The Texas Department of Savings and Mortgage Lending (“Department”) issued updated rules relating to mortgage companies, loan originators, mortgage bankers, and mortgage servicers.  The revisions are aimed at modernizing and updating the rules by adding and replacing language for clarity, removing unnecessary or duplicative provisions, and updating terminology.   

Mortgage Loan Originators, Mortgage Companies and Mortgage Bankers

Reorganization

The final rule renumbers several chapters and adds an entirely new one.  Chapter 55 was created for rules impacting residential mortgage loan originators which were previously combined with rules governing mortgage bankers.  Additionally, the Mortgage Banker rules have been relocated from Chapter 81 to Chapter 57 while the Mortgage Company rules have been relocated from Chapter 80 to Chapter 56.

Disclosures

• The Mortgage Company Disclosure and Mortgage Banker Disclosure have been revised to simplify the disclosures and improve readability as well as update the rule number pursuant to the chapter reorganization and renumbering.  
• The Conditional Pre-Qualification and Conditional Approval Letters have been updated to require the signature of the individual residential mortgage loan originator as well as update the rule number cited.  These forms are not required but if they are provided to an applicant, the published form must be used.
• A readability requirement has been added requiring all notices to be provided in one of the specified fonts and be at least 12-point size.

Reportable Incidents

Mortgage companies and mortgage bankers must now report certain information to the Department when they experience an event that presents a material risk, financial or otherwise, to the company’s operations or its customers.  These “reportable incidents” may be classified as either a security event resulting from unauthorized access to an information system or customer information, or a catastrophic event which is anything other than a security event that is unforeseen and results in extraordinary levels of damage or disruption to operations.

Following the occurrence of a reportable event, the company must report the event to the Department within 30 days and submit a root cause analysis within 120 days.

Trigger Leads

The Department also addressed leads purchased from credit bureaus which identify consumers whose credit was pulled in conjunction with a credit application, also known as “trigger leads.”  The rule specifies that it is considered a fraudulent, misleading or deceptive practice to use trigger leads in a misleading or deceptive manner by, among other things, failing to indicate in the initial communication with the consumer:

• that the entity sending the communication is not affiliated with the creditor to which the consumer made the credit application;
• the originator’s name and mortgage company or mortgage banker the originator is representing
• how the originator or the sponsoring mortgage company or mortgage banker obtained the consumer’s contact information; and
• that the purpose of the communication is to solicit new business.

The rules also updated provisions for mortgage companies, mortgage bankers and loan originators related to licensing, record-keeping, supervision and enforcement.

Mortgage Servicers

Reorganization

The Department reorganized rules relating to servicing by moving the Residential Mortgage Loan Servicer Rules from Chapter 79 to Chapter 58, a vacant chapter.

Disclosures

The Mortgage Servicer Disclosure, which previously had to be provided on all correspondence sent to the borrower, is now only required on the first notice sent to the borrower notifying the borrower that they will be servicing their loan 

A readability requirement has been added requiring all notices to be provided in one of the specified fonts and be at least 12-point size.

Reportable Incident

Mortgage servicers, like mortgage companies and mortgage bankers, must also report certain information to the Department when they experience an event that presents a material risk, financial or otherwise, to the mortgage servicer’s operations or its customers.  An event may be either a security event, resulting from unauthorized access to an information system or customer information, or a catastrophic event which is anything other than a security event that is unforeseen and results in extraordinary levels of damage or disruption to operations.

Following the occurrence of a reportable event, the mortgage servicer must report the event to the Department within 30 days and submit a root cause analysis within 120 days.

The rules also updated provisions for servicers related to registration, supervision and enforcement.

To read the final rules in their entirety, please visit TX Dept. of Savings and Mortgage Lending Final Rules.