BILL ANALYSIS
AB 34
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 34 (Nava) - As Amended: April 2, 2009
SUBJECT : Real estate, finance lender and residential mortgage
lender licenses: mortgage loan originators.
SUMMARY : Establishes new requirements for the licensing of all
mortgage loan originators to conform state law to recently
enacted federal laws known as the Secure and Fair Enforcement of
Mortgage Licensing Act (SAFE). Specifically, this bill :
1)Establishes standards, requirements, prohibitions for mortgage
loan originators operating under the real estate law, the
California finance lenders law (CFLL) and the Residential
Mortgage Lending Act (RMLA) in order to comply with the Secure
and Fair Enforcement for Mortgage Licensing (SAFE) Act (Public
Law 110-289).
2)Prohibits any individual from engaging in the business as a
mortgage loan originator without first obtaining and
maintaining a loan originator's license and registering with
the Nationwide Mortgage Licensing System and Registry NMLSR.
3)Provides for the following definitions:
a) "Mortgage loan originator" means an individual who takes
a residential mortgage loan application or offers or
negotiates terms of a residential mortgage loan for
compensation or gain. An individual real estate licensee
acting within the meaning of paragraph (d) of Section 10131
is a mortgage loan originator for purposes of this article
with respect to activities involving residential mortgage
loans.
b) Mortgage loan originator does not include any of the
following:
i) An individual who performs purely administrative or
clerical tasks on behalf of a person meeting the
definition of a mortgage loan originator, except as
otherwise provided in subdivision (d) of Section
10166.03. The term "administrative or clerical tasks"
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means the receipt, collection, and distribution of
information common for the processing or underwriting of
a loan in the mortgage industry and communication with a
consumer to obtain information necessary for the
processing or underwriting of a residential mortgage
loan.
ii) An individual that is not compensated by a lender,
other mortgage loan originator, or by any agent of any
lender or other mortgage loan originator.
iii) An individual that is solely involved in extensions
of credit relating to timeshare plans, as that term is
defined in Section 101(53D) of Title 11 of the United
States Code.
iv) An individual licensed or registered as a mortgage
loan originator pursuant to the provisions of the
Financial Code and the SAFE Act.
c) "Nationwide Mortgage Licensing System and Registry"
means a mortgage licensing system developed and maintained
by the Conference of State Bank Supervisors and the
American Association of Residential Mortgage Regulators for
the licensing and registration of mortgage loan
originators.
d) "Residential mortgage loan" means any loan primarily for
personal, family, or household use that is secured by a
mortgage, deed of trust, or other equivalent consensual
security interest on a dwelling, or residential real estate
upon which is constructed or intended to be constructed a
dwelling. "Dwelling" means a residential structure that
contains one to four units, whether or not that structure
is attached to real property. The term includes an
individual condominium unit, cooperative unit, mobile home,
or trailer, if it is used as a residence.
e) "Unique identifier" means a number or other identifier
assigned by protocols established by the Nationwide
Mortgage Licensing System and Registry.
f) "Loan processor or underwriter" means an individual who
performs clerical or support duties as an employee at the
direction of, and subject to the supervision and
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instruction of, a mortgage loan originator.
g) "Nontraditional mortgage product" means any mortgage
product other than a 30-year fixed rate mortgage
h) "Registered mortgage loan originator" means any
individual who:
i) Meets the definition of a mortgage loan originator
and is an employee of either:
(1) A depository institution.
(2) A subsidiary that is owned and controlled by a
depository institution and regulated by a federal
banking agency.
ii) An institution regulated by the Farm Credit
Administration.
iii) Is registered with, and maintains a unique
identifier through, the Nationwide Mortgage Licensing
System and Registry.
4)Requires real estate brokers to notify to the Department of
Real Estate (DRE) within 30 days of implementation of this
legislation or upon commencing specific activities under the
real estate law, such as listing properties or arranging loans
secured by real property.
5)Provides that no individual shall engage in the business of a
loan originator under the real estate law without the
following:
a) Obtaining and maintaining a real estate license; and,
b) Obtaining and maintaining a real estate license
endorsement identifying that individual as a licensed
mortgage loan originator.
