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California - AB 34 - Real estate, finance lender, and residential mortgage lender licenses: mortgage loan originators
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Policy Process

Introduced
SENATE PASSED
HOUSE PASSED
SIGNED BY GOVERNOR

1/22/2009
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Policy Becomes Law


  • Policy Overview
  • An act to amend Sections 10100, 10140.6, 10150, 10151, 10235.5, and 10236.4 of, to add Article 2.1 (commencing with Section 10166.01) to Chapter 3 of Part 1 of Division 4 of, and to repeal Section 10131.8 of, the Business and Professions Code, to amend Sections 22100, 22101, 22101.5, 22102, 22103, 22104, 22106, 22107, 22108, 22109, 22112, 22151, 22152, 22153, 22154, 22155, 22156, 22157, 22159, 22168, 22169, 22170, 22171, 22700, 50002, 50003, 50120, 50121, 50122, 50123, 50124, 50125, 50126, 50128, 50129, 50130, 50200, 50201, 50202, 50204, 50205, 50206, 50208, 50302, 50307, 50310, 50317, 50318, 50320, 50325, 50333, 50401, 50700, and 50701 of, to add Sections 22012, 22013, 22014, 22105.1, 22105.2, 22105.3, 22105.4, 22109.1, 22109.2, 22109.3, 22109.4, 22109.5, 22109.6, 22172, 22347, 22755, 50002.5, 50003.5, 50003.6, 50209, 50307.2, and 50513 to, to add Chapter 3.5 (commencing with Section 50140) and Chapter 3.6 (commencing with Section 50150) to Division 20 of, and to repeal Sections 50601, 50602, and 50705 of, the Financial Code, and to add Section 18034 to the Health and Safety Code, relating to mortgages, and declaring the urgency thereof, to take effect immediately.

    BILL NUMBER: AB 34	INTRODUCED
    BILL TEXT
    INTRODUCED BY Assembly Member Nava

    DECEMBER 1, 2008

    An act relating to mortgage lending.
    LEGISLATIVE COUNSEL`S DIGEST
    AB 34, as introduced, Nava. Residential mortgage lending.
    Existing law provides for licensing and regulation of real estate
    brokers by the Real Estate Commissioner. Real estate brokers, among
    other things, are persons who solicit borrowers or lenders in
    connection with loans secured by liens on real property.
    Existing law also provides for licensing and regulation of
    residential mortgage lenders by the Commissioner of Corporations.
    This bill would state the intent of the Legislature to enact
    legislation relative to an effective system of supervision and
    enforcement of the mortgage lending industry, and would make
    legislative findings and declarations regarding recently-enacted
    federal legislation and related matters.
    Vote: majority. Appropriation: no. Fiscal committee: no.
    State-mandated local program: no.
    THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

    SECTION 1. The Legislature finds and declares all of the
    following:
    (a) Congress recently passed H.R. 3221, the Housing and Economic
    Recovery Act of 2008, which was signed into law by the President on
    July 30, 2008, and became Public Law 110-289.
    (b) H.R. 3221 includes, as Title V of Division A of that act, the
    Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the
    SAFE ACT).
    (c) The activities of mortgage loan originators and the
    origination or offering of financing for residential real property
    have a direct, valuable, and immediate impact upon California`s
    consumers, the California economy, California`s communities and
    neighborhoods, and the housing and real estate industry.
    (d) Accessibility to mortgage credit is vital to California
    residents.
    (e) It is essential for the protection of California residents and
    the stability of the economy that reasonable standards for licensing
    and regulation of the business practices of mortgage loan
    originators be imposed.
    (f) The obligations of mortgage loan originators to consumers in
    connection with originating or making of residential mortgage loans
    warrant the regulation of the mortgage lending process.
    (g) The purpose of the SAFE Act is to protect consumers seeking
    mortgage loans and to ensure that the mortgage lending industry is
    operating without unfair, deceptive, or fraudulent practices on the
    part of mortgage loan originators.
    SEC. 2. It is the intent of the Legislature to establish in this
    act an effective system of supervision, regulation, and enforcement
    of the mortgage lending industry, including the following:
    (a) The authority to issue licenses to conduct business under this
    act, including the authority on the part of the administering agency
    to promulgate rules and regulations or adopt procedures necessary to
    the licensing of persons covered under this act.
    (b) The authority to deny, suspend, condition, or revoke licenses
    under this act.
    (c) The authority to examine, investigate, and conduct enforcement
    actions as necessary to carry out the intended purposes of this act,
    including the authority to subpoena witnesses and documents, enter
    orders, including cease and desist orders, order restitution and
    monetary penalties, and order the removal and ban of individuals from
    office or employment.
    (d) Participation by the Department of Corporations and the
    Department of Real Estate in the Nationwide Mortgage Licensing System
    and Registry.
  • Summary/Fact Sheet Title
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  •           

