Legislature(2005 - 2006)CAPITOL 17

03/01/2006 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 402(L&C) Out of Committee
Heard & Held
Moved CSHB 439(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 416(L&C) Out of Committee
HB 424-MORTGAGE LENDING                                                                                                       
4:46:06 PM                                                                                                                    
ACTING  CHAIR KOTT  announced that  the final  order of  business                                                               
would  be  HOUSE BILL  NO.  424,  "An  Act relating  to  mortgage                                                               
lenders  and  persons  who  engage   in  activities  relating  to                                                               
mortgage lending; and providing for an effective date."                                                                         
JOSH APPLEBEE, Staff to Representative  Tom Anderson, House Labor                                                               
and  Commerce  Standing   Committee,  Alaska  State  Legislature,                                                               
presented the  proposed committee  substitute (CS)  to HB  424 on                                                               
behalf  of the  sponsor, the  House Labor  and Commerce  Standing                                                               
Committee.    He explained  that  industry  and the  Division  of                                                               
Banking  &   Securities  have  been  working   closely  to  reach                                                               
[agreeable]  language, which  was provided  this afternoon.   The                                                               
aforementioned  is embodied  in  CSSB  272, Version  24-LS1644\I,                                                               
Bannister, 3/1/06,  which he  said he  hoped the  committee would                                                               
adopt in order to begin the process.                                                                                            
REPRESENTATIVE  ROKEBERG moved  to  adopt CSSB  272, Version  24-                                                               
LS1644\I,  Bannister, 3/1/06,  as  the working  document.   There                                                               
being no objection, it was so ordered.                                                                                          
4:48:00 PM                                                                                                                    
ACTING CHAIR KOTT announced that due  to the late receipt of this                                                               
version, it isn't the committee's intent  to move the bill out of                                                               
committee today.                                                                                                                
4:48:42 PM                                                                                                                    
JOHN  CARMAN, Partner  & President,  HomeState Mortgage  Company;                                                               
Chair,   Legislative    Committee,   Alaska    Mortgage   Bankers                                                               
Association, stated that he is in  favor of this legislation.  He                                                               
informed  the committee  that he  has been  working for  the past                                                               
five  years to  pass such  legislation.   Currently, there  is no                                                               
legislation  in  Alaska  for mortgage  bankers  or  brokers,  and                                                               
therefore  anyone  can  present  himself/herself  as  a  mortgage                                                               
banker  or broker.   The  aforementioned,  he opined,  is to  the                                                               
detriment  of  the  consumers  in  Alaska.    He  indicated  that                                                               
[HomeState Mortgage] would like  additional legislation next year                                                               
to   license  individual   mortgage   originators,  although   he                                                               
acknowledged  that   more  compromise  and  discussion   will  be                                                               
required regarding  education requirements and other  things.  In                                                               
response to Acting  Chair Kott, Mr. Carman  confirmed that Alaska                                                               
is  the  only  state  that  does  not  have  regulation  or  laws                                                               
governing the mortgage origination process.                                                                                     
REPRESENTATIVE  CRAWFORD  related  his understanding  that  under                                                               
this  legislation,  the  state would  license  Internet  mortgage                                                               
brokers as well.                                                                                                                
MR. CARMAN replied yes.   In response to Representative Rokeberg,                                                               
Mr. Carman said  the difference between brokers and  bankers is a                                                               
bit murky.   For instance, HomeState  Mortgage performs brokering                                                               
and banking  services.  However,  a broker  basically facilitates                                                               
the loan, which will close in  the name of whoever the individual                                                               
arranges the loan while a mortgage  banker closes in its name and                                                               
sells  to  the  secondary  market   after  the  loan  is  closed.                                                               
Therefore, brokers  tend to  be smaller  because they  don't have                                                               
the  necessary  lines of  credit  and  capital  to close  in  the                                                               
broker's name.                                                                                                                  
4:52:16 PM                                                                                                                    
REPRESENTATIVE ROKEBERG  related his understanding that  there is                                                               
some resistance to HB 424 from the originators.                                                                                 
