BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 36
Author: Calderon (D), et al
Amended: 8/31/09
Vote: 27 - Urgency
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/1/09
AYES: Calderon, Runner, Correa, Cox, Florez, Kehoe, Liu,
Lowenthal, Padilla
NO VOTE RECORDED: Harman
SENATE BUSINESS, PROF. & ECON. DEVELOP. COMM : 7-1, 4/13/09
AYES: Negrete McLeod, Wyland, Florez, Oropeza, Romero,
Walters, Yee
NOES: Aanestad
NO VOTE RECORDED: Corbett, Correa
SENATE APPROPRIATIONS COMMITTEE : 12-0, 5/28/09
AYES: Kehoe, Cox, Corbett, Denham, DeSaulnier, Hancock,
Leno, Oropeza, Runner, Walters, Wyland, Yee
NO VOTE RECORDED: Wolk
SENATE FLOOR : 36-1, 6/1/09
AYES: Alquist, Ashburn, Benoit, Calderon, Cedillo, Cogdill,
Corbett, Correa, Cox, Denham, Ducheny, Dutton, Florez,
Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,
Lowenthal, Maldonado, Negrete McLeod, Oropeza, Padilla,
Pavley, Romero, Runner, Simitian, Steinberg, Strickland,
Walters, Wiggins, Wolk, Wright, Yee
NOES: Aanestad
NO VOTE RECORDED: DeSaulnier, Wyland
ASSEMBLY FLOOR : 72-3, 9/2/09 - See last page for vote
CONTINUED
SB 36
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SUBJECT : Real estate licenses: mortgages
SOURCE : Author
DIGEST : This bill brings California 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 (the SAFE
Act) by requiring those engaging in mortgage loan
origination activities to obtain a license from Department
of Corporations after meeting specified requirements, or if
a real estate licensee, obtain a license endorsement from
the Department of Real Estate after meeting specified
requirements.
NOTE: This bill is substantially similar to AB 34 (Nava)
Assembly Amendments add a July 31, 2010, date after which a
person would be required to have a mortgage loan originator
license under the California Finance Lenders Law or the
California Residential Mortgage Lending Act, and change the
date for which a mortgage loan originator license under the
Real Estate Law from August 1, 2010 to December 31, 2010.
In addition, the amendments make numerous clarifying and
technical amendments, and add an urgency clause.
ANALYSIS : Existing federal law provides for the SAFE
Act, pursuant to Title V of the provisions of the Housing
and Economic Recovery Act of 2008 (HR 3221; Public Law
110-289). The provisions of the SAFE Act are discussed in
more detail below in the Background section of this
analysis.
Existing law:
1. Authorizes residential mortgage lending, brokering, and
servicing under five different laws, including the
Banking Law, Credit Union Law, California Finance
Lenders Law (CFLL), California Residential Mortgage
Lending Act (CRMLA), and Real Estate Law, and the
regulations that interpret those laws;
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2. Generally regulates the entities that engage in mortgage
lending, brokering, and servicing under three different
departments, including the Department of Financial
Institutions (DFI), Department of Corporations (DOC),
and the Department of Real Estate (DRE).
This bill:
1.Brings California in compliance with the provisions of
the Safe and Fair Enforcement of Mortgage Licensing
(SAFE) Act, 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 CFLL and the CRMLA in order to comply with the
SAFE.
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.Provides that loan originators regulated the DRE will not
need a loan originators' license until December 31, 2010.
5.Specifies that a loan originator licensed by DOC will not
need a loan originators license until July 1, 2010.
Background
On July 30, 2008, President Bush signed the Housing and
Economic Recovery Act of 2008, whose provisions included
the SAFE Act. The SAFE Act requires all states to license
and register their mortgage loan originators through a
nationwide organization called the Nationwide Mortgage
Licensing System and Registry (NMLSR). 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 U.S. Department of Housing and
Urban Development (HUD).
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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 NMLSR. The system was
officially launched in January 2008.
Prior to enactment of the SAFE Act, participation by states
in the NMLSR 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
drive more states to sign on to its NMLSR. Under the SAFE
Act, participation in NMLSR 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
NMLSR, and most others are expected to sign on by July 31,
2010.
In promotional material regarding the NMLSR, CSBS and AARMR
describe the system, as follows: "Through NMLSR, 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
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available to mortgage regulators. Licensees are able to
access their own record 7 days a week through the NMLSR
website to update, amend and renew their licenses, or apply
for new licenses?As mortgage companies and/or individuals
create a record for themselves and submit [it] to their
regulators, NMLSR 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 Does the SAFE Act Require ? 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.
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 NMLSR. License applicants must undergo
background checks, submit to credit checks, complete and
successfully pass pre-licensing education courses approved
by NMLSR, meet specific personal character requirements
specified in the SAFE Act, and, once licensed, must
complete annual continuing education courses approved by
NMLSR and submit as-yet-unspecified call reports to NMLSR
annually.
