06 Nov California Legislative Update
The California legislature recently amended its laws governing the licensure of real estate brokers, real estate salespersons, and mortgage loan originators under the Business and Professions Code. Provisions of the Finance Lender laws were also amended. All of these amendments are effective January 1, 2013.
CALIFORNIA SENATE BILL 875
Persons suspended or barred from a position of employment, management, or control under the real estate licensure provisions are also barred from participating in examinations for licensure.
Upon denial of an application for a license or license endorsement issuable under the real estate licensure provisions, the Department of Real Estate in the Business, Transportation and Housing Agency (the “Department of Real Estate”) will notify the applicant of the denial, and conduct a hearing if applicable.
The Real Estate Commissioner will require a person who submits a petition for reinstatement of his or her license or reduction of a penalty, in addition to meeting any other requirements imposed for purposes of the reinstatement or penalty reduction, to submit his or her fingerprints with the reinstatement petition.
A person must not cheat on, subvert, or attempt to subvert a licensing examination given by the Department of Real Estate. The Real Estate Commissioner may bar any candidate who willfully cheats on, subverts, or attempts to subvert an examination from taking any license examination and from holding an active real estate license for up to three years.
The following provision has been deleted:
A person who has obtained a conditional license, but has not satisfied the requirements for an unqualified license, will not be entitled to a late renewal of the license, and will not be entitled to the issuance of another conditional license until four years after the date of the issuance of the preceding conditional license.
CALIFORNIA ASSEMBLY BILL 1950
Under the Business and Professions Code, it is unlawful for any person to engage in the business of, act in the capacity of, advertise as, or assume to act as a mortgage loan originator in California without having obtained a license endorsement.
CALIFORNIA ASSEMBLY BILL 2666
Finance Lenders Law amendments addressed mortgage loan originators.
“Employee” means an individual whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person, and whose compensation for federal income tax purposes is reported, or required to be reported, on a W-2 form issued by the controlling person.
“Housing finance agency” means any authority:
- That is chartered by a state to help meet the affordable housing needs of the residents of the state;
- That is supervised directly or indirectly by the state government; or
- That is subject to audit and review by the state in which it operates.
The definition of a “mortgage loan originator” now excludes:
- An individual who is an employee of a federal, state, or local government agency or housing finance agency and who acts as a loan originator only according to his or her official duties as an employee of the federal, state, or local government agency or housing finance agency; and
- An employee of a bona fide nonprofit organization who exclusively originates residential mortgage loans for a bona fide nonprofit organization, and who acts as a mortgage loan originator only with respect to residential mortgage loans with terms that are favorable to the borrower.
In order to be exempt from licensing, the bona fide nonprofit organization must register with the Department of Corporations (the “Department”) on a form prescribed by the Commissioner of Corporations (the “Commissioner”), and provide documentation of all of the following by December 31 of each year:
- Its status as a tax-exempt charitable organization;
- That the organization promotes affordable housing or provides home ownership education or similar services;
- That the organization conducts its activities in a manner that serves public or charitable purposes, rather than commercial purposes;
- That the organization receives funding and revenue, and charges fees in a manner that does not incentivize the organization or its employees to act other than in the best interests of its clients;
- That the organization compensates employees in a manner that does not incentivize employees to act other than in the best interests of its clients;
- That the organization provides to, or identifies for, the borrower residential mortgage loans with terms favorable to the borrower and comparable to mortgage loans and housing assistance provided under government housing assistance programs; and
- That the organization is certified by the United States Department of Housing and Urban Development (“HUD”) as a housing counselor who engages only in traditional housing counseling services, if applicable.
The Commissioner may periodically require reports regarding the activities of the bona fide nonprofit organization, and will examine the nonprofit organization’s books and records in accordance with HUD regulations, or any successor guidance or requirement by the Consumer Financial Protection Bureau. If the nonprofit organization fails to provide the required documentation, or if it does not continue to meet the criteria to be a bona fide nonprofit organization, the Commissioner may revoke the nonprofit organization’s status as a registered bona fide nonprofit organization.
For residential mortgage loans to have terms that are favorable to the borrower, the terms must be consistent with loan origination in a public or charitable context, rather than a commercial context.
In making its determinations and examinations, the Commissioner may rely on the receipt and review of:
- Reports filed with federal, state, or local housing agencies and authorities; and
- Reports and attestations prescribed by the Commissioner by rule or order.
An individual must not engage in the business of a mortgage loan originator with respect to any dwelling located in California without first obtaining and maintaining annually a license in accordance with the licensure requirements and any rules set forth by the Commissioner.
A registered mortgage loan originator is exempt from licensure when he or she is employed by:
- A depository institution;
- A subsidiary of a depository institution that is owned and controlled by a depository institution and regulated by a federal banking agency; or
- An institution regulated by the Farm Credit Administration.
Any application for licensure, amendment to the application, or registration document or notice filed under any of the laws administered by the Department, or record otherwise required to be filed in California as an electronic record according to a nationwide central depository for information regarding licensees, including mortgage loan originators, or any electronic record filed through the Nationwide Mortgage Licensing System and Registry, will be considered a valid original document upon reproduction to paper form by the Department.
A licensed finance lender, broker, or mortgage loan originator must not pay any commission, fee, or other compensation to an unlicensed individual for conducting activities that require a license, unless that unlicensed individual is exempt from licensure.
A person exempt from licensure may apply to the Commissioner for an exempt company registration for the purpose of sponsoring one or more individuals required to be licensed as mortgage loan originators.
An exempt person applying under the exempt company registration procedure must comply with all rules and orders that the Commissioner deems necessary to ensure compliance with the SAFE Act and must pay an annual registration fee established by the Commissioner.
The Commissioner may, after notice and a reasonable opportunity to be heard, deny or decline to renew any license if the Commissioner finds that the power of investigation and examination by the Commissioner is not terminated by his or her denial or nonrenewal of any license.
The following provisions have been deleted:
A person must not engage in the business of making residential mortgage loans or servicing residential mortgage loans in California without first obtaining a license from the Commissioner in accordance with the requirements of the residential mortgage lender or residential mortgage loan servicer licensing laws, and any rules promulgated by the Commissioner, unless a person or transaction is excepted from a definition or exempt from licensure by the law or the Commissioner.
An employee of a licensee or of a person exempt from licensure is not required to be licensed when acting within the scope of his or her employment and will be exempt from any other law from which his or her employer is exempt, except for an individual who meets the definition of a mortgage loan originator.
CALIFORNIA SENATE BILL 976
A “community advantage lender,” an entity authorized by the United States Small Business Administration to deliver community advantage loans, need not be licensed under the California Finance Lenders Law.