MR. CARMAN  explained that the  brokers have said they  want each                                                               
originator to  be licensed rather  than the company.   Mr. Carman                                                               
opined that  originator legislation is necessary  and legislation                                                               
is  being worked  on with  the Division  of Banking  & Securities                                                               
that would license  originators.  However, too  many issues arise                                                               
when attempting to license every  person in the process and would                                                               
slow  the process  too much  this year.   Therefore,  the [Alaska                                                               
Mortgage Bankers Association] will work on that for next year.                                                                  
ACTING CHAIR KOTT mentioned that  the committee has been provided                                                               
a  letter  from  the  Alaska Mortgage  Bankers  Association  that                                                               
appears to identify some problems with HB 424.                                                                                  
MR.  CARMAN said  he believes  the problems  noted in  the letter                                                               
have been addressed in the  proposed committee substitute adopted                                                               
4:54:56 PM                                                                                                                    
MARK  DAVIS,  Director,  Juneau Office,  Division  of  Banking  &                                                               
Securities,  Department   of  Commerce,  Community,   &  Economic                                                               
Development (DCCED), stated that [the  department] is in favor of                                                               
legislation that  will regulate mortgages.   He related  that the                                                               
division receives about  15 calls per week  from consumers making                                                               
complaints  against mortgage  companies over  which the  division                                                               
has no  jurisdiction.  Additionally, the  division receives about                                                               
25 calls  a week from companies  who want to do  business and the                                                               
division informs them that they  are unregulated.  Therefore, one                                                               
of the tenets of HB 424 is  to regulate these entities as is done                                                               
in the Lower 48.  Another tenet  of HB 424 is to cover interstate                                                               
mortgage companies doing  business in Alaska.   He explained that                                                               
the aforementioned would be very  similar to jurisdiction used in                                                               
the pay day lending legislation last  year.  The division has had                                                               
a fairly positive  experience with the pay day lending  law.  The                                                               
desire,  he opined,  is to  achieve a  balance between  a healthy                                                               
industry  and  consumer  protection.     He  mentioned  that  the                                                               
legislation will likely require further  work at some point.  The                                                               
legislation   provides   a   licensing   procedure,   appropriate                                                               
regulatory  authority  to   the  state  in  order   that  it  may                                                               
investigate,  review, and  resolve consumer  complaints regarding                                                               
mortgage  lenders and  brokers.    Furthermore, this  legislation                                                               
will provide  for a level  playing field such that  all companies                                                               
follow the same set of rules.   Mr. Davis noted that the division                                                               
is in favor  of defining [mortgage brokers and  bankers] as being                                                               
financial  institutions under  Title 06  in order  to bring  them                                                               
into the  banking community.   He emphasized  that a  mortgage is                                                               
one of the largest transactions  that many people perform whether                                                               
via  a  financial  institution,   bank,  or  some  other  lending                                                               
4:58:00 PM                                                                                                                    
KEVIN BREELAND,  President, Alaska Mortgage  Bankers Association;                                                               
Minority  Partner,  Residential   Mortgage,  confirmed  that  his                                                               
letter dated March  1, 2006, to Chair Anderson  was drafted prior                                                               
to review of the  proposed CS.  He said that  he has been working                                                               
with the Division of Banking  to resolve issues and will continue                                                               
to do  so.  The spirit  of the legislation, he  said, [the Alaska                                                               
Mortgage  Bankers  Association, does  support.    He opined  that                                                               
licensing of lenders is necessary.                                                                                              
REPRESENTATIVE LEDOUX  recalled that the letter  relates concerns                                                               
with  regard to  paragraphs  (10)  and (11)  on  page  13 of  the                                                               
proposed CS.                                                                                                                    
MR.  BREELAND   said  that  his   letter  brought   attention  to                                                               
paragraphs (10) and  (11) in order to ensure the  intent of those                                                               
