BILL ANALYSIS Ó
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|Hearing Date:April 11, 2011 |Bill No:SB |
| |376 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 376Author:Fuller
As Amended: April 7, 2011 Fiscal:Yes
SUBJECT: Real estate brokers.
SUMMARY: Provides that a person licensed as a real estate broker and
a mortgage loan originator by the Department of Real Estate and who
makes, arranges, or services chattel mobilehome loans, or what are
called seller carry back chattel loans on mobilehomes, would only be
required to be licensed pursuant to the Real Estate Law and would not
be required to be licensed by the Department of Corporations as a
finance lender or broker under the California Finance Lenders Law.
Existing federal law:
1)Required pursuant to the federal Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (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 did 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)Provided 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 were to 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
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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. The SAFE Act creates a
distinction between mortgage loan originators who are employed by
depository institutions or subsidiaries of depository institutions,
and all other mortgage loan originators.
4)The SAFE Act redefined "residential mortgage loans" (mortgage loan
secured by real property) to include chattel loans on mobilehomes
whether or not they are attached to real property.
Existing Real Estate Law:
1)Establishes in the Business and Transportation Agency the Department
of Real Estate (DRE), the chief officer of which is the Real Estate
Commissioner (Commissioner), and specifies that the Commissioner,
through the DRE, is responsible for the regulation of real estate
transactions and licensure of real estate agents, brokers and
salespersons.
2)Provides for the examination, licensure and regulation of real
estate brokers and real estate salespersons by the DRE and for
payment of specified fees for licenses issued in that regard, which
fees are deposited into the Real Estate Fund.
3)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. (Business and
Professions Code (BPC) §10131(d))
4)Specifies that a licensed real estate broker is a person who may
sell or offer to sell, buy or offer to buy, or exchange or offer to
exchange a real property sales contract, or a promissory note
secured directly or collaterally by a lien on real property or on a
business opportunity, and performs services for the holders thereof.
(BPC §10131(e))
5)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
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brokers who advance their own funds as defined. (BPC §10131.1)
6)Provides that a person licensed as a real estate broker may sell, or
offer to sell, buy or offer to buy, solicit prospective purchasers
of and perform other activities related to purchase, sale, or
exchange of any manufactured home or mobilehome only if the
mobilehome has been registered under Part 2 (commencing with Section
18000) of Division 13 of the Health and Safety Code. (BPC §10131.6)
7)Prohibits any real estate licensee from performing certain
activities related to the advertising or offer to sell a
manufactured home or mobilehome, and from charging additional fees
upon transfer of title and from failing to provide delivery and
additional documentation, as specified. (BPC §10131.7)
8)Defines a "mortgage loan originator" as an individual who takes a
residential mortgage loan application or offers or negotiates terms
of a residential mortgage loan for compensation or gain. (BPC
§10166.01(b)(1))
9)Defines "residential mortgage loan" as any loan primarily for
personal, family, or household use that is secured by a mortgage,
deed of trust, or other equivalent consensual security interest on a
dwelling, or residential real estate upon which is constructed or
intended to be constructed a dwelling. "Dwelling" means a
residential structure that contains one to four units, whether or
not that structure is attached to real property. The term includes
an individual condominium, cooperative unit, mobilehome , or trailer,
if it is used as a residence. (BPC §10166.01(d))
10)Requires a mortgage loan originator to obtain and maintain a real
estate license and to obtain and maintain a real estate license
endorsement, as specified, identifying that individual as a licensed
mortgage loan originator. (BPC §10166.02)
Existing law, the Financial Code (FC):
1)Defines "residential mortgage loan" as any loan primarily for
personal, family, or household use that is secured by a mortgage,
deed of trust, or other equivalent consensual security interest on a
dwelling as defined in Section 103(v) of the federal Truth in
Lending Act, or residential real estate upon which is constructed or
intended to be constructed a dwelling. "Dwelling" means a
residential structure that contains one to four units, whether or
not that structure is attached to real property. The term includes
an individual condominium, cooperative unit, mobilehome , or trailer,
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if it is used as a residence. (FC §22012(e))
2)Defines "mortgage loan originator" as an individual who, for
compensation or gain, or in the expectation of compensation or gain,
takes a residential mortgage loan application or offer or negotiates
terms of a residential mortgage loan. (FC §22013(a))
3)Provides that a mortgage loan originator does not include an
individual who is already licensed pursuant to provisions of the
Real Estate Law and the SAFE Act. (FC §22013(b)(4))
4)Specifies that no person shall engage in the business of a finance
lender or broker without obtaining a license from the Commissioner
of the Department of Corporations (Commissioner). (FC §22100(a))
5)Specifies that no person shall engage in the business of a mortgage
loan originator without submitting an application to obtain a
license as specified from the Commissioner.
