BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 653| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ {u u} THIRD READING Bill No: AB 653 Author: Hertzberg (D) Amended: 7/6/99 in Senate Vote: 21 {u SENATE FINANCE, INV. & INT. TR. COMMITTEE u} : 8-0, 6/9/99 AYES: Brulte, Costa, Johannessen, Johnson, Karnette, Murray, Solis, Leslie NOT VOTING: Polanco {u SENATE APPROPRIATIONS COMMITTEE u} : Senate Rule 28.8 {u ASSEMBLY FLOOR u} : 76-0, 5/20/99 - See last page for vote {u SUBJECT u} : Residential mortgage lending {u SOURCE u} : California Mortgage Bankers Association {u DIGEST u} : This bill amends real estate lending laws to create a new exemption from real estate license requirements for employees of real estate brokers who assist the broker with residential mortgage transactions, and repeals the provision limiting the percentage of loans a mortgage lender can broker. {u ANALYSIS u} : Existing law: In 1996 a new law known as the California Residential Mortgage Act went into effect. Mortgage bankers came under this act, and it permits them to make or broker residential mortgage loans (one to four units), or service residential CONTINUED {u AB 653 u} Page 2 mortgage loans. Before engaging in the business of making these loans, a mortgage banker must obtain a license from the State Corporations Commissioner. According to both the State Department of Corporations (DOC) and the State Department of Real Estate (DRE), the licensing and regulations of mortgage bankers can be confusing and "overlap" exists. At present, a mortgage banker who wants to operate as a residential mortgage lender (RML) is permitted to loan its own money to borrowers, or broker and obtain loans for borrowers. When a mortgage banker broker loans, the maximum allowed is not more than five percent of the total loans made during the first year of operation under the RML Act. Thereafter, the percentage level may not exceed the greater of five percent, or 10 percent less the percentage level of brokerage services done in the prior year. (Financial Code, Section 50704.) Individuals working as a mortgage banker, or for the mortgage banking company, also may be licensed as real estate brokers, and they come under the jurisdiction of the DRE. When operating with a DRE license, a mortgage banker is not subject to the above RML brokered percentage limitations. In addition, on or before December 31, 1999, the secretary of the State Business, Transportation and Housing Agency must submit a report to the Legislature that evaluates the protections and remedies for consumers of brokerage services under the new RML (State Department of Corporations) vs. how things were/are under the real estate law (State Department of Real Estate). This report will allow the Legislature to assess the merit of mortgage banker brokerage services. Unless a statute extends the date for the provisions that permit mortgage bankers to operate with a RML (DOC jurisdiction), the brokerage provision will sunset on June 30, 2001. And finally, it is unlawful for any person to "engage in the business, act in the capacity of, advertise or assume to act as a real estate broker without first obtaining a real estate license" from the DRE. The definition of a real estate broker includes a person who solicits {u AB 653 u} Page 3 "borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property . . . . " There are various persons exempt from this section, including licensed finance lenders, "any person authorized in writing by a savings institution to act as an agent of that institution," and any person licensed as a residential mortgage lender or servicer when acting under the authority of the Corporations Commissioner. This bill exempts persons employed by real estate brokers who, on behalf of the broker, assist the broker in meeting the broker's obligations to its customers in residential mortgage loan transactions, where the lender is an institutional lender, provided the employee does not participate in any negotiations between the principals. The bill requires a broker to exercise "reasonable supervision and control" over these nonlicensed persons. This bill repeals Financial Code Section 50704. This section pertains to the percentage limitations of brokerage services outlined under existing law. In sum, mortgage bankers could continue to make residential loans with their own money, or as many brokered loans as they want. ( {u Note u} : brokered money generally comes from banks, savings and loans, and other "traditional" lending sources.) This bill extends the sunset provision from June 30, 2001, to June 30, 2005. In addition to the December 31, 1999, Business, Transportation and Housing report discussed under the existing law section of this analysis, a second report would be due on or before December 31, 2002. This report would be an update of the first report's findings and contain information regarding brokered residential loans made in 2000 and 2001. {u Comments u} Purpose of the bill: According to the sponsor, the California Mortgage Bankers {u AB 653 u} Page 4 Association (MBA), this bill permits mortgage bankers to broker residential mortgage loans under only one license -- issued by the DOC. CMBA contends that "no other regulated lender in this State is required to have a real estate license to broker loans. {uFISCAL EFFECT u} : Appropriation: No Fiscal Com.: Yes Local: No {u SUPPORT u} : (Verified 7/13/99) California Mortgage Bankers Association (source) California Association of Mortgage Brokers California Bankers Association California Association of Realtors {u ARGUMENTS IN SUPPORT u} : The California Mortgage Bankers Association (CMBA) maintains this bill "corrects a significant problem in the state license requirements for California mortgage lenders?" and eliminates the need for mortgage bankers to be dually licensed. The California Association of Mortgage Brokers (CAMB) reports the bill would "allow for more flexibility in the handling of the routine paperwork aspects of a mortgage loan transaction." The California Association of Realtors reports that "AB 653 is the product of long-term negotiations between our Association" and the CMBA. NOTE: The California Association of Real Estate Brokers (CAREB) has expressed concerns and has requested amendments. {u ASSEMBLY FLOOR u} : 76-0, 5/20/99 AYES: Aanestad, Ackerman, Alquist, Aroner, Ashburn, Baldwin, Bates, Battin, Baugh, Bock, Brewer, Briggs, Calderon, Cardenas, Cardoza, Corbett, Correa, Cox, Cunneen, Davis, Dickerson, Ducheny, Dutra, Florez, Floyd, Frusetta, Gallegos, Granlund, Havice, Hertzberg, Honda, House, Jackson, Kaloogian, Keeley, Knox, Kuehl, Leach, Lempert, Leonard, Longville, Lowenthal, Machado, Maddox, {u AB 653 u} Page 5 Maldonado, Margett, Mazzoni, McClintock, Migden, Nakano, Olberg, Oller, Robert Pacheco, Rod Pacheco, Papan, Pescetti, Reyes, Romero, Runner, Scott, Shelley, Soto, Steinberg, Strickland, Strom-Martin, Thompson, Thomson, Torlakson, Washington, Wayne, Wesson, Wiggins, Wildman, Wright, Zettel, Villaraigosa NOT VOTING: Campbell, Cedillo, Firebaugh, Vincent NC:kb 7/14/99 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****