO)) CLI system providers and ((CLO)) CLI service providers responsible for violations. The department may hold both ((CLO)) CLI service providers and ((CLO)) CLI system providers responsible for any and all violations of chapter 19.146 RCW or chapter 208-660 WAC, and subject either or both the licensee or the service provider to any and all applicable fines and penalties.

[Statutory Authority: RCW 42.320.040 [43.320.040], 19.146.020 (1)(h) and 19.146.225. 97-01-003, 208-660-025, filed 12/5/96 effective 1/5/97.]

(a) An application in the form prescribed by the director, including without limit the information required by RCW 19.146.205 (1)(a) through (d).

(b) A surety bond and related power of attorney, or approved alternative to the bond, in accordance with RCW 19.146.205(3) and WAC ((50-60-080 and 50-60-08010)) 208-660-080 and 208-660-08010.

(c) The application deposit.

(d) In regard to each principal((,)) and designated broker((, and any branch office manager)) of the applicant:

(i) Biographical information including complete and accurate employment history and a description of any material litigation involving the person;

(ii) An independent credit report obtained from a recognized credit reporting agency;

(iii) A signed authorization for a background investigation on a form provided by the department;

(iv) Completed fingerprint cards accepted by the Washington state patrol (((this requirement does not apply to branch office managers)));

(v) A signed authorization for verification of the existence of a trust account on a form provided by the department;

(vi) A certificate of passing an approved examination (this requirement does not apply to ((branch office managers)) principals); and

(vii) A certificate of satisfactory completion of an approved licensing course, or satisfactory proof of at least two years of experience in accordance with WAC ((50-60-040)) 208-660-040 (this requirement does not apply to principals).

(e) A signed certificate of compliance and authorization to examine trust accounts on a form provided by the department;

(f) Information to support any required branch office certificate, as required by WAC ((50-60-070)) 208-660-070.

(g) Information in regard to each independent contractor retained by the applicant, in accordance with RCW 19.146.200(1).

(h) A copy of any written agreement with a lender or licensee, in accordance with RCW 19.146.040(2).

(i) A copy of any form to be approved by the director in accordance with WAC ((50-60-130)) 208-660-130(2).

(j) If the applicant's principal office is located out-of-state, information in regard to the applicant's registered agent, in accordance with RCW 19.146.220(3).

(2) Notwithstanding any other provision of these rules, the director may deny an application as incomplete if the applicant fails within ten business days to meet a second request from the director for information, except that the director may grant an extension to the applicant when good cause is shown. An example of good cause may include, but is not limited to, death or incapacitating illness of the preparer, or other catastrophic occurrence. Failure to file requested information under such circumstances will not affect new applications filed after the denial. An applicant may reapply upon submission of a new application and an additional application deposit.

[Recodified as 208-660-030, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-030, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-030, filed 1/7/94, effective 2/7/94.]

(a) As a mortgage broker, or as a designated broker, or branch office manager, of a mortgage broker business;

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

(c) As a loan officer, with responsibility primarily for loans secured by a lien on real estate;

(d) As a branch manager of a lender, with responsibility primarily for loans secured by a lien on real estate.

(e) As a mortgage broker with a mortgage broker (or similar) license from another state where the licensing standards are substantially similar to those in this state, as determined by the director.

(2) Satisfactory proof of two years of experience may include valid copies of W-2 or 1099 tax forms verifying employment for the two-year period, valid copies of form 1120 corporate tax returns for the two-year period signed by the broker or manager as owner of the business for the two-year period, or signed letters from a lender on the lender's letterhead verifying that the broker or manager has originated mortgage loans for the two-year period.

[Recodified as 208-660-040, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-040, filed 6/21/95, effective 7/22/95; 94-23-033, 50-60-040, filed 11/8/94, effective 12/9/94. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-040, filed 1/7/94, effective 2/7/94.]

(2) This section applies to each licensee beginning on the first anniversary date of the issuance of the licensee's license which occurs after December 31, 1995. (For example, if a licensee's license was issued on January 10, 1994, then the licensee must submit its first certificate of satisfactory completion of an approved continuing education course no later than the last business day of January 1996.)

[Recodified as 208-660-042, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-042, filed 6/21/95, effective 7/22/95.]

(a) A description of the course provider's experience in teaching this type of course;

(b) A complete listing of all instructors for the course, including their qualifications and experience teaching courses similar to this course;

(c) A valid certification as a vocational instructor issued by the state of Washington or valid certification as a nonprofit corporation under United States Tax Code that represents the interests of mortgage brokers and lenders;

(d) In connection with approval of a licensing course, all course materials and lesson plans on a session-by-session basis, which must cover at least the following subjects to be taught:

(i) The Mortgage Broker Practices Act;

(ii) The Consumer Protection Act;

(iii) The Escrow Agent Registration Act, chapter 18.44 RCW;

(iv) The federal Real Estate Settlement Procedures Act, Truth in Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Fair Housing Act, Home Mortgage Disclosure Act, and Community Reinvestment Act, and the regulations promulgated pursuant to these acts.

