SB3010

SECTION 1. The Hawaii Revised Statutes is amended by adding to title 22 a new chapter to be appropriately designated and to read as follows:

"CHAPTER

RESIDENTIAL MORTGAGE PRACTICES ACT

§ -1 Definitions. In this chapter, unless the context or subject matter otherwise requires:

"Agent" means a person who acts with the consent and on behalf of a licensee, and is subject to the licensee's direct or indirect control, and may include an independent contractor.

"Applicant" means a person applying for a mortgage broker, a mortgage lender, or a loan originator license pursuant to this chapter.

"Borrower" means the person who has applied for or obtained a residential loan from or through a licensee, or from or through a person required to be licensed under this chapter.

"Commissioner" means the commissioner of financial institutions of this State.

"Division" means the division of financial institutions of the department of commerce and consumer affairs of this State.

"Employee" means an individual engaged in the service of a licensed mortgage broker or mortgage lender for compensation or gain, who is subject to withholding, the Federal Income Contributions Act, and other lawful deductions by the licensed mortgage broker or mortgage lender as a condition of employment and is subject to the right of the licensed mortgage broker or mortgage lender to direct and control the actions of the employee.

"Institutional investor" means:

(1) Banks, savings and loan institutions, savings banks, trust companies, insurance companies, investment companies as defined in the Investment Company Act of 1940, pension or profit sharing trusts, any of the classes of persons permitted to qualify as foreign lenders under section 207-11, or other financial institutions or institutional buyers, whether acting for themselves or as fiduciaries; and

(2) The United States or any foreign government, or any agency or corporate or other instrumentality of the United States, a foreign government, or political subdivision thereof.

"Licensee" means a person licensed pursuant to this chapter to engage in the activities regulated by this chapter.

"Loan originator" means an individual, other than an exempt person, who performs the activities described in this chapter with respect to a residential mortgage loan. For the purposes of this chapter, the term "loan originator" does not include persons who are mortgage brokers or mortgage lenders.

"Loan origination activities" means engaging in any of the following activities for direct or indirect compensation or gain, while representing or acting on behalf of a mortgage broker or mortgage lender:

(1) Soliciting, accepting, or offering to accept an application for a residential mortgage loan;

(2) Assisting a borrower or offering to assist a borrower in the preparation of a residential mortgage loan application; or

(3) Negotiating or offering to negotiate the terms or conditions of a residential mortgage loan with a borrower.

"Manager" means the manager of a manager-managed limited liability company.

"Mortgage broker" means any person, other than an exempt person, who performs the activities described in this chapter with respect to a residential mortgage loan. For the purposes of this chapter, the term "mortgage broker" does not include persons who are mortgage lenders.

"Mortgage brokering activities" means engaging in any of the following activities for direct or indirect compensation or gain with any person making residential mortgage loans:

(1) Accepting or offering to accept an application for a residential mortgage loan;

(2) Assisting or offering to assist in the preparation of an application for a residential mortgage loan; or

(3) Negotiating or offering to negotiate the terms or conditions of a residential mortgage loan.

"Mortgage brokerage agreement" means a written agreement in which a mortgage broker agrees to obtain a residential mortgage loan for the borrower or assist the borrower in obtaining a residential mortgage loan.

"Mortgage lender" means any person, other than an exempt person, who makes residential mortgage loans, and performs the activities described in this chapter.

"Mortgage lending activities" means engaging in any of the following activities for direct or indirect compensation or gain:

(1) Accepting or offering to accept an application for a residential mortgage loan; or

(2) Assisting or offering to assist in the preparation of an application for a residential mortgage loan.

"Person" means an individual, sole proprietorship, partnership, corporation, limited liability company, limited liability partnership, or other association of individuals, however organized.

"Real Estate Settlement Procedures Act" means the act set forth in title 12 United States Code section 2601, et seq., as amended from time to time.

"Regulation X" means Regulation X as promulgated by the U.S. Department of Housing and Urban Development and codified in title 24 Code of Federal Regulations part 3500, as amended from time to time.

"Regulation Z" means Regulation Z as promulgated by the board of governors of the Federal Reserve System and codified in title 12 Code of Federal Regulations part 226, as amended from time to time.

"Residential mortgage loan" means any loan on residential real property that will be used primarily for personal, family, or household use and secured primarily by a security interest on such residential property.

"Residential real property" means real property improved or to be improved by a one-to-four family dwelling.

"Truth in Lending Act" means the act set forth in title 15 United States Code section 1601, et seq., as amended from time to time.

"Uniform multistate automated licensing system" means a system involving one or more states, the District of Columbia, or the Commonwealth of Puerto Rico established to facilitate the sharing of regulatory information and the licensing and application processes, by electronic or other means, for mortgage brokers, mortgage lenders, and loan originators.

