Mortgage broker duties and agency relationships

Current law imposes various requirements on, and specifies numerous acts and practices prohibited by, mortgage brokers and their principals and agents. For example, no mortgage broker or principal or agent of a mortgage broker may do any of the following: 1) make materially false or deceptive statements or representations, including engaging in bait and switch advertising or falsely representing loan rates, points, or other financing terms or conditions; 2) make false, deceptive, or misleading promises relating to the services being offered or that influence, persuade, or induce a client to act to his or her detriment; 3) act for more than one party in a transaction without the knowledge and consent of all parties on whose behalf the mortgage broker is acting; 4) demonstrate a lack of competency to act as a mortgage broker in a way that safeguards the interests of the public; 5) fail to account for or remit any moneys coming into the mortgage broker's possession that belong to another person;

6) engage in conduct that violates a standard of professional behavior that has become established for mortgage brokers; 7) engage in conduct that constitutes improper, fraudulent, or dishonest dealing; 8) solicit or enter into a contract with a borrower that provides in substance that the mortgage broker may earn a fee or commission through "best efforts" to obtain a loan even though no loan is actually obtained for the borrower; or 9) solicit, advertise, or enter into a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting. Also, a mortgage broker must deposit in a trust account all funds it receives other than nonrefundable fees, pending proper disbursement of the funds. A person who violates the laws regulating mortgage brokers may be fined not more than $25,000 or imprisoned for not more than nine months or both, may be subject to an administrative forfeiture of not more than $25,000, may be subject to license revocation or suspension by the division, and may also be subject to civil liability in a private action.

This bill specifies that a mortgage broker has an agency relationship with the residential mortgage loan applicant or investor on whose behalf the mortgage broker provides, or contracts to provide, mortgage brokerage services (borrower). The mortgage broker owes all of the following duties to the borrower:

1. The mortgage broker must act in the borrower's best interest and in the utmost good faith. The mortgage broker may not compromise the borrower's rights or interests in favor of the mortgage broker's or any other person's.

2. The mortgage broker may not accept, give, or charge any undisclosed compensation or realize any undisclosed remuneration that inures to the benefit of the mortgage broker on an expenditure made for the borrower.

3. The mortgage broker must carry out all lawful instructions given by the borrower.

4. The mortgage broker must disclose to the borrower all material facts of which the mortgage broker has knowledge that might reasonably affect the borrower's rights or interests or ability to receive the borrower's intended benefit from the residential mortgage loan. This does not include facts that are reasonably susceptible to the knowledge of the borrower.

5. The mortgage broker must use reasonable care in performing the mortgage broker's duties.

6. The mortgage broker must account to the borrower for all money and property received by the mortgage broker as the borrower's agent.

The bill does not prohibit a mortgage broker from contracting or collecting a fee for services provided, if the services were disclosed to the borrower before they were provided. The bill also does not require a mortgage broker to obtain a loan containing terms or conditions not available to the mortgage broker or to obtain a loan for the borrower from a mortgage lender with whom the mortgage broker does not have a business relationship.

These duties may not be waived. The bill requires a mortgage broker, in each brokerage services contract and related disclosure statement, to identify the parties' agency relationship and the mortgage broker's duties.