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."
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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