BILL ANALYSIS �
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UNFINISHED BUSINESS
Bill No: SB 217
Author: Vargas (D)
Amended: 9/1/11
Vote: 21
PRIOR VOTES NOT RELEVANT
ASSEMBLY FLOOR : 78-0, 09/07/11 - See last page for vote
SUBJECT : Mortgage loan originators: licensure
SOURCE : Author
DIGEST : This bill allows persons to exempt company
registration under the California Finance Lenders Law in
order to comply with the Secure and Fair Enforcement of
Mortgage Licensing Act of 2008. Furthermore, provides
clarification on the issuance of mortgage loan originator
licenses with the existence of expunged or pardoned felony
convictions.
Assembly Amendments delete the Senate version, which dealt
with pawnbrokers loans, and instead add the current
language.
ANALYSIS : 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
of Mortgage Licensing Act of 2008 (SAFE Act) requiring the
establishment of a national registry for mortgage loan
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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 California Finance Lenders Law (CFLL)
and California Residential Mortgage Lending Act that meet
the definition of "mortgage loan originator" must obtain
licenses from Department of Corporations (DOC). Persons
licensed by Department of Real Estate (DRE) under the Real
Estate Law must obtain a mortgage loan originator license
endorsement if they meet the "mortgage loan originator"
definition.
This bill:
1. Provides that persons not subject to the 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 current
insurance producer license, that is not suspended or
revoked from the Insurance Commissioner for an
insurer that controls, is controlled by, or is under
common 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
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insurer does not have to become licensed under the CFLL.
4. 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 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.
Comments
This 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 allows 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, this bill provides that an expunged or
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pardoned felony conviction shall not require 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, United States Department of Housing and
Urban Development (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."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Assembly Appropriations Committee, minor
and absorbable costs to DOC and DRE to administer the
provisions of this bill.
SUPPORT : (Verified 8/30/11)
Association of California Life and Health Insurance
Companies
California Bankers Association
California Mortgage Association
National Association of Insurance and Financial Advisors of
California
Primerica Insurance Company
State Farm Insurance Company
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ASSEMBLY FLOOR : 78-0, 09/07/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Beth
Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, Hagman,
Halderman, Hall, Harkey, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara,
Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller,
Mitchell, Monning, Morrell, Nestande, Nielsen, Norby,
Olsen, Pan, Perea, V. Manuel P�rez, Portantino, Silva,
Skinner, Smyth, Solorio, Swanson, Torres, Valadao,
Wagner, Wieckowski, Williams, Yamada, John A. P�rez
NO VOTE RECORDED: Furutani, Gorell
JJA:kc 9/8/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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