               COMPLETE BILL HISTORY

              

              BILL NUMBER : A.B. No. 34

              Latest Vote

              AUTHOR : Nava

              TOPIC : Real estate, finance lender, and residential mortgage lender

               licenses: mortgage loan originators.

              

              TYPE OF BILL :

  • View Analysis
  • 2009-04-17 00:00:00

    BILL ANALYSIS                                                                                                                                                                                                    

    AB 34
    Page 1

    Date of Hearing: April 20, 2009

    ASSEMBLY COMMITTEE ON BANKING AND FINANCE
    Pedro Nava, Chair
    AB 34 (Nava) - As Amended: April 2, 2009

    SUBJECT : Real estate, finance lender and residential mortgage
    lender licenses: mortgage loan originators.

    SUMMARY : Establishes the licensing of all mortgage loan
    originators and registration with the Nationwide Mortgage
    Licensing System and Registry (NMLSR). Specifically, this bill :


    1)Establishes standards, requirements, prohibitions for mortgage
    loan originators operating under the real estate law, the
    California finance lenders law (CFLL) and the Residential
    Mortgage Lending Act (RMLA) in order to comply with the Secure
    and Fair Enforcement for Mortgage Licensing (SAFE) Act (Public
    Law 110-289).

    2)Prohibits any individual from engaging in the business as a
    mortgage loan originator without first obtaining and
    maintaining a loan originator`s license and registering with
    the NMLSR.

    3)Provides for the following definitions:

    a) "Mortgage loan originator" means an individual who takes
    a residential mortgage loan application or offers or
    negotiates terms of a residential mortgage loan for
    compensation or gain. An individual real estate licensee
    acting within the meaning of paragraph (d) of Section 10131
    is a mortgage loan originator for purposes of this article
    with respect to activities involving residential mortgage
    loans.

    b) Mortgage loan originator does not include any of the
    following:

    i) An individual who performs purely administrative or
    clerical tasks on behalf of a person meeting the
    definition of a mortgage loan originator, except as
    otherwise provided in subdivision (d) of Section
    10166.03. The term "administrative or clerical tasks"

    AB 34
    Page 2

    means the receipt, collection, and distribution of
    information common for the processing or underwriting of
    a loan in the mortgage industry and communication with a
    consumer to obtain information necessary for the
    processing or underwriting of a residential mortgage
    loan.

    ii) An individual that is not compensated by a lender,
    other mortgage loan originator, or by any agent of any
    lender or other mortgage loan originator.

    iii) An individual that is solely involved in extensions
    of credit relating to timeshare plans, as that term is
    defined in Section 101(53D) of Title 11 of the United
    States Code.

    iv) An individual licensed or registered as a mortgage
    loan originator pursuant to the provisions of the
    Financial Code and the SAFE Act.

    c) "Nationwide Mortgage Licensing System and Registry"
    means a mortgage licensing system developed and maintained
    by the Conference of State Bank Supervisors and the
    American Association of Residential Mortgage Regulators for
    the licensing and registration of mortgage loan
    originators.

