BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1137
                                                                  Page  1

          SENATE THIRD READING
          SB 1137 (Banking, Finance & Insurance Committee)
          As Amended  August 12, 2010
          Majority vote

          SENATE VOTE  :   35-0
            
           BANKING & FINANCE   12-0        APPROPRIATIONS      17-0        
           
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          |Ayes:|Eng, Niello, Evans, Fong, |Ayes:|Fuentes, Conway,          |
          |     |Fuentes, Gaines, Harkey,  |     |Bradford,                 |
          |     |Mendoza, Nava, Ruskin,    |     |Charles Calderon, Coto,   |
          |     |Torres, Tran              |     |Davis,                    |
          |     |                          |     |De Leon, Gatto, Hall,     |
          |     |                          |     |Harkey, Miller, Nielsen,  |
          |     |                          |     |Norby, Skinner, Solorio,  |
          |     |                          |     |Torlakson, Torrico        |
           ----------------------------------------------------------------- 
           SUMMARY  :   Makes several technical changes to the statutes  
          enacted to conform to the requirements of the Secure and Fair  
          Enforcement for Mortgage Licensing Act of 2008 (SAFE Act).   
          Specifically,  this bill  provides that a California Finance  
          Lender (CFL) that employs one or more mortgage loan originators  
          and that arranges but does not make residential mortgage loans,  
          shall continuously maintain a minimum net worth of least  
          $50,000.  Additionally, makes a technical correction to the  
          current legal definition of "mortgage loan originator."  

          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 SAFE Act  
          required all states to license and register their mortgage loan  
          originators, as defined, through a nationwide organization  
          called the Nationwide Mortgage Licensing System and Registry.   
          Any state that failed to implement a mortgage loan originator  
          licensing system, in compliance with the SAFE Act, by July 30,  
          2009, risked direct intervention by the U.S. Department of  
          Housing and Urban Development (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.   


           EXISTING STATE LAW  , pursuant to SB 36 (Calderon), Chapter 160,  
          Statutes of 2009, conforms California's Real Estate Law, Finance  








                                                                  SB 1137
                                                                  Page  2

          Lenders Law, and Residential Mortgage Lending Act to the SAFE  
          Act, thus preserving California's ability to continue regulating  
          mortgage loan origination by non-depository institutions  
          operating in California.

           FISCAL EFFECT :   None

           COMMENTS  :  This bill is intended to provide clean-up to  
          legislation passed last year to ensure that California law  
          complies with provisions of the SAFE Act.  The SAFE Act required  
          all states to license individual mortgage loan originators and  
          to ensure their registration with a nationwide database.   
          Currently, the Department of Corporations (DOC) and Department  
          of Real Estate are engaged in establishing rules and regulations  
          to carry out the provisions of SAFE.

          An additional provision of this bill concerns the net worth  
          requirements of CFL brokers.  Under current law a CFL broker  
          whether making or arranging mortgage loans is required to  
          maintain $250,000 of net worth at all times.  This bill would  
          provide a finer delineation of this requirement by allowing a  
          CFL broker that employs one or more mortgage loan originators  
          that only arranges mortgage loans to maintain a net worth of  
          $50,000.  The reasoning behind this change is that smaller CFL  
          licensees that only arrange loans, are losing their licenses due  
          to the net worth requirement coupled with the current economic  
          downturn.  While the net worth requirements are being changed,  
          CFL licensees would continue to have to maintain a surety bond  
          of $25,000.  Additionally, DOC expects to promulgate  
          regulations, to ensure that minimum net worth requirements for  
          CFL licensees employing individuals with mortgage loan  
          originator licenses appropriately reflect the gross revenue  
          derived by those licensees from mortgage loan origination  
          activities.  


           Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081 


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