BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        SB 657|
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                                 UNFINISHED BUSINESS


          Bill No:  SB 657
          Author:   Berryhill (R) and Pan (D), et al.
          Amended:  8/1/16  
          Vote:     21  

          PRIOR VOTES NOT RELEVANT

           SENATE BANKING & F.I. COMMITTEE:  7-0, 8/17/16 (pursuant to  
            Senate Rule 29.10)
          AYES:  Glazer, Galgiani, Hall, Hueso, Lara, Morrell, Vidak

           ASSEMBLY FLOOR:  78-0, 8/11/16 (Consent) - See last page for  
            vote

           SUBJECT:   The California Residential Mortgage Lending Act:   
                     lenders:  licensees


          SOURCE:    Author

          DIGEST:   This bill revises the definition of a lender under the  
          California Residential Mortgage Lending Act (CRMLA) to include  
          persons who act as loan processors or underwriters for  
          residential mortgage loans, as specified.


          Assembly Amendments delete the prior version of the bill and  
          replace it with the current language.  


          ANALYSIS:  










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          Existing law:


          1)Authorizes the CRMLA (Financial Code Section 50000 et seq.),  
            administered by the Department of Business Oversight (DBO), to  
            regulate the activities of residential mortgage lending and  
            servicing in California.  Provides that no person may engage  
            in the business of making or servicing residential mortgage  
            loans in California without first obtaining a license as a  
            mortgage lender or mortgage servicer under the CRMLA, unless  
            that person or transaction is exempt from licensure (Financial  
            Code Section 50002).  


          2)Defines "makes or making residential mortgage loans" or  
            "mortgage lending," pursuant to the CRMLA, as processing,  
            underwriting, or advancing one's own funds to a loan applicant  
            for a residential mortgage loan (Financial Code Section  
            50003).  


          3)Defines a "lender," pursuant to the CRMLA, as a person that  
            meets all of the following criteria:  


             a)   Is an approved lender for the Federal Housing  
               Administration (FHA), Veterans Administration, Farmers Home  
               Administration, Government National Mortgage Association,  
               Federal National Mortgage Association, or Federal Home Loan  
               Mortgage Corporation; 


             b)   Directly makes residential mortgage loans; and


             c)   Makes the credit decision in the loan transactions. 


          4)Prohibits an independent contractor from engaging in the  
            activities of a loan processor or underwriter for a  
            residential mortgage loan, unless that independent contractor  
            obtains and maintains both a license under the CRMLA and a  
            mortgage loan originator license (Financial Code Section  
            50003.6).  







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          5)Requires all CRMLA licensees to maintain a minimum tangible  
            net worth at all times of $250,000, computed in accordance  
            with generally accepted accounting principles.


          This bill:


          6)Adds the following persons to the definition of a lender under  
            the CRMLA:


             a)   An entity that is a natural person and an independent  
               contractor, who engages in the activities of a loan  
               processor or underwriter for a residential mortgage loan,  
               as specified. 


             b)   An entity that is not a natural person, who engages in  
               the activities of a loan processor or underwriter for a  
               residential mortgage loan, as specified.


          7)Authorizes the Commissioner of Business Oversight to require a  
            lender who is a loan processor or underwriter to maintain a  
            minimum tangible net worth in excess of $250,000, but that  
            does not exceed the net worth required of an approved lender  
            under the FHA.


          Comments


          This bill is sponsored by the author to mitigate the unintended  
          negative consequences in California of a policy change adopted  
          by the federal Department of Housing and Urban Development (HUD)  
          in September, 2015.  By changing the definition of lender under  
          the CRMLA, this bill allows certain entities that are currently  
          licensed under the CRMLA and currently doing business in  
          California to continue doing business as licensed CRMLA lenders  
          in this state.  








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          This bill is focused on entities that process and underwrite  
          residential mortgage loans in California.  Its intent is to  
          maintain the status quo under the CRMLA, by allowing loan  
          processors and underwriters that are currently licensed under  
          the CRMLA to remain licensed under that law.  


          As explained by the California Bankers Association and  
          California Mortgage Bankers Association in their letter of  
          support for this bill, companies that specialize in providing  
          mortgage loan processing, underwriting, and compliance services  
          to lenders represent an important component of mortgage loan  
          origination in California.  These third parties facilitate the  
          flow of loans to consumers and provide much-needed capacity and  
          technical expertise to lenders of all sizes, allowing those  
          lenders to more efficiently serve their borrowers.  


          The CRMLA requires these third party specialists to hold  
          licenses in California, because the CRMLA's definition of  
          "making a residential mortgage loan" includes the activities of  
          loan processing and loan underwriting.  Until September 2015,  
          several of these third parties also met the definition of  
          "lender" under the CRMLA, because these third parties were  
          approved as "non-supervised mortgagees" by the FHA, and the  
          CRMLA definition of a lender includes entities that are approved  
          by one or more specified federal housing agencies or  
          government-sponsored enterprises.  


          However, in September 2015, HUD (which oversees the FHA),  
          changed the definition of non-supervised lenders and mortgagees  
          in its Mortgagee Handbook; instead of referring to these  
          entities as "financial entities," the FHA began referring to  
          them as "lending institutions."  This change had the effect of  
          excluding third party processors and underwriters from the  
          definition of non-supervised lenders and mortgagees, because  
          these third parties do not originate or fund loans (i.e., they  
          do not lend).  The change to HUD's Mortgagee Handbook created a  
          Catch-22 in California, by creating a category of entities that  
          require CRMLA licenses, but that no longer meet the CRMLA  
          definition of entities that are eligible to obtain those  
          licenses.  This bill modifies the definition of "lender" under  







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          the CRMLA, to ensure that these loan processors and underwriters  
          are eligible to obtain and maintain CRMLA licenses.  


          FISCAL EFFECT:   Appropriation:    No         Fiscal  
          Com.:YesLocal:   No

          According the Assembly Appropriations Committee, there would be  
          no additional state costs.  


          SUPPORT:   (Verified8/15/16)


          California Bankers Association
          California Mortgage Bankers Association


          OPPOSITION:   (Verified8/15/16)


          None received

          ARGUMENTS IN SUPPORT:  The California Bankers Association and  
          California Mortgage Bankers Association write, "SB 657 will make  
          a small, but necessary technical adjustment to the CRMLA to  
          address a change in FHA classifications that negatively impacts  
          the license approval process for certain licensees.  We believe  
          SB 657 achieves two important public policy objectives; first,  
          it prevents a potential disruption in services critical to the  
          flow of mortgage capital into the California marketplace; and  
          second, prevents potential loss of jobs to Californians if there  
          was a disruption in the ability of a small but important set of  
          current RML licensed companies to operate under the CRMLA."  SB  
          657 maintains the status quo for loan processors and  
          underwriters, and ensures that these companies can continue to  
          do business in California.


           ASSEMBLY FLOOR:  78-0, 8/11/16
           AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,  
            Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth  







                                                                     SB 657  
                                                                    Page  6


            Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,  
            Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,  
            Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine,  
            Linder, Lopez, Maienschein, Mathis, Mayes, McCarty, Medina,  
            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Rendon
           NO VOTE RECORDED: Roger Hernández, Low



          Prepared by:  Eileen Newhall / B. & F.I. / (916) 651-4102
          8/17/16 16:41:02


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