BILL ANALYSIS �
SB 217
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Date of Hearing: June 20, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 217 (Vargas) - As Amended: June 16, 2011
SENATE VOTE : Not relevant
SUBJECT : California Finance Lenders Law: exemptions: mortgage
loan originators.
SUMMARY : Provides for several exemptions and clarifications
regarding the Secure and Fair Enforcement of Mortgage Licensing
Act of 2008 (SAFE Act). Specifically, this bill :
1)Finds that an individual who acts as a mortgage loan
originator for five or fewer residential mortgage loans during
a calendar year shall not be deemed a mortgage loan originator
and shall not be required to obtain an originator's license if
the following are met:
a) The individual acts as an originator for a single
licensee;
b) The licensee on whose behalf the individual acts,
brokers loans exclusively to a single depository
institution; and,
c) Before authorizing the origination of mortgage loans,
the licensee submits the name of the individual acting as
originator to the Department of Corporations (DOC) and
agrees in writing to be accountable for the actions of the
individual in connection with the loan origination.
2)Provides that any licensee that becomes aware of an individual
who is originating a residential mortgage loan on its behalf
and has exceeded the five loans per year threshold to notify
the commissioner of DOC and direct the individual to cease
mortgage loan origination activity until he or she obtains a
mortgage loan originators license.
3)States that the exclusion from licensing of individuals making
five or fewer loans shall not apply if the Director of the
federal Consumer Financial Protection Bureau or a court of
competent jurisdiction makes a final and specific
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determination that the exclusion from licensing does not
comply with the SAFE Act.
4)Provides that persons not subject to the California Finance
Lenders Law (CFLL) may apply to the commissioner of DOC for an
exempt company registration for the purpose of sponsoring one
or more individuals required to be licensed as mortgage loan
originators pursuant to the SAFE Act. Additionally, finds
that a mortgage loan originator subject to this provision must
meet the following requirements:
a) The person to be licensed as a mortgage loan originator
must be covered under an exclusive written contract with,
and originate mortgage loans solely on behalf of, that
exempt person; and,
b) The person to be licensed must hold a license from the
Insurance Commissioner as an insurance producer for an
insurer that controls, is controlled by, or is under common
control with that exempt person.
5)Mandates that an exempt person must comply with all rules and
orders that the commissioner deems necessary to ensure
compliance with the SAFE Act and shall pay an annual
registration fee established by the commissioner.
EXISTING LAW
Title V of the Federal Housing Finance Regulator Reform Act,
signed by President Bush on July 30, 2008 established the SAFE
Act requiring the establishment of a national registry for
mortgage loan originators and required all the states to
establish requirements to carry out SAFE Act licensing and
registration. California's SAFE Act licensing framework was put
into law by SB 36 (Calderon), Chapter 160, Statutes of 2009. In
California, employees of those licensees licensed under the CFLL
and California Residential Mortgage Lending Act 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
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COMMENTS :
This bill attempts to address two issues relating to
implementation of the SAFE Act. The first issue contained in
section 1 of the bill seeks to provide a de minimis exception
that resembles Safe Act regulations passed by federal banking
regulators for depository institutions. Under these federal
regulations employees of depository institutions are allowed to
originate up to five residential mortgage loans on behalf of its
deposit institutions employer in any twelve month period without
having to register as a mortgage loan originator. This bill
provides the exempt employee (an employee making no more than
five loans in a year) must be working on behalf of a CFL
licensee and which would broker the loan under an exclusive
arrangement with a depository institution.
The above mentioned provision is proposed on behalf of Primerica
Life Insurance Company. Primerica Life Insurance Company holds
a CFLL license. From time to time, its life insurance agents
take mortgage loan applications from prospective borrowers.
Primerica Life then sends those applications exclusively to
Citibank Trust, an affiliated depository institution which also
holds a CFLL license. As currently structured, Primerica Life
Insurance Company is acting as a CFLL licensee brokering to
another CFLL licensee.
When taking mortgage loan applications on behalf of Primerica
Life Insurance Company, Primerica's agents are acting in the
capacity of mortgage loan originators, and are required to be
licensed as such. However, because the primary business of
these agents involves the sale of insurance, and because they
take very few mortgage loan applications during the course of a
given year, Primerica and Citigroup (which owns 50% of
Primerica) are seeking an exemption from the requirement that
Primerica's agents obtain mortgage loan originator licenses.
Primerica's proposal would exempt those of its agents
originating five or fewer residential mortgage loans in a
calendar year from the requirement to obtain mortgage loan
originator licenses, provided the agents originate those loans
solely on behalf of a single licensed finance lender, which, in
turn, brokers those mortgage loans, in accordance with the CFLL,
to a single depository institution.
The second section of this bill seeks to address an issue facing
State Farm Bank, a division of State Farm Insurance Company.
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State Farm contracts with independent agents that write
insurance on behalf of State Farm Insurance. These agents also
may originate mortgages on behalf of State Farm Bank. These
agents in engaging in mortgage loan originations meet the
definition of "mortgage loan originator" under the SAFE Act and
as such fall within the registration requirements. However,
because they are independent agents and not employees of State
Farm, they cannot obtain SAFE Act registration. SB 217 would
allow State Farm Bank, or another entity similarly situated to
apply to the commissioner of DOC for an exempt person
registration in order to sponsor its agents to become licensed
and registered under the SAFE Act. It also requires that an
exempt person shall comply with all the rules and orders that
the commissioner deems necessary to ensure compliance with the
SAFE Act, as well as, pay an annual registration fee.
The SAFE Act does not provide states with explicit authority to
provide exemptions from requirements of the SAFE Act.
Currently, Texas and Louisiana are considering similar
exemptions as contained in this bill.
Amendments:
The CFLL provides that CFLL licensees may only broker to other
CFLL licensees. Section 1 of this bill would allow exempt
person to broker to a depository institution. While this section
includes an exemption, staff believes it is necessary to clarify
that the exception only applies to the newly created paragraph.
Therefore, staff recommends the following amendment on page 4,
line 10:
(C) Notwithstanding Sections 22004 and 22059, a licensee
may broker loans to a depository institution pursuant to
this paragraph ."
REGISTERED SUPPORT / OPPOSITION :
Support
Primerica Life Insurance Company - co-sponsor
State Farm Insurance - co-sponsor
California Bankers Association (CBA)
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Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081