§ -2 Exemptions. This chapter shall not apply to the following:

(1) Any person licensed or chartered under the laws of this State or of the United States to do business in this State as a bank, trust company, savings and loan institution, savings bank, pension trust, credit union, insurance company, financial services loan company, or federally licensed small business investment company. The terms "bank", "trust company", "savings and loan institution", "savings bank", "pension trust", "credit union", "insurance company", "financial services loan company", or "federally licensed small business investment company" shall include employees and agents of such organizations, the wholly owned subsidiaries of such organizations provided that the subsidiary is regularly examined by the licensing or chartering state or federal agency for consumer compliance purposes, and the employees and agents of those wholly owned subsidiaries, and shall also include employees and agents of a licensee if the licensee is an affiliate of a bank and is wholly owned by the holding company that owns the bank;

(2) A person making or acquiring a residential mortgage loan with the person's own funds for the person's own investment without intent to resell the residential mortgage loan;

(3) A person licensed to practice law in this State, not actively and principally engaged in the business of negotiating residential mortgage loans, when the person renders services in the course of the person's practice as an attorney;

(4) A person licensed as a real estate broker or salesperson in this State, not actively and principally engaged in the business of negotiating residential mortgage loans, when the person renders services in the course of the person's practice as a real estate broker or salesperson;

(5) An institutional investor negotiating, entering into, or performing under a residential mortgage loan purchase agreement for its portfolio, for subsequent resale to other institutional investors, or for placement of the residential mortgage loans into pools or packaging them into mortgage-backed securities. As used in this paragraph, "loan purchase agreement" means an agreement or arrangement under which a bank, savings and loan institution, credit union, financial services loan company, or other financial institution authorized to do business in this State agrees to sell residential mortgage loans or obtain funding therefor, with or without the transfer of servicing rights, to an institutional investor;

(6) A foreign lender conducting business in accordance with part II of chapter 207;

(7) A person licensed under chapter 467 as a real estate broker or salesperson selling time share interests as an authorized representative of and on behalf of a time share plan developer that is licensed as a mortgage broker or mortgage lender under this chapter; provided that:

(A) The acts or conduct of a developer's authorized representative shall be deemed to be the acts or conduct of the developer for the purposes of section -23; and

(B) If the person engages in acts or conduct prohibited under section -23, the acts or conduct shall constitute grounds for disciplinary action under section 467-14; and

(8) Persons employed by, or who contract with, a licensee under this chapter to perform only clerical or administrative functions on behalf of such licensee, and who do not solicit borrowers or negotiate the terms of loans on behalf of the licensee.

§ -3 Unlicensed activity. Unless licensed under this chapter, no person required to be licensed shall act, attempt to act, or hold oneself out as a mortgage broker, mortgage lender, or loan originator.

§ -4 Powers and duties of the commissioner. (a) In addition to any other duties imposed upon the commissioner by law, the commissioner shall:

(1) Administer and enforce the provisions and requirements of this chapter;

(2) Conduct investigations and issue subpoenas as necessary to determine whether a person has violated any provision of this chapter or rules promulgated under the authority of this chapter;

(3) Conduct examinations of the books and records of licensees and conduct investigations as necessary and proper for the enforcement of this chapter and the rules adopted under this chapter;

(4) Issue orders and adopt rules that, in the opinion of the commissioner, are necessary to execute, enforce and effectuate the purposes of this chapter;

(5) Establish the content of written examinations to be administered to applicants or an applicant's designee, and determine criteria for a passing grade; and

(6) Require that all funds collected by the division under this chapter be deposited into the compliance resolution fund established pursuant to section 26-9(o).

§ -5 Uniform multistate automated licensing system. (a) The legislature has determined that a uniform multistate administration of an automated licensing system for mortgage brokers, mortgage lenders and individual loan originators is consistent with both the public interest and the purposes of this chapter. For the sole purpose of participating in the establishment and implementation of a multistate automated licensing system for mortgage brokers, mortgage lenders, and individual loan originators, the commissioner is authorized:

(1) To modify by rule the license renewal dates;

(2) To establish by rule such new requirements as are necessary for the State to participate in a multistate automated licensing system upon the commissioner's finding that each new requirement is consistent with both the public interest and the purposes of this chapter; and

(3) To request a criminal history record check of the applicant or the applicant's officers, directors, partners, members, managers, employees, or agents in accordance with section 846-2.7 at such time as this State joins a multistate automated licensing system for mortgage brokers, mortgage lenders, and loan originators pursuant to this section. The information obtained thereby may be used by the commissioner to determine the applicant's eligibility for licensing under this chapter. The fee required to perform the criminal history record check shall be paid by the applicant. Information obtained or held by the commissioner pursuant to this paragraph shall be considered confidential personal information and shall be exempt from disclosure. This paragraph does not preclude the commissioner from obtaining criminal history record checks on applicants for mortgage brokers, mortgage lenders, and loan originators prior to the time this State joins the multistate system.

(b) Nothing in this section shall authorize the commissioner to require any person exempt under section -2, or employees or agents of any such exempt person, to submit information to, or to participate in, the uniform multistate automated licensing system.

§ -6 License to do business as a mortgage broker or as a mortgage lender. (a) The commissioner shall receive and act on all applications for licenses to do business as a mortgage broker or mortgage lender. Prior to the processing of an application, the commissioner may require that a criminal history record check be conducted on the applicant or any of its officers, directors, partners, members, managers, employees, or agents in accordance with section 846-2.7, the fees to be paid by the applicant. Applications shall be filed in the manner prescribed by the commissioner, shall contain such information as the commissioner may reasonably require, shall be updated as necessary to keep the information current, and shall be accompanied by an application fee of $2,000 or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. When an application for licensure is abandoned, denied, or withdrawn, the commissioner shall retain all fees paid by the applicant.

