4 CCR 725-3
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 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.
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 5. Rules Regarding Mortgage Broker Requirements 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.
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.
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.
This emergency rule governs individuals who broker a mortgage or act as a mortgage broker pursuant to 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.
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.
viii. Variable rates;
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.
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.
MORTGAGE BROKERS DUTY TO RESPOND AND PROVIDE REQUESTED DOCUMENTS FOR INVESTIGATIONS [Emer. Rule eff. 11/29/2007] Section 4. Rules Regarding Mortgage Brokers Duty to Respond and Provide Requested Documents for Investigations The Director of the Division of Real Estate adopts the following emergency rule entitled, Mortgage Brokers Duty to Respond and Provide Requested Documents for Investigations , according to her authority as found in § § 12-61-910.3 and 24-4-103(6), C.R.S. 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 12-61-905(7)(b), C.R.S., states the Director of the Division of Real Estate, upon his or her own motion may, and, upon the complaint in writing of any person, shall, investigate the activities of any registrant or any person who assumes to act in such capacity within the state. The purpose of this regulation is to require mortgage brokers or other persons who assume to act in such capacity within the state to provide a written response and all requested documents to the Director or an authorized representative of the Director. Additionally, this regulation prescribes the time period in which all persons and entities shall respond to Director inquiries, including, but not limited to, document and information requests during investigations of complaints or any other investigation conducted for the purpose of determining compliance with Colorado mortgage broker law. Without the immediate adoption of this emergency rule, the public’s interest is not served. Wherefore, the Director, pursuant to § 24-4-103(6), C.R.S. has an obvious and stated need to adopt this rule. This rule governs persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker. “Persons” for purposes of this rule shall mean any natural person, firm, partnership, limited liability company, or association or any corporation. Section 4. Rules Regarding Mortgage Brokers Duty to Respond and Provide Requested Documents for Investigations 1. Persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker shall provide the Director or his or her authorized representative with all information required by this rule, in a manner prescribed by the Director or authorized representative. Failure to provide all information requested by the Director or his or her authorized representative within the time set by the Director, or authorized representative of the Director, shall be grounds for disciplinary action and grounds for the imposition of fines unless the Director, or authorized representative of the Director, has granted an extension of time for the response. Failure to provide all requested information shall be grounds for disciplinary action and grounds for the imposition of fines regardless of whether the underlying complaint results in further investigation or subsequent action by the Director.
2. The response from the person shall contain the following:
3. A person shall be subject to disciplinary action pursuant to § 12-61-911(h) and (m), C.R.S. and may be subject to the imposition of fine(s) pursuant to § 12-61-905(7)(b), C.R.S. if such person has:
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. This emergency rule governs individuals who broker a mortgage or act as a mortgage broker pursuant to 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.
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.
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.
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.
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.
This emergency rule is effective October 26, 2007.
Errors and Omissions Insurance for Mortgage Brokers [Emer Rule eff. 11/13/2007] Section 4. Rules Regarding Errors and Omissions Insurance for Mortgage Brokers The Director of the Division of Real Estate adopts the following emergency rule entitled, Errors and Omissions Insurance for Mortgage Brokers, according to her authority as found in § § 12-61-910.3 and 24-4-103(6), C.R.S.
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., applicable to non-emergency rules, would be contrary to the public interest.
Section 12-61-903.5, C.R.S. requires the Director to determine the terms and conditions of coverage required, including the minimum limits of coverage, the permissible deductible and permissible exemptions. Errors and omissions insurance is a requirement for licensed mortgage brokers on and after January 1, 2008. Additionally, the Director, Erin Toll, has met with the Insurance Commissioner, Marcy Morrison, to ensure that errors and omissions policies and rates can be reviewed and processed in an expedited manner. This shall not be construed as normal practice for the Division of Insurance. The Insurance Commissioner has agreed to expedite the requisite errors and omissions policies to further protect the Colorado consumer, allow mortgage brokers the ability to fulfill the required insurance coverage and allow carriers sufficient time to provide information on required errors and omissions coverage to interested mortgage brokers.
The purpose of this rule is to ensure that mortgage brokers or those who broker a mortgage acquire and maintain the requisite coverage required by Colorado law. Without the immediate adoption of this emergency rule, the public’s interest is not served. Wherefore, the Director, pursuant to § 24-4-103(6), C.R.S. has an obvious and stated need to adopt this rule. This emergency rule governs individuals who broker a mortgage or act as a mortgage broker pursuant to Section 4. Rules Regarding Errors and Omissions Insurance for Mortgage Brokers 1. Mortgage brokers, at a minimum, shall maintain the following terms of coverage:
2. Through and including January 31, 2008, mortgage brokers may also comply with the errors and omissions requirement if:
3. For information regarding errors and omissions insurance carriers, visit the Division of Real Estate’s website at http://www.dora.state.co.us/real-estate/index.htm.
4. Applicants for licensure, renewal and reinstatement shall comply with this rule and § 12-61-903.5, C.R.S. in a manner prescribed by the Director. Any licensee who so fails to obtain errors and omissions coverage or to provide proof of continuous coverage shall be subject to disciplinary action, including immediate suspension.
This emergency rule is effective November 13, 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. Errors and Omissions Insurance for Mortgage Brokers Emer Rule eff. 11/13/2007. Mortgage Brokers Duty to Respond and Provide Requested Documents for Investigations Eff. 11/29/2007.