    d) "Residential mortgage loan" means any loan primarily for
    personal, family, or household use that is secured by a
    mortgage, deed of trust, or other equivalent consensual
    security interest on a dwelling, or residential real estate
    upon which is constructed or intended to be constructed a
    dwelling. "Dwelling" means a residential structure that
    contains one to four units, whether or not that structure
    is attached to real property. The term includes an
    individual condominium unit, cooperative unit, mobile home,
    or trailer, if it is used as a residence.

    e) "Unique identifier" means a number or other identifier
    assigned by protocols established by the Nationwide
    Mortgage Licensing System and Registry.

    f) "Loan processor or underwriter" means an individual who
    performs clerical or support duties as an employee at the
    direction of, and subject to the supervision and

    AB 34
    Page 3

    instruction of, a mortgage loan originator.

    g) "Nontraditional mortgage product" means any mortgage
    product other than a 30-year fixed rate mortgage

    h) "Registered mortgage loan originator" means any
    individual who:

    i) Meets the definition of a mortgage loan originator
    and is an employee of either:

    (1) A depository institution.

    (2) A subsidiary that is owned and controlled by a
    depository institution and regulated by a federal
    banking agency.

    ii) An institution regulated by the Farm Credit
    Administration.

    iii) Is registered with, and maintains a unique
    identifier through, the Nationwide Mortgage Licensing
    System and Registry.

    4)Requires real estate brokers to notify to the Department of
    Real Estate (DRE) within 30 days of implementation of this
    legislation or upon commencing specific activities under the
    real estate law, such as listing properties or arranging loans
    secured by real property.

    5)Provides that no individual shall engage in the business of a
    loan originator under the real estate law without the
    following:

    a) Obtaining and maintaining a real estate license; and,

    b) Obtaining and maintaining a real estate license
    endorsement identifying that individual as a licensed
    mortgage loan originator.

    6)Specifies that a license endorsement shall be valid for
    one-year and the application for the endorsement shall be in
    the form prescribed by the commissioner.

    7)Provides that the penalty for a real estate broker who fails

    AB 34
    Page 4

    to notify DRE of their activities, or who fails to obtain a
    license endorsement shall be assessed a penalty of fifty
    dollars per day for each day written notification has not been
    received or a license endorsement has not been obtained up to
    the 31st day. On or after the 31st day, the fine shall be
    $100 dollars per day, not to exceed a penalty of ten thousand
    dollars. Failure to pay a penalty may result in the
    suspension or revocation of a license.

    8)Requires that in connection with an application to DRE for a
    license endorsement as a mortgage loan originator, every
    applicant shall furnish to NMLSR information concerning the
    applicant`s identity including fingerprints for the purpose of
    conducting a criminal background check and personal history
    and experience in a form prescribed by NMLSR.

    9)Provides that the commissioner of DRE shall not issue a
    license endorsement to act as a mortgage loan originator to an
    applicant unless the commissioner makes all of the following
    findings:

    a) The applicant has never had a mortgage loan originator
    license revoked in any other governmental jurisdiction.

    b) The applicant has not been convicted of, or pled guilty
    or nolo contendere to, a felony in a domestic, foreign, or
    military court, under either of the following conditions,
    however, any conviction expunged from the applicant`s
    record shall not be considered a conviction for purposes of
    this subdivision:

    i) During the seven year period preceding the date of
    the application for licensing.

    ii) At any time preceding the date of application, if
    the felony involved an act of fraud, dishonesty, a breach
    of trust, or money laundering.

    c) The applicant has demonstrated such financial
    responsibility, character, and general fitness as to
    command the confidence of the community and warrant a
    determination that the mortgage loan originator will
    operate honestly, fairly, and efficiently within the
    purposes of the article.


    AB 34
    Page 5

    d) The applicant has complied with the appropriate
    education and written testing requirements.

    10)Requires an applicant for a license endorsement as a mortgage
    loan originator to complete at least 20 hours of education
    courses, which shall include at least the following:

    a) Three hours of federal law and regulations;

    b) Three hours of ethics, which shall include instruction
    on fraud, consumer protection, and fair lending issues;
    and,

    c) Two hours of training related to lending standards for
    the nontraditional mortgage product marketplace.

