OLYMPIA – – “DFI takes consumer protection very seriously,” Department of Financial Institutions (DFI) Director of Scott Jarvis said. “With yesterday’s enactment of several pieces of mortgage industry related legislation, DFI is now positioned to offer even stronger protection for Washington residents.”
State legislators approved several bills relating to the mortgage industry and its regulation during the 2008 session. Governor Gregoire and the Legislature responded to the negative impact of subprime lending and subsequent home foreclosures with the emergency enactment of SB 6272. This bill provides free counseling to Washington homeowners in foreclosure distress and residents seeking to purchase a home.
The Washington State Department of Financial Institutions is conducting rulemaking sessions to implement these new laws. The rulemaking is conducted with input from the affected industry stakeholders in an effort to ensure economic stability of the affected businesses while protecting consumers. For more information about DFI’s mortgage industry rulemaking visit http://www.dfi.wa.gov/cs/rulemaking.htm.
Below is a summary of mortgage related legislation stemming from the 2008 Legislative Session DFI is implementing and overseeing:
HB 2770 – Homeownership Security (Governor’s Bill – Effective Date 6/12/2008)
- Requires additional disclosure of key mortgage conditions to borrowers.
- Prohibits prepayment penalties that extend beyond 60 days prior to the initial reset of an adjustable rate mortgage in residential loans.
- Prohibits negative amortization for sub-prime borrowers in residential loans.
- Prohibits the steering of consumers into higher cost loans.
- Establishes the framework and penalties for crimes related to mortgage fraud.
SB 6272 – Financial Literacy (Governor’s Bill-Effective Date 2/11/2008)
- Requires DFI to provide financial education and homeownership counseling.
- Provides an appropriation of $1.5 million for this biennium for this purpose.
- Creates an interagency work group to identify current state funded efforts to support financial literacy, and report on these efforts to the Governor and the Legislature. (For more information, please visit http://dfi.wa.gov/work-group/default.htm and/or www.homeownership.wa.gov)
SB 6381 – Mortgage Brokers (Effective Date 6/12/2008)
- Mortgage brokers have a fiduciary duty to borrowers.
- The fiduciary duties owed are acting in the borrower’s best interest, good faith, disclosing all other interests to the borrower, refusing to accept undisclosed compensation for an expense paid by the borrower, following the borrower’s instructions, disclosure of all material facts that could impact the borrower’s interests, using reasonable care in performing all duties, and providing an accounting to the borrower for all money and property received from the borrower.
- The fiduciary duty does not require the mortgage broker to obtain access to a loan product that is not available to the broker at the time of the transaction with the borrower.
- Mortgage brokers may collect a fee for services if the fee is disclosed to the borrower before the services are provided.
SB 6471 – Loan Regulations (Effective Date 6/12/2008)
- The Consumer Loan Act is amended to become a general lender law.
- Mortgage lenders currently exempt from licensing are required under the Mortgage Broker Practices Act to be licensed under the Consumer Loan Act.
SB 6711 – Smart Homeownership Choices (Effective Date 6/12/2008)
- The Smart Ownership Choices program is created to assist low-and moderate income households facing foreclosure. The program is created within the Department of Financial Institutions and implemented by the Washington State Housing Finance Commission (WSHFC). In order to implement the Program, the Commission will assist homeowners who are delinquent on their mortgage payments to bring their mortgage payments current in order to refinance into a different loan product. (This program has specific criteria homeowners must meet to be eligible for assistance. For details, see page 3 or contact the WSHFC.)
- Homeowners must repay any funds received at the time of refinancing, and the homeowner must participate in a mortgage counseling program.
- The smart homeownership choices program account is created in the custody of the state treasurer. State appropriated funds may be used only to serve low-income households. Contributions from private and other sources may be used to serve both low-and moderate-income households.
For more information about the 2008 Legislative Session and resulting legislation, please visit http://dfi.wa.gov/about/2008_legislature.htm.