(b) An application for license may be denied if the commissioner finds that:

(1) The financial responsibility, character, and fitness of the license applicant, or of the officers and directors if the applicant is a corporation, the partners if the applicant is a partnership, the members or managers if the applicant is a limited liability company, or the individuals designated in charge of the applicant's places of business, are not such as to warrant belief that the business will be operated honestly and fairly within the purposes of this chapter;

(2) The individuals designated in charge of the applicant's places of business do not have a minimum of three years' experience in residential mortgage lending;

(3) The applicant has been convicted of a penal crime, either by nolo contendere or otherwise, that is directly related to the qualifications, functions, or duties of a mortgage broker or mortgage lender;

(4) The applicant has had a license, substantially equivalent to a license under this chapter and issued by any state, that was denied, revoked or suspended under the laws of such state;

(5) The applicant has filed an application for a license which is false or misleading with respect to any material fact;

(6) The applicant or any officer, director, partner, member, manager, employee, or agent of the applicant has violated this chapter or any rule or order lawfully made pursuant to this chapter;

(7) The applicant or any officer, director, partner, member, manager, employee, or agent of the applicant has violated any state or federal law, rule or regulation pertaining to the financial services industry;

(8) The applicant or the applicant's designee has failed to pass a written examination established by the commissioner pursuant to section -4; or

(9) The applicant has not provided information on the application as reasonably required by the commissioner pursuant to subsection (a).

(c) The commissioner is empowered to conduct any investigation that the commissioner may deem necessary to determine whether any of the circumstances set forth in subsection (b) exist.

(d) In the event that the commissioner orders the denial of the issuance or renewal of a license, the order shall be made pursuant to chapter 91.

(e) Every licensee under this section shall establish and maintain an office in this State that shall be licensed under this chapter as the licensee's principal office location for the transaction of mortgage business. Upon obtaining approval for a license, an initial license fee for the licensee's principal office shall be paid to the commissioner in the amount of $100 or such greater amount as the commissioner shall establish by rule pursuant to chapter 91.

(f) The commissioner may, on application, issue additional branch licenses to the same licensee upon compliance with all the provisions of this chapter governing the issuance of a single license. Applications shall be filed in the manner prescribed by the commissioner, shall contain such information as the commissioner may reasonably require, shall be updated as necessary to keep the information current, and shall be accompanied by an application fee of $500 or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. Upon obtaining approval for a license for a branch office, an initial license fee for each branch office shall be paid to the commissioner in the amount of $100 or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. A separate license shall be required for each place of business from which mortgage brokering activities or mortgage lending activities are conducted. The individual in charge of each place of business:

(1) Shall have a minimum of three years' experience in residential mortgage lending;

(2) Shall not have been convicted of a penal crime, either by nolo contendere or otherwise, that is directly related to the qualifications, functions, or duties of a mortgage broker or mortgage lender; and

(3) Shall not have had a license, substantially equivalent to a license under this chapter and issued by any state, which was denied, revoked, or suspended under the laws of such state.

Each license under this section shall remain in full force and effect unless the licensee does not satisfy the renewal requirements contained in this chapter, or the license is surrendered, suspended, or revoked; provided that branch licenses shall be terminated upon the surrender or revocation of a principal office license.

(g) No licensee under this section shall change the location of any place of business, or consolidate two or more locations, without giving the commissioner at least thirty days' prior written notice. A licensee under this section shall give written notice to the commissioner within five days of the closure of any branch location licensed under this chapter. Written notice of the closure of a branch office location shall include a detailed explanation of the disposition of all loan applications pending at the time of closure of the licensed location and the disposition of all files and records. A mortgage lender shall also provide a detailed explanation of the disposition of any closed loans that are being serviced by the mortgage lender at the time of closure of the licensed location.

(h) A mortgage broker or mortgage lender may voluntarily cease activity for which a license to operate is required by this chapter and surrender its license in the manner prescribed by rule.

(i) No licensee under this section shall engage in the business of making or brokering residential mortgage loans at any place of business for which the licensee does not hold a license nor shall the licensee engage in business under any name other than that on the license.

(j) The commissioner may suspend action upon a mortgage broker or mortgage lender license application pending resolution of any criminal charges against an applicant before any court of competent jurisdiction if that applicant's conviction would disqualify the applicant.

(k) The commissioner may suspend action upon a mortgage broker or mortgage lender license application pending resolution of any civil action or administrative proceeding against an applicant if the civil action or administrative proceeding involves any aspect of a financial services business and the outcome could disqualify the applicant.

(l) An applicant under this section shall make complete disclosure of all information required in the application, including information concerning officers, directors, partners, members, managers, employees, or agents. An applicant, or an individual acting on behalf of the applicant, is not liable in any civil action other than a civil action brought by a governmental agency, related to an alleged untrue statement made pursuant to this section unless it is shown by clear and convincing evidence that:

(1) The applicant, or an individual acting on behalf of the applicant, knew at the time the statement was made that it was false in any material respect; or

(2) The applicant, or an individual acting on behalf of the applicant, acted in reckless disregard as to the statement's truth or falsity.

(m) Each mortgage broker or mortgage lender licensed under this chapter shall display the certificate of licensure issued by the division in plain view in its principal office and in each branch office.

§ -7 License to do business as a loan originator. (a) The commissioner shall receive and act on all loan originator license applications. Prior to the processing of an application, the commissioner may require that a criminal history record check be performed on the applicant in accordance with section 846-2.7, the fee to be paid by the applicant. Applications shall be filed in the manner prescribed by the commissioner, shall contain such information as the commissioner may reasonably require, shall be updated as necessary to keep the information current, and shall be accompanied by an application fee of $500, or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. When an application for licensure is abandoned, denied or withdrawn, the commissioner shall retain all fees paid by the applicant.