6)Specifies that a license endorsement shall be valid for
one-year and the application for the endorsement shall be in
the form prescribed by the commissioner.
7)Provides that the penalty for a real estate broker who fails
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to notify DRE of their activities, or who fails to obtain a
license endorsement shall be assessed a penalty of fifty
dollars per day for each day written notification has not been
received or a license endorsement has not been obtained up to
the 31st day. On or after the 31st day, the fine shall be
$100 dollars per day, not to exceed a penalty of ten thousand
dollars. Failure to pay a penalty may result in the
suspension or revocation of a license.
8)Requires that in connection with an application to DRE for a
license endorsement as a mortgage loan originator, every
applicant shall furnish to NMLSR information concerning the
applicant's identity including fingerprints for the purpose of
conducting a criminal background check and personal history
and experience in a form prescribed by NMLSR.
9)Provides that the commissioner of DRE shall not issue a
license endorsement to act as a mortgage loan originator to an
applicant unless the commissioner makes all of the following
findings:
a) The applicant has never had a mortgage loan originator
license revoked in any other governmental jurisdiction.
b) The applicant has not been convicted of, or pled guilty
or nolo contendere to, a felony in a domestic, foreign, or
military court, under either of the following conditions,
however, any conviction expunged from the applicant's
record shall not be considered a conviction for purposes of
this subdivision:
i) During the seven year period preceding the date of
the application for licensing.
ii) At any time preceding the date of application, if
the felony involved an act of fraud, dishonesty, a breach
of trust, or money laundering.
c) The applicant has demonstrated such financial
responsibility, character, and general fitness as to
command the confidence of the community and warrant a
determination that the mortgage loan originator will
operate honestly, fairly, and efficiently within the
purposes of the article.
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d) The applicant has complied with the appropriate
education and written testing requirements.
10)Requires an applicant for a license endorsement as a mortgage
loan originator to complete at least 20 hours of education
courses, which shall include at least the following:
a) Three hours of federal law and regulations;
b) Three hours of ethics, which shall include instruction
on fraud, consumer protection, and fair lending issues;
and,
c) Two hours of training related to lending standards for
the nontraditional mortgage product marketplace.
11)Requires an applicant applying for registration to NMLSR to
provide the following:
a) A credit report from a consumer reporting agency; and,
b) Information related to any administrative civil, or
criminal findings by any governmental jurisdiction.
12)Allows a person who successfully completes the education
requirements approved by the Nationwide Mortgage Licensing
System and Registry in any state other than California to be
granted credit toward completion of the education requirements
of required by this bill.
13)Requires, before being issued a license endorsement to act as
a mortgage loan originator, that an individual shall pass a
qualified written test developed or otherwise deemed
acceptable by the NMLSR and administered by a test provider
approved or otherwise deemed acceptable by NMLSR.
14)Requires an individual to achieve a test score of not less
than 75%.
15)Allow an individual who fails the qualified written test to
retake the test up to three consecutive times, with at least
30 days passing between each retest. Subsequent to failing
three consecutive times, the applicant must wait at least six
months before retest.
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16)Provides that a mortgage loan originator who fails to
maintain a valid license for a period of five years shall
retake the test.
17)Provides that education courses are only acceptable if they
have been reviewed and approved, or otherwise deemed
acceptable, by the NMLSR, in accordance with the SAFE Act, and
by the commissioners of DRE and DOC.
18)Requires a real estate broker who makes, arranges or services
one or more loans in a calendar year to provide to DRE with a
business activities report for the fiscal year that discloses
the following:
a) Name and license number of the supervising broker and
names and license numbers of the real estate brokers and
salespersons under that broker's supervision. The report
shall include brokers and salespersons who were under the
supervising broker's supervision for all or part of the
year.
b) A list of the real estate-related activities in which
the supervising broker and the brokers and salespersons
under his or her supervision engaged during the prior year.