provisions  are  interpreted by  the  court  system in  the  same                                                               
manner  [as specified  in the  letter].   In further  response to                                                               
Representative LeDoux,  Mr. Breeland said  that he was  no longer                                                               
concerned  about the  membership  reviewing them  because he  has                                                               
spoken  over the  phone  with  members.   He  explained that  he,                                                               
personally,  was confused  with the  intent of  these paragraphs.                                                               
However,  he  said   he  is  more  comfortable   now  with  these                                                               
paragraphs and  would be able  to articulate the intent  of these                                                               
5:02:10 PM                                                                                                                    
DWIGHT DEELY, President, Evergreen  Alaska Mortgage, said that he                                                               
and other [brokers] haven't had  much time to review the proposed                                                               
CS.  Mr. Deely related that  he agreed with the intent and spirit                                                               
of the legislation.   However, much of the concern  is related to                                                               
the language  and whether  it will  impact mortgage  brokers more                                                               
than bankers and lenders.                                                                                                       
ACTING  CHAIR KOTT  opined  that the  committee  agrees with  the                                                               
spirit  of  the legislation,  but  it  wants  to ensure  that  it                                                               
doesn't become problematic later.                                                                                               
MR. DEELY agreed.  He informed  the committee that he is licensed                                                               
in multiple states  and performs most business  via the Internet.                                                               
He mentioned that  he has went through these  licensing issues in                                                               
multiple  states,   which  he   characterized  as   a  nightmare.                                                               
Although  he agreed  that without  any  state regulations,  shady                                                               
businesses can  do business in  the state, he expressed  the need                                                               
to  take   care  and   allow  input   from  all   the  interested                                                               
ACTING  CHAIR  KOTT reiterated  that  this  legislation won't  be                                                               
reported out of committee today.                                                                                                
5:05:07 PM                                                                                                                    
CHRIS  SKINNER,  Broker,   President,  Kelstar  Alaska  Mortgage;                                                               
Member,  Legislative Committee,  Alaska  Association of  Mortgage                                                               
Brokers, reiterated Mr. Deely's  testimony that [brokers] haven't                                                               
had the  opportunity to  review the  legislation as  they should.                                                               
In  fact,  Ms. Skinner  opined  that  the Alaska  Association  of                                                               
Mortgage  Brokers  has  been  left  out of  this  process.    She                                                               
recalled that  at one  point the  Alaska Association  of Mortgage                                                               
Brokers was working with the  Alaska Mortgage Bankers Association                                                               
on legislation.   However, legislation was  introduced by another                                                               
party  and  language  that was  necessary  to  protect  consumers                                                               
wasn't included in  the legislation.  Ms. Skinner  said that upon                                                               
reading through  the legislation  she felt that  mortgage brokers                                                               
would be the  most affected by this legislation,  and thus should                                                               
be  able to  be more  involved in  the process.   She  noted that                                                               
brokers do believe that licensing  is necessary, but the language                                                               
of the legislation needs some work.                                                                                             
5:06:37 PM                                                                                                                    
DOUG   ISAACSON,  President,   Alaska  Association   of  Mortgage                                                               
Brokers;  President,  Gold  Coast  Mortgage,  reiterated  earlier                                                               
testimony  that the  proposed CS  was just  received today.   The                                                               
language of the proposed CS  is different than the prior version.                                                               
Mr.  Isaacson  then  explained  that  there  are  many  different                                                               
members  involved  in  the mortgage  conduit,  although  each  is                                                               
working to  the same end goal  of helping more people  enter into                                                               
home  ownership.    He  indicated that  all  groups  are  working                                                               
together to  develop language  that promotes  professionalism and                                                               
protects the  consumer.  Mr.  Isaacson explained that  the Alaska                                                               
Association of  Mortgage Brokers is affiliated  with the national                                                               
association,  which  has  members  in  49  states.    He  further                                                               
