DEPARTMENT OF REGULATORY AGENCIES Division of Real Estate RULES REGARDING MORTGAGE BROKERS 4 CCR 725-3 [Editor’s Notes follow the text of the rules at the end of this CCR Document.] Rule A Mortgage Brokers – Bond Requirement A. Alternatives to Surety Bonds Prior to registration, an applicant for registration shall post with the Director of the Division of Real Estate a surety bond, or an alternative authorized by Article 35 of Title 11, C.R.S., of twenty-five thousand dollars ($25,000.00).

If the mortgage broker posts an alternative to a surety bond, it shall be in the form of a savings account or deposit in or a certificate of deposit issued by a state or national bank doing business in this state or by a savings account or deposit in or a certificate of deposit issued by a state or federal savings and loan association doing business in this state in the amount of twenty-five thousand dollars ($25,000.00) net of any penalty or withdrawal or liquidation. The savings account, deposit or certificate of deposit shall be assigned to the Director of the Division of Real Estate for the use of the People of the State of Colorado in the form and manner approved by the Director. The assignment shall be for a period ending six (6) years after the revocation, expiration or surrender of a registration or on such earlier date as may be determined by the Director.

If the alternative to the surety bond is in an interest-bearing instrument, the mortgage broker may receive interest thereon. The alternative to a surety bond must consist of assets that may be immediately liquidated by the Division of Real Estate upon the entering of a judgment from a court of competent jurisdiction pursuant to section §12-61-907 (2), C.R.S. REGULATION 1-1-1 CONCERNING GOOD-FAITH TEMPORARY REGISTRATION FOR MORTGAGE BROKERS. [Eff. 09/30/2007] Section 1. Authority Section 2. Scope and Purpose Section 3. Applicability Section 4. Definitions Section 5. Rules Regarding Registration Section 1 Authority This regulation is promulgated by the Director of the Division of Real Estate under the authority of § 12- 61-910.3, C.R.S., (2007).

Section 2 Scope and Purpose The purpose of this regulation is to specify the requirements of a good-faith temporary registration. Section 3 Applicability This rule governs individuals who broker a mortgage or act as a mortgage broker and is not intended for individuals who remain exempt from registration pursuant to § 12-61-904, C.R.S. (2007). Section 4 Definitions A. “Good-Faith Effort” is defined as complying with the provisions as set forth below in this rule. Section 5. Rules Regarding Registration 1. Mortgage brokers demonstrating to the Director a good-faith effort to comply with newly enacted HB07-1322, § 12-61- 901, et seq. , C.R.S. shall be issued a Good-Faith Temporary Registration upon compliance with the requirements set forth below.

A. Prior to submitting an application, a set of fingerprints for a criminal history record check must be submitted to the Colorado Bureau of Investigation (CBI); B. Acquisition of a $25,000.00 surety bond as required by § 12-61-907, C.R.S; C. Completion of the mortgage broker application; and D. Payment of the $200.00 application fee.

2. Good-Faith Temporary registrations will expire upon determination by the Director that the requirements of the law have not been met. Applicants shall be notified via e-mail, fax or U.S. mail to the contact information provided to the Division of Real Estate in the applicant’s application.

3. Good-Faith Temporary registrations issued by the Director will remain in effect until December 31, 2007, unless the Director issues the applicant a full registration upon the applicant’s compliance with all terms of the applicable registration law, or unless the Director determines the registration to be expired for failure to comply with the requirements to obtain a Good Faith Temporary Registration, as set forth in this regulation.

4. Any temporary registration issued by the Director shall have the same force and effect of the registration required by § 12-61-901, et seq., for the period of time it is in effect. 5. Once the applicant fully complies with the terms of the new law as determined by the Director, the Director shall register the applicant in accordance with § 12-61- 903, C.R.S. The date this occurs will be the applicant’s anniversary date for purposes of compliance with the licensing and education requirements of § 12-61-903, C.R.S.

