No. 30251 (Amendment): R162-205. Residential Mortgage Unprofessional Conduct

DAR File No.: 30251
Filed: 07/27/2007, 03:57
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of this amendment is: 1) to add to the list of offenses that constitute unprofessional conduct the ordering of services from third party service providers such as appraisers, insurance agents, etc. in connection with the origination of residential mortgage loans and then failing to pay for those services; 2) to harmonize the section of the rule addressing the name under which business must be conducted with the current statute requiring an entity to have a principal lending manager; and 3) to define what is proper supervision of licensees by a principal lending manager.

Summary of the rule or change:

The amendments are: 1) the numbering system of the rule is changed; 2) the provision related to the name under which business must be conducted is changed to state that it is unprofessional conduct to conduct business other than in the name of the entity with which one's principal lending manager is affiliated; 3) a new provision is added defining as unprofessional conduct the failure to pay third-party service providers; 4) a new Subsection R162-205-2(205.2.1) is added to specify what a principal lending manager must do in order to properly supervise affiliated licensees; and 5) a new Subsection R162-205-2(205.2.2) is added to provide a "safe harbor" provision for principal lending managers. They will not be held responsible for failing to exercise reasonable supervision if they follow these guidelines.

State statutory or constitutional authorization for this rule:

Subsection 61-2c-103(3)(d)

Anticipated cost or savings to:

the state budget:

None--Identifying another type of behavior as "unprofessional conduct" has no impact on the state budget, nor does setting forth standards for supervision of mortgage officers by their principal lending managers.

local governments:

None--Local governments do not act as mortgage loan officers or principal lending managers. Therefore, rules related to the standards of conduct for loan officers and principal lending managers have no impact on local governments.

small businesses and persons other than businesses:

The only persons who are affected by defining as unprofessional conduct the failure to pay for mortgage-related services that one has ordered are the mortgage loan officer who has ordered the service and the third-party provider who has provided the service. The mortgage loan officer is already contractually obligated to pay for services ordered, so this rule change would not impose an additional financial obligation on the mortgage loan officer. The third party service providers may benefit from this rule change because the mortgage officers may be more likely to voluntarily pay them for services ordered if it is a licensing offense not to do so. With respect to the addition of standards for principal lending manager supervision of licensees, there is no anticipated cost to the managers. The addition of guidelines defining what level of supervision is required may actually save the managers money because they will know what is expected of them.

Compliance costs for affected persons:

As explained above, the only persons who could incur compliance costs because of this rule change would be mortgage loan officers and principal lending managers. With respect to the rule change defining as unprofessional conduct the failure to pay third-party service providers for services ordered, there will be no additional compliance costs because the party who orders the service would be contractually obligated to pay for the service already. With respect to the part of the rule defining what constitutes proper supervision, no additional cost to principal lending managers is anticipated. This rule may actually save principal lending managers money because they will know what is expected of them.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule filing clarifies that failure to pay for mortgage-related services from third party providers constitutes unprofessional conduct, as well as conducting business in any name other than the entity in which the principal lending manager is affiliated. It also clarifies the supervision responsibilities of a principal lending manager. No fiscal impact to businesses is anticipated beyond those discussed in the rule summary. Francine A. Giani, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Commerce
Real Estate
HEBER M WELLS BLDG
160 E 300 S
SALT LAKE CITY UT 84111-2316

Direct questions regarding this rule to:

Shelley Wismer at the above address, by phone at 801-366-0145, by FAX at 801-366-0315, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

09/14/2007

This rule may become effective on:

09/22/2007

Authorized by:

Derek Miller, Director

RULE TEXT

R162. Commerce, Real Estate.

R162-205. Residential Mortgage Unprofessional Conduct.

R162-205-1. Residential Mortgage Unprofessional Conduct.

205.1 Unprofessional conduct includes the following acts:

205.1.1[(a)] conducting the business of residential mortgage [lending]loans, including soliciting or marketing, in the licensee's individual name, the principal lending manager's individual name, or [under ]any name other than [a]the name of the licensed mortgage entity with which the individual's principal lending manager is affiliated[under which the entity or individual conducting such business is licensed with the Division];

205.1.2[(b)] failing to remit to [the appropriate ]third part[ies]y service providers the appraisal fees, inspection fees, credit reporting fees, insurance premiums, or similar fees which have been collected from a borrower;

205.1.3 failing to pay to third party service providers the fee for any service ordered by the licensee in connection with the business of residential mortgage loans, unless the potential borrower has contractually agreed to pay the third party service provider directly or unless a good faith dispute exists as to whether the service provided satisfies requirements established by state or federal law;

205.1.4[(c)] charging for services not actually performed;

205.1.5[(d)] charging a borrower more for third party services than the actual cost of those services;

205.1.6[(e)] filling out or altering any Real Estate Purchase Contract or other contract for the sale of real property, or any addenda thereto;

