Legislature(2015 - 2016)BARNES 124
04/13/2015 03:15 PM House LABOR & COMMERCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| HB169 | |
| HB66 | |
| HB12 | |
| HB122 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 12 | TELECONFERENCED | |
| *+ | HB 169 | TELECONFERENCED | |
| += | HB 66 | TELECONFERENCED | |
| *+ | HB 122 | TELECONFERENCED | |
HB 12-MORTGAGE LENDING AND LOAN ORIGINATORS
4:03:38 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 12, "An Act relating to mortgage lending,
mortgage loan originators, depository institutions, nonprofit
organizations, and nonprofit organization employees; and
providing for an effective date."
4:04:14 PM
REPRESENTATIVE TILTON moved to adopt the proposed committee
substitute (CS) for HB 12, Version H, labeled 29-LS0089\H,
Bannister, 4/10/15, as the working document.
There being no objection, Version H was before the committee.
4:04:34 PM
REPRESENTATIVE SHELLEY HUGHES, Alaska State Legislature offered
that HB 12 would protect the public, update the law, create more
level playing field, and simplify the process for mortgage loan
originators in Alaska. She referred to the flow chart in
members' packets created by the Division of Banking that may be
helpful in interpreting the current process as compared to the
process under HB 12. Under current statutes, a depository
institution or a bank and each of its licensed mortgage loan
originator (MLOs) employees are exempt from mortgage lender
brokers' licenses since regulation of banks fall under federal
regulations. However, if the licensed MLO does not work as a
direct employee and instead works as a contractor, that person
must not only have a license as MLO, but also obtain a license
as a mortgage lender broker. She characterized it as being a
double-layer licensing policy.
4:07:02 PM
REPRESENTATIVE HUGHES offered her belief that HB 12 would
eliminate an unnecessary layer of licensure. Instead of
requiring the contractor MLO [mortgage loan originator] to also
be licensed as a lender/broker and a mortgage loan originator,
the person will simply be licensed as an MLO. In addition, this
bill also would give the state supervisory and regulatory
authority over banks. For example, HB 12 would allow the state
to require banks to submit reports and audits. Currently, if
the bank was supervising contractor MLOs, the bank will be
solely under federal regulation, but under the bill, the bank
will need to register with the state. Essentially, this means
the contractor MLOs would no longer be supervising themselves -
since previously they were the MLO and the broker. Instead, the
bank will have responsibilities for some of the supervision.
These changes will allow the state to go to one point - the bank
- for information rather than to contact each of the independent
contractors throughout the state.
4:08:53 PM
REPRESENTATIVE HUGHES directed attention to the flowchart in
members' packets entitled, "Comparison between provisions of
Federal SAFE Act, the Alaska SAFE Act, and Proposed HB 12 which
she briefly reviewed.
4:10:21 PM
REPRESENTATIVE HUGHES said that HB 12 would exempt the Alaska
Housing Finance Corporation (AHFC) and any government agency
from the state Mortgage Lender Broker license requirements. The
governmental agencies would be responsible to ensure their MLOs
meet the standards with respect to the Federal SAFE Act.
4:11:04 PM
KIMBERLY SWIANTEK, Staff, Representative Shelley Hughes, on
behalf of the prime sponsor, Representative Shelly Hughes,
reviewed the proposed committee substitute (CS) for HB 12,
Version H. She said that Section 1 outlines the license
requirements for mortgage loan originators and would add
language that individuals can be licensed as mortgage loan
originators if they work under an exclusive contract for a
registered depository institution as stated on page 1, line 11
or are sponsored by a registered depository institution.
MS. SWIANTEK directed attention to page 2, line 5, Section 2,
which outlines the requirements for a registered depository
institution to be eligible to sponsor a mortgage loan originator
by adding a registered depository institution (RDI) throughout
this chapter creates same requirements for mortgage licensees or
brokers.
MS. SWIANTEK, referring to page 3, line 8, Section 3, stated
that this provision would exempt government agencies. In doing
so, the state would recognize them under the SAFE Act effective
August 30, 2011. She noted that this was limited to government
agencies. By exempting the bona fide nonprofit organizations,
the State of Alaska would be in compliance with the SAFE Act
effective 8-30-2011, she said.
