AB678: Bill Text

2013 - 2014 LEGISLATURE

2013 Assembly BILL 678

January 27, 2014 - Introduced by Representatives Weininger, Craig, Sanfelippo, Kahl, Richards, Steineke, Murphy, Goyke, Knodl and Ballweg, cosponsored by Senators Lasee and Schultz. Referred to Committee on Financial Institutions.

AB678,2,5 An Act to repeal 224.71 (3) (b) (intro.) and 7., 224.71 (6) (b) (intro.) and 4., 224.71 (8), 224.72 (4n), 224.725 (2) (d), 224.726 (intro.), (1) (intro.), (2) and (3), 224.73 (4) (title) and (a) and 224.83; to renumber 224.71 (3) (b) 8., 224.71 (3) (b) 9., 224.71 (3) (b) 10., 224.71 (3) (b) 11., 224.71 (3) (b) 12., 224.71 (6) (b) 2., 224.71 (6) (b) 3., 224.72 (2m) and 224.726 (1) (a) and (b); to renumber and amend 224.71 (3) (a) (intro.), 1., 2. and 3., 224.71 (6) (a) (intro.), 1. and 2., 224.71 (6) (b) 1., 224.726 (4) and 224.73 (4) (b); to amend 224.71 (1c), 224.71 (1f), 224.71 (1h), 224.71 (2) (intro.), 224.71 (7), 224.71 (13) (c), 224.72 (1m), 224.72 (2) (c) 2., 224.72 (4) (a) 2., 224.725 (1), 224.725 (3) (b), 224.725 (4) (a), 224.73 (title), 224.73 (1), 224.73 (2), 224.73 (3), 224.74 (title), 224.74 (1) (title), 224.74 (1) (a), 224.74 (1) (b), 224.75 (2), 224.755 (4) (d), 224.755 (4) (e), 224.77 (title), 224.77 (1) (intro.), 224.77 (1) (f), 224.77 (1) (fg), 224.77 (1) (g), 224.77 (1) (gd), 224.77 (1) (gh), 224.77 (2m) (a) 1. (intro.), a. and b. and 943.80 (2); to repeal and recreate 224.71 (4); and to create 224.71 (1br), 224.71 (1g), 224.71 (1gh), 224.71 (1r), 224.71 (6) (d) 1., 2. and 3., 224.71 (13c), 224.71 (13g) (intro.), 224.71 (13m), 224.72 (1r) (intro.), (c), (e) and (f), 224.72 (2m) (b) and (c), 224.722, 224.725 (1m) (intro.), (a), (b), (f) and (g) 1., 2. and 3., 224.73 (5), 224.74 (1) (bm) and 224.77 (1) (sm) and (sq) of the statutes; relating to: the regulation of mortgage loan originators, mortgage brokers, and mortgage bankers.

Analysis by the Legislative Reference Bureau

Under current law, with certain exceptions, a person may not engage in business as, or otherwise act as, a mortgage banker, mortgage broker, or mortgage loan originator unless the person is licensed as such with the Department of Financial Institutions (DFI). A mortgage banker is, with certain exceptions, a person who originates residential mortgage loans (loans) for itself or for another person; sells loans or interests in loans to another person; or services loans or provides escrow services. A mortgage broker is, with certain exceptions, a person who, on behalf of a loan applicant or an investor and for commission or other compensation, finds a loan or negotiates a loan or loan commitment. A mortgage loan originator is, with certain exceptions, an individual who takes a loan application or offers or negotiates terms of a loan for compensation or gain. State and federally chartered financial institutions (depository institutions) are not mortgage bankers or mortgage brokers and are not required to be licensed as such. Beginning on January 1, 2010, provisions of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 were adopted into state law, including provisions requiring that certain state licensing and registration functions be conducted through the Nationwide Mortgage Licensing System and Registry (NMLSR).

This bill modifies the definitions of mortgage loan originator, mortgage broker, and mortgage banker. For purposes of the definition of mortgage loan originator, the bill specifies circumstances under which an individual is considered to offer or negotiate terms of a loan. Current law includes provisions that create exceptions to the definition of mortgage loan originator and provisions that exempt a mortgage loan originator from regulation. This bill eliminates exceptions to the definition of mortgage loan originator and recreates them as licensing exemptions. The bill also modifies certain of these exemptions and creates new ones, including for certain employees of a government agency, housing finance agency, or bona fide nonprofit organization. Also under the bill, an individual must be licensed as a mortgage loan originator only if the individual regularly engages in business as a mortgage loan originator, with the term "regularly engage" defined in the bill.

