Legislature(2005 - 2006)SENATE FINANCE 532
04/28/2006 09:00 AM Senate FINANCE
Audio | Topic |
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Start | |
SJR20 | |
SB272 | |
SB309 | |
SB317 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+= | SJR 20 | TELECONFERENCED | |
+ | SB 272 | TELECONFERENCED | |
+ | SB 309 | TELECONFERENCED | |
*+ | SB 317 | TELECONFERENCED | |
+ | TELECONFERENCED |
CS FOR SENATE BILL NO. 272(L&C) "An Act relating to mortgage lenders, mortgage brokers, state agents who collect program administration fees, and other persons who engage in activities relating to mortgage lending; relating to mortgage loan activities; relating to fees for recorded mortgage loan instruments; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Green moved to adopt CS SB 272 24-LS1644\U, as the working document, and objected to receive an explanation. 3:09:59 PM AMY SEITZ, Staff to Senator Tom Wagoner, the bill's sponsor, informed the Committee this bill would establish mortgage licensing practices. Alaska is the only state that does not have this "consumer protection" feature in law, and as a result the Alaska Division of Banking and Securities does not have the authority to investigate complaints received. The Division receives approximately 20 legitimate complaints each week, in addition to 50 phone calls regarding questionable lending practices. Five years worth of efforts have culminated in the current "U" version of the bill. Co-Chair Green asked what interests may lead a person to support or oppose this bill. 3:12:00 PM Ms. Seitz informed that support is the result of recognition that consumers need protection. The industry and the State support the bill for that reason. The opposition comes from people who would rather license the loan originators. Co-Chair Green asked where she might find a loan originator. Ms. Seitz replied that an originator would meet with an applicant "face-to-face" to enter into a loan agreement. Ms. Seitz explained that the proposed legislation would protect consumers from any problems caused by the originator, as the language applies to employees of a licensed business. Opposition to the bill is based on "personal preference" rather than issues of protection. 3:13:42 PM Co-Chair Green asked regarding certification or license requirements. Ms. Seitz responded that no licensure requirements exist in the State. Some groups are federally regulated, such as State banks. Small residential mortgage companies, however, are not licensed. Senator Olson understood the bill contained protections against "predatory lenders", and asked how those provisions would affect loans negotiated between private parties. 3:14:48 PM MARK DAVIS, Director, Division of Banking & Securities, Department of Commerce, Community and Economic Development testified via teleconference from Anchorage, and responded that under Sec. 06.60.020(1) added by Section 2 on page 2 lines 14 through 17 of the bill, a person who makes fewer than six mortgage loans in a 12 month period would be exempt from the licensing requirements. Senator Olson acknowledged. Mr. Davis continued that while the proposed legislation would take two years to fully implement, it would allow the Division to immediately require licensing of all new companies wishing to enter the Alaska mortgage marketplace. He indicated that the State's "strong housing market" had made it attractive to mortgage lenders, and the ability to license those businesses as they enter the marketplace would be beneficial to Alaska. State banks are currently regulated by federal guidelines, but other subsidiary mortgage companies operated by banks are not. This legislation would create a "more even playing field". He urged passage of the bill. 3:18:20 PM Senator Olson asked how the regulations would apply to the self- financed sale of a building. 3:18:55 PM ROGER PRINCE, Department of Commerce, Community and Economic Development, testified via teleconference from Anchorage that that type of transaction would be exempt from this bill. Senator Olson asked where the exemption was defined in the bill. Mr. Prince located the language in Sec.06.60.990 (11)(A), added by Section 2 on page 21 lines 25 through 30. 3:19:53 PM Senator Dyson was "wary" of bills that require licensing, as he considered them often an attempt by an established group to control competition. He asked for assurance that this bill was truly aimed at protecting consumers and not an attempt to restrict access to other potential lenders. 3:20:51 PM Co-Chair Wilken presided over the following portion of the meeting. Ms. Seitz relayed that larger entities are already regulated. This bill would address the smaller mortgage lenders that are not currently licensed. 