Report Title:

Mortgage Brokers

 

Description:

Revises the law regulating mortgage brokers.  Effective 07/01/2050.  (HB2408 HD1)

 


HOUSE OF REPRESENTATIVES

H.B. NO.

2408

TWENTY-FOURTH LEGISLATURE, 2008

H.D. 1

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO MORTGAGE BROKERS.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  Chapter 454, Hawaii Revised Statutes, is amended by adding four new sections to be appropriately designated and to read as follows:

     "§454-A  Principal mortgage broker.  (a)  A principal mortgage broker shall have the duty to directly manage and supervise a mortgage brokerage firm and its licensees.

     (b)  A principal mortgage broker shall be responsible for:

     (1)  Supervising the maintenance of client trust accounts, the disbursements from those accounts, and the accounting practices of the mortgage brokerage firm;

     (2)  Supervising the maintenance of the records, contracts, and documents of the mortgage brokerage firm;

     (3)  Supervising all mortgage brokerage agreements and residential mortgage loan documents of the mortgage brokerage firm and the handling of these documents by the employed licensees of the mortgage brokerage firm;

     (4)  Supervising the proper handling of any application of the mortgage brokerage firm, including an application for a license or renewal application of any licensee employed by the mortgage brokerage firm;

     (5)  Developing policies and procedures for the mortgage brokerage firm relating to the handling of residential mortgage loan transactions and the conduct of the employed licensees and other staff, and educating and enforcing these policies and procedures;

     (6)  Setting a policy on continuing education requirements for all employed licensees of the mortgage brokerage firm to be in compliance with any statutory or rule requirements;

     (7)  Ensuring that the licenses of all employed licensees and the license of the mortgage brokerage firm are current and active, and any required bond or statutorily permissible substitute is valid and not cancelled;

     (8)  Establishing and maintaining a training program for all employed licensees of the mortgage brokerage firm;

     (9)  Ensuring that all employed licensees of the mortgage brokerage firm are provided adequate information and training on the latest amendments to licensing laws and rules, and any other related laws and rules;

    (10)  Notifying the commissioner of any licensee employed by the mortgage brokerage firm;

    (11)  Notifying the commissioner of any licensee employed by the mortgage brokerage firm who withdraws or is terminated from the mortgage brokerage firm; and

    (12)  Ensuring that the records, loan documents, and agreements, including the mortgage brokerage agreement, are retained for seven years in paper or electronic format by the mortgage brokerage firm.

     §454-B  Advertising.  (a)  It shall be a violation of this chapter for any person to:

     (1)  Advertise as a mortgage broker or loan originator unless the person holds a valid license under this chapter to provide the services advertised; or

     (2)  When soliciting a refinance of an existing residential mortgage loan, to disclose the name of the lender who made the existing residential mortgage loan in the advertisement.

     (b)  A mortgage broker or loan originator may not advertise in any misleading or deceptive manner, such as advertising in a manner that is likely to cause the recipient to believe that the advertisement is from the mortgagor of record of the existing residential mortgage loan.

     (c)  As used in this section, "advertise" means:

     (1)  Issuing any card, sign, or device to any person;

     (2)  Causing, permitting, or allowing the placement of any sign or marking on or in any building, vehicle, or structure;

     (3)  Placing an advertisement in any newspaper, magazine, or on the Internet;

     (4)  Listing or advertising in any directory under a classification or heading that includes the words "mortgage broker", "loan originator", or the like;

     (5)  Broadcasting commercials by airwave or Internet transmission; or

     (6)  Transmitting any written communication, including:

         (A)  A letter or a postcard that encourages a person to borrow from or through a mortgage broker; or

         (B)  A written communication that encourages a person to refinance the person's existing residential mortgage loan and mentions that a new residential mortgage loan will reduce the monthly payment the borrower will pay on the new residential mortgage loan or reduce the interest rate on the borrower's existing residential mortgage loan."

     §454-C  Licensing requirement.  (a)  No person shall act as a mortgage broker or loan originator without a license as provided in this chapter.  No person not licensed under this chapter shall charge or receive any commission, fee, or bonus in connection with arranging for, negotiating, or selling a residential mortgage loan.  A loan originator shall not engage in the activity of a loan originator unless employed by a mortgage broker and is licensed under this chapter.  No mortgage broker or loan originator license shall be granted to any person who is not eighteen years of age or older.

     If the applicant is a person other than an individual, no license shall be granted unless the applicant first registers to do business in this state with the business registration division of the department of commerce and consumer affairs, and has designated in the application the name of the individual who holds a mortgage broker license as the principal mortgage broker for the mortgage brokerage firm.  A person who qualifies as a foreign lender under section 207-11 shall not be required to register to do business in this State prior to licensure.  The designated principal mortgage broker shall have two years of experience as a mortgage broker, and shall have management and supervision responsibilities for the mortgage brokerage firm and the licensees employed by the applicant.

