Report Title:

Mortgage Brokers

 

Description:

Revises the law regulating mortgage brokers.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

2408

TWENTY-FOURTH LEGISLATURE, 2008

 

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.  The duties of a principal mortgage broker shall include:

(1)  The direct management and supervision of the mortgage brokerage firm and its licensees; and

     (2)  Responsibility for:

         (A)  The client trust accounts, disbursements from those accounts, and the mortgage brokerage firm's accounting practices;

         (B)  The mortgage brokerage firm's records, contracts, and documents;

         (C)  All mortgage brokerage agreements and mortgage loan documents of the mortgage brokerage firm and the handling of those agreements and documents by the employed or associated licensees;

         (D)  The proper handling of any application, including the application of the mortgage brokerage firm supervised and managed by the principal mortgage broker, for a license or renewal application that the principal mortgage broker of the mortgage brokerage entity expressly agrees to handle on behalf of the applicant, including without limitation, verifying the completeness of the application and the inclusion of appropriate fees, and mailing or delivering the appropriate documents to the commissioner by the required deadline;

         (E)  Developing policies and procedures for the mortgage brokerage firm concerning the handling of mortgage loan transactions and the conduct of the employed and associated licensees and other staff, and educating licensed staff about enforcing the policies and procedures;

         (F)  Setting a policy on continuing education requirements for all employed and associated licensees in compliance with the statutory requirement;

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

         (H)  Establishing and maintaining a training program for all employed and associated licensees;

         (I)  Ensuring that all employed and associated licensees are provided with information and training on the latest amendments to licensing laws and rules, as well as other related laws and rules;

         (J)  Notifying the commissioner of all licensees employed by or associated with such mortgage brokerage firm as an independent contractor;

         (K)  Notifying the commissioner of any licensee who withdraws from the mortgage brokerage firm as an independent contractor associated with such firm or employed by such firm; and

         (L)  Retaining the mortgage brokerage firm’s records, agreements, including the mortgage brokerage agreement, and loan documents for seven years in paper or electronic format by the mortgage brokerage firm.

     §454-B  Employer-employee relationship.  Nothing in this chapter or in any of the rules adopted to implement this chapter shall be deemed to create an employer-employee relationship between a mortgage broker and the licensees associated with the mortgage broker as an independent contractor; provided that the commissioner shall have all power necessary to regulate the relationships, duties, and liabilities among mortgage brokers and licensees to protect the public.

§454-C  Fees, commissions, and changes.  (a)  A licensee shall not require a borrower to pay any fees or charges prior to the mortgage loan closing, except:

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

     (2)  An application fee.

(b)  A licensee 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 mortgage loan documents, a clear written explanation of the increase in the fee and the reason for charging a fee that exceeds that which 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 adopt rules concerning:

     (1)  Maximum fees, commissions, and charges on mortgage loan transactions, which 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; and

     (2)  The full disclosure of fees, commissions, and charges.

§454-D  Advertising.  (a)  It is a misdemeanor 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)  Include in the advertising the name of the lender who made the existing mortgage loan. 

(b)  A licensee may not advertise in any misleading or deceptive manner, including any manner likely to cause the recipient to believe that the advertisement is from the mortgagor of record of the existing mortgage loan.

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

     (1)  The issuance of 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)  Any listing or advertisement in any directory under a classification or heading that includes the word "mortgage broker", "loan originator", or the like;

(5)  Commercials broadcast by airwave or Internet transmission; or

(6)  Any written communication, including a letter or a postcard, that asks the recipient to borrow from or through a mortgage broker, including a communication encouraging a person to refinance the person’s existing mortgage loan and stating or implying that a new mortgage loan will reduce the borrower's monthly mortgage loan payment or the interest rate on the borrower’s existing mortgage loan."

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

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

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

     "Bank" has the same meaning as in title 12 United States Code section 1813(a), and includes a depository financial services loan company.

     "Business purpose loan" means a loan primarily for a business, commercial, or agricultural purpose as defined by Regulation Z issued by the Board of Governors of the Federal Reserve System (12 C.F.R. part 226) and construed in accordance with judicial interpretations of Regulation Z, official staff interpretations of Regulation Z, and official staff commentary to Regulation Z.