Reasonable Inquiry and Tangible Net Benefit [Emer. Rule eff. 09/04/2007] Section 1. Authority Section 2. Scope and Purpose Section 3. Definitions Section 4. Applicability Section 5. Rules Regarding Mortgage Broker Requirements Section 6. Effective Date Section 1. Authority The Director of the Division of Real Estate adopts the following emergency rule, entitled Reasonable Inquiry and Tangible Net Benefit, according to her authority as found in § § 12-61-910.3 and 24-4-103(6), C.R.S.

Section 2. Scope and Purpose The Director finds that immediate adoption of this rule is imperatively necessary for the preservation of public health, safety or welfare and that compliance with the rulemaking requirements of § 24-4-103, C.R.S., would be contrary to public interest.

Section 12-61-904.5, C.R.S., states that mortgage brokers shall have a duty of good faith and fair dealing in all communications and transactions with a borrower. Section 12-61-904.5(1)(b), C.R.S., requires mortgage brokers to make a reasonable inquiry concerning the borrower’s current and prospective income, existing debts and other obligations, and any other information known to the mortgage broker and, after making such inquiry, to make his or her best efforts to recommend, broker, or originate a residential mortgage loan that takes into consideration the information submitted by the borrowers. Additionally, section 12-61-904.5(1)(a), C.R.S., prohibits mortgage brokers from recommending or inducing borrowers to enter into a transaction that does not have a reasonable, tangible net benefit to the borrower, considering all of the circumstances, including the terms of a loan, the cost of a loan, and the borrower’s circumstances. After consulting with industry leaders, the Division has learned that there is uncertainty in the marketplace regarding the impact of these new provisions, specific to mortgage products and various documentation types. Documentation types include, but are not limited to: stated income; no income verification; no income disclosure; no asset verification; and no asset disclosure. The mortgage lending community is uncertain if the aforementioned provisions prohibit non-traditional mortgage products and documentation types, since these provisions are new and have not been interpreted by the Division of Real Estate. This uncertainty could negatively impact the availability of mortgage credit to consumers. Due to the recent rise in foreclosures, the decline of the subprime market, and the closing of lenders on a national scale, the Division must adopt rules to clarify the new provisions in an effort to limit further reductions in mortgage credit. The purpose of this rule is to clarify uncertainties regarding reasonable inquiry and tangible net benefit. Without the immediate adoption of this emergency rule, the public’s interest is not served. Wherefore, the Director of the Division of Real Estate, pursuant to § 24-4-103(6), C.R.S. has an obvious and stated need to adopt this rule.

Section 3. Definitions A. “Uniform Residential Loan Application” shall mean the Freddie Mac Form 65 or the Fannie Mae Form 1003 used in residential loan transactions on properties of four or fewer units. The Uniform Residential Loan Application forms defined in this rule are those editions of the forms that are current and effective on September 4, 2007 and do not include any later amendments or editions. The forms are available for inspection at the Division of Real Estate at 1560 Broadway, Suite 925, Denver, Colorado, 80202. These forms are posted on the Division of Real Estate’s website at http://www.dora.state.co.us/real- estate/index.htm in the mortgage broker section under forms; the form(s) may be examined at any state publications depository library.

Section 4. Applicability This emergency rule governs individuals who broker a mortgage or act as a mortgage broker pursuant to § § 12-61-902(2) and (5), C.R.S.

Section 5. Rules Regarding Reasonable Inquiry and Tangible Net Benefit Mortgage Broker - Reasonable Inquiry and Tangible Net Benefit 1. Section 12-61-904.5(1)(b), C.R.S. does not prohibit specific mortgage products or documentation types. This provision requires the mortgage broker to recommend appropriate products. a. Mortgage brokers shall only recommend appropriate products after reasonable inquiry has been made in order to understand borrower’s current and prospective financial status. b. Reasonable inquiry requires the mortgage broker to interview and discuss current and prospective income, including the income’s source and likely continuance, with borrowers, and may not require the mortgage broker to verify such income. c. Mortgage brokers have a duty to recommend mortgage products based on the information provided by the borrower.

