WSR 01-23-002

PERMANENT RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed November 7, 2001, 1:49 p.m. ]

     Date of Adoption: November 7, 2001.

     Purpose: Revisions to chapter 460-33A WAC to require mortgage broker-dealers to review investor suitability on an annual basis and in relation to the investor's other mortgage paper security holdings; require certain disclosures to investors in the sale of property acquired through foreclosure; raise the face amount of the surety bond required by WAC 460-33A-040 (1)(b); make technical corrections; articulate the fiduciary duty of mortgage broker-dealers; and to require disclosure of the tax assessed value of the property securing the loan.

     Citation of Existing Rules Affected by this Order: Chapter 460-33A WAC, amending WAC 460-33A-010, 460-33A-015, 460-33A-025, 460-33A-030, 460-33A-031, 460-33A-035, 460-33A-040, 460-33A-055, 460-33A-070, 460-33A-075, 460-33A-080, 460-33A-081, 460-33A-086, 460-33A-090, 460-33A-105, 460-33A-110, 460-33A-115, 460-33A-120, 460-33A-125, and 460-33A-130.

     Statutory Authority for Adoption: RCW 21.20.450.

      Adopted under notice filed as WSR 01-20-063 on September 28, 2001.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 3, Amended 19, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 1, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 3, Amended 20, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Other Findings Required by Other Provisions of Law as Precondition to Adoption or Effectiveness of Rule: No rule may be made unless the director of the Department of Financial Institutions finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of chapter 21.20 RCW. The director hereby makes such a finding with respect to this proposal.
     Effective Date of Rule: Thirty-one days after filing.

November 7, 2001

John L. Bley

Director

OTS-5186.1


AMENDATORY SECTION(Amending Order SDO-124-89, filed 8/17/89, effective 9/17/89)

WAC 460-33A-010   Application.   (1) The rules contained in these regulations are intended to offer an optional method for the registration of "mortgage paper securities" as defined in WAC 460-33A-015(((5)))(4). While applications for registration not conforming to the standards contained herein shall be looked upon with disfavor, where good cause is shown, certain rules of this chapter may be modified or waived by the ((administrator)) director, if consistent with the spirit of these rules.

     (2) The application of these rules does not affect those issuers to which or to whom the debenture company sections of the Securities Act apply.

     (3) These rules do not affect the statutory exemptions provided for by, nor will they be applied to, those securities or transactions exempt under RCW 21.20.310 or 21.20.320. These rules are not intended to expand or restrict the definition of "security" as defined in RCW 21.20.005(12).

     (4) The rules contained in this chapter are only applicable to mortgage paper securities, mortgage broker-dealers and mortgage salespersons registering under this chapter.

[Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-010, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-010, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-010, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-015   Definitions.   As used in this chapter:

     (1) "Mortgage broker-dealer" means a person who is defined as a "broker-dealer" in RCW 21.20.005(3) and who effects transactions in mortgage paper securities registered under the provisions of this chapter.

     (2) "General offering circular" means a disclosure document that gives a general description of what is involved in the purchase of mortgage paper securities and the business of offering the mortgage paper securities including a description of the mortgage broker-dealer.

     (3) "Mortgage salesperson" means a person other than a mortgage broker-dealer who is defined as a "salesperson" in RCW 21.20.005(2) and who represents a mortgage broker-dealer in effecting offers or sales of mortgage paper securities registered under the provisions of this chapter.

     (4) "Mortgage paper securities" means notes and bonds, or other debt securities secured by mortgages or trust deeds on real or personal property or by a vendor's interest in a property sales contract or options granting the right to purchase any of the foregoing, including any guarantee of or interest in the foregoing.

     (5) "Specific offering circular" means a disclosure document describing the specific mortgage paper securities offering, which is meant to accompany the general offering circular.

     (6) "Financial institution" means any bank, trust company, savings bank, national banking association, savings and loan association, building and loan association, mortgage banker, credit union, insurance company, or other similarly regulated financial institution, or holding company for any of the foregoing.

     (7) "Construction loan" means a loan in which twenty-five percent or more of the loan proceeds will be used to fund future improvements to real estate securing the loan.

     (8) "Income-producing properties" means real property that produces income on a regular basis.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-015, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-015, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-015, filed 10/20/86; 83-15-043 (Order SDO-90-83), § 460-33A-015, filed 7/19/83; 83-03-025 (Order SDO-7-83), § 460-33A-015, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-025   Contents of the general offering circular.   (1) The general offering circular shall be in a format prescribed by the ((administrator of securities)) director and shall include all information required by the format.