(v) Trust account and recordkeeping requirements provided in the Mortgage Broker Practices Act;

(vi) Mortgage, deed of trust, and real estate contract statutes set forth in Title 61 RCW;

(vii) Washington principal and agent law;

(viii) Real estate and appraisal law, including without limitation, the provisions of chapters 18.85 and 18.140 RCW;

(ix) Arithmetical computations common to mortgage lending including without limitation, the computation of annual percentage rate, finance charge, amount financed, payment and amortization;

(x) Ethics in the mortgage industry; and

(e) In connection with a continuing education course, all course materials and lesson plans on a session-by-session basis, which cover all relevant changes to the laws and matters described in (d) of this subsection.

(2) In order to receive approval of an examination, the examination administrator must file an application with the director, including the following items:

(a) A description of the examination administrator's experience in administering this type of examination; and

(b) A copy of any examinations to be used in determining satisfactory comprehension of the contents of the course and the grading scale to be used. Any new or revised examinations or grading scales to be used must be submitted to the director for approval prior to their use.

(3) The director shall review the applications filed with the department and determine whether to approve or deny the proposed course or examination. If the director approves the course or examination, the director shall issue a certificate of approval that will be effective for two years from the date of its issuance.

(4) The director shall publish annually a list of approved courses and approved examinations.

(5) A course provider or examination administrator that desires to renew the certificate of approval must apply to the director and file the items required in subsection (1) of this section no later than forty-five days before the certificate expires.

(6) The director may audit an approved course or examination at any time. If the course provider or examination administrator has not complied with the requirements of this section, the director may suspend or terminate approval and require the surrender of the certificate of approval.

[96-04-028, recodified as 208-660-045, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-045, filed 6/21/95, effective 7/22/95; 94-23-033, 50-60-045, filed 11/8/94, effective 12/9/94.]

(1) An application in the form prescribed by the director.

(2) The application deposit.

(((3) In regard to each branch office manager:

(a) Biographical information including complete and accurate employment history and a description of any material litigation involving the manager;

(b) A signed authorization for background investigation on a form provided by the director; and

(c) A certificate of satisfactory completion of an approved licensing course, or satisfactory proof of at least two years' experience in accordance with WAC 50-60-040.

A different natural person must serve as manager for each branch office.)) A branch office application may be submitted simultaneously with a license application, however no branch office certificate will be issued prior to the issuance of the license.

[Recodified as 208-660-070, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-070, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-070, filed 1/7/94, effective 2/7/94.]

(a) A surety bond in the required amount and related power of attorney issued by a bonding company or insurance company authorized to do business in this state; or

(b) An approved alternative to a surety bond in the required amount in accordance with WAC ((50-60-08010)) 208-660-08010.

The required amount of the surety bond or approved alternative ranges from twenty thousand dollars to sixty thousand dollars and is based on the applicant's or licensee's monthly average number of loan originators calculated in accordance with subsection (2) of this section. The surety bond or approved alternative is subject to claims in accordance with RCW 19.146.205 and 19.146.240. Borrowers shall be given priority over the state and other persons who file claims against the bond or approved alternative. The state and other persons shall not receive distributions from the remainder of the bond or approved alternative pursuant to valid claims prior to one hundred eighty days following the date a claim is made against the bond.

(2) The monthly average number of loan originators is calculated as follows:

(a) If the applicant or licensee has not been in the mortgage broker business at any time during the preceding twelve months, the monthly average number of loan originators is determined by adding up the projected number of loan originators to be employed or engaged each month for the first twelve months during which the applicant or licensee will do business, and dividing this total by twelve. The projected number of loan originators must reflect at least the actual number of originators at the inception of business.

(b) If the applicant or licensee has not been in the mortgage broker business at least some portion of each of the preceding twelve months, the monthly average number of loan originators is calculated by adding up the number of loan originators employed or engaged each month (or part thereof) for the number of months the applicant or licensee has been in business during the twelve-month period, and the projected number of loan originators to be employed or engaged each month for any additional months necessary to comprise a total of twelve months (or part thereof), and dividing this total by twelve.

(c) Otherwise, the monthly average number of loan originators as calculated by adding up the number of loan originators employed or engaged each month (or part thereof) for the previous twelve months, and dividing this total by twelve.

(3) Based upon the monthly average number of loan originators, the required surety bond amount is indicated by the following table:

Monthly 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

When calculating the required bond amount, an applicant or licensee shall use the worksheet form approved by the director.

