BILL ANALYSIS                                                                                                                                                                                                    Ó






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                             Senator Noreen Evans, Chair
                              2013-2014 Regular Session

          SB 1459 (Comm. on B. & F.I.)            Hearing Date:  April 30,  
          2014  

          As Amended: April 21, 2014
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    Would revise the educational requirements for mortgage  
          loan originators (MLOs) licensed under the California Finance  
          Lenders Law (CFLL) and California Residential Mortgage Lending  
          Act (CRMLA) by requiring training related specifically to  
          California law and regulations.
          
           DESCRIPTION
           
            1.  Would require persons applying for an MLO license under the  
              CFLL and CRMLA to complete two hours of pre-licensing  
              education on relevant California law and regulations.

           2.  Would require MLO licensees under the CFLL and CRMLA to  
              complete one hour of continuing education annually related  
              to relevant California law and regulations.

           3.  Would clarify both the CFLL and CRMLA by providing that  
              applicants for an MLO license under both laws must pass a  
              qualified written test developed or otherwise deemed  
              acceptable by the Nationwide Mortgage Licensing System and  
              Registry (NMLSR; this bill would add the italicized words).   


          EXISTING FEDERAL LAW:  

            1.  Provides for the Secure and Fair Enforcement For Mortgage  
              Licensing (SAFE) Act, pursuant to Title V 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 MLOs, as defined, through a nationwide organization  
              called the NMLSR.  Any state that failed to implement an MLO  
              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,  




                                                                      SB  
          1459 (Comm. on B. & F.I.), Page 2



              HUD was authorized to establish and maintain an MLO  
              licensing system in any state that failed to voluntarily  
              comply with the federal SAFE Act.  

            2.  Pursuant to the Dodd-Frank Wall Street Reform and Consumer  
              Protection Act (Dodd-Frank, H.R. 4173, Public Law 111-203),  
              transferred authority for implementing the SAFE Act from HUD  
              to the federal Consumer Financial Protection Bureau (CFPB).










































                                                                      SB  
          1459 (Comm. on B. & F.I.), Page 3



           EXISTING STATE LAW
           
            1.  Pursuant to SB 36 (Calderon), Chapter 160, Statutes of 2009,  
              conforms California's Real Estate Law, CFLL, and CRMLA to the  
              SAFE Act, thus preserving California's ability to continue  
              regulating mortgage loan origination by nondepository  
              institutions operating in California.  

            2.  Pursuant to SB 217 (Vargas, Chapter 444, Statutes of 2011) and  
              AB 2666 (Committee on Banking and Finance, Chapter 264, Statutes  
              of 2012), companies that are not required to hold a lending  
              license by California, but whose employees meet the SAFE Act  
              definition of an MLO, may apply to the Department of Business  
              Oversight (DBO; the Department) for exempt company  
              registrations.  Those exempt company registrations allow the  
              employees of those companies to be eligible to obtain MLO  
              licenses.  

           COMMENTS

            1.  Purpose:   This bill is intended to ensure that persons who  
              hold California MLO licenses issued by DBO are knowledgeable  
              about California laws and regulations regarding mortgage  
              lending and mortgage brokering.

             2.  Background:   The federal SAFE Act and California's  
              implementing legislation (SB 36 and subsequent bills, cited  
              above) generally require all individuals who meet the SAFE  
              Act definition of an MLO to obtain a license from the state  
              to undertake those activities, if they work for a  
              nondepository institution regulated by the state, or to  
              register with the NMLSR, if they work for a depository  
              institution that is state- or federally-regulated.  

            In California, employees of CFLL licensees and CRMLA licensees  
              must obtain an MLO license from DBO if they wish to engage  
              in mortgage loan origination activities.  Bureau of Real  
              Estate (BRE) licensees who engage in mortgage loan  
              origination must obtain an MLO license endorsement from BRE.  
               This bill would modify the education requirements  
              applicable to applicants for and recipients of DBO-issued  
              MLO licenses.  It would not modify the education  
              requirements applicable to applicants for and recipients of  
              BRE-issued MLO license endorsements, as described later in  
              this analysis.





                                                                      SB  
          1459 (Comm. on B. & F.I.), Page 4



             3.  Discussion:   Under California law, an applicant for an MLO  
              license or license endorsement must pass a qualified written  
              test developed by NMLSR and administered by a test provider  
              approved by NMLSR.  (Technically, the CFLL and CRMLA refer  
              to a written test developed by NMLSR, while the Real Estate  
              Law refers to a written test developed or otherwise deemed  
              acceptable by NMLSR; this bill would conform all three laws  
              to the language used in the Real Estate Law).