2. Mortgage brokers shall be deemed in compliance with Colorado law, § 12-61-904.5(1)(b), C.R.S., concerning reasonable inquiry, upon interviewing and discussing, with all applicable borrowers, all sections contained in the uniform residential loan application and upon completion of a Tangible Net Benefit disclosure. The Tangible Net Benefit Disclosure is posted on the Division of Real Estate’s website at http://www.dora.state.co.us/real-estate/mortgage/MBForms.htm. 3. A mortgage broker must first make a reasonable inquiry, in order to determine the reasonable, tangible net benefit for a borrower. The reasonable, tangible net benefit standard in § 12-61-904.5(1)(a), C.R.S., is inherently dependent upon the totality of facts and circumstances relating to a specific transaction. While the refinancing of certain home loans may clearly provide a reasonable, tangible net benefit, others may require closer scrutiny or consideration to determine whether a particular loan provides the requisite benefit to the borrower. a. When determining reasonable, tangible net benefit, there are many considerations mortgage brokers shall take into account and discuss with prospective borrowers. If applicable, the required considerations for mortgage brokers determining the requisite benefit shall include, but are not limited to:

i. Lower payments;

ii. Condensed amortization schedule;

iii. Debt consolidation;

iv. Cash out;

v. Avoiding foreclosure;

vi. Negative amortization;

vii. Balloon payments;

viii. Variable rates;

ix. Interest only options;

x. Prepayment penalties; and xi. Hybrid mortgage products.

4. The purpose or reason for a purchase or refinance transaction shall be identified by the borrower. A mortgage broker shall require that all borrowers describe, in writing, the reasons they are seeking a mortgage loan or to refinance an existing mortgage loan. a. It is the responsibility of the mortgage broker to ensure this information is acquired and accurately documented.

b. Pursuant to § 12-61-904.5(1), C.R.S., a mortgage broker may not have demonstrated a duty of good faith and fair dealing in all communications and transactions with a borrower if it is determined that a mortgage broker completes the required purpose or reason for a purchase or refinance transaction without consulting the borrower. 5. The Division developed a suggested disclosure form regarding reasonable, tangible net benefit. Alternate disclosures are acceptable if they include all information required on the suggested form, as determined by the Director.

a. At the time of completing a loan application a mortgage broker shall provide a Tangible Net Benefit disclosure to the borrower.

b. The Tangible Net Benefit disclosure also shall be provided prior to a borrower signing loan closing documents.

c. Tangible Net Benefit disclosures shall be signed by both the mortgage broker and the primary borrower.

d. Mortgage brokers shall be presumed compliant with this rule when using the suggested form and when disclosures meet the timelines defined in this emergency rule. Section 6. Effective Date This emergency rule is effective September 4, 2007.

Mortgage Broker Disclosures [Emer. Rule eff. 10/26/2007] Section 1. Authority Section 2. Scope and Purpose Section 3. Definitions Section 4. Applicability Section 5. Rules Regarding Mortgage Broker Disclosures Section 6. Effective Date Section 1. Authority The Director of the Division of Real Estate adopts the following emergency rule entitled, Mortgage Broker Disclosures, according to her authority as found in § § 12-61-910.3 and 24-4-103(6), C.R.S. Section 2. Scope and Purpose The Colorado Division of Real Estate finds that immediate adoption of this rule is imperatively necessary for the preservation of public health, safety or welfare and that compliance with the rulemaking requirements of § 24-4-103, C.R.S. would be contrary to the public interest. Section 12-61-914, C.R.S. requires mortgage brokers, within three business days after receipt of a loan application or any moneys from a borrower, to disclose specific details of a loan transaction to the borrower. Some of these details include, but are not limited to: the annual percentage rate; finance charge; amount financed; total amount of all payments; third party costs; terms of a lock-in agreement; transfer of documents; and that moneys paid by the borrower are held in a trust account. The Director has learned that uncertainty exists in the mortgage industry regarding how and when to provide these details. The purpose of this rule is to ensure that all required disclosures, set forth in § 12-61-914, C.R.S., are met and that borrowers are provided with accurate and clear disclosures regarding their mortgage loan transaction.