     (2) The general offering circular shall set forth the minimum suitability standards for investors as provided in WAC 460-33A-031.

     (3) The general offering circular must state that purchases of mortgage paper securities may be made only by check payable to the mortgage broker-dealer's escrow account.

     (4) The general offering circular shall disclose the risks to investors of holding a high concentration of their investment portfolio in mortgage paper securities.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-025, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-025, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-025, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-030   Contents and filing of the specific offering circular.   The form and content of the specific offering circular and accompanying exhibits shall be prescribed by the ((administrator)) director. In registering mortgage paper securities pursuant to this chapter, the registrant undertakes to furnish the specific offering circulars and required exhibits to the ((administrator)) director for review upon request. If such a request is made prior to the distribution of a specific offering circular to prospective investors, the registrant must refrain from such distribution pending review and approval by the ((administrator)) director.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-030, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-030, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-030, filed 1/13/83.]


AMENDATORY SECTION(Amending Order SDO-124-89, filed 8/17/89, effective 9/17/89)

WAC 460-33A-031   Minimum investor suitability requirements.   In ((any)) each sale of mortgage paper registered under the rules of this chapter, the mortgage broker-dealer shall have reasonable grounds to believe and after making reasonable inquiry shall believe that both the conditions of subsections (1) ((and (2))) through (3) of this section are satisfied:

     (1) The investment is suitable for the purchaser upon the basis of the facts disclosed by the purchaser as to the purchaser's other security holdings, the purchaser's other mortgage paper security holdings, and ((as to)) the purchaser's financial situation and needs((; and)).

     (2) The purchaser qualifies for at least one of the following:

     (a) The purchaser's investment in the mortgage paper securities being offered does not exceed twenty percent of the purchaser's net worth, or joint net worth with that person's spouse: Provided, That the purchaser's total investment in mortgage paper securities involving any one borrower or his affiliates may not exceed twenty percent of the purchaser's net worth, or joint net worth with that person's spouse;

     (b) The purchaser's investment in the mortgage paper securities being offered does not exceed ten percent of the purchaser's (including spouse) taxable income for federal tax purposes for the last year: Provided, That the purchaser's total investment in mortgage paper securities involving any one borrower or his affiliates may not exceed twenty percent of the purchaser's net worth, or joint net worth with that person's spouse;

     (c) The purchaser, either alone or with a purchaser representative as defined in WAC 460-44A-501, has, as stated in WAC 460-44A-505, such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment; or

     (d) The purchaser is an accredited investor as defined in WAC 460-44A-501.

     (3) The mortgage broker-dealer shall document its determination that an investment in mortgage paper securities is appropriate for each investor in accordance with WAC 460-33A-115 (1)(f).

[Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-031, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-031, filed 10/20/86.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-035   Limitations on the use of optional registration of this chapter.   Unless the director makes a special notation on the permit issued to the mortgage broker-dealer granting permission to offer the following types of securities based upon a showing that the investors will be adequately protected, the following types of securities cannot be offered or sold under the rules of this chapter ((unless written permission is obtained from the administrator based upon a showing that the investors will be adequately protected)):

     (1) Offerings involving construction loans may not be sold using the rules of this chapter unless the loan to value ratio, as determined utilizing the current value of the property without considering future improvements, is within the limits established by subsection (7) of this section.

     (2) Offerings involving the mortgage broker-dealer, its officers, agents, affiliates, and persons controlling the mortgage broker-dealer or affiliates may not be sold as part of the optional registration of the rules of this chapter unless the registration with the ((administrator)) director includes a full description of these transactions. An offering "involves" the persons listed where the person is the owner, the borrower, or has an interest in the proceeds other than fees, commissions, or mark-ups.

     (3) Offerings involving documents reserving the right to subordinate the position of any investor to any mortgage, trust deed or lien created at or after the sale.

     (4) Offerings involving pooling or participations involving more than ten investors may not be sold under the optional registration of the rules of this chapter. However, where only first liens are involved and the note amount equals or exceeds one hundred thousand dollars, the registrant may sell to up to twenty five investors. A husband and wife and their dependents may be counted as one investor.

     (5) Offerings in which the real property or other collateral securing the notes, bonds or obligations is not within this state unless the general offering circular contains disclosure of all material facts concerning the relevant laws of the state in which the real property is situated and a risk factor discussing the risks of investing in out-of-state real estate.