(b) An application for license may be denied if the commissioner finds that:

(1) The financial responsibility, character, and fitness of the applicant are not such as to warrant belief that the loan originator will operate honestly and fairly within the purposes of this chapter;

(2) The applicant has been convicted of any felony or a misdemeanor involving any aspect of the financial services business, or a court has accepted a finding of guilt on the part of the applicant of any felony or a misdemeanor involving any aspect of the financial services business;

(3) The applicant has had a license, substantially equivalent to a license under this chapter and issued by any state, that was denied, revoked or suspended under the law of such state;

(4) The applicant has filed an application for a license which is false or misleading with respect to any material fact;

(5) The applicant has violated this chapter or any rule or order lawfully made pursuant to this chapter;

(6) The applicant has violated any state or federal law, rule or regulation pertaining to mortgage brokering, mortgage lending, or loan origination activities set forth in section -1;

(7) The applicant has failed to pass a written examination established by the commissioner pursuant to section -4; or

(8) The applicant has not provided information on the application as reasonably required by the commissioner pursuant to subsection (a).

(c) The commissioner is empowered to conduct any investigation that the commissioner may deem necessary to determine whether any of the circumstances set forth in subsection (b) exist.

(d) In the event that the commissioner orders the denial of the issuance or renewal of a license, the order shall be made pursuant to chapter 91.

(e) Upon obtaining approval for a license, an initial license fee shall be paid to the commissioner in the amount of $100 or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. A loan originator may transact business only for a mortgage broker or mortgage lender licensed in accordance with the provisions of this chapter. The original license issued by the division to a loan originator shall be provided to and be maintained by the mortgage broker or mortgage lender at the mortgage broker's or lender's principal office. A copy of the loan originator's license must be displayed at the office where that loan originator principally transacts business.

(f) Each license under this section shall remain in full force and effect unless the licensee does not satisfy the renewal requirements of this chapter, or the license is relinquished, suspended or revoked.

(g) A loan originator licensed under this chapter shall not engage in loan origination activities under any name other than that on the license.

(h) The commissioner may suspend action upon a loan originator license application pending resolution of any criminal charges against an applicant before any court of competent jurisdiction if that applicant's conviction would disqualify the applicant.

(i) The commissioner may suspend action upon a loan originator license application pending resolution of any civil action or administrative proceeding against that applicant, if the civil action or administrative proceeding involves any aspect of a financial services business and the outcome could disqualify the applicant.

(j) An applicant under this section shall make complete disclosure of all information required in the application. An applicant is not liable in any civil action other than a civil action brought by a governmental agency, related to an alleged untrue statement made pursuant to this section unless it is shown by clear and convincing evidence that:

(1) The applicant knew at the time the statement was made that it was false in any material respect; or

(2) The applicant acted in reckless disregard as to the statement's truth or falsity.

§ -8 License sanctions. (a) In addition to any other actions authorized by law, the commissioner may suspend, revoke, deny, condition in any manner, or refuse to renew, reinstate, or restore, any license issued under this chapter, or fine any person holding a license issued under this chapter, for any violation of this chapter.

(b) Any order of the commissioner may be appealed in accordance with chapter 91.

§ -9 Cease and desist orders; grounds for issuance. (a) Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of:

(1) This chapter; or

(2) A rule adopted or order issued under this chapter;

the commissioner may, in the commissioner's discretion, issue a cease and desist order to enforce compliance with this chapter, or with any rule adopted or order issued under this chapter. The commissioner shall have the discretion to include in the order an assessment of an administrative fine against any person who violates this chapter.

§ -10 Cease and desist orders; procedure; hearing; enforcement. (a) The notice of charges and proposed cease and desist order shall be in writing and shall be served upon the mortgage broker, mortgage lender, or loan originator at its principal office in this State and upon any other affected party wherever that person can be located and served by the commissioner. The notice of charges shall state the alleged violations or wrongful practices and a summary of the facts in support of the allegations. The notice shall be accompanied by a proposed order that states the commissioner's intent to require discontinuance of the violation or practice and the immediate compliance with all requirements of any applicable agreement, conditions of approval, order, rule or law. The proposed order may also direct affirmative action as may be necessary to correct the alleged violation or wrongful practice. The notice of charges shall set forth a time and place for a hearing to determine whether the proposed order shall be issued.

(b) Within twenty days after service of a notice of charges, unless an earlier date or later date is set by the commissioner upon request of the affected party, the commissioner or the commissioner’s designee shall hold a hearing in accordance with chapter 91. If no appearance is made at the scheduled hearing by the party or its duly authorized representative, the party shall be deemed to have consented to the issuance of the cease and desist order, and the commissioner may issue the order. Any cease and desist order issued after a hearing held in accordance with this subsection shall become effective after service upon the affected party and shall remain effective until modified or terminated by the commissioner. Any appeal of a cease and desist order shall be made to the circuit court in accordance with chapter 91.

(c) On or after the effective date of any cease and desist order, the commissioner may apply for enforcement of the order to the circuit court. The application may also contain a petition for such other relief or remedies as may be appropriate in the circumstances.

§ -11 Consent cease and desist orders. Any affected party may waive its rights to a hearing on any notice of charges by stipulating and consenting to the issuance of a cease and desist order. Any cease and desist order issued by consent shall be effective as of the date specified therein and shall remain effective until modified by consent or terminated by the commissioner.

§ -12 Revocation or suspension of a license. (a) If the commissioner has reason to believe that grounds exist for revocation or suspension of a license, the commissioner may initiate a contested case against a mortgage broker, mortgage lender, or loan originator, and any officer, director, partner, member, manager, employee, or agent whose activities constitute the basis for revocation or suspension, in accordance with chapter 91.

