Bill Summary – FastDemocracy

ENGROSSED SUBSTITUTE SENATE BILL 5968
     State of Washington         68th Legislature     2024 Regular Session
     By Senate Business, Financial Services, Gaming & Trade (originally
     sponsored by Senators Stanford, Dhingra, Frame, Hasegawa, Kuderer,
     Saldaña, Trudeau, Valdez, and C. Wilson)
     READ FIRST TIME 01/26/24.
     AN ACT   Relating   to regulating home equity sharing agreements
 under the    consumer   loan act; and amending RCW 31.04.015 and
 31.04.102.
 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
     Sec. 1. RCW 31.04.015 and 2018 c 62 s 9 are each amended to read
 as follows:
     The definitions set forth in this section apply throughout this
 chapter unless the context clearly requires a different meaning.
     (1) "Add-on method" means the method of precomputing interest
 payable on a loan whereby the interest to be earned is added to the
 principal balance and the total plus any charges allowed under this
 chapter is stated as the loan amount, without further provision for
 the payment of interest except for failure to pay according to loan
 terms. The director may adopt by rule a more detailed explanation of
 the meaning and use of this method.
     (2) "Affiliate" means any person who, directly or indirectly
 through one or more intermediaries, controls, or is controlled by, or
 is under common control with another person.
     (3) "Applicant" means a person applying for a license under this
 chapter.
                                       p. 1                         ESSB 5968
     (4) "Borrower" means any person who consults with or retains a
 licensee or person subject to this chapter in an effort to obtain, or
 who seeks information about obtaining a loan, regardless of whether
 that person actually obtains such a loan. "Borrower" includes a
 person who consults with or retains a licensee or person subject to
 this chapter in an effort to obtain, or who seeks information about
 obtaining a residential mortgage loan modification, regardless of
 whether that person actually obtains a residential mortgage loan
 modification.
     (5) "Department" means the state department of financial
 institutions.
     (6) "Depository institution" has the same meaning as in section 3
 of the federal deposit insurance act on July 26, 2009, and includes
 credit unions.
     (7) "Director" means the director of financial institutions.
     (8) "Educational institution" means any entity that is a degree-
 granting institution as defined in RCW 28B.85.010, a private
 vocational school as defined in RCW 28C.10.020, or school as defined
 in RCW 18.16.020.
     (9) "Federal banking agencies" means the board of governors of
 the federal reserve system, comptroller of the currency, director of
 the   office   of    thrift  supervision,    national   credit   union
 administration, and federal deposit insurance corporation.
     (10) "Individual servicing a mortgage loan" means a person on
 behalf of a lender or servicer licensed by this state, who collects
 or receives payments including payments of principal, interest,
 escrow amounts, and other amounts due, on existing obligations due
 and owing to the licensed lender or servicer for a residential
 mortgage loan when the borrower is in default, or in reasonably
 foreseeable likelihood of default, working with the borrower and the
 licensed lender or servicer, collects data and makes decisions
 necessary to modify either temporarily or permanently certain terms
 of those obligations, or otherwise finalizing collection through the
 foreclosure process.
     (11) "Insurance" means life insurance, disability insurance,
 property insurance, involuntary unemployment insurance, and such
 other insurance as may be authorized by the insurance commissioner.
     (12) "License" means a single license issued under the authority
 of this chapter.
                                     p. 2                        ESSB 5968
     (13) "Licensee" means a person to whom one or more licenses have
 been issued. "Licensee" also means any person, whether located within
 or outside of this state, who fails to obtain a license required by
 this chapter.
     (14) "Loan" means a sum of money lent at interest or for a fee or
 other charge and includes both open-end and closed-end loan
 transactions.
     (15) "Loan processor or underwriter" means an individual who
 performs clerical or support duties as an employee at the direction
 of and subject to the supervision and instruction of a person
 licensed, or exempt from licensing, under this chapter.
     (16) "Making a loan" means advancing, offering to advance, or
 making a commitment to advance funds to a borrower for a loan.
     (17) "Mortgage broker" means the same as defined in RCW
 19.146.010, except that for purposes of this chapter, a licensee or
 person subject to this chapter cannot receive compensation as both a
 consumer loan licensee making the loan and as a consumer loan
 licensee acting as the mortgage broker in the same loan transaction.
     (18)(a) "Mortgage loan originator" means an individual who for
 compensation or gain (i) takes a residential mortgage loan
 application, or (ii) offers or negotiates terms of a residential
 mortgage loan. "Mortgage loan originator" also includes individuals
 who hold themselves out to the public as able to perform any of these
 activities.   "Mortgage  loan   originator"  does   not  include   any
 individual who performs purely administrative or clerical tasks; and
 does not include a person or entity solely involved in extensions of
 credit relating to timeshare plans, as that term is defined in
 section 101(53D) of Title 11, United States Code. For the purposes of
 this definition, administrative or clerical tasks means the receipt,
 collection, and distribution of information common for the processing
 of a loan in the mortgage industry and communication with a consumer
 to obtain information necessary for the processing of a residential
 mortgage loan.
