Senate Bill 5968 — Regulating Home Equity Sharing Agreements Under the Consumer Loan Act (Washington, 2024)

Summary

Senate Bill 5968, State of Washington, 68th Legislature, 2024 Regular Session, by Senators Stanford, Dhingra, Frame and others. The act relates to regulating home equity sharing agreements under the consumer loan act, amends RCW 31.04.015 and 31.04.102, and adds a new section to chapter 31.04 RCW. The new section states that a home equity sharing agreement may not contain provisions that prevent the property owner from renting or using the real property as the property owner chooses, or from refinancing a mortgage or lien on the real property. The bill was prefiled January 4, 2024, read first time January 8, 2024, and referred to the Committee on Business, Financial Services, Gaming & Trade.

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Full text

     S-3734.1

                               SENATE BILL 5968


     State of Washington       68th Legislature        2024 Regular Session

     By Senators Stanford, Dhingra,   Frame,   Hasegawa,   Kuderer,   Saldaña,
     Trudeau, Valdez, and C. Wilson

     Prefiled 01/04/24. Read first time 01/08/24. Referred to Committee
     on Business, Financial Services, Gaming & Trade.




1        AN ACT Relating to regulating home equity sharing agreements
2    under the consumer loan act; amending RCW 31.04.015 and 31.04.102;
3    and adding a new section to chapter 31.04 RCW.


4    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 5       Sec. 1. RCW 31.04.015 and 2018 c 62 s 9 are each amended to read
 6   as follows:
 7       The definitions set forth in this section apply throughout this
 8   chapter unless the context clearly requires a different meaning.
 9       (1) "Add-on method" means the method of precomputing interest
10   payable on a loan whereby the interest to be earned is added to the
11   principal balance and the total plus any charges allowed under this
12   chapter is stated as the loan amount, without further provision for
13   the payment of interest except for failure to pay according to loan
14   terms. The director may adopt by rule a more detailed explanation of
15   the meaning and use of this method.
16       (2) "Affiliate" means any person who, directly or indirectly
17   through one or more intermediaries, controls, or is controlled by, or
18   is under common control with another person.
19       (3) "Applicant" means a person applying for a license under this
20   chapter.


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 1       (4) "Borrower" means any person who consults with or retains a
 2   licensee or person subject to this chapter in an effort to obtain, or
 3   who seeks information about obtaining a loan, regardless of whether
 4   that person actually obtains such a loan. "Borrower" includes a
 5   person who consults with or retains a licensee or person subject to
 6   this chapter in an effort to obtain, or who seeks information about
 7   obtaining a residential mortgage loan modification, regardless of
 8   whether that person actually obtains a residential mortgage loan
 9   modification.
10       (5) "Department" means the state department of financial
11   institutions.
12       (6) "Depository institution" has the same meaning as in section 3
13   of the federal deposit insurance act on July 26, 2009, and includes
14   credit unions.
15       (7) "Director" means the director of financial institutions.
16       (8) "Educational institution" means any entity that is a degree-
17   granting institution as defined in RCW 28B.85.010, a private
18   vocational school as defined in RCW 28C.10.020, or school as defined
19   in RCW 18.16.020.
20       (9) "Federal banking agencies" means the board of governors of
21   the federal reserve system, comptroller of the currency, director of
22   the   office   of    thrift  supervision,    national   credit   union
23   administration, and federal deposit insurance corporation.
24       (10) "Individual servicing a mortgage loan" means a person on
25   behalf of a lender or servicer licensed by this state, who collects
26   or receives payments including payments of principal, interest,
27   escrow amounts, and other amounts due, on existing obligations due
28   and owing to the licensed lender or servicer for a residential
29   mortgage loan when the borrower is in default, or in reasonably
30   foreseeable likelihood of default, working with the borrower and the
31   licensed lender or servicer, collects data and makes decisions
32   necessary to modify either temporarily or permanently certain terms
33   of those obligations, or otherwise finalizing collection through the
34   foreclosure process.
35       (11) "Insurance" means life insurance, disability insurance,
36   property insurance, involuntary unemployment insurance, and such
37   other insurance as may be authorized by the insurance commissioner.
38       (12) "License" means a single license issued under the authority
39   of this chapter.


