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AB-1384 Consumer loans: definition.(2019-2020)

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Date Published: 05/28/2019 09:00 PM
AB1384:v97#DOCUMENT

Amended  IN  Senate  May 28, 2019
Amended  IN  Assembly  March 25, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill
No. 1384


Introduced by Assembly Member O’Donnell

February 22, 2019


An act to amend Sections 10232.3 and 10238 of the Business and Professions Code, relating to real estate. Section 4970 of the Financial Code, relating to lending.


LEGISLATIVE COUNSEL'S DIGEST


AB 1384, as amended, O’Donnell. Real estate brokers: sales of notes secured by interests in real property. Consumer loans: definition.
Existing law defines and regulates consumer loans in various ways, including with reference to covered loans. Existing law defines a covered loan as a consumer loan for which the loan’s origination balance does not exceed the conforming loan limit for a single family first mortgage, as established by a specified entity, and that meets specified conditions regarding the loan’s annual percentage rate or the total points and fees payable will exceed a specified amount of the total loan. In this context, a consumer loan is defined as a consumer credit transaction secured by real property that is located in this state, improved by a one-to-four residential unit, and used, or intended to be used, as the consumer’s principal dwelling. Existing law excepts from this definition reverse mortgages, open lines of credit, as defined, bridge loans, and a consumer credit transaction secured by rental property or second homes.
This bill, for the purposes of the provisions described above, would define a “consumer credit transaction” as a loan made to, or an obligation incurred by, a natural person in which the money loaned, the property delivered, or service rendered is primarily for personal, family, or household purposes.

Existing law, the Real Estate Law, provides for the licensure and regulation of real estate brokers and salespersons by the Real Estate Commissioner, the Chief Officer of the Department of Real Estate within the Business, Consumer Services, and Housing Agency. A willful violation of this law and other related real estate provisions is a crime. Existing law specifically regulates the real estate brokers in transactions involving the offering and selling of notes or interests secured directly by interests in one or more parcels of real property. Existing law distinguishes, in this regard, between different types of loans and limits the aggregate principal of the note or interest sold pursuant to percentages of current market value of the parcels of real property. For construction or rehabilitation loans for which the amount withheld for construction or rehabilitation at the start of the project exceeds $100,000, current market value is deemed to the value of the completed project if specified safeguards are met, including that the entire amount of the loan does not exceed $2,500,000.

This bill would increase to $4,500,000 the limit on the loan amount for purposes of establishing the current market value on construction or rehabilitation loans for which the amount withheld for construction or rehabilitation at the start of the project exceeds $100,000, as described above. The bill would also make a conforming change in provisions that apply to a series of transactions of this nature.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YESNO   Local Program: NO  

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


SECTION 1.

 Section 4970 of the Financial Code is amended to read:

4970.
 For purposes of this division:
(a) “Annual percentage rate” means the annual percentage rate for the loan calculated according to the provisions of the federal Truth in Lending Act and the regulations adopted thereunder by the Consumer Financial Protection Bureau.
(b) “Covered loan” means a consumer loan in which the original principal balance of the loan does not exceed the most current conforming loan limit for a single-family first mortgage loan established by the Federal National Mortgage Association in the case of a mortgage or deed of trust, and where one of the following conditions are met:
(1) For a mortgage or deed of trust, the annual percentage rate at consummation of the transaction will exceed by more than eight percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.
(2) The total points and fees payable by the consumer at or before closing for a mortgage or deed of trust will exceed 6 percent of the total loan amount.
(c) “Points and fees” shall include the following:
(1) All items required to be disclosed as finance charges under Sections 1026.4(a) and 1026.4(b) of Title 12 of the Code of Federal Regulations, including the Official Staff Commentary, as amended from time to time, except interest.
(2) All compensation and fees paid to mortgage brokers in connection with the loan transaction.
(3) All items listed in Section 1026.4(c)(7) of Title 12 of the Code of Federal Regulations, only if the person originating the covered loan receives direct compensation in connection with the charge.
(d) “Consumer loan” means a consumer credit transaction that is secured by real property located in this state used, or intended to be used or occupied, as the principal dwelling of the consumer that is improved by a one-to-four residential unit. “Consumer loan” does not include a reverse mortgage, an open line of credit as defined in Part 1026 of Title 12 of the Code of Federal Regulations (Regulation Z), or a consumer credit transaction that is secured by rental property or second homes. “Consumer loan” does not include a bridge loan. For purposes of this division, a bridge loan is any temporary loan, having a maturity of one year or less, for the purpose of acquisition or construction of a dwelling intended to become the consumer’s principal dwelling.
(e) “Consumer credit transaction” means a loan made to, or an obligation incurred by, a natural person in which the money loaned, the property delivered, or service rendered under the loan or obligation is primarily for personal, family, or household purposes.

(e)

(f) “Original principal balance” means the total initial amount the consumer is obligated to repay on the loan.

(f)

(g) “Licensing agency” shall mean the Bureau of Real Estate for licensed real estate brokers, the Department of Business Oversight for licensed residential mortgage lenders, licensed finance lenders and brokers, and the commercial and industrial banks and savings associations and credit unions organized in this state.

(g)

(h) “Licensed person” means a real estate broker licensed under the Real Estate Law (Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code), a finance lender or broker licensed under the California Finance Lenders Law (Division 9 (commencing with Section 22000)), a residential mortgage lender licensed under the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000)), a commercial or industrial bank organized under the Banking Law (Division 1.1 (commencing with Section 1000)), a savings association organized under the Savings Association Law (Division 2 (commencing with Section 5000)), and a credit union organized under the California Credit Union Law (Division 5 (commencing with Section 14000)). This division shall not be construed to prevent any enforcement by a governmental entity against any person who originates a loan and who is exempt or excluded from licensure by all of the licensing agencies, based on a violation of any provision of this division. This division shall not be construed to prevent the Bureau of Real Estate from enforcing this division against a licensed salesperson employed by a licensed real estate broker as if that salesperson were a licensed person under this division. A licensed person includes any person engaged in the practice of consumer lending, as defined in this division, for which a license is required under any other provision of law, but whose license is invalid, suspended or revoked, or where no license has been obtained.

(h)

(i) “Originate” means to arrange, negotiate, or make a consumer loan.

(i)

(j) “Servicer” has the same meaning provided in Section 6 (i)(2) of the Real Estate Settlement Procedures Act of 1974.