SB3010 SD2

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

"Chapter

MORTGAGE BROKERS AND LOAN ORIGINATORS

§ -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 control.

"Applicant" means a person applying for the issuance of a license or a renewal of a license.

"Bank" means the same as in 12 U.S.C. section 1813(a), and includes a depository financial services loan company.

"Institutional investor" means:

(1) An insured depository institution;

(2) A real estate trust as defined in the Internal Revenue Code;

(3) An insurance company;

(4) The trustee of any employee benefit plan;

(5) A trust company chartered and examined under state law;

(6) An investment company as defined in the Investment Company Act of 1940;

(7) A retirement plan or pension or profit sharing plan that is subject to the Employee Retirement Income Security Act;

(8) A housing government-sponsored enterprise that is subject to the oversight of the Office of Federal Housing Enterprise Oversight; and

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

"Insured depository institution" means the same as in 12 U.S.C. section 1813(c)(2), and includes an operating subsidiary of the insured depository institution that is an operating subsidiary under the laws and rules applicable to the insured depository institution.

"Licensee" means a person who is a mortgage broker, loan originator, or a person who is required to be licensed under this chapter.

"Loan originator" means an individual not licensed as a mortgage broker and not exempt under section -2:

(1) Who performs any of the functions of a mortgage broker, as defined in this chapter;

(2) Who is employed directly or indirectly by a mortgage broker; and

(3) Whose mortgage loan transactions are under the direction, control, supervision, or management of a mortgage broker.

"Mortgage brokerage agreement" means the written agreement between the mortgage broker and a prospective borrower in which a mortgage broker agrees to attempt to obtain a residential mortgage loan for the borrower or assist the borrower in obtaining a residential mortgage loan, and does not include a promissory note and mortgage, or any other document or instrument evidencing or securing the residential mortgage loan.

"Commissioner" means the commissioner of financial institutions.

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

"Residential mortgage loan" means any loan, including a loan to refinance a residential mortgage loan, secured primarily by a lien on residential real property, the proceeds of which loan will be used primarily for personal, family, or household use.

"Residential real property" means:

(1) Real property located in the State that is improved by or will be improved by the proceeds of the residential mortgage loan, and is improved by a structure or structures designed principally for occupancy of one to four families, including individual units of condominiums and cooperatives, and any related interests, such as a share in the cooperative or right to occupancy unit; or

(2) A manufactured home used primarily for occupancy by one to four families.

"Savings association" means the same as in 12 U.S.C. section 1813(b).

"Uniform multistate automated licensing system" means a system involving one or more states, the District of Columbia, Territory of Guam, 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 and loan originators.

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

(1) Any person that is chartered or authorized under the laws of any state or federal law to engage in the activity of an insured depository institution, including a bank or savings association, and any employee of an insured depository institution;

(2) Any of the following:

(A) A credit union;

(B) A credit union service organization;

(D) An insurance company;

(E) A financial services loan company; or

(F) A federally licensed small business investment company, including an officer or employee of the company;

(3) An individual who is an exclusive agent of a bank or savings association;

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

(5) A person licensed to practice law in the 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;

(6) A person licensed as a real estate broker or salesperson in the State, not actively 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;

(7) An institutional investor negotiating, entering into, or performing under a 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 an insured depository institution, credit union, financial services loan company, or other financial institution registered to do business in the State agrees to sell mortgage loans or obtain funding therefor, with or without the transfer of servicing rights, to an institutional investor;

(8) A person licensed under chapter 467 as a real estate broker or salesperson selling time share interests on behalf of a time share plan developer that is licensed as a mortgage broker 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 -4; and

(B) If the person engages in acts or conduct prohibited under this chapter, including section -11(a), the acts or conduct shall constitute grounds for disciplinary action under section 467‑14;

(9) 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 residential mortgage loans on behalf of the licensee or borrower; and

(10) 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.

§ -3 Requirement of licensure. No person required to be licensed under this chapter shall act as or otherwise engage in the activity of a mortgage broker or loan originator without a license as provided in this chapter, and no person not licensed under this chapter shall charge or receive any commission, fee, or bonus in connection with arranging for, negotiating, or selling a residential mortgage loan.