     (6) Offerings involving notes, bonds, or obligations secured by a single mortgage, deed of trust or real estate contract or a single group of mortgages, deeds of trust or real estate contracts that are not identical in their underlying terms, including the right to direct or require foreclosure, rights to and rate of interest, and other incidents of being a lender, and the sale to each purchaser or investor is not upon the same terms; provided however, an offering may be subject to adjustment for the face or principal amount or percentage interest purchased and for interest earned or accrued.

     (7) Offerings in which the aggregate principal amount of the notes, bonds or obligations sold, together with the unpaid principal amount of any encumbrances upon the real property senior thereto, exceed the following percentages of the current market value (as determined by WAC 460-33A-105) of the real property:

     (a) Single-family residences - eighty percent.

     (b) Commercial and income-producing properties - seventy percent.

     (c) Unimproved property which has been zoned for commercial or residential development - fifty percent. For purposes of this section, "unimproved property" includes real property with structures that cannot be legally occupied, do not substantially conform with the appraisal of the property prepared pursuant to WAC 460-33A-105, or otherwise lack the functional attributes or basic amenities customarily found in the type of structures in question.

     (d) Other real property - forty percent.

     (8) Offerings involving real estate paper in which a default in any note, bond or obligation will not be a default in all notes, bonds or obligations concerning a specific loan.

     (9) Offerings in which the following actions may be taken on behalf of the investors without the consent of investors holding a majority percentage of the unpaid dollar amount of notes, bonds, or obligations ((cannot)):

     (a) Consenting to the sale or transfer by the borrower of the collateral securing the loan, or the substitution of a new borrower;

     (b) Approving any modification to the loan which decreases the rate of interest payable to the investors;

     (c) Deferring or forgiving the payment of any principal or interest;

     (d) Making any agreements concerning the release, substitution, or exchange of any collateral, or any portion of the collateral, for the loan;

     (e) Entering into any agreement to reduce the principal amount of the loan (except for actual payments of principal);

     (f) Making any concession with respect to compliance with any material obligations imposed by the instruments evidencing or securing the loan; or

     (g) Extending or renewing the loan.

     (10) Loans in which investors are required to designate the servicing agent as their attorney-in-fact with respect to documents and instruments, other than those described below, which would otherwise require signing or other action by the investors:

     (a) Escrow instructions concerning the closing and collection of the loan;

     (b) Instruments necessary to substitute investors; and

     (c) Partial or full satisfaction or release of the deed of trust or other security instrument pursuant to the provisions of the deed of trust or security agreement upon receipt of the appropriate payment.

     (11) Offerings in which the investors holding a majority percentage of the unpaid dollar amount of any loan may not remove the servicing agent.

     (12) A registrant requesting a modification under this section must request it in writing and must provide satisfactory evidence that the interest of the public will be adequately protected.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-035, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-035, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-035, filed 1/13/83.]


NEW SECTION
WAC 460-33A-037   Disclosure requirements in the sale of real estate owned property.   The following apply to real property acquired by owners of mortgage paper securities through foreclosure or otherwise in settlement of the note or bond which is the subject of the mortgage paper security (real estate owned or REO):

     (1) The mortgage broker-dealer shall provide investors a written disclosure document when making a recommendation to investors to sell REO.

     (2) The disclosure document required by subsection (1) of this section shall include an appraisal or updated appraisal meeting the requirements of WAC 460-33A-105 and dated within twelve months of the recommendation unless:

     (a) A real estate broker's opinion of value dated within twelve months of the recommendation is obtained pursuant to WAC 460-33A-038;

     (b) In offering the mortgage paper securities to the current owners, the loan-to-value ratio was established by relying on the tax assessment valuation pursuant to WAC 460-33A-105(6). In this instance, the specific offering circular required by subsection (1) of this section may use the current tax assessment valuation; or

     (c) The investors, excluding the mortgage broker-dealer and its affiliates, holding a majority percentage interest in the unpaid dollar amount of the notes, bonds or obligations consent to the waiver of this requirement. The mortgage broker-dealer may not require investors to consent to this waiver prior to issuing its recommendation to sell REO.

     (3) Regardless of whether an appraisal is required or furnished pursuant to subsection (2) of this section, investors holding a majority percentage interest in the unpaid dollar amount of the notes, bonds or obligations may direct the mortgage broker-dealer to obtain an appraisal or a new appraisal that is dated within twelve months of the mortgage broker-dealer's recommendation. The costs of such an appraisal shall be the responsibility of the mortgage paper security investors unless the mortgage broker-dealer agrees to pay for the appraisal.

