BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 34
                                                                  Page  1

          AB 34 (Nava)
          As Amended  June 1, 2009
          Majority vote 

           BANKING & FINANCE   10-1        BUSINESS & PROFESSIONS     9-0  
          |Ayes:|Nava, Gaines, Evans,      |Ayes:|Hayashi, Emmerson, Eng,   |
          |     |Fong, Fuentes, Mendoza,   |     |Hernandez, Nava, John A.  |
          |     |Ruskin, Swanson, Torres,  |     |Perez, Price, Ruskin,     |
          |     |Tran                      |     |Smyth                     |
          |     |                          |     |                          |
          |Nays:|Anderson                  |     |                          |
          |     |                          |     |                          |
           APPROPRIATIONS      13-4                                        
          |Ayes:|De Leon, Ammiano, Charles        |
          |     |Calderon, Davis, Fuentes, Hall,  |
          |     |John A. Perez, Price, Skinner,   |
          |     |Solorio, Audra Strickland,       |
          |     |Torlakson, Krekorian             |
          |     |                                 |
          |Nays:|Nielsen, Duvall, Harkey, Miller  |
          |     |                                 |
           SUMMARY  :  Requires the licensing of all mortgage loan  
          originators and registration with the Nationwide Mortgage  
          Licensing System and Registry (NMLSR).  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  


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            maintaining a loan originator's license and registering with  
            the NMLSR.

          3)Requires that a person operating a mortgage loan originator  
            must meet and maintain education and continuing education  
            requirements, as well as, pass a background check.

           EXISTING LAW  : 

          1)Regulates residential mortgage lenders under the RMLA and the  
            Department of Corporations (DOC).  [Financial Code, Section  
            50000 et seq.]

          2)Regulates California finance lender 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 the  
            Department of Real Estate (DRE).

           FISCAL EFFECT :  According to the Assembly Appropriations  
          Committee, major increase in regulatory costs, likely in the  
          millions of dollars to DRE and DOC to comply with SAFE (federal  
          law), offset by new SAFE fees charged to industry applicants.

           COMMENTS  :  On November 12, 2008, the Banking & Finance Committee  
          conducted an informational hearing to hear from a panel of  
          experts and stakeholders regarding the passage and  
          implementation of the SAFE Act.  As a result of the information  
          collected at the hearing the author has introduced this bill.

          AB 34 established landmark standards and requirements for  
          mortgage loan originators regardless of where and how they are  
          licensed.  Under the requirements of this bill all mortgage loan  
          originators must meet the following requirements:

          1)Register with the NMLSR and obtain a unique identifier.  This  
            registration process 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.


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          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.

          Does this bill apply to state chartered banks and credit unions?  
           No, state legislation is not required for state banks and  
          credit unions, as the enabling legislation that implements the  
          SAFE Act is federal law, and by their relationship with the  
          Federal regulators these institutions will be required to  
          register their employees as loan originators by July 1, 2009.

          Under California law, mortgage loans can be made and originated  
          under several different structures and licensing regimes.   
          Mortgage brokers operate under a real estate license from the  
          DRE.  This license requires several hours of educational  
          training and ongoing direct oversight by the department.   
          Additionally, common law 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  


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          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  

          4)Provides increased accountability and tracking of loan  

          5)Streamlines the licensing process and reduces the regulatory  

          6)Enhances consumer protections and supports anti-fraud  

          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  

          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.


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          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, an 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, CFLL and real estate law in order to comply with  
          the SAFE Act.  This bill is currently pending Senate  
          Appropriations Committee.

           Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081

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