    11)Requires an applicant applying for registration to NMLSR to
    provide the following:

    a) A credit report from a consumer reporting agency; and,

    b) Information related to any administrative civil, or
    criminal findings by any governmental jurisdiction.

    12)Allows a person who successfully completes the education
    requirements approved by the Nationwide Mortgage Licensing
    System and Registry in any state other than California to be
    granted credit toward completion of the education requirements
    of required by this bill.

    13)Requires, before being issued a license endorsement to act as
    a mortgage loan originator, that an individual shall pass a
    qualified written test developed or otherwise deemed
    acceptable by the NMLSR and administered by a test provider
    approved or otherwise deemed acceptable by NMLSR.

    14)Requires an individual to achieve a test score of not less
    than 75%.

    15)Allow an individual who fails the qualified written test to
    retake the test up to three consecutive times, with at least
    30 days passing between each retest. Subsequent to failing
    three consecutive times, the applicant must wait at least six
    months before retest.


    AB 34
    Page 6

    16)Provides that a mortgage loan originator who fails to
    maintain a valid license for a period of five years shall
    retake the test.

    17)Provides that education courses are only acceptable if they
    have been reviewed and approved, or otherwise deemed
    acceptable, by the NMLSR, in accordance with the SAFE Act, and
    by the commissioners of DRE and DOC.

    18)Requires a real estate broker who makes, arranges or services
    one or more loans in a calendar year to provide to DRE with a
    business activities report for the fiscal year that discloses
    the following:

    a) Name and license number of the supervising broker and
    names and license numbers of the real estate brokers and
    salespersons under that broker`s supervision. The report
    shall include brokers and salespersons who were under the
    supervising broker`s supervision for all or part of the
    year.

    b) A list of the real estate-related activities in which
    the supervising broker and the brokers and salespersons
    under his or her supervision engaged during the prior year.
    This listing shall identify all of the following.

    i) Activities relating to mortgages, including
    arranging, making, or servicing.

    ii) Other activities performed under the real estate
    broker`s or salesperson`s license.

    iii) Activities performed under related licenses,
    including, but not limited to, a license to engage as a
    finance lender or a finance broker under the California
    Finance Lenders Law (Division 9 (commencing with Section
    22000) of the Financial Code), or a license to engage as
    a residential mortgage lender or residential mortgage
    loan servicer under the California Residential Mortgage
    Lending Act (Division 20 (commencing with Section 50000)
    of the Financial Code).

    c) A list of the forms of media used by the broker and
    those under his or her supervision to advertise to the
    public, including print, radio, television, the Internet,

    AB 34
    Page 7

    or other means.

    d) For fixed rate loans made, brokered, or serviced, all of
    the following:

    i) The total number, aggregate principal amount, lowest
    interest rate, highest interest rate, and a list of the
    institutional lenders of record. If the loan was funded
    by any lender other than an institutional lender, the
    broker shall categorize the loan as privately funded.

    ii) The total number and aggregate principal amount of
    covered loans, as defined in Section 4970 of the
    Financial Code.

    iii) The total number and aggregate principal amount of
    loans for which Department of Real Estate form RE Form
    885 or an equivalent is required.

    e) For adjustable rate loans made, brokered, or serviced,
    all of the following:

    i) The total number, aggregate principal amount, lowest
    beginning interest rate, highest beginning interest rate,
    highest margin, and a list of the institutional lenders
    of record. If the loan was funded by any lender other
    than an institutional lender, the broker shall categorize
    the loan as privately funded.

    ii) The total number and aggregate principal amount of
    covered loans, as defined in Section 4970 of the
    Financial Code.

    iii) The total number and aggregate principal amount of
    loans for which Department of Real Estate form RE Form
    885 or an equivalent is required.

    f) For all loans made, brokered, or serviced, the total
    number and aggregate principal amount of loans funded by
    institutional lenders, and the total number and aggregate
    principal amount of loans funded by private lenders.

    g) For all loans made, brokered, or serviced, the total
    number and aggregate principal amount of loans that
    included a prepayment penalty, the minimum prepayment