This listing shall identify all of the following.
i) Activities relating to mortgages, including
arranging, making, or servicing.
ii) Other activities performed under the real estate
broker's or salesperson's license.
iii) Activities performed under related licenses,
including, but not limited to, a license to engage as a
finance lender or a finance broker under the California
Finance Lenders Law (Division 9 (commencing with Section
22000) of the Financial Code), or a license to engage as
a residential mortgage lender or residential mortgage
loan servicer under the California Residential Mortgage
Lending Act (Division 20 (commencing with Section 50000)
of the Financial Code).
c) A list of the forms of media used by the broker and
those under his or her supervision to advertise to the
public, including print, radio, television, the Internet,
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or other means.
d) For fixed rate loans made, brokered, or serviced, all of
the following:
i) The total number, aggregate principal amount, lowest
interest rate, highest interest rate, and a list of the
institutional lenders of record. If the loan was funded
by any lender other than an institutional lender, the
broker shall categorize the loan as privately funded.
ii) The total number and aggregate principal amount of
covered loans, as defined in Section 4970 of the
Financial Code.
iii) The total number and aggregate principal amount of
loans for which Department of Real Estate form RE Form
885 or an equivalent is required.
e) For adjustable rate loans made, brokered, or serviced,
all of the following:
i) The total number, aggregate principal amount, lowest
beginning interest rate, highest beginning interest rate,
highest margin, and a list of the institutional lenders
of record. If the loan was funded by any lender other
than an institutional lender, the broker shall categorize
the loan as privately funded.
ii) The total number and aggregate principal amount of
covered loans, as defined in Section 4970 of the
Financial Code.
iii) The total number and aggregate principal amount of
loans for which Department of Real Estate form RE Form
885 or an equivalent is required.
f) For all loans made, brokered, or serviced, the total
number and aggregate principal amount of loans funded by
institutional lenders, and the total number and aggregate
principal amount of loans funded by private lenders.
g) For all loans made, brokered, or serviced, the total
number and aggregate principal amount of loans that
included a prepayment penalty, the minimum prepayment
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penalty length, the maximum prepayment penalty length, and
the number of loans with prepayment penalties whose length
exceeded the length of time before the borrower's loan
payment amount could increase.
h) For all loans brokered, the total compensation received
by the broker, including yield spread premiums,
commissions, and rebates, but excluding compensation used
to pay fees for third-party services on behalf of the
borrower.
i) For all mortgage loans made or brokered, the total
number of loans for which a mortgage loan disclosure
statement was provided in a language other than English,
and the number of forms provided per language other than
English.
j) For all mortgage loans serviced, the total amount of
funds advanced to be applied toward a payment to protect
the security of the note being serviced.
19)Requires each mortgage loan originator to submit reports of
condition to the NMLSR.
20)Provides for the following minimum standards for renewal to
act as a mortgage loan originator:
a) The mortgage loan originator constitutes to meet the
minimum act as a mortgage loan originator; and,
b) Maintains continuing education requirements.
21)Requires a mortgage loan originator to complete at least
eight hours of continuing education requirements annually.
22)Provides and clarifies that real estate brokers shall
maintain certain records and documents that will enable the
commissioner of DRE to determine compliance with the
requirements of the SAFE act.
23)Provides authority to the DRE to conduct examinations of real
estate licensees as often as deemed necessary by the
commissioner.
24)Requires a real estate broker to make any special reports to
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the commissioner of DRE as may be requested.
25)Provides DRE with the authority and permission to participate
in the NMLSR and in order to participate, may make rules,
regulations and orders as necessary.
26)Require a real estate licensee to submit a true copy of
advertising to DRE for approval prior to its use.
27)Prohibits the dissemination of any advertisement by a real
estate license or mortgage loan originator unless the
advertisement includes the license number and unique
identifier assigned to that licensee by NMLSR.
28) Specifies that an application for a finance lender or broker
licenses under the CFL may be made through the NMLSR including
fingerprints, fees, financial statements, and other supporting
documents.
29)Requires a finance lender or broker under the CFL in the
business of making or brokering residential mortgage loans
shall maintain a net worth of at least $250,000.
30)Allows the commissioner of DOC to deny an application for
licensure as a CLF or RML if the applicant employs a mortgage
loan originator who is not licensed in California.
31)Provides the commissioner of DOC with authority to require
additional bond amounts for CFL licensees who employ one or
more mortgage loan originators, based on the dollar amount of
residential mortgage loans originated by the licensee.
32)Requires CFL and RML licensees to maintain copies of all
advertising material for a period of 90 days after its first
use, and required that the commissioner of DOC approve the
advertising prior to its first use.
