2013 - 2014 LEGISLATURE
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 1An Act to repeal 224.71 (3) (b) (intro.) and 7., 224.71 (6) (b) (intro.) and 4., 224.71
2(8), 224.72 (4n), 224.725 (2) (d), 224.726 (intro.), (1) (intro.), (2) and (3), 224.73
3(4) (title) and (a) and 224.83; to renumber 224.71 (3) (b) 8., 224.71 (3) (b) 9.,
4224.71 (3) (b) 10., 224.71 (3) (b) 11., 224.71 (3) (b) 12., 224.71 (6) (b) 2., 224.71
5(6) (b) 3., 224.72 (2m) and 224.726 (1) (a) and (b); to renumber and amend
6224.71 (3) (a) (intro.), 1., 2. and 3., 224.71 (6) (a) (intro.), 1. and 2., 224.71 (6) (b)
71., 224.726 (4) and 224.73 (4) (b); to amend 224.71 (1c), 224.71 (1f), 224.71 (1h),
8224.71 (2) (intro.), 224.71 (7), 224.71 (13) (c), 224.72 (1m), 224.72 (2) (c) 2.,
9224.72 (4) (a) 2., 224.725 (1), 224.725 (3) (b), 224.725 (4) (a), 224.73 (title), 224.73
10(1), 224.73 (2), 224.73 (3), 224.74 (title), 224.74 (1) (title), 224.74 (1) (a), 224.74
11(1) (b), 224.75 (2), 224.755 (4) (d), 224.755 (4) (e), 224.77 (title), 224.77 (1)
12(intro.), 224.77 (1) (f), 224.77 (1) (fg), 224.77 (1) (g), 224.77 (1) (gd), 224.77 (1)
13(gh), 224.77 (2m) (a) 1. (intro.), a. and b. and 943.80 (2); to repeal and recreate
14224.71 (4); and to create 224.71 (1br), 224.71 (1g), 224.71 (1gh), 224.71 (1r),

1224.71 (6) (d) 1., 2. and 3., 224.71 (13c), 224.71 (13g) (intro.), 224.71 (13m),
2224.72 (1r) (intro.), (c), (e) and (f), 224.72 (2m) (b) and (c), 224.722, 224.725 (1m)
3(intro.), (a), (b), (f) and (g) 1., 2. and 3., 224.73 (5), 224.74 (1) (bm) and 224.77
4(1) (sm) and (sq) of the statutes; relating to: the regulation of mortgage loan
5originators, 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 1Section 1. 224.71 (1br) of the statutes is created to read:
AB678,5,22 224.71 (1br) "Bona fide nonprofit organization" means an organization that is
3described in section 501 (c) (3) of the Internal Revenue Code and exempt from federal
4income tax under section 501 (a) of the Internal Revenue Code, that is certified by

1the federal department of housing and urban development or the Wisconsin Housing
2and Economic Development Authority, and that does all of the following:
AB678,5,43 (a) Promotes affordable housing or provides home ownership education or
4similar services.
AB678,5,65 (b) Conducts its activities in a manner that serves public or charitable
6purposes.
AB678,5,97 (c) Receives funding and revenue and charges fees in a manner that does not
8create an incentive for itself or its employees to act other than in the best interests
9of its clients.
AB678,5,1110 (d) Compensates its employees in a manner that does not create an incentive
11for its employees to act other than in the best interests of its clients.
AB678,5,1412 (e) Provides to, or identifies for, the borrower residential mortgage loans with
13terms favorable to the borrower and comparable to residential mortgage loans and
14housing assistance provided under government housing assistance programs.
AB678,2 15Section 2. 224.71 (1c) of the statutes is amended to read:
AB678,5,1916 224.71 (1c) "Branch office" means an office or place of business, other than the
17principal office, located in this state or another state, where a mortgage loan
18originator,
mortgage banker, or mortgage broker conducts business with residents
19of this state
engages in the mortgage loan business subject to this subchapter.
AB678,3 20Section 3. 224.71 (1f) of the statutes is amended to read:
AB678,5,2121 224.71 (1f) "Dwelling" has the meaning given in 15 USC 1602 (v) (w).
