Legislature(2007 - 2008)BELTZ 211
04/19/2007 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB102 | |
| SB107 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 107 | TELECONFERENCED | |
| *+ | SB 140 | TELECONFERENCED | |
| += | SB 102 | TELECONFERENCED | |
| += | HB 118 | TELECONFERENCED | |
SB 102-MORTGAGE LENDING
1:36:11 PM
CHAIR ELLIS announced SB 102 to be up for consideration and that
there was a committee substitute labeled 25-LS0691\C).
DANA OWEN, staff to Senator Ellis, stated that he had just
received the CS from the sponsor to SB 102 and said that Mark
Davis would explain it in greater detail. It is identical to the
current House version that passed out of House Labor and
Commerce yesterday. The sponsor asked this committee to take up
that version of the bill.
1:37:43 PM
MARK DAVIS, Director, Division of Banking and Securities,
Department of Commerce, Community & Economic Development, said
he would first go over the structure of the bill and then the
changes in the CS. He explained that this bill proposes to
license all components of the industry - mortgage bankers,
mortgage brokers and mortgage originators. It states that an
originator must work for one of the other licensees and that the
mortgage banker and the mortgage broker must work through an
originator.
The originator is the person in this industry who meets with the
consumer, sits down with them and goes over their proposal to
get a mortgage. An important component then is continuing
education under AS O6.61.060, which hasn't changed in either
version, to require originators to be aware of both Alaska law
and federal law.
The bill has a series of prohibitions in it. For example, AS
06.60.320 prohibits false advertising; it also requires
compliance with federal mortgage law. Presently 10 federal
statutes apply to mortgages, but there is limited enforcement by
the federal agency. Recently, states have been adopting federal
standards and then examining for compliance with them. The ones
people are more familiar with are the Truth in Lending Act and
the Real Estate Settlement Procedures Act of 1974.
MR. DAVIS noted on December 8, 2006, the State of Maine
commissioned a Predatory Lending Task Force and after several
months of investigation, one of its major conclusions was that
Maine should enforce or examine for respite the Real Estate
Settlement Act. That is also in this bill.
1:40:25 PM
He said the idea is that they would examine mortgage brokers,
mortgage licensees and originators for compliance not only with
the provisions of this statute, but with the federal statutes.
CSSB 102, version C, also has certain refinancing prohibitions
in section 350. However, it clearly doesn't affect the remedies
that are already available to the Attorney General under the
Alaska Consumer Protection Act.
MR. DAVIS said he had been working with the Department of Law on
this bill and the CS reflects changes that it wanted.
1:41:21 PM
Essentially the bill says there is a private right of action
under the Consumer Protection Act or to the Attorney General
which provides for either treble damages or restitution. The
consumer protection section of law has done mortgage cases
already under that act.
MR. DAVIS explained that the CS inserts an exemption for anyone
who is already licensed under Alaska's Small Loan Act. The idea
is that they are not trying to double up on regulation and if
one regulates under another licensing scheme, that is fine.
However, he said the federal exemption was modified and he
explained that some of the exemptions were designed to allow
non-profit housing organizations to help people with their
mortgages without being licensed, but also an exemption exists
for certain federal subsidiaries of federal banks or the banks
themselves or state banks.
1:42:48 PM
With regard to state banks, Mr. Davis said his division already
examines them and their mortgage activities. The federal
government has taken the position that it should examine any
federal bank and any subsidiary of a federal bank that does
mortgage lending. The U.S. Supreme Court ruled on Tuesday that
any subsidiary or operating subsidiary of a federal bank engaged
in mortgage lending would not be subject to any state
regulation. He said CSSB 102, version C, tracks that decision in
that the bill was drafted using the rule of law established in
the Ninth Circuit that was essentially affirmed by the U.S.
Supreme Court.
The only issue open under that case is that the Supreme Court
said under the Gramm-Leach-Blighly Act an affiliate of a bank
that is engaged in insurance and securities will be subject to
state regulation. What it didn't say is whether an affiliate of
a bank that engages in banking and other banking activities
would be subject to preemption.
MR. DAVIS said the bill was changed to deny an originator's
license if he previously violated a chapter even if it happened
in another state. This situation has already occurred in Alaska.
