PA 06-45—sSB 228

Banks Committee

Finance, Revenue and Bonding Committee

AN ACT CONCERNING MORTGAGE PRACTICES AND LICENSING PROCEDURES

SUMMARY: This act:

1. makes several changes regarding material misstatements in mortgage originators' registration applications,

2. changes the originator registration fee schedule,

3. prohibits first mortgage lenders and brokers from imposing a fee on borrowers for failing to close on a loan and prohibits brokers from imposing a fee for the prepayment of a loan, and

4. expands the group of lenders prohibited from imposing excessive prepaid finance charges on borrowers.

EFFECTIVE DATE: Upon passage, except for the provisions on the originator registration fee schedule, which are effective October 1, 2006.

MATERIAL MISREPRESENTATIONS AND OTHER VIOLATIONS (§§ 1, 2, 4, 7, & 9)

An applicant for a first or second (1) mortgage lender, (2) mortgage correspondent lender, or (3) mortgage broker license must submit an application to the banking commissioner for registration for each of his originators or prospective originators. The act specifies that if any of these licensees file an originator registration application knowing that it contains a material misstatement by the originator, it constitutes a violation of the prohibition against making a false or misleading statement to the commissioner. Penalties for violating the banking laws include an injunction, restitution, a civil penalty of up to $100,000 per violation, and any other remedy authorized by law.

Under the act, an applicant's material misstatement in an originator registration application or the filing of such an application with knowledge that it contains a material misrepresentation by the originator is a basis for denial of these licenses. The act also makes a material misstatement by the originator the basis for denial of an originator's registration application. Prior law only addressed such an action by the applicant. The material misstatements are also grounds for suspension, revocation, or refusal to renew a license or originator registration because the law allows the commissioner to take such actions for any reason that would be sufficient grounds to deny the license or registration.

Finally, the act makes an originator's general violation of any banking laws or any other laws applicable to the conduct of his business the basis for revoking, suspending, or refusing to renew his registration. The commissioner may already take these steps with regard to licensees for such actions.

ORIGINATOR REGISTRATION FEE (§§ 3 & 8)

First or second (1) mortgage lenders, (2) mortgage correspondent lenders, and (3) mortgage brokers are licensed for a two-year period. Under prior law, the registration fee for originators associated with these licensees was $50 for a registration period of up to a year and $100 for a period between one and two years. The act makes the fee $100 regardless of when the licensee makes the originator registration application.

FEES IMPOSED ON BORROWERS (§§ 5 & 10)

The act prohibits brokers from imposing any fee, commission, or valuable consideration on a borrower because he prepays his loan principal.

It also prohibits first and second mortgage lenders and brokers from requiring, by agreement or otherwise, a borrower to compensate them for any fees, commissions, or other valuable consideration lost because the borrower did not close on a loan, unless it is collected as an advance fee in accordance with the law.

Under the law, an advance fee given to the lender or broker is refundable unless the parties agree in writing that it is not and the writing includes, among other things, (1) an express statement of the total advance fee to be paid and any part that is nonrefundable and (2) a clear and conspicuous statement of any conditions under which the licensee will retain the advance fee.

PREPAID FINANCE CHARGES (§ 6)

The law already generally prohibited the following groups from charging prepaid finance charges that exceed, in the aggregate, the greater of 5% or $2,000 on a first mortgage loan:

1. first mortgage lenders, correspondent lenders, and brokers;

2. banks, out-of-state banks, Connecticut credit unions, federal credit unions, or out-of-state credit unions;

3. small loan lenders; and

4. secondary mortgage lenders, correspondent lenders, and brokers.

The act expands the restrictions on prepaid finance charges to persons making five or fewer first mortgage loans within any period of 12 consecutive months.

BACKGROUND

Originators

An “originator” is an individual employed or retained by a first or second mortgage lender or broker to negotiate, solicit, arrange, or find a first or second mortgage loan for, or with the expectation of, a fee, commission, or other valuable consideration.

OLR Tracking: SC: GC: JL: ts