California Real Estate Finance Law by tij15535


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									                 Senate Appropriations Committee Fiscal Summary
                          Senator Christine Kehoe, Chair

                                             SB 36 (Calderon)

Hearing Date: 4/27/09                       Amended: 4/20/09
Consultant: Maureen Ortiz                   Policy Vote: B. F. & I. 9-0
                                                         B. P. & E. D. 7-1
BILL SUMMARY: SB 36 will bring California’s Real Estate Law, Finance Lenders Law,
and Residential Mortgage Lending Act into compliance with the federal Secure and Fair
Enforcement for Mortgage Licensing Act of 2008 (known as the SAFE Act) by requiring
the licensure of mortgage loan originators.
                             Fiscal Impact (in thousands)

Major Provisions                2009-10         2010-11          2011-12       Fund

DRE start-up costs            ---potentially multi-million one-time--        Special*

Endorsement/registry         -------approximately $10,000 annually
                                      potentially offset by fee revenue---   Special*

Licensing/registry             $2,000            $1,000           $1,000      Special**

*Real Estate Fund **Corporations Fund

STAFF COMMENTS: This bill meets the criteria for referral to the Suspense file.

Department of Real Estate

SB 36 requires persons who have a real estate license under the Department of Real
Estate (DRE) to obtain an endorsement in order to engage in the business of a
mortgage loan originator. The bill provides for penalties for those who fail to obtain the
endorsement and authorizes the commissioner to suspend or revoke that individual’s
real estate license. SB 36 places numerous criteria for licensees including educational
requirements, and annual reports on business activities. The commissioner will be
authorized to examine the affairs of real estate brokers that obtain license endorsement
as a mortgage loan originator, and be required to report violations to the Nationwide
Mortgage Licensing System and Registry (NMLSR).

Additionally, the SAFE Act requires the licensee to directly register with the NMLSR,
and then requires the DRE to verify the data provided by the licensee. The SAFE Act
does not currently allow for an electronic upload of the licensing data to be transmitted,
but will instead require DRE to manually input the verification information. SB 36
provides that the provisions under DRE will not be effective until the DRE issues a
finding that the NMLSR is capable of two-way electronic communication with the
enterprise information system maintained by the DRE.
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SB 36 (Calderon)

In a preliminary fiscal estimate, the DRE anticipates the need for 131 PYs resulting in
annual costs of approximately $12 million. Most costs will be offset by license fee
revenue estimated at this time to be between $236 and $281 per licensee. However,
initial start up costs to the program not covered by new fee revenue will be several
million dollars.

Department of Corporations

SB 36 requires persons licensed as finance lenders and brokers and residential
mortgage lenders by the Department of Corporations (DOC) to obtain an additional
license in order to engage as a mortgage loan originator. This provision, required by
the SAFE Act, also requires the licensing of employees who are not currently required
to obtain a license. The bill requires finance lenders and brokers and residential
mortgage lenders that employ a mortgage loan originator to maintain a minimum net
worth of $250,000. The DOC in a preliminary fiscal analysis estimates startup costs of
at least $2 million, and an additional $1 million annually, with an unknown amount of fee
revenue at this time.

SB 36 provides that no person will be required to obtain a license as a mortgage loan
originator under the California Finance Lenders Law, the California Residential
Mortgage Lending Law, or the Real Estate Law until August 1, 2010.

The SAFE Act requires all states to individually license mortgage loan originators, and
then requires the mortgage loan originators to register through a nationwide
organization called the Nationwide Mortgage Licensing System and Registry (NMLSR).
The SAFE Act provides that any state that does not implement a mortgage loan
originator licensing system in compliance with the SAFE Act by July 30, 2009, risks
direct intervention by the Secretary of the U. S. Department of Housing and Urban
Development (HUD). However, states that are deemed as making a good faith effort to
establish a state licensing law may be granted one additional year in which to comply.

“Mortgage loan originator” is generally defined as one who takes a residential mortgage
loan application or offers or negotiates terms of a residential mortgage loan for
compensation or gain. Administrative and/or clerical employees are not included within
the definition, nor are real estate brokers who don’t broker mortgages.

Under the SAFE Act, mortgage loan originators who are not employed by a depository
institution must be both licensed by their state and registered on the national registry.
License applicants must undergo background checks, submit to credit checks, complete
and successfully pass pre-licensing education courses approved by the registry,
complete continuing education requirements and meet other specified criteria.

Mortgage loan originators who are employed by depository institutions or their
subsidiaries must register with the NMLSR, but need not be licensed.

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