BILL NUMBER: AB 653 CHAPTERED 09/16/99 CHAPTER 407 FILED WITH SECRETARY OF STATE SEPTEMBER 16, 1999 APPROVED BY GOVERNOR SEPTEMBER 16, 1999 PASSED THE ASSEMBLY AUGUST 26, 1999 PASSED THE SENATE AUGUST 23, 1999 AMENDED IN SENATE AUGUST 16, 1999 AMENDED IN SENATE JULY 6, 1999 AMENDED IN SENATE JUNE 14, 1999 AMENDED IN ASSEMBLY MAY 6, 1999 AMENDED IN ASSEMBLY APRIL 22, 1999 INTRODUCED BY Assembly Member Hertzberg (Principal coauthors: Assembly Members Dutra and Washington) (Coauthor: Assembly Member Papan) FEBRUARY 23, 1999 An act to amend Section 10133.1 of the Business and Professions Code, and to amend Section 50707 of, and to repeal Section 50704 of, the Financial Code, relating to residential mortgage lending. LEGISLATIVE COUNSEL'S DIGEST AB 653, Hertzberg. Residential mortgage lending. Existing law defines a real estate broker to include persons who solicit borrowers or lenders for or negotiate loans or collect payments or perform services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity. This bill would exclude from that definition persons employed by a real estate broker who, on behalf of the broker, assist the broker in meeting the broker's obligations to its customers in residential mortgage loan transactions, where the lender is an institutional lender, provided the employee does not participate in any negotiations between the principals. It would require a broker to exercise reasonable supervision and control over the activities of these unlicensed employees. The California Residential Mortgage Lending Act regulates the making of residential mortgage loans by specified entities. Among other things, a residential mortgage lender licensed under the act may provide brokerage services to a borrower, as specified. A licensee is restricted to a percentage level of brokerage services. This bill would delete that restriction. Existing provisions of the act relative to authorizing brokerage services for borrowers, including a requirement that the Secretary of the Business, Transportation and Housing Agency conduct a study on or before December 31, 1999, on particular matters relating to those services, are to become inoperative June 30, 2001. This bill would change the termination date of these brokerage services provisions to June 30, 2005, thus extending their operation and thereby maintaining the specific provisions requiring the preparation of the study. It would require preparation of an additional report on or before December 31, 2002, as specified. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 10133.1 of the Business and Professions Code is amended to read: 10133.1. (a) Subdivisions (d) and (e) of Section 10131, Section 10131.1, Article 5 (commencing with Section 10230), and Article 7 (commencing with Section 10240) of this code and Section 1695.13 of the Civil Code do not apply to any of the following: (1) Any person or employee thereof doing business under any law of this state, any other state, or the United States relating to banks, trust companies, savings and loan associations, industrial loan companies, pension trusts, credit unions, or insurance companies. (2) Any nonprofit cooperative association organized under Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code, in loaning or advancing money in connection with any activity mentioned therein. (3) Any corporation, association, syndicate, joint stock company, or partnership engaged exclusively in the business of marketing agricultural, horticultural, viticultural, dairy, livestock, poultry, or bee products on a cooperative nonprofit basis, in loaning or advancing money to the members thereof or in connection with any business of that type. (4) Any corporation securing money or credit from any federal intermediate credit bank organized and existing pursuant to the provisions of an act of Congress entitled the "Agricultural Credits Act of 1923," in loaning or advancing money or credit so secured. (5) Any person licensed to practice law in this state, not actively and principally engaged in the business of negotiating loans secured by real property, when that person renders services in the course of his or her practice as an attorney at law, and the disbursements of that person, whether paid by the borrower or other person, are not charges or costs and expenses regulated by or subject to the limitations of Article 7 (commencing with Section 10240), and the fees and disbursements are not shared, directly or indirectly, with the person negotiating the loan or the lender. (6) Any person licensed as a finance lender when acting under the authority of that license. (7) Any cemetery authority as defined by Section 7018 of the Health and Safety Code, that is authorized to do business in this state or its authorized agent. (8) Any person authorized in writing by a savings institution