3:21:34 PM Mr. Davis referred to a "payday lending" bill that had been passed the previous year. It was anticipated that that regulatory bill would decrease competition in the field. The opposite effect occurred, as 23 additional lenders entered the marketplace and rates decreased. He concluded that the effect of licensure was to "increase competition and increase the number of members in the industry", and surmised the same results could be expected in the field of mortgage lending. He stressed that the Division would endeavor to ensure the burden of licensing did not have detrimental effects on small businesses. 3:23:10 PM Senator Dyson assumed that mortgage lending companies that chose not to conduct business in Alaska did so due to the possibility of "undercutting" by unreputable, unlicensed companies. He asked for examples of such "horror stories" as indication of what this legislation intended to prevent. 3:23:51 PM Mr. Davis exampled one case currently under investigation in which mortgage lending appeared to be used as a method of laundering money. Another problem related to lack of oversight is referred to as the "bait and switch" tactic, in which a person is promised one rate by a mortgage broker, but at closing are locked into a higher rate. Variations in disclosure letters and "less than honest" prequalification letters also pose potential fraud risks to the consumer. This bill would preserve the Department of Law's ability to address these issues. 3:25:50 PM DOUG ISAACSON, Past President, Alaska Association of Mortgage Brokers, President, Gold Coast Mortgage, testified via teleconference from Fairbanks, that this bill would encourage accountability. He addressed the "bait and switch" issue and explained that while some instances of higher interest rates at closing are in fact due to dishonest or fraudulent claims, some merely reflect changes in the market. If a person enters loan negotiations without "locking" the discussed interest rate, it is common for rates to fluctuate during the time it takes to finalize a mortgage loan, which may result in a higher rate at the time of closing. He understood language was developed to address this. Mr. Isaacson was concerned that the current "U" version of the bill did not include "a person who is exempt under AS 06.60.020" in the language of Sec. 06.60.420 Prohibited activities., as added by Section 2 as the previous Labor & Commerce Committee substitute Version "R" had. He suggested that language was necessary to protect consumers in all types of mortgage transactions, including those through an "exempt" entity. He also contended that an exempt person should be required to file for exemption with the State. He proposed the provision in Sec. 06.60.340 of Section 2 which required the Department to conduct examinations of licensees every 36 months be modified to allow, but not require, the examinations. He encouraged clarification of Sec. 06.60.600(b) and recommended allowing the fee to be paid by any party to the transaction. 3:30:39 PM Co-Chair Green resumed Chair, and asked the location of the proposed language change. Mr. Isaacson stated the Alaska Association of Mortgage Brokers support for the bill, and commented that if the fiscal note indicated a profit from the licensing fees, the cost of audits and regulations should correspondingly be reduced. 3:32:44 PM GREG WILLIAMS, Regional Director of State Government Affairs, American Financial Services Association (AFSA), testified via teleconference from an offnet location in Denver, Colorado. He informed that AFSA members are all supervised or regulated under state and federal law, and engage in auto finance, personal loans, and mortgage lending. He appreciated the efforts of the Department and the Division of Banking, and would support the bill as amended. He understood that several concerns AFSA had with the original bill had been addressed through the committee process. 3:37:29 PM Co-Chair Green asked if Mr. Williams' concerns had been addressed in the current "U" Version of the bill. Ms. Seitz replied that an amendment had been sent to the Legislative Affairs Agency, Division of Legal Research Services to be drafted but had not yet been completed. Co-Chair Green removed her objection to adopting Version "U". Without further objection, Version "U" was ADOPTED as the working document. Amendment #1: This amendment deletes "Except for AS06.60.400 - 06.60.440", from Sec. 06.60.020 added by Section 2 on page 2, line 14. The amended language reads, "Sec. 06.60.020. Exemptions. This chapter does not apply to…" In addition, this amendment deletes "a record of" from Sec. 06.60.090(4) added by Section 2 on page 6 line 22; deletes "a conviction" and