AB678,4 22Section 4. 224.71 (1g) of the statutes is created to read:
AB678,6,223 224.71 (1g) "Employee" means an individual whose manner and means of
24performance of work are subject to the right of control of, or are controlled by, a

1person, and whose compensation for federal income tax purposes is reported, or
2required to be reported, on a W-2 form issued by the controlling person.
AB678,5 3Section 5. 224.71 (1gh) of the statutes is created to read:
AB678,6,64 224.71 (1gh) (a) Except as provided in par. (b), "expungement" means to have
5stricken or obliterated from a record of criminal conviction all references to the
6defendant's name and identity.
AB678,6,87 (b) For a criminal conviction entered in another state, "expungement" has the
8meaning given under the laws of the state where the criminal conviction is entered.
AB678,6 9Section 6. 224.71 (1h) of the statutes is amended to read:
AB678,6,1310 224.71 (1h) "Federal banking agency" means the board of governors of the
11federal reserve system, the U.S. office of the comptroller of the currency, the U.S.
12office of thrift supervision,
the national credit union administration, or the federal
13deposit insurance corporation.
AB678,7 14Section 7. 224.71 (1r) of the statutes is created to read:
AB678,6,1615 224.71 (1r) "Housing finance agency" means any authority that is all of the
16following:
AB678,6,1817 (a) Chartered by a state to help meet the affordable housing needs of the
18residents of the state.
AB678,6,1919 (b) Supervised directly or indirectly by the state government.
AB678,6,2020 (c) Subject to audit and review by the state in which it operates.
AB678,8 21Section 8. 224.71 (2) (intro.) of the statutes is amended to read:
AB678,7,222 224.71 (2) (intro.) "Loan processor or underwriter" means an individual who,
23as an employee, performs clerical or support duties at the direction of and subject to
24the supervision and instruction of a mortgage loan originator licensed under s.
25224.725 or exempt from licensing under s. 224.726 (1) 224.725 (1m), which clerical

1or support duties may include any of the following occurring subsequent to the
2receipt of a residential mortgage loan application:
AB678,9 3Section 9. 224.71 (3) (a) (intro.), 1., 2. and 3. of the statutes are renumbered
4224.71 (3) (intro.), (c), (d) and (e), and 224.71 (3) (intro.), as renumbered, is amended
5to read:
AB678,7,76 224.71 (3) (intro.) "Mortgage banker" means a person who is not excluded by
7par. (b) and who
does any of the following:
AB678,10 8Section 10. 224.71 (3) (b) (intro.) and 7. of the statutes are repealed.
AB678,11 9Section 11. 224.71 (3) (b) 8. of the statutes is renumbered 224.72 (1r) (a).
AB678,12 10Section 12. 224.71 (3) (b) 9. of the statutes is renumbered 224.72 (1r) (b).
AB678,13 11Section 13. 224.71 (3) (b) 10. of the statutes is renumbered 224.72 (1r) (d).
AB678,14 12Section 14. 224.71 (3) (b) 11. of the statutes is renumbered 224.72 (1r) (g).
AB678,15 13Section 15. 224.71 (3) (b) 12. of the statutes is renumbered 224.72 (1r) (h).
AB678,16 14Section 16. 224.71 (4) of the statutes is repealed and recreated to read:
AB678,7,1715 224.71 (4) "Mortgage broker" means a person who, for compensation or gain
16or in the expectation of compensation or gain, does any of the following but does not
17make an underwriting decision or close a residential mortgage loan:
AB678,7,1918 (a) Assists a person in obtaining or applying to obtain a residential mortgage
19loan.
AB678,7,2120 (b) Holds himself, herself, or itself out as being able to assist a person in
21obtaining or applying to obtain a residential mortgage loan.
AB678,7,2222 (c) Engages in table funding.
