BILL ANALYSIS Ó
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CONSENT
Bill No: SB 1459
Author: Senate Banking and Financial Institutions Committee
Amended: 4/21/14
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 9-0, 4/30/14
AYES: Evans, Block, Correa, Hill, Hueso, Morrell, Roth, Torres,
Vidak
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Mortgage loan originators: educational requirements
SOURCE : Author
DIGEST : This bill revises 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.
ANALYSIS :
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. The SAFE Act required all
states to license and register their MLOs, as defined,
through a nationwide organization called the Nationwide
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Mortgage Licensing System and Registry (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, 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, transferred authority for implementing the
SAFE Act from HUD to the federal Consumer Financial
Protection Bureau.
Existing state law:
1. 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. Permits companies that are not required to hold a lending
license by California, but whose employees meet the SAFE Act
definition of an MLO, to apply to the Department of Business
Oversight (DBO) for exempt company registrations. Those
exempt company registrations allow the employees of those
companies to be eligible to obtain MLO licenses.
This bill:
1. Requires 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. Requires MLO licensees under the CFLL and CRMLA to complete
one hour of continuing education annually related to relevant
California law and regulations.
3. Clarifies 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 NMLSR.
Background
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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 modifies
the education requirements applicable to applicants for and
recipients of DBO-issued MLO licenses. It will not modify the
education requirements applicable to applicants for and
recipients of BRE-issued MLO license endorsements.
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, the NMLSR introduced the concept of a state test
that could be used in all 50 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 the NMLSR, 39 state mortgage agencies had adopted
the concept of uniform state testing as of January 1, 2014.
Neither DBO nor BRE were among them.
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According to the Senate Banking and Financial Institutions
Committee, this bill is not necessary to authorize DBO or BRE to
adopt the concept of uniform state testing; the DBO and the BRE
may do so through regulation, and both plan to initiate
rulemakings to do so later this year. DBO is seeking enactment
of this bill in expectation of the move toward uniform state
testing. Although the DBO favors the uniform state testing
approach, the DBO is concerned that, by moving away from a
California-specific test to a UST that can be used in all 50
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, 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.
This bill fills the gap left by moving from a
California-specific test to a UST 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 will be established by DBO 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/12/14)
California Mortgage Bankers Association
ARGUMENTS IN SUPPORT : The California Mortgage Bankers
Association supports this bill on grounds that adoption of the
UST by California will help small and independent mortgage
lending companies grow and will lower consumer costs by
strengthening competition in the mortgage markets.
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MW:k 5/13/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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