§ -4 Loan originator. A loan originator may not engage in the activity of a loan originator unless licensed under this chapter, employed by a mortgage broker, and under the control, direction, and supervision of a principal mortgage broker.

§ -5 Principal mortgage broker. (a) A principal mortgage broker shall have the duty to directly manage and supervise a mortgage brokerage firm and its licensees.

(b) A principal mortgage broker shall be responsible for:

(1) Supervising the maintenance of client trust accounts, the disbursements from those accounts, and the accounting practices of the mortgage brokerage firm;

(2) Supervising the maintenance of the records, contracts, and documents of the mortgage brokerage firm;

(3) Supervising all mortgage brokerage agreements and mortgage loan documents of the mortgage brokerage firm and the handling of these documents by the employed licensees of the mortgage brokerage firm;

(4) Supervising all licensees employed by the mortgage brokerage firm;

(5) Developing policies and procedures for the mortgage brokerage firm relating to the handling of residential mortgage loan transactions and the conduct of the employed licensees and other staff, and educating and enforcing these policies and procedures;

(6) Setting a policy on continuing education requirements for all employed licensees of the mortgage brokerage firm to be in compliance with any statutory or rule requirements;

(7) Ensuring that the licenses of all employed licensees and the license of the mortgage brokerage firm are current and active, and any required bond or statutorily permissible substitute is valid and not cancelled;

(8) Establishing and maintaining a training program for all employed licensees of the mortgage brokerage firm;

(9) Ensuring that all employed licensees of the mortgage brokerage firm are provided adequate information and training on the latest amendments to licensing laws and rules, and any other related laws and rules;

(10) Notifying the commissioner of any licensee employed by the mortgage brokerage firm who terminates employment with the mortgage brokerage firm and immediately returns the license to the licensee; and

(11) Ensuring that the records, agreements, including the mortgage brokerage agreement, and loan documents are retained for seven years in paper or electronic format by the mortgage brokerage firm.

§ -6 Licensing requirements. (a) If the applicant is a person other than an individual, no license shall be granted unless the applicant first registers to do business in this State with the business registration division of the department of commerce and consumer affairs, and has designated in the application the name of the individual who holds a mortgage broker license as the principal mortgage broker for the mortgage brokerage firm. The designated principal mortgage broker shall have two years of experience as a mortgage broker, and shall have management and supervision responsibilities for the mortgage brokerage firm and the licensees employed by the applicant.

(b) If the applicant for a mortgage broker license is a sole proprietorship, upon licensure, the individual mortgage broker shall perform the duties of a principal mortgage broker under section -5.

(c) An applicant shall pass a written examination prior to licensure. The commissioner shall determine the examination score that all applicants must receive to pass the written examination. The examination shall test the knowledge of the applicant concerning a residential mortgage loan transaction, the residential mortgage loan laws and rules of the State and relevant federal statutes, and the duties and responsibilities of a principal mortgage broker, mortgage broker, or loan originator, as appropriate. The commissioner may make arrangements, including contracting with an outside testing service, for administering examinations and collecting fees. The fees collected shall be nonrefundable. An applicant who fails to appear for the examination as scheduled or fails to pass the examination shall reapply for an examination and remit all required fees and forms before being rescheduled for another examination. An applicant's examination scores shall be valid for two years from the date of the examination.

(d) An applicant for a renewal of a license shall certify on a form provided by the commissioner that the licensee has completed twelve hours for a mortgage broker or nine hours for a loan originator of continuing education or its equivalent as determined by the commissioner during the two-year period preceding the application for renewal. The certification shall be under oath, if required by the commissioner. In addition to the certification, the commissioner may require any licensee to submit further evidence satisfactory to the commissioner demonstrating compliance with this section. Upon failure to satisfy the continuing education requirement by the license expiration date, the renewed license shall be placed on inactive status.