     If the applicant for a mortgage broker license is a sole proprietorship, upon licensure, the mortgage broker operating as a sole proprietorship shall perform the duties of a principal mortgage broker under section 454-A.

     (b)  Every individual licensed as a mortgage broker and operating as a sole proprietorship and every person licensed as a mortgage broker and operating as a mortgage brokerage firm shall deposit with the commissioner, prior to doing business, a bond executed by the mortgage broker or mortgage brokerage firm as principal and a surety company authorized to do business in the state as a surety, in the amounts set forth below:

     (1)  A mortgage brokerage firm with one to five mortgage brokers or loan originators or a mortgage broker operating as a sole proprietorship shall post a bond in the amount of $25,000;

     (2)  A mortgage brokerage firm with six to ten mortgage brokers or loan originators shall post a bond in the amount of $50,000; and

     (3)  A mortgage brokerage firm with eleven or more mortgage brokers or loan originators shall post a bond in the amount of $75,000.

The bond shall be conditioned upon the faithful compliance of the broker with this chapter.  The bond shall run to the State for the benefit of any person injured by the wrongful act, default, fraud, or misrepresentation of the broker or the solicitors; provided that the aggregate liability of the surety shall not exceed the sum of the bond.  The surety may cancel the bond by giving sixty days notice in writing to the commissioner and shall thereafter be relieved of any liability for any breach of condition occurring after the effective date of cancellation.  A mortgage broker's license shall not be in effect at any time when the bond is not in full force and effect.

     (c)  The failure, refusal, or neglect of any licensee to maintain the applicable bond in full force and effect shall cause the automatic forfeiture of the license, effective as of the date of expiration or cancellation of the bond.  The commissioner shall not restore the fortified license until satisfactory proof of bonding is submitted to the commissioner, as required by this section.  Failure to submit proof sufficient to restore a license within sixty days after the date of forfeiture shall result in the forfeiture of all fees and shall require the licensee to apply as a new applicant.  The commissioner may, as a condition of restoration of a license forfeited under this section:

     (1)  Assess a fee not to exceed $1,000;

     (2)  Impose a bonding requirement in addition to the bond requirement under subsection (c); or

     (3)  Restrict the license.

     (d)  Each application for a license or its renewal shall be made in writing, on the forms and in the manner and accompanied by evidence in support of the applications as prescribed by the commissioner.  The commissioner shall require information with regard to the applicant as the commissioner may deem desirable, with due regard to the paramount interests of the public, as to the experience, financial integrity, and competency of the applicant as to financial transactions involving primary or subordinate mortgage financing.  Notwithstanding any other law to the contrary, the commissioner shall require the applicant to disclose any arrest and conviction records of the applicant, including an arrest for which the applicant received a deferred acceptance of a guilty plea or the benefit of a pre-trial diversion program.  In the event the commissioner orders denial of issuance or of renewal of a license, the order shall be made only pursuant to chapter 91.

     (e)  An applicant shall pass a written examination prior to licensure.  The commissioner shall determine the examination score which all applicants must receive to pass the written examination.  The examination shall test the knowledge of the applicant concerning a residential mortgage loan transaction, the residential mortgage loan laws and rules of the State and relevant federal statutes, and the duties and responsibilities of a principal mortgage broker, mortgage broker, or loan originator, as appropriate.  The commissioner may make arrangements, including contracting with an outside testing service, for administering examinations and collecting fees.  The fees collected shall be nonrefundable.  An applicant who fails to appear for the examination as scheduled or fails to pass the examination shall reapply for an examination and remit all required fees and forms before being rescheduled for another examination.  An applicant's examination scores shall be valid for two years from the date of the examination.

     (f)  To qualify for renewal of a license the licensee shall have completed twelve hours for a mortgage broker or nine hours for a loan originator of continuing education or its equivalent as determined by the commissioner during the two-year period preceding the application for renewal, and shall certify that the requirements have been completed.  An applicant for a renewal of license shall certify on a form provided by the commissioner.  The certification shall be under oath, if required by the commissioner.  In addition to the certification, the commissioner may require any licensee to submit further evidence satisfactory to the commissioner demonstrating compliance with this section.  Upon failure to satisfy the continuing education requirement by the license expiration date, the renewed license shall be placed on inactive status.

     The course of study for continuing education shall be approved by the National Association of Mortgage Brokers or an accredited business school, college, university, community college, vocational school, or any other course of study approved by the commissioner, and shall include instruction on primary and subordinate residential mortgage loan transactions and the appropriate laws governing these transactions, including at least four hours of instruction in compliance with federal and state regulations of residential mortgage loans and at least two hours in mortgage broker business ethics.

     To reactivate a license that has been placed on an inactive status, the licensee shall submit to the commissioner:

     (1)  Proof of having satisfied the continuing education requirement of this section;

     (2)  A complete application setting forth the information as may be prescribed or required by the commissioner; and

     (3)  Payment of the proper fee.

