Mortgage Broker Contract - A Necessary Part of Doing Business in Wisconsin

The Wisconsin Department of Financial Institutions, Division of Banking ("department") has become aware that a number of mortgage broker and mortgage banker licensees may be violating Chapter DFI-Bkg 43 of the Wisconsin Administrative Code by failing to ensure that all agreements, disclosures, representations and promises to perform services for their customers are in writing.

The department has come across a number of instances in which mortgage brokers and mortgage bankers that are performing brokering activities are finding loans for their customers without having an executed contract between the broker or banker and their prospective borrower.

Failing to include the following in a written agreement demonstrates a lack of competency to act as a mortgage broker ("registrant"), according s. 43.04(5m) of the Wisconsin Administrative Code.

1. A statement setting forth the specific period during which the registrant will perform the services.
2. A statement that any modification or extension of the agreement or contract must be approved in writing by the registrant and prospective borrower. The agreement or contract may not contain an automatic renewal provision.
3. A statement that any modification or extension of the agreement or contract must be approved in writing by the registrant and the prospective borrower to the extent that, if the prospective borrower obtains a mortgage during the term of the agreement or contract through the prospective borrower's own efforts or the efforts of another registrant, the prospective borrower will be required to pay the registrant the fee set forth in the agreement.
4. A statement describing the services which the registrant will perform on behalf of the prospective borrower under the agreement or contract.
5. A statement which complies with sub. (12) and sets forth the fee or fees which the prospective borrower will directly pay the registrant for services provided by the registrant, a statement of the conditions under which the registrant will earn the fee and the terms and conditions under which any part of the fee would be refundable.
6. A statement describing the type of loan and the terms and conditions of a loan or land contract which the prospective borrower is willing to accept, including the intended interest rate and whether the rate is fixed or variable, the maturity term, and the amortization of principal."

Section 43.04(5m)(b) of the Administrative Code further states that it is a violation to include a provision in your contract or agreement that discloses that either of the following are nonrefundable:

1. A fee or charge imposed on behalf of a third party for servicing rendered by the third party incident to the processing of an application, such as a charge for a credit report or appraisal.
2. A fee or deposit in whole or in part imposed on behalf of any other registrant for that person's services rendered in connection with a loan application.

Section 43.04(12) provides for further written disclosures regarding loan application fees:

"Loan application fee. In any transaction in which a loan will be secured by a lien on residential property designed principally for the occupancy of from one to 4 families, before the acceptance of a loan application fee, failing to disclose in writing the following information to the applicant:

(a) The amount of any such fee, labeled to indicate the general purpose of the fee;
(b) Whether all or any part of the application fee or related charges are refundable;
(c) The terms and conditions for a refund, if all or any part of the fee or related charges are refundable; and,
(d) Whether the fee, terms and conditions of the application, including the rate of interest, will remain constant or are subject to change prior to or at closing."

By failing to provide a written agreement that meets the requirements of Chapter DFI-Bkg 43 of the Wisconsin Administrative Code, a mortgage broker or mortgage banker may be in violation of s. 224.77(1)(i) and (k), Wis. Stats. Penalties for violations may result in revocation of the mortgage broker's or mortgage banker's certificate of registration (license).

Mortgage brokers and mortgage bankers can obtain a copy of Chapter DFI-Bkg 43 and other state statutes on the department's web site at www.wdfi.org. On the home page, click on "Mortgage Banking;" then click on "Statutes and Rules."

Mortgage brokers and mortgage bankers are encouraged to work with legal counsel when developing their agreements. Some licensees are using computer software that provides standard mortgage broker agreements. These generic agreements should be carefully reviewed and amended by the mortgage broker or mortgage banker, as they often do not meet the specific requirements of Chapter DFI-Bkg 43 and other Wisconsin state statutes.

In addition to the above-mentioned disclosures, licensees should check the applicable statutes governing their specific transaction for additional early disclosures, such as 138.052 (7e)(b) for a first lien, conventional, real estate mortgage on a home used as the borrower's principal place of residence.

For any questions regarding the mortgage broker agreement requirements, please contact the Mortgage Banking Section at 608-261-7578.