     (4) The disclosure document required by subsection (1) of this section shall disclose the following:

     (a) A summary of the purchase and sale agreement;

     (b) A summary of property marketing completed prior to receipt of the purchase and sale agreement;

     (c) Estimated marketing period necessary to obtain fair market value of the property established by the current appraisal, if an appraisal is required under subsection (2) or (3) of this section;

     (d) Current appraised value or a real estate broker's opinion of value pursuant to WAC 460-33A-038 of the property, as well as the appraised value of the property at the time the loan was originated, if an appraisal or opinion of value is required under subsection (2) or (3) of this section;

     (e) Current tax assessed value of the property, as well as the tax assessed value at the time the loan was originated;

     (f) A summary of the reasons for which the mortgage broker-dealer is making the recommendation to investors to accept the purchase and sale agreement;

     (g) A summary of the options available to investors should they elect to reject the purchase and sale agreement;

     (h) The right of investors to obtain upon written request a list of all investors holding an interest in the property subject to the purchase and sale agreement and their respective addresses; and

     (i) The right of investors holding a majority percentage of the interest in the property to remove the mortgage broker-dealer as the servicing agent in accordance with WAC 460-33A-035(11).

     (5) If the terms of the purchase and sale agreement include seller financing, the disclosure document required in this section shall disclose the following in addition to the disclosure required under subsection (4) of this section:

     (a) A loan application completed by the prospective buyer;

     (b) The credit report of the prospective buyer;

     (c) The financial statements of the prospective buyer, if available;

     (d) A comparison of the loan terms in the original offering with those proposed in the purchase and sale agreement; and

     (e) A summary of the options available to an individual investor who does not wish to participate in the loan should investors holding a majority percentage of the interest in the property accept the purchase and sale agreement.

     (6) The disclosure document required in this section shall be sent to all the investors holding an interest in the property subject to the purchase and sale agreement at least ten days prior to the closing date of the sale.

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NEW SECTION
WAC 460-33A-038   Real estate broker's opinion of value in the sale of real estate owned property.   (1) As an alternative to the requirement to obtain an updated appraisal in the sale of real estate owned property pursuant to WAC 460-33A-037(2), the mortgage broker-dealer may obtain a real estate broker's opinion of value which discloses the following:

     (a) The identity of the client and any intended users, by name or type;

     (b) The intended use of the opinion of value;

     (c) The identity of the real estate involved in the opinion of value, including the physical and economic property characteristics relevant to the property;

     (d) The purpose of the opinion of value, including the type and definition of value and its source;

     (e) The effective date of the opinion of value;

     (f) Sufficient information to disclose to the client and any intended users of the opinion of value the scope of work used to develop the opinion of value;

     (g) All assumptions, hypothetical conditions, and limiting conditions that affected the analyses, opinions, and conclusions;

     (h) The information analyzed, the procedures followed, and the reasoning that supports the analyses, opinions, and conclusions;

     (i) The use of the real estate existing as of the date of value and the use of the real estate reflected in the opinion of value; and, when the purpose of the assignment is market value, a description of the rationale and support of the real estate broker's opinion of the highest and best use of the real estate; and

     (j) The qualifications of the real estate broker relating to the preparation of the opinion of value.

     (2) The real estate broker's opinion of value must be in writing and be signed by the real estate broker. The mortgage broker-dealer must maintain a copy of the opinion of value in accordance with WAC 460-33A-115 (1)(l).

     (3) The written consent of any real estate broker who is named as having prepared an opinion of value in connection with the mortgage paper securities offering shall be kept on file by the mortgage broker-dealer. The mortgage broker-dealer must maintain a copy of the written consent of the real estate broker in accordance with WAC 460-33A-115 (1)(l).

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AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-040   Net worth or bond requirement.   (1) All persons and entities meeting the definition of a mortgage broker-dealer must meet and maintain one of the following at all times:

     (a) A minimum tangible net worth, as determined by generally accepted accounting principles, of the greater of one hundred thousand dollars or ten percent of the amount of securities registered pursuant to this chapter up to a maximum of one million dollars; or

     (b) File a surety bond in the face amount of ((fifty)) one hundred thousand dollars satisfactory to the securities administrator; or

     (c) In the event the mortgage broker-dealer and any affiliate does not handle the funds of lenders and borrowers, minimum tangible net worth of five thousand dollars, as determined by generally accepted accounting principles.

