BILL NUMBER: SB 385 CHAPTERED
BILL TEXT
CHAPTER 301
FILED WITH SECRETARY OF STATE OCTOBER 5, 2007
APPROVED BY GOVERNOR OCTOBER 5, 2007
PASSED THE SENATE SEPTEMBER 6, 2007
PASSED THE ASSEMBLY SEPTEMBER 5, 2007
AMENDED IN ASSEMBLY AUGUST 31, 2007
AMENDED IN ASSEMBLY JUNE 21, 2007
AMENDED IN SENATE APRIL 23, 2007
AMENDED IN SENATE MARCH 26, 2007
INTRODUCED BY Senator Machado
(Principal coauthor: Assembly Member Lieu)
FEBRUARY 21, 2007
An act to amend Sections 10131.1 and 10245 of, and to add Section
10240.3 to, the Business and Professions Code, to add Sections 215.5,
22171, and 50333 to the Financial Code, and to add Section 13984 to
the Government Code, relating to real estate, and making an
appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
SB 385, Machado. 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
licensees under the California Residential Mortgage Lending Act 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 and a statement on
subprime mortgage lending.
This bill would require the Commissioner of Financial Institutions
to apply that guidance and statement 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 and statement 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 persons licensed
under the California Residential Mortgage Lending Act to adopt and
adhere to policies and procedures that are reasonably intended to
achieve the objectives set forth in the guidance and statement.
Because a willful violation of these provisions with respect to real
estate brokers and persons licensed under the California Residential
Mortgage Lending Act 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 in a calendar year to the public from the person's
own funds, as defined.
Because this bill would 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.
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.
Appropriation: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature finds and declares that all of the
following documents contain important risk management and consumer
protection principles:
(1) 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.
(2) The Statement on Subprime Mortgage Lending issued in June 2007
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.
(3) 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.
(4) The Statement on Subprime Mortgage Lending issued in July 2007
by the Conference of State Bank Supervisors, the American
Association of Residential Mortgage Regulators, and the National
Association of Consumer Credit Administrators.
(b) The Legislature finds and declares that the nontraditional
mortgage product risk guidance described in paragraphs (1) and (3) of
subdivision (a) covers all residential mortgage loan products that
allow borrowers to defer repayment of principal or interest,
including all interest-only products and negative amortization
mortgages. The Legislature further finds and declares that the
nontraditional mortgage product risk guidance does not cover reverse
mortgages or home equity lines of credit, other than simultaneous
second-lien loans. For purposes of this subdivision, "residential"
refers to a one-to-four unit single-family residence.
(c) The Legislature finds and declares that the subprime mortgage
lending statements described in paragraphs (2) and (4) of subdivision
(a) apply to adjustable-rate mortgage products that are typically
offered to subprime borrowers and that have the potential for payment
shock.
(d) The Legislature finds and declares that consistent application
of the documents described in subdivision (a) to state-regulated
persons and institutions engaged in the brokering, originating,
servicing, underwriting, and issuance of nontraditional and subprime
mortgage products is critical to protect borrowers and lenders.
(e) 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 documents described in subdivision (a) as soon as possible and
are encouraged to comply with those documents 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.
(b) As used in this section:
(1) "In the business" means any of the following:
(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) 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 in a calendar year 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.
(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 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, and the Statement on
Subprime Mortgage Lending published on July 17, 2007, by the
aforementioned entities and the National Association of Consumer
Credit Administrators, 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 Section
10131.1 or 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 documents described in subdivision (a).
SEC. 4. 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. 5. 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 and
the Statement on Subprime Mortgage Lending issued in June 2007 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 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
documents described in subdivision (a) shall adopt and adhere to
policies and procedures that are reasonably intended to achieve the
objectives set forth in those documents.
SEC. 6. Section 22171 is added to the Financial Code, to read:
22171. (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, and the Statement on
Subprime Mortgage Lending published on July 17, 2007, by the
aforementioned entities and the National Association of Consumer
Credit Administrators, 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 documents described in subdivision (a).
SEC. 7. 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, and the Statement on
Subprime Mortgage Lending published on July 17, 2007, by the
aforementioned entities and the National Association of Consumer
Credit Administrators, 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 documents described in subdivision (a).
SEC. 8. 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, 22171, 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. 9. 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.