     (b) "Mortgage loan originator" also includes an individual who
 for direct or indirect compensation or gain performs residential
 mortgage loan modification services or holds himself or herself out
 as being able to perform residential mortgage loan modification
 services.
     (c) "Mortgage loan originator" does not include a person or
 entity that only performs real estate brokerage activities and is
                                     p. 3                        ESSB 5968
 licensed or registered in accordance with applicable state law,
 unless the person or entity is compensated by a lender, a mortgage
 broker, or other mortgage loan originator or by any agent of such a
 lender, mortgage broker, or other mortgage loan originator. For the
 purposes of chapter 120, Laws of 2009, the term "real estate
 brokerage activity" means any activity that involves offering or
 providing real estate brokerage services to the public, including:
     (i) Acting as a real estate agent or real estate broker for a
 buyer, seller, lessor, or lessee of real property;
     (ii) Bringing together parties interested in the sale, purchase,
 lease, rental, or exchange of real property;
     (iii) Negotiating, on behalf of any party, any portion of a
 contract relating to the sale, purchase, lease, rental, or exchange
 of real property, other than in connection with providing financing
 with respect to such a transaction;
     (iv) Engaging in any activity for which a person engaged in the
 activity is required to be registered or licensed as a real estate
 agent or real estate broker under any applicable law; and
     (v) Offering to engage in any activity, or act in any capacity,
 described in (c)(i) through (iv) of this subsection.
     (d) This subsection does not apply to employees of a housing
 counseling agency approved by the United States department of housing
 and urban development unless the employees of a housing counseling
 agency are required under federal law to be individually licensed as
 mortgage loan originators.
     (19) "Nationwide mortgage licensing system" means a licensing
 system developed and maintained by the conference of state bank
 supervisors for licensing and registration.
     (20) "Officer" means an official appointed by the company for the
 purpose of making business decisions or corporate decisions.
     (21) "Person" includes individuals, partnerships, associations,
 limited liability companies, limited liability partnerships, trusts,
 corporations, and all other legal entities.
     (22) "Principal" means any person who controls, directly or
 indirectly through one or more intermediaries, alone or in concert
 with others, a ten percent or greater interest in a partnership;
 company; association or corporation; or a limited liability company,
 and the owner of a sole proprietorship.
     (23) "Registered mortgage loan originator" means any individual
 who meets the definition of mortgage loan originator and is an
                                     p. 4                        ESSB 5968
 employee of a depository institution; a subsidiary that is owned and
 controlled by a depository institution and regulated by a federal
 banking agency; or an institution regulated by the farm credit
 administration and is registered with, and maintains a unique
 identifier through, the nationwide mortgage licensing system.
     (24) "Residential mortgage loan" means any loan primarily for
 personal, family, or household use that is secured by a mortgage,
 deed of trust, or other consensual security interest on a dwelling,
 as defined in the truth in lending act, or residential real estate
 upon which is constructed or intended to be constructed a dwelling.
 "Residential mortgage loan" includes home equity sharing agreements.
     (25) "Residential mortgage loan modification" means a change in
 one or more of a residential mortgage loan's terms or conditions.
 Changes to a residential mortgage loan's terms or conditions include
 but are not limited to forbearances; repayment plans; changes in
 interest rates, loan terms, or loan types; capitalizations of
 arrearages; or principal reductions.
     (26) "Residential mortgage loan modification services" includes
 negotiating, attempting to negotiate, arranging, attempting to
 arrange, or otherwise offering to perform a residential mortgage loan
 modification for compensation or gain. "Residential mortgage loan
 modification services" also includes the collection of data for
 submission to an entity performing mortgage loan modification
 services.
     (27) "S.A.F.E. act" means the secure and fair enforcement for
 mortgage licensing act of 2008, Title V of the housing and economic
 recovery act of 2008 ("HERA"), P.L. 110-289, effective July 30, 2008.
     (28) "Senior officer" means an officer of a licensee at the vice
 president level or above.
     (29) "Service or servicing a loan" means on behalf of the lender
 or investor of a residential mortgage loan: (a) Collecting or
 receiving payments on existing obligations due and owing to the
 lender or investor, including payments of principal, interest, escrow
 amounts, and other amounts due; (b) collecting fees due to the
 servicer; (c) working with the borrower and the licensed lender or
 servicer to collect data and make decisions necessary to modify
 certain terms of those obligations either temporarily or permanently;
 (d) otherwise finalizing collection through the foreclosure process;
 or (e) servicing a reverse mortgage loan.