The course of study for continuing education shall be approved by the National Association of Mortgage Brokers or any other course of study approved by the commissioner, and shall include instruction on primary and subordinate residential mortgage loan transactions and the appropriate laws governing these transactions, including at least four hours of instruction in compliance with federal and state regulations of mortgage loans and at least two hours in business ethics for a license, except that the commissioner may adjust the required hours and course work to comply with any federal law on continuing education for mortgage brokers and loan originators.

To reactivate a license that has been placed on an inactive status for failure to complete the required continuing education courses, the licensee shall submit to the commissioner:

(1) Proof of having satisfied the continuing education requirement of this section;

(2) A complete application setting forth the information as may be prescribed or required by the commissioner; and

(3) Payment of the proper fee.

A false certification to the commissioner shall be deemed a violation and shall subject the licensee to disciplinary proceedings, including denial of the application for renewal of the license. Within sixty days after receipt of notification of the forfeiture, a licensee may request an administrative hearing pursuant to chapter 91 to review the forfeiture.

(e) Every person licensed as a mortgage broker shall deposit with the commissioner, prior to doing business, a bond in the amounts set forth below and executed by the mortgage broker as principal and a surety company authorized to do business in the State as a surety:

(1) A mortgage brokerage firm with one to five mortgage brokers or loan originators shall post a bond in the amount of $25,000;

(2) A mortgage brokerage firm with six to ten mortgage brokers or loan originators shall post a bond in the amount of $50,000; and

(3) A mortgage brokerage firm with eleven or more mortgage brokers or loan originators shall post a bond in the amount of $75,000.

The bond shall be conditioned upon the faithful compliance of the mortgage broker with this chapter. The bond shall run to the State for the benefit of any person injured by the wrongful act, default, fraud, or misrepresentation of the mortgage broker or the loan originators; 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 mortgage broker's license shall not be in effect at any time when the bond is not in full force and effect.

(f) The failure, refusal, or neglect of any licensee to maintain the applicable bond in full force and effect shall cause the automatic forfeiture of the license, effective as of the date of expiration or cancellation of the bond. The commissioner shall not restore the forfeited license until satisfactory proof of bonding is submitted to the commissioner, as required by this section. Failure to submit proof sufficient to restore a license within sixty days after the date of forfeiture shall result in the forfeiture of all fees and shall require the licensee to apply as a new applicant. The commissioner may:

(1) Assess a fee not to exceed $1,000;

(2) Impose a bonding requirement in addition to the bond requirement under subsection (e); or

(3) Restrict the license as a condition of restoration of a license forfeited under this section.

§ -7 Application; denial; investigation; display of license; branch office. (a) Each application for a license or its renewal shall be made in writing, on the forms and in the manner and accompanied by evidence in support of the applications as prescribed by the commissioner. The commissioner shall require information with regard to the applicant as the commissioner may deem desirable, with due regard to the paramount interests of the public, as to the experience, financial integrity, and competency of the applicant as to financial transaction involving primary or subordinate residential mortgage loan financing. Notwithstanding any other law to the contrary, the commissioner shall require the applicant to disclose any arrest and conviction records of the applicant, including an arrest for which the applicant was granted a deferred acceptance of a guilty plea or the benefit of a pre‑trial diversion program.

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

(1) The financial responsibility, character, and fitness of the 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 designated principal mortgage broker are not such as to warrant belief that the business will be operated honestly and fairly within the purposes of this chapter;

(2) The designated principal mortgage broker in charge of the applicant's places of business does not have a minimum of two years' experience in residential mortgage lending;

(3) The applicant has been charged or indicted for a crime of dishonesty, which resulted in a conviction by nolo contendere or otherwise, a deferred acceptance of guilt plea or a pre-trial diversion program and dismissal of the charge or indictment;

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

(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 materially 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 materially violated any state or federal law, rule, or regulation pertaining to residential mortgage loans;

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

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

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

(e) Each mortgage broker shall display the certificate of license issued by the commissioner in plain view in its principal office and in each branch office except a mortgage broker who is not required to have an office in Hawaii shall not be required to display the certificate of license. Upon request, the mortgage broker shall make available for inspection the mortgage broker's license and the licenses of any mortgage broker or loan originator employed by the mortgage broker.

