Legislature(2005 - 2006)SENATE FINANCE 532

04/28/2006 09:00 AM Senate FINANCE

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 3:00 pm --
Moved CSSJR 20(FIN) Out of Committee
Moved CSSB 272(L&C) Out of Committee
Moved SB 309 Out of Committee
Moved SB 317 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
     CS FOR SENATE BILL NO. 272(L&C)                                                                                            
     "An Act relating to mortgage lenders, mortgage brokers,                                                                    
     state agents who collect program administration fees, and                                                                  
     other persons who engage in  activities relating to mortgage                                                               
     lending; relating  to mortgage loan activities;  relating to                                                               
     fees for  recorded mortgage loan instruments;  and providing                                                               
     for an effective date."                                                                                                    
This was  the first hearing for  this bill in the  Senate Finance                                                               
Co-Chair  Green moved  to adopt  CS  SB 272  24-LS1644\U, as  the                                                               
working document, and objected to receive an explanation.                                                                       
3:09:59 PM                                                                                                                    
AMY  SEITZ, Staff  to Senator  Tom Wagoner,  the bill's  sponsor,                                                               
informed  the  Committee  this   bill  would  establish  mortgage                                                               
licensing practices. Alaska is the  only state that does not have                                                               
this "consumer  protection" feature in  law, and as a  result the                                                               
Alaska  Division of  Banking  and Securities  does  not have  the                                                               
authority  to  investigate   complaints  received.  The  Division                                                               
receives  approximately 20  legitimate complaints  each week,  in                                                               
addition  to  50  phone   calls  regarding  questionable  lending                                                               
practices. Five  years worth  of efforts  have culminated  in the                                                               
current "U" version of the bill.                                                                                                
Co-Chair Green asked what interests  may lead a person to support                                                               
or oppose this bill.                                                                                                            
3:12:00 PM                                                                                                                    
Ms.  Seitz informed  that support  is the  result of  recognition                                                               
that  consumers  need  protection.  The industry  and  the  State                                                               
support  the bill  for  that reason.  The  opposition comes  from                                                               
people who would rather license the loan originators.                                                                           
Co-Chair Green asked where she might find a loan originator.                                                                    
Ms.  Seitz  replied  that  an   originator  would  meet  with  an                                                               
applicant "face-to-face" to enter into a loan agreement.                                                                        
Ms. Seitz  explained that the proposed  legislation would protect                                                               
consumers  from any  problems caused  by the  originator, as  the                                                               
language applies to employees of  a licensed business. Opposition                                                               
to the bill is based  on "personal preference" rather than issues                                                               
of protection.                                                                                                                  
3:13:42 PM                                                                                                                    
Co-Chair   Green  asked   regarding   certification  or   license                                                               
Ms. Seitz responded  that no licensure requirements  exist in the                                                               
State. Some groups are federally  regulated, such as State banks.                                                               
Small residential mortgage companies, however, are not licensed.                                                                
Senator Olson  understood the bill contained  protections against                                                               
"predatory lenders", and asked how  those provisions would affect                                                               
loans negotiated between private parties.                                                                                       
3:14:48 PM                                                                                                                    
MARK  DAVIS,   Director,  Division   of  Banking   &  Securities,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
testified via  teleconference from Anchorage, and  responded that                                                               
under Sec.  06.60.020(1) added by  Section 2  on page 2  lines 14                                                               
through  17 of  the  bill,  a person  who  makes  fewer than  six                                                               
mortgage loans  in a  12 month  period would  be exempt  from the                                                               
licensing requirements.                                                                                                         
Senator Olson acknowledged.                                                                                                     
Mr.  Davis continued  that while  the proposed  legislation would                                                               
take two  years to fully  implement, it would allow  the Division                                                               
to immediately require licensing of  all new companies wishing to                                                               
enter  the Alaska  mortgage marketplace.  He  indicated that  the                                                               
State's  "strong  housing  market"  had  made  it  attractive  to                                                               
mortgage lenders, and the ability  to license those businesses as                                                               
they enter the  marketplace would be beneficial  to Alaska. State                                                               
banks are  currently regulated by  federal guidelines,  but other                                                               
subsidiary  mortgage companies  operated by  banks are  not. This                                                               
legislation would  create a "more  even playing field".  He urged                                                               
