Legislature(2005 - 2006)BELTZ 211
03/30/2006 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB241 | |
| SB307 | |
| SB272 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 241 | TELECONFERENCED | |
| += | SB 307 | TELECONFERENCED | |
| += | SB 309 | TELECONFERENCED | |
| += | SB 272 | TELECONFERENCED | |
SB 272-MORTGAGE LENDING
CHAIR CON BUNDE announced SB 272 to be up for consideration.
SENATOR RALPH SEEKINS moved to adopt CSSB 272, version C, as the
working document. There were no objections and it was so
ordered.
AMY SEITZ, staff to Senator Wagoner, sponsor of SB 272, reviewed
changes in the CSSB 272, version C, at length. She said that
page 1 had a new Section 1 that added mortgage lenders and
mortgage brokers into the definition of financial institution
and that licensing requirement language was added on page 2
clarifying that this covered persons doing business from out of
state. Section 06.60.020. Exemptions, exempts a person from
getting a license for six or fewer loans every 12 months,
although he is not exempt from the business duties and
restrictions under this chapter. Language was moved from
subsection 3 into subsection 2 that subjects a person to general
supervision, regulations and examination. References to audit
were deleted in both subsections. The word "kickback" on page 3
in subsection 7 was deleted. Subsections 10 and 11 under
exemptions were deleted, but their ideas were put into new
Section 06.60.025 that deals with employees and independent
contractors and clarifies that even though they are not required
to get their own separate licenses, they are still required to
follow the rules under this chapter. The licensee would be
responsible for any breaking of the rules.
MS. SEITZ said on page 4 new language was inserted in Section
06.60.030 (6) that clarifies what other information the
department may be requiring for the application and in Section
06.60.040. Investigation: "license" was changed to "application
fee". On page 5, Section 06.60.050, language was changed to say
that persons applying for a dual license didn't have to pay a
dual fee. Section 06.60.060. Bonding: language was changed in
subsection (b) to say that either the department or a person
could collect fees. Section 06.60.070 (a) language clarified
that a complete application, the required bond, any fees or
assessments had to be turned into the department before a
license was granted or denied. "Disapproved" was changed to
"deny an applicant to license" in subsection (b) on page 6 and
several places throughout the bill.
MS. SEITZ continued saying that "approved" was changed to
"granting" in Section 06.60.080 and that subsection (1) now
included investigative costs so the applicant would have to pay
all the required fees and the investigative costs. Subsection
(2) added "or other principals" to the list of what the
financial responsibility would be. Subsection (3) changed
language from "disapprove" to "deny". Also on page 6, in Section
06.60.090 "disapprove" was changed to "denial". On page 7, she
said the language was changed in Section 06.60.110 on how long
the license would be in effect.
2:41:10 PM
CHAIR BUNDE interrupted to ask if everyone had received the CS.
MS. SEITZ replied that she had sent a copy to everyone she had a
fax number for. She continued saying that language was clarified
saying the department could not accept a transfer without the
provisions in subsection (b) of Section 06.60.110. Section
06.60.210 changed an "application fee" to an "annual license
fee" because the license is being discussed, not the
application. Section 06.60.240 conformed with previous language
to include "control of licensee" in the title. The change has to
be written notice and 30 days instead of 10 days. This section
also has a new subsection (b).
She said that Section 06.60.250. Records of licensee: had
significant changes and added subsections (b) through (e).
Section 06.60.260 (2) was rewritten to read more smoothly with
the reference to the statute at the beginning instead of the
end. Section 06.60.270. Disqualified persons added a member and
a sole proprietor to the list of people who this paragraph deals
with. In subsection (c) language was changed from "an officer,
director, or other person" to "a person". Under (1) - what a
disqualified person means - was changed to just reference "if a
person is convicted of" because the Department of Law felt that
would cover a better variety of people than previous language.
It also added a new subsection, (c).
MS. SEITZ continued her review saying on page 10, Section
06.60.280 on minimum net worth had inadvertently been left in
and that was deleted completely.
2:45:05 PM at ease 2:45:47 PM
CHAIR BUNDE announced that he needed to go to another meeting
and he would turned the gavel to Vice Chair Seekins who would
continue going through the new CS, but because of the new
information, the bill would not move today.
MS. SEITZ continued her explanation of the CS saying on page 12,
Section 06.60.340. Revocation and suspension of a license: had
clarifying language in the beginning paragraph (A) and (C). It
now reads "Investigation and examination." instead of
"Examination of licensee." Subsection (a) also had some
clarifying language, although the content wasn't changed.