Section 3. Definitions A. “Truth-in-Lending Disclosure” means the disclosure form established by the Truth in Lending Act, specific to regulation Z, appendices H-2, H-3, H-4(a), (b), (c) and (d). B. “Good Faith Estimate Disclosure” means the disclosure form established in the Real Estate Settlement Procedures Act, part 3500, appendix C.

C. “Rate” means the payment or interest rate used to determine a borrower’s monthly payment. D. “Payment Type” means principal and interest, interest only or negative amortization. E. “Fixed Term” means the length of time an interest or payment rate is fixed and will not adjust. F. “Index” means the index for the adjustable rate mortgage. G. “Initial Adjustment Cap” means the limit on how much the interest or payment rate can change at the first adjustment period.

H. “Life Cap” means the limit on how much the interest or payment rate can change over the life of the loan.

I. “Front End Compensation” means compensation charged to the borrower that inures to the benefit of the mortgage broker and the mortgage company for which the mortgage broker is an officer, partner, member, contractor, independent contractor, exclusive agent or employee. J. “Back End Compensation” means the compensation paid by the funding lender that inures to the benefit of the mortgage broker and the mortgage company for which the mortgage broker is an officer, partner, member, contractor, independent contractor, exclusive agent or employee. Section 4. Applicability This emergency rule governs individuals who broker a mortgage or act as a mortgage broker pursuant to § § 12-61-902(2) and (5), C.R.S.

Section 5. Rules Regarding Mortgage Broker Disclosures Mortgage Broker – Disclosures 1. Section 12-61-914 (1), C.R.S., requires that specific disclosures, set forth in § 12-61-914(2), C.R.S., be disclosed within three (3) business days after receipt of a loan application or any moneys from a borrower.

2. Section 12-61-914 (2)(a), C.R.S., states the written disclosures shall contain the annual percentage rate, finance charge, amount financed, total amount of all payments, number of payments, amount of each payment, amount of points or prepaid interest, and the conditions and terms under which any loan terms may change between the time of disclosure and closing of the loan. If the interest rate is variable, the written disclosure shall clearly describe the circumstances under which the rate may increase, any limitation on the increase, the effect of an increase, and an example of the payment terms resulting from such an increase. a. The Director has determined that the Truth in Lending Disclosure form is an acceptable manner in which to disclose the requirements set forth in § 12-61-914(2)(a), C.R.S. b. Regarding non-traditional mortgage products with multiple payment options, the requirements set forth in § 12-61-914(2)(a), C.R.S. shall be disclosed for each payment or interest rate option available.

c. Requirements defined in § 12-61-914(2)(a), C.R.S., shall be disclosed: i. Within three (3) business days after receipt of a loan application or any moneys from a borrower;

ii. If, after the written disclosure is provided, a mortgage broker enters into a lock-in agreement, then no less than three business days thereafter, including Saturdays; and iii. If the annual percentage rate varies from the annual percentage rate disclosed earlier by more than 1/8 of 1 percentage point, within three (3) business days of such change and prior to the borrower signing loan closing documents. 3. Section 12-61-914(2)(b), C.R.S. states the disclosure shall contain the itemized costs of any credit report, appraisal, title report, title insurance policy, mortgage insurance, escrow fee, property tax, insurance, structural or pest inspection, and any other third-party provider’s costs associated with the residential mortgage loan.

a. The Director has determined the Good Faith Estimate Disclosure form is an acceptable manner in which to disclose the requirements set forth in § 12-61-914(2)(b), C.R.S. b. Requirements defined in § 12-61-914(2)(b), C.R.S., shall be disclosed: i. Within three (3) business days after receipt of a loan application or any moneys from a borrower;

ii. If, after the written disclosure is provided, a mortgage broker enters into a lock-in agreement, then no less than three business days thereafter, including Saturdays; and iii. If the annual percentage rate varies from the annual percentage rate disclosed earlier by more than 1/8 of 1 percentage point, within three (3) business days of such change and prior to the borrower signing loan closing documents. c. A mortgage broker shall not charge any fee that exceeds the fee disclosed on the written disclosure unless the mortgage broker has provided to the borrower, no less than three business days prior to the signing of the loan closing documents, a clear and written explanation of the fee and the reason for charging a fee exceeding that which was previously disclosed.

