12 Sep Texas Judicial and Washington Regulatory Update
On June 8, 2012 the Texas Fifth District Court of Appeals decided a case addressing notices of rescission sent by certified mail under the federal Truth-in-Lending Act and its implementing regulation, Regulation Z (collectively Regulation Z). Our May 8, 2012 Compliance Memorandum discussed Washington House Bill 2255, which was effective June 7, 2012. House Bill 2255 amended the Mortgage Broker Practices Act (the “Act”). The Director of the Washington Department of Financial Institutions (“Director”) recently amended the rules which are effective November 1, 2012 to implement the changes under House Bill 2255.
McCray v. Hoag, No. 05-09-00828-CV
Texas borrowers signed a real estate lien note with the lender. There was a default under the deed of trust, and the trustee issued a notice of trustee’s sale.
The borrowers filed suit against the lender to stop the foreclosure. The borrowers’ attorney sent a certified letter to the lender stating that the borrowers were exercising their right to rescind the loan transaction under Regulation Z as a result of the lender’s failure to make the required disclosures for a homestead lien. The certified mail letter, however, was returned in an unopened envelope marked “RETURN TO SENDER,” “UNCLAIMED,” “UNABLE TO FORWARD.”
The lender contended that because the borrowers sent their rescission letter by certified mail, the notice was not sufficient under Regulation Z; the borrowers had to show that the notice was actually delivered because the clear intent of Regulation Z is to ensure that the lender gets notice of the intent to rescind.
The Court concluded under the plain language of Regulation Z that “mail” is not equivalent to certified mail and that rescission notice requires actual notice. A fundamental difference exists generally between mail and certified mail. Specifically, regular U.S. mail does not require a delivery notice or receipt; it is placed in the mail receptacle at the posted address. Certified mail, sent return receipt requested, is returned to the sender if not signed for. Regular mail is presumed delivered and certified mail enjoys no presumption unless the receipt is returned bearing an appropriate notation.
The borrowers’ rescission letter was not received by the lender. Accordingly, the borrowers failed to show they invoked any rescission remedy under Regulation Z.
Washington Rules WAC 208-660-006 to 208-660-600
The definition of a “borrower” now includes 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 loan modification, for himself, herself, or persons including himself or herself, regardless of whether that person obtains a loan modification.
The definition of “loan modification” has been deleted.
The definition of a “mortgage broker” now includes any person who for direct or indirect compensation or gain or in the expectation of direct or indirect compensation or gain performs residential mortgage loan modification services or holds himself or herself out as being able to perform residential mortgage loan modification services.
“Residential mortgage loan modification” means a change in one or more of a residential mortgage loan’s terms or conditions. Changes to a residential mortgage loan’s terms or conditions include, but are not limited to: forbearances; repayment plans; changes in interest rates, loan terms, or loan types; capitalizations of arrearages; or principal reductions.
In determining good standing, the Director will now consider whether the mortgage broker licensee has filed his or her quarterly or annual reports as prescribed by the Director.
“Residential mortgage loan modification services” means activities conducted by individuals or entities not engaged in servicing the borrower’s existing residential mortgage loan. The activities may include negotiating, attempting to negotiate, arranging, attempting to arrange, or otherwise offering to perform residential mortgage loan modification services. The activities may also include the collection of data for submission to another entity performing mortgage loan modification services or to a residential mortgage loan servicer.
Any person in violation of the Act while providing residential mortgage loan modification services is subject to the Department of Financial Institution’s (the “Department”) investigation and enforcement authorities, including being responsible for an investigation fee when the Department investigates the books and records of any person subject to the Act.
A mortgage broker must maintain a sponsored loan originator who is approved by the Director, in order to originate residential mortgage loans or conduct residential mortgage loan modification services.
Loan originator compensation models must comply with federal law, including Regulation Z.
In renewing a mortgage broker license, a licensee need no longer file an annual report and other required notices with the Director.
A mortgage broker need no longer prominently display the mortgage broker’s license at the licensed location nor the branch office’s license at the branch location.
The following provision has been deleted: A bond claim must be filed within one year of the date of the act that causes the claim.
A mortgage broker must file an amendment if there is change in a mortgage broker’s branch office license information through the Nationwide Mortgage Licensing System (“NMLS”) (previously at least 10 days prior to the change occurring).
The following provision has been deleted:
As a loan originator, may I be paid my portion of the mortgage broker fee directly from the loan closing?