4:13:45 PM
MS. SWIANTEK directed attention to page 3, Section 4-7, which
includes registered depository institutions (RDI) and the
bonding requirements, which are the same for mortgage licensees.
MS. SWIANTEK stated that Section 4, line 12, would require a
registered depository applicant to have a surety bond and
Section 5, [page 3], line 19, ensures that an RDI does not have
file more than one bond if they cover more than one location.
Instead of having 15 contractors applying for a bond, only one
will be filed, she said. Section 6, [page 3], line 23 required
the bond must last for three years Section 7 [page 3], line 27
gives the department the authority to determine if the bond is
unsatisfactory.
MS. SWIANTEK directed attention to Section 8, page 3, line 31
through page 4, line 13, which would amend the annual reporting
requirements by requiring registered depository institutions to
follow the same reporting requirements as a mortgage loan
originator licensee and be subject to the same penalties if the
report is not filed as required.
4:15:24 PM
MS. SWIANTEK stated that Section 9-13 on pages 4-5, includes
registered depository institutions in the existing requirements
for managing mortgage records. She briefly reviewed these,
noting Section 9 would apply to business transactions that occur
entirely or partially in the state. Section 10 would require
accounting records be kept in accordance with generally accepted
accounting principles. Section 11 would require the retention
of all records pertaining to the loan including electronic
correspondence be kept for three years. Section 12 would
require that the note and associated documents be kept for three
years.
MS. SWIANTEK directed attention to Section 13, page 5, line 11,
which would require a mortgage loan servicing agent who acts on
behalf of the licensee or an RDI maintain adequate records for
three years. She clarified that a mortgage loan servicing agent
could be an accountant, legal counsel, or a collection agent.
4:16:31 PM
MS. SWIANTEK directed attention to Section 14, page 5, line 29,
which would requires out-of-state records maintained by an RDI
be made available to the state.
MS. SWIANTEK referred to Section 15 on page 6, line 10, which
would grant the department investigation and examination
authority. Section 16 indicates that a "person" and "person
subject to this chapter" include a registered depository
institution, she said.
MS. SWIANTEK referred to Section 17, page 6, line 25, through
page 7, line 16 which would allow the department the
authorization to censure, suspend, or bar a licensee or
depository institution in the same manner as a mortgage
licensee.
4:17:27 PM
MS. SWIANTEK referred to Section 18, page 7, lines 18-24, which
would allow the department to hold administrative hearings and
issue disciplinary orders on RDIs.
MS. SWIANTEK referred to Section 19, page 7, lines 25-27, which
would add definition of a registered depository institution.
Finally, Sections 20-22 would allow the Department of Commerce,
Community & Economic Development (DCCED) the authority to adopt
regulations by January 1, 2016, which is the effective date of
the bill.
4:18:17 PM
GINGER BLAISDELL, Staff, Representative Shelley Hughes, Alaska
State Legislature, on behalf of the prime sponsor, introduced
herself. In response to a question, she agreed that in every
section in the statutes that pertains to mortgage was modified.
4:18:57 PM
REPRESENTATIVE COLVER asked whether the bill was responding to
mortgage fraud and national regulation.
MS. BLAISDELL answered that the 2008 was a nationwide mortgage
lending debacle, which was part of reason the SAFE Act was
updated and finalized in 2011. This bill was directed at
resolving business plans or models to level the playing field
between other mortgage lender brokers and mortgage loan
originators (MLOs).
4:20:00 PM
REPRESENTATIVE COLVER asked whether this bill was directed more
at non-traditional lenders, such as insurance companies.
MS. BLAISDELL answered that the "level playing field" was more
of an administrative leveler. People who are conducting the
same types of business will have the same type of licensure
requirement placed on them. She said that if this bill does not
pass, any banks in Alaska with independent contractors can still
conduct business and issue mortgages. This bill would make the
education and license requirements the same as others doing the
same kind of business.
4:21:12 PM
CHAIR OLSON opened public testimony on HB 12.