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 1       (13) "Licensee" means a person to whom one or more licenses have
 2   been issued. "Licensee" also means any person, whether located within
 3   or outside of this state, who fails to obtain a license required by
 4   this chapter.
 5       (14) "Loan" means a sum of money lent at interest or for a fee or
 6   other charge and includes both open-end and closed-end loan
 7   transactions.
 8       (15) "Loan processor or underwriter" means an individual who
 9   performs clerical or support duties as an employee at the direction
10   of and subject to the supervision and instruction of a person
11   licensed, or exempt from licensing, under this chapter.
12       (16) "Making a loan" means advancing, offering to advance, or
13   making a commitment to advance funds to a borrower for a loan.
14       (17) "Mortgage broker" means the same as defined in RCW
15   19.146.010, except that for purposes of this chapter, a licensee or
16   person subject to this chapter cannot receive compensation as both a
17   consumer loan licensee making the loan and as a consumer loan
18   licensee acting as the mortgage broker in the same loan transaction.
19       (18)(a) "Mortgage loan originator" means an individual who for
20   compensation or gain (i) takes a residential mortgage loan
21   application, or (ii) offers or negotiates terms of a residential
22   mortgage loan. "Mortgage loan originator" also includes individuals
23   who hold themselves out to the public as able to perform any of these
24   activities.   "Mortgage  loan   originator"  does   not  include   any
25   individual who performs purely administrative or clerical tasks; and
26   does not include a person or entity solely involved in extensions of
27   credit relating to timeshare plans, as that term is defined in
28   section 101(53D) of Title 11, United States Code. For the purposes of
29   this definition, administrative or clerical tasks means the receipt,
30   collection, and distribution of information common for the processing
31   of a loan in the mortgage industry and communication with a consumer
32   to obtain information necessary for the processing of a residential
33   mortgage loan.
34       (b) "Mortgage loan originator" also includes an individual who
35   for direct or indirect compensation or gain performs residential
36   mortgage loan modification services or holds himself or herself out
37   as being able to perform residential mortgage loan modification
38   services.
39       (c) "Mortgage loan originator" does not include a person or
40   entity that only performs real estate brokerage activities and is
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 1   licensed or registered in accordance with applicable state law,
 2   unless the person or entity is compensated by a lender, a mortgage
 3   broker, or other mortgage loan originator or by any agent of such a
 4   lender, mortgage broker, or other mortgage loan originator. For the
 5   purposes of chapter 120, Laws of 2009, the term "real estate
 6   brokerage activity" means any activity that involves offering or
 7   providing real estate brokerage services to the public, including:
 8       (i) Acting as a real estate agent or real estate broker for a
 9   buyer, seller, lessor, or lessee of real property;
10       (ii) Bringing together parties interested in the sale, purchase,
11   lease, rental, or exchange of real property;
12       (iii) Negotiating, on behalf of any party, any portion of a
13   contract relating to the sale, purchase, lease, rental, or exchange
14   of real property, other than in connection with providing financing
15   with respect to such a transaction;
16       (iv) Engaging in any activity for which a person engaged in the
17   activity is required to be registered or licensed as a real estate
18   agent or real estate broker under any applicable law; and
19       (v) Offering to engage in any activity, or act in any capacity,
20   described in (c)(i) through (iv) of this subsection.
21       (d) This subsection does not apply to employees of a housing
22   counseling agency approved by the United States department of housing
23   and urban development unless the employees of a housing counseling
24   agency are required under federal law to be individually licensed as
25   mortgage loan originators.
26       (19) "Nationwide mortgage licensing system" means a licensing
27   system developed and maintained by the conference of state bank
28   supervisors for licensing and registration.
29       (20) "Officer" means an official appointed by the company for the
30   purpose of making business decisions or corporate decisions.
31       (21) "Person" includes individuals, partnerships, associations,
32   limited liability companies, limited liability partnerships, trusts,
33   corporations, and all other legal entities.
34       (22) "Principal" means any person who controls, directly or
35   indirectly through one or more intermediaries, alone or in concert
36   with others, a ten percent or greater interest in a partnership;
37   company; association or corporation; or a limited liability company,
38   and the owner of a sole proprietorship.
39       (23) "Registered mortgage loan originator" means any individual
40   who meets the definition of mortgage loan originator and is an
                                     p. 4                          SB 5968
 1   employee of a depository institution; a subsidiary that is owned and
 2   controlled by a depository institution and regulated by a federal
 3   banking agency; or an institution regulated by the farm credit
 4   administration and is registered with, and maintains a unique
 5   identifier through, the nationwide mortgage licensing system.
 6       (24) "Residential mortgage loan" means any loan primarily for
 7   personal, family, or household use that is secured by a mortgage,
 8   deed of trust, or other consensual security interest on a dwelling,
 9   as defined in the truth in lending act, or residential real estate
10   upon which is constructed or intended to be constructed a dwelling.
11   "Residential mortgage loan" includes home equity sharing agreements.
12       (25) "Residential mortgage loan modification" means a change in
13   one or more of a residential mortgage loan's terms or conditions.
14   Changes to a residential mortgage loan's terms or conditions include
15   but are not limited to forbearances; repayment plans; changes in
16   interest rates, loan terms, or loan types; capitalizations of
17   arrearages; or principal reductions.
18       (26) "Residential mortgage loan modification services" includes
19   negotiating, attempting to negotiate, arranging, attempting to
20   arrange, or otherwise offering to perform a residential mortgage loan
21   modification for compensation or gain. "Residential mortgage loan
22   modification services" also includes the collection of data for
23   submission to an entity performing mortgage loan modification
24   services.
25       (27) "S.A.F.E. act" means the secure and fair enforcement for
26   mortgage licensing act of 2008, Title V of the housing and economic
27   recovery act of 2008 ("HERA"), P.L. 110-289, effective July 30, 2008.
28       (28) "Senior officer" means an officer of a licensee at the vice
29   president level or above.
30       (29) "Service or servicing a loan" means on behalf of the lender
31   or investor of a residential mortgage loan: (a) Collecting or
32   receiving payments on existing obligations due and owing to the
33   lender or investor, including payments of principal, interest, escrow
34   amounts, and other amounts due; (b) collecting fees due to the
35   servicer; (c) working with the borrower and the licensed lender or
36   servicer to collect data and make decisions necessary to modify
37   certain terms of those obligations either temporarily or permanently;
38   (d) otherwise finalizing collection through the foreclosure process;
39   or (e) servicing a reverse mortgage loan.


