BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 217
                                                                  Page  1

          Date of Hearing:   June 20, 2011

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                                   Mike Eng, Chair
                     SB 217 (Vargas) - As Amended:  June 16, 2011

           SENATE VOTE  :   Not relevant
           
          SUBJECT  :   California Finance Lenders Law: exemptions: mortgage 
          loan originators.

           SUMMARY  :   Provides for several exemptions and clarifications 
          regarding the Secure and Fair Enforcement of Mortgage Licensing 
          Act of 2008 (SAFE Act).   Specifically,  this bill  :   

          1)Finds that an individual who acts as a mortgage loan 
            originator for five or fewer residential mortgage loans during 
            a calendar year shall not be deemed a mortgage loan originator 
            and shall not be required to obtain an originator's license if 
            the following are met:

             a)   The individual acts as an originator for a single 
               licensee;

             b)   The licensee on whose behalf the individual acts, 
               brokers loans exclusively to a single depository 
               institution; and,

             c)   Before authorizing the origination of mortgage loans, 
               the licensee submits the name of the individual acting as 
               originator to the Department of Corporations (DOC) and 
               agrees in writing to be accountable for the actions of the 
               individual in connection with the loan origination.

          2)Provides that any licensee that becomes aware of an individual 
            who is originating a residential mortgage loan on its behalf 
            and has exceeded the five loans per year threshold to notify 
            the commissioner of DOC and direct the individual to cease 
            mortgage loan origination activity until he or she obtains a 
            mortgage loan originators license.

          3)States that the exclusion from licensing of individuals making 
            five or fewer loans shall not apply if the Director of the 
            federal Consumer Financial Protection Bureau or a court of 
            competent jurisdiction makes a final and specific 








                                                                  SB 217
                                                                  Page  2

            determination that the exclusion from licensing does not 
            comply with the SAFE Act.

          4)Provides that persons not subject to the California Finance 
            Lenders Law (CFLL) may apply to the commissioner of DOC for an 
            exempt company registration for the purpose of sponsoring one 
            or more individuals required to be licensed as mortgage loan 
            originators pursuant to the SAFE Act.  Additionally, finds 
            that a mortgage loan originator subject to this provision must 
            meet the following requirements:

             a)   The person to be licensed as a mortgage loan originator 
               must be covered under an exclusive written contract with, 
               and originate mortgage loans solely on behalf of, that 
               exempt person; and,

             b)   The person to be licensed must hold a license from the 
               Insurance Commissioner as an insurance producer for an 
               insurer that controls, is controlled by, or is under common 
               control with that exempt person.

          5)Mandates that an exempt person must comply with all rules and 
            orders that the commissioner deems necessary to ensure 
            compliance with the SAFE Act and shall pay an annual 
            registration fee established by the commissioner.

           EXISTING LAW  

          Title V of the Federal Housing Finance Regulator Reform Act, 
          signed by President Bush on July 30, 2008 established the SAFE 
          Act requiring the establishment of a national registry for 
          mortgage loan originators and required all the states to 
          establish requirements to carry out SAFE Act licensing and 
          registration.  California's SAFE Act licensing framework was put 
          into law by SB 36 (Calderon), Chapter 160, Statutes of 2009.  In 
          California, employees of those licensees licensed under the CFLL 
          and California Residential Mortgage Lending Act that meet the 
          definition of "mortgage loan originator" must obtain licenses 
          from DOC.  Persons licensed by the Department of Real Estate 
          under the Real Estate Law must obtain a mortgage loan originator 
          license endorsement if they meet the "mortgage loan originator" 
          definition.

           FISCAL EFFECT  :   Unknown









                                                                  SB 217
                                                                  Page  3

           COMMENTS  :   

          This bill attempts to address two issues relating to 
          implementation of the SAFE Act.  The first issue contained in 
          section 1 of the bill seeks to provide a de minimis exception 
          that resembles Safe Act regulations passed by federal banking 
          regulators for depository institutions. Under these federal 
          regulations employees of depository institutions are allowed to 
          originate up to five residential mortgage loans on behalf of its 
          deposit institutions employer in any twelve month period without 
          having to register as a mortgage loan originator.  This bill 
          provides the exempt employee (an employee making no more than 
          five loans in a year) must be working on behalf of a CFL 
          licensee and which would broker the loan under an exclusive 
          arrangement with a depository institution.

          The above mentioned provision is proposed on behalf of Primerica 
          Life Insurance Company.  Primerica Life Insurance Company holds 
          a CFLL license.  From time to time, its life insurance agents 
          take mortgage loan applications from prospective borrowers.  
          Primerica Life then sends those applications exclusively to 
          Citibank Trust, an affiliated depository institution which also 
          holds a CFLL license.  As currently structured, Primerica Life 
          Insurance Company is acting as a CFLL licensee brokering to 
          another CFLL licensee.  

          When taking mortgage loan applications on behalf of Primerica 
          Life Insurance Company, Primerica's agents are acting in the 
          capacity of mortgage loan originators, and are required to be 
          licensed as such.  However, because the primary business of 
          these agents involves the sale of insurance, and because they 
          take very few mortgage loan applications during the course of a 
          given year, Primerica and Citigroup (which owns 50% of 
          Primerica) are seeking an exemption from the requirement that 
          Primerica's agents obtain mortgage loan originator licenses.  
          Primerica's proposal would exempt those of its agents 
          originating five or fewer residential mortgage loans in a 
          calendar year from the requirement to obtain mortgage loan 
          originator licenses, provided the agents originate those loans 
          solely on behalf of a single licensed finance lender, which, in 
          turn, brokers those mortgage loans, in accordance with the CFLL, 
          to a single depository institution.  

          The second section of this bill seeks to address an issue facing 
          State Farm Bank, a division of State Farm Insurance Company.  








                                                                  SB 217
                                                                  Page  4

          State Farm contracts with independent agents that write 
          insurance on behalf of State Farm Insurance.  These agents also 
          may originate mortgages on behalf of State Farm Bank.  These 
          agents in engaging in mortgage loan originations meet the 
          definition of "mortgage loan originator" under the SAFE Act and 
          as such fall within the registration requirements.  However, 
          because they are independent agents and not employees of State 
          Farm, they cannot obtain SAFE Act registration.  SB 217 would 
          allow State Farm Bank, or another entity similarly situated to 
          apply to the commissioner of DOC for an exempt person 
          registration in order to sponsor its agents to become licensed 
          and registered under the SAFE Act.   It also requires that an 
          exempt person shall comply with all the rules and orders that 
          the commissioner deems necessary to ensure compliance with the 
          SAFE Act, as well as, pay an annual registration fee.

          The SAFE Act does not provide states with explicit authority to 
          provide exemptions from requirements of the SAFE Act.  
          Currently, Texas and Louisiana are considering similar 
          exemptions as contained in this bill.

           Amendments:

           The CFLL provides that CFLL licensees may only broker to other 
          CFLL licensees.  Section 1 of this bill would allow exempt 
          person to broker to a depository institution. While this section 
          includes an exemption, staff believes it is necessary to clarify 
          that the exception only applies to the newly created paragraph.  
          Therefore, staff recommends the following amendment on page 4, 
          line 10:


               (C) Notwithstanding Sections 22004 and 22059, a licensee 
               may broker loans to a depository institution  pursuant to 
               this paragraph  ."  

           
           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Primerica Life Insurance Company - co-sponsor
          State Farm Insurance - co-sponsor

          California Bankers Association (CBA)








                                                                  SB 217
                                                                  Page  5

           
            Opposition 
           
          None on file.

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