     (2) Mortgage broker-dealers failing to maintain the above mentioned minimum net worth must inform the securities division of such failure within seventy-two hours at which time all sales of securities must be suspended.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-040, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.060 and 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-040, filed 10/20/86. Statutory Authority: RCW 21.20.450. 83-03-025 (Order SDO-7-83), § 460-33A-040, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-055   Escrow account.   (1) All funds received from lenders or investors to purchase mortgage paper securities shall be deposited within forty-eight hours of receipt in an escrow account acceptable to the ((administrator)) director. The escrow account shall be maintained in a financial institution as set forth in WAC 460-33A-015(6), with an escrow agent registered under chapter 18.44 RCW, or with some other independent escrow agent acceptable to the ((administrator)) director. The entity acting as the escrow agent must be independently audited or examined, in a manner acceptable to the ((administrator)) director, on a regular basis. All checks by which purchases or investments are made shall be made payable to the escrow account. All necessary disbursements shall be made from the escrow account. No person acting as a mortgage broker-dealer or ((his)) its agent shall accept any purchase or investment funds for mortgage paper securities in advance of the time necessary to fund the loan transaction. No such fund shall be maintained in such account for longer than sixty days without disbursing the funds and the escrow agreement must provide that funds maintained in such account shall be returned to the investor on the sixty-first day from deposit in the account. No interest earned on escrow account funds shall be paid to the mortgage broker-dealer or its affiliates. The escrow agreement must provide that funds may be disbursed from the escrow account only to a specific loan escrow, where funds will be disbursed only upon closing and recordation, or to return the funds to the lenders or investors.

     (2) The escrow agreements shall provide that the funds will not be subject to the mortgage broker-dealer's creditors.

     (3) The account shall be subject to an audit at any reasonable time by the securities division.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-055, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-055, filed 8/17/89, effective 9/17/89. Statutory Authority: RCW 21.20.250 and 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-055, filed 10/20/86. Statutory Authority: RCW 21.20.450. 83-03-025 (Order SDO-7-83), § 460-33A-055, filed 1/13/83.]


AMENDATORY SECTION(Amending Order SDO-140-86, filed 10/20/86)

WAC 460-33A-070   Origination and assignment.   Every mortgage broker-dealer or his agent or affiliate that originates loan transactions and later intends to offer these as mortgage paper securities to lenders or investors must obtain the permission of the ((administrator of securities)) director. Every mortgage broker-dealer or ((his)) its agent or affiliate that purchases or takes mortgage paper in ((his)) its own name, whether for ((his)) its own account or the account of others, and intends to offer such as mortgage paper securities to lenders or investors must disclose ((his)) its interest in the property or the transaction and must not disburse funds from the escrow account until the applicable instrument has been properly recorded in the name of the lenders or investors.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-070, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-070, filed 1/13/83.]


AMENDATORY SECTION(Amending Order SDO-140-86, filed 10/20/86)

WAC 460-33A-075   Advertising.   (1) No person effecting a transaction in mortgage paper securities shall advertise in any manner any statement or representation, with regard to any mortgage paper security, which is false, misleading or deceptive.

     (2) Every mortgage broker-dealer or ((his)) its agent shall file with the ((administrator)) director five days prior to use, true copies of all advertising materials. If not disallowed by written notice or otherwise within five days from the date filed, the material may be disseminated. No person shall use any such material in any way after the ((administrator)) director gives written notice that such material contains any statement or omission that is false or misleading.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-075, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-075, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 95-16-026, filed 7/21/95, effective 8/21/95)

WAC 460-33A-080   Registration and examination of mortgage broker-dealers.   (1) Every person acting as a mortgage broker-dealer, unless otherwise exempt, must first obtain a broker-dealer's license under the provisions of this chapter.

     (2) Every applicant under this section shall provide the ((securities administrator)) director proof of compliance with WAC 460-33A-040.

     (3) Every applicant for registration as a mortgage broker-dealer shall file a completed mortgage broker-dealer application form, together with the applicable filing fee.

     (4)(a) Every applicant under this section shall submit to the ((securities administrator)) director proof that the individual applicant, an officer if the applicant is a corporation, a manager if the applicant is a limited liability company, or a general partner if the applicant is a partnership has passed the uniform securities agent law examination (series 63) within the last two years.

     (b) Any individual out of the business of effecting transactions in securities for less than two years and who has previously passed the required examination in (a) of this subsection or the Washington state securities examination shall not be required to retake the examination in order for the mortgage broker-dealer to be eligible for registration under this chapter.

