BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                    AB 34|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  AB 34
          Author:   Nava (D), et al
          Amended:  9/3/09 in Senate
          Vote:     27 - Urgency

           
           SENATE BANKING, FINANCE, AND INS. COMMITTEE  :  10-0, 7/9/09
          AYES:  Calderon, Cogdill, Correa, Cox, Florez, Kehoe, Liu,  
            Lowenthal, Padilla, Runner
          NO VOTE RECORDED:  Harman, Price

           SENATE BUS., PROF. & ECON. DEVEL. COMMITTEE :  8-1, 7/13/09
          AYES:  Negrete McLeod, Wyland, Corbett, Correa, Florez,  
            Romero, Walters, Yee
          NOES:  Aanestad
          NO VOTE RECORDED:  Oropeza

           SENATE APPROPRIATIONS COMMITTEE  :  13-0, 8/27/09
          AYES: Kehoe, Cox, Corbett, Denham, Hancock, Leno, Oropeza,  
            Price, Runner, Walters, Wolk, Wyland, Yee

           ASSEMBLY FLOOR  :  65-6, 6/2/09 - See last page for vote


           SUBJECT  :    Real estate, finance lender, and residential  
          mortgage lender
                      licenses

           SOURCE  :     Author


           DIGEST  :    This bill brings Californias Real Estate Law,  
          Finance Lenders Law, and Residential Mortgage Lending Act  
                                                           CONTINUED





                                                                 AB 34
                                                                Page  
          2

          into compliance with the federal Secure and Fair  
          Enforcement for Mortgage Licensing Act of 2008 (know as the  
          SAFE Act) by requiring the licensure of mortgage loan  
          originators beginning August 1, 2010.

           NOTE:  This bill is identical to SB 36 (Calderon) which  
                 passed the Senate 36-1 on 6/1/09.

           Senate Floor Amendments  of 9/3/09 make technical  
          corrections and enact changes made necessary by the  
          addition of an urgency clause to the bill on July 23, 2009.  
           With these changes, this bill will be identical to SB 36  
          (Calderon).

            ANALYSIS  :    

          Existing federal law:

          1. Requires pursuant to the SAFE Act all states to license  
             and register their mortgage loan originators through a  
             nationwide organization called the Nationwide Mortgage  
             Licensing System and Registry (NMLSR), and for any state  
             that does not implement a mortgage loan originator  
             licensing system in compliance with the SAFE Act by July  
             30, 2009, for the U.S. Department of Housing and Urban  
             Development (HUD) to establish a licensing system within  
             that state.

          2. Provides that states deemed by the Secretary of HUD to  
             be making a good faith effort to establish a state  
             licensing law which complies with the SAFE Act may be  
             granted one additional year in which to comply.

          3. The SAFE Act defines the term "mortgage loan originator"  
             as (generally speaking) 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 mortgages.  SAFE creates a  
             distinction between mortgage loan originators who are  
             employed by depository institutions or subsidiaries of  
             depository institutions, and all other mortgage loan  
             originators.







                                                                 AB 34
                                                                Page  
          3


          Existing law (The Real Estate Law):

          1. Establishes in the Business and Transportation Agency  
             (BT&H) the Department of Real Estate (DRE), the chief  
             officer of which is the Real Estate Commissioner, and  
             specifies that the Commissioner, through the Department,  
             is responsible for the regulation of real estate  
             transactions and licensure of real estate agents,  
             brokers and salespersons.

          2. Specifies that a licensed real estate broker is a person  
             who may solicit borrowers or lenders for or negotiate  
             loans or collect payments or perform services for  
             borrowers or lenders or note owners in connection with  
             loans secured directly or collaterally by liens on real  
             property or on a business opportunity.

          3. Specifies other requirements for real estate brokers who  
             solicit borrowers or lenders or negotiate loans or  
             collect payments or perform services for borrowers or  
             lenders relative to loans secured by real property,  
             including a limited notification provision for brokers  
             who advance their own funds as defined.

          Existing law (California Finance Lenders Law (CFL Law), and  
          California Residential Mortgage Lending Act (CRML Act):

          1. Establishes in the Business and Transportation Agency  
             (BT&H) the Department of Corporations (DOC), the chief  
             officer of which is the Commissioner of Corporations and  
             specifies that the Commissioner, through the Department,  
             is responsible for the licensure and regulation of  
             finance lenders and brokers and residential mortgage  
             lenders and servicers.

