SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 217 (Vargas)
Hearing Date: September 8, 2011
As Amended:
Fiscal:
Urgency:
September 1, 2011
Yes
No
VOTES:
9/07/11
Assembly Floor
8/17/11
Assembly Appr.
6/27/11
Assembly B. & F.
Senate votes not relevant
78-0
17-0
11-0
SUMMARY Would update California’s Secure Enforcement for Mortgage Licensing Act
(SAFE Act) law to reflect recently-released federal regulations and help solve SAFE Act
compliance challenges being faced by certain insurance companies admitted to transact
business in California.
DESCRIPTION
1.
Would provide that an expunged or pardoned felony conviction does not require
denial of a mortgage loan originator license by the Department of Corporations
(DOC) or denial of a mortgage loan originator license endorsement by the
Department of Real Estate (DRE), and would instead authorize DOC and DRE to
consider the underlying crime, facts, and circumstances of the expunged or
pardoned felony conviction when reviewing the license or license endorsement
application of an applicant with an expunged or pardoned felony conviction.
2.
Would authorize a person exempt from licensure under the California Finance
Lenders (CFLL) Law to apply to the Commissioner of Corporations for an exempt
company registration, for purposes of sponsoring one or more individuals required
to be licensed as mortgage loan originators under the SAFE Act, as specified.
3.
Would authorize a mortgage loan originator who is an insurance producer for an
insurer authorized to transact business in California to originate loans through a
licensed finance lender or a person with an exempt registration, and would
authorize that CFL or exempt person to originate loans on behalf of a single entity
exempt from the CFLL.
EXISTING LAW
Existing federal law provides for the SAFE Act, pursuant to Title V of the provisions of
the Housing and Economic Recovery Act of 2008 (HR 3221; Public Law 110-289). The
SAFE Act required all states to license and register their mortgage loan originators, as
defined, through a nationwide organization called the Nationwide Mortgage Licensing
System and Registry. Any state that failed to implement a mortgage loan originator
licensing system, in compliance with the SAFE Act, by July 30, 2009 risked direct
SB 217 (Vargas), Page 2
intervention by the U.S. Department of Housing and Urban Development (HUD). Under
the SAFE Act, HUD is authorized to establish and maintain a mortgage loan originator
system in any state that fails to voluntarily comply with SAFE.
Existing law, pursuant to SB 36 (Calderon), Chapter 160, Statutes of 2009 and SB 1137
(Committee on Banking, Finance & Insurance), Chapter 287, Statutes of 2010,
conforms California’s Real Estate Law, Finance Lenders Law, and Residential Mortgage
Lending Act to the SAFE Act, thus preserving California’s ability to continue regulating
mortgage loan origination by non-depository institutions operating in California.
COMMENTS
1.
Background and Discussion: SB 217 contains two separate provisions, both of
which are intended to update California’s SAFE Act laws. One provision updates
California law to reflect changes contained in recently-released final rules issued
by HUD. The other provision helps alleviate SAFE Act compliance challenges
being experienced by State Farm and Primerica Insurance Companies.
a.
Provision Proposed To Grant DRE and DOC Greater Licensing Flexibility
With Respect to Applicants With Expunged or Pardoned Felony Convictions
(revision of Business and Professions Code Section 10166.05, revision of
Financial Code Sections 220109.1 and 50141): On Thursday, June 30th,
HUD issued its final rules implementing the SAFE Act. Although the final
rules contained few surprises, they did include one unexpected change,
which provided state regulators with greater discretion regarding the review of
mortgage loan originator license applications submitted by persons with
expunged or pardoned felony convictions. California’s current law on this
topic mirrors the SAFE Act Model Law, which gives state regulators virtually
no discretion to review the facts of each case, when reviewing a mortgage
loan originator license application submitted by someone with an expunged or
pardoned felony conviction. Under the Model Law, state regulators must
disregard pardoned felony convictions; they cannot disregard expunged
convictions, nor can they consider the facts and circumstances surrounding
an expunged or pardoned felony conviction when making a licensing
decision.