passage of the bill.                                                                                                            
3:18:20 PM                                                                                                                    
Senator Olson asked how the  regulations would apply to the self-                                                               
financed sale of a building.                                                                                                    
3:18:55 PM                                                                                                                    
ROGER  PRINCE, Department  of  Commerce,  Community and  Economic                                                               
Development,  testified via  teleconference  from Anchorage  that                                                               
that type of transaction would be exempt from this bill.                                                                        
Senator Olson asked where the exemption was defined in the bill.                                                                
Mr. Prince  located the language in  Sec.06.60.990 (11)(A), added                                                               
by Section 2 on page 21 lines 25 through 30.                                                                                    
3:19:53 PM                                                                                                                    
Senator Dyson was  "wary" of bills that require  licensing, as he                                                               
considered  them often  an  attempt by  an  established group  to                                                               
control competition.  He asked for  assurance that this  bill was                                                               
truly  aimed  at  protecting  consumers and  not  an  attempt  to                                                               
restrict access to other potential lenders.                                                                                     
3:20:51 PM                                                                                                                    
Co-Chair  Wilken  presided  over  the following  portion  of  the                                                               
Ms.  Seitz relayed  that larger  entities are  already regulated.                                                               
This bill  would address  the smaller  mortgage lenders  that are                                                               
not currently licensed.                                                                                                         
3:21:34 PM                                                                                                                    
Mr.  Davis referred  to a  "payday  lending" bill  that had  been                                                               
passed  the   previous  year.  It   was  anticipated   that  that                                                               
regulatory  bill would  decrease  competition in  the field.  The                                                               
opposite effect  occurred, as 23  additional lenders  entered the                                                               
marketplace and rates decreased. He  concluded that the effect of                                                               
licensure was  to "increase competition  and increase  the number                                                               
of members in the industry",  and surmised the same results could                                                               
be expected  in the field  of mortgage lending. He  stressed that                                                               
the Division  would endeavor  to ensure  the burden  of licensing                                                               
did not have detrimental effects on small businesses.                                                                           
3:23:10 PM                                                                                                                    
Senator Dyson assumed that mortgage  lending companies that chose                                                               
not to conduct  business in Alaska did so due  to the possibility                                                               
of "undercutting" by unreputable,  unlicensed companies. He asked                                                               
for examples of such "horror  stories" as indication of what this                                                               
legislation intended to prevent.                                                                                                
3:23:51 PM                                                                                                                    
Mr.  Davis exampled  one case  currently  under investigation  in                                                               
which  mortgage  lending appeared  to  be  used  as a  method  of                                                               
laundering money.  Another problem  related to lack  of oversight                                                               
is  referred to  as  the "bait  and switch"  tactic,  in which  a                                                               
person is promised one rate by  a mortgage broker, but at closing                                                               
are locked into  a higher rate. Variations  in disclosure letters                                                               
and  "less  than  honest"   prequalification  letters  also  pose                                                               
potential fraud risks  to the consumer. This  bill would preserve                                                               
the Department of Law's ability to address these issues.                                                                        
3:25:50 PM                                                                                                                    
DOUG  ISAACSON, Past  President, Alaska  Association of  Mortgage                                                               
Brokers,   President,   Gold   Coast  Mortgage,   testified   via                                                               
teleconference  from Fairbanks,  that this  bill would  encourage                                                               
accountability.  He addressed  the  "bait and  switch" issue  and                                                               
explained that while  some instances of higher  interest rates at                                                               
closing are in  fact due to dishonest or  fraudulent claims, some                                                               
merely reflect  changes in  the market. If  a person  enters loan                                                               
negotiations without  "locking" the  discussed interest  rate, it                                                               
is common  for rates  to fluctuate  during the  time it  takes to                                                               
finalize a  mortgage loan, which may  result in a higher  rate at                                                               
the  time of  closing. He  understood language  was developed  to                                                               
address this.                                                                                                                   
Mr. Isaacson  was concerned that  the current "U" version  of the                                                               
bill did not include "a person  who is exempt under AS 06.60.020"                                                               
in  the language  of Sec.  06.60.420  Prohibited activities.,  as                                                               
