BILL NUMBER: SB 385	AMENDED
	BILL TEXT

	AMENDED IN SENATE  APRIL 23, 2007
	AMENDED IN SENATE  MARCH 26, 2007

INTRODUCED BY   Senator Machado

                        FEBRUARY 21, 2007

   An act  to amend Sections 10131.1, 10156.2, and 10245 of, and
 to add Section 10240.3 to  ,  the Business and
Professions Code, to add Sections 215.5, 22169, and 50333 to the
Financial Code, and to add Section 13984 to the Government Code,
relating to  mortgages   real estate, and making
an appropriation therefor  .


	LEGISLATIVE COUNSEL'S DIGEST


   SB 385, as amended, Machado.  Nontraditional mortgage
products.   Real estate: mortgages: real estate brokers.

   The Business, Transportation and Housing Agency consists of
various agencies, including, but not limited to, the Department of
Corporations, the Department of Real Estate, and the Department of
Financial Institutions. The agency is under the supervision of the
Secretary of Business, Transportation and Housing.
   Under existing law, state financial institutions are regulated by
the Department of Financial Institutions. Other entities that engage
in the business of making or brokering residential mortgage loans,
including, but not limited to, real estate brokers and residential
mortgage lenders, are regulated by the Department of Corporations
under the California Finance Lenders Law or the California
Residential Mortgage Lending Act or by the Department of Real Estate
under the Real Estate Law. Existing law provides that willful
violations of the provisions governing real estate brokers and
residential mortgage lenders are crimes. Federal financial
institution regulatory agencies and the Conference of State Bank
Supervisors, together with the American Association of Residential
Mortgage Regulators, have each published guidance on nontraditional
mortgage product risks.
   This bill would require the Commissioner of Financial Institutions
to apply that guidance to all state-regulated financial
institutions, including, but not limited to, privately insured,
state-chartered credit unions, and would authorize the commissioner
to issue emergency and final regulations for clarification purposes,
as specified. The bill would also require the Commissioner of Real
Estate and the Commissioner of Corporations to apply the guidance to
real estate brokers and licensees, respectively, and would authorize
those commissioners to adopt emergency and final regulations or rules
for clarification purposes, as specified. The bill would require the
Secretary of Business, Transportation and Housing to ensure that
these commissioners coordinate their policymaking and rulemaking
efforts.
   This bill would also require specified financial institutions,
specified real estate brokers, finance lenders, and residential
mortgage lenders to adopt and adhere to policies and procedures that
are reasonably intended to achieve the objectives set forth in the
guidance. Because a willful violation of these provisions with
respect to real estate brokers and residential mortgage lenders would
be a crime, the bill would impose a state-mandated local program.

   The Real Estate Law provides for the licensure and regulation of
real estate brokers and defines a real estate broker as a person who,
among other things, engages as a principal in the business of buying
from, selling to, or exchanging with the public, real property sales
contracts or promissory notes, as specified. Existing law requires
real estate brokers to pay specified fees that are deposited into the
continuously appropriated Real Estate Fund. Under existing law, it
is a crime for a person to act as a real estate broker without a
license.  
   This bill would also define a real estate broker as a person who
engages as a principal in the business of making loans and would
define the term "in the business" as the making of 8 or more
specified loans to the public from the person's own funds, as
defined.  
   Because this bill would expand the definition of a real estate
salesperson license increase fees deposited into the Real Estate
Fund, the bill would make an appropriation. In addition, because this
bill would expand the definition of a real estate broker and create
new crimes, the bill would impose a state-mandated local program.
 
   Under existing law, a real estate broker license or a real estate
salesperson license is issued for a period of 4 years. Existing law
provides that an application on a form prescribed by the commissioner
filed before the end of that period entitles the applicant to
continue operating under the license after its expiration date. 