(b) The commissioner may, after proceedings pursuant to chapter 91, suspend the license for a period not to exceed six months, or revoke the license, if the commissioner finds that:

(1) The licensee or any officer, director, partner, member, manager, employee, or agent of the licensee has violated this chapter or any rule or order made under this chapter; or

(2) The licensee or any officer, director, partner, member, manager, employee, or agent of the licensee has violated any state or federal law, rule or regulation pertaining to mortgage brokering, mortgage lending, or loan origination activities set forth in section -1; or

(3) Facts or conditions exist that would have justified the commissioner in refusing to grant a license had these facts or conditions been known to exist at the time the license was issued; or

(4) The licensee or any officer, director, partner, member, manager, employee, or agent of the licensee has been convicted of any felony or a misdemeanor involving any aspect of the financial services business, or a court has accepted a finding of guilt on the part of the licensee or officer, director, partner, member, manager, employee, or agent of the licensee, of any felony or a misdemeanor involving any aspect of the financial services business; or

(5) The licensee or any officer, director, partner, member, manager, employee, or agent of the licensee has had a license substantially equivalent to a license under this chapter, and issued by another state, that was denied, revoked or suspended under the laws of such state; or

(6) The licensee has filed an application for a license which, as of the date the license was issued or as of the date of an order denying, suspending or revoking a license, was incomplete in any material respect or contained any statement that was, in light of the circumstances under which it was made, false or misleading with respect to any material fact; or

(7) The mortgage broker or mortgage lender licensee has employed, or has entered into a contractual relationship with, any person who performs loan origination activities for the licensee without first obtaining a loan originator license under this chapter; or

(8) The mortgage broker or mortgage lender licensee has failed to notify the commissioner of the employment or termination of, or the entering into or termination of a contractual relationship with, a licensed loan originator pursuant to section -19; or

(9) The mortgage broker or mortgage lender licensee has failed to supervise diligently the mortgage related activities of a loan originator employed by or in a contractual relationship with the licensee.

(c) Any licensee may surrender the license by notifying the division in writing of its surrender, but this surrender shall not affect the licensee's liability for acts previously committed, and may not occur after the filing of a notice of hearing for revocation of the license.

(d) The commissioner shall have the discretion to reinstate a license, terminate a suspension, or grant a new license to a person whose license has been revoked or suspended if no fact or condition then exists which would justify the commissioner in refusing to grant a license.

§ -13 Summary license suspension. (a) Notwithstanding any law to the contrary, the commissioner or the commissioner's designee may cause the immediate suspension or restriction of a license, subject to subsequent notice and hearing or other adequate procedures, upon a specific determination that the failure to take such an action may result in:

(1) An immediate and unreasonable threat to personal safety; or

(2) Fraud or misrepresentation upon consumers, and that, for the protection of the public from the possible consequences, the license should be immediately suspended or restricted.

(b) The commissioner or the commissioner's designee may order the summary suspension of the license for a period not to exceed twenty days. The order of suspension shall be served upon the licensee at the same time as the notice of hearing for disciplinary action, and the hearing shall be scheduled prior to the expiration of the order of suspension. The period of suspension prior to the hearing shall not be extended beyond twenty days except upon request of the licensee for a reasonable continuance of the hearing to adequately prepare the licensee's defense. Any attempt by the licensee to engage in any licensed activity while the license has been summarily suspended shall of itself be sufficient to warrant a permanent revocation of the license and shall subject the licensee to all penalties prescribed by this chapter or by any rule or order of the commissioner.

§ -14 Borrowers' remedies not affected. The grant of powers to the commissioner in this chapter does not limit remedies available to borrowers under this chapter or under other principles of law or equity.

§ -15 Bond requirement; claims against bond. (a) Every person licensed as a mortgage broker, mortgage lender, or loan originator shall deposit with the commissioner, prior to doing business, a bond in an amount of $50,000, executed by the licensed mortgage broker, mortgage lender, or loan originator as principal and a surety company authorized to do business in this State as a surety; provided that the commissioner, for good cause shown, shall have the discretion to accept a bond executed by a surety company that has not been authorized to do business in this State as a surety. The bond shall be conditioned upon the faithful compliance of the licensed mortgage broker, mortgage lender, or loan originator with this chapter and the rules adopted under this chapter. The bond shall run to the State for the benefit of any person injured by any violation of this chapter or the rules adopted under this chapter, by the licensed mortgage broker, mortgage lender, or loan originator, or by any officer, director, partner, member, manager, employee, or agent of a licensed mortgage broker or mortgage lender; provided that the aggregate liability of the surety shall not exceed the sum of the bond. The surety may cancel the bond by giving sixty days' notice in writing to the commissioner and shall thereafter be relieved of any liability for any breach of condition occurring after the effective date of cancellation. A license shall cease to be effective at any time when the required bond is not in full force and effect.

(b) The commissioner or any person injured by a violation of this chapter or rules adopted under this chapter, may bring an action against the surety bond of the licensee that has committed the violation.

(c) The remedies provided under this section are cumulative and nonexclusive and do not affect any other remedy available at law.

§ -16 Continuing education. (a) The commissioner may adopt rules to require continuing education of licensees under this chapter for the purpose of enhancing the professional competence and the professional responsibility of all licensees. The rules may include, but shall not be limited to, criteria for the content of continuing education courses, the accreditation of continuing education sponsors and programs, the computation of continuing education credits, and general compliance with this subsection.

(b) Continuing professional education requirements shall be determined by the commissioner, provided that the requirements shall not exceed twenty credit hours within a two year period.

(c) The commissioner may require accredited sponsors of continuing education programs to file information regarding the contents and materials of proposed courses to satisfy the education requirements, for the commissioner's review and approval. The commissioner may set fees for the initial and continuing review of courses for which credit hours will be granted. The filing fee for the initial review of course materials shall be $500 per course offered, or such other amount as the commissioner shall establish by rule pursuant to chapter 91. The fee for continued review of course materials shall be $250 a year per course offered, or such other amount as the commissioner shall establish by rule pursuant to chapter 91.

