Report Title:

Mortgage Brokers and Solicitors; Licensing

Description:

Requires mortgage brokers and solicitors to pass a licensing exam. Regulates advertising. Requires continuing education for license renewal. Expands definition of "mortgage broker". Creates right of action to recover on surety bond. Authorizes additional sanctions against a licensee. (SD1).

THE SENATE

S.B. NO.

3145

TWENTY-SECOND LEGISLATURE, 2004

S.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO LICENSING OF MORTGAGE BROKERS AND SOLICITORS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to increase consumer protection by enhancing requirements for competence and professionalism for mortgage brokers and mortgage solicitors and strengthening enforcement mechanisms.

SECTION 2. Chapter 454, Hawaii Revised Statutes, is amended by adding three new sections to be appropriately designated and to read as follows:

"§454-   Mortgage broker and solicitor examination. (a) An applicant for a mortgage broker or solicitor license shall pass a written examination prior to issuance of a license. The examination shall test the knowledge of the applicant concerning the mortgage transaction, the duties and responsibilities of a broker or solicitor, the mortgage laws and rules of this State, and relevant federal statutes.

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

(c) An applicant who fails to appear for the examination as scheduled or fails to pass the examination may reapply for an examination, provided the applicant remits all required fees and forms for another examination before being rescheduled for that examination.

(d) An applicant's examination scores shall be valid for two years from the date of the examination or last renewal, whichever is later.

§454-   Advertising. (a) It is a misdemeanor for any person to advertise, with or without any limiting qualifications, as a mortgage broker or mortgage solicitor unless the person holds a valid license under this chapter for the services advertised. "Advertise" as used in this section includes, but is not limited to, issuing any card, sign, or device to any person; causing, permitting, or allowing any sign or marking on or in any building, vehicle, or structure; advertising in any newspaper or magazine; listing or advertising in any directory under a classification or heading that includes the word "mortgage broker," "mortgage solicitor," or the like; or broadcasting commercials by airwave or Internet transmission.

(b) A mortgage broker or solicitor may advertise in a print or broadcast medium, as defined in subsection (a), only if the advertisement or listing includes the respective mortgage broker's or solicitor's applicable and current license number, and proof of the number's validity is provided to the publisher or producer of the advertising medium. Any advertisement for a branch office or trade name shall include the name of the parent company in prominent and conspicuous type.

(c) Upon entry of either a final order of the commissioner pursuant to chapter 91 or a judgment by a court of competent jurisdiction finding that a mortgage broker or solicitor has advertised in violation of this section, the public utility furnishing telephone service to the broker or solicitor shall disconnect the telephone number contained in the advertisement or listing.

(d) The publisher or producer of a print or broadcast advertising medium refusing to list or accept advertisements based on the publisher's or producer's compliance with subsection (b), shall not be liable in any suit, action, or claim arising from the refusal. Good faith compliance by a public utility with subsection (c) is a complete defense to any civil or criminal action brought against it arising from the termination of telephone service.

§454-   Prerequisites for license renewal. (a) At the time of renewal, a mortgage broker, designated solicitor in charge, or solicitor shall certify on a form provided by the commissioner that the licensee has completed the following hours of continuing education, or its equivalent as determined by the commissioner, during the two-year period preceding the application for renewal:

(1) Mortgage broker, eighteen hours;

(2) Designated solicitor in charge, eighteen hours; and

(3) Mortgage solicitor, twelve hours.

The certification shall be under oath if required by the commissioner. The commissioner may require any licensee to submit, in addition to the certification, further evidence satisfactory to the commissioner demonstrating compliance with the continuing education requirements set forth herein. Failure to satisfy the continuing education requirements by the license expiration date shall result in the renewed license being automatically placed on an "inactive" status.

(b) The course of study for continuing education shall be approved by the National Association of Mortgage Brokers or an accredited mortgage business school, college, university, community college, or vocational school and shall include instruction related to primary and subordinate financing transactions and the appropriate laws governing those transactions, including at least four hours covering compliance with federal and state regulation of mortgage lending and at least two hours on mortgage broker business ethics.

(c) To reactivate a license which has been placed on an "inactive" status, the licensee shall submit to the commissioner proof of having satisfied the continuing education requirement of this section, a complete application setting forth the information as may be prescribed or required by the commissioner, and payment of the proper fee.

(d) A false certification to the commissioner shall be deemed a violation of this chapter and subject the licensee to disciplinary proceedings."

