DEPARTMENT OF REGULATORY AGENCIES

DIVISION OF REAL ESTATE

MORTGAGE BROKERS

4CCR 725-3

MORTGAGE BROKERS’ DUTY TO RESPOND AND PROVIDE REQUESTED DOCUMENTS FOR INVESTIGATIONS

Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado, and to all persons who have requested to be advised of the intention of the Director of the Colorado Division of Real Estate to promulgate rules.

Section 1.	Authority
Section 2.	Scope and Purpose
Section 3. 	Definitions
Section 4.	Applicability
Section 5.	Rules Regarding Mortgage Brokers’ Duty to Respond and 
Provide Requested Documents for Investigations
Section 6. 	Enforcement
Section 7. 	Effective Date

Section 1.	Authority

The statutory basis for this rule, entitled Mortgage Brokers’ Duty to Respond and Provide Requested Documents for Investigations, is § 12-61-910.3, C.R.S.

The notice proposes to add rule 3-1-2.  The rule establishes that mortgage brokers have a duty to respond and provide requested documentation for investigations.

Section 2.	Scope and Purpose

Section 12-61-905(7)(b), C.R.S., states the Director of the Division of Real Estate, upon his or her own motion may, and, upon the complaint in writing of any person, shall, investigate the activities of any licensee or any person who assumes to act in such capacity within the state.  Section 12-61-905.5(1)(k), C.R.S. requires mortgage brokers to maintain possession, for the future use or inspection by an authorized representative of the Director, for a period of four years, of the documents or records prescribed by the rules of the Director or to produce such documents or records upon reasonable request by the Director or by an authorized representative of the Director.  The purpose of this regulation is to define what documents should be retained for a period of four years and to require mortgage brokers or other persons who assume to act in such capacity within the state to provide a written response and all requested documents to the Director or an authorized representative of the Director.  Additionally, this regulation prescribes the time period in which all persons and entities shall respond to Director inquiries, including, but not limited to, document and information requests during investigations of complaints or any other investigation conducted for the purpose of determining compliance with Colorado mortgage broker law.

Section 3. 	Definitions

1.	“Secure environment” means a system which implements the controlled storage and use of information.

Section 4.	Applicability

This rule governs persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker.  

Section 5.	Rules Regarding Mortgage Brokers’ Duty to Respond and Provide 
Requested Documents for Investigations

1.	Persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker shall provide the Director or his or her authorized representative with all information required by this rule.  

a.	Failure to provide all information requested by the Director or his or her authorized representative within the time set by the Director, or authorized representative of the Director, shall be grounds for disciplinary action and grounds for the imposition of fines unless the Director, or authorized representative of the Director, has granted an extension of time for the response.  

i.	Persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker or offer to act as a mortgage broker may ask for an extension of time to comply if:

1.	The request is done so in writing; and

2.	The request is received by the Director or authorized representative of the Director prior to the expiration date defined in the notification letter sent by the Director or authorized representative of the Director.

ii.	Any and all extensions granted are done so at the discretion of the Director or authorized representative of the Director.

b.	Failure to provide all requested information shall be grounds for disciplinary action and grounds for the imposition of fines regardless of whether the underlying complaint results in further investigation or subsequent action by the Director.

2.	The response from the person shall contain the following:

a.	If requested in the notification letter, a complete and specific answer to the factual recitations, allegations or averments made in the complaint filed against the licensee, whether made by a member of the public or on the Director’s own motion or by an authorized representative of the Director;

b.	A complete and specific response to all questions, allegations or averments presented in the notification letter; and

c.	Any and all documents or records requested in the notification letter.

3.	Persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker shall maintain any and all documents collected, gathered and provided for the purpose of negotiating and originating residential mortgage loans for a period of four years.  Additionally, persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker or offer to act as a mortgage broker shall maintain any and all documents used for the purpose of soliciting or marketing borrowers.  These documents include, but are not limited to:

a.	All Uniform residential loan applications (Form 1003);

b.	All required state and federal disclosures;

c.	Asset statements;

d.	Income documentation;

e.	Verification of employment;

f.	Verification of deposit;

g.	Lender submission forms;

h.	Advertisements;

i.	Flyers;

j.	HUD-1 Settlement Statements;

k.	Uniform Underwriting and Transmittal Summary(Form 1008); and

l.	Credit report. 