     A false certification to the commissioner shall be deemed a violation and shall subject the licensee to disciplinary proceedings, including denial of the application for renewal of the license, which shall be made only pursuant to chapter 91.  A forfeiture of a license for failure to maintain the bond required under section 454-C(b) or to pay the biennial renewal fee shall not be considered a disciplinary proceeding and shall not be required to be made pursuant to chapter 91.

     (g)  All fees, fines, and charges shall be established and adopted by the director in accordance with chapter 91 and shall be deposited into the compliance resolution fund established pursuant to section 26-9(o).  Failure of any mortgage broker or loan originator to pay the biennial renewal fee on or before December 31 of an even-numbered year shall constitute an automatic forfeiture of the license.  The forfeited license may be restored; provided that application for restoration is made within six months of the forfeiture and a penalty fee is paid in addition to the delinquent license fee.  A licensee who fails to restore a license as provided in this subsection shall apply as a new applicant.

     (h)  Each mortgage broker shall display the certificate of license issued by the commissioner in plain view in its principal office and in each branch office except a mortgage broker who is not required to have an office in Hawaii pursuant to subsection (j) shall not be required to display the certificate of license.  Upon request, the mortgage broker shall make available for inspection the mortgage broker's license and the licenses of any licensee employed by the mortgage broker.

     (i)  Immediately upon the licensee's withdrawal or termination from the employ of the mortgage broker, the mortgage broker shall return the licensee's license to the licensee and immediately notify the commissioner of the withdrawal or termination from employment.

     (j)  Except for a mortgage broker who qualifies as a foreign lender under section 207-11, every licensed mortgage broker shall have and maintain a principal place of business in the state for the transaction of business.  In the event the mortgage broker desires to maintain a branch office or offices, the commissioner, upon application and payment of a fee, shall issue a branch office license.  The mortgage broker shall designate a licensee who has two years of experience in financial transactions involving primary or subordinate mortgage financing, or equivalent experience as determined by the commissioner, to be in charge of each branch office.

     §454-D Uniform multistate automated licensing system.  (a) The legislature has determined that a uniform multistate administration of an automated licensing system for mortgage brokers and individual loan originators is consistent with both the public interest and the purposes of this chapter.  For the sole purpose of participating in the establishment and implementation of a multistate automated licensing system for mortgage brokers and loan originators, the commissioner is authorized:

     (1)  To modify by rule the license renewal dates;

     (2)  To establish by rule such new requirements as are necessary for the State to participate in a multistate automated licensing system upon the commissioner’s finding that each new requirement is consistent with both the public interest and the purposes of this chapter; and

     (3)  To request a criminal history record check of the applicant or the applicant’s officers, directors, partners, members, managers, employees, or agents in accordance with section 846-2.7.  The information obtained thereby may be used by the commissioner to determine the applicant’s eligibility for licensing under this chapter.  The fee required to perform the criminal history record check shall be paid by the applicant.  Information obtained or held by the commissioner pursuant to this paragraph shall be considered confidential personal information and shall be exempt from disclosure.  This paragraph does not preclude the commissioner from obtaining criminal history record checks on applicants for a license prior to the time this State joins the multistate system.

     (b)  Nothing in this section shall authorize the commissioner to require any person exempt under section 454-2, or employees or exclusive agents of any such exempt person, to submit information to, or participate in, the uniform multistate licensing system."

     SECTION 2.  Section 454-1, Hawaii Revised Statutes, is amended as follows:

     1.  By adding eleven new definitions to be appropriately inserted and to read:

     "“Agent” means a person who acts with the consent and on behalf of a licensee, and is subject to the licensee’s direct control.

     "Applicant" means a person applying for the issuance of a license or a renewal of a license.

     "Bank" means the same as in Title 12 United States Code Section 1813(a), and includes a depository financial services loan company.

     "Insured depository institution" means the same as in Title 12 United States Code Section 1813(c)(2), and includes an operating subsidiary of the insured depository institution that is an operating subsidiary under the laws and rules applicable to the insured depository institution.

     "Loan originator" means an individual not licensed as a mortgage broker and not exempt under section 454-2:

     (1)  Who performs any of the functions of a mortgage broker, as defined in this chapter;

     (2)  Who is employed directly or indirectly by a mortgage broker; and

     (3)  Whose residential mortgage loan transactions are under the direction, control, supervision, or management of a mortgage broker.

     "Mortgage brokerage agreement" means the written agreement between the mortgage broker and a prospective borrower in which a mortgage broker agrees to attempt to obtain a residential mortgage loan for the borrower or assist the borrower in obtaining a residential mortgage loan, and does not include a promissory note and mortgage, or any other document or instrument evidencing or securing the residential mortgage loan.

     “Mortgage brokerage firm” refers to a licensee who is operating as a partnership, corporation, limited liability company, limited liability partnership, association or other organization.

     “Residential mortgage loan” means any loan, including a loan to refinance a loan, secured primarily by a lien on residential real property, the proceeds of which loan will be used primarily for personal, family or household use and secured primarily by a lien on residential real property.

