Legislature(2005 - 2006)CAPITOL 17

03/06/2006 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 445(L&C) Out of Committee
Moved CSHB 392(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
Moved CSHB 424(L&C) Out of Committee
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                                                              
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                                                              
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.                                                                                    

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