(4) At least forty-five days prior to each anniversary of the issuance of the surety bond or approved alternative, each licensee shall calculate its required bond amount in accordance with subsections (2) and (3) of this section. If the required surety bond amount has changed, then the licensee shall within thirty days of the date of the calculation, file a new surety bond or approved alternative in the required amount or file documentation showing a change in the amount of the existing bond or alternative to the required amount.

(5) Each licensee shall use the bond form, assignment of certificate of deposit form, or irrevocable letter of credit form approved by the director.

[Recodified as 208-660-080, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-080, filed 6/21/95, effective 7/22/95; 94-23-033, 50-60-080, filed 11/8/94, effective 12/9/94. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-080, filed 1/7/94, effective 2/7/94.]

[Recodified as 208-660-08015, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-08015, filed 6/21/95, effective 7/22/95.]

(a) Endorse the check or money order "for deposit only" with the broker's trust account number and mail the check postage prepaid to its financial institution; or

(b) Endorse the check or money order "for deposit only" with the mortgage broker's trust account deposit number and by the end of the next business day mail the check or money order postage prepaid to the main office of the broker. The main office shall, in turn, deposit the check or money order in its financial institution prior to the end of the ((next)) third business day after receipt of the check or money order in the main office; or

(c) Deposit the check or money order into its trust account by depositing it directly at the branch where its trust account is held or at an ATM of its financial institution.

(2) All deposits to the trust account(s) must be documented by a bank deposit slip which has been validated by bank imprint, or by 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).

(3) Receipt of funds by wire transfer or any means other than cash, check, or money order, must be posted in the same manner as other receipts. Any such transfer of funds must include a traceable identifying name or number supplied by the financial institution or transferring entity. The mortgage broker must also retain a receipt for the deposit of the funds which must contain the traceable identifying name or number supplied by the financial institution or transferring entity.

(4) Deposits to the trust account(s) must be limited to funds delivered to the mortgage broker for payment to third-party providers, except a mortgage broker may deposit its 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 the mortgage broker's 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 Mortgage Broker Practices Act.

If a mortgage broker has deposited its own funds into its trust account, the mortgage broker may receive reimbursement for such deposit at closing into its general business bank account provided:

(a) All third-party provider's charges associated with the mortgage broker's deposit have been paid;

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

(c) 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

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

[Recodified as 208-660-08025, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-08025, filed 6/21/95, effective 7/22/95.]

(2) All disbursements of trust funds must be made by check, drawn on the trust account, and identified on the check as pertaining to a specific third-party provider transaction or borrower refund, except as specified in this section. The number of each check, amount, date, and payee must be shown in the trust account(s) check ledger as written on the check.

(3) 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.

(4) If a borrower has more than one loan application pending with a mortgage broker, the mortgage broker shall 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.

(5) 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).

(6) 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.

Each mortgage broker shall 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.

(7) Borrower funds held by the mortgage broker must be remitted to the borrower within five business days of the determination that all payments to third-party providers owed by the borrower have been satisfied.

(8) Any trust funds held by the mortgage broker for a borrower who cannot be located must be remitted in compliance with the Uniform Unclaimed Property Act of 1983, chapter 63.29 RCW.

[Recodified as 208-660-08030, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-08030, filed 6/21/95, effective 7/22/95.]

(1) The mortgage broker at the time of deposit is to split the check at the teller window and route any moneys due to third party service providers to an approved trust account, and moneys due the mortgage broker to its general account; or

(2) The mortgage broker deposits the entire check into the trust account. After paying any and all moneys due to third party service providers and seeing to it 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 at no time before the loan is closed transfer moneys from a trust account to their general business bank account.

[]

(1) The check number must be pre-printed by the supplier (printer) on the check and on the voucher copy if preprinted checks are used, or assigned sequentially if preprinted checks are not used;

(2) The program may assign suffixes or subaccount codes before or after the check number for identification purposes;

(3) The check number must appear in the magnetic coding which also identifies the account number for readability by financial institution computers; and

(4) All checks written must be included within the computer accounting system.

[Recodified as 208-660-08040, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-08040, filed 6/21/95, effective 7/22/95.]

(2) Any lock-in agreement form or disclosure form described in RCW 19.146.030 (2)(c) must be approved by the director prior to its use by a mortgage broker or its loan originators. This subsection does not apply to use of a model form promulgated by the director.

(3) A mortgage broker shall not charge any fee that inures to the benefit of the mortgage broker if it exceeds the fee disclosed on the initial written disclosure, 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.

However, no other disclosures shall be required by this subsection if the borrower's closing costs, excluding prepaid escrowed costs of ownership, does not exceed the total closing costs in the most recent good faith estimate provided to the borrower.

In addition, no other disclosures shall be required by this subsection if any fee or set of fees that inure to the benefit of the mortgage broker, and that are calculated as a percentage of the loan amount, increase as a result of an increase in the loan amount, provided that:

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

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

[Recodified as 208-660-130, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-130, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-130, filed 1/7/94, effective 2/7/94.]