     "Residential real property" means:

     (1)  Real property located in the state that is improved by, or will be improved by the proceeds of a residential mortgage loan with a structure or structures designed principally for occupancy of one or four families, including individual units of condominiums and cooperatives, and any related interests, such as a share in the cooperative or right to an occupancy unit; or

     (2)  A manufactured home.

     "Savings association" means the same as in Title 12 United States Code Section 1813(b).

     “Uniform multistate automated licensing system” means a system involving one or more states, the District of Columbia, Territory of Guam, or the Commonwealth of Puerto Rico established to facilitate the sharing of regulatory information and the licensing and application processes, by electronic or other means, for mortgage brokers and loan originators. 

2.  By amending the definitions of "institutional investor", "licensee", “mortgage broker”, "mortgage commissioner", and “person” to read:

     ""Institutional investor" means and includes [(a) banks, savings and loan institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit sharing trusts, any of the class of persons permitted to qualify as foreign lenders under section 207-11, or other financial institutions or institutional buyers, whether acting for themselves or as fiduciaries; (b) the United States or any foreign government, any state or territory thereof, or any agency or corporate or other instrumentality of the United States, a foreign government, or of any state, territory or political subdivision thereof.]:

     (1)  An insured depository institution;

     (2)  A real estate trust as defined in the Internal Revenue Code;

     (3)  An insurance company;

     (4)  The trustee of any employee benefit plan;

     (5)  A trust company chartered and examined under state law;

     (6)  Investment companies as defined in the Investment Company Act of 1940;

     (7)  A retirement plan, or pension or profit sharing plan that is subject to the Employee Retirement Security Act;

     (8)  A housing government-sponsored enterprise that is subject to the oversight of the Office of Federal Housing Enterprise Oversight; and

     (9)  The United States or any foreign government, any state or territory thereof, or any agency or corporate or other instrumentality of the United States, a foreign government, or of any state, territory or political subdivision thereof.

     "Licensee" means a person[, whether] who is a mortgage broker, including a mortgage brokerage firm [or mortgage solicitor], loan originator, or a person who is required to be licensed under this chapter.

     “Mortgage broker” means a person not exempt under section 454-2, including a person operating as a mortgage brokerage firm, who for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly makes, negotiates, acquires, or offers to make, negotiate, or acquire a residential mortgage loan on behalf of a borrower seeking a residential mortgage loan.

     "Mortgage commissioner" or "commissioner" means the [director of commerce and consumer affairs.] commissioner of financial institutions.

     "Person" means an individual, sole proprietorship, partnership, corporation, limited liability company, limited liability partnership, association, or other organization.

     3.  By repealing the definitions of “mortgage loan” and

"mortgage solicitor".

     [""Mortgage loan" means a loan secured by a mortgage on real property.

     "Mortgage solicitor" means an individual not licensed as a mortgage broker who performs any of the functions set forth in the definition of mortgage broker and who is employed by a mortgage broker or whose business transactions are under the direction, control, or management of a mortgage broker."]

     SECTION 3.  Section 454-2, Hawaii Revised Statutes, is amended to read as follows:

     "§454-2  Exemptions.  This chapter does not apply to the following:

     (1)  [Banks, operating subsidiaries of a bank established and operating under section 412:5-203, trust companies, savings associations, pension trusts, credit unions, insurance companies, financial services loan companies, or federally licensed small business investment companies, authorized under any law of this State or of the United States to do business in the State;] Any person that is chartered or authorized under the laws of any state or federal law to engage in the activity of an insured depository institution, including a bank or savings association, and any employee of an insured depository institution;

     (2)  Any of the following persons:

         (A)  A credit union;

         (B)  A credit union service organization;

         (C)  A trust company;

         (D)  An insurance company;

         (E)  A financial services loan company; or

         (F)  A federally licensed small business investment company, including an officer or employee of the person;

     (3)  An individual who is an exclusive agent of a bank or savings association;

     [(2)] (4)  A person making or acquiring a residential mortgage loan with one's own funds for one's own investment without intent to resell the residential mortgage loan;

     [(3)] (5)  A person licensed to practice law in the State, not actively and principally engaged in the business of negotiating residential mortgage loans [secured by real property], when the person renders services in the course of the person's practice as an attorney;

     [(4)] (6)  A person licensed as a real estate broker or salesperson in the State, not actively engaged in the business of negotiating residential mortgage loans [secured by real property], when the person renders services in the course of the person's practice as a real estate broker or salesperson;

     [(5)] (7)  An institutional investor negotiating, entering into, or performing under a loan purchase agreement for its portfolio, for subsequent resale to other institutional investors, or for placement of the mortgages into pools or packaging them into mortgage-backed securities.  As used in this paragraph, "loan purchase agreement" means an agreement or arrangement under which [a bank, savings and loan,] an insured depository institution, credit union, financial services loan company, or other financial institution registered to do business in the State of Hawaii agrees to sell residential mortgage loans or obtain funding therefor, with or without the transfer of servicing rights, to an institutional investor;