AB678,17 23Section 17. 224.71 (6) (a) (intro.), 1. and 2. of the statutes are renumbered
24224.71 (6) (intro.), (c) and (d) (intro.), and 224.71 (6) (intro.) and (d) (intro.), as
25renumbered, are amended to read:
AB678,8,3
1224.71 (6) (intro.) "Mortgage loan originator" means an individual who is not
2excluded by par. (b) and
who, for compensation or gain or in the expectation of
3compensation or gain, does any of the following:
AB678,8,64 (d) (intro.) Offers or negotiates terms of a residential mortgage loan. For
5purposes of this paragraph, an individual offers or negotiates terms of a residential
6mortgage loan if the individual does any of the following:
AB678,18 7Section 18. 224.71 (6) (b) (intro.) and 4. of the statutes are repealed.
AB678,19 8Section 19. 224.71 (6) (b) 1. of the statutes is renumbered 224.725 (1m) (c) and
9amended to read:
AB678,8,1510 224.725 (1m) (c) An individual engaged solely as a loan processor or
11underwriter, unless the individual is an independent contractor or represents to the
12public, through advertising or another means of communication such as the use of
13business cards, stationery, brochures, signs, rate lists, or other promotional items,
14that the individual can or will perform any of the activities of a mortgage loan
15originator.
AB678,20 16Section 20. 224.71 (6) (b) 2. of the statutes is renumbered 224.725 (1m) (d).
AB678,21 17Section 21. 224.71 (6) (b) 3. of the statutes is renumbered 224.725 (1m) (e).
AB678,22 18Section 22. 224.71 (6) (d) 1., 2. and 3. of the statutes are created to read:
AB678,8,2019 224.71 (6) (d) 1. Discusses, explains, or presents for consideration by a
20borrower or prospective borrower particular residential mortgage loan terms.
AB678,8,2321 2. Communicates directly or indirectly with a borrower or prospective borrower
22for the purpose of reaching a mutual understanding about prospective residential
23mortgage loan terms.
AB678,8,2524 3. Recommends, or refers a borrower or prospective borrower to, a particular
25lender or recommends a set of residential mortgage loan terms.
AB678,23
1Section 23. 224.71 (7) of the statutes is amended to read:
AB678,9,82 224.71 (7) "Nationwide mortgage licensing system and registry" means the
3licensing and registration system developed and maintained by the Conference of
4State Bank Supervisors and the American Association of Residential Mortgage
5Regulators for licensed mortgage loan originators and mortgage loan originators
6exempt from licensing under s. 224.726 (1) 224.725 (1m) or, if this system is no longer
7maintained, any system established by the secretary of the federal department of
8housing and urban development under P.L. 110-289, Title V, section 1509.
AB678,24 9Section 24. 224.71 (8) of the statutes is repealed.
AB678,25 10Section 25. 224.71 (13) (c) of the statutes is amended to read:
AB678,9,1511 224.71 (13) (c) Negotiating, on behalf of any party, any portion of a contract
12relating to the sale, purchase, lease, rental, or exchange of real property, other than
13in connection with providing financing for the transaction. For purposes of this
14paragraph, providing financing for the transaction does not include use by a licensee
15under s. 452.03 of forms approved under s. REEB 16.03, Wis. Adm. Code.
AB678,26 16Section 26. 224.71 (13c) of the statutes is created to read:
AB678,9,2017 224.71 (13c) "Registered entity" means a depository institution that
18voluntarily registers with the division for the purpose of sponsoring licensed
19mortgage loan originators that are under the depository institution's direct
20supervision and control.
AB678,27 21Section 27. 224.71 (13g) (intro.) of the statutes is created to read:
AB678,9,2322 224.71 (13g) "Registered mortgage loan originator" means any individual who
23is all of the following:
AB678,28 24Section 28. 224.71 (13m) of the statutes is created to read:
AB678,10,2
1224.71 (13m) "Regularly engage," with respect to an individual, means that
2any of the following applies:
AB678,10,73 (a) The individual engaged in the business of a mortgage loan originator on
4more than 5 residential mortgage loans, in this state or another state, in the previous
5calendar year or expects to engage in the business of a mortgage loan originator on
6more than 5 residential mortgage loans, in this state or another state, in the current
7calendar year.
AB678,10,108 (b) The individual is acting on behalf of a person who is, or is required to be,
9licensed as a mortgage lender, mortgage banker, or mortgage broker in this state or
10another state.
AB678,10,1111 (c) The individual is acting on behalf of a registered entity.
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