     "Insured depository institution" has the same meaning 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 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 who:

     (1)  Performs any of the functions set forth in the definition of mortgage broker;

     (2)  Is employed directly or indirectly by a mortgage broker; or

     (3)  Is an independent contractor in association with a mortgage broker,

whose mortgage loan transactions are under the direction, control, supervision, or management of a mortgage broker.

     "Mortgage brokerage agreement" means the written agreement between a mortgage broker and a prospective borrower for the services of the mortgage broker to be performed for and on behalf of the borrower, and does not include a promissory note and mortgage or any other document or instrument evidencing or securing the mortgage loan.

     "Residential real property" means:

     (1)  Real property located in this state that is improved by or will be improved by the proceeds of the mortgage loan;

     (2)  Any structure designed principally for occupancy by one to four families including individual units of condominiums and cooperatives and any related interests such as a share in the cooperative or right to occupancy of the unit; or

     (3)  A manufactured home.

     "Savings association" has the same meaning as in title 12 United States Code section 1813(b)."

     2.  By amending the definitions of "institutional investor", "licensee", "mortgage commissioner", and "mortgage loan" to read:

     ""Institutional investor" means and includes [(a) banks, savings and loan institutions, trust companies, insurance companies, investment]:

     (1)  An insured depository institution;

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

     (3)  An insurance company;

     (4)  The trustee or trustees of any employee benefit plan;

     (5)  A trust company chartered and examined under the laws of a state;

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

     (7)  A retirement plan, 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] plan that is subject to the Employee Retirement Security Act;

     (8)  A government-sponsored housing 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 mortgage broker or [mortgage solicitor,] loan originator, who is or is required to be licensed under this chapter.

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

     "Mortgage loan" means a loan [secured by a mortgage on real property.], home equity loan, reverse mortgage loan, installment sales contract, land contract, agreement for sale, or a temporary financing loan such as a construction loan, which is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property, upon which there is or will be constructed with the proceeds of the mortgage loan:

     (1)  A structure or structures designed principally for occupancy of from one to four families, including individual units of condominiums and cooperatives and any related interests, such as a share in the cooperative or right to occupancy of the unit; or

     (2)  A manufactured home located or that will be placed on the real property, using proceeds of the loan.

A business purpose loan shall not be considered a mortgage loan."

     3.  By repealing the definition of "mortgage solicitor".

     [""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] shall 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 a state or of the United States of America to engage in the activity of an insured depository institution, including a bank or savings association, including any officer or employee of such person;

     (2)  Any of the following persons: a credit union, credit union service organization, trust company, insurance company, financial services loan company, or federally licensed small business investment company, including any officer or employee of such person;

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

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

    [(3)](5)   A person licensed to practice law in the [State,] state, not actively and principally engaged in the business of negotiating 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,] state, not actively engaged in the business of negotiating 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 mortgage loans or obtain funding therefor, with or without the transfer of servicing rights, to an institutional investor; and

     [(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."

     SECTION 4.  Section 454-3, Hawaii Revised Statutes, is amended to read as follows:

     "§454-3  Licensing, requirements, application.  (a)  No person shall act as a mortgage broker or [mortgage solicitor] loan originator 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] 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] state with the business registration division of the department of commerce and consumer affairs[.] and shall have designated in the application an individual then holding a mortgage broker license as the principal mortgage broker for the mortgage brokerage firm.  The designated principal mortgage broker shall have two years of experience as a mortgage broker and shall have the management and supervision responsibilities for the mortgage brokerage firm and the licensees employed by or in an independent contractor association with such applicant.  If the applicant for a mortgage broker's license is an individual, the individual shall perform the duties of a principal mortgage broker upon licensure.

     (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[.] in the following amounts:

     (1)  A mortgage brokerage firm with one to five mortgage brokers and loan originators shall post a bond in the amount of $25,000;

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

     (3)  A mortgage brokerage firm with eleven or more mortgage brokers and 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.