Under the HUD final rule, and the changes contained in SB 217, DRE and
DOC may consider the facts and circumstances surrounding each individual
applicant with an expunged or pardoned felony conviction, when reviewing
that applicant for licensure as a mortgage loan originator. This additional
discretion should work to the advantage of some applicants, who would have
previously been denied licenses or license endorsements automatically,
because of prior pardoned or expunged felony convictions. These applicants
might now be granted those licenses or license endorsements, subject to
review of the facts and circumstances of their cases by DRE and/or DOC.
b.
Provision Proposed on Behalf of State Farm and Primerica (addition of
Financial Code Section 22065): State Farm owns both a federally-chartered
bank (State Farm Bank) and a group of insurance companies licensed to
SB 217 (Vargas), Page 3
issue insurance policies in California (State Farm Insurance Companies).
State Farm Insurance Companies contract with independent contractor
agents, who write insurance only on behalf of State Farm Insurance
Companies, and who, from time to time, originate mortgages solely on behalf
of State Farm Bank. The activities of these exclusive, independent contractor
agents on behalf of State Farm Bank meet the SAFE Act definition of
mortgage loan origination. However, because these agents are not
employees of State Farm Bank, they cannot legally obtain SAFE Act
registrations, as can bank employees. Because State Farm Bank is federally
chartered and regulated, it is not required to hold a lending license from DOC,
and cannot provide the sponsorship necessary under the SAFE Act to get its
agents licensed as mortgage loan originators.
State Farm is seeking a way to get its exclusive, independent contractor
agents licensed as mortgage loan originators. This bill achieves that aim by
authorizing State Farm Bank, or any other similarly situated entity exempt
from licensure under the CFLL, to register with DOC as an exempt entity, for
purposes of obtaining formal recognition by DOC. With that formal
recognition, State Farm Bank can register on the Nationwide Mortgage
Licensing System and Registry (NMLSR). Once recognized by DOC as an
exempt entity and registered on the NMLSR, State Farm agents will be able
to obtain mortgage loan originator licenses from DOC.
Primerica Life Insurance Company employs independent agents who, from
time to time, originate mortgage loans exclusively on behalf of Citibank, a
Primerica affiliate. Unlike State Farm Insurance Company, Primerica holds a
CFLL license from DOC, and is thus able to provide the sponsorship
necessary to gets its agents licensed as mortgage loan originators. Yet, the
CFL creates a Catch-22 for Primerica, because the CFLL contains a provision
that prohibits its licensees from brokering loans to entities that lack CFLL
licenses. Like State Farm Bank, Citibank is exempt from licensure under the
CFLL (the CFLL exempts any company doing business under any law of any
state or of the United States relating to banks). Because Primerica’s
independent insurance agent employees broker loans to an entity exempt
from the CFLL, language is necessary to ensure that Primerica’s mortgage
loan originator employees may broker loans to Citibank. The language
proposed to be added to Financial Code Section 22065(c) provides this fix,
and would allow any other similarly situated insurance company to broker
mortgage loans to a single entity exempt from the CFLL.
2.
Summary of Arguments in Support: Primerica Life Insurance Company, State
Farm, the National Association of Insurance and Financial Advisors of California
(NAIFA-California), Association of California Life and Health Insurance Companies,
and the California Bankers Association support the provisions of the bill that would
help facilitate the ability of admitted insurers to broker residential mortgage loans
exclusively to a single bank, subject to SAFE Act licensing requirements.
The California Mortgage Association and California Association of Mortgage
Professionals support the provisions of the bill that would give DRE and DOC more
SB 217 (Vargas), Page 4
discretion to evaluate the facts and circumstances surrounding expunged and
pardoned felony convictions when considering mortgage loan originator license
applications from these individuals.
3.
Summary of Arguments in Opposition: None received.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Association of California Life and Health Insurance Companies
California Association of Mortgage Professionals
California Bankers Association
California Mortgage Association
National Association of Insurance and Financial Advisors of California
Primerica Life Insurance Company
State Farm Insurance Company
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102