6.2 Required Texas Disclosures, 7 TAC § 55.200/§ 56.200/§ 57.200, & Recovery Fund

SML recodified its mortgage rules effective November 23, 2024. Individual residential mortgage loan originators are in 7 TAC Chapter 55. Licensed mortgage companies are in Chapter 56 (the former Chapter 80). Registered mortgage bankers are in Chapter 57 (the former Chapter 81). Citing § 80.200 or § 81.200 as current law is a miss. The originator rule you need is 7 TAC § 55.200, and it does not reprint a separate notice—it points to the company or banker rule based on who sponsors the originator.

Three disclosure clocks in § 55.200

§ 55.200(a) — specific notice to the applicant. An originator sponsored by a mortgage company licensed by SML must give the applicant the notice required by § 56.200(b). An originator sponsored by a mortgage banker registered with SML must give the notice required by § 57.200(b). The notice must be sent at the time the originator takes the initial application for a residential mortgage loan. That is an application-day duty, not a closing-day courtesy.

§ 56.200(b) (companies) and § 57.200(b) (bankers) fill in the mechanics. The company or banker must send written notice concerning SML's regulatory oversight. Delivery may be by any means that lets the entity capture and maintain records reflecting timely delivery (the books-and-records rules in § 56.204 or § 57.204). The applicant may sign and date the notice to evidence receipt; a missing signature is not a license to skip the notice. The notice must be in the form adopted by the subsection. Identifying information such as a loan number or NMLS ID may be added if it is not misleading and does not contradict or frustrate the disclosure. Finance Code § 156.004 (companies) and § 157.0021 (bankers) are the statutory hooks those rules implement.

§ 55.200(b) — posted notice on websites. A company-sponsored originator must comply with § 56.200(c). A banker-sponsored originator must comply with § 57.200(c). Those subsections require a notice concerning SML's regulatory oversight on each website of the company or banker, other than a social media site, that is accessible by a mortgage applicant or prospective applicant and is either used to conduct origination business or used to advertise to solicit that business. The notice must be in the current form prescribed by SML and posted on sml.texas.gov. It must appear on the initial or home page (typically the base-level domain) or on a linked page whose link is displayed on the home page. SML's advertising FAQ calls this the Texas Consumer Complaint Notice. Social media is carved out of the website-posting rule; advertising identification on social media is a separate § 56.203 / § 57.203 issue taught in Section 6.3.

§ 55.200(c) — disclosures in correspondence. Every originator must put all of the following on all correspondence sent to a mortgage applicant:

1. the name of the mortgage company or mortgage banker sponsoring the originator and its NMLS ID;
2. that sponsor's website address, if it has a website; and
3. the name of the originator and his or her NMLS ID.

Compare the entity-level correspondence rules. § 56.200(d) requires company name, company NMLS ID, and website if any on correspondence to a mortgage applicant. § 57.200(d) requires the banker's name, NMLS ID, and website if any on correspondence to a mortgage applicant or borrower. Those entity rules do not replace § 55.200(c). When the originator is the one writing the applicant, the originator's name and NMLS ID must appear as well. A rate quote email that names only a team nickname, or an NMLS number without the legal sponsor name, is the exam miss.

Mortgage bankers that service Texas-secured loans also have § 57.200(e): a servicing oversight notice within 30 days after servicing begins, using SML's current form, in the first notice that tells the borrower the banker is servicing (including a Regulation X § 1024.33(b) transfer notice when that is the first notice). That servicing notice is not used for loans not secured by Texas real property.

Conditional pre-qualification and conditional approval letters

SML does not require a written conditional pre-qualification or conditional approval letter. If a written notification is issued, 7 TAC § 55.201 (originators), § 56.201 (companies), and § 57.201 (bankers) require the letter to contain the information in Form A (conditional pre-qualification) or Form B (conditional approval). An alternate form is allowed only if it includes all required information. Extra terms may be added if they are not misleading. SML's FAQ warns that an inaccurate, erroneous, or negligently issued letter is improper dealings under § 55.202 and can support a Recovery Fund claim if the applicant reasonably relies on it and suffers out-of-pocket loss. A FCRA firm offer of credit is treated separately in the letter rules and is not forced into Form A/B.

Dual capacity: RMLO and real estate agent

Texas law does not forbid holding both an RMLO license and a real estate license, or serving both roles on the same transaction. Finance Code § 157.024(a)(10) authorizes disciplinary action if the person acted in the dual capacity of a licensed residential mortgage loan originator and real estate broker, salesperson, or attorney in a transaction without the knowledge and written consent of the mortgage applicant or in violation of applicable federal requirements. SML's origination FAQ states the compliance method: provide a written disclosure to the client in advance and obtain the client's written consent. SML publishes a multiple-roles disclosure form for originator-and-realtor service. Investor or lender guidelines may still prohibit the dual role even when the Finance Code consent is in the file. The same subsection covers dual capacity as an attorney, which is easy to skip if the question stem says 'realtor only.'

Recovery Fund versus Mortgage Grant Fund

SML's Recovery Fund Claims page (sml.texas.gov/consumers/recovery-fund-claims) splits the world in two.

Recovery Fund — licensed originator. The Commissioner administers a Recovery Fund so consumers can claim out-of-pocket monetary damages incurred because of acts committed by a residential mortgage loan originator licensed by the Department that violate applicable law governing licensed originators. Finance Code § 156.501 is the statute: the Commissioner establishes, administers, and maintains the fund; it reimburses residential mortgage loan applicants for actual damages caused by acts of an originator licensed under Chapter 157 when the act was committed; use is limited to out-of-pocket losses from violations of specified § 157.024(a) paragraphs and § 156.304(b). Lenders who made or acquired the loan originated by that originator cannot be paid from the fund. Other restitution reduces the fund payment. Relatives, housemates, employers, associates, and another licensed originator seeking compensation in the same deal are among the persons § 156.504 shuts out.

§ 156.505 recovery limits (opened in the Finance Code, not printed on the consumer web page): reimbursement is of actual, out-of-pocket damages. Payment for claims arising out of the same transaction, including interest, is limited in the aggregate to $25,000, regardless of the number of claimants. Claims against a single person licensed as an originator arising out of separate transactions, including interest, are limited in the aggregate to $50,000 until the fund has been reimbursed for all amounts paid. Concurrent claims that exceed available amounts are prorated. Procedure: a written sworn application on the Commissioner's form; staff investigates and issues a preliminary determination; if nobody disputes in writing before the 31st day, the determination becomes final and the Commissioner pays, subject to those limits; a timely dispute goes to a Government Code Chapter 2001 hearing.

Mortgage Grant Fund — unlicensed fraud. The same SML page is explicit: the Commissioner also administers the Mortgage Grant Fund, which among other uses allows claims for out-of-pocket monetary damages incurred because of fraud committed by an individual who acted in the capacity of an originator, was required to be licensed, and did not hold the license. That is not the Recovery Fund. Do not tell an applicant that unlicensed fraud is paid from the licensed-originator Recovery Fund. Use the Grant Fund claim form and checklist SML publishes on that page. This chapter does not invent a Grant Fund dollar cap; SML's consumer page describes actual out-of-pocket damages and the Commissioner's administration of claims.

Consumers (and originators answering 'who do I call') reach SML at 1-877-276-5550. Claim packets and Spanish Recovery Claim forms are linked from the Recovery Fund Claims page. Chapter 7 returns to commissioner orders and penalties; this section is the consumer-facing reimbursement split you must not reverse on the exam.