BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
SB 1459 (Comm. on B. & F.I.) Hearing Date: April 30,
2014
As Amended: April 21, 2014
Fiscal: Yes
Urgency: No
SUMMARY Would revise the educational requirements for mortgage
loan originators (MLOs) licensed under the California Finance
Lenders Law (CFLL) and California Residential Mortgage Lending
Act (CRMLA) by requiring training related specifically to
California law and regulations.
DESCRIPTION
1. Would require persons applying for an MLO license under the
CFLL and CRMLA to complete two hours of pre-licensing
education on relevant California law and regulations.
2. Would require MLO licensees under the CFLL and CRMLA to
complete one hour of continuing education annually related
to relevant California law and regulations.
3. Would clarify both the CFLL and CRMLA by providing that
applicants for an MLO license under both laws must pass a
qualified written test developed or otherwise deemed
acceptable by the Nationwide Mortgage Licensing System and
Registry (NMLSR; this bill would add the italicized words).
EXISTING FEDERAL LAW:
1. Provides for the Secure and Fair Enforcement For Mortgage
Licensing (SAFE) Act, pursuant to Title V 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 MLOs, as defined, through a nationwide organization
called the NMLSR. Any state that failed to implement an MLO
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,
SB
1459 (Comm. on B. & F.I.), Page 2
HUD was authorized to establish and maintain an MLO
licensing system in any state that failed to voluntarily
comply with the federal SAFE Act.
2. Pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank, H.R. 4173, Public Law 111-203),
transferred authority for implementing the SAFE Act from HUD
to the federal Consumer Financial Protection Bureau (CFPB).
SB
1459 (Comm. on B. & F.I.), Page 3
EXISTING STATE LAW
1. Pursuant to SB 36 (Calderon), Chapter 160, Statutes of 2009,
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 nondepository
institutions operating in California.
2. Pursuant to SB 217 (Vargas, Chapter 444, Statutes of 2011) and
AB 2666 (Committee on Banking and Finance, Chapter 264, Statutes
of 2012), companies that are not required to hold a lending
license by California, but whose employees meet the SAFE Act
definition of an MLO, may apply to the Department of Business
Oversight (DBO; the Department) for exempt company
registrations. Those exempt company registrations allow the
employees of those companies to be eligible to obtain MLO
licenses.
COMMENTS
1. Purpose: This bill is intended to ensure that persons who
hold California MLO licenses issued by DBO are knowledgeable
about California laws and regulations regarding mortgage
lending and mortgage brokering.
2. Background: The federal SAFE Act and California's
implementing legislation (SB 36 and subsequent bills, cited
above) generally require all individuals who meet the SAFE
Act definition of an MLO to obtain a license from the state
to undertake those activities, if they work for a
nondepository institution regulated by the state, or to
register with the NMLSR, if they work for a depository
institution that is state- or federally-regulated.
In California, employees of CFLL licensees and CRMLA licensees
must obtain an MLO license from DBO if they wish to engage
in mortgage loan origination activities. Bureau of Real
Estate (BRE) licensees who engage in mortgage loan
origination must obtain an MLO license endorsement from BRE.
This bill would modify the education requirements
applicable to applicants for and recipients of DBO-issued
MLO licenses. It would not modify the education
requirements applicable to applicants for and recipients of
BRE-issued MLO license endorsements, as described later in
this analysis.
SB
1459 (Comm. on B. & F.I.), Page 4
3. Discussion: Under California law, an applicant for an MLO
license or license endorsement must pass a qualified written
test developed by NMLSR and administered by a test provider
approved by NMLSR. (Technically, the CFLL and CRMLA refer
to a written test developed by NMLSR, while the Real Estate
Law refers to a written test developed or otherwise deemed
acceptable by NMLSR; this bill would conform all three laws
to the language used in the Real Estate Law).
Under all three state laws, a written test may not be treated
as a qualified written test unless it adequately measures
the applicant's knowledge and comprehension in appropriate
subject areas, including ethics; federal law and regulation
relating to mortgage origination; state law and regulation
relating to mortgage origination; and federal and state law
and regulation, including instruction on fraud, consumer
protection, the nontraditional mortgage marketplace, and
fair lending issues. These requirements are based on the
national SAFE Act and are thus uniform across all fifty
states.
Until last year, MLO applicants had to pass two separate tests
in order to become licensed - a national SAFE test and a
state test specific to the state in which the applicant
wished to become licensed. In April 2013, in an effort to
simplify and achieve greater uniformity in the SAFE Act's
testing requirements, NMLSR introduced the concept of a
state test that could be used in all fifty states. They
offered two different options: 1) a National Test with
Uniform State Content (i.e., a single test that tested
applicants on both national and state content) and 2) a
stand-alone Uniform State Test (UST), which tested
applicants only on state content.
The National Test with Uniform State Content was intended to
eliminate the need for a stand-alone state test in the
states that adopted it. The stand-alone UST was a temporary
offering, available for only one year, and was intended to
allow MLO applicants who had already passed the national
test (without state content) to satisfy the state test
requirement using a state test whose questions were
identical in all states that chose to adopt it.
According to NMLS, 39 state mortgage agencies had adopted the
concept of uniform state testing as of January 1, 2014.
Neither DBO nor BRE were among them.
SB
1459 (Comm. on B. & F.I.), Page 5
SB 1459 is not necessary to authorize DBO or BRE to adopt the
concept of uniform state testing; the Department and the
Bureau may do so through regulation, and both plan to
initiate rulemakings to do so later this year. DBO is
seeking enactment of SB 1459 in expectation of the move
toward uniform state testing. Although the Department
favors the uniform state testing approach, the Department is
concerned that, by moving away from a California-specific
test to a uniform state test that can be used in all fifty
states, its MLO applicants and MLO licensees will not be
required to learn California-specific law and regulations.
The National Test with Uniform State Content tests
applicants on their knowledge of high level state-related
content that is based on the SAFE Act and the Conference of
State Bank Supervisors/American Association of Residential
Mortgage Regulators Model State Law (MSL), which many
states, including California, used to implement the SAFE
Act. It does not test applicants on the laws specific to
the individual states in which they wish to work.
SB 1459 would fill the gap left by moving from a
California-specific test to a uniform state test with
pre-licensing and continuing education on
California-specific law and regulation. According to DBO,
the topics to be covered as part of these new educational
requirements would be established by the Department through
regulation.
BRE indicates that it will follow the lead of DBO, to ensure
that all of California's MLO licensees are subject to the
same test.
4. Why Not Change the Real Estate Law, Also? As noted above,
the MLO licensing requirements for BRE licensees are very
different than those for employees of DBO licensees. Before
becoming eligible to obtain an MLO license endorsement from
BRE, an individual must first become licensed as a real
estate salesperson or real estate broker. Both the real
estate salesperson and real estate broker licenses require
considerable pre-licensing education and continuing
education on California-specific laws and regulations.
Thus, there is no need to add California-specific
educational requirements to the Real Estate Law to reflect
adoption of the UST.
SB
1459 (Comm. on B. & F.I.), Page 6
5. Summary of Arguments in Support: The California Mortgage
Bankers Association supports SB 1459 on grounds that
adoption of the Uniform State Test by California will help
small and independent mortgage lending companies grow and
will lower consumer costs by strengthening competition in
the mortgage markets.
6. Summary of Arguments in Opposition: None received.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Mortgage Bankers Association
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102