The bill recreates the definition of mortgage broker to mean a person who, for compensation or gain or in the expectation of compensation or gain, does any of the following but does not make an underwriting decision or close a loan: 1) assists a person in obtaining or applying to obtain a loan; 2) holds oneself out as being able to assist a person in obtaining or applying to obtain a loan; or 3) engages in table funding. Current law provisions that are exceptions to the definition of mortgage broker and mortgage banker are recreated in the bill as exemptions from regulation and the bill also creates new exemptions, including for a government agency, housing finance agency, or bona fide nonprofit organization or a mortgage banker with limited transactions each year.

Under current law, DFI may not issue a mortgage loan originator license to an applicant with an unpardoned felony conviction within seven years prior to the application or, if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering, at any time.

Under this bill, DFI may consider a pardoned or expunged felony conviction and a pardoned or expunged felony conviction does not automatically disqualify an individual from being issued a mortgage loan originator license.

Under current law, an applicant for a mortgage loan originator license must include in the application the name of the mortgage banker or mortgage broker who will employ the applicant as a mortgage loan originator. A mortgage loan originator may act on behalf of only the mortgage banker or mortgage broker with which that mortgage loan originator's license is associated in DFI's records, and a mortgage loan originator's license may be associated with only one mortgage banker or mortgage broker at a time. This mortgage banker or mortgage broker is responsible for, and must supervise the acts of, the mortgage loan originator with whom it is associated.

This bill allows a licensed mortgage loan originator to associate with (be sponsored by) a depository institution, rather than a mortgage banker or mortgage broker, if the depository institution first registers with DFI. If the depository institution applies to DFI and meets certain requirements, DFI must register the depository institution as a "registered entity" and the depository institution may then sponsor licensed mortgage loan originators under the depository institution's supervision and control. The provisions of current law, discussed above, relating to the relationship between a mortgage banker or mortgage broker and a licensed mortgage loan originator also apply with respect to a registered entity that sponsors a mortgage loan originator. A registered entity must also submit reports of condition to the NMLSR and cooperate with, and provide access to records and documents required by, DFI to carry out examinations of licensed mortgage loan originators sponsored by the registered entity. Certain acts or practices that are prohibited by a mortgage banker or mortgage broker with respect to a mortgage loan originator are also prohibited by a registered entity.

Current law requires each mortgage banker, mortgage broker, and mortgage loan originator to annually submit to the NMLSR a report of condition containing information required by the NMLSR. In addition, each mortgage banker or mortgage broker must annually submit a copy of an audit of the mortgage banker's or mortgage broker's operations during the prior fiscal year. The audit must be conducted by an independent certified public accountant (CPA) in accordance with generally accepted auditing standards. The financial statements in the audit report must be prepared in accordance with generally accepted accounting principles (GAAP).

In addition to requiring registered entities to submit to the NMLSR reports of condition, this bill eliminates the requirement that reports of condition be submitted to the NMLSR annually, leaving unspecified the frequency of submissions. The bill also eliminates the annual audit requirement for mortgage brokers. Under the bill, a mortgage broker must instead annually submit reviewed financial statements for the mortgage broker's operations during the prior fiscal year. The reviewed financial statements must include certain materials, including a written statement by an independent CPA attesting that he or she conducted his or her review in accordance with GAAP.

The bill also specifies that principal offices and branch offices of mortgage bankers and mortgage brokers must be located in this state or another state and that a branch office, but not a principal office, may be located in a residence. A mortgage loan originator must be assigned to and work out of a licensed or registered office or branch office of the sponsoring mortgage banker, mortgage broker, or registered entity and the office must be the mortgage loan originator's residence or within 100 miles of this residence. There must be at least one licensed mortgage loan originator assigned to and working out of each branch office of a mortgage broker or of a mortgage banker or registered entity where loans are originated.

The bill also prohibits a mortgage banker, mortgage broker, or mortgage loan originator from using any solicitation or advertisement that: 1) misrepresents that the provider is, or is affiliated with, any governmental entity or other organization; 2) misrepresents that the product is or relates to a government benefit, or is endorsed, sponsored by, or affiliated with any government or government-related program; or 3) does not clearly and conspicuously identify the name of the mortgage broker or mortgage banker or, if a mortgage loan originator is sponsored by a registered entity, the registered entity. The bill also repeals a provision prohibiting an individual engaging solely in loan processor or underwriter activities from representing to the public that the individual can or will perform the activities of a mortgage loan originator.