· Yes. If authorized in the mortgage broker’s demand, the settlement service provider may pay your portion of the mortgage broker fee directly to you; provided however, that the HUD-1 or equivalent settlement statement has the following information:
o Your name as it appears on your loan originator license;
o Your loan originator license unique identifier; and
o The amount to be paid to you by the settlement service provider.
· You must provide a copy of the HUD-1 or equivalent settlement statement to the licensed mortgage broker within 24 hours of your receipt of funds from closing.
When an individual holds an inactive loan originator license, he or she may not conduct any of the activities of a loan originator, or hold himself or herself out as a licensed loan originator.
When a loan originator’s license is inactive, a loan originator is still subject to the Director’s authority. A loan originator may not originate loans, including from a website, or engage in any activity that requires a license under the Act, while the license is inactive.
The provisions addressing Washington approved education providers and courses have been deleted.
As an instructor of an approved continuing education course, a loan originator may receive credit for his or her required loan originator continuing education courses from the course(s) the loan originator teaches. The loan originator will receive credit at the rate of one course taught equaling two continuing education course credits.
The course provider will report proof of a loan originator’s continuing education to the NMLS, and the Department will have access to that information.
The provisions addressing mortgage broker annual reports have been deleted. The provision addressing quarterly filing reports has been reserved.
A licensed mortgage broker must notify the Director through amendment to the NMLS to a change of:
- Principal place of business or any branch offices;
- Sponsorship status of a mortgage loan originator; and
- Answers to the NMLS generated disclosure questions.
A licensed mortgage broker must notify the Director in writing (previously through amendment to the NMLS) 20 days prior to the change of:
- Name or legal status (e.g., from sole proprietor to corporation, etc.);
- Legal or trade name; or
- A change of ownership control of 20% (previously 10%) or more. The Department will consider the qualifications of the new people and notify the licensed mortgage broker whether the proposed change is acceptable. The licensed mortgage broker may have to submit fingerprint cards for new controlling people directly to the Department.
A licensed mortgage loan originator must notify the Director through amendment to the NMLS within 10 business days to a change of:
- Answers to the NMLS generated disclosure questions;
- Sponsorship status with a licensed mortgage broker;
- Residence address; or
- Any change in the information supplied to the Director in the original application.
If a lender is providing disclosures to the borrower, the lender must maintain copies of the disclosures. Failure to maintain the disclosure is a violation of the Act.
The borrower must be provided with a clear, brief, one page summary to help the borrower understand his or her loan terms. The disclosure summary must be provided on one page separate from any other documents and must use clear, simple, plain language terms that are easily understandable to the average person. This disclosure requirement is met by complying with the disclosure requirements of the Real Estate Settlement Procedures Act (“RESPA”) and Regulation Z.
If a rate lock agreement has not been entered into, the licensee must disclose to the borrower that the disclosed interest rate and terms are subject to change. Compliance with the Good Faith Estimate required by RESPA meets this requirement.
If a licensee does not maintain his or her records as required under the Act, the licensee is responsible for the costs of collection, storage, conversion to electronic format, and proper destruction of the records.
The following provisions listed as prohibited business practices have been deleted:
- Charging total fees in excess of usual and customary charges, or total fees that are not reasonable in light of the service provided when providing residential mortgage loan modification services.
- Failing to provide the exact pay-off amount of a loan you own or service as of a certain date five or fewer business days after being requested in writing to do so by a borrower of record or their authorized representative.
- Purchasing insurance on an asset secured by a loan without first attempting to contact the borrower by mailing one or more notices to the last known address of the borrower in order to verify that the asset is not otherwise insured.
- Failing to reconvey title to collateral, if any, within 30 days when the loan is paid in full unless conditions exist that make compliance unreasonable.
A licensee is prohibited from making or funding a loan by any means other than table funding.
The following practices now are prohibited when providing residential mortgage loan modification services:
- Collecting an advance fee (previously of more than $750);
- Charging total fees in excess of usual and customary charges, or total fees that are not reasonable in light of the service provided when providing residential mortgage loan modification services; and
- Failing to provide a written fee agreement as prescribed by the Director when providing residential mortgage modification services.
The following provision has been deleted with regard to control standards: In a separate written document, as prescribed by the Director and submitted with the mortgage broker annual report, every licensee must submit information regarding the offering of nontraditional mortgage loan products