    AB 34
    Page 8

    penalty length, the maximum prepayment penalty length, and
    the number of loans with prepayment penalties whose length
    exceeded the length of time before the borrower`s loan
    payment amount could increase.

    h) For all loans brokered, the total compensation received
    by the broker, including yield spread premiums,
    commissions, and rebates, but excluding compensation used
    to pay fees for third-party services on behalf of the
    borrower.

    i) For all mortgage loans made or brokered, the total
    number of loans for which a mortgage loan disclosure
    statement was provided in a language other than English,
    and the number of forms provided per language other than
    English.

    j) For all mortgage loans serviced, the total amount of
    funds advanced to be applied toward a payment to protect
    the security of the note being serviced.

    19)Requires each mortgage loan originator to submit reports of
    condition to the NMLSR.

    20)Provides for the following minimum standards for renewal to
    act as a mortgage loan originator:

    a) The mortgage loan originator constitutes to meet the
    minimum act as a mortgage loan originator; and,

    b) Maintains continuing education requirements.

    21)Requires a mortgage loan originator to complete at least
    eight hours of continuing education requirements annually.

    22)Provides and clarifies that real estate brokers shall
    maintain certain records and documents that will enable the
    commissioner of DRE to determine compliance with the
    requirements of the SAFE act.

    23)Provides authority to the DRE to conduct examinations of real
    estate licensees as often as deemed necessary by the
    commissioner.

    24)Requires a real estate broker to make any special reports to

    AB 34
    Page 9

    the commissioner of DRE as may be requested.

    25)Provides DRE with the authority and permission to participate
    in the NMLSR and in order to participate, may make rules,
    regulations and orders as necessary.

    26)Require a real estate licensee to submit a true copy of
    advertising to DRE for approval prior to its use.

    27)Prohibits the dissemination of any advertisement by a real
    estate license or mortgage loan originator unless the
    advertisement includes the license number and unique
    identifier assigned to that licensee by NMLSR.

    28) Specifies that an application for a finance lender or broker
    licenses under the CFL may be made through the NMLSR including
    fingerprints, fees, financial statements, and other supporting
    documents.

    29)Requires a finance lender or broker under the CFL in the
    business of making or brokering residential mortgage loans
    shall maintain a net worth of at least $250,000.

    30)Allows the commissioner of DOC to deny an application for
    licensure as a CLF or RML if the applicant employs a mortgage
    loan originator who is not licensed in California.

    31)Provides the commissioner of DOC with authority to require
    additional bond amounts for CFL licensees who employ one or
    more mortgage loan originators, based on the dollar amount of
    residential mortgage loans originated by the licensee.

    32)Requires CFL and RML licensees to maintain copies of all
    advertising material for a period of 90 days after its first
    use, and required that the commissioner of DOC approve the
    advertising prior to its first use.

    33)Requires every CFL licensee engaged in the business of making
    or brokering residential mortgage loans shall establish a
    record with the Nationwide Mortgage Licensing System and
    Registry.

    34)Requires every CFL licensee engaged in the business of making
    or brokering residential mortgage loans to ensure that every
    mortgage loan originator employed or compensated by the

    AB 34
    Page 10

    licensee is licensed or registered as a mortgage loan
    originator

    35)Provides that a CFL licensee engaged in the business of
    making or brokering residential mortgage loans may not make or
    broker a loan that was offered by, negotiated by, or applied
    for through, a mortgage loan originator not licensed or
    registered through the Nationwide Mortgage Licensing System
    and Registry.