(f) Except for a mortgage broker who qualifies as a foreign lender under section 207-11, every licensed mortgage broker shall have and maintain a principal place of business in the State for the transaction of business. In the event the mortgage broker desires to maintain a branch office or offices, the commissioner, upon application and payment of a fee, shall issue a branch office license. The mortgage broker shall designate a loan originator who has two years of experience in financial transactions involving primary or subordinate residential mortgage loan financing, or equivalent experience as determined by the commissioner, to be in charge of each branch office.

§ -8 Uniform multistate automated licensing system. (a) The legislature has determined that a uniform multistate administration of an automated licensing system for mortgage brokers 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 and loan originators, the commissioner is authorized:

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

(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.

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

§ -9 Written agreements. For any transaction between a mortgage broker or a loan originator and a borrower, the following requirements shall apply:

(1) A mortgage broker and a loan originator shall comply with all provisions of the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Equal Credit Opportunity Act, as those laws currently exist or as they may be amended;

(2) Any written commitment letter to make a residential mortgage loan with specified terms, including loan amount, interest rate, points, and payment terms, which is issued by a mortgage broker and accepted by a borrower, must be honored by the mortgage broker if the borrower has completely satisfied all of the conditions of the commitment in a timely manner and prior to the specified expiration date of the commitment. A loan originator may not issue a written commitment letter. A written commitment letter shall specify the conditions precedent to closing the residential mortgage loan and the lender, which has the ultimate authority to fund and close the residential mortgage loan;

(3) A mortgage broker or loan originator shall provide the borrower with the following notice (or substantially similar notice) of the borrower's rights and obligations, not longer than one page in length and in twelve-point type, regarding the terms of the mortgage loan transaction not later than the time the notice is required under the notice provision contained in 12 C.F.R. section 226.31(c), as amended:

"CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE

You are not required to complete this agreement merely because you have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations.

If you are uncertain about your rights and obligations under this agreement, you should consider consulting a qualified independent housing counselor or other experienced financial adviser regarding the rate, fees, and provisions of this mortgage loan before you proceed. For information on contacting a qualified housing counselor, call the United States Department of Housing and Urban Development's counseling and referral line or its website for a list of housing counseling agencies."

The mortgage broker or loan originator shall provide the notice to the borrower and shall secure a signed acknowledgement of receipt by the borrower of a copy of the notice. The notice requirements of this paragraph shall not apply when a similar disclosure is required under federal law, including but not limited to home equity loans and high cost loans under the Home Ownership and Equity Protection Act of 1994, 15 U.S.C. section 1639; and

(4) Within three business days of receipt of a borrower's completed residential mortgage loan application by the licensee, and before the borrower gives the licensee any moneys except for an application fee, the licensee shall sign a mortgage brokerage agreement with the borrower. The mortgage brokerage agreement shall be with the mortgage broker employing the mortgage broker or loan originator. The mortgage brokerage agreement shall be in writing, and signed and dated by both the borrower and the licensee. The mortgage brokerage agreement shall include a clear and conspicuous statement:

(A) Explaining that a copy shall be made available, upon request, to the borrower or the borrower's attorney for review prior to signing;

(B) Explaining whether the licensee is a fiduciary for the borrower;

(C) Explaining the nature of the licensee's compensation, and if the licensee is a loan originator, explaining the compensation of the mortgage brokerage firm that the mortgage broker or loan originator is employed by, and whether the mortgage broker and loan originator may receive compensation from the borrower, the lender, or both;

(D) Describing the services the licensee will perform for the borrower;

(E) Setting forth the conditions under which the borrower is obligated to pay fees to the licensee; the manner in which the borrower may cancel the mortgage brokerage agreement; the borrower's liabilities for fees and costs; and the mortgage broker's contact information for dispute resolution; and

(F) If the licensee makes materially false or misleading statements or omissions in the mortgage brokerage agreement, explaining that the borrower, upon written notice, may:

(i) Void the mortgage brokerage agreement;

(ii) Recover moneys paid to the licensed mortgage broker and loan originator by the borrower for which no services have been performed; and

(iii) Recover actual costs, including attorney fees, for enforcing the borrower's rights under the mortgage brokerage agreement.