                                     p. 5                          SB 5968
 1       (30) "Service or servicing a reverse mortgage loan" means,
 2   pursuant to an agreement with the owner of a reverse mortgage loan:
 3   Calculating, collecting, or receiving payments of interest or other
 4   amounts due; administering advances to the borrower; and providing
 5   account statements to the borrower or lender.
 6       (31) "Simple interest method" means the method of computing
 7   interest payable on a loan by applying the annual percentage interest
 8   rate or its periodic equivalent to the unpaid balances of the
 9   principal of the loan outstanding for the time outstanding.
10       (a) On a nonresidential loan each payment is applied first to any
11   unpaid penalties, fees, or charges, then to accumulated interest, and
12   the remainder of the payment applied to the unpaid balance of the
13   principal until paid in full. In using such method, interest must not
14   be payable in advance nor compounded. The prohibition on compounding
15   interest does not apply to reverse mortgage loans made in accordance
16   with the Washington state reverse mortgage act. The director may
17   adopt by rule a more detailed explanation of the meaning and use of
18   this method.
19       (b) On a residential mortgage loan payments are applied as
20   determined in the security instrument.
21       (32) "Student education loan" means any loan solely for personal
22   use to finance postsecondary education and costs of attendance at an
23   educational institution. A student education loan includes a loan
24   made to refinance a student education loan. A student education loan
25   does not include a payment plan or accounts receivable at a higher
26   education institution as defined in RCW 28B.07.020(4) only during the
27   time of a student's enrollment in the higher education institution,
28   not to include a refinanced payment plan or accounts receivable, an
29   extension of credit under an open-end consumer credit plan, a reverse
30   mortgage transaction, a residential mortgage transaction, or any
31   other loan that is secured by real property or a dwelling.
32       (33) "Student education loan borrower" means: (a) Any resident of
33   this state who has received or agreed to pay a student education
34   loan; or (b) any person who shares responsibility with such resident
35   for repaying the student education loan.
36       (34) "Student education loan servicer" means any person, wherever
37   located, responsible for the servicing of any student education loan
38   to any student education loan borrower.
39       (35) "Student education loan servicing" or "service a student
40   education loan" means: (a) Receiving any scheduled periodic payments
                                     p. 6                          SB 5968
 1   from a student education loan borrower pursuant to the terms of a
 2   student education loan; (b) applying the payments of principal and
 3   interest and such other payments with respect to the amounts received
 4   from a student education loan borrower, as may be required pursuant
 5   to the terms of a student education loan; (c) working with the
 6   student education loan borrower to collect data, or collecting data,
 7   to make decisions to modify the loan; or (d) performing other
 8   administrative services with respect to a student education loan
 9   including collection activities. "Student education loan servicing"
10   does not include third-party student education loan modification
11   services.
12       (36)   "Third-party   residential  mortgage   loan   modification
13   services" means residential mortgage loan modification services
14   offered or performed by any person other than the owner or servicer
15   of the loan.
16       (37) "Third-party service provider" means any person other than
17   the licensee or a mortgage broker who provides goods or services to
18   the licensee or borrower in connection with the preparation of the
19   borrower's loan and includes, but is not limited to, credit reporting
20   agencies, real estate brokers or salespersons, title insurance
21   companies and agents, appraisers, structural and pest inspectors, or
22   escrow companies.
23       (38) "Third-party student education loan modification services"
24   means for compensation or other consideration by or on behalf of the
25   borrower working with the student education loan borrower or his or
26   her representative to collect data or prepare or submit documents, or
27   collecting data and preparing or submitting documents, to modify,
28   refinance, or consolidate the loan, or change repayment plans.
29       (39) "Unique identifier" means a number or other identifier
30   assigned by protocols established by the nationwide mortgage
31   licensing system.
32       (40) "Home equity sharing agreement" means any obligation in
33   which an advance sum of money or other thing of value is extended to
34   a borrower in exchange for an interest or future share of equity in
35   the borrower's residential real estate or a future obligation to pay
36   a sum upon the occurrence of an agreed-upon event.