   This bill would require that the application also include the
content prescribed by the commissioner. 
   The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.
   Vote: majority. Appropriation:  no   yes
 . Fiscal committee: yes. State-mandated local program: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  (a) The Legislature finds and declares that the
Interagency Guidance on Nontraditional Mortgage Product Risks issued
in September 2006 by the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, and
the National Credit Union Administration, and the guidance on
nontraditional mortgage product risks issued in November 2006 by the
Conference of State Bank Supervisors and the American Association of
Residential Mortgage Regulators contain important risk management and
consumer protection principles.
   (b) The Legislature finds and declares that consistent application
of the guidance described in subdivision (a) to state-regulated
persons and institutions engaged in the brokering, originating,
servicing, underwriting, and issuance of nontraditional mortgage
products is critical to protect borrowers and lenders.
   (c) It is the intent of the Legislature that the Department of
Real Estate, the Department of Financial Institutions, and the
Department of Corporations take steps to ensure that state-licensed
mortgage lenders and brokers are aware of the existence and content
of the guidance described in subdivision (a) as soon as possible and
are encouraged to comply with that guidance at the earliest possible
date.
   SEC. 2.    Section 10131.1 of the   Business
and Professions Code   is amended to read: 
   10131.1.   (a)    A real estate broker within
the meaning of this part is also a person who engages as a principal
in the business of  making loans or  buying from, selling
to, or exchanging with the public, real property sales contracts or
promissory notes secured directly or collaterally by liens on real
property, or who makes agreements with the public for the collection
of payments or for the performance of services in connection with
real property sales contracts or promissory notes secured directly or
collaterally by liens on real property. 
    As 
    (b)     As  used in this section
 , "in the business" means any of the following  :

   (1) "In the business" means any of the following:  
   (a) 
    (A)  The acquisition for resale to the public, and not
as an investment, of eight or more real property sales contracts or
promissory notes secured directly or collaterally by liens on real
property during a calendar year. 
   (b) 
    (B)  The sale to or exchange with the public of eight or
more real property sales contracts or promissory notes secured
directly or collaterally by liens on real property during a calendar
year. However, no transaction negotiated through a real estate
licensee shall be considered in determining whether a person is a
real estate broker within the meaning of this section. 
   (C) The making of eight or more loans from the person's own funds
to the public when those loans are held or resold and are secured
directly or collaterally by a lien on residential real property
consisting of a single dwelling unit in a condominium or cooperative
or on any parcel containing only residential buildings if the total
number of units on the parcel is four or less. However, no
transaction negotiated through a real estate broker who meets the
criteria of subdivision (a) or (b) of Section 10232 shall be
considered in determining whether a person is a real estate broker
within the meaning of this section.  
   As used in this section, "sale," 
    (2)     "Sale,"  "resale," and
"exchange" include every disposition of any interest in a real
property sales contract or promissory note secured directly or
collaterally by a lien on real property, except the original issuance
of a promissory note by a borrower or a real property sales contract
by a vendor, either of which is to be secured directly by a lien on
real property owned by the borrower or vendor. 
   (3) "Own funds" means either of the following:  
   (A) Cash, corporate capital, or warehouse credit lines at
commercial banks, savings banks, savings and loan associations,
industrial loan companies, or other sources that are liability items
on the person's financial statements, whether secured or unsecured.
 