For further information see the state and local 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:

AB678,1 Section 1. 224.71 (1br) of the statutes is created to read:

AB678,5,2 224.71 (1br) "Bona fide nonprofit organization" means an organization that is described in section 501 (c) (3) of the Internal Revenue Code and exempt from federal income tax under section 501 (a) of the Internal Revenue Code, that is certified by the federal department of housing and urban development or the Wisconsin Housing and Economic Development Authority, and that does all of the following:

AB678,5,4 (a) Promotes affordable housing or provides home ownership education or similar services.

AB678,5,6 (b) Conducts its activities in a manner that serves public or charitable purposes.

AB678,5,9 (c) Receives funding and revenue and charges fees in a manner that does not create an incentive for itself or its employees to act other than in the best interests of its clients.

AB678,5,11 (d) Compensates its employees in a manner that does not create an incentive for its employees to act other than in the best interests of its clients.

AB678,5,14 (e) Provides to, or identifies for, the borrower residential mortgage loans with terms favorable to the borrower and comparable to residential mortgage loans and housing assistance provided under government housing assistance programs.

AB678,2 Section 2. 224.71 (1c) of the statutes is amended to read:

AB678,5,19 224.71 (1c) "Branch office" means an office or place of business, other than the principal office, located in this state or another state, where a mortgage loan originator, mortgage banker, or mortgage broker conducts business with residents of this state engages in the mortgage loan business subject to this subchapter.

AB678,3 Section 3. 224.71 (1f) of the statutes is amended to read:

AB678,5,21 224.71 (1f) "Dwelling" has the meaning given in 15 USC 1602 (v) (w).

AB678,4 Section 4. 224.71 (1g) of the statutes is created to read:

AB678,6,2 224.71 (1g) "Employee" means an individual whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person, and whose compensation for federal income tax purposes is reported, or required to be reported, on a W-2 form issued by the controlling person.

AB678,5 Section 5. 224.71 (1gh) of the statutes is created to read:

AB678,6,6 224.71 (1gh) (a) Except as provided in par. (b), "expungement" means to have stricken or obliterated from a record of criminal conviction all references to the defendant's name and identity.

AB678,6,8 (b) For a criminal conviction entered in another state, "expungement" has the meaning given under the laws of the state where the criminal conviction is entered.

AB678,6 Section 6. 224.71 (1h) of the statutes is amended to read:

AB678,6,13 224.71 (1h) "Federal banking agency" means the board of governors of the federal reserve system, the U.S. office of the comptroller of the currency, the U.S. office of thrift supervision, the national credit union administration, or the federal deposit insurance corporation.

AB678,7 Section 7. 224.71 (1r) of the statutes is created to read:

AB678,6,16 224.71 (1r) "Housing finance agency" means any authority that is all of the following:

AB678,6,18 (a) Chartered by a state to help meet the affordable housing needs of the residents of the state.

AB678,6,19 (b) Supervised directly or indirectly by the state government.

AB678,6,20 (c) Subject to audit and review by the state in which it operates.

AB678,8 Section 8. 224.71 (2) (intro.) of the statutes is amended to read:

AB678,7,2 224.71 (2) (intro.) "Loan processor or underwriter" means an individual who, as an employee, performs clerical or support duties at the direction of and subject to the supervision and instruction of a mortgage loan originator licensed under s. 224.725 or exempt from licensing under s. 224.726 (1) 224.725 (1m), which clerical or support duties may include any of the following occurring subsequent to the receipt of a residential mortgage loan application:

AB678,9 Section 9. 224.71 (3) (a) (intro.), 1., 2. and 3. of the statutes are renumbered 224.71 (3) (intro.), (c), (d) and (e), and 224.71 (3) (intro.), as renumbered, is amended to read:

AB678,7,7 224.71 (3) (intro.) "Mortgage banker" means a person who is not excluded by par. (b) and who does any of the following:

AB678,10 Section 10. 224.71 (3) (b) (intro.) and 7. of the statutes are repealed.

AB678,11 Section 11. 224.71 (3) (b) 8. of the statutes is renumbered 224.72 (1r) (a).

AB678,12 Section 12. 224.71 (3) (b) 9. of the statutes is renumbered 224.72 (1r) (b).

AB678,13 Section 13. 224.71 (3) (b) 10. of the statutes is renumbered 224.72 (1r) (d).

AB678,14 Section 14. 224.71 (3) (b) 11. of the statutes is renumbered 224.72 (1r) (g).

AB678,15 Section 15. 224.71 (3) (b) 12. of the statutes is renumbered 224.72 (1r) (h).