explained that  brokers have members that  are sometimes lenders,                                                               
pure brokers,  and net branches.   The concern, he said,  is that                                                               
the  membership  hasn't had  an  opportunity  to review  the  new                                                               
proposed legislation.                                                                                                           
MR. ISAACSON went  on to say that customer  protection requires a                                                               
test  of  competency.    Therefore,  if  the  competency  of  the                                                               
licensee  isn't  being  provided for,  then  consumer  protection                                                               
isn't  being encouraged.    Furthermore,  anyone can  incorporate                                                               
themselves in a fashion to  be excluded by this legislation, save                                                               
the small  group of  licensees who will  face additional  fees on                                                               
their  loans.   The aforementioned  will be  forwarded on  to the                                                               
consumer.  Moreover,  if that additional fee isn't  placed on all                                                               
mortgage loans in Alaska, a  certain section of the industry will                                                               
be placed at a competitive  disadvantage.  The aforementioned has                                                               
nothing  to do  with competency.    However, when  one reviews  a                                                               
competency requirement,  education comes into play,  even for the                                                               
companies.   Mr.  Isaacson  said  that he  would  like  to see  a                                                               
competency  test in  this legislation  and not  exclude nonprofit                                                               
agencies.     He   then  discussed   the  exclusion   of  "quasi-                                                               
governmental" agencies.   He went on  to say, "When you  have the                                                               
State of Alaska condoning a  fiduciary assigned by the court, the                                                               
ability to not  be licensed, you're defeating your  own desire to                                                               
protect  the public."   For  example, if  a pension  fund doesn't                                                               
have to  be licensed or  show competence  and is able  to perform                                                               
mortgages for the pension holders,  the [consumers] who trust the                                                               
government   to   provide   safeguards  are   placed   at   risk.                                                               
Furthermore, just because an individual  has a securities license                                                               
or is  a real estate agent  or attorney doesn't mean  that he/she                                                               
can  keep  up with  the  ever-changing  requirements of  mortgage                                                               
origination or lending functions.                                                                                               
MR.  ISAACSON  specified  that  he  isn't  speaking  against  the                                                               
legislation, but  rather against the  "vast gaping holes"  in it.                                                               
On the other  hand, [the legislation] specifies  that the state's                                                               
agents should also have oversight  over federal regulation, which                                                               
he opined goes too far.   The state auditors who currently do not                                                               
regulate federally  chartered banks will  have to provide  a test                                                               
of  competency  to audit  federal  regulations.   Therefore,  the                                                               
right  to  audit  will  become  a  requirement  to  audit.    The                                                               
aforementioned,  he   opined,  places  a   huge  burden   on  the                                                               
department,  which  will  have to  train  and  supervise  people.                                                               
These are  usually the same auditors  who will also be  doing the                                                               
state banking.   Mr. Isaacson  then highlighted that there  is no                                                               
cap on the amount charged.   Therefore, he expressed the need for                                                               
there  to  be  language  included that  specifies  how  much  the                                                               
audit/examination  can  cost.   He  also  expressed the  need  to                                                               
include  language  that specifies  that  the  department has  the                                                               
option to  examine a  mortgage broker, but  can also  decide that                                                               
such examination isn't warranted.   Furthermore, this legislation                                                               
seems to specify  that the state will be a  collection agency for                                                               
mandating  payments  to   appraisers,  without  stipulating  that                                                               
appraisers  have to  have reasonable  appraisals.   Mr.  Isaacson                                                               
expressed the need for there  to be language specifying differing                                                               
levels of penalties for different  prohibited practices.  Lack of                                                               
payment to an  appraiser shouldn't be taken on the  same level of                                                               
discipline  as  say, theft  of  escrow  funds,  he opined.    Mr.                                                               
Isaacson  informed  the  committee   that  he  will  provide  the                                                               
committee   with   written    testimony,   which   suggests   the                                                               
aforementioned.   He concluded by  expressing the need  to review                                                               
