The new law has mandated the disclosure's minimum requirements, however. First, the disclosure must be in plain language that is reasonable and understandable to borrowers without the help of third-party resources. It also must state:

• Fees and discount points on the loan;
• Interest rates of the loan;
• All broker fees;
• Yield-spread premiums (YSPs) stated in a dollar amount;
• Whether there is a prepayment penalty;
• Whether property taxes and insurance are to be escrowed;
• Whether the loan payments will adjust at the fully indexed rates; and
• Whether there is a price added or premium charged for loans based on reduced documentation.

Another provision of this bill requires Washington-state mortgage brokers to comply with internal policies and procedures set forth in the "Interagency Guidance Nontraditional Mortgage Product Risks" and the "Statement on Subprime Mortgage Lending," which were created by a group of federal-government regulatory agencies -- the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators and the National Association of Consumer Credit Administrators.

Their purpose is to increase regulatory oversight of nonprime mortgage products, such as interest-only loans, payment-option ARMs, nonprime ARMs, nonprime extended-amortization products, reduced-documentation products and simultaneous second-lien loans.

The state's DFI will adopt rules to implement this requirement, but it is worthwhile to note what these rules will likely cover.

First, brokers' internal policies and procedures must be in writing and must demonstrate that the brokers understand the responsibilities for covered transactions. In particular, they should cover: consumer contact; internal controls, monitoring and reporting; and requirements that promotional materials and other product descriptions provide information about costs, terms, features and risks that can help consumers select a product.

They also should address the broker's adherence to the newly required disclosure form and provide general guidance of the disclosure policy to consumers, such as clear and balanced information about the relative risks of products offered.

These policies' and procedures' adequacy also will be measured against the new fiduciary duty.

Finally, the new state House bill also increases the criminal penalties for violation of certain aspects of the law. Under the Mortgage Brokers Practices Act, an act violation was a misdemeanor punishable by as many as 90 days in county jail and/or a $1,000 fine.

Under the new law, however, some of the violations now subject violators to a class-B felony charge that is punishable by as many as 10 years in state prison and/or a $25,000 fine, as well as civil forfeiture.

Brokers who commit one of the following violations, whether directly or indirectly, are subject to the new penalties.

• Employing a scheme, device or artifice to defraud or materially mislead a borrower, lender or any person
• Engaging in any unfair or deceptive practice toward any person in the lending process
• Obtaining property by fraud or material misrepresentation in the lending process
• Knowingly making any misstatement, misrepresentation or omission during the lending process with the knowledge that a lender, borrower or other party may rely on it
• Using or facilitating the use of any misstatement, misrepresentation or omission, knowing it to be incorrect, during the lending process with the intention that the lender, borrower or other party to the process rely on it
• Receiving anything of value by these violations

This particular change may impact the state's "Mortgage Lending Fraud Prosecution Account," enacted in 2003. Funded by a $1 surcharge for every deed of trust recorded in Washington state, the account is administered by the DFI for prosecution of criminal fraud in mortgage lending.

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