AB678,16 Section 16. 224.71 (4) of the statutes is repealed and recreated to read:

AB678,7,17 224.71 (4) "Mortgage broker" means a person who, for compensation or gain or in the expectation of compensation or gain, does any of the following but does not make an underwriting decision or close a residential mortgage loan:

AB678,7,19 (a) Assists a person in obtaining or applying to obtain a residential mortgage loan.

AB678,7,21 (b) Holds himself, herself, or itself out as being able to assist a person in obtaining or applying to obtain a residential mortgage loan.

AB678,7,22 (c) Engages in table funding.

AB678,17 Section 17. 224.71 (6) (a) (intro.), 1. and 2. of the statutes are renumbered 224.71 (6) (intro.), (c) and (d) (intro.), and 224.71 (6) (intro.) and (d) (intro.), as renumbered, are amended to read:

AB678,8,3 224.71 (6) (intro.) "Mortgage loan originator" means an individual who is not excluded by par. (b) and who, for compensation or gain or in the expectation of compensation or gain, does any of the following:

AB678,8,6 (d) (intro.) Offers or negotiates terms of a residential mortgage loan. For purposes of this paragraph, an individual offers or negotiates terms of a residential mortgage loan if the individual does any of the following:

AB678,18 Section 18. 224.71 (6) (b) (intro.) and 4. of the statutes are repealed.

AB678,19 Section 19. 224.71 (6) (b) 1. of the statutes is renumbered 224.725 (1m) (c) and amended to read:

AB678,8,15 224.725 (1m) (c) An individual engaged solely as a loan processor or underwriter, unless the individual is an independent contractor or represents to the public, through advertising or another means of communication such as the use of business cards, stationery, brochures, signs, rate lists, or other promotional items, that the individual can or will perform any of the activities of a mortgage loan originator.

AB678,20 Section 20. 224.71 (6) (b) 2. of the statutes is renumbered 224.725 (1m) (d).

AB678,21 Section 21. 224.71 (6) (b) 3. of the statutes is renumbered 224.725 (1m) (e).

AB678,22 Section 22. 224.71 (6) (d) 1., 2. and 3. of the statutes are created to read:

AB678,8,20 224.71 (6) (d) 1. Discusses, explains, or presents for consideration by a borrower or prospective borrower particular residential mortgage loan terms.

AB678,8,23 2. Communicates directly or indirectly with a borrower or prospective borrower for the purpose of reaching a mutual understanding about prospective residential mortgage loan terms.

AB678,8,25 3. Recommends, or refers a borrower or prospective borrower to, a particular lender or recommends a set of residential mortgage loan terms.

AB678,23 Section 23. 224.71 (7) of the statutes is amended to read:

AB678,9,8 224.71 (7) "Nationwide mortgage licensing system and registry" means the licensing and registration system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for licensed mortgage loan originators and mortgage loan originators exempt from licensing under s. 224.726 (1) 224.725 (1m) or, if this system is no longer maintained, any system established by the secretary of the federal department of housing and urban development under P.L. 110-289, Title V, section 1509.

AB678,24 Section 24. 224.71 (8) of the statutes is repealed.

AB678,25 Section 25. 224.71 (13) (c) of the statutes is amended to read:

AB678,9,15 224.71 (13) (c) Negotiating, on behalf of any party, any portion of a contract relating to the sale, purchase, lease, rental, or exchange of real property, other than in connection with providing financing for the transaction. For purposes of this paragraph, providing financing for the transaction does not include use by a licensee under s. 452.03 of forms approved under s. REEB 16.03, Wis. Adm. Code.

AB678,26 Section 26. 224.71 (13c) of the statutes is created to read:

AB678,9,20 224.71 (13c) "Registered entity" means a depository institution that voluntarily registers with the division for the purpose of sponsoring licensed mortgage loan originators that are under the depository institution's direct supervision and control.

AB678,27 Section 27. 224.71 (13g) (intro.) of the statutes is created to read:

AB678,9,23 224.71 (13g) "Registered mortgage loan originator" means any individual who is all of the following:

AB678,28 Section 28. 224.71 (13m) of the statutes is created to read:

AB678,10,2 224.71 (13m) "Regularly engage," with respect to an individual, means that any of the following applies:

AB678,10,7 (a) The individual engaged in the business of a mortgage loan originator on more than 5 residential mortgage loans, in this state or another state, in the previous calendar year or expects to engage in the business of a mortgage loan originator on more than 5 residential mortgage loans, in this state or another state, in the current calendar year.

AB678,10,10 (b) The individual is acting on behalf of a person who is, or is required to be, licensed as a mortgage lender, mortgage banker, or mortgage broker in this state or another state.

AB678,10,11 (c) The individual is acting on behalf of a registered entity.