AB830: Bill Text

LRB-4967/1

KSH:jlg&mfd:ch

1997 - 1998 LEGISLATURE

1997 Assembly BILL 830

February 25, 1998 - Introduced by Committee on Financial Institutions, by request of Department of Financial Institutions. Referred to Committee on Financial Institutions.

AB830,2,3 An Act to repeal 224.70, 224.71 (1r) (b) and 224.72 (5) (b) 2.; to renumber and amend 224.71 (1r) (a), 224.71 (2), 224.72 (4) (intro.), 224.72 (4) (a), 224.72 (4) (b), 224.72 (4) (c) and 224.72 (5) (b) 1.; to amend subchapter II (title) of chapter 224 [precedes 224.70], 224.71 (3) (a) 3., 224.72 (title), 224.72 (1m), 224.72 (2) (intro.), 224.72 (2) (b), 224.72 (3), 224.72 (5) (a), 224.73, 224.74 (title), 224.74 (2) (a), 224.74 (2) (b), 224.75 (title), 224.75 (1) (title), 224.75 (1) (a), 224.75 (1) (b) (intro.), 224.75 (1) (c) (intro.), 224.75 (2), 224.75 (3), 224.75 (4), 224.75 (5), 224.76, 224.77 (title), 224.77 (1) (intro.), 224.77 (1) (a), 224.77 (1) (e), 224.77 (1) (f), 224.77 (1) (h), 224.77 (1) (i), 224.77 (1) (k), 224.77 (1) (L), 224.77 (1) (o), 224.77 (2), 224.77 (3), 224.77 (4), 224.77 (5) (a), 224.78, 224.80 (2) (intro.), 224.81, 224.82, 422.501 (2) (b) 8., 708.10 (1) (c) and 943.62 (2m); to repeal and recreate 224.72 (7), 224.72 (8) and 224.74 (1); and to create 224.71 (1b), 224.71 (1c), 224.71 (3) (b) 6., 224.71 (5), 224.72 (4) (a) 1. a. to d., 224.72 (4) (a) 3., 224.72 (4) (d), 224.72 (4m), 224.72 (4n), 224.72 (4r), 224.75 (1) (d), 224.77 (1) (r), 224.77 (1m), 224.77 (3m) and 224.77 (6) of the statutes; relating to: registration requirements for loan originators, mortgage bankers and mortgage brokers, providing an exemption from emergency rule procedures, granting rule-making authority and providing a penalty.

Analysis by the Legislative Reference Bureau

This bill makes a number of changes to the regulation of mortgage bankers, loan originators and mortgage brokers (which are called loan solicitors under current law). These changes include the following:

Persons subject to registration and regulation

Current law requires loan originators, loan solicitors and mortgage bankers to register with the department of financial institutions (DFI). Under current law, a mortgage banker is someone who is not exempt and who does any of the following: 1) originates loans; 2) sells loans or interests in loans to others; or 3) services loans or land contracts or provides escrow services for another person for compensation. The bill broadens this provision to include all persons who service loans or land contracts or provide escrow services to another person, regardless of whether the person does it for compensation. The bill also adds an exemption from the definition of mortgage banker for a person who originates, sells or services loans only with the person's own funds for the person's own investment and originated, sold or serviced no more than 4 loans during the previous 12 months.

Current law defines a loan solicitor as someone who is not exempt from the definition and who, on behalf of a loan applicant or an investor and for commission, money or other thing of value, finds a loan or negotiates a land contract, loan or commitment for a loan. This bill changes the term "loan solicitor" to the term "mortgage broker", but does not change the definition.

Current law defines a loan originator as someone who is not exempt and who, on behalf of a mortgage banker, finds or negotiates a land contract, loan or commitment for a loan. There a number of exemptions from this definition, including exemptions for banks, trust companies, savings banks, savings and loan associations, credit unions and insurance companies and for employes of these exempt entities when acting in the scope of their employment. This bill eliminates all of these exemptions, but modifies the definition of loan originator to cover only persons who are employed by mortgage banker or mortgage broker to find or negotiate a land contract, loan or commitment for a loan.

