BILL ANALYSIS                                                                                                                                                                                                    

                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           34 (Nava)
          Hearing Date:  8/17/2009        Amended: 7/23/2009
          Consultant:  Maureen Ortiz      Policy Vote: B. F. & I. 10-0
                                    B. P. & E. D. 8-1
          BILL SUMMARY:   AB 34, an urgency measure, will bring  
          California's Real Estate Law, Finance Lenders Law, and  
          Residential Mortgage Lending Act into compliance with the  
          federal Secure and Fair Enforcement for Mortgage Licensing Act  
          of 2008 (known as the SAFE Act) by requiring the licensure of  
          mortgage loan originators beginning August 1, 2010.
                            Fiscal Impact (in thousands)

           Major Provisions         2009-10      2010-11       2011-12     Fund
          DRE costs                                 $12,730             
          $10,731           $10,731        Special*
                                                          ---- potentially  
          offset by fee revenue----

          Licensing/registry                     $1,000                 
          $2,000             $2,000
          ------unknown fee revenue---------            Special**

          *Real Estate Fund   **Corporations Fund

          STAFF COMMENTS:  This bill meets the criteria for referral to  
          the Suspense file.
           Department of Real Estate
          AB 34 requires a specific endorsement under the Department of  
          Real Estate (DRE) for licensees to engage in the business of a  
          mortgage loan originator.   The bill provides for penalties for  
          those who fail to obtain the endorsement and authorizes the  


          commissioner to suspend or revoke that individual's real estate  

          The Department of Real Estate currently licenses 9,770 real  
          estate brokers and corporations that will need to comply with  
          obtaining a loan originator license/endorsement.  In addition,  
          these brokers and corporations employ 34,016 real estate  
          salespeople who will also need to licensed and endorsed as  
          mortgage loan originators.  AB 34 places numerous criteria for  
          licensees including educational requirements, and annual reports  
          on business activities.  The commissioner will be authorized to  
          examine the affairs of real estate brokers that obtain license  
          endorsement as a mortgage loan originator, and be required to  
          report violations to the Nationwide Mortgage Licensing System  
          and Registry (NMLSR). 

          Additionally, the SAFE Act requires the licensee to directly  
          register with the NMLSR, and then requires the DRE to verify the  
          data provided by the licensee.  The SAFE Act 

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          AB 34 (Nava)

          does not currently allow for an electronic upload of the  
          licensing data to be transmitted, but will instead require DRE  
          to manually input the verification information.  Therefore, 
          the department will not only be responsible for licensing over  
          43,000 licensees annually, but staff must also handle an  
          estimated 10,000 to 15,000 changes (address, name, affiliation,  
          etc.) to these license records through out the year.  Under the  
          SAFE Act, all licenses must be renewed as of December 31st of  
          each year.  Therefore, the DRE's current system of rolling  
          renewals will not be allowed and California will be unable to  
          spread out the workload associated with license renewals across  
          a twelve month period.  

          In a preliminary fiscal estimate, the DRE anticipates the need  
          for 129 PYs resulting in annual costs of approximately $10.3  
          million.  Most costs will be offset by license fee revenue  
          estimated at this time to be between $250 and $300 per licensee.  
           The breakdown of staffing requirements is as follows:

          14 PYs - Mortgage Lending Unit
          17 PYs - Auditing Division
          38 PYs - Enforcement Program


          28 PYs - Legal Section
          24 PYs - Licensing Program
          2 PYs - Information Technology Unit
          6 PYs - Administrative Support

          Other costs identified by the DRE include the following:

           Information Technology Modification:
          One-time: $1,315,540 and annual ongoing $263,671

           Office Network and Equipment Costs:

           First year costs of $911,722 and second year $114,929

          In addition, according to the Department of Real Estate, all  
          existing office facilities are at maximum occupancy and cannot  
          house the additional staff nor the document storage equipment  
          required to support the requirements of the SAFE Act.   
          Anticipated one-time facility costs are $201,606, with ongoing  
          rent at $50,430 for the additional space.

           Department of Corporations
          AB 34 requires persons licensed as finance lenders and brokers  
          and residential mortgage lenders by the Department of  
          Corporations (DOC) to obtain an additional license in order to  
          engage as a mortgage loan originator.  This provision, required  

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          AB 34 (Nava)

          the SAFE Act, also requires the licensing of employees who are  
          not currently required to obtain a license. The bill requires  
          finance lenders and brokers and residential mortgage lenders  
          that employ a mortgage loan originator to maintain a minimum net  

          worth of $250,000.  The DOC in a preliminary fiscal analysis  
          estimates startup costs of approximately $2 million annually,  
          with an unknown amount of fee revenue at this time.

          AB 34 provides that no person will be required to obtain a  


          license as a mortgage loan originator under the California  
          Finance Lenders Law, or the California Residential Mortgage  
          Lending Law before July 31, 2010.  No person will be required to  
          obtain a mortgage loan originator license endorsement under the  
          Real Estate Law before December 31, 2010.

          The SAFE Act requires all states to individually license  
          mortgage loan originators, and then requires the mortgage loan  
          originators to register through a nationwide organization called  
          the Nationwide Mortgage Licensing System and Registry (NMLSR).   
          The SAFE Act provides that any state that does not implement a  
          mortgage loan originator licensing system in compliance with the  
          SAFE Act by July 30, 2009, risks direct intervention by the  
          Secretary of the U. S. Department of Housing and Urban  
          Development (HUD).  However, states that are deemed as making a  
          good faith effort to establish a state licensing law may be  
          granted one additional year in which to comply.

          "Mortgage loan originator" is generally defined as one who takes  
          a residential mortgage loan application or offers or negotiates  
          terms of a residential mortgage loan for compensation or gain.   
          Administrative and/or clerical employees are not included within  
          the definition, nor are real estate brokers who don't broker  

          Under the SAFE Act, mortgage loan originators who are not  
          employed by a depository institution must be both licensed by  
          their state and registered on the national registry.  License  
          applicants must undergo background checks, submit to credit  
          checks, complete and successfully pass pre-licensing education  
          courses approved by the registry, complete continuing education  
          requirements and meet other specified criteria.

          Mortgage loan originators who are employed by depository  
          institutions or their subsidiaries must register with the NMLSR,  
          but need not be licensed. 

          This bill is substantially similar to SB 36 (Calderon) which is  
          currently pending in the Assembly Appropriations Committee.