          2. Defines a "finance lender" as any person who is engaged  
             in the business of making consumer loans or making  
             commercial loans.  The business of making consumer loans  
             or commercial loans may include lending money and  
             taking, in the name of the lender or in any other name,  
             in whole or in part, as security for a loan, any  
             contract or obligation involving the forfeiture of  
             rights in or to personal property, the use and  







                                                                 AB 34
                                                                Page  
          4

             possession of which property is retained by other than  
             the mortgagee or lender, or any lien on, assignment of,  
             or power of attorney relative to wages, salary,  
             earnings, income, or commission.  Finance lender also  
             includes a personal property broker as referenced in  
             Section 1 or Article XV of the California Constitution.

          3. Defines a "lender" as a person that (a) is an approved  
             lender for the Federal Housing Administration, Veterans  
             Administration, Farmers Home Administration, Government  
             National Mortgage Association, Federal National Mortgage  
             Association, or Federal Home Loan Mortgage Corporation,  
             (b) directly makes residential mortgage loans, and (c)  
             makes the credit decision in the loan transactions.

          4. Defines "mortgage servicer" or "residential mortgage  
             loan servicer," similar to that of a "lender," that they  
             directly service or offer to service mortgage loans.

          This bill:

          1. Brings California in compliance with the provisions of  
             SAFE pursuant to Title V of the provision of the Housing  
             and Economic Recovery Act of 2008.

          2. Establishes standards, requirements, prohibitions for  
             mortgage loan originators operating under the real  
             estate law, the CFL Law and the CRML Act in order to  
             comply with the SAFE Act.

          3. Prohibits any individual from engaging in the business  
             as a mortgage loan originator without first obtaining  
             and maintaining a loan originator's license or license  
             endorsement and registering with the Nationwide Mortgage  
             Licensing System and Registry (NMLS Registry).

          4.  Exempts a dealer or salesperson form the requirement to  
             be licensed as a mortgage loan originator if the dealer  
             or salesperson performs only administrative or clerical  
             tasks on behalf of a person meeting the definition of a  
             mortgage loan originator, and does not accept  
             compensation from a lender, mortgage loan originator, or  
             from any agent of any lender or mortgage loan  
             originator, as specified.







                                                                 AB 34
                                                                Page  
          5


          5. Commences licensing of mortgage loan originators under  
             CFL Law CRML Act on July 1, 2010, and on December 1,  
             2010, for mortgage loan originator license endorsement.

           Background
           
           SAFE Act Compliance Necessary  .  On July 30, 2008, President  
          Bush signed the Housing and Economic Recovery Act of 2008,  
          whose provisions included the SAFE Act.  As indicated, the  
          SAFE Act requires all states to license and register their  
          mortgage loan originators through a nationwide organization  
          called the NMLS Registry.  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 HUD.

          Under the SAFE Act, HUD is authorized to establish and  
          maintain a mortgage loan originator system in any state  
          that fails to voluntarily comply with SAFE by July 30,  
          2009.  States deemed by the Secretary of HUD to be making a  
          good faith effort to establish a state licensing law which  
          complies with the SAFE Act may be granted one additional  
          year in which to comply, before risking HUD intervention.   
          Avoiding HUD intervention will be critical, if California  
          wishes to retain its existing authority to regulate the  
          mortgage-related activities of its state licensees.

          The provisions of the SAFE Act were sponsored by the  
          Conference of State Bank Supervisors (CSBS) and American  
          Association of Residential Mortgage Regulators (AARMR), two  
          organizations which represent state banking and mortgage  
          lending regulators nationwide.  In 2003, CSBS and AARMR  
          developed the idea for the NMLS Registry.  The system was  
          officially launched in January 2008.

          Prior to enactment of the SAFE Act, participation by states  
          in the NMLS Registry was voluntary.  Several of the  
          country's smaller states signed on, but lack of  
          participation among the country's larger states, including  
          California, hampered the registry's ability to function as  
          a truly national registry.