    36)Provides that under the CFL and RMLA laws that an applicant
    for licensure as a mortgage loan originator shall apply
    through the submission of the uniform form prescribed by the
    NMLSR and allows the commissioner of DOC to require the
    submission of additional information or supporting
    documentation to the department. Additionally requires the
    following for CFL and RML employees who seek to act as loan
    originators:

    a) At the time of filing the application, the applicant
    shall pay to the commissioner a sum to be determined by the
    commissioner as an application fee for processing the
    application and investigating the applicant. The
    application and investigating fee are not refundable if an
    application is denied or withdrawn; and,

    b) In connection with an application for licensing as a
    mortgage loan originator, the applicant shall, at a
    minimum, furnish to the NMLSR information concerning the
    applicant`s identity, including the following:

    i) Fingerprints for submission to the Federal Bureau of
    Investigation, and any governmental agency or entity
    authorized to receive such information for a state,
    national, and international criminal history background
    check.

    ii) Personal history and experience in a form prescribed
    by the NMLSR, including the submission of authorization
    for the NMLSR and the commissioner to obtain the
    following.

    iii) An independent credit report obtained from a
    consumer reporting agency.
    iv) Information related to any administrative, civil, or

    AB 34
    Page 11

    criminal findings by any governmental jurisdiction.

    37)Provides that the commissioner of DOC shall not issue a
    mortgage loan originator license under the CFLL or RMLA unless
    the commissioner makes, at a minimum, the following findings:

    a) The applicant has never had a mortgage loan originator
    license revoked in any governmental jurisdiction, except
    that a subsequent formal rescission of the revocation shall
    not be deemed a revocation;

    b) The applicant has not been convicted of, or pled guilty
    or nolo contendere to, a felony in a domestic, foreign, or
    military court during the seven-year period preceding the
    date of the application for licensing and registration, or
    at any time preceding the date of application, if the
    felony involved an act of fraud, dishonesty, or a breach of
    trust, or money laundering. For purposes of this
    subdivision, any pardon of a conviction shall not be a
    conviction;

    c) The applicant has demonstrated financial responsibility,
    character, and general fitness such as to command the
    confidence of the community and to warrant a determination
    that the mortgage loan originator will operate honestly,
    fairly, and efficiently within the purposes of the Secure
    and Fair Enforcement for Mortgage Licensing Act of 2008
    (Public Law 110-289);

    d) The applicant has completed the pre-licensing education
    requirement described in;

    e) The applicant has passed a written test that meets the
    test requirement described in; and,

    f) The surety bond of the RML or CFL or servicer employing
    or intending to employ the applicant covers the activities
    of the applicant, or the applicant is otherwise covered by
    a bond or recovery fund.

    38)Requires an individual who seeks licensure as a loan
    originator under the RMLA or the CFLL shall complete at least
    20 hours of approved education which shall include at least
    the following:


    AB 34
    Page 12

    a) Three hours of federal law and regulations;

    b) Two hours of state law and regulations;

    c) Three hours of ethics, which shall include instruction
    on fraud, consumer protection, and fair lending issues;
    and,

    d) Two hours of training related to lending standards for
    the nontraditional mortgage product marketplace.
    39)Provides that each mortgage loan originator under the CFLL
    and RMLL shall submit to the NMLSR reports of condition, which
    shall be in the form and shall contain that information as the
    NMLSR may require.

    40)Provides that under the RMLA and CFLL laws that the following
    are minimum standards for license renewal for mortgage loan
    originators:

    a) The originator meets minimum standards and requirements;

    b) The originator has paid all fees; and,

    c) The originator has satisfied annual continuing
    educational requirements.

    41)Allows the commissioner of DOC to do any of the following:

    a) Deny, suspend, revoke, condition, or decline to renew a
    mortgage loan originator license for a violation of this
    division, or any rules or regulations adopted under this
    division;

    b) Deny, suspend, revoke, condition, or decline to renew a
    mortgage loan originator license if an applicant or
    licensee fails at any time to meet the requirements of
    Section 22183 or 22187, or withholds information or makes a
    material misstatement in an application for a license or
    renewal of a license;

    c) Order restitution against a mortgage loan originator or
    any finance lender or broker licensee employing a mortgage

    AB 34
    Page 13

    loan originator for violations of this division;

    d) Impose fines on a mortgage loan originator or any
    finance lender or broker licensee employing a mortgage loan
    originator pursuant to subdivisions (b), (c), and (d);

    e) Issue orders or directives under this division as
    follows; or,

    i) Order or direct a mortgage loan originator or any
    finance lender or broker licensee employing a mortgage
    loan originator to cease and desist from conducting
    business, including immediate temporary orders to cease
    and desist.

    ii) Order or direct a mortgage loan originator or any
    finance lender or broker licensee employing a mortgage
    loan originator to cease any harmful activities or
    violations of this division, including immediate
    temporary orders to cease and desist.

    iii) Enter immediate temporary orders to cease business
    under a license if the commissioner determines that the
    license was erroneously granted or the licensee is
    currently in violation of this division.

    f) Order or direct any other affirmative action as the
    commissioner deems necessary.