                                     p. 5                        ESSB 5968
     (30) "Service or servicing a reverse mortgage loan" means,
 pursuant to an agreement with the owner of a reverse mortgage loan:
 Calculating, collecting, or receiving payments of interest or other
 amounts due; administering advances to the borrower; and providing
 account statements to the borrower or lender.
     (31) "Simple interest method" means the method of computing
 interest payable on a loan by applying the annual percentage interest
 rate or its periodic equivalent to the unpaid balances of the
 principal of the loan outstanding for the time outstanding.
     (a) On a nonresidential loan each payment is applied first to any
 unpaid penalties, fees, or charges, then to accumulated interest, and
 the remainder of the payment applied to the unpaid balance of the
 principal until paid in full. In using such method, interest must not
 be payable in advance nor compounded. The prohibition on compounding
 interest does not apply to reverse mortgage loans made in accordance
 with the Washington state reverse mortgage act. The director may
 adopt by rule a more detailed explanation of the meaning and use of
 this method.
     (b) On a residential mortgage loan payments are applied as
 determined in the security instrument.
     (32) "Student education loan" means any loan solely for personal
 use to finance postsecondary education and costs of attendance at an
 educational institution. A student education loan includes a loan
 made to refinance a student education loan. A student education loan
 does not include a payment plan or accounts receivable at a higher
 education institution as defined in RCW 28B.07.020(4) only during the
 time of a student's enrollment in the higher education institution,
 not to include a refinanced payment plan or accounts receivable, an
 extension of credit under an open-end consumer credit plan, a reverse
 mortgage transaction, a residential mortgage transaction, or any
 other loan that is secured by real property or a dwelling.
     (33) "Student education loan borrower" means: (a) Any resident of
 this state who has received or agreed to pay a student education
 loan; or (b) any person who shares responsibility with such resident
 for repaying the student education loan.
     (34) "Student education loan servicer" means any person, wherever
 located, responsible for the servicing of any student education loan
 to any student education loan borrower.
     (35) "Student education loan servicing" or "service a student
 education loan" means: (a) Receiving any scheduled periodic payments
                                     p. 6                        ESSB 5968
 from a student education loan borrower pursuant to the terms of a
 student education loan; (b) applying the payments of principal and
 interest and such other payments with respect to the amounts received
 from a student education loan borrower, as may be required pursuant
 to the terms of a student education loan; (c) working with the
 student education loan borrower to collect data, or collecting data,
 to make decisions to modify the loan; or (d) performing other
 administrative services with respect to a student education loan
 including collection activities. "Student education loan servicing"
 does not include third-party student education loan modification
 services.
     (36)   "Third-party   residential  mortgage   loan   modification
 services" means residential mortgage loan modification services
 offered or performed by any person other than the owner or servicer
 of the loan.
     (37) "Third-party service provider" means any person other than
 the licensee or a mortgage broker who provides goods or services to
 the licensee or borrower in connection with the preparation of the
 borrower's loan and includes, but is not limited to, credit reporting
 agencies, real estate brokers or salespersons, title insurance
 companies and agents, appraisers, structural and pest inspectors, or
 escrow companies.
     (38) "Third-party student education loan modification services"
 means for compensation or other consideration by or on behalf of the
 borrower working with the student education loan borrower or his or
 her representative to collect data or prepare or submit documents, or
 collecting data and preparing or submitting documents, to modify,
 refinance, or consolidate the loan, or change repayment plans.
     (39) "Unique identifier" means a number or other identifier
 assigned by protocols established by the nationwide mortgage
 licensing system.
     (40) "Home equity sharing agreement" means any obligation in
 which an advance sum of money or other thing of value is extended to
 a borrower in exchange for an interest or future share of equity in
 the real estate that is the borrower's primary dwelling at the time
 or a future obligation to pay a sum upon the occurrence of an agreed-
 upon event.
     Sec. 2.   RCW 31.04.102 and 2018 c 62 s 14 are each amended to
 read as follows:
                                     p. 7                        ESSB 5968
     (1) For all loans made by a licensee that are not secured by a
 lien on real property, the licensee must make disclosures in
 compliance with the truth in lending act, 15 U.S.C. Sec. 1601 and
 regulation Z, 12 C.F.R. Part 1026, and all other applicable federal
 laws and regulations.
     (2) For all loans made by a licensee that are secured by a lien
 on real property, the licensee must provide to each borrower within
 three business days following receipt of a loan application a written
 disclosure containing an itemized estimation and ex