     (d)  The failure, refusal, or neglect of any licensee to maintain the applicable bond under subsection (c) 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 forfeited 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 of subsection (c); and

     (3)  Restrict the license.

     [(d)](e)  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 the applicant's arrest and conviction record, 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.

  (f)(1)  An applicant for a license shall pass a written examination prior to licensure.  The examination shall test the knowledge of the applicant concerning a mortgage loan transaction, the mortgage loan laws and rules of this State as well as relevant federal statutes and regulations, and as appropriate, the duties and responsibilities of a principal mortgage broker, mortgage broker, or loan originator.

     (2)  The commissioner may make arrangements, including contracting with an outside testing service, for administering examinations and collecting fees.  The fees collected shall be nonrefundable.

     (3)  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.

     (4)  An applicant's examination scores shall be valid for two years from the date of the examination.

  (g)(1)  An applicant for the renewal of a license shall certify on a form provided by the commissioner that the licensee has completed the following hours of continuing education or their equivalent as determined by the commissioner during the two-year period preceding the application for renewal:

         (A)  Twelve hours for a mortgage broker; and

         (B)  Nine hours for a loan originator.

          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.

     (2)  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 mortgage loan transactions and the appropriate laws governing such transactions, including at least four hours of instruction in compliance with federal and state regulation of mortgage loans and at least two hours in mortgage broker business ethics.

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

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

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

          (C)  Payment of the proper fee.

     (4)  A licensee, within sixty days after receipt of notification of the forfeiture, may request an administrative hearing pursuant to chapter 91 to review the forfeiture.

     [(e)](h)  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] 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.

     [(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)](i)  Upon request, the mortgage broker shall make available for inspection the mortgage broker's license and the licenses of any [mortgage solicitors] loan originators employed by or in association with the mortgage broker[.] as an independent contractor.

     [(h)](j)  Immediately upon the [mortgage solicitor's] loan originator's withdrawal from the employ of or association with the mortgage broker, the mortgage broker shall return the [mortgage solicitor's] loan originator's license to the [mortgage solicitor.] loan originator and immediately notify the commissioner.

     [(i)](k)  Every licensed mortgage broker shall have and maintain a principal place of business in the [State] 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] broker 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 5.  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] loan originator and a borrower, the following requirements shall apply:

     (1)  A mortgage broker and a [mortgage solicitor] loan originator 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 mortgage loan with specified terms, including loan amount, interest rate, points, and payment terms, which is issued by a mortgage broker or [solicitor] loan originator and accepted by a borrower, [must] shall be honored by the mortgage broker or [solicitor] loan originator 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 mortgage loan and the lender that has the ultimate authority to fund and close the mortgage loan;

     (3)  A mortgage broker or loan originator shall provide the borrower with the following or a substantially similar consumer counseling and home ownership notice, not longer than one page in length and in twelve-point font, not later than the time the applicable auditor disclosure is required under 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 loan obligations.

              If you are uncertain about your rights and obligations under this loan 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 at 1-800-569-4287 or go to www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm for a list of housing counseling agencies."

          The mortgage broker or solicitor 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 of title 15, United States Code, section 1639;

     (4)  The licensee, within three business days of receipt of a borrower's completed mortgage loan application, and before the borrower gives the licensee any moneys, shall sign a mortgage brokerage agreement with the borrower; provided that if the licensee is a loan originator, the mortgage brokerage agreement shall be with the mortgage broker with whom the loan originator is associated with or employed.  The mortgage brokerage agreement shall be in writing, and signed and dated by both the borrower and the licensee;

     (5)  The mortgage brokerage agreement shall include a clear and conspicuous statement:

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

          (B)  Explaining whether the licensee is or is not a fiduciary for the borrower;

          (C)  Explaining the nature of the licensee’s compensation, and if the licensee is a loan originator, the nature of the compensation of the mortgage brokerage firm that the loan originator is employed by or associated with as an independent contractor, 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:

              (i)  The conditions under which the borrower is obligated to pay fees to the licensee;

