The Texas Department of Savings and Mortgage Lending has proposed a wide-ranging overhaul of its rules concerning residential mortgage loan originators (RMLOs), loan companies, mortgage bankers, and servicers.

Some of the changes impose significant new responsibilities, such as:

• RMLO sponsorship disclosures
• Prohibition on contacting consumers on a Do Not Call list
• Revised advertising rules
• Substantial additions to the information required to be in the mortgage transaction log and the lender’s books and records
• Notification of “reportable incidents,” such as a data breach, security event, termination of a line of credit or funding source, or termination of a service provider
• Registration of master servicers

The changes are meant to reorganize existing rules to increase clarity, modernize and update them, and formalize existing department policies. The changes are motivated by consumer complaints and the desire to close loopholes in the rules.

The proposal would create a new chapter of rules for RMLOs (chapter 55) and renumber the existing chapters as 56-59 (corresponding to chapters 156-159 of the Finance Code).

Chapter 55 addresses originator licensing, sponsorship disclosures, duties and conduct, compensation, pre-licensing education and exams, false reporting of education credits, and limit temporary authorization to a total of 120 days. This chapter would also clarify and formalize RMLOs’ duties and responsibilities and the department’s compliance and enforcement tools.

The bulk of the proposal focuses on mortgage loan companies and mortgage bankers. The topics include:

• Licensing/registration requirements, application requirements, fees, renewal, conditional licenses, and surrender of license/registration
• Departmental email notices would be sent to the “primary company contact” to better hold the licensee/registrant accountable
• Sponsorship of originators and responsibility for their actions
• Disclosures:
  1. Reduces the consumer complaint notice from two paragraphs to one
  2. Creates a prescribed form for the consumer complaint notice required for websites
  3. Removes the requirement to post the consumer complaint notice on social media
• Fraudulent, misleading, or deceptive practices would now include calling someone on a Do Not Call list and “improper use of trigger leads”
• Establishes requirements for ads on social media
• Adds requirements concerning the mortgage transaction log. The rules also require loan companies and mortgage bankers to retain the following:
  1. Proof that Truth in Lending disclosures were given
  2. Any discount point acknowledgment form used
  3. For third-party loan processing and underwriting services, a loan processing and underwriting log
  4. FTC’s Standards for Safeguarding Customer Information
  5. Proof of corrective action
  6. Policies for handling unclaimed funds
  7. Creates requirements for “reportable incidents” (including a root cause analysis for data breaches). A reportable incident is one that presents “a material, financial, or other significant risk to the entity’s operation, such as a data breach, security event, termination of a line of credit or funding source, or termination or curtailment of a relevant service provider.” The filing of reports required by other law satisfies the reporting requirements (except root cause analysis). Information relating to reportable incidents would be confidential.
  8. Examinations would include the use and “leveraging” of exams from other states

The reportable incident requirement also applies to servicers. The rules also would require a master servicer to be registered under Chapter 158, even if that entity does not receive any payments from borrowers. Other changes include:

• No paper surety bonds, only electronic bonds
• Periodic statements must comply with Regulation Z

The proposed Rules should be posted for public comment in the August 30^th edition of the Texas Register.