(FC §22105.1)
6)Specifies that every licensee engaging in the business of making or
brokering residential mortgage loans shall require that every
mortgage loan originator employed or compensated by that licensee
obtains and maintains a mortgage loan originator license from the
Commissioner or has first obtained a license endorsement from the
Commissioner of Real Estate. (FC §22100(b))
7)A finance lender or broker may not make or broker a residential
mortgage loan unless that loan is offered by, negotiated by, or
applied for through a licensed mortgage loan originator. (FC 22100
(d))
Existing law, the Health and Safety Code: Requires that manufactured
homes, mobilehomes , commercial coaches, and floating homes sold or
used within this state shall be subject to annual registration with
the Department of Housing and Community Development. (Part 2
(commencing with §18000) of Division 13 of the Health and Safety Code)
This bill provides that a person licensed as a real estate broker who
performs any of those acts involved in the selling, purchasing or
renting of real property, or in arranging loans or making other
arrangements for the purchase or sale of real property, and in
addition makes, arranges, or services chattel mobilehome loans for
registered mobilehomes, need only meet the requirements for licensure
under the Real Estate Law.
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FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. This measure is sponsored by the Western Manufactured
Housing Communities Association (WMA). According to the WMA, the
SAFE Act and the newly amended provisions of the Truth in Lending
Act HR 4173, 2009, Dodd-Frank (Lending Act), will have a
devastating effect on mobilehome parks in the state of California.
In California, there are over 4,600 mobilehome parks representing
390,000 spaces. Mobilehome parks provide a very viable source of
privately owned, affordable housing.
The WMA explains that prior to enactment of the SAFE Act, the
amendments to the Lending Act, and implementing legislation for the
SAFE Act, SB 36 (Chapter 160, Statutes of 2009), park owners were
making seller carry back chattel loans on used mobilehomes using
their own money to fund the loans and were not required to be
licensed as lenders under the Department of Corporations (DOC).
This was due to the fact the occasional seller carry back loans
were not categorized as "engaged in the business of chattel
lending" which would have required a finance lender license under
the DOC.
WMA further explains that as traditional lending on used mobilehomes
has not been available for a number of years and traditional
lenders were not willing to make $5,000 to $20,000 chattel loans on
used mobilehomes; park owners have been making these loans out of
necessity to rent their spaces. The SAFE Act redefined
"residential mortgage loans" to include chattel loans on
mobilehomes whether or not they were attached to real property.
WMA contends that mobilehome parkowners were unaware until January
2010, that loans on mobilehomes, which were not permanently affixed
to real property, were specifically defined as residential mortgage
loans.
WMA argues that parkowners need to self-finance these used mobilehomes
in order to rent out their spaces in their mobilehome parks. Thus,
parkowners who are engaged in making seller carry back loans on
mobilehomes that have acquired by default, abandonement or
warehouse liens, are now required to be licensed as mortgage loan
originators and to be licensed as a finance lender by DOC in order
to finance homes which they own and self-finance. "This is a very
costly and difficult process for a park owner who makes an
occasional seller financed chattel loan."