A copy of the fully signed mortgage brokerage agreement shall be given to the borrower by the mortgage broker or loan originator immediately after signing the mortgage brokerage agreement.

§ -10 Advertising. (a) It shall be a violation of this chapter for any person to:

(1) Advertise as a mortgage broker or loan originator unless the person holds a valid license under this chapter to provide the services advertised; or

(2) When inviting the recipient of the advertisement to refinance an existing residential mortgage loan, disclose the name of the lender who made the existing residential mortgage loan in the advertisement.

(b) A mortgage broker or loan originator may not advertise in any misleading or deceptive manner, such as advertising in a manner that is likely to cause the recipient to believe that the advertisement is from the mortgagor of record of the existing residential mortgage loan.

(1) Issuing any card, sign, or device to any person;

(2) Causing, permitting, or allowing the placement of any sign or marking on or in any building, vehicle, or structure;

(3) Placing an advertisement in any newspaper, magazine, or on the Internet;

(4) Listing or advertising in any directory under a classification or heading that includes the words "mortgage broker", "loan originator", or the like;

(5) Broadcasting commercials by airwave or internet transmission; or

(6) Transmitting any written communication, including:

(A) A letter or a postcard that encourages a person to borrow from or through a mortgage broker; or

(B) A written communication that encourages a person to refinance the person's existing residential mortgage loan and mentions that a new residential mortgage loan will reduce the monthly payment the borrower will pay on the new residential mortgage loan or reduce the interest rate on the borrower's existing residential mortgage loan.

§ -11 Licensing sanctions. (a) In addition to any other actions authorized by law, the commissioner may revoke or suspend a license issued under this chapter, condition the right of a licensee to use the license, or fine any person holding a license issued under this chapter, for any cause authorized by law, including any of the following acts or conduct of a licensee:

(1) Making a false promise likely to influence, persuade, or induce, or pursuing a course of misrepresentation or false promises through agents, licensees, advertising, or otherwise;

(2) Misrepresentation or concealment of any material fact with respect to any residential mortgage loan transaction resulting in injury to any party;

(3) Failure to disburse funds in accordance with an agreement;

(4) Failure to account or deliver to any person any personal property such as money, fund, deposit, check, draft, mortgage, or other document or thing of value which has come into the person's hands and which is not the person's property or which the person is not in law or equity entitled to retain, and at the time which has been agreed upon, or is required by law, or, in the absence of a fixed time, upon demand of the person entitled to the accounting or delivery;

(5) Failure to place, within a reasonable time upon receipt, any money, fund, deposit, check, or draft, entrusted to the licensee by any person dealing with the licensee in escrow pursuant to a written agreement, or to deposit the funds in a trust or escrow bank account maintained by the licensee in a bank located and doing business in the State, wherein the funds shall be kept until disbursement thereof is authorized;

(6) Delivering a misleading or deceptive communication or advertising, whether written, electronic, or oral, when marketing or soliciting a residential mortgage loan. A communication or advertisement that uses the name or trademark of another financial institution, as defined in section 412:1-109, or its affiliates or subsidiaries, or infers that the communication or advertisement is from, endorsed by, is related to, or is the responsibility of the financial institution is a misleading or deceptive communication;

(7) Brokering or making any residential mortgage loan as a direct result of offering, soliciting, or selling such residential mortgage loan at the dwelling of a borrower without a prearranged appointment;

(8) Without the express consent of the potential borrower, filling in any blank on a residential mortgage loan application which blank requests material information, including material financial information;

(9) Without the express consent of the borrower, filling in any blank on any instrument evidencing or securing the residential mortgage loan which blank relates to the amount, interest rate, or monthly payment of the residential mortgage loan;

(10) Make payment directly or indirectly, of any kind, to any appraiser licensed or certified under chapter 466K to influence the valuation of the residential real property that will secure a residential mortgage loan;

(11) Conditioning compensation of an appraiser on establishing a certain value for such residential real property; or

(12) Failure to comply with this chapter or any order or rule made under the authority of this chapter.