inserts "been convicted" in subparagraph (A) on line 23; and deletes "an act, an omission, or a practice" and inserts "committed an act, made an omission, or engaged in a practice" in subparagraph (B) on line 26. The amended language reads as follows. (4) has, within the previous seven years, (A) been convicted, including a conviction based on a guilty plea or plea of nolo contendere, of a crime, including fraud or another crime involving personal dishonesty; (B) committed an act, made an omission, or engaged in a practice that constitutes a breach of a fiduciary duty; Furthermore, this amendment deletes the language of Sec. 06.60.090 (C) and (D) added by Section 2 on page 6, line 28, through page 7, line 1 and inserts new language to read as follows. (C) had the person's participation in the conduct of a business limited by an administrative act of a federal or state agency, including the suspension of a license for engaging in an occupation; or (D) had a license for engaging in an occupation revoked or terminated for cause by a federal or state agency. The amendment also inserts a new subsection to Sec. 06.60.120 added by Section 2 following line 18, page 8 to read as follows. (i) While a license is inactive under this section, the person holding the inactive license shall continue to maintain records as required by AS 06.60.250 for the business transactions of the person that occurred before the license became inactive. (j) While a license is inactive under this section, the department may take action against the license, the person holding the inactive license, or both under AS 06.60.300 - 06.60.360 and 06.60.500 - 06.60.540 for noncompliance with this chapter before the license became inactive or for noncompliance with this section while the license is inactive. (k) Except as otherwise provided in this section and by regulations adopted by the department, the provisions of this chapter do not apply to a person holding an inactive license under this section. Co-Chair Green moved for adoption and objected for an explanation. 3:39:18 PM Ms. Seitz explained that this amendment would address two issues raised in a memorandum from Division of Legal and Research Services, as well as make a technical deletion. The amendment clarified additional grounds for denial of license as specified in Sec. 06.60.090, added by Section 2. It also specified which provisions would be applicable to an inactive license, requiring the licensee to retain records for three years and providing the Division the authority to investigate claims brought against the licensee while they were active. Co-Chair Green remarked that "this is a lot of new law". 3:41:23 PM Without further objection, Amendment #1 was ADOPTED. Co-Chair Green stated that Mr. Williams had proposed additional language changes for the bill, which would be addressed after completion of public testimony. 3:42:58 PM LAURIE HOLT, Officer of Residential Lending, Mortgage Operations, Alaska Housing Finance Corporation (AHFC), Department of Revenue testified via teleconference from an offnet location on behalf of AHFC. While she had not had an opportunity to review the current committee substitute, AHFC was supportive of the "concept" of the legislation. She urged passage of the bill. 3:44:07 PM Mr. Prince was available to answer questions. 3:44:48 PM JOE BRAMMER, Alaska Association of Mortgage Brokers, testified via teleconference from Anchorage in support of the intent of this legislation. His Association had been working closely with the Alaska Association of Mortgage Bankers and others to address obstacles within the industry. Many members of the Alaska Association of Mortgage Brokers are small businesses employing only a few people. Alaska regulations have been detrimental to these businesses; therefore, they support the proposed legislation. He was concerned about the nine exemptions within the bill. During a Senate Labor & Commerce Committee hearing, he had proposed that a person must apply for and be granted exemption. This provision is not currently contained in the bill. He told of "chatter" within the industry indicating that many mortgage brokers have been attempting to define themselves as "exempt" based on the current language. 3:46:51 PM JOHN MARTIN, testified via teleconference from Anchorage, and referred to his written testimony [copy on file]. He informed that his suggestions had not been incorporated into the current committee substitute. He requested his submissions be included in the bill. He stated that licensing is needed, and this bill is "on the right track". 