37       Sec. 2.   RCW 31.04.102 and 2018 c 62 s 14 are each amended to
38   read as follows:


                                     p. 7                          SB 5968
 1       (1) For all loans made by a licensee that are not secured by a
 2   lien on real property, the licensee must make disclosures in
 3   compliance with the truth in lending act, 15 U.S.C. Sec. 1601 and
 4   regulation Z, 12 C.F.R. Part 1026, and all other applicable federal
 5   laws and regulations.
 6       (2) For all loans made by a licensee that are secured by a lien
 7   on real property, the licensee must provide to each borrower within
 8   three business days following receipt of a loan application a written
 9   disclosure containing an itemized estimation and explanation of all
10   fees and costs that the borrower is required to pay in connection
11   with obtaining a loan from the licensee. A good faith estimate of a
12   fee or cost must be provided if the exact amount of the fee or cost
13   is not available when the disclosure is provided. Disclosure in a
14   form which complies with the requirements of the truth in lending
15   act, 15 U.S.C. Sec. 1601 and regulation Z, 12 C.F.R. Part 1026, the
16   real estate settlement procedures act and regulation X, ((24)) 12
17   C.F.R. Part 1024, and all other applicable federal laws and
18   regulations, as now or hereafter amended, constitutes compliance with
19   this disclosure requirement. Each licensee must comply with all other
20   applicable federal and state laws and regulations.
21       (3) In addition, for all loans made by the licensee that are
22   secured by a lien on real property, the licensee must provide to the
23   borrower an estimate of the annual percentage rate on the loan and a
24   disclosure of whether or not the loan contains a prepayment penalty
25   within three days of receipt of a loan application. The annual
26   percentage rate must be calculated in compliance with the truth in
27   lending act, 15 U.S.C. Sec. 1601 and regulation Z, 12 C.F.R. Part
28   1024. If a licensee provides the borrower with a disclosure in
29   compliance with the requirements of the truth in lending act within
30   three business days of receipt of a loan application, then the
31   licensee has complied with this subsection. If the director
32   determines that the federal government has required a disclosure that
33   substantially meets the objectives of this subsection, then the
34   director may make a determination by rule that compliance with this
35   federal disclosure requirement constitutes compliance with this
36   subsection.
37       (4) In addition for all consumer loans made by the licensee that
38   are secured by a lien on real property, the licensee must comply with
39   RCW 19.144.020.


                                     p. 8                          SB 5968
 1       (5) In addition for all consumer loans made by a licensee that
 2   are a refinance of a federal student education loan, the licensee
 3   must provide to the borrower a clear and conspicuous disclosure that
 4   some repayment and forgiveness options available under federal
 5   student education loan programs, including without limitation income-
 6   driven repayment plans, economic hardship deferments, or public
 7   service loan forgiveness, will no longer be available to the borrower
 8   if he or she chooses to refinance federal student education loans
 9   with one or more consumer loans.
10       (6) The director's obligations or duties under chapter 62, Laws
11   of 2018 are subject to section 21, chapter 62, Laws of 2018.

12       NEW SECTION.   Sec. 3.   A new section is added to chapter 31.04
13   RCW to read as follows:
14       (1) A home equity sharing agreement:
15       (a) May not be used as a lien against the real property;
16       (b) May not run with title to real property and is not binding or
17   enforceable at law or in equity against any subsequent owner,
18   purchaser, or mortgagee or holder of any interest in real property as
19   an equitable servitude;
20       (c) May not prevent the property owner from renting or using the
21   real property as the property owner chooses; and
22       (d) May not contain provisions that prevent the property owner
23   from refinancing a mortgage or lien on the real property.
24       (2) The total amount due under a home equity sharing agreement
25   must not exceed the lesser of:
26       (a) Any amount paid to the borrower plus the interest amount
27   calculated in accordance with this chapter; or
28       (b) 200 percent of the amount paid to the borrower.

                                  --- END ---




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