§ -12 Power to examine and investigate. (a) The commissioner may conduct examinations of mortgage brokers and loan originators under this chapter for the purpose of determining whether the mortgage broker or loan originator is in compliance with all laws, rules, or orders issued by the commissioner.

(b) The commissioner shall have full access to the books, accounts, records, and documents of the licensee and may make any inquiries as may be necessary to ascertain the condition of the licensee. All officers, directors, employees, partners, members, 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.

(c) The commissioner may charge an examination fee based upon the cost per hour per examiner for all mortgage brokers and loan originators examined by the commissioner or the commissioner's staff. The fee shall be $40 per hour in the case of a mortgage brokerage firm and $20 per hour in the case of a mortgage broker operating as a sole proprietorship or an amount as the commissioner shall establish by rule pursuant to chapter 91. In addition to the examination fee, the commissioner may charge any licensed mortgage broker 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.

(d) Notwithstanding chapter 92F, the examination process and related information and documents, including the reports of examination, are confidential and are not subject to discovery or disclosure in civil and criminal actions.

(e) Any person having reason to believe that this chapter or the rules adopted pursuant thereto, have been violated or that a license issued under this chapter is subject to suspension or revocation, may file with the commissioner a written complaint setting forth the details of the alleged violation or grounds for suspension or revocation.

§ -13 Cease and desist orders; grounds for issuance. 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, in the commissioner's discretion, may 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.

§ -14 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 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.

§ -15 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.

§ -16 Powers of commissioner. The commissioner may adopt rules pursuant to chapter 91 as the commissioner deems necessary for the administration of this chapter.

In addition to any other powers provided by law, the commissioner may:

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

(2) Adopt, amend, or repeal rules, issue declaratory rulings or informal nonbinding interpretations, and conduct contested case proceedings pursuant to chapter 91;

(3) Grant, deny, forfeit, renew, reinstate, or restore the license of any mortgage broker or loan originator;

(4) Revoke, suspend, or otherwise limit the license of any mortgage broker or loan originator for any violation of this chapter, or any rule or order of, or agreement with the commissioner;

(5) Develop requirements for licensure through rules, including establishing the content of the written examinations required under section ‑6 and determining the criteria for a passing grade;

(6) Investigate and conduct hearings regarding any violation of this chapter, and any rule or order of or agreement with the commissioner;

(7) Prepare, administer, and grade examinations; provided that the commissioner may contract with a testing agency to provide those services, and the commissioner may also reserve the right to modify, amend, change, or regrade the examination;

(8) Create fact-finding committees that may make recommendations to the commissioner for the commissioner's deliberations;

(9) Require the applicant and any of its officers, directors, employees, partners, members, and agents to disclose the relevant criminal history and request a criminal history record check in accordance with section 846-2.7;

(10) Contract with qualified persons, including investigators who may be exempt from chapter 76 and who shall assist the commissioner in exercising the commissioner's powers and duties;

(11) Require that all fees, fines, and charges collected by the commissioner under this chapter be deposited into the compliance resolution fund established pursuant to section 26‑9(o);

(12) Subpoena witnesses and documents, administer oaths, and receive affidavits and oral testimony, including telephonic communications, and do any and all things necessary or incidental to the exercise of the commissioner's power and duties, including the authority to conduct contested case proceedings under chapter 91; and

(13) Require a mortgage broker or loan originator to comply with any rule, guidance, guideline, statement, supervisory policy or any similar proclamation issued, adopted, or promulgated by the Federal Deposit Insurance Corporation to the same extent and in the same manner as a bank chartered by the State or in the alternative, any policy position of the Conference of State Bank Supervisors.

