Legislature(2005 - 2006)CAPITOL 17
03/06/2006 03:15 PM House LABOR & COMMERCE
Download Mp3. <- Right click and save file as
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 424-MORTGAGE LENDING 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." ACTING CHAIR KOTT noted that the committee packet includes a proposed committee substitute (CS). He recalled that one of the main concerns expressed at the previous hearing was that the legislation didn't protect the public in the appropriate manner. He then pointed out that the committee packet should also include a new fiscal note. REPRESENTATIVE LEDOUX moved to adopt CSHB 424, Version 24- LS1504\F, Bannister, 3/1/06, as the working document. There being no objection, Version F was before the committee. 5:40:55 PM KENNETH GAIN, Secretary/Treasurer, Independent Lenders of Alaska, explained that the major change embodied in Version F is to include mortgage brokers since the original legislation only applied to mortgage lenders. The mortgage bankers are most of the large mortgage lenders in Alaska and they often act as a lender temporarily until a number of mortgages can be pooled to be resold. If the original legislation had passed, the mortgage bankers would've been required to be licensed as the independent lenders, while the competitor, mortgage brokers, wouldn't have been required to be licensed. Therefore, the request was to include mortgage brokers in order to provide for a level playing field. [With the aforementioned change] a number of technical matters had to be addressed, such as the location at which they could operate. Version F makes it clear that the only thing that is regulated is identifying the location of the office in order for state records. Mr. Gain related that his group, which consists of small lenders lending their own money, isn't "particularly crazy" about regulation. However, the group recognizes that Alaska is one of the last states to adopt regulations. Furthermore, the group recognizes that the Division of Banking & Securities receives about 20 complaints per week, which indicates that there are problems to which the division is currently unable to respond. Mr. Gain mentioned that there is pending federal legislation requiring that all states have some form of licensing. As a result, the organization recognized the need for the division to be able to audit records and perform background checks, all of which costs money and results in the need for fees. Therefore, all in all HB 424 is a reasonable bill that provides a lot of consumer protection by giving the division authority without placing undue burden on businesses. "All in all I believe it's a good bill that will help address a very significant problem," he opined. With regard to the lack of a provision for competency testing, Mr. Gain pointed out that HB 424 licenses companies. Mr. Gain concluded by announcing support for HB 424 [Version F]. 5:46:10 PM MR. GAIN, in response to Representative Rokeberg, replied that not everyone will be happy with this legislation. He pointed out that [the mortgage lending industry] is one of the last professions in Alaska to be licensed. 5:47:11 PM JOHN MARTIN, Executive Manager, Alaska Mortgage Solutions, began by informing the committee that [Alaska Mortgage Solutions] is a net branch operation performing mortgage loans throughout the state. He mentioned that he has e-mailed his comments to committee members. He then highlighted that some of the language is vague, specifically he suggested changing the term "mortgage companies" to "mortgage entities" in order to include corporations, limited liability corporations (LLCs), and sole proprietorships. As written, Version F would exempt approximately two-thirds of all loan originators in the state, which doesn't provide residents any "good at all." Furthermore, the legislation doesn't provide for much consumer protection as there is no provision for originator licensing. MR. MARTIN pointed out that in Alaska real estate agents are licensed and must work for a broker. He opined that a similar, two-step process should be utilized for [mortgage lenders]. Furthermore, there should be comprehensive legislation such that all parties involved know where they stand. He then noted that portions of language in the legislation is derived from the division, which utilizes language that pertains primarily to depository organizations. However, most lenders in the state don't have a depository relationship with their clients and thus he suggested that such language should be modified or removed. He then turned to licensing, which he opined should be done every two years rather than annually. With regard to the expense of licensing, Mr. Martin opined that it will cause an increase in financing for the consumer. 