Registration requirements

Under current law, an applicant for registration as a mortgage banker must do at least one of the following: 1) demonstrate approval as a mortgagee by the federal department of housing and urban development; 2) file a $25,000 surety bond; or 3) demonstrate a minimum net worth of $25,000 and a warehouse line of credit of not less than $250,000, or a minimum net worth of $100,000. This bill modifies these requirements. Under the bill, these registration requirements vary depending on whether the mortgage banker has a "bona fide office" in this state. In general, a "bona fide office" is a separate office with regular hours of operation that is open to the public, is used for transacting business and is staffed by a registered individual who is not shared with another business. If the applicant is applying to be a mortgage banker that maintains a bona fide office, the applicant must do one of the following: 1) demonstrate approval as a mortgage by the federal department of housing and urban development, the Federal National Mortgage Association, the Government National Mortgage Association or the Federal Home Loan Mortgage Corporation; 2) file a $25,000 commercial surety bond; 3) file a secured personal bond or secured 3rd party guarantee in the amount of $25,000; or 4) demonstrate a minimum net worth of $100,000 or must demonstrate a minimum net worth of $25,000 and a warehouse line of credit of not less than $250,000. If the applicant is applying to be a mortgage banker that will not maintain a bona fide office, the applicant must file a $300,000 commercial surety bond and demonstrate a minimum net worth of $250,000.

Currently, mortgage brokers are not required to meet requirements similar to those discussed above for mortgage bankers. This bill establishes similar requirements for mortgage broker applicants. If the applicant is applying to be a mortgage broker who will maintain a bona fide office, the applicant must do one of the following: 1) to file a $10,000 commercial surety bond; 2) file a secured personal bond or secured 3rd party guarantee in the amount of $10,000; or 3) demonstrate a minimum net worth of $100,000. If the applicant is applying to be a mortgage broker that will not maintain a bona fide office, the applicant must file a $120,000 commercial surety bond and demonstrate a minimum net worth of $250,000.

The bill also specifies when the division may release security posted by a mortgage banker or mortgage broker applicant, if the mortgage banker or mortgage broker chooses to meet these registration requirements by posting a secured personal bond or guarantee. Under the bill, if the division determines that the security has become insufficient, or that a surety bond or an errors and omissions insurance policy has lapsed, the division may suspend the mortgage banker's or mortgage broker's registration.

The bill also modifies the procedures that the division uses to register mortgage bankers or mortgage brokers. Under current law, a mortgage banker applicant is granted a temporary certificate of registration for 6 months, after which the division may issue a regular registration. This bill eliminates the temporary certificate provisions. Current law specifies fees for applying for, renewing and transferring registrations as mortgage bankers, mortgage brokers and loan originators; the bill repeals these provisions and grants the division the authority to set these fees by rule.

Regulation

Under current law, registered mortgage bankers and mortgage brokers must submit a copy of an annual audit of the mortgage banker's or mortgage broker's operations to DFI within 20 days after the audit is completed. The bill specifies some additional requirements for the annual audit, requires mortgage bankers and mortgage brokers to submit an annual report in a form specified by the division and, if the division believes that a mortgage banker or mortgage broker may not have sufficient financial resources, allows the division to require the mortgage banker or mortgage broker have additional audits. Current law requires mortgage bankers and mortgage brokers to maintain certain records regarding loan applications; this bill adds some additional record-keeping requirements relating to loan servicing. The bill adds a requirement that a mortgage banker or mortgage broker shall, on request, provide a loan applicant with a copy of any written appraisal report, for which a fee was imposed, that relates to residential real estate owned or to be purchased by the loan applicant.