          In sponsoring the SAFE Act, CSBS and AARMR were seeking to  







                                                                 AB 34
                                                                Page  
          6

          drive more states to sign on to its NMLS Registry.  Under  
          the SAFE Act, participation in the NMLS Registry remains  
          voluntary, but states that fail to participate will lose  
          regulatory authority over their mortgage loan originators,  
          a threat so great that no large states appear willing to  
          risk it through non-participation.  To date, 23 states have  
          signed on to NMLS Registry, and most others are expected to  
          sign on by July 31, 2010.

          In promotional material regarding the NMLS Registry, CSBS  
          and AARMR describe the system, as follows:  "Through NMLS  
          Registry, licensed mortgage lenders, bankers, broker  
          companies and loan officers in participating states are  
          able to complete a single uniform form electronically,  
          regardless of the number of states in which they are  
          licensed.  This information is housed in a secure  
          centralized repository available to mortgage regulators.   
          Licensees are able to access their own record 7 days a week  
          through the NMLS Registry website to update, amend and  
          renew their licenses, or apply for new license.  As  
          mortgage companies and/or individuals create a record for  
          themselves and submit [it] to their regulators, NMLS  
          Registry will permanently assign a unique identifying  
          number to each record.  The unique identifying number  
          allows regulators to definitively track companies and  
          professionals across states and over time."

          What the Safe Act Specifically Requires  .  Under the SAFE  
          Act, mortgage loan originators who are not employed by a  
          depository institution or a subsidiary of a depository  
          institution must be both licensed by their state and  
          registered on NMLS Registry.  License applicants must  
          undergo background checks, submit to credit checks,  
          complete and successfully pass pre-licensing education  
          courses approved by NMLS Registry, meet specific personal  
          character requirements specified in the SAFE Act, and, once  
          licensed, must complete annual continuing education courses  
          approved by NMLS Registry and submit as-yet-unspecified  
          call reports to NMLS Registry annually.

          Mortgage loan originators employed by depository  
          institutions or their subsidiaries must register on NMLS  
          Registry, using rules to be established by the Federal  
          Financial Institutions Examination Council, but need not be  







                                                                 AB 34
                                                                Page  
          7

          licensed.  Registrants will have to undergo background  
          checks, but are not required to submit to credit checks,  
          nor comply with the education requirements that apply to  
          mortgage loan originators who are required to be licensed  
          under the Act.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Senate Appropriations Committee analysis:

                          Fiscal Impact (in thousands)

          Major provisions                2009-10     2010-11     
           2011-12   Fund  

          DRE costs                     $12,730   $10,731    
          $10,731Special*
                              -potentially offset by fee revenue-

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

          *Real Estate Fund

          **Corporation Fund

           SUPPORT  :   (Verified  9/4/09)

          American Association of Retired Persons
          California Association of Realtors


           ARGUMENTS IN SUPPORT  :    According to the author's office,  
          this bill will ensure that California is in compliance with  
          the SAFE Act, and, in doing so, avoid triggering action by  
          the Secretary of HUD to take over regulation of  
          California's mortgage loan originators.

          The author's office indicates that this bill 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  







                                                                 AB 34
                                                                Page  
          8

          these new requirements for DRE licensed brokers is somewhat  
          easier 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.

           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Arambula, Beall, Tom Berryhill,  
            Blakeslee, Blumenfield, Brownley, Buchanan, Caballero,  
            Charles Calderon, Carter, Chesbro, Conway, Cook, Coto,  
            Davis, De La Torre, De Leon, Emmerson, Eng, Evans, Feuer,  
            Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,  
            Galgiani, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jones, Krekorian, Lieu, Bonnie Lowenthal, Ma, Mendoza,  
            Monning, Nava, Nestande, Niello, John A. Perez, V. Manuel  
            Perez, Portantino, Price, Ruskin, Salas, Saldana, Silva,  
            Skinner, Smyth, Solorio, Audra Strickland, Swanson,  
            Torlakson, Torres, Torrico, Tran, Villines, Yamada, Bass
          NOES:  Anderson, Garrick, Gilmore, Knight, Logue, Nielsen
          NO VOTE RECORDED:  Bill Berryhill, Block, DeVore, Duvall,  
            Hagman, Hall, Harkey, Jeffries, Miller


          JJA:do  9/4/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****