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SB-657 The California Residential Mortgage Lending Act: lenders: licensees.(2015-2016)

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SB657:v93#DOCUMENT

Senate Bill No. 657
CHAPTER 797

An act to amend Sections 50003 and 50201 of the Financial Code, relating to mortgages.

[ Approved by Governor  September 29, 2016. Filed with Secretary of State  September 29, 2016. ]

LEGISLATIVE COUNSEL'S DIGEST


SB 657, Berryhill. The California Residential Mortgage Lending Act: lenders: licensees.
Existing law defines specified terms for purposes of the California Residential Mortgage Lending Act, which generally prohibits a person from engaging in the business of making residential mortgage loans or servicing residential mortgage loans without first obtaining a license from the Commissioner of Business Oversight in accordance with the act. Existing law defines a lender as a person who is an approved lender for the Federal Housing Administration, the Veterans Administration, the Farmers Home Administration, the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation, who directly makes residential mortgage loans, and who makes the credit decision in the loan transactions. Existing law requires a licensee issued a license for purposes of making or servicing residential mortgage loans to continuously maintain a minimum tangible net worth of $250,000.
This bill would specify that the term “lender” includes a person, other than a natural person, and a natural person who is also an independent contractor, who engages in the activities of a loan processor or underwriter for residential mortgage loans, but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans, as specified. The bill would authorize the commissioner to require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 50003 of the Financial Code is amended to read:

