BILL ANALYSIS
AB 34
Page 1
ASSEMBLY THIRD READING
AB 34 (Nava)
As Amended June 1, 2009
Majority vote
BANKING & FINANCE 10-1 BUSINESS & PROFESSIONS 9-0
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|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 | | |
| | | | |
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APPROPRIATIONS 13-4
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|Ayes:|De Leon, Ammiano, Charles |
| |Calderon, Davis, Fuentes, Hall, |
| |John A. Perez, Price, Skinner, |
| |Solorio, Audra Strickland, |
| |Torlakson, Krekorian |
| | |
|-----+---------------------------------|
|Nays:|Nielsen, Duvall, Harkey, Miller |
| | |
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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
regulators.
4)Provides increased accountability and tracking of loan
originators.
5)Streamlines the licensing process and reduces the regulatory
burden.
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.
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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
FN: 0001251