§ -17 Fees, commissions, and charges. (a) A licensed mortgage broker and loan originator shall not require a borrower to pay any fees or charges prior to the mortgage loan closing, except for:

(1) Charges to be incurred by the licensed mortgage broker and loan originator on behalf of the borrower for services from third parties necessary to process the mortgage loan application, such as credit reports and appraisals;

(2) An application fee;

(3) A rate lock fee;

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

(5) A loan cancellation fee.

(b) A licensed mortgage broker and loan originator shall not charge any fee that inures to the benefit of the licensee if it exceeds the fee disclosed on the most recent good faith estimate required by the federal Real Estate Settlement Procedures Act, unless:

(1) The need to charge the higher fee was not reasonably foreseeable at the time the good faith estimate was written; and

(2) The licensee has provided to the borrower, no less than three business days prior to the signing of the mortgage loan documents, a clear written explanation of the increase in the fee and the reason for charging a fee that exceeds what was previously disclosed.

(c) Within thirty days after any rejection, withdrawal, or closing, any fees collected in excess of actual costs shall be returned.

(d) The commissioner may also adopt rules concerning maximum fees, commissions, and charges on mortgage loan transactions. The maximum fees, commissions, and charges shall be related to the actual amount of money made available to the borrower, over and above the indebtedness of prior mortgages. The commissioner may also adopt rules concerning the full disclosure of the fees, commissions, and charges.

§ -18 Confidentiality of records. (a) The commissioner and all employees, contractors, attorneys contracted or employed by the State, and appointees of the commissioner 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 of financial institutions, 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.

§ -19 Penalty. (a) A violation of this chapter shall be punishable by a fine of not more than $2,000 or imprisonment of not more than one year, or both.

(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 92-28, Hawaii Revised Statutes, is amended to read as follows:

"§92-28 State service fees; increase or decrease of. Any law to the contrary notwithstanding, the fees or other nontax revenues assessed or charged by any board, commission, or other governmental agency may be increased or decreased by the body in an amount not to exceed fifty per cent of the statutorily assessed fee or nontax revenue, to maintain a reasonable relation between the revenues derived from such fee or nontax revenue and the cost or value of services rendered, comparability among fees imposed by the State, or any other purpose which it may deem necessary and reasonable; provided that:

(1) The authority to increase or decrease fees or nontax revenues shall be subject to the approval of the governor and extend only to the following: chapters 36, 92, 94, 142, 144, 145, 147, 150, 171, 188, 189, 231, 269, 271, 321, 338, 373, 412, 414, 414D, 415A, 417E, 419, 421, 421C, 421H, 421I, 425, 425E, 428, 431, 436E, 437, 437B, 438, 439, 440, 441, 442, 443B, 444, 447, 448, 448E, 448F, 448H, 451A, 451J, 452, 453, 453D, [~~454,~~] , 455, 456, 457, 457A, 457B, 457G, 458, 459, 460, 460J, 461, 461J, 462A, 463, 463E, 464, 465, 466, 466K, 467, 467E, 468E, 468L, 468M, 469, 471, 482, 482E, 484, 485A, 501, 502, 505, 514A, 514B, 514E, 572, 574, and 846 (part II);

(2) The authority to increase or decrease fees or nontax revenues under the chapters listed in paragraph (1) that are established by the department of commerce and consumer affairs shall apply to fees or nontax revenues established by statute or rule;

(3) The authority to increase or decrease fees or nontax revenues established by the University of Hawaii under chapter 304A shall be subject to the approval of the board of regents; provided that the board's approval of any increase or decrease in tuition for regular credit courses shall be preceded by an open public meeting held during or prior to the semester preceding the semester to which the tuition applies;

(4) This section shall not apply to judicial fees as may be set by any chapter cited in this section;

(5) The authority to increase or decrease fees or nontax revenues pursuant to this section shall be exempt from the public notice and public hearing requirements of chapter 91; and

(6) Fees for copies of proposed and final rules and public notices of proposed rulemaking actions under chapter 91 shall not exceed 10 cents a page, as required by section 91-2.5." SECTION 3. Section 241-1, Hawaii Revised Statutes, is amended by amending the definition of "mortgage loan company" to read as follows:

""Mortgage loan company" means any company licensed under chapter [~~454.~~] ."