§ -17 Records. (a) Every licensed mortgage broker and mortgage lender shall maintain records, including financial records, in conformity with generally accepted accounting principles, in a manner that will enable the commissioner to determine whether the mortgage broker or mortgage lender licensee is complying with the provisions of this chapter.

(b) The licensed mortgage broker or mortgage lender shall keep books and records in a safe and secure place in this State. The commissioner may authorize such records to be maintained outside this State.

(c) The records pertaining to any loan must be preserved for a minimum of six years after making the final entry relating to the loan.

§ -18 Renewal of licenses; annual reports. (a) By September 30 of each year, every mortgage broker and mortgage lender licensed under this chapter shall pay an annual license renewal fee of $1,000, or such greater amount as the commissioner shall establish by rule pursuant to chapter 91, and file with the commissioner a renewal form containing such information as the commissioner may require.

(b) By September 30 of each year, every loan originator licensed under this chapter shall pay an annual license renewal fee of $250, or such greater amount as the commissioner shall establish by rule pursuant to chapter 91, and file with the commissioner a renewal form containing such information as the commissioner may require.

§ -19 Duties regarding services of loan originator. Any mortgage broker or mortgage lender who employs or contracts with a loan originator for the purpose of conducting loan origination activities, shall:

(1) Notify the commissioner of the employment of, or contractual relationship with, a loan originator within thirty days of such employment or contract. Notification shall be made in a manner prescribed by the commissioner;

(2) Notify the commissioner of the termination of employment of, or contractual relationship with, a loan originator within thirty days of such termination. Notification shall be made in a manner prescribed by the commissioner; and

(3) Maintain any records relating to the employment of, or contractual relationship with, a loan originator for a period no less than six years from date of termination.

§ -20 Examinations. (a) The commissioner may conduct examinations of licensed mortgage brokers, mortgage lenders, and loan originators under this chapter at intervals that the commissioner deems appropriate.

(b) The purpose of the examinations shall be to ensure that the licensee is complying with all applicable laws and rules.

(c) The commissioner shall have full access to the vaults, books, accounts, records, and documents of the licensee and may make any inquiries as may be necessary to ascertain the condition and practices of the licensed mortgage broker, mortgage lender, or loan originator. All officers, directors, partners, members, managers, employees, and agents of the licensee being examined shall cooperate fully with the commissioner and the commissioner's staff, and shall answer all inquiries and furnish all information pertaining to the same, to the best of their knowledge and ability.

(d) The commissioner may charge an examination fee based upon the cost per hour per examiner for all licensees examined by the commissioner or the commissioner's staff. The hourly fee shall be $40, or such greater amount as the commissioner shall establish by rule pursuant to chapter 91. In addition to the examination fee, the commissioner may charge any licensee examined or investigated by the commissioner or the commissioner's staff additional amounts for travel, per diem, mileage, and other reasonable expenses incurred in connection with the examination or investigation.

§ -21 Confidentiality of records. (a) The commissioner and all employees, contractors, attorneys contracted or employed by the State, and appointees of the division of financial institutions shall not divulge or furnish any information in their possession or obtained by them in the course of their official duties to persons outside the division, except to the director of commerce and consumer affairs, and to administrators of the uniform multistate automated licensing system, or unless otherwise permitted by this section or any other law regulating the licensees. The disclosures prohibited by this section shall include, without limitation, information that is:

(1) Privileged or exempt from disclosure under any federal or state law;

(2) Related to an examination performed by or on behalf of the commissioner or contained in any report of examination;

(3) Contained in any report submitted to, or for the use of the commissioner, except for the nonproprietary portions of applications;

(4) Related to the business, personal, or financial affairs of any person and is furnished to, or for the use of, the commissioner in confidence;

(5) Privileged or confidential and related to trade secrets and commercial or financial information obtained from a person;

(6) Obtained pursuant to any lawful investigation for the purpose of enforcing the laws regulating licensees;

(7) Related solely to the internal personnel rules or other internal practices of the commissioner;

(8) Contained in personnel, medical, and similar files, including financial files, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy; or

(9) Contained in inter-agency and intra-agency communications, whether or not contained in written memoranda, letters, tapes, or records, that would not be routinely available by law to a private party, including memoranda, reports, and other documents prepared by the staff of the commissioner.

(b) Any information identified in subsection (a) is confidential and not subject to subpoena or other legal process.

(c) The commissioner shall furnish a copy of each report of examination to the licensee examined. The report and its contents shall remain the property of the commissioner and shall not be disclosed to any person who is not an officer, director, partner, member, manager, employee, agent, authorized auditor, attorney, other consultant, or advisor of the licensee. Any person who has received the report from the licensee shall be bound by the confidentiality provisions of this section. The report and its contents shall not be subject to subpoena or other legal process requiring disclosure.

(d) The commissioner may furnish reports of examination, other information relating to the examination of a licensee, and information relating to the supervision and regulation of a licensee to:

(1) The governor, the attorney general, and heads of other state governmental agencies having regulatory authority over the licensee;

(2) Federal or state regulatory agencies if the requesting agency agrees to use the information only for functions directly related to the exercise of its appropriate supervisory authority;

(3) Other agencies of the United States or a state for use where necessary to investigate regulatory, civil or criminal charges in connection with the affairs of any licensee under the supervision of the commissioner; and

(4) Administrators of the uniform multistate automated licensing system for use in administering the uniform multistate automated licensing system.