205.1.7[(f)] making any alteration to any appraisal of real property;[

(g) in the case of a principal lending manager, failing to exercise reasonable supervision over the activities of any unlicensed staff of the entity; and]

205.1.8[(h)] unless acting as a real estate licensee and not as a mortgage licensee:

[(i)](a) providing a buyer or seller of real estate with comparative market analysis or otherwise assisting a buyer or seller to determine the offering price or sales price of real estate;

[(ii)](b) representing or assisting a buyer or seller of real estate in negotiations concerning a possible sale of real estate, except that a mortgage licensee may advise a borrower about the consequences that the terms of a purchase agreement may have on the terms and availability of various mortgage products;

[(iii)](c) performing any other acts that require a real estate license under Title 61, Chapter 2;

[(iv)](d) advertising the sale of real estate by use of any advertising medium, except that a mortgage licensee may:

[(1)](i) advertise real estate owned by the licensee as a "for sale by owner";

[(2)](ii) provide advertising to a property owner who has not signed an agency agreement with a real estate licensee and is selling the real estate "for sale by owner", so long as the advertising provides clear and distinguishable identification, contact information, function and responsibility of both the property owner and the mortgage licensee; or

[(3)](iii) advertise in conjunction with a real estate brokerage, so long as the advertising provides clear and distinguishable identification, contact information, function and responsibility of both the real estate licensee and the mortgage licensee.

 

R162-205-2. Residential Mortgage Standards of Practice.

205.2.1 Supervision of licensees and unlicensed staff. Principal lending managers shall exercise reasonable supervision by controlling and directing the details and means of the work activities of all licensees affiliated with the principal lending manager and all unlicensed staff. To exercise reasonable supervision, a principal lending manager shall:

(a) establish, maintain, and provide to all licensees affiliated with the principal lending manager and all unlicensed staff written policies setting out the office procedures for complying with federal and state laws governing residential mortgage lending, including the Utah Residential Mortgage Practices Act and the rules promulgated thereunder;

(b) ensure that each person affiliated with the principal lending manager and all unlicensed staff have read the Utah Residential Mortgage Practices Act and the rules promulgated thereunder;

(c) ensure that the business of residential mortgage loans conducted by an entity is conducted only by individuals who hold active mortgage officer or associate lending manager licenses issued by the Division of Real Estate;

(d) ensure that the licensees affiliated with the principal lending manager conduct all residential mortgage loan business, as defined in Utah Code Section 61-2c-102(1)(e), in the name of the licensed mortgage entity with which the principal lending manager is affiliated, and not in the licensee's own name or any other name;

(e) establish and enforce written policies and procedures for protecting and insulating underwriters employed by the entity with which the principal lending manager is affiliated from pressure from licensees and unlicensed staff that would jeopardize the underwriter's objectivity;

(f) establish and follow procedures for responding to all consumer complaints, and personally review any complaint relating to conduct that could constitute a violation of federal or state law governing residential mortgage lending by a licensee affiliated with the principal lending manager or by any unlicensed staff;

(g) review each loan file sent to the underwriter and attest, by signature on a form to be kept in each loan file, to the accuracy of all information in the file;

(h) for quality control purposes, review a minimum of 20 per cent of all loan applications that have failed without being sent to an underwriter, and retain with the reviewed applications some form of proof that the applications have been reviewed; and

(i) review for compliance with applicable federal and state laws all advertising and marketing materials and all marketing methods to be used by the entity and licensees affiliated with the principal lending manager.

205.2.1.1 Assistance from associate lending managers. A principal lending manager may employ associate lending managers to assist in performing the duties listed in Subsection 205.2.1. The principal lending manager shall actively supervise such associate lending managers and will remain personally responsible for adequate supervision of all licensees affiliated with the principal lending manager and all unlicensed staff.

205.2.2 Reasonable supervision. A principal lending manager will not be held responsible for failing to exercise reasonable supervision if:

(a) a licensee affiliated with the principal mortgage officer or an unlicensed staff member violates a provision of federal or state law, including the Utah Residential Mortgage Practices Act, in contravention of the principal lending manager's specific written policies;

(b) the principal lending manager's current written policies were provided to the licensee or unlicensed staff prior to the violation;

(c) the principal lending manager took reasonable steps intended to enforce the written policies;

(d) upon learning of the violation, the principal lending manager reported the violation to the Division and attempted to prevent or mitigate the damage;

(e) the principal lending manager did not participate in or implicitly or explicitly condone the violation; and

(f) the principal lending manager did not attempt to avoid learning of the violation.

 

KEY: residential mortgage loan origination

Date of Enactment or Last Substantive Amendment: [October 11, 2006]2007

Notice of Continuation: December 13, 2006

Authorizing, and Implemented or Interpreted Law: 61-2c-301(1)(k)