50003.
 (a) “Annual audit” means a certified audit of the licensee’s books, records, and systems of internal control performed by an independent certified public accountant in accordance with generally accepted accounting principles and generally accepted auditing standards.
(b) “Borrower” means the loan applicant.
(c) “Buy” includes exchange, offer to buy, or solicitation to buy.
(d) “Commissioner” means the Commissioner of Business Oversight.
(e) “Control” means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a licensee under this division, whether through voting or through the ownership of voting power of an entity that possesses voting power of the licensee, or otherwise. Control is presumed to exist if a person, directly or indirectly, owns, controls, or holds 10 percent or more of the voting power of a licensee or of an entity that owns, controls, or holds, with power to vote, 10 percent or more of the voting power of a licensee. No person shall be deemed to control a licensee solely by reason of his or her status as an officer or director of the licensee.
(f) “Depository institution” has the same meaning as in Section 3 of the Federal Deposit Insurance Act, and includes any credit union.
(g) “Engage in the business” means the dissemination to the public, or any part of the public, by means of written, printed, or electronic communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, of any information relating to the making of residential mortgage loans, the servicing of residential mortgage loans, or both. “Engage in the business” also means, without limitation, making residential mortgage loans or servicing residential mortgage loans, or both.
(h) “Federal banking agencies” means the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the National Credit Union Administration, and the Federal Deposit Insurance Corporation.
(i) “In this state” includes any activity of a person relating to making or servicing a residential mortgage loan that originates from this state and is directed to persons outside this state, or that originates from outside this state and is directed to persons inside this state, or that originates inside this state and is directed to persons inside this state, or that leads to the formation of a contract and the offer or acceptance thereof is directed to a person in this state (whether from inside or outside this state and whether the offer was made inside or outside the state).
(j) “Institutional investor” means the following:
(1) The United States or any state, district, territory, or commonwealth thereof, or any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state, district, territory, or commonwealth of the United States, or any agency or other instrumentality of any one or more of the foregoing, including, by way of example, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
(2) Any bank, trust company, savings bank or savings and loan association, credit union, industrial bank or industrial loan company, personal property broker, consumer finance lender, commercial finance lender, or insurance company, or subsidiary or affiliate of one of the preceding entities, doing business under the authority of or in accordance with a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States.
(3) Trustees of pension, profit-sharing, or welfare funds, if the pension, profit-sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000), except pension, profit-sharing, or welfare funds of a licensee or its affiliate, self-employed individual retirement plans, or individual retirement accounts.
(4) A corporation or other entity with outstanding securities registered under Section 12 of the federal Securities Exchange Act of 1934 or a wholly owned subsidiary of that corporation or entity, provided that the purchaser represents either of the following:
(A) That it is purchasing for its own account for investment and not with a view to, or for sale in connection with, any distribution of a promissory note.
(B) That it is purchasing for resale pursuant to an exemption under Rule 144A (17 C.F.R. 230.144A) of the Securities and Exchange Commission.
(5) An investment company registered under the Investment Company Act of 1940; or a wholly owned and controlled subsidiary of that company, provided that the purchaser makes either of the representations provided in paragraph (4).
(6) A residential mortgage lender or servicer licensed to make residential mortgage loans under this law or an affiliate or subsidiary of that person.
(7) Any person who is licensed as a securities broker or securities dealer under any law of this state, or of the United States, or any employee, officer, or agent of that person, if that person is acting within the scope of authority granted by that license or an affiliate or subsidiary controlled by that broker or dealer, in connection with a transaction involving the offer, sale, purchase, or exchange of one or more promissory notes secured directly or indirectly by liens on real property or a security representing an ownership interest in a pool of promissory notes secured directly or indirectly by liens on real property, and the offer and sale of those securities is qualified under the California Corporate Securities Law of 1968 or registered under federal securities laws, or exempt from qualification or registration.
(8) A licensed real estate broker selling the loan to an institutional investor specified in paragraphs (1) to (7), inclusive, or paragraph (9) or (10).
(9) A business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940 or a small business investment company licensed by the United States Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958.
(10) A syndication or other combination of any of the foregoing entities that is organized to purchase a promissory note.
(11) A trust or other business entity established by an institutional investor for the purpose of issuing or facilitating the issuance of securities representing undivided interests in, or rights to receive payments from or to receive payments primarily from, a pool of financial assets held by the trust or business entity, provided that all of the following apply:
(A) The business entity is not a sole proprietorship.
(B) The pool of assets consists of one or more of the following:
(i) Interest-bearing obligations.
(ii) Other contractual obligations representing the right to receive payments from the assets.
(iii) Surety bonds, insurance policies, letters of credit, or other instruments providing credit enhancement for the assets.
(C) The securities will be either one of the following:
(i) Rated as “investment grade” by Standard and Poor’s Corporation or Moody’s Investors Service, Inc. “Investment grade” means that the securities will be rated by Standard and Poor’s Corporation as AAA, AA, A, or BBB or by Moody’s Investors Service, Inc. as Aaa, Aa, A, or Baa, including any of those ratings with “+” or “—” designation or other variations that occur within those ratings.