However, books and records relating to a specific loan application must be maintained for a minimum of ((four years)) twenty-five months after a loan application is received. These books and records must be retained in all cases where a loan application has been received, any deposits or fees associated with a mortgage application have been accepted, or any written agreement has been executed.

(2) All books and records must be kept in a location in this state that is readily accessible to the department. However, a mortgage broker may store its books and records outside the state with the prior approval of the director, and after executing a written agreement with the director:

(a) To provide access to its books and records to investigate complaints against the mortgage broker; and

(b) To pay the department's travel, lodging and per diem expenses incurred in travel to examine books and records stored out-of-state.

(3) Books and records include without limitation: The original contracts for the broker's compensation, an accounting of all funds received in connection with loans, a copy of the settlement statements as provided to borrowers, a record of any fees refunded to applicants for loans that did not close, copies of the good faith estimates and all other written disclosures, and all other correspondence, papers or records relating to loan applications.

[Recodified as 208-660-140, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-140, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-140, filed 1/7/94, effective 2/7/94.]

[Recodified as 208-660-145, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-145, filed 6/21/95, effective 7/22/95.]

(((a))) (1) Has failed to pay a fee due to the state in accordance with the Mortgage Broker Practices Act;

(((b))) (2) Has not filed the required surety bond or approved alternative or otherwise complied with RCW 19.146.205;

(((c))) (3) 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;

(((d))) (4) Has within the prior seven years been convicted of a felony, or a gross misdemeanor involving dishonesty or financial misconduct;

(((e))) (5) Has failed to demonstrate financial responsibility, character, and general fitness such as 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 Mortgage Broker Practices Act. The director may find that the person has failed to make the demonstration if, among other things:

(((i))) (a) The person is or has been subject to an injunction issued pursuant to the Mortgage Broker Practices Act or the Consumer Protection Act; or

(((ii))) (b) An independent credit report issued by a recognized credit reporting agency indicates that the person has a substantial history of unpaid debts;

(((f))) (6) Has omitted, misrepresented, or concealed material facts in obtaining a license or in obtaining reinstatement thereof;

(((g))) (7) Has violated the provisions of the Mortgage Broker Practices Act, or the Consumer Protection Act;

(((h))) (8) Has had its surety bond, approved alternative, or equivalent form of business insurance, canceled or revoked for cause;

(((i))) (9) Has allowed the licensed mortgage broker business to deteriorate into a condition which would result in denial of a new application for a license;

(((j))) (10) Has aided or abetted an unlicensed person to practice in violation of the Mortgage Broker Practices Act;

(((k))) (11) Has demonstrated incompetence or negligence that results in injury to a person or that creates an unreasonable risk that a person may be harmed;

(((l))) (12) Is insolvent in the sense that the value of the applicant's or licensee's liabilities exceed its assets or in the sense that the applicant or licensee cannot meet its obligations as they mature;

(((m))) (13) Has failed to comply with an order, directive, or requirement of the director, or his or her designee, or with an assurance of discontinuance entered into with the director, or his or her designee;

(((n))) (14) Has performed an act of misrepresentation or fraud in any aspect of the conduct of the mortgage broker business or profession;

(((o))) (15) Has failed to cooperate with the director, or his or her designee, including without limitation by:

(((i))) (a) Not furnishing any necessary papers or documents requested by the director for purposes of conducting an investigation for disciplinary actions or denial, suspension, or revocation of a license; or

(((ii))) (b) Not furnishing any necessary papers or documents requested by the director for purposes of conducting an investigation into a complaint against the licensee filed with the department, or providing a full and complete written explanation of the circumstances of the complaint upon request by the director;

(((p))) (16) Has interfered with an investigation or disciplinary proceeding by willful misrepresentation of facts before the director or the 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;

(((q))) (17) Has failed to provide a required certificate of passing an approved examination;

(((r))) (18) Has failed to provide a required certificate of satisfactory completion of an approved licensing course or, in the alternative, satisfactory proof of two years' experience in accordance with WAC ((50-60-040)) 208-660-040; or

(((s))) (19) Has failed to provide a required certificate of satisfactory completion of an approved continuing education course.

(((2) The director may deny or condition approval of a branch office application, or suspend or revoke a branch office certificate, if the branch office manager has failed to provide any required items described in subsection (1)(r) and (s) of this section.))

[Recodified as 208-660-160, filed 2/1/96, effective 4/1/96. Statutory Authority: RCW 19.146.225. 95-13-091, 50-60-160, filed 6/21/95, effective 7/22/95. Statutory Authority: 1993 c 468 9. 94-03-009, 50-60-160, filed 1/7/94, effective 2/7/94.]

Washington State Code Reviser's Office