CHAIR ELLIS asked how this bill protects consumers in that
respect.
MR. DAVIS replied that it allows for a background check of
licensees along with their licensing status. This bill brings
the state more in line with securities law. The CS also says
that the mortgage bankers would be responsible for things they
know or should know about the conduct of the originators - like
appraisals that are way above what the property is worth or
statements of income of the potential borrower, which are more
than they make.
He said a criminal provision was inserted making certain
violations Class A misdemeanors, which give the statute teeth.
"Escrowed" is defined as having written instructions. He said
there over 100 mainly technical changes - mainly lawyers using
different drafting styles.
CHAIR ELLIS asked Mr. Owen if the sectional analysis relates to
the CS. He answered yes.
1:46:02 PM
SENATOR BUNDE said he has heard some complaints, specifically
about mortgage originators with substantial criminal records and
he asked if anyone opposed tightening up these regulations.
MR. DAVIS replied the American Financial Services Association
(AFSA) wants a partial exemption for their originators, which
are companies that either operated in Alaska or through call
centers like Countrywide and Primera. In this case the parent
company would get a license and be responsible for the
originators. Since this is not an administration bill, but an
industry bill, he deferred to industry for their ideas.
He related that he had been told that AARP also has concerns
about restitution, but those provisions are already in the bill.
He explained that the surety fund is not an exclusive remedy and
that one can still sue with private counsel. He believed it
would be much like real estate. If it's a major case and the
person you are suing has money, you'd pursue your remedies. If
it's not, you might go to the realty surety fund to do the best
you could. The surety fund is designed to be a stop-gap thing to
make sure somebody gets some money out of a bad situation.
Making mortgage brokers and mortgage bankers liable for conduct
of their originators provides people with a deep pocket which
didn't exist before, a good reform. It's like a lawyer being
responsible for the conduct of his paralegal.
MR. DAVIS reported the other issue AARP had was wondering why
the bill included a referral to the attorney general. And the
reason he wanted to adopt that is based on Minnesota law that
says if it didn't have the right of referral, his division would
be stuck with only the remedies in the law. He wanted the
ability if someone was not a standard case to refer it to the
attorney general who has the full powers of the Consumer
Protection Act and/or restitution.
1:49:05 PM
SENATOR STEVENS asked what escrow language they were tightening.
MR. DAVIS replied there were questions on whether there are
written instructions in every escrow agreement that will say how
the money is given to a third party who would disperse it when
certain events occur. He wanted to make sure a consumer had
written instructions to refer to.
SENATOR STEVENS asked if this would impact Internet mortgages
and out-of-state lenders.
1:50:16 PM
MR. DAVIS replied this bill proposes covering those. Two years
ago an act was passed that regulates payday loans or deferred
deposit companies. It had a provision for licensing interstate
companies, which has been done successfully. He has been able to
collect $700,000 in restitution from many Internet lenders for
some of Alaska's poorest consumers through the provisions in
that act. This bill is patterned on that law and follows the
same language.
CHAIR ELLIS asked his position on partial licensing of state
mortgagers like Countrywide.
MR. DAVIS said he would have to think about that, but he would
focus on making sure consumers are protected.
1:52:20 PM
MARIE DARLIN, Volunteer Coordinator, AARP Capital City Task
Force, reference its letter with several concerns in it
regarding the original bill. She had not seen the CS, but it
sounded like some of their concerns were addressed in it. AARP
has the consumer's point of view and she was concerned with
pointing out omissions related to consumer protection. Only a
two-year statute of limitations was one concern.
CHAIR ELLIS said he would consider reasonable ways to improve
consumer protection and asked her to look over the CS and
comment at a later date.
MR. DAVIS added that his division and AARP are conducting
seminars around the state. He explained that he looked at CSSB
102, version C, as a licensing law, but AARP is looking at it as
a predatory lending law. He thought predatory lending should be
dealt with in another bill. He mentioned that reverse mortgages
are also questionable.
CHAIR ELLIS said if there are reasonable pro-consumer changes he
would like to see them and would consider putting them in this
bill.
1:57:55 PM
MR. DAVIS said he had agreed with the Department of Law to put a
restitution order provision in Section 870. That is one way he
would respond to AARP.