Going to page 13, Ms. Seitz said, subsection (b) was added to
Section 06.60.350, the false information section. On page 14,
Subsection (6) was added under compliance with federal
requirements in Section 06.60.410 that states "any other federal
law or regulation" to cover everyone. On page 17, Section
06.60.500. Cease and desist orders: was shortened to one
sentence. The old Section 06.60.510 was deleted and renumbered.
Section 06.60.520. Responsibility of licensee for violations:
and Section 06.60.540. Civil penalty for violations: were new.
On the same page under "additional enforcement provisions,
actions, and rights," subsection (c) was added. Section
06.60.600, Authorization of program administration fee: was new
and dealt with which applications would apply to the $10-dollar
application fee; the old Section 06.60.600 became Section
06.60.610. Section 06.60.700. Application to Internet
activities: clarifies that this chapter also applies to Internet
businesses. On page 22, new Section 4 added a new subsection to
AS 45.50.481. She concluded saying those were all the changes.
2:51:16 PM
SENATOR SEEKINS said he had a question about page 19 on Section
06.60.610 that said the department can contract with an agent to
collect a fee, but it appeared to him (b) said if the agent
collects the fee and doesn't turn them in, the effect is the
same as if they hadn't been collected.
2:52:23 PM
MARK DAVIS, Division of Banking and Securities, Department of
Commerce, Community & Economic Development (DCCED), explained
that the state didn't want to be liable if an agent didn't turn
in the fees and the sovereign immunity of the state could be
used in this instance.
SENATOR SEEKINS said he thought it violated the age-old
principal of "I am responsible for my agent." He said he would
feel more comfortable having the state collect the fees, itself.
MR. DAVIS agreed with his concern in a regular business context,
but explained that this is the same process used by the Alaska
Department of Fish and Game (ADF&G) that collects fees by using
agents.
SENATOR SEEKINS remarked that maybe they would have to go back
and fix that, too.
MR. DAVIS said if he had a complaint that someone was not
collecting fees, the bill is worded so that the department would
investigate that complaint and then it would move to cease and
desist on the license immediately.
SENATOR SEEKINS asked if he had any other comments.
MR. DAVIS replied first by thanking all the staff who had worked
on the legislation. He thought it was the same bill in spirit,
but now it was tightened up. He said it still allows for a
variety of mortgage companies and supports the inclusion of
mortgage companies as financial institutions, to make sure all
the banking authority that his division has could be applied if
necessary to these companies. Because Alaska has never regulated
mortgage companies, there would be a bit of a learning curve, as
it had with payday lending last year. He said that Alaska is the
last state to not have any regulation and this gives it the
ability to enforce federal law, a positive aspect. The
exemptions are there because of federal law and regulation.
However, if he found a violation from an exempt institution that
was supervised by the office that controlled the currency, once
the bill passes, he would be able to make a complaint to the
Office of the Comptroller of the Currency (OCC) and right now he
does not have that authority.
SENATOR SEEKINS asked if he didn't have the ability to forward a
complaint now.
MR. DAVIS replied that he routinely forwards complaints to the
OCC, but he couldn't say someone was in violation of any state
law. The Government Accountability Office (GAO) this week issued
a report saying the OCC consumer complaint process was
improving, but more was needed. The GAO wanted to see more
cooperation between the OCC and state banks and commissioners;
he was assuming that would occur and this bill would help.
2:57:15 PM
SENATOR SEEKINS said he heard that Mr. Davis received around 20
complaints a year on mortgage lending and he asked if that was
correct.
MR. DAVIS replied that the numbers were a little larger than
that and they concerned national banks, independent mortgage
companies and some state chartered institutions.
SENATOR SEEKINS looked at Section 06.60.020. Exemptions: on page
2 and asked how many exceptions had been the subject of
complaints.
MR. DAVIS said he couldn't really guess, but he thought a
substantial portion had complaints. He was not trying to endorse
the exemptions. He explained that he and the Attorney General
signed the amicus briefs opposing the OCC regulations in the
Wachovia Connecticut case, but that lost in court.
SENATOR SEEKINS said he was worried about how many people would
slip through the loopholes in this bill.
MR. DAVIS added that his division has a lack of direct
supervision over a national bank that would run a mortgage
company as a subsidiary or is an affiliate of a national bank
holding company. However, once the bill is in place, if he
received a legitimate complaint against such an entity, he could
say it violates this law and that could be forwarded to the OCC.
SENATOR SEEKINS said he looked back to 2004 when Household
Finance settled with 48 different state attorneys general for
close to $500 million and in January 2006, when Ameriquest
settled with 49 state attorneys general for around $3.25
million.