    42)Provides that the commissioner of DOC may impose a civil
    penalty on a mortgage loan originator or any finance lender or
    broker licensee, or RML licensee employing a mortgage loan
    originator, if the commissioner finds, on the record after
    notice and opportunity for hearing, that the mortgage loan
    originator or any finance lender or broker licensee employing
    a mortgage loan originator has violated or failed to comply
    with any requirement of this division or any regulation
    prescribed by the commissioner under this division or order
    issued under authority of this division.

    a) The maximum amount of penalty for each act or omission
    described above shall be twenty-five thousand dollars
    ($25,000).

    43)Provides that the unique identifier of any person originating

    AB 34
    Page 14

    a residential mortgage loan under the RMLA or CFLL, shall be
    clearly shown on all residential mortgage loan application
    forms, solicitations or advertisements, including business
    cards or Internet Web sites, and any other documents as
    established by rule, regulation, or order of the commissioner.

    44)Requires RML licensees to maintain a surety bond in the
    amount that reflects the dollar amount of loan originated as
    determined by the commissioner based on loan volume and
    provides that the amount of the bond shall not be less than
    $50,000.

    45)Specifies, that a loan processor or underwriter who does not
    represent to the public, through advertising or other means of
    communicating or providing information, including the use of
    business cards, stationery, brochures, signs, rate lists, or
    other promotional items, that the individual can or will
    perform any of the activities of a mortgage loan originator is
    exempt from licensing and registration

    46)Provides that an independent contractor who is employed by a
    mortgage loan originator may not engage in the activities of a
    loan processor or underwriter for a residential mortgage loan
    unless the independent contractor loan processor or
    underwriter obtains and maintains an endorsement as a mortgage
    loan originator under this article. Each independent
    contractor loan processor or underwriter who obtains and
    maintains an endorsement as a mortgage loan originator under
    this article shall have and maintain a valid unique identifier
    issued by the Nationwide Mortgage Licensing System and
    Registry.

    EXISTING LAW

    1)Regulates RMLs under the RMLA and the DOC. (Financial Code,
    Section 50000 et seq.)

    2)Regulates CFLs under the CFLL and the DOC. (Financial Code,
    Section 22000 et seq.)

    3)Regulates real estate brokers, who make or service residential
    mortgage loans under the Real Estate law administered by DRE.

    FISCAL EFFECT : Unknown


    AB 34
    Page 15

    COMMENTS :

    On November 12, 2008 this committee conducted an informational
    hearing to hear from a panel of experts and stakeholders
    regarding the passage and implementation of the SAFE Act. As a
    result of the information collected at the hearing the author
    has introduced this bill.

    AB 34 established landmark standards and requirements for
    mortgage loan originators regardless of where and how they are
    licensed. Under the requirements of this bill all mortgage loan
    originators must meet the following requirements:

    1)Register with the NMLSR and obtain a unique identifier. This
    registration process will ensure that those persons who have
    committed violations in other states are not allowed to become
    licensed in California. Additionally, this registration
    system will assist regulators with tracking and, if necessary,
    instituting disciplinary action against originators of
    mortgage loans.

    2)Pass background and criminal history checks.

    3)Disclosure on all advertising materials their unique
    identifier that is obtained from the NMLSR.

    4)Meet minimum and continuing educational requirements that
    include education in federal law and regulations, as well as,
    issues relating to the non-traditional mortgage market place.

    5)Meet and maintain net worth and/or bonding requirements.

