The following article is reprinted from Basis Points® , Vol. 3, Issue 6, Copyright © 2004, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.

Effective March 5, 2004, the District of Columbia Department of Banking and Financial Institutions amended Title 26A of the D.C. Municipal Regulations to add a new Chapter 11. The new chapter provides rules for the registration, examination, investigation, and supervision of mortgage lenders and brokers in the District. Click here for the new regulations.

Applicability of Rules. The rules apply to any person who engages in business as a mortgage lender, mortgage servicer, or mortgage broker in the District or who issues, makes, services, or brokers a mortgage loan secured by an interest in D.C. residential real property, unless otherwise exempt from the Mortgage Lender and Broker Act of 1996. The rules apply to residential mortgage loans, lines of credit, and reverse mortgages secured by D.C. property.

Licensing. The rules provide for the annual licensing of mortgage lenders, mortgage servicers, and mortgage brokers as well as the annual assessment of fees based upon the type of license and the volume of business transacted during the previous license period.

Applications. The rules require a mortgage loan application to contain certain information, including the name, social security number, address, telephone number, and source of income of each borrower, the address and legal description of the real property serving as security for the loan, the principal amount of the loan, the current income and debt of each borrower, the current assets and liabilities of each borrower, whether the loan will refinance an existing loan secured by the same property and, if so, the purpose of the refinancing and the amount of the loan that is being refinanced.

In addition, the rules require the entity receiving the application to provide certain information, if available, including the annual percentage rate, interest rate, broker compensation, lender compensation, finance charge, date of maturity, disclosure regarding whether the interest rate is fixed or variable and, if variable, the index used for adjustments, limits on adjustments and the adjustment period, and a disclosure regarding any balloon payment. If the application does not contain the required information, it is voidable by the borrower prior to closing. A borrower has the right to withdraw an application prior to signing a financing agreement or written commitment without penalty.

Written Commitments, Financing Agreements, and Lock-In Agreements. The rules set forth the information that is required in a written commitment and a lock-in agreement and state that failure to provide the required information renders the agreement voidable and unenforceable. The rules also provide when a financing agreement may be submitted in lieu of a written commitment and when a written commitment may be submitted in lieu of a financing agreement.

Lender and Broker Fees. A licensee must disclose the rate of interest, annual percentage rate, finance charge, points, yield spread premium, and any other monetary costs charged to the borrower for the origination, service, or brokering of a mortgage loan. The fees must be reasonable and charged only for services actually rendered.

Appraisals. No appraisal of D.C. property may be performed by an appraiser who is not licensed in D.C.

Records. The rules list the records that must be retained by a licensee for every mortgage loan brokered or originated and require the licensee to retain those documents for at least three years after final payment is made on any mortgage loan or after the mortgage loan is sold, whichever comes first.

Escrow Accounts. A mortgage lender may not impose a penalty or fee, including an increased interest rate or finance charge, on any borrower who elects not to escrow taxes or insurance because he or she has made a 20% down payment or has 20% equity in the property.

Complaints. Each licensee must file with the Department a notice designating a contact person regarding complaints filed with the Department.

License Revocation and Suspension. The rules designate the information that must be provided in a notice of intent to take enforcement action and provide that advance notice is not required in certain circumstances. The rules provide the time period in which a response to a notice of intent to take enforcement action must be filed and the time period in which the Department shall issue a final order.

Penalties. The rules provide monetary penalties for violation of the Act depending on the violation and, in certain circumstances, the number of violations that the licensee has had during the current licensing period.

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