[Statutory Authority: RCW 21.20.070 and 21.20.450. 95-16-026, § 460-33A-080, filed 7/21/95, effective 8/21/95. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-080, filed 8/17/89, effective 9/17/89. Statutory Authority: RCW 21.20.060 and 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-080, filed 10/20/86. Statutory Authority: RCW 21.20.450. 83-03-025 (Order SDO-7-83), § 460-33A-080, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 95-16-026, filed 7/21/95, effective 8/21/95)

WAC 460-33A-081   Expiration of mortgage broker-dealer registration, renewal procedure, delinquency fees.   A license issued to a mortgage broker-dealer shall expire on the expiration date of the securities registration of the mortgage paper securities offered by the mortgage broker-dealer. The license shall be renewed, or if not renewed, shall be deemed delinquent at the expiration of the issuer's securities registration. For any renewal application postmarked after the expiration date but received by the ((administrator)) director within two months of the expiration date, the licensee shall pay a delinquency fee of one hundred dollars in addition to the renewal fee. No renewal applications will be accepted after that time.

[Statutory Authority: RCW 21.20.070 and 21.20.450. 95-16-026, § 460-33A-081, filed 7/21/95, effective 8/21/95.]


AMENDATORY SECTION(Amending WSR 95-16-026, filed 7/21/95, effective 8/21/95)

WAC 460-33A-086   Expiration of mortgage securities salesperson registration, renewal procedure, and delinquency fees.   A license issued to a mortgage securities salesperson shall expire on the expiration date of the securities registration of the mortgage paper securities offered by the mortgage broker-dealer. The license shall be renewed, or if not renewed, shall be deemed delinquent at the expiration of the issuer's securities registration. For any renewal application postmarked after the expiration date but received by the ((administrator)) director within two months of the expiration date, the licensee shall pay a delinquency fee of fifty dollars in addition to the renewal fee. No renewal applications will be accepted after that time.

[Statutory Authority: RCW 21.20.070 and 21.20.450. 95-16-026, § 460-33A-086, filed 7/21/95, effective 8/21/95.]


AMENDATORY SECTION(Amending Order SDO-140-86, filed 10/20/86)

WAC 460-33A-090   Dishonest and unethical practices -- Mortgage broker-dealers.   The phrase "dishonest and unethical practices" as used in RCW 21.20.110(7) includes the following acts by mortgage broker-dealers or mortgage salespersons:

     (1) To cause investors to sign reconveyances of title, quit claim deeds, or any other like instruments before such instruments are required in connection with some transaction such as payoff or foreclosure.

     (2) To fail to deliver, within a reasonable time, to the investor proceeds, received by the mortgage broker-dealer, of sale, refinancing, or foreclosure of an obligation owned by the investor.

     (3) To engage in any dishonest or unethical practice as set forth in WAC ((460-20A-420 or 460-20A-425)) 460-21B-060 or 460-22B-090.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-090, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-090, filed 1/13/83.]


NEW SECTION
WAC 460-33A-095   Fiduciary duty -- Mortgage broker-dealers.   In the event a conflict arises in connection with a mortgage broker-dealer acting as an agent for both mortgage borrowers and purchasers of mortgage paper securities, every mortgage broker-dealer shall resolve the conflict in favor of the purchasers of mortgage paper securities.

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AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-105   Appraisals.   (1) An appraisal of each parcel of real property or other property which secures or relates to a transaction subject to the provisions of this chapter shall be made by an independent appraiser. The appraisal shall be kept on file by the mortgage broker-dealer for four years.

     (2) The appraisal shall reflect the value of the property on an "as is" not an "as built" basis.

     (3) The appraisal shall conform to the following requirements:

     (a) The appraisal shall be prepared by a competent, independent appraiser acceptable to the administrator; and

     (b) The appraiser shall be appropriately licensed or certified in conformance with the Certified Real Estate Appraiser Act, chapter 18.140 RCW.

     (4) An appraisal made within the twelve-month period prior to the sale of the mortgage paper security is sufficient.

     (5) The written consent of any appraiser who is named as having prepared an appraisal in connection with the mortgage paper securities offering shall be kept on file by the mortgage broker-dealer.

     (6) In lieu of the appraisal required by this section, the mortgage broker-dealer may elect to rely on the most recent tax assessment valuation of each parcel of real property.

     (7) The specific offering circular shall disclose the ratio of the aggregate principal amount of the notes, bonds or obligations sold, together with the unpaid principal amount of any encumbrances upon the real property senior thereto, compared to the most recent tax assessment valuation of the real property or the appraised amount, if an appraisal was obtained pursuant to this section. If the loan to value ratio is disclosed based on the appraised value of the real property, the specific offering circular shall also disclose the most recent tax assessment valuation of the real property.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-105, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 89-17-078 (Order SDO-124-89), § 460-33A-105, filed 8/17/89, effective 9/17/89; 86-21-107 (Order SDO-140-86), § 460-33A-105, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-105, filed 1/13/83.]


