BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 376
                                                                  Page  1

          Date of Hearing:   June 14, 2011

              ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER 
                                     PROTECTION
                                 Mary Hayashi, Chair
                     SB 376 (Fuller) - As Amended:  April 7, 2011

           SENATE VOTE  :   40-0
           
          SUBJECT  :   Real estate brokers.

           SUMMARY  :  Revises the definition of "real estate broker" to 
          allow brokers to make, arrange, or service chattel mobilehome 
          loans under their Department of Real Estate (DRE) license, 
          without having to secure an additional finance lender or broker 
          license from the Department of Corporations.  Specifically,  this 
          bill  :

          1)Defines "real estate broker" to include a person who, among 
            other things:

             a)   Solicits borrowers or lenders for or negotiates loans or 
               collects payments or performs services for borrowers or 
               lenders or note owners in connection with loans secured 
               directly or collaterally by liens on real property, or 
               chattel mobilehome loans if the mobilehome has been 
               registered pursuant to current law, or on a business 
               opportunity; or

             b)   Sells or offers to sell, buys or offers to buy, or 
               exchanges or offers to exchange a real property sales 
               contract, or a promissory note secured directly or 
               collaterally by a lien on real property, or chattel 
               mobilehome loans if the mobilehome has been registered 
               pursuant to current law, or a business opportunity, and 
               performs services for the holders thereof.

          2)Specifies that a person licensed as a real estate broker who 
            acts pursuant to specified current law or a) or b), above, and 
            who makes, arranges, or services chattel mobilehome loans, if 
            the mobilehome has been registered pursuant to current law, 
            need only meet the requirements for licensure under the Real 
            Estate Law.

           EXISTING LAW  








                                                                  SB 376
                                                                  Page  2


          Federal law:

          1)Pursuant to the federal Secure and Fair Enforcement for 
            Mortgage Licensing Act of 2008 (SAFE Act), requires all states 
            to license and register their mortgage loan originators 
            through a nationwide registry.

          2)Under the SAFE Act, defines "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.

          3)Under the SAFE Act, redefines "residential mortgage loans" 
            (mortgage loan secured by real property) to include chattel 
            loans on mobilehomes, whether or not they are attached to real 
            property.  
          California Real Estate Law:

          1)Licenses and regulates real estate brokers under DRE.

          2)Defines "real estate broker" to include a person who, among 
            other things:

             a)   Solicits borrowers or lenders for or negotiates loans or 
               collects payments or performs 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; or

             b)   Sells or offers to sell, buys or offers to buy, or 
               exchanges or offers to exchange a real property sales 
               contract, or a promissory note secured directly or 
               collaterally by a lien on real property or a business 
               opportunity, and performs services for the holders thereof.

          3)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.

          4)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 








                                                                  SB 376
                                                                  Page  3

            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, and includes an individual 
            mobilehome if it is used as a residence.

          5)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.

          California Financial Code:  

          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 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, and includes an individual mobilehome if it is used 
            as a residence.

          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.

          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.

          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).

          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.

          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 obtain and maintain a mortgage loan originator 








                                                                  SB 376
                                                                  Page  4

            license from the Commissioner or obtain a license endorsement 
            from the Commissioner of Real Estate.

          7)Specifies that 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.

          California Health and Safety Code: 

          Requires annual registration of mobilehomes with the Department 
          of Housing and Community Development.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :  

           Purpose of this bill  .  According to the author's office, 
          "Recently enacted federal and state statutes have redefined a 
          mortgage loan secured by real property to include chattel loans 
          on mobile homes.  This will prevent lending of mobile home 
          chattel loans by requiring mobile home park owners to become 
          licensed finance lenders.  This bill will exempt those who issue 
          chattel mobile home loans from this requirement so that these 
          loans may continue."

           Background  .  The SAFE Act, part of the Housing and Economic 
          Recovery Act of 2008, requires all states to license and 
          register their mortgage loan originators through a nationwide 
          registry.  California began pursuing legislation to comply with 
          the SAFE act in 2009, and continues refining state law in 
          conformity with regulations implementing the SAFE Act, which are 
          still being developed.

          According to the Western Manufactured Housing Communities 
          Association (WMA), sponsor of this bill, the SAFE Act and newly 
          amended provisions of the federal Truth in Lending Act pose a 
          substantial problem for the state's mobile home parks.  Before 
          these federal measures and state legislation implementing the 
          SAFE Act were in place, park owners were making seller carry 
          back chattel loans on used mobile homes using their own money to 
          fund the loans.  This was necessary because traditional lenders 
          were not willing to make $5,000 to $20,000 chattel loans on used 
          mobile homes that park owners acquired through default, 
          abandonment, or warehouse liens.  Park owners were not required 








                                                                  SB 376
                                                                  Page  5

          to be licensed as lenders by the Department of Corporations, 
          because these loans were not categorized as "engaged in the 
          business of chattel lending" and did not trigger the need for a 
          finance lender license.