MR. DAVIS added that he participated in that last settlement,
but it was difficult because Alaska doesn't have a mortgage
statute.
SENATOR SEEKINS asked if Alaska participated in the Household
Finance lawsuit.
MR. DAVIS replied that he didn't know.
SENATOR SEEKINS asked if these companies have independent
contractors working with them.
MR. DAVIS replied that some companies operate by using
independent contractors; a change he was pleased to see in the
imputed liability section declares that once you are a licensee
subject to this bill, you are talking about contractor licensing
on page 4 and you would agree to have that employer or
contractor accept liability for his actions much in the same way
that a lawyer is responsible for the actions of a paralegal in
his or her office.
SENATOR SEEKINS asked if those independent contractors could
slip through the exemption statute.
MR. DAVIS replied that he didn't think they would, but that
might be litigated.
SENATOR SEEKINS thanked him for his testimony and said he would
hear further testimony from offnet.
3:01:42 PM
KEVIN BREELAND, President, Alaska Mortgage Bankers Association
(AMBA), said he is a minority partner in Residential Mortgage in
Anchorage. He said AMBA supported SB 272, but he noted that he
was not working from the CS and AMBA had expressed the same
concerns regarding the exceptions. The bill was not perfect, but
it was a good start.
3:04:00 PM
JOHN CARMAN, Chair, Legislative Committee, Alaska Mortgage
Bankers Association, said he is also a partner in Home State
Mortgage. He believed that this bill was a very positive first
step and was very needed in the mortgage industry. He prepared
his first mortgage loan in Alaska in 1972 and he had seen the
landscape change dramatically from one where 90 percent of the
loans were done by regulated banks to one where 90 percent of
the loans are prepared by unregulated entities.
He also pointed out that Alaska now has no mortgage statute. The
strongest point of this bill is having some enforcement agency,
in this case the Division of Banking, that will have the
authority to look at lenders where 90 percent of the loans are
done. His biggest fear for the bill is that it will be delayed
and it was needed years ago, not years from now.
3:07:20 PM
DOUG ISAACSON, President, Gold Coast Mortgage, said he is also
President of the Alaska Association of Mortgage Brokers, and
that he appreciated the amount of work that had gone into the
rewriting of this bill, but he still has issues. He shared
exemption concerns with the chair and Mr. Breeland. He thought
some had identified this bill as a positive first step, but that
was misleading if it wasn't done right. As the last state to
take up licensing, Alaska has plenty of models to look at to see
how they have performed in other states. If the statute is not
done right the first time, he was concerned that the small
brokers would be put out of business because of the costs
incurred in the bill. For instance, a small broker like himself
who closes under 10 loans a month still must pay the cost for
the division to come to an outlying area such as Fairbanks and
that can become very expensive.
He also took exception with the idea that 90 percent of the
loans are done by unregulated agencies. In the Lower 48, his
information states that it's only 70 percent, but in Alaska, the
number is reversed and "It's the regulated agencies that do most
of the loans in Alaska." They need to make sure there is
opportunity for redress by the public.
MR. ISAACSON said the Alaska Association of Mortgage Brokers has
been in favor of reasonable licensing that protects the public,
provides proper oversight, and enhances professionalism of the
industry. However, certain questions still arise; for example,
when a small segment in Alaska is penalized with a $10-fee. In
Fairbanks most loans are closed through financially regulated
institutions and they would not be charged this fee, but the
small broker would be. That difference could be used by other
realtors as a reason to not use his company.
MR. ISAACSON also pointed out that government loans do comprise
a bulk of the mortgage process and it has restrictions on what
fees can be paid for by the buyer. He wondered if there should
be a discussion with the government agencies to see if that
would even be allowed. If it's not allowed, he asked if that
would remove that loan option from some borrowers putting them
in a discriminatory situation - contradicting the purpose of
this bill, which is to protect the public.
He asked why appraisers are elevated and others, like title
companies, are third parties or why home inspectors and
surveyors are disregarded and he asked why the state is becoming
the collecting agent. He actually suggested deleting the fee
collection section.
MR. ISAACSON also asked what happens if the appraiser doesn't
provide a competent report and a new one has to be ordered and
why would it take 90 days for the division to make a
determination if a background check, including FBI records,
could be made on the Internet in 72 hours. He thought 30 days
was a more reasonable timeframe.
3:14:21 PM
One last issue Mr. Isaacson questioned was what authority the
state has to monitor compliance with federal regulations and if
it has the authority, would it need more than the projected two
to three people the division is saying it needs. Would it have
to supply proper training, supervision and competency for
monitoring the federal requirements. So, he was concerned that
this bill was not truly revenue neutral. He concluded that this
bill was going in the right direction, but he asked the
committee to consider it along with his testimony.