AMENDATORY SECTION(Amending Order SDO-140-86, filed 10/20/86)

WAC 460-33A-110   Financial statements and annual reports.   Every mortgage broker-dealer shall file with the ((administrator)) director upon registration under WAC 460-33A-080 and annually, a report containing financial statements prepared in accordance with generally accepted accounting principles by an independent certified public accountant, or by the chief executive and accounting officers of the mortgage broker-dealer who shall certify that they each have verified the material accuracy and completeness of the information contained therein. The annual report shall include, but not be limited to the receipt and disposition of all funds handled in connection with transactions subject to the rules of this chapter. The annual report shall be filed with the ((administrator)) director within ninety days after the close of the period of the report unless, for good cause shown, the ((administrator)) director in writing, extends the time therefor. The report shall contain the following:

     (1) Total number of sales, as principal or agent, subject to the rules of this chapter during the period, and

     (2) Total dollar volume of such sales.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-110, filed 10/20/86; 83-03-025 (Order SDO-7-83), § 460-33A-110, filed 1/13/83.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-115   Books and records.   Each mortgage broker-dealer shall make and keep current in this state the following books and records relating to ((his)) its business:

     (1) A file for each loan which the mortgage broker-dealer has funded through sales of mortgage paper, which file shall contain the following:

     (a) A copy of each appraisal or tax assessment valuation required by WAC 460-33A-105;

     (b) Copies of all documents of title representing current interests in the real property securing the loan;

     (c) Copies of title insurance policies and any other insurance policies on the real property securing the loan;

     (d) The acknowledgement of receipt by each investor of the specific and general offering circulars;

     (e) The subscription agreement for each investor;

     (f) A copy of the investor suitability questionnaire for each investor and documentation of the mortgage broker-dealer's determination that an investment in mortgage paper securities is suitable for each investor in accordance with WAC 460-33A-031. If the mortgage broker-dealer has not verified the suitability of an investment in mortgage paper securities for a purchaser within the prior twelve months, the mortgage broker-dealer shall conduct a reasonable inquiry to verify that further investment in mortgage paper securities is suitable based on the criteria set forth in WAC 460-33A-031 and document such a determination. As an alternative to maintaining this documentation in the loan files, the mortgage broker-dealer may maintain this documentation in separate files provided a list of all investors participating in the loan is included in the loan file with an indication of the location of this documentation for each investor;

     (g) The specific offering circular for the offering;

     (h) All correspondence with investors relating to the loan;

     (i) The loan application of the borrower and all supporting documents such as the credit report on the borrower;

     (j) Copies of all service agreements with investors relating to the loan;

     (k) Copies of the escrow instructions relating to the loan;

     (l) Copies of all real estate broker's opinions of value obtained in accordance with WAC 460-33A-038 and their written consent to use their opinions of value in connection with an offering of mortgage paper securities.

     (2) A file for each loan for which the mortgage broker-dealer is soliciting funds through the sale of mortgage paper, which file shall contain the same items required under subsection (1) of this section except for those items which are not yet available because the mortgage paper has not yet been sold.

     (3) A file containing copies of all service agreements required under WAC 460-33A-065.

     (4) Ledgers (or other records) reflecting all assets, liabilities, income, expense, and capital accounts.

     (5) Ledgers, accounts (or other records) itemizing separately each cash account of every customer including, but not limited to, all funds in the mortgage broker's escrow and trust account, all proceeds of sale, refinancing, foreclosure, or similar transaction involving the real or personal property securing a loan funded by sales of mortgage paper, and all moneys collected from the borrower on behalf of the investors.

     (6) A record of the proof of money balances of all ledger accounts in the form of trial balances and a record of the computation of net liquid assets as of the trial balance date pursuant to WAC 460-33A-040. Such trial balances and computations shall be prepared currently at least once a month.

     (7) A questionnaire or application for employment executed by each agent of such broker-dealer, which questionnaire or application shall be approved in writing by an authorized representative of such broker-dealer and shall contain at least the following information with respect to each such person:

     (a) His or her name, address, social security number, and the starting date of his or her employment or other association with the broker-dealer.

     (b) His or her date of birth.

     (c) The educational institutions attended by him or her and whether or not he or she graduated therefrom.

     (d) A complete, consecutive statement of all his or her business connections for at least the preceding ten years, including his or her reason for leaving each prior employment, and whether the employment was part time or full time.

     (e) A record of any denial of a certificate, membership or registration, and of any disciplinary action taken, or sanction imposed, upon him or her by any federal or state agency, or by any national securities exchange or national securities association, including a record of any finding that he or she was a cause of any disciplinary action or had violated any law.

