BILL ANALYSIS �
AB 2666
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CONCURRENCE IN SENATE AMENDMENTS
AB 2666 (Banking and Finance Committee)
As Amended June 12, 2012
Majority vote
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|ASSEMBLY: |75-0 |(May 17, 2012) |SENATE: |36-0 |(July 6, 2012) |
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Original Committee Reference: B. & F.
SUMMARY : Provides updates, changes and clarifications to
portions of the California Residential Mortgage Lending Act
(CRMLA) 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.
The Senate amendments make technical and clarifying changes.
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
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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 into law by SB 36 (Ron Calderon), Chapter 160,
Statutes of 2009. In California, employees of those licensees
licensed under the CFLL and CRMLA that meet the definition of
"mortgage loan originator" must obtain licenses from the
Department of Corporations (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.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the current version.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : This bill would amend those portions of the CFLL and
the CRMLA 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 (Ron Calderon), Chapter
160, Statutes of 2009, 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.
Second, the proposed legislative language sets forth a
definition of "expungement." SB 217 (Vargas), Chapter 444,
Statutes of 2011, signed by Governor Brown in October 2011, took
effect on January 1, 2012. SB 217 provides that the DOC
Commissioner may consider the underlying facts and circumstances
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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 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. This bill 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. 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 (Vargas), Chapter 444, Statutes of 2011, 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 DOC
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 CRMLA, 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.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0004390