4. Section 12-61-914(2)(c), C.R.S. states that mortgage brokers shall disclose the amount of any commission or other compensation to be paid to the mortgage broker, including the manner in which such commission or other compensation is calculated and the relationship of such commission or other compensation to the cost of the loan received by the borrower. a. Mortgage brokers shall disclose to the borrower all of the front end and back end compensation for the transaction. Annual salaries are not required to be disclosed. b. Only when the dollar amount of compensation cannot be determined, may mortgage brokers disclose a range. Such range shall be disclosed in a dollar amount and the range shall not exceed one (1) percentage point of the loan amount for the transaction. [e.g., on a $100,000.00 loan, mortgage brokers may disclose $1,000.00 to $2,000.00, $1,800.00 to $2,800.00, or $3,000.00 to $4,000.00. This is not meant as a compensation cap and is only provided as an example of the range.] c. The Director has created the Colorado Compensation Disclosure Form to ensure this information is clearly and concisely disclosed. This disclosure may be found on the Division of Real Estate’s website at http://www.dora.state.co.us/real- estate/mortgage/MBForms.htm. Mortgage brokers shall use this form or an alternate form, if such alternate form clearly includes all information required on the suggested form, as determined by the Director.

i. Compensation disclosure shall be completed and disclosed: 1. Within three (3) business days after receipt of a loan application or any moneys from a borrower;

2. If, after the written disclosure is provided, a mortgage broker enters into a lock-in agreement, then no less than three (3) business days thereafter, including Saturdays; and 3. If the annual percentage rate varies from the annual percentage rate disclosed earlier by more than 1/8 of 1 percentage point, within three (3) business days of such change and prior to the borrower signing loan closing documents.

5. Section 12-61-914(2)(d), C.R.S., states the written disclosure, if applicable, shall contain the cost, terms, duration, and conditions of a lock-in agreement and whether a lock-in agreement has been entered, whether the lock-in agreement is guaranteed by the mortgage broker or lender, and, if a lock-in agreement has not been entered, disclosure in a form acceptable to the Director that the disclosed interest rate and terms are subject to change. Section 12-61-914(2)(g), C.R.S. states the mortgage broker shall disclose whether and under what conditions any lock-in fees are refundable to the borrower.

a. The Director has created the Colorado Lock-in Disclosure Form to ensure this information is clearly and concisely disclosed. This disclosure may be found on the Division of Real Estate’s website at http://www.dora.state.co.us/real-estate/mortgage/MBForms.htm. Mortgage brokers shall use this form or alternate form, if alternate form clearly includes all information required on the suggested form, as determined by the Director. b. This form or alternate form shall be used when disclosing lock-in agreements, or when the mortgage broker has not entered into a lock-in agreement, to borrowers on residential mortgage loan transactions.

c. Lock-in agreement disclosure shall be completed and disclosed: i. Within three (3) business days after receipt of a loan application or any moneys from a borrower;

ii. If, after the initial written disclosure is provided, a mortgage broker enters into a lock-in agreement, then no less than three (3) business days thereafter, including Saturdays and prior to the borrower signing loan closing documents, the mortgage broker shall deliver or send by first-class mail to the borrower, the written lock-in disclosure created by the Director; and iii. If the annual percentage rate varies from the annual percentage rate disclosed earlier by more than 1/8 of 1 percentage point, within three (3) business days of such change and prior to the borrower signing loan closing documents. 6. Individuals who broker a mortgage or act as a mortgage broker are required to keep records of the disclosures required in this rule, for a period of four years, for the purposes of inspection by the Director or authorized representative of the Director.

Section 6. Effective Date This emergency rule is effective October 26, 2007.

___________________________________________________ Editor’s Notes History Mortgage Broker Registration Emer. Rule eff. 06/01/2007. Good-Faith Temporary Registration for Mortgage Brokers Emer. Rule eff. 08/31/2007. Reg 1-1-1 eff. 09/30/2007. Reasonable Inquiry and Tangible Net Benefit Emer. Rule eff. 09/04/2007. Mortgage Broker Disclosures Emer. Rule eff. 10/26/2007.