§ -22 Restrictions on fees and charges. (a) With the exception of a loan cancellation fee, a licensee shall not require a borrower to pay any fees or charges prior to a residential mortgage loan closing, except:

(1) Charges actually incurred by the licensee on behalf of the borrower for services that have been rendered by third parties necessary to process the application. These fees may include, but are not limited to, fees for credit reports, flood insurance certifications, property inspections, title insurance commitments, lien or title searches, financing statement reports, and appraisals;

(2) An application fee;

(3) A rate lock fee; and

(4) A commitment fee upon approval of the residential mortgage loan.

(b) A loan cancellation fee may be charged and collected by a licensee at any time either prior to the scheduled closing of a residential mortgage loan transaction or subsequent thereto.

§ -23 Prohibited practices of mortgage brokers and mortgage lenders. No licensed mortgage broker or mortgage lender, nor any person required under this chapter to have such license shall:

(1) Obtain any exclusive dealing or exclusive agency agreement from any borrower;

(2) Delay closing of any residential mortgage loan for the purpose of increasing interest, costs, fees, or charges payable by the borrower;

(3) Accept any fees at closing that were not previously disclosed fully to the borrower;

(4) Obtain any agreement or instrument in which blanks are left to be filled in after signing by a borrower;

(5) Engage in any misrepresentation in connection with a residential mortgage loan;

(6) Make payment, whether directly or indirectly, of any kind to any in-house or third-party appraiser for the purpose of influencing the independent judgment of the appraiser with respect to the value of any real estate that is to be covered by a residential mortgage loan;

(7) Make any false promises likely to influence or persuade, or pursue a course of misrepresentations or false promises through loan originators or other agents, or through advertising or otherwise;

(8) Misrepresent, circumvent or conceal, through whatever subterfuge or device, any of the material facts regarding a residential mortgage loan transaction; or

(9) Enter into any agreement, with or without the payment of a fee, to fix in advance a particular interest rate or other term in a residential mortgage loan unless written confirmation of the agreement is delivered to the borrower.

§ -24 Prohibited practices of loan originators. No licensed loan originator, and no person required under this chapter to have such license shall:

(1) Be employed simultaneously by more than one mortgage broker or mortgage lender licensed under this chapter;

(2) Enter into concurrent contractual relationships for delivery of loan origination services to more than one licensee under this chapter;

(3) Obtain any exclusive dealing or exclusive agency agreement from any borrower;

(4) Delay closing of any residential mortgage loan for the purpose of increasing interest, costs, fees, or charges payable by the borrower;

(5) Accept any fees at closing that were not previously disclosed fully to the borrower;

(6) Obtain any agreement or instrument in which blanks are left to be filled in after signing by a borrower;

(7) Engage in any misrepresentation in connection with a residential mortgage loan;

(8) Make payment, whether directly or indirectly, of any kind to any in-house or third-party appraiser for the purpose of influencing the independent judgment of the appraiser with respect to the value of any real estate that is to be covered by a residential mortgage loan;

(9) Make any false promises likely to influence or persuade, or pursue a course of misrepresentations or false promises through mortgage brokers, mortgage lenders, or other agents, or through advertising or otherwise;

(10) Misrepresent, circumvent or conceal, through whatever subterfuge or device, any of the material facts regarding a residential mortgage loan transaction; or

(11) Enter into any agreement, with or without the payment of a fee, to fix in advance a particular interest rate or other term in a residential mortgage loan unless written confirmation of the agreement is delivered to the borrower.

§ -25 Penalty. (a) Any person who violates any provision of this chapter or the rules adopted pursuant to this chapter shall be subject to an administrative fine of not more than $5,000 for each violation.

(b) Any person who, in the course of engaging in conduct that requires a license under this chapter, commits a violation of this chapter or the rules adopted pursuant to this chapter, and the violation includes conduct that is directed towards, targets, or is committed against an elder, may be fined an amount not to exceed $10,000 for each violation in addition to any other fine or penalty.

SECTION 2. Section 454-3, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:

"(e) All fees shall be established and adopted by the director in accordance with chapter 91 and shall be deposited into the compliance resolution fund established pursuant to section 26-9(o)[.]; provided that in order to establish regulatory practices for residential mortgage lending, a surcharge of $400 shall be charged to a mortgage broker renewing a mortgage broker license and a surcharge of $100 shall be charged to a mortgage solicitor renewing a mortgage solicitor license. Failure of any mortgage broker or mortgage solicitor to pay the biennial renewal fee on or before December 31 of an even-numbered year shall constitute an automatic forfeiture of the license. The forfeited license may be restored; provided that application for restoration is made within six months of the forfeiture and a penalty fee is paid in addition to the delinquent license fee. A licensee who fails to restore a license as provided in this subsection shall apply as a new applicant[.]; provided that, after January 1, 2011, a licensee who fails to restore a license as provided in this subsection shall apply as a new applicant under chapter _____."