     [(6)  Foreign lender as defined in section 207-11; and

     (7)] (8)  A person licensed under chapter 467 as a real estate broker or salesperson selling time share interests on behalf of a time share plan developer that is licensed as a mortgage broker under this chapter; provided that:

         (A)  The acts or conduct of a developer's authorized representative shall be deemed to be the acts or conduct of the developer for the purposes of section 454-4; and

         (B)  If the person engages in acts or conduct prohibited under this chapter, including section 454‑4(a), the acts or conduct shall constitute grounds for disciplinary action under section 467‑14[.];

     (9)  Employees and agents of a licensee if the licensee is an affiliate of a bank and is wholly owned by the holding company that owns the bank; and

(10)  Persons employed by, or who contract with, a licensee under this chapter to perform only clerical or administrative functions on behalf of such licensee, and who do not solicit borrowers or negotiate the terms of residential mortgage loans on behalf of the licensee or borrower."

     SECTION 4.  Section 454-3.1, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§454-3.1[]]  Written agreements.  For any transaction between a [mortgage broker or a mortgage solicitor] licensee and a borrower, the following requirements shall apply:

     (1)  A [mortgage broker and a mortgage solicitor] licensee shall comply with all provisions of the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Equal Credit Opportunity Act, as those laws currently exist or as they may be amended[.];

     (2)  Any written commitment letter to make a residential mortgage loan with specified terms, including loan amount, interest rate, points, and payment terms, which is issued by a [mortgage broker or solicitor] licensee and accepted by a borrower, must be honored by the [mortgage broker or solicitor] licensee if the borrower has completely satisfied all of the conditions of the commitment in a timely manner and prior to the specified expiration date of the commitment.  A written commitment letter shall specify the conditions precedent to closing the residential mortgage loan and the name of the lender that has the ultimate authority to fund and close the residential mortgage loan;

     (3)  A licensee shall provide the borrower with the following notice (or substantially similar notice) of the borrower's rights and obligations, not longer than one page in length and in twelve-point font, regarding the terms of the residential mortgage loan transaction not later than the time the notice is required under the notice provision contained in Title 12 Code of Federal Regulations Section 226.31(c), as amended:

"CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE

You are not required to complete this agreement merely because you have signed a loan application.  If you obtain this loan, the lender will have a mortgage on your home.  You could lose your home, and any money you have put into it, if you do not meet your obligations.

If you are uncertain about your rights and obligations under this agreement, you should consider consulting a qualified independent housing counselor or other experienced financial adviser regarding the rate, fees, and provisions of this mortgage loan before you proceed.  For information on contacting a qualified housing counselor, call the United States Department of Housing and Urban Development's counseling and referral line or its website for a list of housing counseling agencies."

The mortgage broker or loan originator shall provide the notice to the borrower and shall secure a signed acknowledgement of receipt by the borrower of a copy of the notice.  The notice requirements of this paragraph shall not apply when a similar disclosure is required under federal law, including but not limited to home equity loans and high cost loans under the Home Ownership and Equity Protection Act (15 U.S.C. Section 1639); and

     (4)  Within three business days of receipt of a borrower's completed residential mortgage loan application by the licensee, and before the borrower gives the licensee any moneys except for an application fee, the licensee shall sign a mortgage brokerage agreement with the borrower; however, if the licensee is a loan originator, the mortgage brokerage agreement shall be with the mortgage broker employing the loan originator.  The mortgage brokerage agreement shall be in writing, and signed and dated by both the borrower and the licensee.  The mortgage brokerage agreement shall include a clear and conspicuous statement:

         (A)  Explaining that a copy shall be made available, upon request, to the borrower or the borrower's attorney for review prior to signing;

          (B)  Explaining whether the licensee is a fiduciary for the borrower;

         (C)  Explaining the nature of the licensee's compensation, and if the licensee is a loan originator, explaining the nature of the compensation of the mortgage brokerage firm that the loan originator is employed by, and whether the mortgage broker and loan originator may receive compensation from the borrower, the lender, or both;

         (D)  Describing the services the licensee will perform for the borrower;

         (E)  Setting forth the conditions under which the borrower is obligated to pay fees to the licensee, the manner in which the borrower may cancel the mortgage brokerage agreement, what rights the borrower has regarding the loan documentation, the borrower's liabilities for fees and costs, and the mortgage broker's contact information for dispute resolution; or

         (F)  If the licensee makes materially false or misleading statements or omissions in the mortgage brokerage agreement, the borrower, upon written notice, may:

              (i)  Void the mortgage brokerage agreement;

             (ii)  Recover moneys paid to the licensed mortgage broker and loan originator by the borrower for which no services have been performed; and

            (iii)  Recover actual costs, including attorney fees, for enforcing the borrower's rights under the mortgage brokerage agreement.