(ii) Sold to an institutional investor.
(D) The offer and sale of the securities is qualified under the California Corporate Securities Law of 1968 or registered under federal securities laws, or exempt from qualification or registration.
(k) “Institutional lender” means the following:
(1) The United States or any state, district, territory, or commonwealth thereof, or any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state, district, territory, or commonwealth of the United States, or any agency or other instrumentality of any one or more of the foregoing, including, by way of example, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
(2) Any bank, trust company, savings bank or savings and loan association, credit union, industrial loan company, or insurance company, or service or investment company that is wholly owned and controlled by one of the preceding entities, doing business under the authority of and in accordance with a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States.
(3) Any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of that corporation.
(4) A residential mortgage lender or servicer licensed to make residential mortgage loans under this law.
(l) “Law” means the California Residential Mortgage Lending Act.
(m) “Lender” means a person that satisfies either of the following:
(1) The person is or does all of the following:
(A) The person is an approved lender for the Federal Housing Administration, Veterans Administration, Farmers Home Administration, Government National Mortgage Association, Federal National Mortgage Association, or Federal Home Loan Mortgage Corporation.
(B) The person directly makes residential mortgage loans.
(C) The person makes the credit decision in the loan transactions.
(2) The person is either of the following:
(A) Is not a natural person and engages in the activities of a loan processor or underwriter for a residential mortgage loan but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans unless the person is also a lender under paragraph (1).
(B) 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 described in subdivision (c) of Section 50003.6 but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans unless the person is also a lender under paragraph (1).
(n) “Licensee” means, depending on the context, a person licensed under Chapter 2 (commencing with Section 50120), Chapter 3 (commencing with Section 50130), or Chapter 3.5 (commencing with Section 50140).
(o) “Makes or making residential mortgage loans” or “mortgage lending” means processing, underwriting, or as a lender using or advancing one’s own funds, or making a commitment to advance one’s own funds, to a loan applicant for a residential mortgage loan.
(p) “Mortgage loan,” “residential mortgage loan,” or “home mortgage loan” means a federally related mortgage loan as defined in Section 1024.2 of Title 12 of the Code of Federal Regulations, or a loan made to finance construction of a one-to-four family dwelling.
(q) “Mortgage servicer” or “residential mortgage loan servicer” means a person that (1) is an approved servicer for the Federal Housing Administration, Veterans Administration, Farmers Home Administration, Government National Mortgage Association, Federal National Mortgage Association, or Federal Home Loan Mortgage Corporation, and (2) directly services or offers to service mortgage loans.
(r) “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 licensed mortgage loan originators.
(s) “Net worth” has the meaning set forth in Section 50201.
(t) “Own funds” means (1) cash, corporate capital, or warehouse credit lines at commercial banks, savings banks, savings and loan associations, industrial loan companies, or other sources that are liability items on a lender’s financial statements, whether secured or unsecured, or (2) a lender’s affiliate’s cash, corporate capital, or warehouse credit lines at commercial banks or other sources that are liability items on the affiliate’s financial statements, whether secured or unsecured. “Own funds” does not include funds provided by a third party to fund a loan on condition that the third party will subsequently purchase or accept an assignment of that loan.
(u) “Person” means a natural person, a sole proprietorship, a corporation, a partnership, a limited liability company, an association, a trust, a joint venture, an unincorporated organization, a joint stock company, a government or a political subdivision of a government, and any other entity.
(v) “Residential real property” or “residential real estate” means real property located in this state that is improved by a one-to-four family dwelling.
(w) “SAFE Act” means the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (Public Law 110-289).
(x) “Service” or “servicing” means receiving more than three installment payments of principal, interest, or other amounts placed in escrow, pursuant to the terms of a mortgage loan and performing services by a licensee relating to that receipt or the enforcement of its receipt, on behalf of the holder of the note evidencing that loan.
(y) “Sell” includes exchange, offer to sell, or solicitation to sell.
(z) “Unique identifier” means a number or other identifier assigned by protocols established by the Nationwide Mortgage Licensing System and Registry.
(aa) For purposes of Sections 50142, 50143, and 50145, “nontraditional mortgage product” means any mortgage product other than a 30-year fixed rate mortgage.
(ab) For purposes of Section 50141, “expungement” means the subsequent order under the provisions of Section 1203.4 of the Penal Code allowing such individual to withdraw his or her plea of guilty and to enter a plea of not guilty, or setting aside the verdict of guilty or dismissing the accusation, information, or indictment. With respect to criminal convictions in another state, that state’s definition of expungement will apply.

SEC. 2.

 Section 50201 of the Financial Code is amended to read:

50201.
 (a) A licensee issued a license for purposes of making or servicing residential mortgage loans, including a licensee employing one or more mortgage loan originators, shall continuously maintain a minimum tangible net worth at all times of two hundred fifty thousand dollars ($250,000). The commissioner, in his or her discretion, may require a lender who engages in the activities described in paragraph (2) of subdivision (m) of Section 50003 to continuously maintain a minimum tangible net worth of an amount that is greater than two hundred fifty thousand dollars ($250,000), but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.
(b) Tangible net worth shall be computed in accordance with generally accepted accounting principles.
(c) The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.