4:21:28 PM
KRISTIE BABCOCK, Agent, State Farm Insurance, spoke in support
of HB 12, stating she works as independent contractor for State
Farm Insurance in Kenai. She has been an agent and small
business owner in Kenai for the past 15 years and has eight
employees. She markets insurance and bank products exclusively
on behalf of State Farm Insurance and State Farm Bank, she said.
MS. BABCOCK stated that as an originator she handles the initial
application. Banks and their employees are exempt from state
licensing since they are federally regulated; however, since she
serves as an independent contractor, she must be licensed as a
mortgage loan originator and broker. The mortgage loan
originator (MLO) license requires rigorous state and federal
testing, background check, fingerprinting, continuing education,
and license renewal. In fact, she has undergone this process to
better serve her customers and provide more lending options for
Alaska homeowners, many of whom have been longstanding clients.
Although she does not contest the MLO licensing requirements nor
does this pertain to MLO licensing requirements, HB 12 will
address an additional license she currently must possess. Under
Alaska law an MLO must sponsored and supervised by a mortgage
broker and even though banks are exempt from having a mortgage
broker license, she must be licensed as mortgage broker, which
means that she must sponsor and supervise herself. This makes
no sense, she said, since she must supervise self, plus she does
not broker any loans. This requirement causes unnecessary
expense, was time consuming, she said, estimating that the extra
cost at $2,000 per year for the broker license. In addition, it
takes considerable time to file the required quarterly, annual
reporting, filing, as well as meeting other reporting
requirements.
MS. BABCOCK described the bill as a "win-win" solution since it
will remove unnecessary costs and burdens for MLOs without
reducing any protections associated with broker supervision.
She stated that HB 12 would allow the sponsoring bank, in her
case State Farm Bank, to step in and register with the state as
her supervisor, thereby assuming all the liabilities,
responsibilities, and oversight as if the bank was her broker.
She offered that this makes more sense since the bank serves as
the leader and her business is the originator. In fact, it
provides more oversight than if she supervised herself. She
reported that 26 other states have licensing requirements
similar to the provisions in HB 12. In closing, she emphasized
that this bill would not result in any less regulation for MLOs.
Although a similar bill was before the legislature in 2014, it
did not pass. She asked members to pass out HB 12 today.
4:26:39 PM
ROGER BAINBRIDGE, Counsel, State Farm Bank, said he represents
State Farm Bank as their in-house counsel. He offered his
belief that Ms. Babcock did a fantastic job of explaining the
issues. He offered that the Safe Act did not contemplate an
independent contractor working on behalf of an exempt depository
institution. He echoed that 26 other states have adopted
legislation or otherwise provided State Farm Bank the
opportunity to register an exempt company solely for the purpose
of sponsoring its MLO state licensed agents. He pointed out
that State Farm Bank was already regulated by the Office of the
Comptroller of the Currency and the Consumer Financial
Protection Bureau. He suggested that bringing in the Division
of Banking for loans originated by the MLO license agents gives
the sense of dual and layered supervision and examination that
these loans originated by MLO licensed agents will receive. He
asked members to support HB 12.
4:28:33 PM
CHAIR OLSON asked whether the 26 states previously mentioned had
adopted model legislation to address this issue.
MR. BAINBRIDGE answered no. He said that State Farm has been
working on these issues with other states and will continue to
do so with the remaining states on similar licensing issues.
4:28:58 PM
CHAIR OLSON asked whether the legislation that was passed in the
other 26 states was the same or if State Farm Bank has "tweaked"
the solution.
MR. BAINBRIDGE answered that the remedy has varied based on the
concerns of the banking department in individual states. Some
states wanted their statutes to be very specific to the
particular business model and other states preferred to address
the issue more broadly so that it doesn't limit the provisions
to one insurance company. He characterized the Alaska proposal
as one that takes a broad and less specific approach. He
suggested that the specific remedy really depends on what the
banking division or department will support. He said that State
Farm Bank has worked closely with the Alaska Division of Banking
for the past several years, noting that approximately 16-17
State Farm licensed agents work in Alaska and they have held
several examinations of those offices. He described his
relationship with the Division of Banking as being a good
working relationship, that the division understands the state's
business model, including how agents function, their limited
origination activities, and how that transfers to the bank and
its employees, who are federally registered to process and close
loans.