SECTION 3. Section 846-2.7, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Criminal history record checks may be conducted by:

(1) The department of health on operators of adult foster homes or developmental disabilities domiciliary homes and their employees, as provided by section 333F-22;

(2) The department of health on prospective employees, persons seeking to serve as providers, or subcontractors in positions that place them in direct contact with clients when providing non-witnessed direct mental health services as provided by section 321-171.5;

(3) The department of health on all applicants for licensure for, operators for, and prospective employees, and volunteers at one or more of the following: skilled nursing facility, intermediate care facility, adult residential care home, expanded adult residential care homes, assisted living facility, home health agency, hospice, adult day health center, special treatment facility, therapeutic living program, intermediate care facility for the mentally retarded, hospital, rural health center and rehabilitation agency, and, in the case of any of the above-related facilities operating in a private residence, on any adult living in the facility other than the client as provided by section 321-15.2;

(4) The department of education on employees, prospective employees, and teacher trainees in any public school in positions that necessitate close proximity to children as provided by section 302A-601.5;

(5) The counties on employees and prospective employees who may be in positions that place them in close proximity to children in recreation or child care programs and services;

(6) The county liquor commissions on applicants for liquor licenses as provided by section 281-53.5;

(7) The department of human services on operators and employees of child caring institutions, child placing organizations, and foster boarding homes as provided by section 346-17;

(8) The department of human services on prospective adoptive parents as established under section 346-19.7;

(9) The department of human services on applicants to operate child care facilities, prospective employees of the applicant, and new employees of the provider after registration or licensure as provided by section 346-154;

(10) The department of human services on persons exempt pursuant to section 346-152 to be eligible to provide child care and receive child care subsidies as provided by section 346-152.5;

(11) The department of human services on operators and employees of home and community-based case management agencies and operators and other adults, except for adults in care, residing in foster family homes as provided by section 346-335;

(12) The department of human services on staff members of the Hawaii youth correctional facility as provided by section 352-5.5;

(13) The department of human services on employees, prospective employees, and volunteers of contracted providers and subcontractors in positions that place them in close proximity to youth when providing services on behalf of the office or the Hawaii youth correctional facility as provided by section 352D-4.3;

(14) The judiciary on employees and applicants at detention and shelter facilities as provided by section 571-34;

(15) The department of public safety on employees and prospective employees who are directly involved with the treatment and care of persons committed to a correctional facility or who possess police powers including the power of arrest as provided by section 353C-5;

(16) The department of commerce and consumer affairs on applicants for private detective or private guard licensure as provided by section 463-9;

(17) Private schools and designated organizations on employees and prospective employees who may be in positions that necessitate close proximity to children; provided that private schools and designated organizations receive only indications of the states from which the national criminal history record information was provided as provided by section 302C-1;

(18) The public library system on employees and prospective employees whose positions place them in close proximity to children as provided by section 302A-601.5;

(19) The State or any of its branches, political subdivisions, or agencies on applicants and employees holding a position that has the same type of contact with children, dependent adults, or persons committed to a correctional facility as other public employees who hold positions that are authorized by law to require criminal history record checks as a condition of employment as provided by section 78-2.7;

(20) The department of human services on licensed adult day care center operators, employees, new employees, subcontracted service providers and their employees, and adult volunteers as provided by section 346-97;

(21) The department of human services on purchase of service contracted and subcontracted service providers and their employees serving clients of the adult and community care services branch, as provided by section 346-97;

(22) The department of human services on foster grandparent program, senior companion program, and respite companion program participants as provided by section 346-97;

(23) The department of human services on contracted and subcontracted service providers and their current and prospective employees that provide home and community-based services under Section 1915(c) of the Social Security Act (42 U.S.C. §1396n(c)), as provided by section 346-97; [~~and~~]

(24) The department of commerce and consumer affairs on the applicant, or any of its officers, directors, partners, members, managers, employees or agents, if it is an applicant for a mortgage broker or mortgage lender license, as provided by section -6;

(25) The department of commerce and consumer affairs on the applicant for a loan originator license, as provided by section -7; and

[~~(24)~~] (26) Any other organization, entity, or the State, its branches, political subdivisions, or agencies as may be authorized by state law."

SECTION 4. After December 31, 2010, no new license shall be issued and no license renewal shall be effected under chapter 454, Hawaii Revised Statutes. After December 31, 2010, a person who would be regulated under this Act shall be required to be licensed under this Act, except that a mortgage broker or mortgage solicitor licensed under chapter 454 as of January 1, 2011, shall not be required to be licensed under this Act until October 1, 2012, provided that:

(1) A mortgage broker or mortgage lender who files an application for a license pursuant to this Act by October 1, 2011, and whose application is determined to be complete by the commissioner by December 31, 2011, shall be deemed in compliance with the licensing provisions of this Act until such time as the license is issued or denied by the commissioner; and

(2) A mortgage solicitor who files an application for a license pursuant to this Act between March 1, 2012, and April 30, 2012, and whose application is determined to be complete by the commissioner by June 30, 2012, shall be deemed in compliance with the licensing provisions of this Act until such time as the license is issued or denied by the commissioner.

SECTION 5. A person licensed under this Act prior to October 1, 2011, shall not be required to be licensed under chapter 454, Hawaii Revised Statutes, and shall not be subject to the provisions of that chapter upon the effective date of the person's licensure under this Act; provided that this section shall not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before the effective date of the person's licensure under this Act.

SECTION 6. There is appropriated out of the compliance resolution fund of the State of Hawaii the sum of $140,000, or so much thereof as may be necessary for fiscal year 2008-2009, to carry out the purposes of this Act, including the hiring of one permanent clerical assistant and six permanent examiners, exempt from chapter 76, Hawaii Revised Statutes, in the division of financial institutions, to implement this Act. The sum appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act.

SECTION 7. Chapter 454, Hawaii Revised Statutes, is repealed; provided that the repeal does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its repeal.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2008; provided that section 7 shall take effect on October 1, 2012.

INTRODUCED BY:

_____________________________

BY REQUEST

THE SENATE	S.B. NO.	3010
TWENTY-FOURTH LEGISLATURE, 2008
STATE OF HAWAII