SENATOR STEVENS asked if this is the proper place to cap civil
penalties.
MR. DAVIS replied these are licensing violations and the $10,000
fine is very similar to what is in the Uniform Securities Act.
The idea in this bill is if something is more than a licensing
issue, like the one that is currently under federal
investigation, it would be referred to the attorney general.
CHAIR ELLIS asked if things come out of this discussion that
aren't appropriate to be included in this bill, would he bring
them up to the committee along with suggestions on how to "tune
up" other state statutes.
MR. DAVIS replied that he would be very happy to do that and
related that two years ago he set up the Predatory Lending Task
Force and hotline and his division had developed a database
about what the current scams and problems are.
2:00:01 PM
DANIELLE FAGRE ARLO, Senior Vice President, State Government
Affairs, American Financial Services Association (AFSA),
supported the CS to CSSB 102, version C, and thanked everyone
for helping them work on the language, especially Mr. Davis and
his division. They still have concerns, but hope to continue
work on resolving them. She said AFSA is a national trade
association based in Washington, D.C. Its members come from
financial services firms that provide credit for consumers in
small businesses; it has 350 members.
Her primary concern related to licensing individual employees
and exclusive agents of large multi-state mortgage companies.
This language will significantly increase the burden on lenders,
regulators and consumers. Their cost will be passed on to the
borrowers in the form of fees. In the case of regulators, it
could have a negative effect on compliance activities. Covering
collections personnel, call center employees, loan processors,
underwriters and others who speak to customers in the process of
completing a loan is unnecessary, she said. Regulators can also
be negatively affected by the administrative burden.
MS. ARLO said that large mortgage lenders and licensed entities
already have programs and policies in place for pre employment
screening, background checks, in-house training, education and
compliance to meet state requirements for their employees and
exclusive representatives. These programs and policies help
prevent fraud or other criminal activity and facilitate
enforcement capability by the department. She explained:
Large mortgage lenders do not oppose licensing for
loan originators who work on behalf of independent
mortgage brokers to find and negotiate loans for
borrowers. A mortgage broker is generally considered
to be an independent person or specialty company who
shops loans to different lenders for the borrower. A
mortgage lender underwrites and/or funds the loan and
is responsible for the credit risk of the loans.
Large mortgage lenders are very different from
independent mortgage brokers in various ways. For
example, they typically operate as licensed entities
in multiple states, have large numbers of employees
who interact with customers from many states on a
daily basis. They are very well capitalized; they
carry huge reputational risks associated with employee
misconduct and they may be affiliated with or a
subsidiary of an entity regulated by the Federal
Reserve Board.
Sensible state licensing of lending companies
themselves render the need to license individual
employees unnecessary and it is our proposed solution
in the substitution language we have prepared and will
continue to work with the department on until they are
satisfied.
2:04:39 PM
JOHN CARMAN, Chairman, Legislative Affairs, Alaska Mortgage
Bankers Association, said CSSB 102, version C, is not perfect in
anyone's mind. Last year it went through 27 revisions before it
passed in the Senate 19 to 1 and died at the last minute in the
House. Last year's bill only called for company licensing
without a provision for individual licensing, but it was always
their intention to pursue individual licensing this year and add
it to the bill. Since the bill was delayed, they are now adding
it at the request of their members. He thought the Division of
Banking and Securities would like the provision and the fact
that they have gotten as far as they have with all the diverse
groups in Alaska from small mortgage brokers to major mortgage
lenders is significant.
MR. CARMAN said he thought the people who were still "working
on" on the bill were really trying to kill it. They fall into
one of two categories - the well-intentioned people that are
late to the process and do not realize how many times every word
in this bill has been debated and that adding more words just
adds more arguing and debate over exactly what the provision
means. He said there are only three weeks left in the session
and currently the state has zero regulation. They need to get a
bill in place that would fund the division so it could hire more
people to enforce existing laws.
The other group is people who are bad-intentioned and that might
have a criminal record or for some other reason find it
difficult to do business under this new bill.