          WMA states, "The S.A.F.E. Act redefined Residential Mortgage 
          Loans to include chattel loans on mobile homes whether or not 
          they were attached to real property?Thus, park owners who are 
          engaged in making seller carry back loans on mobilehomes?are 
          required to be licensed as mortgage loan originators (MLOs)  and  
          to be licensed as a consumer finance lender by the Department of 
          Corporations in order to finance homes which they own and 
          self-finance.  This is a very costly and difficult process for a 
          parkowner who makes an occasional seller financed chattel loan.

          "The process of becoming a licensed finance lender takes months, 
          as does the mortgage loan originator license?Congress has 
          essentially created a legal fiction by folding chattel loans on 
          mobile homes into the definition of a mortgage loan secured by 
          real property.  Lending on these used homes will cease if relief 
          from the S.A.F.E Act is not provided by legislation."

          This bill amends California Real Estate Law to allow property 
          management companies that manage mobilehome parks and already 
          must be licensed as real estate brokers by DRE to make used 
          mobile home loans under their DRE Broker license and an MLO 
          license endorsement (required under the SAFE Act), without 
          having to acquire an additional finance lender license from the 
          Department of Corporations. 

           Support  .  The Western Manufactured Housing Communities 
          Association states, "WMA is sponsoring SB 367?to allow property 
          management companies who manage properties for a fee and are 
          already required to be licensed as Real Estate Brokers by the 
          Department of Real Estate to make these used mobilehome loans 
          under their DRE Broker license and an MLO license instead of 
          having to acquire  an additional  license as a finance lender by 
          the Department of Corporations."

           Related Legislation  .  AB 278 (Hill) authorizes the Real Estate 
          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 bill is pending in 
          Senate Business, Professions and Economic Development Committee.








                                                                  SB 376
                                                                  Page  6


          SB 6 (Ron Calderon and Vargas) updates California's Real Estate 
          Law, Appraisal Law, and Civil Code to reflect recent changes 
          enacted at the federal level pursuant to the Dodd-Frank Wall 
          Street Reform and Consumer Protection Act (Dodd-Frank).  This 
          bill is pending in Assembly Business, Professions and Consumer 
          Protection Committee.

          SB 53 (Ron Calderon and Vargas) revises the Real Estate Law to 
          give DRE more enforcement tools to regulate mortgage fraud as 
          well as other violations of the Real Estate Law.  This bill is 
          pending in Assembly Business, Professions and Consumer 
          Protection Committee.

          SB 510 (Correa) establishes various minimum requirements for an 
          individual to become a real estate brokerage branch manager and 
          authorizes the Commissioner of DRE to discipline a branch 
          manager for failure to supervise branch operations.  This bill 
          is pending in Assembly Rules.

          SB 706 (Price) makes numerous enforcement enhancements to DRE 
          and the Office of Real Estate Appraisers; requires licensing 
          boards to post information about licensees on the internet, as 
          specified; and, makes updating and conforming changes.  This 
          bill is pending in Assembly Rules.

           Previous Legislation  .  

          SB 1137 (Committee on Banking, Finance and Insurance) Chapter 
          287, Statutes of 2010, made technical and clarifying changes 
          pursuant to the implementation of the SAFE Act and SB 36 of 
          2009.

          SB 36 (Ron Calderon) Chapter 160, Statutes of 2009, brings 
          California in compliance with the SAFE Act by requires licensing 
          of all mortgage loan originators, as well as registration with 
          the Nationwide Mortgage Licensing System and Registry.

          AB 34 (Nava) of 2009 establishes requirements for state mortgage 
          loan originator licenses to conform to the SAFE Act.  This bill 
          was substantially amended to address an unrelated issue.

          SB 491 (Maldonado) of 2009 begins the process of amending 
          California's mortgage lending and brokering laws in compliance 
          with the SAFE Act.  This bill was held in Senate Banking, 








                                                                  SB 376
                                                                  Page  7

          Finance and Insurance Committee.

          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 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.  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 encouraging the Legislature to pursue 
          legislation to implement the federal legislation.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Western Manufactured Housing Communities Association (sponsor)
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Angela Mapp / B.,P. & C.P. / (916) 
          319-3301