BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 657  


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          Date of Hearing:  August 3, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          SB 657  
          (Berryhill) - As Amended August 1, 2016


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          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  


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          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  


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            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