4.	All documents shall be kept in a secure environment.  Electronic storage is acceptable as long as the information is accessible and kept in a secure environment. 

5.	The company for whom the mortgage broker is an officer, partner, contractor, independent contractor, member, exclusive agent or an employee may provide the requested documents to the Director.  However, the mortgage broker is responsible for compliance with the Director’s request and is subject to disciplinary action if the company fails or refuses to provide the requested documentation.  

Section 6. 	Enforcement

1.	Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the sanctions allowable under Colorado law, including, but not limited to:

a.	Revocation;

b.	Refusal to renew a license;

c.	Imposition of fines; and 

d.	Restitution for any financial loss.

Section 7.	Effective Date

This permanent rule shall be effective March 1, 2008.

MAINTAINING CURRENT CONTACT INFORMATION AND All INFORMATION REQUIRED FOR LICENSING

Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado, and to all persons who have requested to be advised of the intention of the Director of the Colorado Division of Real Estate to promulgate rules.

Section 1.	Authority
Section 2.	Scope and Purpose
Section 3.	Definitions
Section 4.	Applicability
Section 5.	Maintaining Current Contact Information and All Information Required for Licensing 
Section 6. 	Enforcement
Section 7. 	Effective Date

Section 1.	Authority

The statutory basis for this rule, entitled Maintaining Current Contact Information and All Information Required for Licensing, is § 12-61-910.3, C.R.S.

The notice proposes to add rule 3-1-3.  The rule defines the requirement for mortgage brokers to maintain contact information and all information required for licensing.

Section 2.	Scope and Purpose

The Director of the Division of Real Estate is required to license and discipline mortgage brokers who are negotiating or originating, or offering or attempting to negotiate or originate mortgage transactions for Colorado borrowers.  In order to implement and enforce Colorado mortgage broker laws, the Director must have the ability to correspond or request documentation from mortgage brokers.  Furthermore, mortgage brokers are responsible for maintaining specific requirements for licensing.  These include, but are not limited to a surety bond and errors and omissions insurance.  Mortgage brokers are responsible for maintaining such requirements. 

The purpose of this rule is to ensure that mortgage brokers maintain current contact information and all information required for licensing to ensure the Director may adequately protect the Colorado consumer.

Section 3.	Definitions

1.	“Address” means the street address, city, state and postal code.

2.	“Physical Address” means the physical location of the property.

3.	“Business Name” means the company for which individuals who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker are officers, partners, members, managers, owners, exclusive agents, contractors, independent contractors or employees. 

Section 4.	Applicability

This rule governs individuals who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker.

Section 5.	Rules Regarding Mortgage Brokers Maintaining Current Contact Information and All Information Required for Licensing

1.	Individuals who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker shall maintain all current contact information and all information required for licensing, in a manner acceptable to the Director.  Failure to maintain the information identified in this rule shall be grounds for disciplinary action.

2.	Contact information shall include, but is not limited to:

a.	E-mail address;

b.	Legal first, middle and last names;

c.	Physical home address;

d.	Home phone number;

e.	Business address; 

f.	Business phone number; and

g.	Business name.

3.	Information required for licensing includes, but is not limited to:

a.	Surety bond company;

b.	Surety bond number; 

c.	Surety bond effective date;

d.	Errors and omissions insurance provider;

e.	Errors and omissions policy number;

f.	Errors and omissions effective and expiration date; and

g.	Convictions, pleas of guilt or nolo contendere for all crimes.

4.	Individuals who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker shall update the Director within thirty (30) days of any changes to the information defined in this rule.