          A copy of the fully-signed mortgage brokerage agreement shall be given to the borrower by the mortgage broker or loan originator immediately after the mortgage brokerage agreement is signed."

     SECTION 5.  Section 454-4, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a) [The commissioner may suspend a license for any of the following acts or conduct of a licensee:] In addition to any other actions authorized by law, the commissioner may revoke a license issued under this chapter, suspend a license issued under this chapter, condition the right of a licensee to use the license, or fine any person holding a license issued under this chapter, for any cause authorized by law, including any of the following acts or conduct of a licensee:

     (1)  Making a false promise [tending] likely to influence, persuade, or induce, or pursuing a course of misrepresentation or false promises through agents, [solicitors,] licensees, advertising, or otherwise;

     (2)  Misrepresentation or concealment of any material fact with respect to any residential mortgage loan transaction resulting in injury to any party;

     (3)  Failure to disburse funds in accordance with an agreement;

     (4)  Failure to account or deliver to any person any personal property such as money, fund, deposit, check, draft, mortgage, or other document or thing of value which has come into the person's hands and which is not the person's property or which the person is not in law or equity entitled to retain, and at the time which has been agreed upon, or is required by law, or, in the absence of a fixed time, upon demand of the person entitled to the accounting or delivery;

     (5)  Failure to place, within a reasonable time upon receipt, any money, fund, deposit, check, or draft, entrusted to the licensee by any person dealing with the licensee [as a broker,] in escrow pursuant to a written agreement, or to deposit the funds in a trust or escrow bank account maintained by the licensee [with] in a bank located and doing business in the [State,] state, wherein the funds shall be kept until disbursement thereof is authorized; [or]

     (6)  Delivering a misleading or deceptive communication or advertisement, whether written, electronic, or oral, when marketing or soliciting a residential mortgage loan.  A communication or advertisement that uses the name or trademark of or implies a relationship with a financial institution, as defined in section 412:1-109, or its affiliates or subsidiaries, when the communication or advertisement is not from, endorsed by, related to, or the responsibility of the financial institution, is a misleading or deceptive communication or advertisement;

     (7)  Brokering or making any residential mortgage loan as a direct result of offering, soliciting, or selling the residential mortgage loan at the dwelling of a borrower without a prearranged appointment;

     (8)  Without the express consent of the potential borrower, filling in any blank on a residential mortgage loan application, which blank requests material information, including material financial information;

     (9)  Without the express consent of the borrower, filling in any blank on any instrument evidencing or securing the residential mortgage loan, which blank relates to the residential mortgage loan amount, interest rate, or monthly payment of the residential mortgage loan;

    (10)  Make payment directly or indirectly, of any kind, to any appraiser licensed or certified under chapter 466K to influence the valuation of the residential real property that will secure a residential mortgage loan;

    (11)  Conditioning compensation of an appraiser on establishing a certain value for residential real property that will secure a residential mortgage loan; or

   [(6)] (12) Failure to comply with this chapter or any order or rule made under the authority of this chapter."

     SECTION 6.  Section 454-5, Hawaii Revised Statutes, is amended to read as follows:

     "§454-5  Power to examine, investigate and enjoin.  [If the commissioner has reason to believe that a licensee or any person has violated this chapter, or the rules adopted pursuant thereto, or that any license issued under this chapter may be subject to suspension or revocation, the commissioner may make an investigation as the commissioner deems necessary and may examine the books, records, accounts, and files of any licensee or person.(a)  The commissioner may conduct an examination of a licensee under this chapter for the purpose of determining whether the licensee is in compliance with all laws, rules, or orders issued by the commissioner.

     (b)  The commissioner shall have full access to the vaults, books, accounts, records, and documents of the licensee and may make any inquiries as may be necessary to ascertain the condition of the licensee.  All officers, directors, employees, partners, members, and agents of the licensee being examined shall cooperate fully with the commissioner and the commissioner's staff, and shall answer all inquiries and furnish all information pertaining to the same, to the best of their knowledge and ability.

     (c)  The commissioner may charge an examination fee based upon the cost per hour per examiner for all licensees examined by the commissioner or the commissioner's staff.  The hourly fee shall be $40 in the case of a mortgage brokerage firm and $20 in the case of a mortgage broker operating as a sole proprietorship, or an amount as the commissioner shall establish by rule pursuant to chapter 91.  In addition to the examination fee, the commissioner may charge any licensed mortgage broker examined or investigated by the commissioner or the commissioner's staff additional amounts for travel, per diem, mileage, and other reasonable expenses incurred in connection with the examination or investigation.

     (d)  Notwithstanding chapter 92F, the examination process and related information and documents, including the reports of examination, are confidential and are not subject to discovery or disclosure in civil and criminal lawsuits.