the legislation line  by line in order to  provide consumers with                                                               
protection and professionalism in the industry.                                                                                 
5:21:01 PM                                                                                                                    
LOU KONETSKI, Senior Vice President,  Gold Coast Mortgage, opined                                                               
that  mortgage   brokers  are  being  discriminated   against  as                                                               
compared to the  bank officers who perform the  same functions as                                                               
the  mortgage brokers.   He  highlighted that  if one  totals the                                                               
fees  and taxes  involved with  this legislation,  it amounts  to                                                               
more  than  $1,000 per  year.    However, the  mortgage  officers                                                               
working with the banks won't have  to pay anything.  Mr. Konetski                                                               
opined  that  mortgage  brokers  are  being  treated  worse  than                                                               
criminals as  they are forced  to pay $75  an hour for  their own                                                               
investigation.  He  then informed the committee  of the committee                                                               
"Don't Borrow  Trouble," which addresses predatory  lending.  The                                                               
aforementioned  committee has  found  that most  of the  problems                                                               
with mortgage  loans have to  do with out-of-state  lenders doing                                                               
business  in Alaska,  although  the  legislation doesn't  address                                                               
that matter very well.                                                                                                          
5:23:32 PM                                                                                                                    
LINDA   PATRICK,  Vice   President,  Evergreen   Alaska  Mortgage                                                               
Corporation,  echoed earlier  statements regarding  only recently                                                               
receiving the  proposed CS and  not having the ability  to review                                                               
the  legislation.     Ms.  Patrick  opined   that  regulation  is                                                               
important, especially  for predatory lenders.   She explained the                                                               
difficulty with  [out-of-state] lenders who offer  cheaper loans,                                                               
although those  lenders don't know the  idiosyncrasies in Alaska.                                                               
She expressed the  need to protect clients, while  she hoped this                                                               
legislation will not micromanage brokers.                                                                                       
5:25:34 PM                                                                                                                    
VERNON   RUSH,  President,   Alaska   Capital;  Partner,   Equity                                                               
Investors; Managing  Partner, Astoria Investments;  Chair, Alaska                                                               
State   Mortgage  Brokers   Association  Legislative   Committee;                                                               
Independent Lender, speaking as a  lender, opined that HB 424, as                                                               
written, isn't onerous.  However,  it doesn't protect the public.                                                               
As  a broker  and  a  person who  has  contracted  with banks  to                                                               
originate mortgage  loans, Mr. Rush interpreted  the legislation,                                                               
as per  the language on  page 3, to mean  that he is  exempt from                                                               
this  legislation.    He  explained that  he  is  an  independent                                                               
contractor  [functioning]  as  a  mortgage  broker  with  written                                                               
agreements with exempt  entities.  Furthermore, he  noted that he                                                               
doesn't issue mortgage loan commitments  or set the rates, terms,                                                               
et cetera of  the mortgage.  Mr. Rush said  he didn't believe the                                                               
drafters  of  HB 424  truly  under  the differences  in  mortgage                                                               
brokering.    Moreover,  the   legislation  doesn't  protect  the                                                               
public,  he   reiterated.    He   pointed  out  that   DiTech  is                                                               
technically a  bank and would  be exempt under  this legislation.                                                               
Mr. Rush mentioned  his agreement with the idea  of licensing the                                                               
lender and  the originator  because the  person dealing  with the                                                               
client  is  the  one  representing   what  he/she  can  do.    In                                                               
conclusion, Mr.  Rush opined that  the current proposed  CS needs                                                               
much further scrutiny.                                                                                                          
5:28:21 PM                                                                                                                    
JOHN  MARTIN,  Manager,  Alaska   Mortgage  Solutions,  began  by                                                               
explaining that  he is a  net branch operation, which  means that                                                               
he is a  lender as well as  a broker.  He  informed the committee                                                               
that he  has been a  resident of Alaska  since 1959 and  has seen                                                               
many changes  over the  years, especially  in recent  years, with                                                               