     (f) A record of any denial, suspension, expulsion or revocation of a certificate, membership or registration of any broker-dealer with which he or she was associated in any capacity when such action was taken.

     (g) A record of any permanent or temporary injunction entered against him or her or any broker-dealer with which he or she was associated in any capacity at the time such injunction was entered.

     (h) A record of any arrests, indictments or convictions for any felony or any misdemeanor, except minor traffic offenses, of which he or she has been the subject.

     (i) A record of any other name or names by which he or she has been known or which he or she has used.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-115, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-115, filed 10/20/86.]


AMENDATORY SECTION(Amending Order SDO-140-86, filed 10/20/86)

WAC 460-33A-120   Preservation of records.   The records required in WAC 460-33A-115 of these rules shall be preserved according to the following requirements:

     (1) Every mortgage broker-dealer shall preserve in this state for a period of not less than three years, the first two years of which shall be in an easily accessible place:

     (a) All records required to be made pursuant to WAC 460-33A-115 of these rules.

     (b) All check books, bank statements, cancelled checks and cash reconciliations except for the loan files required to be kept by WAC 460-33A-115(1) which shall be kept in an accessible place for the life of the loans involved.

     (c) All bills receivable or payable (or copies thereof), paid or unpaid, relating to the business of the broker-dealer, as such.

     (d) Originals of all communications received and copies of all communications sent by the broker-dealer (including inter-office memoranda and communications) relating to his business, as such.

     (e) All trial balances, computations of net liquid assets (and working papers in connection therewith), financial statements, branch office reconciliations and internal audit working papers, relating to the business of the broker-dealer, as such.

     (f) All guarantees of accounts and all powers of attorney and other evidence of the granting of any discretionary authority given in respect of any account, and copies of resolutions empowering an agent to act on behalf of a corporation.

     (g) All written agreements (or copies thereof) entered into by the mortgage broker-dealer relating to ((his)) its business as such, including agreements with respect to any account.

     (2) Every mortgage broker-dealer shall preserve during the life of the enterprise and of any successor enterprise all partnership articles or, in the case of a corporation, all charter documents, minute books and stock certificate books.

     (3) Every mortgage broker-dealer shall maintain and preserve in an easily accessible place all records required under WAC 460-33A-115(7) of these rules until at least three years after the agent has terminated his or her employment and any other connection with the broker-dealer.

     (4) If a ((person)) mortgage broker-dealer who has been subject to the requirements of this section ceases to hold a certificate as a mortgage broker-dealer, such ((person)) mortgage broker-dealer shall, for the remainder of the periods of time specified in this section, continue to preserve the records which ((he)) it theretofore preserved pursuant to this section.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-120, filed 10/20/86.]


AMENDATORY SECTION(Amending WSR 92-18-009, filed 8/21/92, effective 9/21/92)

WAC 460-33A-125   Notice of changes by mortgage broker-dealers.   (1) Each mortgage broker-dealer shall, upon any material change in the information contained in its application for registration promptly file an amendment to such application setting forth the changed information (and in any event within thirty days after the change occurs).

     (2) Each mortgage broker-dealer shall notify the ((administrator)) director of the employment of any new agent in Washington and of the termination of employment of any agent in Washington, giving the full name and Social Security number of the individual involved, the date of employment or termination, and the location of the office in which he or she was or will be employed by submitting a completed NASD Form U-4 to the ((administrator or the administrator's)) director or the director's designee within twenty-one days after the event occurs.

     (3) Each mortgage broker-dealer shall notify the ((administrator)) director of the termination of employment of any agent in Washington by submitting a completed NASD Form U-5 to the ((administrator)) director or the ((administrator's)) director's designee, within thirty days after the event occurs.

[Statutory Authority: RCW 21.20.045. 92-18-009, § 460-33A-125, filed 8/21/92, effective 9/21/92. Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-125, filed 10/20/86.]


AMENDATORY SECTION(Amending Order SDO-140-86, filed 10/20/86)

WAC 460-33A-130   Notice of complaint.   Each mortgage broker-dealer who has filed a complaint against any of its partners, officers, directors, agents licensed in Washington with any law enforcement agency, any other regulatory agency having jurisdiction over the securities industry, or with any bonding company regarding any loss arising from alleged acts of such person, shall send a copy of such complaint to the ((administrator)) director, within ten days following its filing with such other agency or bonding company.

[Statutory Authority: RCW 21.20.450. 86-21-107 (Order SDO-140-86), § 460-33A-130, filed 10/20/86.]

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