Legislature(2005 - 2006)SENATE FINANCE 532
04/28/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| 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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