BILL ANALYSIS
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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
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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.
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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
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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.
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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
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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
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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
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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
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