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The WMA indicates that the process of becoming a licensed finance
lender under DOC takes months. WMA is seeking a change that will
at least allow property management companies who manage properties
for at least 60% of the mobilehome parks in California, and who are
already required to be licensed as real estate brokers and as
mortgage loan originators by DRE, to be able to continue providing
seller carry back chattel loans without also having to obtain an
additional license as a finance lender by the DOC.
WMA states that park owners making seller carry back chattel loans are
not charging fees and are charging below market interest rates.
Their goal is to keep their parks full and to be able to rent their
spaces. Providing seller carry back financing is the only way to
achieve this goal because of the lack of traditional lending on low
cost used mobilehomes. Seller carry back loans are a necessity in
this business, argues WMA, and requiring both a mortgage loan
originator license and a finance lender license for the occasional
small chattel loan is very expensive and overly burdensome for
small businessmen and women who own mobilehome parks.
2. Background.
a. SAFE Act Compliance. On July 30, 2008, President Bush
signed the Housing and Economic Recovery Act of 2008, whose
provisions included the SAFE Act. The SAFE Act required all
states to license and register their mortgage loan
originators through a nationwide organization called the
Nationwide Mortgage Licensing System and Registry (NMLS
Registry). Any state that did not implement a mortgage loan
originator licensing system, in compliance with the SAFE Act,
by July 30, 2009, risked direct intervention by HUD.
Under the SAFE Act, HUD was 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 were granted one additional year
in which to comply, before risking HUD intervention.
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
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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
drive more states to sign on to its NMLS Registry. Under the
SAFE Act, participation in 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 have been willing to risk it
through non-participation. To date, most states have signed
on to NMLS Registry.
In promotional material regarding the NMLS Registry, CSBS and
AARMR described 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 licenses?As mortgage companies and/or
individuals create a record for themselves and submit Ŭit] 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."
b. What the SAFE Act Specifically Required. 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
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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 (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 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.
c. How SB 36 of 2009 Implemented the Requirements of the SAFE
Act.
i. Changes to the Real Estate Law . 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 requires, however, these
already-licensed individuals and corporations to obtain
special mortgage loan originator license endorsements in
order to continue engaging in these activities, as defined.
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
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brokers who engage in mortgage loan origination activities
must undergo background checks and take different education
classes in order to satisfy the SAFE Act mortgage loan
originator licensing requirements. They must also 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 must register with NMLS Registry and obtain a
license endorsement for their company. Corporations
licensed under the Real Estate Law must ensure that each of
their mortgage loan originator employees obtains an
individual mortgage loan originator license endorsement.
The SAFE Act also required real estate licensees to annually
submit business activities reports, and other reports that
may be required, to the DRE Commissioner. SB 36 authorizes
the Commissioner to require these reports and to examine
the affairs of real estate brokers, including those that
obtain license endorsement as a mortgage loan originator.
The SAFE Act and this measure require the Commissioner to
report violations of the provisions regulating real estate
brokers and mortgage loan originators to the Nationwide
Mortgage Licensing System and Registry. The SAFE Act also
requires recipients of a license endorsement as a mortgage
loan originator to use or disclose a specified unique
identifier provided by the Nationwide Mortgage Licensing
System and Registry in advertisements and solicitations of
the mortgage loan originator.
ii. Changes to the California Finance Lenders Law (CFL
Law) and the Califorinia Residential Mortgage Lending Act
(CRML Act) under the Financial Code . Existing law provides
for the licensure and regulation of finance lenders and
brokers under the CFL Law and residential mortgage lenders
and servicers under the CRML Act by the Department of
Corporations (DOC). The SAFE Act and SB 36 impacted CFL
Law and CRML Act licensees very differently than it
impacted Real Estate Law licensees. Prior to
implementation of the SAFE Act, DOC licensed financial
lender and residential mortgage lender corporations and
required background checks on the persons controlling these
corporations. Individual employees of these corporations
were not licensed , nor were they subject to background
checks (unless they were controlling persons in the
organization). Pre-licensing education and continuing
education was not required.