5.	The Director has created the Mortgage Broker Licensing Update Form to ensure this information is clearly and concisely disclosed.  This form may be found on the Division of Real Estate’s website at http://www.dora.state.co.us/real-estate/mortgage/MBForms.htm.  Mortgage brokers shall use this form to ensure all information defined in this rule is current.  

a.	Mortgage brokers shall forward this form by mail or personal delivery to the following address:

i.	Division of Real Estate – Attn: Mortgage Broker Licensing Department
1560 Broadway, Suite 925
Denver, CO. 80202

6.	Additionally, mortgage brokers may update all of the information required in this rule electronically.  They may access their information through the following website: https://eservices.psiexams.com/index_login.jsp.  After entering their password and username, mortgage brokers may update all information without any fees or costs associated with such action.

Section 6.	Enforcement

1.	Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the sanctions allowable under Colorado law, including, but not limited to:

a.	Revocation;

b.	Refusal to renew a license;

c.	Imposition of fines; and 

d.	Restitution for any financial loss.

Section 7. 	Effective Date

This permanent rule shall be effective March 1, 2008.

PREPAYMENT PENALTIES

Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado, and to all persons who have requested to be advised of the intention of the Director of the Colorado Division of Real Estate to promulgate rules.

Section 1.	Authority
Section 2.	Scope and Purpose
Section 3.	Definitions
Section 4.	Applicability
Section 5.	Rules Regarding Prepayment Penalties
Section 6.	Enforcement
Section 7. 	Effective Date

Section 1.	Authority

The statutory basis for this rule, entitled Prepayment Penalties, is § 12-61-910.3, C.R.S.

The notice proposes to add rule 3-1-4.  The rule addresses mortgage transactions that contain specific prepayment penalty terms.

Section 2.	Scope and Purpose

The Director has learned that some extended prepayment penalties lead to higher rates of foreclosure.  Specifically, prepayment penalties which extend past the adjustment date of a mortgage loan often severely restrict the ability of the borrower to refinance or sell their property.  Additionally, in higher rate environments, borrowers often have only two viable options, to absorb a much higher monthly payment or lose their home through foreclosure proceedings.  The Director adopts this rule in order to address the high rate of foreclosures in Colorado resulting from particular prepayment penalties.

Pursuant to § 12-61-904.5(1), C.R.S, mortgage brokers have a duty of good faith and fair dealing in all communications and transactions with a borrower.  This duty includes, but is not limited to making a reasonable inquiry into a borrower’s ability to repay a loan and recommending or inducing a borrower to enter into only those transactions that have a reasonable, tangible net benefit to the borrower.  

The purpose of this rule is to establish a presumption that transactions including a prepayment penalty that extends past the adjustment date of any teaser rate, payment rate or interest rate included in a mortgage loan does not provide a reasonable, tangible net benefit to the borrower.

Section 3.	Definitions

1.	“Adjustable rate mortgage” means a mortgage in which the teaser rate, payment rate or the interest rate changes periodically and in some cases, may adjust according to corresponding fluctuations in an index.

2.	“Adjustment date” means the date the teaser rate, payment rate or interest rate changes on an adjustable rate mortgage.

3.	“Interest rate” means the rate used to calculate a borrower’s monthly interest    payment. 

4.	“Payment rate” means the rate used to determine a borrower’s monthly payment.

5.	“Teaser rate” means a temporary and often low introductory rate on an adjustable rate mortgage. 

6.	“Prepayment Penalty” means a fee assessed pursuant to the terms of the loan on a borrower who repays all or part of the principal of a loan before it is due.  Prepayment penalties do not include interest payments of thirty (30) days or less that may be assessed pursuant to the terms of some FHA or VA loans.  Prepayment penalties for the purpose of this rule do not include termination fees of $500.00 or less that are associated with home equity lines of credit.

Section 4.	Applicability

This rule applies to all mortgage brokers as that term is defined in § 12-61-902(5), C.R.S.  and includes those persons who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker.  