5:51:03 PM REPRESENTATIVE LYNN inquired as to an estimate of the increase in cost to consumers mentioned by Mr. Martin. MR. MARTIN replied that it's difficult to estimate because the legislation specifies that there will be an audit process, which he opined would be quite expensive. Furthermore, one must take into account the cost of licensing as well as the $10 fee for each transaction, as specified in the legislation. Mr. Martin said that it's a bit premature to specify how much it will cost individual consumers. REPRESENTATIVE LYNN opined that paying extra to ensure a consumer purchasing a house is dealing with someone who is properly licensed is a small price to pay. 5:52:58 PM JOHN CARMAN, President, Home State Mortgage; Legislative Committee Chair, Alaska Mortgage Bankers Association, recalled when he began making mortgage loans back in 1972 with National Bank of Alaska. At that time, most mortgage loans were made by national banks and state chartered savings and loans, which are regulated entities. However, today most loans are made by mortgage brokers and mortgage bankers, which aren't currently regulated entities. Similar changes in other states have been addressed with licensing. Mr. Carman related that for the past five years he has been working to get legislation passed, from which he understands that it's impossible to draft legislation that will make everyone happy. With regard to comments that banks and credit unions should play by the same rules as mortgage bankers, banks and credit unions have always been regulated. However, the mortgage bankers and brokers haven't been regulated. "That's not to say that they don't have laws out there that they have to go by, it's just that there's no one to enforce those laws, no one to complain to, and no one to look at it," he pointed out. He recalled that the division received about 600 complaints last year, although the division can't do anything because there is no enforcement mechanism. Mr. Carman related his belief that [Version F] is good legislation. He added that Alaska should have originator licensing, although there are many issues surrounding it that need to be addressed. However, company licensing needs to be in place first. Many provisions within company licensing protects consumers, and furthermore instituting a mechanism for the division will help with enforcement. REPRESENTATIVE ROKEBERG asked whether Version F would license the businesses for which the loan originators work. MR. CARMAN replied yes. 5:58:41 PM JOE BRAMMER, Manager, 1st Metropolitan Mortgage; Legislative Board, Alaska Association of Mortgage Brokers, related that over last 25 years he has observed the need for regulations and consumer protection legislation in the mortgage industry. He said, "I agree that we need and I'm wholeheartedly a staunch proponent for independent legislation in Alaska for all lenders, all brokers, and all mortgage loan originators." However, he pointed out that mortgage lenders and brokers are two very separate and distinct sets. For instance, lenders accept monthly payments from consumers and collect money from consumers to pay property taxes and homeowner's insurance. Furthermore, lenders are named on the deed of trust as the beneficiary and own the note. Moreover, lenders have the ability to foreclose, set interest rates for the consumer, and to issue locked commitments. Lenders also have the authority to deny a consumer's request for a home loan. Mr. Brammer opined that lenders and brokers aren't adequately and fairly regulated under Version F. Although the lender and the broker offer the same product to the consumer, each uses different delivery vehicles to get to the market. The aforementioned truly sets the lender and the broker apart from each other. Version F attempts to regulate both, but as proposed it doesn't work. This legislation, he stressed, needs major modifications because in its current form it derails any attempt at consumer protection. Mr. Brammer related that Version F shouldn't be allowed to pass from committee. Under Version F, bankers are exempt from the guidelines and regulations that they penned while the brokers had no input. In closing, Mr. Brammer suggested that a fair representation of Alaska brokers, bankers, and lenders to collectively work to modify this legislation to make it workable and enforceable while protecting consumers. Additionally, Mr. Brammer opined that consumers deserve to have all lenders, brokers, and mortgage loan originators licensed. Currently, Version F includes eight exemptions of which he opined will allow about two-thirds of all originators in Alaska will be exempted. "The people who need to be regulated are not going to be regulated under this bill, and those are the mortgage loan originators," he said. "If we do not mandate loan officer licensing as part of this legislation, which would include competency testing and continuing education requirements, this committee substitute serves no purported purpose of consumer protection," he opined. 6:03:43 PM REPRESENTATIVE ROKEBERG asked if legislation has been introduced to solve the concerns expressed by Mr. Brammer. MR. BRAMMER replied that the Alaska Association of Mortgage Brokers and the Alaska Association of Mortgage Bankers had a joint meeting in December. Both groups agreed on what the mortgage loan originator licensing should be, save the required bonding for each mortgage originator. He recalled that earlier testimony related that it's impossible to include the mortgage originators in this licensing legislation because there are too many issues. However, he opined that there are no more issues involved in licensing mortgage loan originators than mortgage brokers. REPRESENTATIVE ROKEBERG related that the legislature isn't interested in getting into a "turf war." He then reminded everyone that one of the main goals of this committee is to protect the consumer. He pointed out that he has been in the real estate industry for 30 years and the legislature for 12 years during which time he said he hasn't seen any proposed legislation from the mortgage brokers, which is of concern. MR. BRAMMER informed the committee that members of the Alaska Association of Mortgage Brokers have been working with Roger Prince to develop three individual bills. Those three bills would address mortgage originators, lenders, and brokers. REPRESENTATIVE ROKEBERG questioned, "Where is the other bill?" MR. BRAMMER replied, "That's our point." He opined that the other legislation needs to be included in HB 424 in order to truly protect the consumer. REPRESENTATIVE ROKEBERG related that at times portions of legislation have to move along when ready, even if other portions aren't. This legislation is unique in that it falls under the Division of Banking & Securities and regulates businesses whereas Title 8 usually regulates individuals. 