Effective November 23, 2024, the Texas Department of Savings and Mortgage Lending (the "DSML") adopted new rules affecting mortgage loan companies, mortgage bankers, individual residential mortgage loan originators, and mortgage servicers.
A brief summary of the new rules as they impact different types of organizations or mortgage loan originators is set forth below:
Mortgage Loan Originators, Mortgage Companies and Mortgage Bankers
Disclosures
- The Mortgage Company Disclosure and Mortgage Banker Disclosure have been revised to simplify the disclosures and improve readability.
- The Conditional Pre-Qualification and Conditional Approval Letters have been updated to require the signature of the individual residential mortgage loan originator. 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.
Trigger Leads
The DSML also addressed trigger leads, i.e., leads purchased from credit bureaus which identify consumers whose credit was pulled in conjunction with a credit application. 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 mortgage loan originator's name and the 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.
Other
A mortgage company must retain books and records concerning home equity line of credit transactions and home equity loans, and maintain a loan processing and underwriting log to track loan processing and underwriting services.
A mortgage loan originator may now be sponsored by more than one mortgage company or mortgage banker, so long as the originator complies with a number of requirements that affect the application, disclosures, and representations.
Mortgage Servicers
Disclosures
The Mortgage Servicer Disclosure, previously required on all correspondence sent to the borrower, is now only required on the first notice sent to the borrower notifying them of the identity of the mortgage servicer that 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.
Mortgage Companies, Mortgage Bankers and Mortgage Servicers
Reportable Incidents
- Mortgage companies, mortgage bankers and mortgage servicers must now report certain information to the DSML 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 incident, the company must report the event to the Department within 30 days and submit a root cause analysis within 120 days. The report is required to include a detailed description of the nature and circumstances of the incident; the number of Texas residents affected or potentially affected by the reportable incident; the measures taken by the mortgage company to resolve or address the reportable incident; the measures the mortgage company plans to take to resolve or address the reportable incident; and the point of contact designated by the mortgage company for inquiries by DSML about the reportable incident.
Putting It Into Practice: The DSML joins a list of notable
regulators, including the CFPB and California's DFPI, to issue
guidance this year amending and updating existing consumer mortgage
protections (previously discussed here and here). Mortgage lenders operating in Texas and
mortgage servicers servicing loans made in Texas must adapt their
operating systems to accommodate these new requirements, as well as
other requirements of the rule not set forth here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