     (e)  If the commissioner finds from satisfactory evidence that any licensee or person has violated this chapter, the commissioner may bring an action in the name of the State in any court of competent jurisdiction against the licensee or person to enjoin the licensee or person from continuing the violation or engaging therein or doing any act or acts in furtherance thereof.

     [(b)] (f)  Any person having reason to believe that this chapter or the rules adopted pursuant thereto, have been violated or that a license issued under this chapter is subject to suspension or revocation, may file with the commissioner a written complaint setting forth the details of the alleged violation or grounds for suspension or revocation."

     SECTION 7.  Section 454-6, Hawaii Revised Statutes, is amended to read as follows:

     "§454-6  Power of commissioner.  The commissioner may adopt rules pursuant to chapter 91, as amended, as the commissioner deems necessary for the administration of this chapter.  [The rules shall include, but not be limited to the following:

     (1)  Advertising;

     (2)  Solicitation; and

     (3)  Specifications as to the forms and procedures to be used in the making of any mortgage loan.]

In addition to any other powers provided by law, the commissioner may:

     (1)  Administer and enforce the provisions and requirements of this chapter;

     (2)  Adopt, amend, or repeal rules, and issue declaratory rulings or informal nonbinding interpretations;

     (3)  Grant, deny, forfeit, renew, reinstate, or restore the license of any mortgage broker or loan originator;

     (4)  Revoke, suspend, or otherwise limit the license of any mortgage broker or loan originator for any violation of the provisions in this chapter, or any rule or order of, or agreement with the commissioner;

     (5)  Develop requirements for licensure through rules, including establishing the content of the written examinations required under section 454-C and determining the criteria for a passing grade;

     (6)  Investigate and conduct hearings regarding any violation of this chapter, and any rule or order of or agreement with the commissioner;

     (7)  Prepare, administer, and grade examinations; provided that the commissioner may contract with a testing agency to provide those services and may also reserve the right to modify, amend, change, or regrade the examination;

     (8)  Create fact-finding committees that may make recommendations to the commissioner for the commissioner's deliberations;

     (9)  Require the applicant and any of its officers, directors, employees, partners, members, and agents, to disclose any relevant criminal history and request a criminal history record check in accordance with section 846-2.7;

    (10)  Contract with qualified persons, including investigators who may be exempt from chapter 76 and who shall assist the commissioner in exercising the commissioner's powers and duties;

    (11)  Subpoena witnesses and documents, administer oaths, and receive affidavits and oral testimony, including telephonic communications, and do any and all things necessary or incidental to the exercise of the commissioner's power and duties, including the authority to conduct contested case proceedings under chapter 91; and

    (12)  Require a mortgage broker or loan originator to comply with any rule, guidance, guideline, statement, supervisory policy or any similar proclamation issued, adopted or promulgated by the Federal Deposit Insurance Corporation to the same extent and in the same manner as a bank chartered by the State or in the alternative, any policy position of the Conference of State Bank Supervisors."

     SECTION 8.  Section 454-7, Hawaii Revised Statutes, is amended to read as follows:

     "§454-7  Fees, commissions, and charges.  (a)  A licensed mortgage broker and loan originator shall not require a borrower to pay any fees or charges prior to the residential mortgage loan closing, except for:

     (1)  Charges to be incurred by the licensed mortgage broker and loan originator on behalf of the borrower for services from third parties necessary to process the residential mortgage loan application, such as credit reports and appraisals;

     (2)  An application fee;

     (3)  A rate lock fee;

     (4)  A commitment fee upon approval of the residential mortgage loan; and

     (5)  A residential mortgage loan cancellation fee.

     (b)  A licensed mortgage broker and loan originator shall not charge any fee that inures to the benefit of the licensee if it exceeds the fee disclosed on the most recent good faith estimate required by the federal Real Estate Settlement Procedures Act, unless:

     (1)  The need to charge the higher fee was not reasonably foreseeable at the time the good faith estimate was written; and

     (2)  The licensee has provided to the borrower, no less than three business days prior to the signing of the residential mortgage loan documents, a clear written explanation of the increase in the fee and the reason for charging a fee that exceeds what was previously disclosed.

     (c)  Within thirty days after any rejection, withdrawal, or closing, any fees collected in excess of actual costs shall be returned.

     (d)  The commissioner may also adopt rules concerning maximum fees, commissions, and charges on residential mortgage loan transactions.  [The maximum fees, commissions, and charges shall be related to the actual amount of money made available to the borrower, over and above the indebtedness of prior mortgages.]  The commissioner may also adopt rules concerning the full disclosure of the fees, commissions, and charges."

     SECTION 9.  Section 454-8, Hawaii Revised Statutes, is amended to read as follows:

     "§454-8  Penalty, contracts void.  Violation of this chapter shall be punishable by a fine of not more than [$1,000] $2,000 or imprisonment of not more than one year, or both.  [Any contract entered into by any person with any unlicensed mortgage broker or solicitor shall be void and unenforceable.]"        SECTION 10.  Section 454-3 is repealed. 