            Under all three state laws, a written test may not be treated  
              as a qualified written test unless it adequately measures  
              the applicant's knowledge and comprehension in appropriate  
              subject areas, including ethics; federal law and regulation  
              relating to mortgage origination; state law and regulation  
              relating to mortgage origination; and federal and state law  
              and regulation, including instruction on fraud, consumer  
              protection, the nontraditional mortgage marketplace, and  
              fair lending issues.  These requirements are based on the  
              national SAFE Act and are thus uniform across all fifty  
              states.   

            Until last year, MLO applicants had to pass two separate tests  
              in order to become licensed - a national SAFE test and a  
              state test specific to the state in which the applicant  
              wished to become licensed.  In April 2013, in an effort to  
              simplify and achieve greater uniformity in the SAFE Act's  
              testing requirements, NMLSR introduced the concept of a  
              state test that could be used in all fifty states.  They  
              offered two different options:  1) a National Test with  
              Uniform State Content (i.e., a single test that tested  
              applicants on both national and state content) and 2) a  
              stand-alone Uniform State Test (UST), which tested  
              applicants only on state content.  

            The National Test with Uniform State Content was intended to  
              eliminate the need for a stand-alone state test in the  
              states that adopted it.  The stand-alone UST was a temporary  
              offering, available for only one year, and was intended to  
              allow MLO applicants who had already passed the national  
              test (without state content) to satisfy the state test  
              requirement using a state test whose questions were  
              identical in all states that chose to adopt it.  

            According to NMLS, 39 state mortgage agencies had adopted the  
              concept of uniform state testing as of January 1, 2014.   
              Neither DBO nor BRE were among them.  




                                                                      SB  
          1459 (Comm. on B. & F.I.), Page 5




            SB 1459 is not necessary to authorize DBO or BRE to adopt the  
              concept of uniform state testing; the Department and the  
              Bureau may do so through regulation, and both plan to  
              initiate rulemakings to do so later this year.  DBO is  
              seeking enactment of SB 1459 in expectation of the move  
              toward uniform state testing.  Although the Department  
              favors the uniform state testing approach, the Department is  
              concerned that, by moving away from a California-specific  
              test to a uniform state test that can be used in all fifty  
              states, its MLO applicants and MLO licensees will not be  
              required to learn California-specific law and regulations.   
              The National Test with Uniform State Content tests  
              applicants on their knowledge of high level state-related  
              content that is based on the SAFE Act and the Conference of  
              State Bank Supervisors/American Association of Residential  
              Mortgage Regulators Model State Law (MSL), which many  
              states, including California, used to implement the SAFE  
              Act.  It does not test applicants on the laws specific to  
              the individual states in which they wish to work. 

            SB 1459 would fill the gap left by moving from a  
              California-specific test to a uniform state test with  
              pre-licensing and continuing education on  
              California-specific law and regulation.  According to DBO,  
              the topics to be covered as part of these new educational  
              requirements would be established by the Department through  
              regulation.  

            BRE indicates that it will follow the lead of DBO, to ensure  
              that all of California's MLO licensees are subject to the  
              same test.  

             4.  Why Not Change the Real Estate Law, Also?   As noted above,  
              the MLO licensing requirements for BRE licensees are very  
              different than those for employees of DBO licensees.  Before  
              becoming eligible to obtain an MLO license endorsement from  
              BRE, an individual must first become licensed as a real  
              estate salesperson or real estate broker.  Both the real  
              estate salesperson and real estate broker licenses require  
              considerable pre-licensing education and continuing  
              education on California-specific laws and regulations.   
              Thus, there is no need to add California-specific  
              educational requirements to the Real Estate Law to reflect  
              adoption of the UST.  





                                                                      SB  
          1459 (Comm. on B. & F.I.), Page 6



             5.  Summary of Arguments in Support:   The California Mortgage  
              Bankers Association supports SB 1459 on grounds that  
              adoption of the Uniform State Test by California will help  
              small and independent mortgage lending companies grow and  
              will lower consumer costs by strengthening competition in  
              the mortgage markets.  

             6.  Summary of Arguments in Opposition:    None received.

           
          LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          California Mortgage Bankers Association
           
          Opposition
               
          None received

          Consultant: Eileen Newhall  (916) 651-4102