BILL ANALYSIS �
SB 217
Page 1
SENATE THIRD READING
SB 217 (Vargas)
As Amended September 1, 2011
Majority vote
SENATE VOTE :39-0
BANKING & FINANCE 11-0 APPROPRIATIONS 17-0
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|Ayes:|Eng, Achadjian, Fletcher, |Ayes:|Fuentes, Harkey, |
| |Fuentes, Gatto, Harkey, | |Blumenfield, Bradford, |
| |Roger Hern�ndez, Lara, | |Charles Calderon, Campos, |
| |Morrell, Perea, Torres | |Davis, Donnelly, Gatto, |
| | | |Hall, Hill, Lara, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Allows persons to exempt company registration under
the California Finance Lenders Law (CFLL) in order to comply
with the Secure and Fair Enforcement of Mortgage Licensing Act
of 2008 (SAFE Act). Furthermore, provides clarification on the
issuance of mortgage loan originator licenses with the existence
of expunged or pardoned felony convictions. Specifically, this
bill :
1)Provides that persons not subject to the CFLL may apply to the
commissioner of Department of Corporations (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
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control with that exempt person.
2)Mandates that an exempt person must comply with all rules and
orders that the DOC Commissioner deems necessary to ensure
compliance with the SAFE Act and shall pay an annual
registration fee established by the commissioner.
3)Clarifies that a financial institution that is the sole lender
for loans originated by a CFLL licensed mortgage loan
originator employed as an insurance producer for an insurer
does not have to become licensed under the CFLL.
4)Specifies that an insurance producer in 3) above must hold a
current insurance producer license and be in good standing
with the Department of Insurance.
5)Provides that an expunged or pardoned felony conviction does
not require denial of a mortgage loan originators license or a
license endorsement. Allows the commissioner of DOC or the
commissioner of the Department of Real Estate (DRE) (depending
on the licensing law) to consider the underlying crime, facts,
or circumstances of the expunged or pardoned felony conviction
when determining whether to issue a license or license
endorsement.
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
DRE under the Real Estate Law must obtain a mortgage loan
originator license endorsement if they meet the "mortgage loan
originator" definition.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor and absorbable costs to DOC and DRE to
administer the provisions of this bill.
COMMENTS : When this bill was previously heard in the Assembly
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Banking and Finance Committee on June 28, 2011, it addressed two
issues relating to licensure under the SAFE Act. The first
provision provided a de minimis exemption from SAFE Act
licensing if the individual acting as mortgage loan originator
acts on behalf of single licensee brokering loans to one single
depository institution so long as the originator does not
originate more than five loans in a year. The August 15, 2011,
version of the bill eliminates this provision after recent and
final SAFE Act regulations (Federal Register /Vol. 76, No. 126
/Thursday, June 30, 2011) issued by the United States Department
of Housing and Urban Development (HUD) called into question the
ability of states to provide these type of licensing exceptions.
The second provision, which still exists in the bill seeks to
address an issue facing State Farm Bank, a division of State
Farm Insurance Company. 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. This bill 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. Furthermore, the bill clarifies that in
instances when a CFLL license employed by an insurance company,
originates loans for a single financial institution, that single
financial institution does not have to be licensed under the
CFLL. This is intended to ensure that state or federally
chartered financial institutions that are already regulated, are
not subject to redundant regulation. Additionally, this helps
avoid any potential federal preemption complications that could
occur if state law forced a national bank to seek a state
lending license.
In addition to eliminating the de minimis exemption in the
previous version of the bill, the August 15th amendments provide
that an expunged or pardoned felony conviction shall not require
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denial of an application for licensure as a mortgage loan
originator. The final SAFE Act regulations address the issue of
the treatment of pardoned and expunged felony convictions by
allowing states to establish parameters that would not lead to
the automatic denial of a license based on the existence of an
expunged or pardoned conviction. In its commentary to this
change, HUD finds:
A state supervisory authority, however, may still
consider the conduct underlying the conviction when
it makes the required determination of financial
responsibility, character, and general fitness.
Therefore, under HUD's final rule, a state will not
be required to provide that a pardoned conviction
renders an individual ineligible for licensing. HUD
leaves that determination to the states.
Additionally, HUD will not consider an expunged
conviction to render an individual ineligible to be
licensed under the SAFE Act. In general, an
expungement is viewed to completely eliminate the
conviction in the eyes of the law and to prevent
further legal consequences of the conviction. As
raised by one commenter, in some states the
submission of an expunged conviction could cause the
individual to incur state sanctions.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0002514