Section 5.	Rules Regarding Prepayment Penalties

1.	Mortgage brokers who recommend or induce a borrower into a transaction that contains a prepayment penalty which extends past the adjustment date for any type of an adjustable rate mortgage shall be presumed to have violated their duty of good faith and fair dealing requirement pursuant to section 12-61-904.5, C.R.S.  This includes, but is not limited to:

a.	Prepayment penalties that extend past the adjustment date of any teaser rate used to calculate a borrower’s monthly mortgage payment;

b.	Prepayment penalties that extend past the adjustment date of any interest rate used to calculate a borrower’s monthly mortgage payment; 

c.	Prepayment penalties that extend past the adjustment date of any payment rate used to calculate a borrower’s monthly mortgage payment; and

d.	Prepayment penalties that extend past the adjustment date of any like tool or instrument, similar to the teaser rate, payment rate or interest rate defined in this rule, used to calculate a borrower’s monthly mortgage payment.

2.	Information provided to consumers should clearly explain the ramifications of prepayment penalties.  Borrowers should be informed of the existence of any prepayment penalty, how it will be calculated and when it may be imposed.  A prepayment penalty disclosure form may be prescribed by the Director, completion of which will constitute compliance with this section 5(2).

Section 6.	Enforcement

1.	Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the sanctions allowable under Colorado law, including, but not limited to:

a.	Revocation;

b.	Refusal to renew a license;

c.	Imposition of fines; and 

d.	Restitution for any financial loss.

Section 7.	Effective Date

This permanent rule shall be effective March 1, 2008. 

MORTGAGE BROKER CONTRACTS

Pursuant to and in compliance with Title 12, Article 61 and Title 24, Article 4, C.R.S. as amended, notice of proposed rulemaking is hereby given, including notice to the Attorney General of the State of Colorado, and to all persons who have requested to be advised of the intention of the Director of the Colorado Division of Real Estate to promulgate rules.

Section 1.	Authority
Section 2.	Scope and Purpose
Section 3.	Applicability
Section 4.	Rules Regarding Mortgage Broker Contracts
Section 5.	Enforcement
Section 6. 	Effective Date

Section 1.	Authority

The statutory basis for this rule, entitled Mortgage Broker Contracts, is § 12-61-910.3, C.R.S.

The notice proposes to add rule 5-1-1.  The rule defines the requirement for mortgage brokers to have contracts with borrowers and with mortgage lenders.

Section 2.	Scope and Purpose

Section 12-61-913, C.R.S., requires contracts between a mortgage broker and a borrower to be in writing and to contain the entire agreement of the parties.  This section also requires mortgage brokers to have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public.  The purpose of this regulation is to define compliance with the contractual requirements.

Section 3.	Applicability

This rule governs individuals who broker a mortgage, offer to broker a mortgage, act as a mortgage broker, or offer to act as a mortgage broker.

Section 4.	Rules Regarding Mortgage Broker Contracts

1.	Section 12-61-913(1), C.R.S. states that every contract between a mortgage broker and a borrower shall be in writing and shall contain the entire agreement of the parties.

a.	Section 12-61-913(1), C.R.S. does not require a contract between a mortgage broker and a borrower.  Rather, that if a contract does exist, such contract shall be in writing.

2.	Section 12-61-913(2), C.R.S., states a mortgage broker shall have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public.

a.	Mortgage brokers are compliant with § 12-61-913(2), C.R.S. if they adhere to one of the following requirements:

i.	They individually have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public;

ii.	They are an officer, partner, member, exclusive agent, or employee of a company that has a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public; 

iii.	They are acting as an independent contractor and maintain a contractual agreement with a company that has a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public; or

iv.	They are an employee of a lender before any solicitation of, or contracting with, any member of the public.

Section 5.	Enforcement

1.  	Noncompliance with this rule, whether defined or reasonably implied in the rule, may result in the imposition of any of the sanctions allowable under Colorado law, including, but not limited to:

a.	Revocation;

b.	Refusal to renew a license;

c.	Imposition of fines; and 

d.	Restitution for any financial loss.

Section 6. 	Effective Date

This permanent rule is effective March 1, 2008.