4:30:41 PM
JOHN CARMAN, President, Home State Mortgage, Chair; Legislative
Affairs Committee, Alaska Mortgage Bankers Association, stated
he has held many conversations with the sponsor and was grateful
for the communication. This bill was first introduced last year
and he indicated was not totally in favor of this bill nor was
he in agreement with the characterization thus far. He related
his understanding that other testifiers characterized the bill
as creating a level-playing field; however, he suggested the
bill as creating a "remodeled" playing field to accommodate the
State Farm Bank model. He said that the State Farm Bank has
"non-employees" that they are sponsoring. He agreed that when
First National Bank has an employee of the bank that separate
registration requirements do not apply, but the State Farm Bank
model uses independent contractors working primarily as
insurance agents who originate a loan. However, he offered his
belief that these independent contractors simply refer the loans
to State Farm Bank for origination. He acknowledged that under
this bank model the bank is very limited and only does
conventional loans with a fixed rate with some adjustable rate
mortgages and for example, they do not process all the other
loans, such as FHA [Federal Housing Administration], VA [US
Department of Veterans' Affairs, or [AHFC], Alaska Housing
Finance Corporation loans. He said it does concern him that him
if the agents don't do those loans or have them available that
they may not be giving their clients the best advice in every
situation.
4:33:15 PM
MR. CARMAN admitted that under the current model [State Farm
Bank] forms a brokerage and employ themselves as the only
employee of the brokerage. He said he has talked to Ms. Kevin
Anselm [Operations Manager, Division of Banking & Securities,
Department of Commerce, Community, and Economic Development],
who agreed that it would make the division's job to regulate
these companies easier by changing to this model; however, he
still has a hard time fully supporting the model. He guessed it
was an improvement over the existing situation.
4:33:59 PM
MICHAEL MARTIN, Executive Vice President, General Counsel,
Northrim Bank, stated he has an affiliation with the Alaska
Bankers Association. He noted that the Alaska Bankers
Association sent a letter dated April 10, 2015 in opposition to
HB 12. He has reviewed the recent version [Version H] of HB 12.
He very much appreciated the division's exhibits, which were
very helpful. He noticed the original version would eliminate
the proposed nonprofit entities from the licensing requirement
for mortgage loan originators. He said it was one of provisions
the Alaska Bankers Association opposed. He appreciated that the
language has been removed.
4:35:26 PM
MR. MARTIN directed attention to background materials [in
members' packets], which better illustrated the regulatory
environment if HB 12 were to pass. He admitted that he hasn't
fully digested the proposed committee substitute. The Alaska
Bankers Association will convene on Friday, he said, and will
review the bill. He expressed concern with the original version
was the exemption for nonprofits. In addition, the [ABA] was
concerned notion of level playing field was difficult to define.
He expressed concern that some of the MLOs would be unlicensed
and unregulated; however, these materials helped him to
understand. This has been characterized as making things
simpler, but there is nothing about this statute or the proposed
changes in HB 12 that he considered simple. In fact, it will
take some time to wade through all of it.
4:37:07 PM
KEVIN ANSELM, Director, Division Banking and Securities,
Department of Commerce, Community & Economic Development
(DCCED), in response to Chair Olson, answered that the
department was neutral on HB 12.
4:37:51 PM
REPRESENTATIVE HUGHES thanked for work she did to provide the
graphic. She directed attention to the fiscal note that
mentioned bona fide nonprofit provision which was removed in
Version H. She asked whether that was an oversight.
MS. ANSELM agreed that the original fiscal note was prepared in
January and the fiscal note has not been updated; however, the
division does not believe there will be any fiscal impact.
4:39:06 PM
MIKE WILKINSON, Agency Field Leader, State Farm Insurance,
thanked members for holding this hearing. He expressed support
for HB 12 since it allows shifting of responsibility and
oversight required of licensed mortgage brokers over its
independent contractor mortgage loan originators from
individuals agents to State Farm Bank. He offered his belief
that the public will be better served if State Farm Bank was
allowed to legally assume the assurances, oversight, and
reporting requirements for mortgage broker licensing.
4:40:48 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 12.
[HB 12 was held over.]
4:41:42 PM
The committee took an at-ease from 4:41 p.m. to 4:43 p.m.