BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 657|
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UNFINISHED BUSINESS
Bill No: SB 657
Author: Berryhill (R) and Pan (D), et al.
Amended: 8/1/16
Vote: 21
PRIOR VOTES NOT RELEVANT
SENATE BANKING & F.I. COMMITTEE: 7-0, 8/17/16 (pursuant to
Senate Rule 29.10)
AYES: Glazer, Galgiani, Hall, Hueso, Lara, Morrell, Vidak
ASSEMBLY FLOOR: 78-0, 8/11/16 (Consent) - See last page for
vote
SUBJECT: The California Residential Mortgage Lending Act:
lenders: licensees
SOURCE: Author
DIGEST: This bill revises the definition of a lender under the
California Residential Mortgage Lending Act (CRMLA) to include
persons who act as loan processors or underwriters for
residential mortgage loans, as specified.
Assembly Amendments delete the prior version of the bill and
replace it with the current language.
ANALYSIS:
SB 657
Page 2
Existing law:
1)Authorizes the CRMLA (Financial Code Section 50000 et seq.),
administered by the Department of Business Oversight (DBO), to
regulate the activities of residential mortgage lending and
servicing in California. Provides that no person may engage
in the business of making or servicing residential mortgage
loans in California without first obtaining a license as a
mortgage lender or mortgage servicer under the CRMLA, unless
that person or transaction is exempt from licensure (Financial
Code Section 50002).
2)Defines "makes or making residential mortgage loans" or
"mortgage lending," pursuant to the CRMLA, as processing,
underwriting, or advancing one's own funds to a loan applicant
for a residential mortgage loan (Financial Code Section
50003).
3)Defines a "lender," pursuant to the CRMLA, as a person that
meets all of the following criteria:
a) Is an approved lender for the Federal Housing
Administration (FHA), Veterans Administration, Farmers Home
Administration, Government National Mortgage Association,
Federal National Mortgage Association, or Federal Home Loan
Mortgage Corporation;
b) Directly makes residential mortgage loans; and
c) Makes the credit decision in the loan transactions.
4)Prohibits an independent contractor from engaging in the
activities of a loan processor or underwriter for a
residential mortgage loan, unless that independent contractor
obtains and maintains both a license under the CRMLA and a
mortgage loan originator license (Financial Code Section
50003.6).
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5)Requires all CRMLA licensees to maintain a minimum tangible
net worth at all times of $250,000, computed in accordance
with generally accepted accounting principles.
This bill:
6)Adds the following persons to the definition of a lender under
the CRMLA:
a) An entity that is a natural person and an independent
contractor, who engages in the activities of a loan
processor or underwriter for a residential mortgage loan,
as specified.
b) An entity that is not a natural person, who engages in
the activities of a loan processor or underwriter for a
residential mortgage loan, as specified.
7)Authorizes the Commissioner of Business Oversight to require a
lender who is a loan processor or underwriter to maintain a
minimum tangible net worth in excess of $250,000, but that
does not exceed the net worth required of an approved lender
under the FHA.
Comments
This bill is sponsored by the author to mitigate the unintended
negative consequences in California of a policy change adopted
by the federal Department of Housing and Urban Development (HUD)
in September, 2015. By changing the definition of lender under
the CRMLA, this bill allows certain entities that are currently
licensed under the CRMLA and currently doing business in
California to continue doing business as licensed CRMLA lenders
in this state.
SB 657
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This bill is focused on entities that process and underwrite
residential mortgage loans in California. Its intent is to
maintain the status quo under the CRMLA, by allowing loan
processors and underwriters that are currently licensed under
the CRMLA to remain licensed under that law.
As explained by the California Bankers Association and
California Mortgage Bankers Association in their letter of
support for this bill, companies that specialize in providing
mortgage loan processing, underwriting, and compliance services
to lenders represent an important component of mortgage loan
origination in California. These third parties facilitate the
flow of loans to consumers and provide much-needed capacity and
technical expertise to lenders of all sizes, allowing those
lenders to more efficiently serve their borrowers.
The CRMLA requires these third party specialists to hold
licenses in California, because the CRMLA's definition of
"making a residential mortgage loan" includes the activities of
loan processing and loan underwriting. Until September 2015,
several of these third parties also met the definition of
"lender" under the CRMLA, because these third parties were
approved as "non-supervised mortgagees" by the FHA, and the
CRMLA definition of a lender includes entities that are approved
by one or more specified federal housing agencies or
government-sponsored enterprises.
However, in September 2015, HUD (which oversees the FHA),
changed the definition of non-supervised lenders and mortgagees
in its Mortgagee Handbook; instead of referring to these
entities as "financial entities," the FHA began referring to
them as "lending institutions." This change had the effect of
excluding third party processors and underwriters from the
definition of non-supervised lenders and mortgagees, because
these third parties do not originate or fund loans (i.e., they
do not lend). The change to HUD's Mortgagee Handbook created a
Catch-22 in California, by creating a category of entities that
require CRMLA licenses, but that no longer meet the CRMLA
definition of entities that are eligible to obtain those
licenses. This bill modifies the definition of "lender" under
SB 657
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the CRMLA, to ensure that these loan processors and underwriters
are eligible to obtain and maintain CRMLA licenses.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According the Assembly Appropriations Committee, there would be
no additional state costs.
SUPPORT: (Verified8/15/16)
California Bankers Association
California Mortgage Bankers Association
OPPOSITION: (Verified8/15/16)
None received
ARGUMENTS IN SUPPORT: The California Bankers Association and
California Mortgage Bankers Association write, "SB 657 will make
a small, but necessary technical adjustment to the CRMLA to
address a change in FHA classifications that negatively impacts
the license approval process for certain licensees. We believe
SB 657 achieves two important public policy objectives; first,
it prevents a potential disruption in services critical to the
flow of mortgage capital into the California marketplace; and
second, prevents potential loss of jobs to Californians if there
was a disruption in the ability of a small but important set of
current RML licensed companies to operate under the CRMLA." SB
657 maintains the status quo for loan processors and
underwriters, and ensures that these companies can continue to
do business in California.
ASSEMBLY FLOOR: 78-0, 8/11/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
SB 657
Page 6
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine,
Linder, Lopez, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Roger Hernández, Low
Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
8/17/16 16:41:02
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