BILL ANALYSIS �
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Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2666 (Banking & Finance) - As Introduced: March 5, 2012
SUBJECT : Mortgage loan originators.
SUMMARY : Provides updates, changes and clarifications to
portions of the Residential Mortgage Lending Act (RMLA) and the
California Finance Lenders Law (CFLL). Specifically, this bill :
1)Provides a definition of "expungement" for purposes of
considering expunged or pardoned felony convictions in
licensing decisions.
2)Exempts employees of federal, state, or local government
agencies from the requirements to be licensed as mortgage loan
originators (MLO).
3)Exempts U.S. Housing and Urban Development (HUD) certified
counselors that will only provide traditional counseling
services from the requirement to be licensed as a MLO.
4)Clarifies exempt company registration procedures.
5)Clarifies that an MLO acting under the CFLL is required to be
licensed, in order to be consistent with the CFLL.
6)Clarifies the validity of electronic records held in the
National Mortgage Licensing System (NMLS).
7)States that a CFL lender or servicer is prohibited from paying
a fee or commission to an unlicensed MLO.
EXISTING LAW
Title V of the Federal Housing Finance Regulator Reform Act,
signed by President Bush on July 30, 2008 established the Secure
and Fair Enforcement for Mortgage Licensing (SAFE) Act requiring
the establishment of a national registry for mortgage loan
originators and required all the states to establish
requirements to carry out the SAFE Act licensing and
registration. California's SAFE Act licensing framework was put
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into law by SB 36 (Calderon), Chapter 160, Statutes of 2009. In
California, employees of those licensees licensed under the CFLL
and California RMLA that meet the definition of "mortgage loan
originator" must obtain licenses from DOC. Persons licensed by
the Department of Real Estate under the Real Estate Law must
obtain a mortgage loan originator license endorsement if they
meet the "mortgage loan originator" definition.
FISCAL EFFECT : Unknown
COMMENTS :
This bill would amend those portions of the CFLL and the RMLA
that implement the SAFE Act. Generally, this bill addresses two
issues that have emerged since California's version of the
Federal SAFE Act, SB 36 (Chap.160, Stats. 2009 - Calderon), was
signed into law. First, the HUD has published its much awaited
Final Rule (Federal Register, Vol. 76, No. 126, page 38464
through 38501), effective August 29, 2011, to implement the SAFE
Act.
The proposed changes clarify the requirements imposed by the
SAFE Act and the HUD Final Rule, and provide mortgage loan
providers, such as loan officers and their employer lenders,
brokers, and servicers, with clearer guidance as to what is
required under the CFLL and the CRMLA. Moreover, clarification
of the licensure requirements will assist the DOC when it
reviews MLO applications, conducts examinations of lenders,
brokers, servicers and MLOs, and brings enforcement actions
against those MLOs and their employers who are not in compliance
with the law. The changes will also provide guidance to the
industry by clarifying the requirements necessary to supervise
and train their MLOs.
The proposed legislative language sets forth a definition of
"expungement." SB 217 (Chap. 444, Stats. 2011 - Vargas), signed
by Governor Brown in October 2011, took effect on January 1,
2012. SB 217 provides that the Commissioner may consider the
underlying facts and circumstances of an expunged or pardoned
felony conviction in licensing decisions of MLOs. That part of
SB 217 was enacted in response to HUD's pronouncement in its
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Final Rule that "?expunged convictions do not "in themselves"
render an individual ineligible?" for licensure as an MLO.
However, the term "expungement" is not defined in either the
CFLL or the CRMLA. Therefore, it is necessary to define this
term and make references to the Penal Code Section 1203.4, on
which the definition is based.
The bill would exempt employees of federal, state, and local
government agencies when acting under the official authority of
and on behalf of the federal, state, or local government agency
employer. The HUD Final Rule provides an exemption for federal,
state, and local government employees. HUD states that the
employee is not engaged in the business of a MLO and does not
participate in any commercial gain or profit. Based on the
non-commercial aspect of the government agency, HUD exempts such
individuals from having to become licensed in any state,
provided that the MLO's activities are on behalf of a government
agency. AB 2666 would allow state departments such as the
California Department of Veterans Affairs to save the costs
associated with application, prelicensure education, continuing
education, testing, and renewal costs.
The bill exempts employees of bona fide nonprofit organizations
from MLO licensing requirements, provided the nonprofit
organization complies with various criteria specified by HUD.
This exemption is necessary to allow bona fide nonprofit
organizations, such as Habitat for Humanity, to continue to
provide valuable housing services to their constituents.
The HUD Final Rule provides that employees of a bona fide
nonprofit organization under specified conditions may be exempt
from licensure if the state "?periodically examine�s] the books
and activities of the bona fide nonprofit organization and
revoke�s] its status?if it does not continue to meet the
criteria?" provided in the Final Rule.
The bill allows HUD-certified Housing Counselors who only
provide "traditional housing counseling services" to be exempt
from licensure. The language is added to the nonprofit
organization exemption, explained in paragraph 3 above. This
bill would provide HUD-certified Housing Counselors the ability
to continue to assist troubled homeowners during this difficult
housing market without the added costs of licensure.
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The bill clarifies that a subsidiary of a depository institution
that is owned and controlled by a depository institution and
regulated by a federal banking agency is exempt from state
licensing requirements.
The bill clarifies that the exempt company procedure provided by
SB 217 (Chap. 444, Stats. 2011 - Vargas) is applicable to all
exempt companies, not just licensed insurance producers. SB 217
inadvertently applies the exempt company procedure to only
licensed insurance producers such as State Farm Bank, the
sponsor of the bill. Since DOC does not have jurisdiction over
exempt companies, some companies may need a procedure by which
their employees could be sponsored in order for their employees
to be licensed as MLOs. Although DOC made exempt company
procedures available through the NMLS, with the passage of SB
217, because the exempt company procedure became only applicable
to State Farm Bank, the legislative proposal would clarify that
such procedures are available to exempt companies as long as
certain conditions (as provided by rule or order by the
Commissioner), are complied with. This provision will allow
exempt companies to insure that their employee MLOs are in
compliance with the SAFE Act.
Under the RMLA, the licensing requirement of MLOs is explicitly
stated. However, under the CFLL, such language is missing.
Therefore, the bill would include language to require that an
individual who is engaged in the business of a MLO is required
to be licensed. This provision is necessary for enforcement
purposes, and to ensure consistency.
Under current Corporate Securities Law (CSL) administered by the
DOC, there is a provision which states that any document held by
a central depository, such as the Central Registration
Depository (CRD) is deemed to be a valid original document upon
reproduction to paper. The bill would tailor the language from
the CSL into provisions in the CFLL and the CRMLA. This
provision will assist the DOC's enforcement efforts, especially
if a defendant questions the validity of records held by the
NMLS, an electronic document depository system similar to the
CRD, in an evidentiary proceeding. According to the DOC,
records have not been questioned with regard to their validity
at this time.
Under current CRMLA, a lender or servicer is prohibited from
paying a fee or commission to an unlicensed MLO. The bill makes
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the CFLL consistent with the CRMLA by adding similar language to
the CFLL. This provision would provide that unlicensed MLOs
would be prohibited from profiting when not in compliance with
the law.
The bill also offers other technical, clean-up language, such as
including "mortgage loan originator" in the CFLL section which
provides that the Commissioner may issue a desist and refrain
order if there is any violation of the CFLL. This provision
would make the CFLL more consistent with the CRMLA.
Furthermore, this provision would aid in the DOC's enforcement
efforts.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081