The purchase of a home is huge and everyone else is licensed, he
said, but today a number of convicted felons are doing
mortgages. He knew of a realtor who lost her license for life
for falsifying a tax return for a customer who was applying for
a loan. She is now a lender because there is no restriction on
her activities in lending. Recently an individual was working
for a large bank and was convicted in the federal courts for
banking fraud. This person had already had his license pulled in
another state. If this law would have been in place, this person
would not have been able to practice in Alaska.
There is no doubt, he said, that this bill gives the Division of
Banking and Securities enforcement ability in an area in which
it currently has none. Enforcement of the act will be self-
funded with fees paid by licensees and a $10 loan fee for each
residential transaction borrower. It will be applicable to out-
of-state lenders that have been a major source of complaints to
the division as well as Internet lenders; it will not be onerous
to implement.
2:10:00 PM
JOHN MARTIN, Anchorage, said he has been a resident of Alaska
since 1959. Since 1977 he has been involved in the real estate
industry as broker, investor and developer. For the last 20
years he has been in the mortgage loan business - as a mortgage
loan originator, manager in charge of production of one of
Alaska's largest lenders as well as the manager in charge of all
their branch offices. He is a member of the Predatory Lending
Task Force in Anchorage representing the Alaska Association of
Mortgage Brokers (AAMB). Presently he is the owner of a small
mortgage company and has two originators working with him. He is
the founding member and past president of the AAMB and presently
is a member of the Legislative Committee. He is president-elect
of the Western Regional Mortgage Broker Lenders' Conference, an
organization of 14 western states that puts on an educational
program each year for people in the mortgage loan industry who
receive education, get up-to-date information from national
leading experts and have a face-to-face expo with the nation's
top mortgage lenders.
MR. MARTIN said Alaska is the last state to license mortgage
operations and recent news stories illustrate that our state is
not exempt from unscrupulous operators. Licensure would put
everyone on an even playing field, he said, and "background
checks, competency testing, continuing education will go a long
way towards serving the public." Because these would be
administered by the state, they would be equal and not subject
to a company-wide interpretation of what is a good background
check and what isn't.
CSSB 102, version C, would give the state the ability to revoke
a license if necessary and that's true accountability. It's
important to realize they are only licensing originators. This
has nothing to do with underwriters, shippers, processors,
clerks or anyone else. It's important to license originators
because if they get fired from one company and try to go to
another, the state will know and have a hammer. He said the Mat-
Su Homebuilders Association, Home Inspectors of Alaska,
Independent Brokers Association of Real Estate Brokers in
Alaska, and the American Land Title Association, Alaska Chapter,
all support this legislation. He recommended adopting the new
CS.
2:16:07 PM
JOE BRAMMER, Chairman, Legislative Committee, Alaska Association
of Mortgage Brokers, said he is a mortgage loan originator and
had a three-fold purpose before them today. First he wanted to
relate a brief history of this legislation, second he wanted to
address competency testing and finally, he wanted to speak about
continuing education requirements.
He related that the mortgage industry currently has no
regulations. This lack of regulation has contributed to
unscrupulous operators preying on the consumers of Alaska and
nothing can be done currently to stop them. CSSB 102, version C,
was drafted in conjunction with industry representatives from
the Alaska Association of Mortgage Brokers and the Alaska
Mortgage Bankers Association along with various state
departments. It provides safeguards for the public and
enforceable penalties for violators. It requires the licensing
of mortgage companies and, more importantly, mortgage loan
originators. Right now a person could pedal used cars one day
and be a mortgage loan originator the next - with no training or
education.
Before a loan originator can be eligible for licensing under
CSSB 102, version C,, on page 5, line 24, he will be required to
pass a competency test prior to dealing with the public. In
addition, he will be required to attend and complete continuing
education requirements as outlined on page 15, line 19. This is
important for consumer protection because the industry is
constantly changing. He pointed out that state regulations exist
for pre-licensing testing and continuing education prior to
license renewal for insurance agents, real estate brokers and
others. He concluded saying that CSSB 102, version C, is a
consumer protection bill designed to level the playing field in
the industry that provides enforcement mechanisms and penalties
for violators.
2:21:23 PM
CHAIR ELLIS said the committee had responded to the request of
the sponsor to schedule and delay this bill and would take the
time to do a good job on it. He said there is plenty of time for
it to pass this legislature. He said CS for SB 102, version C,
would be back before the committee on Tuesday.
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