Current law allows a mortgage banker's, mortgage broker's or loan originator's registration to be revoked, suspended or limited if any of certain specified grounds are met. This bill provides that the same specified grounds may be used by the division to deny an application for initial registration. The bill also adds an additional ground for disciplinary action, permitting disciplinary action if a mortgage banker or mortgage broker fails to notify the division that its net worth has fallen below the minimum required amount. It allows the division to assess an administrative forfeiture of not more than $1,000 for each violation of one of these grounds for disciplinary action, except in those cases where current law requires mandatory revocation or suspension of the registration as a result of the violation. Finally, the bill sets forth appeal rights for persons who are assessed an administrative forfeiture or whose registrations are denied, suspended or revoked.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB830, s. 1 Section 1. Subchapter II (title) of chapter 224 [precedes 224.70] of the statutes is amended to read:

AB830,4,3 CHAPTER 224

AB830,4,4 SUBCHAPTER II

AB830,4,7 MORTGAGE BANKERS, LOAN ORIGINATORS AND LOAN SOLICITORS mortgage brokers

AB830, s. 2 Section 2. 224.70 of the statutes is repealed.

AB830, s. 3 Section 3. 224.71 (1b) of the statutes is created to read:

AB830,4,11 224.71 (1b) "Bona fide office" of a mortgage banker or mortgage broker means an office that meets all of the following conditions:

AB830,5,1 (a) Is located in this state.

AB830,5,2 (b) Has regular hours of operation.

AB830,5,3 (c) Is accessible to the public.

AB830,5,4 (d) Serves as an office for the transaction of business.

AB830,5,7 (e) Is staffed by an individual registered under this subchapter who is an employe of the mortgage banker or mortgage broker and is not shared with another business.

AB830,5,8 (f) Is separate from the offices of other entities.

AB830,5,12 (g) Contains the books and records of the mortgage banker or mortgage broker, or copies of the books and records, unless the mortgage banker or mortgage broker has agreed to furnish copies of its books and records, as soon as practicable, upon the request of the division.

AB830, s. 4 Section 4. 224.71 (1c) of the statutes is created to read:

AB830,5,14 224.71 (1c) "Division" means the division of banking.

AB830, s. 5 Section 5. 224.71 (1r) (a) of the statutes is renumbered 224.71 (1r) and amended to read:

AB830,5,19 224.71 (1r) "Loan originator" means a person who is not excluded by par. (b) and who, on behalf of employed by a mortgage banker, finds or mortgage broker to find a loan or negotiates negotiate a land contract, loan or commitment for a loan.

AB830, s. 6 Section 6. 224.71 (1r) (b) of the statutes, as affected by 1997 Wisconsin Act 27, is repealed.

AB830, s. 7 Section 7. 224.71 (2) of the statutes, as affected by 1997 Wisconsin Act 27, is renumbered 224.71 (4), and 224.71 (4) (a) and (b) (intro.), as renumbered, are amended to read:

AB830,6,4 224.71 (4) (a) "Loan solicitor" "Mortgage broker" means a person who is not excluded by par. (b) and who, on behalf of a loan applicant or an investor and for commission, money or other thing of value, finds a loan or negotiates a land contract, loan or commitment for a loan or engages in table funding.

AB830,6,6 (b) (intro.) "Loan solicitor" "Mortgage broker" does not include any of the following:

AB830, s. 8 Section 8. 224.71 (3) (a) 3. of the statutes is amended to read:

AB830,6,9 224.71 (3) (a) 3. Services loans or land contracts or provides escrow services, for another person and for commission, money or other thing of value.

AB830, s. 9 Section 9. 224.71 (3) (b) 6. of the statutes is created to read:

AB830,6,13 224.71 (3) (b) 6. A person who originates, sells, or services loans only with the person's own funds for the person's own investment and the person has originated, sold or serviced no more than 4 loans during the previous 12 months.

AB830, s. 10 Section 10. 224.71 (5) of the statutes is created to read: