BILL ANALYSIS
SB 36
Page 1
Date of Hearing: July 7, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
SB 36 (Calderon) - As Amended: June 30, 2009
SENATE VOTE : 36-1
SUBJECT : Real estate, finance lender, and residential mortgage
lender licenses: mortgage loan originators.
SUMMARY : Requires licensing of all mortgage loan originators,
as well as, registration with the Nationwide Mortgage Licensing
System and Registry (NMLSR). Specifically, this bill :
1)Brings California in compliance with the provisions of the
Safe and Fair Enforcement of Mortgage Licensing Act (SAFE) ,
pursuant to Title V of the provisions of the Housing and
Economic Recovery Act of 2008 (HR 3221; Public Law 110-289).
2)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 SAFE
Act (Public Law 110-289).
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 NMLSR.
4)Exempts a dealer or salesperson from 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.
5)Commences licensing of mortgage loan originators under CFLL or
RMLA on July 1, 2010, and on December 1, 2010, for mortgage
loan originator license endorsement.
EXISTING FEDERAL LAW provides for the SAFE Act, pursuant to
Title V of the provisions of the Housing and Economic Recovery
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Act of 2008 (HR 3221; Public Law 110-289).
EXISTING STATE LAW:
1)Regulates RMLs under the RMLA and the Department of
Corporations (DOC). [Financial Code, Section 50000 et seq.]
2)Regulates CFLs 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
Department of Real Estate (DRE).
FISCAL EFFECT : Unknown
COMMENTS :
Background . On July 30, 2008, HR 3221, the Housing and Economic
Recovery Act of 2008, was signed into law. 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
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 NMLSR 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
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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 will 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.
The SAFE Act requires California and other states to have a
framework in place by August 1, 2009, or face direct oversight
and implementation 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.
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.
2)Pass background and criminal history checks.
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3)Disclosure on all advertising materials their unique
identifier that is obtained from the NMLSR.
4)Meet minimum and continuing education 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.
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 under which they are employed.
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.
SB 36 establishes 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.
Background of NMLSR.
The NMLSR is a web-based system that allows state licensed
mortgage lenders, mortgage brokers, and loan officers to apply
for, amend, update or renew a license online for all
participating state agencies using a single set of uniform
applications. NMLSR brings greater uniformity and transparency
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to the mortgage industry while maintaining and strengthening the
ability of state regulators to monitor the industry and protect
their citizens. NMLSR began operation on January 2, 2008.
The NMLSR is owned and operated by State Regulatory Registry
LLC. The Conference of State Bank Supervisors (CSBS) in
cooperation with the American Association of Residential
Mortgage Regulators (AARMR) established the State Regulatory
Registry LLC (SRR) on September 21, 2006. A limited-liability
company, SRR is to develop and operate nationwide systems for
state regulators in the financial services industry. Such
systems are intended to enhance state's ability to protect
consumers; improve supervision and enforcement of licensed
entities; and streamline licensing and other processes for state
agencies and the industry through the use of modern technology
and centralizing redundant state agency operations.
The State Regulatory Registry provides the following on their
website regarding NMLSR:
1)State agencies and the District of Columbia are working
together to create the CSBS/AARMR Nationwide Mortgage
Licensing System ("The System") for the following reasons:
a) The System will improve state regulators' ability to
supervise mortgage lending and brokering in their states
and enhance the ability to take enforcement actions against
bad actors;
b) States will share the same licensing information about
companies and professionals. Enforcement actions taken by
one state against a licensee will be tied to the licensee's
record in the national system accessible by all regulators;
c) The System will increase accountability in the mortgage
industry by ensuring that entities that are licensed at the
state level are tracked across states and over time;
d) Licensees will have a single record that will be used in
all states and tracked over time. Bad actors will not be
able to escape their record by migrating from one state or
company to another;
e) The System will save states significant resources by
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automating and streamlining agency processing of mortgage
licensing applications and renewals;
f) Automating license processing will save states
significant resources that can be used for other purposes,
such as enforcement. The costs for each state to build its
own similar system would be $1.5 - $2 million per state.
The CSBS/AARMR System is being built for $10 million.
States working together in this manner is a responsible use
of public funds;
g) The System will improve licensees' ability to apply for
and maintain state mortgage licensure by providing direct
access through a secured website to manage a single record
that will be shared by all participating states;
h) The System will allow licensees to complete a single
application electronically and then submit to numerous
states with the click of a button. The System will reduce
response times, and allow licensees to update information
instantly and check the status of requests online;
i) The System will provide consumers a single website to
check on the license status of any state licensed mortgage
lender or broker with whom they wish to do business; and,
j) A public website will contain searchable information
about every state licensed lender, broker, branch, and
professional. The information will include the status of
the entity's license in each state and any final
enforcement actions tied to that licensee.
Related legislation .
AB 34 (Nava), also implements changes to the RMLA, CFL and real
estate law in order to comply with the SAFE Act. This bill is
currently pending Senate Business and Professions Committee.
SB 491 (Maldonado) would begin the process of amending
California's mortgage lending and brokering laws in compliance
with the SAFE Act. This bill failed passage in the Senate
Banking, Finance & Insurance Committee.
Previous legislation .
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SB 1240 (Machado) of 2007 requires real estate brokers that
make, arrange, or service residential mortgage loans on property
containing one to four residential units to notify the DRE
within 30 days of entering the mortgage field and upon exiting
that field, and requires these brokers to file specified reports
with DRE on an annual or biannual basis, documenting their level
of compliance with applicable law and regulation. This bill was
vetoed by the Governor citing that recent federal legislation
provided for a comprehensive loan originator licensing system
that establishes national standards and encouraged the
Legislature to pursue legislation to implement the federal
legislation.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Mortgage Brokers
California Association of Realtors
California Mortgage Association
Center for Responsible Lending
Los Angeles County District Attorney's Office
Opposition
None on file.
Analysis Prepared by : Rebecca May / B. & P. / (916) 319-3301