33)Requires every CFL licensee engaged in the business of making
or brokering residential mortgage loans shall establish a
record with the Nationwide Mortgage Licensing System and
Registry.
34)Requires every CFL licensee engaged in the business of making
or brokering residential mortgage loans to ensure that every
mortgage loan originator employed or compensated by the
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licensee is licensed or registered as a mortgage loan
originator
35)Provides that a CFL licensee engaged in the business of
making or brokering residential mortgage loans may not make or
broker a loan that was offered by, negotiated by, or applied
for through, a mortgage loan originator not licensed or
registered through the Nationwide Mortgage Licensing System
and Registry.
36)Provides that under the CFL and RMLA laws that an applicant
for licensure as a mortgage loan originator shall apply
through the submission of the uniform form prescribed by the
NMLSR and allows the commissioner of DOC to require the
submission of additional information or supporting
documentation to the department. Additionally requires the
following for CFL and RML employees who seek to act as loan
originators:
a) At the time of filing the application, the applicant
shall pay to the commissioner a sum to be determined by the
commissioner as an application fee for processing the
application and investigating the applicant. The
application and investigating fee are not refundable if an
application is denied or withdrawn; and,
b) In connection with an application for licensing as a
mortgage loan originator, the applicant shall, at a
minimum, furnish to the NMLSR information concerning the
applicant's identity, including the following:
i) Fingerprints for submission to the Federal Bureau of
Investigation, and any governmental agency or entity
authorized to receive such information for a state,
national, and international criminal history background
check.
ii) Personal history and experience in a form prescribed
by the NMLSR, including the submission of authorization
for the NMLSR and the commissioner to obtain the
following.
iii) An independent credit report obtained from a
consumer reporting agency.
iv) Information related to any administrative, civil, or
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criminal findings by any governmental jurisdiction.
37)Provides that the commissioner of DOC shall not issue a
mortgage loan originator license under the CFLL or RMLA unless
the commissioner makes, at a minimum, the following findings:
a) The applicant has never had a mortgage loan originator
license revoked in any governmental jurisdiction, except
that a subsequent formal rescission of the revocation shall
not be deemed a revocation;
b) The applicant has not been convicted of, or pled guilty
or nolo contendere to, a felony in a domestic, foreign, or
military court during the seven-year period preceding the
date of the application for licensing and registration, or
at any time preceding the date of application, if the
felony involved an act of fraud, dishonesty, or a breach of
trust, or money laundering. For purposes of this
subdivision, any pardon of a conviction shall not be a
conviction;
c) The applicant has demonstrated financial responsibility,
character, and general fitness such as to command the
confidence of the community and to warrant a determination
that the mortgage loan originator will operate honestly,
fairly, and efficiently within the purposes of the Secure
and Fair Enforcement for Mortgage Licensing Act of 2008
(Public Law 110-289);
d) The applicant has completed the pre-licensing education
requirement described in;
e) The applicant has passed a written test that meets the
test requirement described in; and,
f) The surety bond of the RML or CFL or servicer employing
or intending to employ the applicant covers the activities
of the applicant, or the applicant is otherwise covered by
a bond or recovery fund.
38)Requires an individual who seeks licensure as a loan
originator under the RMLA or the CFLL shall complete at least
20 hours of approved education which shall include at least
the following:
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a) Three hours of federal law and regulations;
b) Two hours of state law and regulations;
c) Three hours of ethics, which shall include instruction
on fraud, consumer protection, and fair lending issues;
and,
d) Two hours of training related to lending standards for
the nontraditional mortgage product marketplace.
39)Provides that each mortgage loan originator under the CFLL
and RMLL shall submit to the NMLSR reports of condition, which
shall be in the form and shall contain that information as the
NMLSR may require.
40)Provides that under the RMLA and CFLL laws that the following
are minimum standards for license renewal for mortgage loan
originators:
a) The originator meets minimum standards and requirements;
b) The originator has paid all fees; and,
c) The originator has satisfied annual continuing
educational requirements.
