7 TAC §80.10
The Texas Savings and Loan Commissioner (the "Commissioner")
proposes to amend §80.10 of the regulations (the "Regulations") that
implement the Mortgage Broker License Act,
Finance
Code
, Chapter 156 (the "Act"). The amendment would provide an additional
prohibition on false, misleading, or deceptive practices related to knowingly
participating in or permitting the submission of false or misleading information
of a material nature to any person in connection with a mortgage loan.
The Act, which became effective on September 1, 1999, requires all mortgage
brokers and loan officers, except for those specifically exempt, to be licensed
by January 1, 2000. The Act imposes certain standards of professional conduct
and requirements on the activities of individuals licensed under the Act.
The Regulations were published in the
Texas Register
on October 15, 1999, in proposed form prior to their adoption. During
the course of receiving comments on the Regulations, the Commissioner received
a number of comments addressing that portion of the Regulations addressing
false, misleading, or deceptive practices. The Commissioner initially proposed
a provision in §80.10 that would prohibit a Mortgage Broker or Loan Officer
from making or brokering a loan with term that clearly exceeded the applicant's
documented ability to pay. Numerous concerns were expressed by commenters
about this provision.
When the regulations were initially proposed and published for comment,
there was a provision that it would be deemed a false, misleading or deceptive
practice to make knowingly a loan which exceed the applicant's document capacity
to pay. This proposed provision generated a significant number of concerns
and negative comments, and it was omitted from the final regulation. However,
an alternative to address this concern was formulated and gave rise to this
proposed additional provision.
In discussions with mortgage brokers regarding the Commissioner's concern
about loans that exceed a borrowers ability of pay, it became clear that with
the review and underwriting by lenders that exists in the mortgage origination
process, it would be difficult for a broker to get a loan approved that exceeded
the borrower's ability to pay without some misrepresentation as to the borrower's
financial status. Based on this information, the Commissioner elected to delete
the proposed prohibition from the final regulations and offer a new proposed
provision that focused on the submission of false or misleading information
to investors in connection with loan files.
Such a practice might be done with or without the knowledge or participation
of the loan applicant. Even in instances where the loan applicant knew that
the practice was occurring, the loan applicant might not fully understand
the ramifications of such actions. Among the possible ramifications of this
practice to the mortgage loan applicant are the potential for criminal sanctions,
the possibility of obtaining a mortgage loan that is in excess of the applicant's
actual ability to repay, the possibility that discovery of such falsification
will disrupt the processing of the loan application or jeopardize its approval,
and the possibility that the mortgage broker will use the loan applicant's
participation in such activity to gain undue leverage over the applicant.
For these reasons, it was deemed appropriate to add a new paragraph to
the list of activities that would constitute false, misleading, or deceptive
practices. It is believed that including this paragraph will protect loan
applicants, prevent obvious abuses, and protect the mortgage lending/investing
industry, which looks to the mortgage brokerage industry to provide accurate
and reliable information in connection with mortgage loan applications.
The proposed prohibition would apply only to "knowing" participation in
the submission of false or misleading information and the proposed prohibition
includes a materiality provision to make it clear that false or misleading
information which is of a
de minimis
nature
and does not affect the outcome of the loan approval process does not constitute
a prohibited activity. For example, the omission of an inconsequential obligation
or the submission of approximate rather than precise loan balance, under certain
circumstances, would not constitute a violation of this proposed rule.
The proposed prohibition would include submission of false or misleading
information of a material nature to "any person" in connection with the decision
to make or approve a mortgage loan. This would include another broker, an
investor or the ultimate lender.
James L. Pledger, Savings and Loan Commissioner, has determined that for
the first five year period the amendment as proposed will be in effect, there
will be no fiscal implications for state and local government as a result
of enforcing or administering this amendment.
Mr. Pledger estimates that, for the first five years the proposed amendment
is in effect, the public will benefit from having this added to the proscribed
practices of Mortgage Brokers and Loan Officers. No difference will exist
between the cost of compliance for small businesses and the cost of compliance
for the largest businesses affected by the amendment.
Comments on the proposed amendment may be submitted in writing to James
L. Pledger, Commissioner, Savings and Loan Department, 2601 North Lamar, Suite
201, Austin, Texas 78705-4294, or e-mailed to TSLD@tsld.state.tx.us.