regard to  mortgage loans.   He also informed the  committee that                                                               
he  is  a  past  president  and founding  member  of  the  Alaska                                                               
Association of Mortgage  Brokers.  One of the  reasons the Alaska                                                               
Association of  Mortgage Brokers  was founded  was the  belief in                                                               
licensing.   Therefore, there  is the  desire for  fair licensing                                                               
while there is also some  consumer protection and the opportunity                                                               
for everyone  to be able  to effectively operate  their business.                                                               
Mr. Martin cautioned against over  regulation because Alaska is a                                                               
cash poor  state, in regard  to mortgage loans.   Over regulation                                                               
of mortgage  loans in Alaska  may result  in the loss  of closing                                                               
loans and placing Alaskans in homes.   Mr. Martin opined that the                                                               
proposed  CS needs  much  amending to  be  effective because,  as                                                               
stated  earlier,  this  legislation  is only  part  of  [what  is                                                               
necessary].   He  specified that  the legislation  should include                                                               
originators and  how they will  be tested for competency,  have a                                                               
background check, and require a  specified amount of education to                                                               
be obtained on a biannual basis.                                                                                                
5:30:35 PM                                                                                                                    
JOE BRAMMER,  Manager, First Metropolitan Mortgage,  said that he                                                               
has some  of the  same concerns  expressed by  Mr. Isaacson.   He                                                               
opined  that  with  all  exemptions   under  AS  06.60.020,  this                                                               
legislation  doesn't do  much to  protect consumers  because most                                                               
will be exempt  in one way or another.   For instance, a mortgage                                                               
that  is a  bank, savings  and  loan, or  credit union,  or is  a                                                               
subsidiary  or affiliate  of the  aforementioned doesn't  have to                                                               
comply with  any provision of  this legislation.   He highlighted                                                               
the exemptions  for quasi governmental agencies,  attorneys, real                                                               
estate  brokers  and  agents,  fiduciary  capacity,  and  persons                                                               
licensed by the U.S. Small  Business Administration.  Mr. Brammer                                                               
noted  his wholehearted  agreement with  Mr. Carman  in that  the                                                               
lack  of  legislation  regulating   mortgage  originators  is  of                                                               
detriment to the consumers of the  state.  He further agreed with                                                               
Mr. Martin that  this legislation should be made  whole by adding                                                               
the  mortgage origination  requirement  that  the originators  of                                                               
this state need to be licensed.   "Essentially, the way that this                                                               
bill reads it is big  business trying to legislate small business                                                               
out of business," he opined.                                                                                                    
5:32:53 PM                                                                                                                    
JAY  WILCOX,  Loan  Executive, Long  Beach  Mortgage,  noted  his                                                               
agreement  with much  of  the previous  testimony.   The  current                                                               
proposed CS  doesn't seem  to protect the  consumer.   Mr. Wilcox                                                               
related  that  predatory lending  is  the  thing  to watch.    He                                                               
further related  that the problems he  has seen in Alaska  are in                                                               
relation  to originators  who  don't know  Alaska  and its  laws.                                                               
Without  licensing mortgage  originators, implementing  education                                                               
and competency requirements, consumers  aren't being provided any                                                               
benefit.   Therefore, the aforementioned  should be added  to the                                                               
5:35:13 PM                                                                                                                    
DAN  FAUSKE,  CEO/Executive   Director,  Alaska  Housing  Finance                                                               
Corporation  (AHFC),  Department  of Revenue,  related  he,  too,                                                               
hasn't had a chance to review  the proposed CS, about which there                                                               
have been  some good  points raised.   Mr. Fauske  specified that                                                               
AHFC does support of the  basic premise of the legislation, which                                                               
is some type of regulation or control to protect consumers.                                                                     
5:36:13 PM                                                                                                                    
ACTING CHAIR KOTT announced that  public testimony on HB 424 will                                                               
be held open until this measure is heard again.                                                                               

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