    Does this bill apply to state chartered banks and credit unions?
    No, state legislation is not required for state banks and
    credit unions, as the enabling legislation that implements the
    SAFE Act is federal law, and by their relationship with the
    Federal regulators these institutions will be required to
    register their employees as loan originators by July 1, 2009.

    Under California law, mortgage loans can be made and originated
    under several different structures and licensing regimes.
    Mortgage brokers operate under a real estate license from the
    Department of Real Estate. This license requires several hours
    of educational training and ongoing direct oversight by the
    department. Additionally, common law has determined that real

    AB 34
    Page 16

    estate brokers owe their customers a fiduciary duty.

    Under the CFLL or the RMLA, originators offer loans under the
    umbrella license of the company they work for. Under this
    structure, the loan originator is not individually licensed nor
    statutorily mandated to maintain certain levels of educational
    experience. This is the similar to a loan officer who works at
    a bank or credit union. The logic with this model is that the
    wrongdoing of an individual places the whole license in jeopardy
    so institutions are more likely to self regulate. Some
    distinctions have been made in recent years regarding individual
    employees. For example, several legislative proposals have come
    forward in recent years that have put some requirements on
    individuals in these cases such as expanded background checks.

    On July 30, 2008 President Bush signed into law HR 3221, the
    Housing and Economic Recovery Act of 2008. This legislation
    provides reforms for Fannie Mae and Freddie Mac, as well as, new
    programs designed to assist homeowners facing foreclosure.
    Among its many provisions, HR 3221 contained a section known as
    the SAFE Act ( Title V of P.L. 110-289 ), a wholesale regulatory
    change of the licensing and regulation of mortgage originators.
    The SAFE Act is designed to require every state, through
    consultation and coordination with the Conference of State Bank
    Supervisors and the American Association of Residential Mortgage
    Regulators to establish a Nationwide Mortgage Licensing System
    that will accomplish the following:

    1)Provides uniform license applications and reporting
    requirements for State-licensed loan originators.

    2)Provides a comprehensive licensing and supervisory database.

    3)Aggregates and improves the flow of information to and between
    regulators.

    4)Provides increased accountability and tracking of loan
    originators.

    5)Streamlines the licensing process and reduces the regulatory
    burden.

    6)Enhances consumer protections and supports anti-fraud

    AB 34
    Page 17

    measures.

    7)Provides consumers with easily accessible information, offered
    at no charge, utilizing electronic media, including the
    Internet, regarding the employment history of, and publicly
    adjudicated disciplinary and enforcement actions against, loan
    originators.

    8)Establishes a means by which residential mortgage loan
    originators would to the extent possible, be required to act
    in the best interest of the consumer.

    9)Facilitates responsible behavior in the subprime mortgage
    market place and provides comprehensive training and
    examination requirements related to subprime mortgage lending.

    10)Facilitates the collection and disbursement of consumer
    complaints on behalf of State and Federal mortgage regulators.

    The SAFE Act requires California and other states to have a
    framework in place by August 1, 2009, or face direct oversight
    and implantation from the Federal Department of Housing and
    Urban Development (HUD). States may receive an extension if
    they are making a good faith effort to implement the
    requirements. Since the creation of California`s multi-layered
    framework, the system has been somewhat of an arbitrage where
    lenders could pick and choose licenses based on their business
    models or market needs. Some lenders have acquired licenses
    across all licensing laws.

    AB 34 reflects the challenges and difficulties imposed when
    attempting to craft, what is for the most part, a entirely new
    regulatory system for mortgage loan originators. Imposing
    these new requirements is somewhat easier for DRE licensed
    brokers as they already are licensed individually and meet
    several of the mandatory requirements imposed by the SAFE Act.
    A change to the requirements of the SAFE Act will require a
    wholesale restructure of those licensing frameworks.

    Related Legislation .

    SB 36 (Calderon), also implements changes to the RMLA, CFL and
    real estate law in order to comply with the SAFE Act. This bill
    is currently pending Senate Business and Professions Committee.


    AB 34
    Page 18

    REGISTERED SUPPORT / OPPOSITION :

    Support

    AA|RP
    California Association of Realtors

    Opposition

    None on file.

    Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081


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