BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 2666 (Committee on Banking & Finance)Hearing Date: June 20,
2012
As Amended: June 12, 2012
Fiscal: Yes
Urgency: No
SUMMARY Would make technical and clarifying changes to
provisions of the California Finance Lenders Law (CFLL) and
California Residential Mortgage Lending Act (CRMLA) that
implement the federal Secure and Fair Enforcement for Mortgage
Licensing Act (SAFE Act) of 2008.
DESCRIPTION
1. Would add California's Penal Code definition of
"expungement" to the CFLL and CRMLA.
2. Would amend the CFLL and CRMLA to exempt the following
individuals from the definition of a mortgage loan
originator:
a. Employees of federal, state, or local government
agencies or housing finance agencies, who act as mortgage
loan originators only in their official duties as
employees of those agencies.
b. Employees of bona fide nonprofit organizations, who
exclusively originate residential mortgage loans for
those bona fide nonprofit organizations, and who act as
mortgage loan originators only with respect to
residential mortgage loans with terms that are favorable
to the borrower, as defined. To qualify for the
exemption, a bona fide nonprofit organization must
register with the Department of Corporations (DOC);
provide specified documentation to DOC regarding its
activities on an annual basis; periodically provide
reports regarding its activities, as requested by the
Commissioner of Corporations (Commissioner); and subject
itself to periodic examinations of its books and records
by the Commissioner, as specified. The Commissioner is
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2666 (Comm. on B. & F.), Page 2
given the authority to revoke a nonprofit organization's
status as a registered bona fide nonprofit organization
(and thus revoke the exemption provided to its
employees), if the organization fails to provide required
documentation to DOC or does not continue to meet
specified criteria.
3. Would amend the CFLL to authorize companies that are "not
subject to" the CFLL and amend the CRMLA to authorize
companies that are "exempt from" the CRMLA to apply to the
Commissioner for exempt company registrations.
4. Would amend the CFLL and CRMLA to clarify that applications
and other documents held in the Nationwide Mortgage
Licensing System and Registry are deemed to be valid
original records, upon printing to paper.
5. Would clarify the CFLL by expressly stating that:
a. An individual may not engage in the business of a
mortgage loan originator with respect to any dwelling
located in this state, without first obtaining and
maintaining annually a license in accordance with the
requirements of the CFLL;
b. A registered mortgage loan originator is exempt from
licensure under the CFLL when that individual is employed
by a depository institution, a subsidiary of a depository
institution owned and controlled by a depository
institution and regulated by a federal banking agency, or
an institution regulated by the Farm Credit
Administration;
c. A finance lender, finance broker, or mortgage loan
originator licensed under the CFLL may not pay any
commission, fee, or other compensation to an unlicensed
individual for conducting activities that require a
license, unless that unlicensed individual is exempt from
licensure pursuant to the CFLL.
EXISTING LAW
Existing federal law provides for the SAFE Act, pursuant to
Title V of the provisions of the Housing and Economic Recovery
Act of 2008 (HR 3221; Public Law 110-289). The SAFE Act
required all states to license and register their mortgage loan
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2666 (Comm. on B. & F.), Page 3
originators, as defined, through a nationwide organization
called the Nationwide Mortgage Licensing System and Registry.
Any state that failed to implement a mortgage loan originator
licensing system, in compliance with the SAFE Act, by July 30,
2009 risked direct intervention by the U.S. Department of
Housing and Urban Development (HUD). Under the SAFE Act, HUD is
authorized to establish and maintain a mortgage loan originator
system in any state that fails to voluntarily comply with SAFE.
Authority for SAFE Act oversight was transferred from HUD to the
Consumer Financial Protection Bureau (CFPB) in July 2011.
Existing law, pursuant to SB 36 (Calderon), Chapter 160,
Statutes of 2009, SB 1137 (Committee on Banking, Finance &
Insurance), Chapter 287, Statutes of 2010, and SB 217 (Vargas),
Chapter 444, Statutes of 2011, conforms California's Real Estate
Law, CFLL, and CRMLA to the SAFE Act, thus preserving
California's ability to continue regulating mortgage loan
origination by non-depository institutions operating in
California.
COMMENTS
1. Background and Discussion: The federal SAFE Act was enacted
in July of 2008, and gave jurisdiction to HUD to implement
regulations clarifying its operation. On June 30th, 2011,
shortly before its authority to administer the SAFE Act was
transferred to the CFPB, HUD issued its final rules
implementing the SAFE Act (Federal Register Volume 76,
Number 126, Thursday, July 30th, 2011, pp. 38464 - 38501).
