All Texas state agencies are required to review their rules for relevancy every four years. The mortgage regulations for the Texas Department of Savings and Mortgage Lending (“SML”) are now in that cycle, and SML has created a 141-page pre-comment draft of its proposed rule changes. This draft will be presented to the Finance Commission of Texas at its meeting on August 16, 2024, seeking approval for publication followed by a time for public comment. The Finance Commission will then be asked to adopt the rules in final form at its October 25, 2024 meeting.
Don’t be intimidated by the 141 pages of proposed rule changes. How can this be? Well, thankfully the vast majority of the changes are just recodifying or moving the same language under a new numbering system. Additionally, most of the remaining language does not represent a change, but rather provides explicit authority for actions or policies SML has been implementing for some time. After eliminating these two large reasons for the voluminous document, the focus can be narrowed to the few key items listed below:
Five Proposed Rules Requiring Changes in Your Current Operations.
- §56.200 / §57.200 Required Disclosures
Subsection (b) revises the mortgage banker disclosure form under Finance Code §157.0021 by: (1) providing that the disclosure must be signed by the originator; and (2) reducing the complaint notice from two paragraphs to one; Subsection (c) provides that the consumer complaint notice required for posting on websites be in the form posted on SML’s website and removes the requirement to post the consumer complaint notice on social media sites; Section (d) requires that correspondence sent to the mortgage applicant must include the mortgage company’s or mortgage banker’s website address; and Subsection (e) provides that the servicer disclosure required by §157.0021(b) (applicable to mortgage bankers) must be in the form posted on SML’s website.
- §56.204 / §57.204 Books and Records
Required elements of the Mortgage Transaction Log are expanded with the following new data points: (1) application/loan identification number assigned by both the mortgage company and by the Lender, if different; (2) address of the subject property; (3) interest rate; (4) loan product (conventional, FHA, VA, reverse); and (5) closing date.
Subsection (d) also adds a requirement to maintain a Loan Processing and Underwriting Log if conducting third-party loan processing and underwriting services. The data points for this log include: (1) full name of the mortgage applicant; (2) application/loan identification number assigned by the mortgage company and the lender (if different); (3) address of the subject property; (4) name and NMLS ID of the mortgage company or mortgage banker to which the mortgage company is providing loan processing or underwriting services; (5) the name, NMLS ID, and employment status (W-2 or 1099) of each individual loan processor or underwriter; (6) closing date; (7) description of the mortgage applicant’s intended use of the subject property; (8) description of the current status or disposition of the application; (9) dollar amount charged to and/or paid by the mortgage applicant for the services; and (10) description of whether the fee for the services was included on the CD as a fee paid directly to the mortgage company at closing.
Other changes to Books and Records include adding FTC’s Standards for Safeguarding Customer Information Rule to the list of other records required; minimum records related to corrective action and unclaimed funds; and additional requirements for home equity loan and home equity line of credit transactions.
- §56.201 / §57.201 Conditional Pre-Qualification and Conditional Approval Letters
Subsection (d) clarifies that a conditional pre-qualification letter or conditional approval-letter must be issued and signed by the individual originator (existing forms for the letters already contemplate issuance by the individual originator).
- §56.210 / §57.210 Reportable Incidents
Creates requirements to file a report concerning “reportable incidents” as defined in the rule. A reportable incident must present a material, financial, or other significant risk to the mortgage entity’s operations such as a data breach, security event, termination of a line of credit or funding source, or termination or curtailment of a relevant service provider. Provides that the filing of reports required by other law satisfies the reporting requirements (except root cause analysis). Information relating to reportable incidents will be confidential examination information.
- §56.203 / §57.203 Advertising
Requires advertisements to include the website address. Also, allows for the required information on advertisements on social media sites to be placed on the profile page rather than on each post. Provides for the use of team names in an advertisement provided certain requirements are met.
Other Proposed Changes to be Aware of Which May Impact You.
- Surrender of a License or Registration §56.106 / §57.106
Clarifies SML’s authority not to grant a surrender request. Subsection (a) clarifies reasons why a request to surrender the license/registration may not be granted, Subsection (b) provides that a license/registration will be assigned an inactive status if the request is not immediately granted.
- Originator Sponsorship and Responsibility for Actions of §56.107 / §57.107.
Clarifies a mortgage company or mortgage banker is responsible for the actions of its sponsored originators (no existing rule for mortgage bankers). Also clarifies that the license/registration will revert to an inactive status if the mortgage company or mortgage banker does not maintain sponsored originators to act on its behalf.
- Unclaimed Funds §56.304 / §57.304
Clarifies that a mortgage company or mortgage banker must comply with the requirements of state law concerning unclaimed funds of the consumer. Requires that an Escheatment Log be maintained to track unclaimed funds.
- Fraudulent, Misleading, or Deceptive Practices §56.202 / §57.202
Prohibits the following: misrepresentations concerning lien position; the use of an originator or a loan processing company in an inactive status; the improper use of trigger leads; solicitation of consumers on the do-not-call list; issuance of erroneous conditional pre-qualification or conditional approval letters. Also, clarifies additional state and federal law required for compliance.
- Corrective Action §56.303 / §57.303
Describes SML’s authority to direct that corrective action be taken as a result of an examination, investigation, or inspection, including requirements concerning the adoption of policies and procedures, and how refunds to consumer are made.
We encourage you to review these proposed changes yourself by accessing the pre-comment draft of proposed rules or referring to the SML’s explanatory PowerPoint. After review, if any of these proposed changes cause you concern, you can participate in the process by voicing those concerns to the SML either informally now in the pre-comment period (open through July 12th) to try and influence the proposals before they are published, or during the formal comment period that will begin in late August and run well into September.
Questions about this memo, including any general regulatory questions, can be addressed to Doug at doug.foster@mortgagelaw.com. Please note that our firm is available for all services and issues relating to residential mortgage lending. Our team can be accessed through www.mortgagelaw.com/our-team.