BILL ANALYSIS Ó SB 657 Page 1 Date of Hearing: August 3, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair SB 657 (Berryhill) - As Amended August 1, 2016 ----------------------------------------------------------------- |Policy |Banking and Finance |Vote:|12 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill 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. This bill allows the Commissioner of SB 657 Page 2 the Department of Business Oversight (DBO) 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 $250,000, but does not exceed the net worth required by an approved lender under the Federal Housing Administration (FHA). FISCAL EFFECT: No additional state costs. COMMENTS: 1)Purpose. According to supporters, SB 657 is a necessary technical adjustment to the CRMLA to address a change in FHA classifications that undermines the current license approval process for current licensees. 2)Background. Under the CRMLA a "lender" directly makes residential mortgage loans and makes credit decisions in the loan transaction. Moreover, in order to be qualified for a license, the lender must be an approved lender for certain federal entities, such as FHA. In September of 2015, the US Department of Housing and Urban Development (HUD) modified its Mortgagee Handbook to change the definition of entities that are eligible for HUD lender license or government approval. Specifically, HUD changed one definition from "financial entity" to "lending institutions." SB 657 Page 3 As a result, entities that engage in mortgage loan processing or underwriting and compliance services in California are no longer endorsed as lenders by HUD. Supporters of SB 657 note that 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. 3)Net worth requirement. Under current state law, a licensee issued a license to make or service residential mortgage loans must maintain a minimum net worth of $250,000. SB 657 authorizes DBO to ensure that a similar requirement applies to loan processers and underwriters as well. Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081