SECTION 4. Section 412:3-502, Hawaii Revised Statutes, is amended to read as follows:

"§412:3-502 Foreign financial institution. No foreign financial institution shall receive deposits, lend money, or pay checks, negotiate orders of withdrawal or share drafts from any principal office, branch, agency, automatic teller machine, or other location in this State, unless expressly authorized by this chapter, other laws of this State, or federal law; provided that nothing in this section shall prohibit any foreign financial institution from participating in the disbursement of cash through an automatic teller machine network or from operating from any location in this State as a mortgage broker licensed under chapter [~~454,~~] , or as a real estate collection servicing agent."

SECTION 5. Section 477E-2, Hawaii Revised Statutes, is amended by amending the definition of "creditor" to read as follows:

""Creditor" means any bank; savings and loan association; trust company; financial services loan company or small loan company; credit union; mortgage banker, broker, or [~~solicitor;~~] loan originator; pawnbroker; mutual or fraternal benefit society; debt adjuster; the issuer of a credit card as defined in section 708-800; any person who initiates, extends, renews, or continues loans of money or credit; any person who regularly arranges for the initiation, extension, renewal, or continuation of a loan of money or credit; or any assignee of an original creditor who participates in the decision to grant, extend, renew, or to continue such loan or credit."

SECTION 6. Section 667-21, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) As used in this part:

"Borrower" means the borrower, maker, cosigner, or guarantor under a mortgage agreement.

"Foreclosing mortgagee" means the mortgagee that intends to conduct a power of sale foreclosure; provided that the mortgagee is a federally insured bank, a federally insured savings and loan association, a federally insured savings bank, a depository financial services loan company, a nondepository financial services loan company, a credit union insured by the National Credit Union Administration, a bank holding company, a foreign lender as defined in section 207-11, or an institutional investor [~~as defined in section 454-1~~].

"Mailed" means to be sent by regular mail, postage prepaid, and by certified, registered, or express mail, postage prepaid and return receipt requested.

"Mortgage" means a mortgage, security agreement, or other document under which property is mortgaged, encumbered, pledged, or otherwise rendered subject to a lien for the purpose of securing the payment of money or the performance of an obligation.

"Mortgage agreement" includes the mortgage, the note or debt document, or any document amending any of the foregoing.

"Mortgaged property" means the property that is subject to the lien of the mortgage.

"Mortgagee" means the current holder of record of the mortgagee's or the lender's interest under the mortgage, or the current mortgagee's or lender's duly authorized agent.

"Mortgagor" means the mortgagor or borrower named in the mortgage and, unless the context otherwise indicates, includes the current owner of record of the mortgaged property whose interest is subject to the mortgage.

"Open house" means a public showing of the mortgaged property during a scheduled time period.

"Power of sale" or "power of sale foreclosure" means a nonjudicial foreclosure under this part when the mortgage contains, authorizes, permits, or provides for a power of sale, a power of sale foreclosure, a power of sale remedy, or a nonjudicial foreclosure.

"Property" means property (real, personal, or mixed), an interest in property (including fee simple, leasehold, life estate, reversionary interest, and any other estate under applicable law), or other interests that can be subject to the lien of a mortgage.

"Record" or "recorded" means a document is recorded or filed with the office of the assistant registrar of the land court under chapter 501 or recorded with the registrar of conveyances under chapter 502, or both, as applicable.

"Served" means to have service of the notice of default made in accordance with the service of process or the service of summons under the Hawaii rules of civil procedure, and under sections 634-35 and 634-36."

SECTION 7. 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 license as provided by section ‑7;

(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 8. After December 31, 2010, no new license shall be issued and no license renewal shall be effectuated 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 9. 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 10. 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 11. 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 12. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 13. This Act shall take effect on July 1, 2050.

THE SENATE	S.B. NO.	3010
TWENTY-FOURTH LEGISLATURE, 2008		S.D. 2
STATE OF HAWAII