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Under the SAFE Act and pursuant to SB 36, every CFL Law and
CRML Act employee who performs activities that meet the
SAFE Act definition of a mortgage loan originator must now
be both licensed by California and registered on NMLS
Registry. Thus, employees who were previously untracked by
the state are now 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 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 represented a significant
change for CFL Law and CRML Act licensees, who did not
previously have to ensure that their mortgage loan
originator employees were licensed.
3.Related Legislation This Session. SB 6 (Calderon and Vargas)
removes the more specific prohibition against the generation of
an inaccurate opinion on the value of property in order to gain
a financial or business advantage and instead generally
prohibits licensees from knowingly or intentionally
misrepresenting the value of property. Appraisers would also be
prohibited from having an indirect or direct interest in any
property for which they are performing appraisal management
functions related to the origination, modification or
refinancing a mortgage loan. It also clarifies that an
appraisal management company is permitted to provide additional
information, correct errors, obtain multiple valuations for
greater accuracy, may withhold compensation for poor services or
breach of contract and provide a copy of the sales contract in
connection with a purchase transaction. This bill also defines
the term "valuation." The Civil Code is also revised in order to
make the prohibition on improper interest in real estate
transaction also applicable to valuation. This measure is
currently in the Senate Banking and Financial Institutions
Committee and will also be referred to this Committee.
SB 53 (Calderon and Vargas) revises the Real Estate Law to give
the DRE more enforcement tools to regulate mortgage fraud as
well as other violations of the Real Estate Law. This includes
the authority to cite and fine licensees, the ability to obtain
administrative subpoena directly rather than waiting for the
Department of Justice to provide representation, authority to
disclose the identities of those under investigation where the
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failure to do so would likely lead to grievous harm, authority
to obtain driver's licenses and vehicle registration numbers
from the Department of Motor Vehicles to locate both potential
victims and violators, and greater authority to enforce
statutes not explicitly within the Real Estate Law, but in other
code sections. Additionally, it includes safeguards to protect
consumers. This includes requiring real estate brokers who
engage in five or more escrow related transactions per year or
where a transaction exceeds $1 million to file a report with the
DRE and requiring licensees who engage in multi-lender loans to
provide specified information to investors. This measure is
currently in the Senate Banking and Financial Institutions
Committee and will also be referred to this Committee.
SB 510 (Correa) sets minimum standards for DRE licensees that may
be appointed as a branch office manager of an employing broker's
real estate business who will oversee and supervise operations
and activities, as specified. It also requires registration by
DRE of appointed managers and grants authority to the
Commissioner to take disciplinary action for failure to properly
supervise. This measure is currently in the Senate Business,
Professions and Economic Development Committee to be heard on
April 11, 2011.
SB 706 (Price) would authorize the DRE and Office of Real Estate
Appraisers to enter into a settlement with a licensee or
applicant instead of issuing an accusation or state of issues
against the applicant or licensee. Would also allow an
administrative law judge to order a licensee in a disciplinary
proceeding to pay the reasonable costs of investigating and
prosecution a disciplinary case against the licensee. This
measure is currently in the Senate Business, Professions and
Economic Development Committee.
AB 278 (Hill) authorizes the Commissioner to adopt regulations
that establish a system for the issuance of citations to DRE
licensees and for issuance of administrative citations to
unlicensed persons acting in the capacity of a real estate
licensee. This measure is currently in the Assembly Business
and Professions Committee.
4.Prior Related or Similar Legislation. SB 1137 (Committee on
Banking, Finance and Insurance, Chapter 287, Statutes of 2010)
provided for technical and clarifying changes pursuant to the
implementation of the SAFE Act and SB 36 of 2009.
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SUPPORT AND OPPOSITION:
Support: Western Manufactured Housing Communities Association
(Sponsor)
Opposition: None on file as of April 6, 2011.
Consultant:Bill Gage