The proposed amendment is to expand upon previously adopted 7
TAC §80.10 which implements §156.102(b) of the Act, authorizing
the Commissioner to adopt rules to prohibit false, misleading, or deceptive
practices by mortgage brokers and loan officers.
The proposed amendment implements Subtitle E of the
Finance Code
; §156.102(b) is affected by the amendment.
§80.10. Prohibition on false, misleading, or deceptive practices.
No Mortgage Broker or Loan Officer may:
(1)
knowingly misrepresent his or her relationship to a Mortgage
Applicant or any other party to an actual or proposed Mortgage Loan transaction;
(2)
knowingly misrepresent or understate any cost, fee,
interest rate, or other expense in connection with a Mortgage Applicant's
applying for or obtaining a Mortgage Loan;
(3)
disparage any source or potential source of Mortgage
Loan funds in a manner which knowingly disregards the truth or makes any knowing
and material misstatement or omission;
(4)
knowingly participate in or permit
the submission of false or misleading information of a material nature to
any person in connection with a decision by that person whether or not to
make or acquire a Mortgage Loan.
(5)
[
(4)
] as provided for by the
Real Estate Settlement Procedures Act and its implementing regulations, broker,
arrange, or make a Mortgage Loan in which the Mortgage Broker or Loan Officer
retains fees or receives other compensation for services which are not actually
performed or where the fees or other compensation received bear no reasonable
relationship to the value of services actually performed;
(6)
[
(5)
] recommend or encourage
default or delinquency or continuation of an existing default or delinquency
by a Mortgage Applicant on any existing indebtedness prior to closing a Mortgage
Loan which refinances all or a portion of such existing indebtedness;
(7)
[
(6)
] induce or attempt to
induce a party to a contract to breach the contract so the person may make
a Mortgage Loan or;
(8)
[
(7)
] engage in any other practice
which the Commissioner, by published interpretation, has determined to be
false, misleading, or deceptive.
This agency hereby certifies that the proposal has been
reviewed by legal counsel and found to be within the agency's legal authority
to adopt.
Filed with the Office of
the Secretary of State, on January 13, 2000.
TRD-200000210
James L. Pledger
Commissioner
Texas Savings and Loan Department
Earliest possible date of adoption: February 27, 2000
For further information, please call: (512) 475-1350
Subchapter H. SAVINGS CLAUSE
7 TAC §80.19
The Texas Savings and Loan Commissioner proposes to add a
new subchapter to the regulations ("Regulations") which implement the Mortgage
Broker License Act,
Finance Code
, §156
(the "Act") through the adoption of Subchapter H, containing a new section, §80.19,
Savings Clause.
This new section, added at the informal suggestion of the Office of the
Attorney General, would make it clear that if for any reason any section of
the Regulations is found to be illegal or invalid, such illegality or invalidity
will not affect the remaining provisions of the Regulations.
James L. Pledger, Savings and Loan Commissioner, has determined that for
the first five year period the new section as proposed will be in effect,
there will be no fiscal implications for state and local government as a result
of enforcing or administering this subsection.
Mr. Pledger estimates that, for the first five years the proposed section
is in effect, the public will benefit from having this added to the proscribed
practices of Mortgage Brokers and Loan Officers. No difference will exist
between the cost of compliance for small businesses and the cost of compliance
for the largest businesses affected by the new section.
Comments on the proposed section may be submitted in writing to James L.
Pledger, Commissioner, Savings and Loan Department, 2601 North Lamar, Suite
201, Austin, Texas 78705-4294, or e-mailed to TSLD@tsld.state.tx.us.
The new section is proposed under §156.102 of the Finance Code
, which authorizes the commissioner
to adopt rules necessary to ensure compliance with the intent of the Act.
There are no other articles, codes or statutes that are affected by this
section. .
§80.19. Savings Clause.
If any portion or provision of this Chapter is found to be illegal,
invalid, or unenforceable, such illegality, invalidity, or lack of enforceability
shall not affect or impair the legality, validity, and enforceability of the
remainder hereof, all of which shall remain in full force and effect.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of the
Secretary of State, on January 13, 2000.
TRD-200000211
James L. Pledger
Commissioner
Texas Savings and Loan Department
Earliest possible date of adoption: February 27, 2000
For further information, please call: (512) 475-1350