BILL ANALYSIS Ó
SB 657
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Date of Hearing: June 27, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
SB
657 (Berryhill) - As Amended June 13, 2016
SENATE VOTE: Vote not relevant
SUBJECT: The California Residential Mortgage Lending Act:
lenders: licensees
SUMMARY: Revises the definition of "lender" under the
California Residential Mortgage Lending Act (CRMLA) to clarify
the inclusion of loan processors and underwriters under
specified circumstances. Specifically, this bill:
1)Provides that a "lender" under the CRMLA is a person that is
either of the following:
a) Not a natural person and engages in the activities of a
loan processor or underwriter for a residential mortgage
loan; or,
b) A natural person and an independent contractor who
engages in the activities of a loan processor or
underwriter for a residential mortgage loan.
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2)Allows the Commissioner of the Department of Business
Oversight (DBO), at his or her discretion, to require a lender
that engages in the activities of a loan processor or
underwriter to maintain a minimum tangible net worth of an
amount that is greater than two hundred fifty thousand dollars
($250,000), but does not exceed the net worth required by an
approved lender under the Federal Housing Administration
(FHA).
EXISTING LAW:
1)Provides that the CRMLA is specifically designed to authorize
and regulate mortgage banking activities. An applicant under
the CRMLA may obtain a license as a lender, a servicer, or
both. The CRMLA authorizes licensees to make federally related
mortgage loans, to make loans to finance the construction of a
home, to sell the loans to institutional investors, and to
service such loans. Licensees are authorized to purchase and
sell federally related mortgage loans and to provide contract
underwriting services for institutional lenders. Licensees are
authorized to service any federally related mortgage loan
regardless of whether they make the loan or purchase a
servicing portfolio. A licensed CRMLA lender is also
authorized to provide brokerage services to a borrower, by
attempting to obtain a mortgage loan on behalf of the borrower
from an institutional lender. Employees who engage in
brokering activities on behalf of the CCRMLA licensee must be
licensed mortgage loan originators employed by the licensee.
(Financial Code, Section 50000 et seq.)
1)Defines "lender" under the CRMLA as a person that (1) is an
approved lender for the FHA, Veterans Administration, Farmers
Home Administration, Government National Mortgage Association,
Federal National Mortgage Association, or Federal Home Loan
Mortgage Corporation, (2) directly makes residential mortgage
loans, and (3) makes the credit decision in the loan
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transactions. (Financial Code, Section 50003(m))
2)Defines "mortgage servicer" or "residential mortgage loan
servicer" under the CRMLA as a person that (1) is an approved
servicer for the FHA, Veterans Administration, Farmers Home
Administration, Government National Mortgage Association,
Federal National Mortgage Association, or Federal Home Loan
Mortgage Corporation, and (2) directly services or offers to
service mortgage loans. (Financial Code, Section 50003(q)).
3)Specifies that an independent contractor may not engage in the
activities of a loan processor or underwriter for a
residential mortgage loan unless the independent contractor
loan processor or underwriter obtains and maintains a
residential mortgage lender or residential mortgage servicer
license and a mortgage loan originator license. (Financial
Code, Section 50003.6(c)).
FISCAL EFFECT: Unknown
COMMENTS:
Need for the bill.
According to the author:
In 2015, FHA said that its federal lender approval should and
would no longer be granted or allowed to third party
processors and underwriters who did not themselves actually
lend. Consequently, because of this policy change, these
individuals will have to surrender their current FHA lender
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approval. The ultimate effect of this change in HUD policy
means that current California licensees that rely on the FHA
approval to satisfy the California requirement will have
challenges in technically meeting the definition of "lender"
in the CRMLA. So although they have been active and in good
standing in California, through no action or fault of its own
making and based on a policy shift by a federal entity, some
California independent contractors may no longer be able to do
business in CA under the CRMLA.
This bill is intended to modify the technical definition of
lender in the statute. It would make clear that this category
of CRMLA mortgage lender licensees who engage solely in
mortgage loan processing and underwriting, which can no longer
be FHA/HUD approved lenders, still can be licensed in
California and remain subject to DBO jurisdiction and
oversight, just as they are now.
Background.
SB 657 seeks to resolve an issue concerning the overlap of the
requirements to be licensed under the CRMLA, the definition of a
"lender" under the CRMLA and recent changes to the Department of
Housing and Urban Development (HUD) Mortgagee Handbook.
Under the CRMLA a "lender" directly makes residential mortgage
loans and makes credit decisions in the loan transaction. The
final qualifier to be licensed as a lender under the CRMLA is
that the lender must be an approved lender for the FHA, Veterans
Administration, Farmers Home Administration, Government National
Mortgage Association, Federal National Mortgage Association, or
Federal Home Loan Mortgage Corporation. These licensing
requirements allowed mortgage underwriters and processors to be
licensed under the CRMLA with the full set of responsibilities
and requirements as those actually making or arranging the
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mortgage loans.
In September of 2015 HUD modified its Mortgagee Handbook to
change the definition of entities that are eligible for HUD
lender or government approval. HUD previously described
entities as "financial entity" considered to be a broader
definition than the revision which changed to "lending
institutions." This narrower definition suggests that loan
processors and underwriters are not considered "lending
institutions" and therefor are no longer endorsed as lenders by
HUD or other government entities. This has created a situation
where several CRMLA licensees no longer meet the required
definition of "lender" in order to remain licensed and are at
risk of not being able to renew their licenses with DBO.
The revisions proposed in SB 657 are intended to maintain the
status quo where entities that are independent contractors and
that do loan processing and underwriting remain licensed under
the CRMLA in the State of California.
REGISTERED SUPPORT / OPPOSITION:
Support
California Bankers Association
California Mortgage Bankers Association
SB 657
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Opposition
None on file.
Analysis Prepared by:Mark Farouk / B. & F. / (916)
319-3081