Mortgage loan originators employed by depository
institutions or their subsidiaries must register on NMLSR,
using rules to be established by the Federal Financial
Institutions Examination Council (FFIEC), but need not be
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. The SAFE Act allows the five federal
banking agencies, through the FFIEC, to establish de
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minimis exceptions from the rules to register. However,
because the FFIEC's regulations have not yet been released,
the details of their contents are uncertain.
How Will the SAFE Act Change The Status Quo in California ?
The SAFE Act will require different types of changes under
the Real Estate Law than it will under the CFLL and CRMLA.
Real Estate Law changes: Under existing California law,
licensed real estate salespersons and licensed real estate
brokers may engage in activities that are defined in the
SAFE Act as mortgage loan origination. Real estate
licenses may be issued to individuals or to corporations.
The SAFE Act will require these already-licensed
individuals and corporations to obtain special mortgage
loan originator license endorsements in order to continue
engaging in activities for which no special license
endorsement is currently required.
The SAFE Act requirements are similar to, but somewhat
different from, the requirements for licensure under the
Real Estate Law. For example, real estate licensees must
complete both pre-licensing education and continuing
education classes, and must undergo background checks, all
of which are required under the SAFE Act. However, the
personal character requirements under California's Real
Estate Law are different than those under the SAFE Act
(more stringent in certain places, less stringent in
others), and California's real estate license cycle is four
years long, rather than annual (thus, under existing
California law, continuing education requirements must be
satisfied over a four year period, rather than once
annually).
Under the SAFE Act, licensed real estate salespersons and
brokers who wish to continue engaging in mortgage loan
origination activities must undergo brand new background
checks and take different education classes in order to
satisfy the SAFE Act mortgage loan originator licensing
requirements. They will also have to continue to meet the
SAFE Act's personal character requirements on an annual
basis, in order to remain eligible to retain their license
endorsements. Corporations engaged in mortgage loan
origination will have to register with NMLSR and obtain a
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license endorsement for their company. Corporations
licensed under the Real Estate Law will also have to ensure
that each of their mortgage loan originator employees
obtains an individual mortgage loan originator license
endorsement.
CFLL and CRMLA changes: The SAFE Act will impact CFLL and
CRMLA licensees very differently than it will impact Real
Estate Law licensees. Under existing law, DOC licenses
corporations under the CFLL and CRMLA and requires
background checks on the persons controlling these
corporations. Individual employees of these corporations
are not licensed, nor are they subject to background checks
(unless, as noted above, they are controlling persons in
the organization). Pre-licensing education and continuing
education are not required.
Under the SAFE Act, every CFLL and CRMLA employee who
performs activities that meet the SAFE Act definition of a
mortgage loan originator must be both licensed by
California and registered on NMLSR. Thus, employees who
were previously untracked by the state will now be required
to undergo a background check, submit to a credit check,
complete pre-licensing education classes, and satisfy the
SAFE Act's personal character requirements to obtain their
licenses. They will also have to comply with annual
continuing education requirements and continue to meet the
SAFE Act's personal character requirements in order to
remain eligible to retain their licenses. These
requirements represent a significant change for CFLL and
CRMLA licensees, who have not previously had to ensure that
their mortgage loan originator employees were licensed.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
DRE costs $12,730 $10,731
$10,731Special*
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All potentially offset by fee
revenue
Licensing/registry $2,000$1,000$1,000Special**
Unknown fee revenue
*Real Estate Fund
**Corporations Fund
SUPPORT : (Verified 5/28/09)
California Association of Realtors
California Mortgage Association
Los Angeles District Attorney's Office
ARGUMENTS IN SUPPORT : The California Association of
Realtors (CAR) believes that SB 36 takes the appropriate
approach toward SAFE Act implementation by using an
additional endorsement on the real estate license and
applying similar licensing requirements to other types of
loan originators regulated outside of DRE. CAR believes
that this approach will result in the least disruption of
existing systems and minimize compliance costs to both the
state and individual licensees. CAR also speaks to the
electronic exchange issue discussed immediately above by
stating, "we hope that in your role as Chair that you can
intervene with the federal entities involved to ensure that
state costs are minimized by allowing electronic exchanges
of databases and discipline records."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Arambula, Beall, Bill Berryhill, Tom
Berryhill, Blakeslee, Block, Blumenfield, Brownley,
Caballero, Charles Calderon, Carter, Conway, Cook, Coto,
Davis, De La Torre, De Leon, DeVore, Duvall, Emmerson,
Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Fuller,
Furutani, Gaines, Galgiani, Garrick, Gilmore, Hagman,
Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,
Jeffries, Jones, Krekorian, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, Nava, Nestande, Niello, Nielsen, John
A. Perez, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Silva, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
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Villines, Yamada, Bass
NOES: Anderson, Knight, Miller
NO VOTE RECORDED: Buchanan, Chesbro, Hall, Logue
JA:nl 9/3/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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