41)Allows the commissioner of DOC to do any of the following:
a) Deny, suspend, revoke, condition, or decline to renew a
mortgage loan originator license for a violation of this
division, or any rules or regulations adopted under this
division;
b) Deny, suspend, revoke, condition, or decline to renew a
mortgage loan originator license if an applicant or
licensee fails at any time to meet the requirements of
Section 22183 or 22187, or withholds information or makes a
material misstatement in an application for a license or
renewal of a license;
c) Order restitution against a mortgage loan originator or
any finance lender or broker licensee employing a mortgage
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loan originator for violations of this division;
d) Impose fines on a mortgage loan originator or any
finance lender or broker licensee employing a mortgage loan
originator pursuant to subdivisions (b), (c), and (d);
e) Issue orders or directives under this division as
follows; or,
i) Order or direct a mortgage loan originator or any
finance lender or broker licensee employing a mortgage
loan originator to cease and desist from conducting
business, including immediate temporary orders to cease
and desist.
ii) Order or direct a mortgage loan originator or any
finance lender or broker licensee employing a mortgage
loan originator to cease any harmful activities or
violations of this division, including immediate
temporary orders to cease and desist.
iii) Enter immediate temporary orders to cease business
under a license if the commissioner determines that the
license was erroneously granted or the licensee is
currently in violation of this division.
f) Order or direct any other affirmative action as the
commissioner deems necessary.
42)Provides that the commissioner of DOC may impose a civil
penalty on a mortgage loan originator or any finance lender or
broker licensee, or RML licensee employing a mortgage loan
originator, if the commissioner finds, on the record after
notice and opportunity for hearing, that the mortgage loan
originator or any finance lender or broker licensee employing
a mortgage loan originator has violated or failed to comply
with any requirement of this division or any regulation
prescribed by the commissioner under this division or order
issued under authority of this division.
a) The maximum amount of penalty for each act or omission
described above shall be twenty-five thousand dollars
($25,000).
43)Provides that the unique identifier of any person originating
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a residential mortgage loan under the RMLA or CFLL, shall be
clearly shown on all residential mortgage loan application
forms, solicitations or advertisements, including business
cards or Internet Web sites, and any other documents as
established by rule, regulation, or order of the commissioner.
44)Requires RML licensees to maintain a surety bond in the
amount that reflects the dollar amount of loan originated as
determined by the commissioner based on loan volume and
provides that the amount of the bond shall not be less than
$50,000.
45)Specifies, that a loan processor or underwriter who does not
represent to the public, through advertising or other means of
communicating or providing information, including the use of
business cards, stationery, brochures, signs, rate lists, or
other promotional items, that the individual can or will
perform any of the activities of a mortgage loan originator is
exempt from licensing and registration
46)Provides that an independent contractor who is employed by a
mortgage loan originator may not engage in the activities of a
loan processor or underwriter for a residential mortgage loan
unless the independent contractor loan processor or
underwriter obtains and maintains an endorsement as a mortgage
loan originator under this article. Each independent
contractor loan processor or underwriter who obtains and
maintains an endorsement as a mortgage loan originator under
this article shall have and maintain a valid unique identifier
issued by the Nationwide Mortgage Licensing System and
Registry.
EXISTING LAW
1)Regulates RMLs under the RMLA and the DOC. (Financial Code,
Section 50000 et seq.)
2)Regulates CFLs under the CFLL and the DOC. (Financial Code,
Section 22000 et seq.)
3)Regulates real estate brokers, who make or service residential
mortgage loans under the Real Estate law administered by DRE.
FISCAL EFFECT : Unknown
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COMMENTS :
Purpose of this bill . According to the author's office, "On
July 30, 2008 President Bush signed into law HR 3221, the
Housing and Economic Recovery Act of 2008. Among its many
provisions, HR 3221 contained a section known as the Secure and
Fair Enforcement of Mortgage Licensing Act (SAFE) Act ( Title V
of P.L. 110-289 ), a wholesale regulatory change of the licensing
and regulation of mortgage originators.
The SAFE Act requires California and other states to have a
framework in place by August 1, 2009, or face direct oversight
and implantation from the Federal Department of Housing and
Urban Development (HUD).