6:07:57 PM MR. BRAMMER, in response to Representative LeDoux, clarified that his concern is that the proposed legislation includes too many exemptions that will have the effect of exempting many mortgage brokers and bankers from complying with the conditions of the legislation. 6:08:41 PM REPRESENTATIVE LEDOUX surmised then that Mr. Brammer was saying that the legislation doesn't go far enough. MR. BRAMMER answered that this legislation places certain restraints and constraints on businesses, such as collecting a fee from each transaction that the broker closes. However, there are 11 classes that are exempt from the licensing. Moreover, the legislation provides for the audit process of mortgage brokers, although there is nothing to audit. Since many provisions of this legislation don't apply, Mr. Brammer opined that the legislation should be modified so that it does serve the consumer interest rather than exempting two-thirds of the group. REPRESENTATIVE CRAWFORD inquired as to Mr. Brammer's thoughts with regard to regulating those in the mortgage industry operating in Alaska who are out-of-state and outside of the country. MR. BRAMMER highlighted that this legislation doesn't regulate Internet lenders, most of which are a subsidiary or affiliate of a bank and are exempt under this legislation. Mr. Brammer opined that this legislation should be more far-reaching in order to protect unscrupulous lenders who are located outside the state or the country. The aforementioned can best be accomplished by requiring individual licensing of all mortgage originators who are going to do business in the state. 6:12:27 PM CRIS SKINNER, President/Broker, Kelstar Financial of Alaska Mortgage Company; Legislative Committee, Alaska Association of Mortgage Brokers, began by characterizing the legislation as "hollow" due to the lack of regulating mortgage loan originators. She opined that it's a known fact that the majority of consumer complaints arise at the mortgage loan originator level. She further opined that the legislation illustrates a misunderstanding of the lending process. She echoed earlier testimony that mortgage loan originator licensing and continuing education must be incorporated in order to provide true consumer protection. Additionally, this legislation allows far too many exemptions, which again isn't in the best interest of the consumer. These exemptions, she said, target small independent brokers and is questionable with regard to fair trade and small business protection. Therefore, Ms. Skinner proposed the creation of a task force composed of lenders, bankers, brokers, and mortgage loan originators to prepare legislation encompassing all aspects of the lending process and cover licensing and education for each level. The aforementioned would ensure true consumer protection and fair trade. Ms. Skinner informed the committee that members of the real estate community in Wasilla have provided written testimony on this legislation. In conclusion, she urged the committee to take their comments as well as her own into consideration prior to passing this legislation. 6:15:06 PM TIM KELLY, Lobbyist, Independent Lenders of Alaska, began by relating the Independent Lenders of Alaska's support for [Version F]. He then informed the committee that the Division of Banking & Securities has possession of legislation that would license and regulate mortgage loan officers or originators. Therefore, it's merely a matter of having that legislation drafted by legislative drafting. The Independent Lenders of Alaska, he related, take the position that the legislation before the committee, which encompasses two of three bills, should be forwarded out of committee. 6:16:48 PM REPRESENTATIVE LYNN noted that he is a licensed real estate broker, although he is currently in referral status. With regard to Version F, Representative Lynn opined that it's better to have some protection now rather than none at all. REPRESENTATIVE ROKEBERG stated his agreement. ACTING CHAIR KOTT, upon determining no one else wished to testify, closed public testimony. 6:18:27 PM REPRESENTATIVE ROKEBERG moved that the committee adopt Amendment 1, as follows: Page 3, lines 2-4; Delete "agent" Insert "licensee" There being no objection, Amendment 1 was adopted. REPRESENTATIVE ROKEBERG offered to work with those interested on legislation relating to [mortgage loan originators]. 6:20:20 PM REPRESENTATIVE LYNN moved to report CSHB 424, Version 24- LS1504\F, Bannister, 3/1/06, as amended, out of committee with individual recommendations and the accompanying fiscal note. There being no objection, CSHB 424(L&C) was reported from the House Labor and Commerce Standing Committee.