SECTION 3. Section 454-1, Hawaii Revised Statutes, is amended by amending the definition of "mortgage broker" to read as follows:

""Mortgage broker" means a person not exempt under section 454-2 who for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly makes, negotiates, acquires, or offers to make, negotiate, or acquire a mortgage loan on behalf of a borrower seeking a mortgage loan[.], and who deals directly with a borrower to offer or negotiate the terms, conditions, and fees of a mortgage loan."

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

1. By amending subsection (a) to read:

"(a) No person required to be licensed under this chapter shall act, attempt to act, or hold the person's self out as a mortgage broker or mortgage solicitor without a license therefor as provided in this chapter[, and no person not]. No person required to be licensed under this chapter who acts, attempts to act, or holds the person's self out as a mortgage broker or mortgage solicitor without a license shall charge or receive any commission, fee, [or] bonus, salary, hourly wage, or remuneration in connection with arranging for, negotiating, or selling a mortgage loan."

2. By amending subsections (c) and (d) to read:

"(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,] $50,000, executed by the mortgage broker as principal and a surety company authorized to do business in the State as a surety. The bond shall be conditioned upon the faithful compliance of the broker of 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[;]. The commissioner, or any person who has been or claims to have been injured by the breach of the bond's conditions, shall have the right of action to recover on the bond, plus a reasonable attorney's fee incurred to secure the recovery under the bond; 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) 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[. In the event], and certification that the applicant has no conviction for fraud, embezzlement, misrepresentation, or theft. If the commissioner orders denial [of issuance or] of renewal of a license, the order shall be made only pursuant to chapter 91.

The failure, refusal, or neglect of any licensed mortgage broker to maintain the applicable bond in full force and effect shall cause the automatic forfeiture of the mortgage broker 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.

The failure to restore a license within sixty days after the date of forfeiture shall result in the forfeiture of all fees and shall require the person to apply as a new applicant. The commissioner may assess a fee not to exceed $1,000, impose a bonding requirement, or restrict the license as a condition for the restoration of a license forfeited pursuant to this section. A licensee, within sixty days after receipt of the notification of the forfeiture, may request an administrative hearing to review the forfeiture, pursuant to chapter 91."

3. By amending subsection (f) to read:

"(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 the licensed insurance producer only arranges mortgages with a single 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 whom the insurance producer has an exclusive agency relationship. The licensed insurance producer and insured depository institution shall certify that the insurance producer only arranges mortgage loans with that insured depository and no other. If the licensed insurance producer ceases to arrange mortgage loans with that insured depository institution, the license shall be terminated as of the date the insurance producer ceases to arrange mortgage loans with the insured depository institution."

4. By amending subsection (i) to read:

"(i) Every licensed mortgage broker shall have and maintain a principal place of business in the 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 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 the licensed insurance producer only arranges mortgages with a single 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 whom the insurance producer has an exclusive agency relationship. The licensed insurance producer and insured depository institution shall certify that the insurance producer only arranges mortgage loans with that insured depository and no other. If the licensed insurance producer ceases to arrange mortgage loans with that insured depository institution, 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 454-4, Hawaii Revised Statutes, is amended to read as follows:

"§454-4 Suspension, revocation. (a) [The] In addition to any other actions authorized by law, the commissioner may revoke a license issued under this chapter, suspend a license [for] issued under this chapter, condition the right of a licensee to use the license, fine any person holding a license under this chapter, or 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) Making a false promise [tending] likely to influence, persuade, or induce[,] another, or pursuing a course of misrepresentation or false promises through agents, solicitors, advertising, or otherwise;

(2) Misrepresentation or concealment of any material fact with respect to any transaction resulting in injury to any party;

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

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

(6) 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 contains a material misstatement, or 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)].

(c) For a licensee other than an individual, it shall be sufficient cause for the suspension or revocation of the license that any officer, director, employee, or member of the licensed corporation, partnership, association, or other organization has so acted as would be cause for suspension or revocation of a license to the party as an individual.

(d) Orders for suspension or revocation shall be made only pursuant to chapter 91."

SECTION 6. Section 454-8, Hawaii Revised Statutes, is amended to read as follows:

"§454-8 Penalty, contracts void. [Violation] Each violation of this chapter shall be punishable by a fine of not more than $1,000 or 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 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect upon its approval; provided that currently licensed mortgage brokers and solicitors shall not be required to comply with section 2 of this Act until their first license renewal after the effective date of this Act.