3:16:03 PM
LAURIE HOLTE, officer of Residential Lending Mortgage
Operations, Alaska Housing Finance Corporation (AHFC), supported
the concept of the proposed legislation. She said that AHFC is
not a direct source of residential loans, but it offers a
variety of loan programs that are aimed at increasing home
ownership primarily for low-to-moderate income individuals and
families. The programs are made available to Alaskan residents
through 19 approved lenders statewide. She said:
Alaska is the only remaining state in the Union that
does not require licensing of the mortgage lending
community. A recent review of the deed of trust
recording statistics indicate that not counting the
many recognized lenders that do operate under
supervision, regulation, or examination by state or
federal regulatory body or agency, over 125 lenders
representing over $1.4 billion in loan activity for
calendar year '05 are operating in the state without
supervision. A significant number are Internet
lenders. The $1.4 billion is considered substantial in
comparison to total estimated activity of
approximately $4.4 billion. AHFC applauds the efforts
of the mortgage lending community in its efforts to
provide needed protection for Alaska's home-buying
public and regulatory oversight of its lenders. Thank
you very much; that ends my comments.
3:18:22 PM
BARBARA WORLEY, Director of Lending, Anchorage Neighborhood
Housing Services (ANHS), said it is a private non-profit
organization that provides outreach services to the underserved
public - to people who most likely would not be able to realize
home ownership without its assistance. She said the trend is for
non-profits to be highly scrutinized especially under the
Sarbanes-Oxley Act that requires better accounting and control
for non-profits. Because of its funding sources, ANHS is already
subject to monitoring and audits by the Department of Treasury,
HUD, Alaska Housing, Neighbor Works America, the IRS, the
Municipality of Anchorage, and it is required to have an annual
independent audit and single audits on federal and state grants.
She felt that ANHS is already regulated enough as its financials
are also open to public scrutiny based on public funding sources
and certifications it holds as a non-profit. She informed them
that ANHS is also sits on the "Don't Borrow Trouble Alaska Anti-
Predatory Lending Campaign" board, which is seeing a steady
increase in complaints about out-of-state and a few local
lenders.
MS. WORLEY said she was concerned about the exemptions section
(b) on page 2 that states a qualified individual means an
individual whose income is 60 percent or less of the median
income in the United State, who is over 60 years of age, or who
has a disability. But she said ANHS also serves Alaskans who are
more than 60 percent up to 115 percent of the area's median
income and Native Corporations or housing authorities serve
Native folks who are eligible to receive their Native housing
funds. She was concerned about that 60 percent. In closing she
stated:
I am in favor of responsible legislation that would
require mortgage licensing without limiting the access
to affordable loan programs to the underserved segment
of the public and feel that we're already regulated
and by adding an additional layer of regulation, it
would cause less services to be provided with more
funding spent on regulation and which could result in
an additional barrier to affordable housing.
3:24:07 PM
KEN GAIN, Secretary Treasurer and Legislative Chairman,
Independent Lenders of Alaska, said he is also president of Cash
Now Financial. He said he has already testified and sent a
lengthy letter to the committee responding to some of the issues
raised. He wanted to be available for questions to that letter
and to make some minor points. He believed that Doug Isaacson
was incorrect in how the $10 application fee would be applied
and said he thought the fee would be charged on all residential
loans whether or not the entity was licensed.
MR. GAIN said in his letter of March 15 that he was a small
company that had experienced examinations by the division and
felt if your records are in reasonable order and you're not
committing fraud, it doesn't take them very long to do one. He
calculated the license fee, bond, and the loss of one or two
days per year for an examination would cost about $1,500 a year
and he didn't think that was excessive. He said no one has
testified that there shouldn't be a bill. This is a good bill
and it is supported by several of the organizations that will be
regulated by it, as well as the Division of Banking and
Securities that will have to administer it. People keep raising
questions, and while they may be well-meaning, it may have the
effect of delaying the bill so there won't be any tools to
address the problem for several years.
3:27:45 PM
JOHN MARTIN, Alaska Mortgage Solutions, Anchorage, said he is a
small lender and broker and was a member of several other
mortgage organizations. He said he just got the recent changes
to the bill and he wanted the chance to review them and come
back to the committee with his comments.
3:29:25 PM
SENATOR SEEKINS thanked him for his comments and indicated that
there was no further testimony and that SB 272 would be held in
committee. There being no further business to come before the
committee, he adjourned the meeting at 3:31:07 PM.
| Document Name | Date/Time | Subjects |
|---|