     ["§454-3  Licensing, requirements, application.  (a)  No person shall act as a mortgage broker or mortgage solicitor without a license therefor as provided in this chapter, and no person not licensed under this chapter shall charge or receive any commission, fee, or bonus in connection with arranging for, negotiating, or selling a mortgage loan.

     (b)  No mortgage broker or mortgage solicitor license shall be granted to any person who is not eighteen years of age or older.  If the applicant is a person other than an individual, no license shall be granted unless the applicant first registers to do business in this State with the business registration division of the department of commerce and consumer affairs.

     (c)  Every person licensed as a mortgage broker shall deposit with the commissioner, prior to doing business, a bond in the amount of $15,000 executed by the mortgage broker as principal and a surety company authorized to do business in the State as a surety.  The bond shall be conditioned upon the faithful compliance of the broker with this chapter.  The bond shall run to the State for the benefit of any person injured by the wrongful act, default, fraud, or misrepresentation of the broker or the solicitors; provided that the aggregate liability of the surety shall not exceed the sum of the bond.  The surety may cancel the bond by giving sixty days' notice in writing to the commissioner and shall thereafter be relieved of any liability for any breach of condition occurring after the effective date of cancellation.  A mortgage broker's license shall not be in effect at any time when the bond is not in full force and effect.

     (d)  Each application for a license or its renewal shall be made in writing, on the forms and in the manner and accompanied by evidence in support of the applications as prescribed by the commissioner.  The commissioner shall require information with regard to the applicant as the commissioner may deem desirable, with due regard to the paramount interests of the public, as to the experience, financial integrity, and competency of the applicant as to financial transactions involving primary or subordinate mortgage financing.  In the event the commissioner orders denial of issuance or of renewal of a license, the order shall be made only pursuant to chapter 91.

     (e)  All fees shall be established and adopted by the director in accordance with chapter 91 and shall be deposited into the compliance resolution fund established pursuant to section 26-9(o).  Failure of any mortgage broker or mortgage solicitor to pay the biennial renewal fee on or before December 31 of an even-numbered year shall constitute an automatic forfeiture of the license.  The forfeited license may be restored; provided that application for restoration is made within six months of the forfeiture and a penalty fee is paid in addition to the delinquent license fee.  A licensee who fails to restore a license as provided in this subsection shall apply as a new applicant.

     (f)  If the mortgage broker is a person other than an individual, the license issued to it entitles one officer or member thereof, on behalf of the corporation, partnership, association, or other organization, to engage in the business of mortgage broker.  The officer or member shall be designated in the application for license and have two years of experience in financial transactions involving primary or subordinate mortgage financing, or equivalent experience as determined by the commissioner.  For the purposes of this subsection, the commissioner shall consider as equivalent experience, two years of experience as a licensed insurance producer under chapter 431; provided that:

     (1)  The licensed insurance producer only arranges mortgage loans with one insured depository institution, as defined in 12 U.S.C. section 1813(c)(2), that is a wholly-owned subsidiary of an insurer, or an affiliate of an insurer with which such insurance producer has an exclusive insurance agency relationship;

     (2)  The licensed insurance producer and the insured depository institution shall certify that the insurance producer only arranges mortgage loans with the insured depository institution and no other; and

     (3)  The license shall be terminated as of the date the insurance producer ceases to arrange mortgage loans with the insured depository institution.

     (g)  Upon request, the mortgage broker shall make available for inspection the mortgage broker's license and the licenses of any mortgage solicitors employed by the mortgage broker.

     (h)  Immediately upon the mortgage solicitor's withdrawal from the employ of the mortgage broker, the mortgage broker shall return the mortgage solicitor's license to the mortgage solicitor.

     (i)  Every licensed mortgage broker shall have and maintain a principal place of business in the State for the transaction of business.  In the event the mortgage broker maintains a branch office or offices, the commissioner, upon application and payment of a fee, shall issue a branch office license.  The mortgage broker shall designate a mortgage solicitor who has two years of experience in financial transactions involving primary or subordinate mortgage financing, or equivalent experience as determined by the commissioner, to be in charge of each branch office.  For the purposes of this subsection, the commissioner shall consider as equivalent experience, two years of experience as a licensed insurance producer under chapter 431; provided that:

     (1)  The licensed insurance producer only arranges mortgage loans with one insured depository institution, as defined in 12 U.S.C. section 1813(c)(2), that is a wholly-owned subsidiary of an insurer, or an affiliate of an insurer with which such insurance producer has an exclusive insurance agency relationship;

     (2)  The licensed insurance producer and the insured depository institution shall certify that the insurance producer only arranges mortgage loans with the insured depository institution and no other; and

     (3)  The license shall be terminated as of the date the insurance producer ceases to arrange mortgage loans with the insured depository institution."]

     SECTION 11.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

     SECTION 12.  In codifying the new sections added by section 1 of this Act, the reviser of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

     SECTION 13.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 14.  This Act shall take effect on July 1, 2050.