The SAFE Act is designed to encourage every state, through
consultation and coordination with the Conference of State Bank
Supervisors and the American Association of Residential Mortgage
Regulators to establish a Nationwide Mortgage Licensing System
that will require:
1)Registration with the NMLSR which will ensure that those
persons who have committed violations in other states are not
allowed to become licensed in California. Additionally, this
registration system will assist regulators with tracking and,
if necessary, instituting disciplinary action against
originators of mortgage loans.
2)Pass background and criminal history checks.
3)Disclosure on all advertising materials their unique
identifier that is obtained from the NMLSR.
4)Meet minimum and continuing educational requirements that
include education in federal law and regulations, as well as,
issues relating to the non-traditional mortgage market place.
5)Meet and maintain net worth and/or bonding requirements."
Background . Under California law, mortgage loans can be made
and originated under several different structures and licensing
regimes. Mortgages can be originated under a real estate
license from the Department of Real Estate. This license
requires several hours of educational training and ongoing
direct oversight by the department. Additionally, common law
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has determined that real estate brokers owe their customers a
fiduciary duty.
Under the CFLL or the RMLA, originators offer loans under the
umbrella license of the company they work for. Under this
structure, the loan originator is not individually licensed nor
statutorily mandated to maintain certain levels of educational
experience. This is the similar to a loan officer who works at
a bank or credit union. The logic with this model is that the
wrongdoing of an individual places the whole license in jeopardy
so institutions are more likely to self regulate. Some
distinctions have been made in recent years regarding individual
employees. For example, several legislative proposals have come
forward in recent years that have put some requirements on
individuals in these cases such as expanded background checks.
On July 30, 2008 President Bush signed into law HR 3221, the
Housing and Economic Recovery Act of 2008. This legislation
provides reforms for Fannie Mae and Freddie Mac, as well as, new
programs designed to assist homeowners facing foreclosure.
Among its many provisions, HR 3221 contained a section known as
the SAFE Act ( Title V of P.L. 110-289 ), a wholesale regulatory
change of the licensing and regulation of mortgage originators.
The SAFE Act is designed to require every state, through
consultation and coordination with the Conference of State Bank
Supervisors and the American Association of Residential Mortgage
Regulators to establish a Nationwide Mortgage Licensing System
that will accomplish the following:
1)Provides uniform license applications and reporting
requirements for State-licensed loan originators.
2)Provides a comprehensive licensing and supervisory database.
3)Aggregates and improves the flow of information to and between
regulators.
4)Provides increased accountability and tracking of loan
originators.
5)Streamlines the licensing process and reduces the regulatory
burden.
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6)Enhances consumer protections and supports anti-fraud
measures.
7)Provides consumers with easily accessible information, offered
at no charge, utilizing electronic media, including the
Internet, regarding the employment history of, and publicly
adjudicated disciplinary and enforcement actions against, loan
originators.
8)Establishes a means by which residential mortgage loan
originators would to the extent possible, be required to act
in the best interest of the consumer.
9)Facilitates responsible behavior in the subprime mortgage
market place and provides comprehensive training and
examination requirements related to subprime mortgage lending.
10)Facilitates the collection and disbursement of consumer
complaints on behalf of State and Federal mortgage regulators.
The SAFE Act requires California and other states to have a
framework in place by August 1, 2009, or face direct oversight
and implantation from the Federal Department of Housing and
Urban Development (HUD). States may receive an extension if
they are making a good faith effort to implement the
requirements. Since the creation of California's multi-layered
framework, the system has been somewhat of an arbitrage where
lenders could pick and choose licenses based on their business
models or market needs. Some lenders have acquired licenses
across all licensing laws.
AB 34 reflects the challenges and difficulties imposed when
attempting to craft, what is for the most part, a entirely new
regulatory system for mortgage loan originators. Imposing
these new requirements is somewhat easier for DRE licensed
brokers as they already are licensed individually and meet
several of the mandatory requirements imposed by the SAFE Act.
A change to the requirements of the SAFE Act will require a
wholesale restructure of those licensing frameworks.
Related Legislation .
SB 36 (Calderon), also implements changes to the RMLA, CFL and
real estate law in order to comply with the SAFE Act. This bill
is currently pending Senate Business and Professions Committee.
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REGISTERED SUPPORT / OPPOSITION :
Support
AARP
Opposition
None on file.
Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301