3:48:40 PM KEN GAIN, Secretary/Treasurer, Independent Lenders of Alaska, testified via teleconference from Anchorage, that the proposed legislation is "not unduly burdensome" to small businesses, and provides needed protection. He described the amendments as appropriate, and noted that the bill is supported by three regulated trade associations as well as by the Department. 3:49:57 PM JOHN CARMAN, Past President, Alaska Mortgage Bankers Association, testified via teleconference from Anchorage, that he had been involved in advancing legislation of this type for approximately five years. He noted the efforts and compromises that have occurred to reach this position. No regulations currently exist, and he offered anecdotal evidence that the lack of regulations make mortgage lending attractive to untrustworthy persons. He urged passage of the bill. AT EASE 3:53:08 PM / 3:54:58 PM Amendment #2: This conceptual amendment inserts "as defined in 15. U.S.C.A. 1602(a)" following "a mortgage loan"; deletes "best" following "borrower's"; and inserts "may include, but are not limited to" following "interest" in Sec. 06.60.430, added by Section 2 on page 16, lines 20 through 24. The amended language reads as follows. Sec. 06.60.430. Certain refinancing prohibited. (a) A mortgage broker may not refinance a mortgage loan as defined in 15 U.S.C.A. 1602(aa) within 12 months after the date the mortgage loan is originated by the lender or broker, unless the refinancing is in the borrower's interest. (b) The factors to be considered when determining if a mortgage is in the borrower's interest may include, but are not limited to, whether (1)… This amendment also deletes "mortgage broker" where it appears in Sec. 06.60.440 and makes necessary conforming changes; deletes "30 days before a change occurs in the billing address of the mortgage lender or mortgage broker"; inserts new language following "writing" in subsection (c); and adds a new subsection (d). The amended language reads as follows. Sec. 06.60.440. Escrow accounts. (a) A mortgage lender and a borrower may agree that the mortgage lender will keep in an escrow account all money that the borrower is required to pay to defray future taxes or insurance premiums or for other lawful purposes. The escrow account must be a trust account or another account that is segregated from the other accounts of the mortgage lender. The mortgage lender may not commingle the borrower's money with the general funds of the mortgage lender. (b) A mortgage lender may not require a borrower to pay money into escrow to defray future taxes, to defray insurance premiums, or for another purpose, in connection with a subordinate mortgage loan, unless an escrow account for that purpose is not being maintained for the mortgage loan that is superior to the subordinate mortgage loan. (c) A mortgage lender who is holding money in escrow for insurance premiums shall notify the insurer in writing within 30 days after the billing address of the mortgage lender changes, or 60 days before the renewal date of the insurance policy, whichever is later. (d) A mortgage broker who accepts funds belonging to a borrower in connection with a mortgage loan shall deposit all those funds into a trust fund account maintained by the broker in a bank or recognized depository in this state. The mortgage broker may not commingle the borrower's money with the general funds of the mortgage broker. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with the instructions from the borrower. Co-Chair Green moved the amendment and objected for explanation. 3:55:23 PM Ms. Seitz explained that because no legal definition of "best" is provided in regard to the phrase "borrower's best interest" the amendment removes the word "best" from Sec. 06.60.430 lines 28 and 30. It also clarifies other restrictions that may be used to determine what is in the borrower's best interest. Co-Chair Green read the amended language, "may include but are not limited to". Ms. Seitz continued that the amendment also modifies the requirements for escrow accounts in Sec. 06.60.440, creating a new subsection (d) in that section to regulate how those funds shall be managed. Co-Chair Green read the language added by the amendment. 3:57:31 PM Co-Chair Green asked Senator Bunde, as Chair of the Labor & Commerce Committee, if he found the changes acceptable. Senator Bunde affirmed. Co-Chair Green removed her objection. Amendment #2 was ADOPTED without further objection. 3:57:57 PM Senator Bunde moved to report the bill, as amended, from Committee with individual recommendations and accompanying fiscal notes. There being no objection, CS SB 272(FIN) was REPORTED from Committee with $259,200 fiscal note #1 from the Department of Commerce, Community and Economic Development. AT EASE 3:58:53 PM / 3:59:09 PM
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