SB 217, referenced above, was enacted to incorporate some of the
changes reflected in the HUD final regulations, and to
authorize certain companies, which did not require lending
licenses from the state of California, but whose employees
engaged in activities which required mortgage loan
originator licenses pursuant to the SAFE Act, to obtain
so-called "exempt company registrations" from DOC. These
exempt company registrations allow the companies to sponsor
their employees on the Nationwide Mortgage Licensing System
and Registry (a database used to facilitate the licensing of
mortgage loan originators nationwide), and thus enable their
employees to obtain mortgage loan originator licenses.
AB 2666 further clarifies some of the changes made by SB 217,
proposes additional changes to incorporate additional
portions of the final HUD regulations into California law,
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2666 (Comm. on B. & F.), Page 4
and proposes changes to close what DOC views as loopholes in
existing law. The logic behind each of the changes is as
follows:
a. Definition of expungement: SB 217 (Vargas), Chapter
444, Statutes of 2011, authorized the Commissioner of
Corporations to consider the underlying facts and
circumstances of an expunged or pardoned felony
conviction in making mortgage loan originator licensing
decisions, but did not define the term expungement. This
bill would add that definition.
b. Mortgage loan originator licensing exemption for
employees of government agencies and housing finance
agencies: In its final rule, HUD stated that the SAFE
Act does not cover employees of government agencies or
housing finance agencies who act as loan originators in
accordance with their duties as employees of such
agencies. This bill would incorporate that finding into
the CFLL and CRMLA, to save government entities the cost
of paying for mortgage loan originator licenses for their
employees whose tasks would otherwise require them to
obtain mortgage loan originator licenses. The California
Department of Veterans Affairs is expected to be among
the beneficiaries of this change.
c. Mortgage loan originator licensing exemption for
employees of bona fide nonprofit organizations: In its
final rule, HUD stated that individuals who act as loan
originators with respect to certain kinds of loans as
employees of bona fide nonprofit organizations, as
defined in the final rule, are not subject to the
licensing or registration requirements of the SAFE Act.
AB 2666 incorporates that finding into the CFLL and
CRMLA. Habitat for Humanity and HUD-certified housing
counseling agencies are expected to be among the
beneficiaries of this change.
d. Exempt company registration: This provision expands
the authority granted to certain insurance companies by
last year's SB 217 to any company that is expressly "not
subject to" the CFLL or expressly "exempt from" the
CRMLA. The exempt company registration procedure is
intended to help companies that are not required to be
licensed as mortgage lenders by the state of California,
but whose employees meet the SAFE Act definition of a
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2666 (Comm. on B. & F.), Page 5
mortgage loan originator (and who thus require mortgage
loan originator licenses). With an exempt company
registration, a company may officially sponsor its
mortgage loan originator employees on the Nationwide
Mortgage Licensing System and Registry. Such sponsorship
is required before an individual may obtain a mortgage
loan originator license. Without sponsorship by a
recognized entity on the Nationwide Mortgage Licensing
System and Registry, an individual who has otherwise
fulfilled the requirements to become a licensed mortgage
loan originator is unable to work in that capacity
pursuant to the SAFE Act and California law.
e. Deeming Electronic Records Valid when Printed:
California's Corporate Securities Law contains a
provision which states that any document held by a
central depository is deemed to be a valid original
document upon reproduction to paper. This bill would add
similar language to the CFLL and CRMLA. Although DOC is
unaware of any challenges to date, regarding the validity
of records held on the Nationwide Mortgage Licensing
System and Registry, it is seeking this technical change
to preclude future challenges.
f. Technical Clarifications to the CFLL: DOC staff are
also seeking three technical changes to the CFLL, to help
DOC enforce the SAFE Act provisions of the CFLL as
intended pursuant to SB 36.
2. Summary of Arguments in Support: The San Luis Obispo County
Housing Trust Fund and Housing Trust Fund of Santa Barbara
County support the bill, based on the provision that exempts
employees of bona fide nonprofit organizations from the
requirement to be licensed as mortgage loan originators, if
certain requirements are followed by the nonprofits. This
exemption will help both groups offer down payment and other
forms of homebuyer assistance to low- to moderate-income and
first-time homebuyers, without having to comply with costly
SAFE Act mortgage loan originator licensing requirements.
3. Summary of Arguments in Opposition: None received.
4. Prior and Related Legislation: Referenced above.
LIST OF REGISTERED SUPPORT/OPPOSITION
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2666 (Comm. on B. & F.), Page 6
Support
San Luis Obispo County Housing Trust Fund
Housing Trust Fund of Santa Barbara County
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102