BILL ANALYSIS
DATE OF HEARING: APRIL 19, 1995
SB 186
SENATE COMMITTEE ON FINANCE, INVESTMENT, AND INTERNATIONAL
TRADE
LUCY KILLEA, CHAIR
SENATE BILL 186 (MADDY) AS AMENDED APRIL 17, 1995
PRIOR ACTION:
None
FISCAL:
No
SUBJECT:
Changes to provisions and conditions of operability to the
California Residential Mortgage Lender Act.
Existing law created the California Residential Mortgage
Lender Act to be effective January 1, 1996. (Senate Bill
1978 Johnston, Chapter 994; Statutes of 1994). Residential
mortgage lenders are to be licensed by the Department of
Corporations. Eligibility for the new license is based on
the type of transactions conducted. Existing law subjects
mortgage banker licensees to licensure and other compliance
provisions, including annual CPA audits, Department of
Corporations audits, rate lock fee restrictions, consumer
disclosures, requirement for a $100,00 surety bond, a
$1,000 application fee and an annual assessment based on
the volume of business conducted by the licensee and civil
and criminal penalties for willful violations.
This Bill enlarges current statutory definitions to
SB 186 1 APRIL 19,
1995
SENATE COMMITTEE ON FINANCE, INVESTMENT AND
INTERNATIONAL TRADE
include:
1. INSTITUTIONAL INVESTOR:
Federal National Mortgage Association, and the Federal
Home Loan Mortgage Association, used as examples to
define government
entities;
A subsidiary or affiliate of a defined set of financial
institutions to
include industrial loan companies;
A corporation registered with the Securities and Exchange
Commission (SEC) or a wholly owned subsidiary providing
the following;
a. That it is purchasing for its own account for
investment and
not for sale in connection with any distribution
of a promissory
note.
b. An investment company registered under the
Investment
Company Act of 1940 (mutual fund) or is a wholly
owned
subsidiary;
c. A person licensed to make residential mortgage
loans or an affiliate
or subsidiary;
d. Any person licensed as a securities broker or
dealer, or an affiliate or subsidiary of the broker or
dealer in connection with a transaction involving the sale
or purchase of promissory notes secured by liens
on real property, and the offer and sales of
those securities qualify under state and federal securities
SB 186 2 APRIL 19,
1995
SENATE COMMITTEE ON FINANCE, INVESTMENT AND
INTERNATIONAL TRADE
laws; and
e. A business development company as defined, or a
Small Business
Investment Company licensed by the US Small Business
Administration (SBA);
f. A trust established by an institutional
investor for the purpose of issuing
securities representing undivided interests in a
pool of financial assets held by the trust or a
business entity provided the pool in part
consists of: interest bearing obligations, and
instruments providing
credit enhancement for the assets. The securities
must be rated as oinvestment gradeo by Standard and
Pooros or Moodyos, or sold to an
institutional investor.
2. INSTITUTIONAL LENDER
Federal National Mortgage Association, and the Federal
Home
Loan Mortgage Corporation as examples to defined
government
entities; and
A service or investment company that is controlled by a
defined
set of financial institutions to include industrial
loan companies.
This bill defines loan servicing activities as engaging in
the business of buying or selling to institutional
investors residential mortgage loans by using oneos own
funds, and to solicit, process, and underwrite but not
broker, residential mortgage loans for the institutional
lender, using the funds of the lender.
SB 186 3 APRIL 19,
1995
SENATE COMMITTEE ON FINANCE, INVESTMENT AND
INTERNATIONAL TRADE
COMMENTS:
This bill is sponsored by the Prudential Home Mortgage
Company. The sponsor contends this bill is designed
to ensure that mortgage banking companies retain the
flexibility necessary through access to institutional
capital markets and other secondary market resources.
The sponsor also contends this bill would authorize
mortgage bankers to enter agency contracts with other
institutional lenders to solicit, process and
underwrite loans.
The support contends that as the mortgage market has
contracted in the last twelve months, many large
mortgage lenders have sought to utilize their excess
capacity by offering to perform obackgroundo services,
such as tele-marketing, processing and underwriting
lending institutions.
This bill is opposed by California Association of
Realtors. The opposition objects to the
billos grant of authority to the Residential Mortgage
Lenders to solicit prospective
borrowers for one lender while at the same time holding
themselves out as the lender in the transaction. The
opposition contends that this sort of
agency activity the Department of Real Estate has
historically regulated, and they believe it would be ill
advised to spilt up the supervision of the
areas between the Department of Real Estate and the
Department of Corporations.
POSITIONS:
Support:
California Mortgage Bankers Association
SB 186 4 APRIL 19,
1995
SENATE COMMITTEE ON FINANCE, INVESTMENT AND
INTERNATIONAL TRADE
Prudential Home Mortgage Company
California Investoros Mutual
North American Mortgage Company
Ring Mortgage
Opposition:
California Association of Mortgage Brokers
California Trust Deed Association
California Association of Realtors
Contact:
Jan L. Owen 445-6306
SB 186 5 APRIL 19,
1995
SENATE COMMITTEE ON FINANCE, INVESTMENT AND
INTERNATIONAL TRADE