             (ii)  The manner in which the borrower may cancel the mortgage brokerage agreement; 

            (iii)  What rights the borrower has regarding the loan documentation;

             (iv)  The borrower’s liabilities for fees and costs; and

              (v)  The mortgage broker’s contact information for dispute resolution; 

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

              (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's fees, for enforcing the borrower's rights under the mortgage brokerage agreement;

          and

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

     SECTION 6.  Section 454-4, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) 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:

     (1)  Revoke a license issued under this chapter;

     (2)  Suspend a license issued under this chapter;

     (3)  Condition the right of a licensee to use the license;

     (4)  Fine any person holding a license issued under this chapter; or

     (5)  Terminate any license issued under this chapter, for any cause authorized by law, including any of the following acts or conduct of a licensee:

    [(1)] (A)  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)] (B)  Misrepresentation or concealment of any material     fact with respect to any transaction resulting in    injury to any party;

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

    [(4)] (D)  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)] (E)  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 a] in a     bank located and doing business in the [State,] state, wherein the funds shall be kept until    disbursement thereof is authorized; [or]

         (F)  Delivering a misleading or deceptive communication or advertisement, whether written, electronic, or oral, when marketing or soliciting a mortgage loan.  A communication or advertisement that uses the name or trademark of another financial institution, as defined in section 412:1-109, or its affiliates or subsidiaries, or infers that the communication or advertisement is from, endorsed by, is related to, or is the responsibility of the financial institution, is a misleading or deceptive communication;

          (G)  Brokering or making any mortgage loan as a direct result of offering, soliciting, or selling such mortgage loan at the dwelling of a borrower without a prearranged appointment initiated by and at the invitation of the borrower; or

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

     (b)  The commissioner may revoke a license if the application for the license or for its reactivation or renewal contains a material misstatement, the licensee demonstrates by a course of conduct negligence or incompetence in performing any act for which the licensee is required to be licensed under this chapter, or the licensee for a second time is responsible for misconduct which warrants suspension under subsection (a)."    

     SECTION 7.  Section 454-5, Hawaii Revised Statutes, is amended to read as follows:

     "§454-5  Power to examine, investigate, and enjoin.  [(a)  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.  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)  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.]

     (a)  The commissioner may conduct examinations of mortgage brokers and loan originators under this chapter for the purpose of determining whether the mortgage broker 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, and members 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 mortgage brokers examined by the commissioner or the commissioner's staff. The hourly fee shall be $40 in the case of a mortgage brokerage firm, $20 in the case of an individual mortgage broker, or such 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 in civil and criminal lawsuits or disclosure under federal or state law.

     (e)  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 vaults, books, records, accounts, and documents of any licensee or person.  If the commissioner finds from satisfactory evidence that any licensee or person has violated this chapter, the commissioner in addition to any other remedy provided by law 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.

     (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 8.  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 acts authorized by law, the commissioner may:

     (1)  Adopt, amend, or repeal rules, issue declaratory rulings or informal nonbinding interpretations, and conduct contested case proceedings pursuant to chapter 91;

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

     (3)  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;

     (4)  Develop requirements for licensure through rules;

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

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

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

     (8)  Request a criminal history record check of an applicant and any of its officers, directors, employees, partners, and members in accordance with section 846-2.7;

     (9)  Contract with qualified persons without regard to chapter 76, including investigators, who shall assist the commissioner in exercising the commissioner’s powers and duties;

    (10)  Subpoena witnesses and documents, administer oaths, 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 conducting contested case proceedings under chapter 91; and

    (11)  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 Bank Supervisors."

     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 or] $2,000, 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 454-7, Hawaii Revised Statutes, is repealed.

     ["§454-7  Fees, commissions, and charges.  The commissioner may also adopt rules concerning maximum fees, commissions, and charges on 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 11.  In codifying the new sections added by section 1 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

     SECTION 12.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 13.  This Act shall take effect upon its approval; provided that section 454-A, Hawaii Revised Statutes, in section 1 of this Act, shall take effect on July 1, 2010.

 

INTRODUCED BY:

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