   (B) Cash, corporate capital, or warehouse credit lines at
commercial banks, savings banks, savings and loan associations,
industrial loan companies, or other sources that are liability items
on the financial statement of an affiliate of the person, whether
secured or unsecured.  
   (4) "Own funds" does not include funds provided by a third party
to fund a loan on condition that the third party will subsequently
purchase or accept an assignment of the loan. 
   SEC. 3.    Section 10156.2 of the   Business
and Professions Code   is amended to read: 
   10156.2.  An application on the form  and with the content
 prescribed by the commissioner for the renewal of a license,
filed before midnight of the last day of the period for which a
previous license was issued, accompanied by the applicable renewal
fee and good faith evidence of compliance with the provisions of
Article 2.5 (commencing with Section 10170) of this chapter, entitles
the applicant to continue operating under his existing license after
its specified expiration date, if not previously suspended or
revoked.
   If the commissioner determines that the applicant has not complied
with the continuing education requirements he shall either (1)
advise the applicant of the applicability of Section 10171.2 on an
extended period for compliance; or (2) advise the applicant that his
rights to operate under the prior license will expire five days from
the date such notice is mailed, or on the date the license would
normally expire, whichever is later; and the commissioner's reason
for that determination, and the right of the applicant to request a
hearing on the decision.
   SEC. 2.   SEC. 4.   Section 10240.3 is
added to the Business and Professions Code, to read:
   10240.3.  (a) The commissioner shall apply the guidance on
nontraditional mortgage product risks published on November 14, 2006,
by the Conference of State Bank Supervisors and the American
Association of Residential Mortgage Regulators, together with any
subsequent amendment to, clarification of, or interpretation of that
guidance, to real estate brokers acting within the meaning of 
Section 10131.1 or  subdivision (d) of Section 10131.
   (b) The commissioner may adopt emergency and final regulations to
clarify the application of this section as soon as possible.
   (c) A real estate broker acting within the meaning of subdivision
(d) of Section 10131 shall adopt and adhere to policies and
procedures that are reasonably intended to achieve the objectives set
forth in the guidance described in subdivision (a).
   SEC. 5.    Section 10245 of the   Business
and Professions Code   is amended to read: 
   10245.  The provisions of this article, exclusive of the
provisions of Sections 10240,  10240.3,  10242.5, and
10242.6, do not apply to any bona fide loan secured directly or
collaterally by a first trust deed, the principal of which is thirty
thousand dollars ($30,000) or more, or to any bona fide loan secured
directly or collaterally by any lien junior thereto, the principal of
which is twenty thousand dollars ($20,000) or more.
   SEC. 3.   SEC. 6.   Section 215.5 is
added to the Financial Code, to read:
   215.5.  (a) The commissioner shall apply the Interagency Guidance
on Nontraditional Mortgage Product Risks issued in September 2006 by
the Office of the Comptroller of the Currency, the Board of Governors
of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, and the National
Credit Union Administration, together with any subsequent amendment
to, clarification of, or interpretation of, that guidance, to
state-regulated financial institutions, including, but not limited
to, privately insured, state-chartered credit unions.
   (b) The commissioner may issue emergency and final regulations to
clarify the application of this section as soon as possible.
   (c) A bank or credit union to which the commissioner applies the
guidance described in subdivision (a) shall adopt and adhere to
policies and procedures that are reasonably intended to achieve the
objectives set forth in that guidance.
   SEC. 4.   SEC. 7.   Section 22169 is
added to the Financial Code, to read:
   22169.  (a) The commissioner shall apply the guidance on
nontraditional mortgage product risks published on November 14, 2006,
by the Conference of State Bank Supervisors and the American
Association of Residential Mortgage Regulators, together with any
subsequent amendment to, clarification of, or interpretation of that
guidance, to licensees.
   (b) The commissioner may adopt emergency and final regulations to
clarify the application of this section as soon as possible.
   (c) A licensee shall adopt and adhere to policies and procedures
that are reasonably intended to achieve the objectives set forth in
the guidance described in subdivision (a).
   SEC. 5.   SEC. 8.   Section 50333 is
added to the Financial Code, to read:
   50333.  (a) The commissioner shall apply the guidance on
nontraditional mortgage product risks published on November 14, 2006,
by the Conference of State Bank Supervisors and the American
Association of Residential Mortgage Regulators, together with any
subsequent amendment to, clarification of, or interpretation of that
guidance, to licensees.
   (b) The commissioner may adopt emergency and final rules to
clarify the application of this section as soon as possible.
   (c) A licensee shall adopt and adhere to policies and procedures
that are reasonably intended to achieve the objectives set forth in
the guidance described in subdivision (a).
   SEC. 6.   SEC. 9.   Section 13984 is
added to the Government Code, to read:
   13984.  In order to ensure that Section 10240.3 of the Business
and Professions Code and Sections 215.5, 22169, and 50333 of the
Financial Code are applied consistently to all California entities
engaged in the brokering, originating, servicing, underwriting, and
issuance of nontraditional mortgage products, the secretary shall
ensure that the Commissioner of Real Estate, the Commissioner of
Financial Institutions, and the Commissioner of Corporations
coordinate their policymaking and rulemaking efforts.
   SEC. 7.   SEC. 10.   No reimbursement is
required by this act pursuant to Section 6 of Article XIII B of the
California Constitution because the only costs that may be incurred
by a local agency or school district will be incurred because this
act creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction, within
the meaning of Section 17556 of the Government Code, or changes the
definition of a crime within the meaning of Section 6 of Article XIII
B of the California Constitution.