to act as an agent of that institution, as authorized by Section 6520 of the Financial Code or comparable authority of the Federal Home Loan Bank Board by its regulations, when acting under the authority of that written authorization. (9) Any person who is licensed as a securities broker or securities dealer under any law of this state, or of the United States, or any employee, officer, or agent of that person, if that person, employee, officer, or agent is acting within the scope of authority granted by that license in connection with a transaction involving the offer, sale, purchase, or exchange of a security representing an ownership interest in a pool of promissory notes secured directly or indirectly by liens on real property, which transaction is subject to any law of this state or the United States regulating the offer or sale of securities. (10) Any person licensed as a residential mortgage lender or servicer when acting under the authority of that license. (b) Persons described in paragraph (1), (2), or (3), as follows, are exempt from the provisions of subdivisions (d) and (e) of Section 10131 or Section 10131.1 with respect to the collection of payments or performance of services for lenders or on notes of owners in connection with loans secured directly or collaterally by liens on real property: (1) The person makes collections on 10 or less of those loans, or in amounts of forty thousand dollars ($40,000) or less, in any calendar year. (2) The person is a corporation licensed as an escrow agent under Division 6 (commencing with Section 17000) of the Financial Code and the payments are deposited and maintained in the escrow agent's trust account. (3) An employee of a real estate broker who is acting as the agent of a person described in paragraph (4) of subdivision (b) of Section 10232.4. For purposes of this subdivision, performance of services does not include soliciting borrowers, lenders, or purchasers for, or negotiating, loans secured directly or collaterally by a lien on real property. (c) (1) Subdivision (d) of Section 10131 does not apply to an employee of a real estate broker who, on behalf of the broker, assists the broker in meeting the broker's obligations to its customers in residential mortgage loan transactions, as defined in Section 50003 of the Financial Code, where the lender is an institutional lender, as defined in Section 50003 of the Financial Code, provided the employee does not participate in any negotiations occurring between the principals. (2) A broker shall exercise reasonable supervision and control over the activities of nonlicensed employees acting under this subdivision, and shall comply with Section 10163 for each location where the nonlicensed persons are employed. This section does not restrict the ability of the commissioner to discipline a broker or corporate broker licensee or its designated officer, or both the corporate broker licensee and its designated officer, for misconduct of a nonlicensed employee acting under this subdivision, or, pursuant to Section 10080, to adopt, amend, or repeal rules or regulations governing the employment or supervision of an employee who is a nonlicensed person as described in this subdivision. SEC. 2. Section 50704 of the Financial Code is repealed. SEC. 3. Section 50707 of the Financial Code is amended to read: 50707. (a) This chapter shall remain operative until June 30, 2005, on which date it shall be repealed, unless a later enacted statute extends or deletes that date. The purpose of this provision is to allow the Legislature to assess whether this chapter (1) increases or decreases the protections and remedies for consumers of brokerage services compared to provisions of the Real Estate Law applicable to mortgage brokerage activities; and (2) increases or decreases the cost to the state of regulating mortgage brokerage activities. (b) On or before December 31, 1999, the Secretary of the Business, Transportation and Housing Agency shall conduct a study of the matters referenced in subdivision (a) of this section, and deliver a report summarizing the findings of the study to both the Assembly Committee on Rules and Senate Rules Committee, which shall refer the report to appropriate policy committees. The report shall be prepared from then existing agency resources. (c) On or before December 31, 2002, the Secretary of the Business Transportation and Housing Agency shall prepare a second report, which shall: (1) update the findings of the report due December 31, 1999, and (2) report, for the years 2000 and 2001, the number and the aggregate principal amount of closed residential mortgage loans secured by residential real estate in which licensees provided brokerage services pursuant to this chapter. This report shall be prepared from then existing agency resources.