added by  Section 2  as the previous  Labor &  Commerce Committee                                                               
substitute  Version  "R"  had. He  suggested  that  language  was                                                               
necessary  to   protect  consumers  in  all   types  of  mortgage                                                               
transactions,  including those  through  an  "exempt" entity.  He                                                               
also contended that  an exempt person should be  required to file                                                               
for exemption with  the State. He proposed the  provision in Sec.                                                               
06.60.340 of Section  2 which required the  Department to conduct                                                               
examinations of licensees  every 36 months be  modified to allow,                                                               
but not  require, the  examinations. He  encouraged clarification                                                               
of Sec. 06.60.600(b) and recommended  allowing the fee to be paid                                                               
by any party to the transaction.                                                                                                
3:30:39 PM                                                                                                                    
Co-Chair  Green resumed  Chair,  and asked  the  location of  the                                                               
proposed language change.                                                                                                       
Mr. Isaacson  stated the Alaska  Association of  Mortgage Brokers                                                               
support  for the  bill, and  commented  that if  the fiscal  note                                                               
indicated a  profit from the  licensing fees, the cost  of audits                                                               
and regulations should correspondingly be reduced.                                                                              
3:32:44 PM                                                                                                                    
GREG  WILLIAMS, Regional  Director of  State Government  Affairs,                                                               
American  Financial Services  Association  (AFSA), testified  via                                                               
teleconference from  an offnet location  in Denver,  Colorado. He                                                               
informed that AFSA members are  all supervised or regulated under                                                               
state  and federal  law,  and engage  in  auto finance,  personal                                                               
loans, and  mortgage lending. He  appreciated the efforts  of the                                                               
Department and  the Division  of Banking,  and would  support the                                                               
bill as  amended. He  understood that  several concerns  AFSA had                                                               
with the original  bill had been addressed  through the committee                                                               
3:37:29 PM                                                                                                                    
Co-Chair  Green   asked  if  Mr.  Williams'   concerns  had  been                                                               
addressed in the current "U" Version of the bill.                                                                               
Ms.  Seitz  replied  that  an  amendment had  been  sent  to  the                                                               
Legislative Affairs  Agency, Division of Legal  Research Services                                                               
to be drafted but had not yet been completed.                                                                                   
Co-Chair Green removed her objection to adopting Version "U".                                                                   
Without  further  objection,  Version  "U"  was  ADOPTED  as  the                                                               
working document.                                                                                                               
Amendment #1:  This amendment deletes  "Except for  AS06.60.400 -                                                               
06.60.440", from  Sec. 06.60.020  added by Section  2 on  page 2,                                                               
line   14.  The   amended   language   reads,  "Sec.   06.60.020.                                                               
Exemptions. This chapter does not apply to…"                                                                                    
In  addition, this  amendment  deletes "a  record  of" from  Sec.                                                               
06.60.090(4) added  by Section 2  on page  6 line 22;  deletes "a                                                               
conviction" and  inserts "been convicted" in  subparagraph (A) on                                                               
line 23;  and deletes "an  act, an  omission, or a  practice" and                                                               
inserts  "committed an  act, made  an omission,  or engaged  in a                                                               
practice" in  subparagraph (B) on  line 26. The  amended language                                                               
reads as follows.                                                                                                               
               (4) has, within the previous seven years,                                                                        
                    (A) been convicted, including a conviction                                                                  
          based on a  guilty plea or plea of  nolo contendere, of                                                               
          a  crime, including  fraud or  another crime  involving                                                               
          personal dishonesty;                                                                                                  
                    (B) committed an act, made an omission, or                                                                  
          engaged in  a practice that  constitutes a breach  of a                                                               
          fiduciary duty;                                                                                                       
Furthermore,  this   amendment  deletes  the  language   of  Sec.                                                               
06.60.090 (C)  and (D)  added by  Section 2 on  page 6,  line 28,                                                               
through  page 7,  line  1 and  inserts new  language  to read  as                                                               
                    (C) had the person's participation in the                                                                   
          conduct of a business  limited by an administrative act                                                               
          of a federal or  state agency, including the suspension                                                               
         of a license for engaging in an occupation; or                                                                         
                    (D) had a license for engaging in an                                                                        
          occupation  revoked  or  terminated   for  cause  by  a                                                               
          federal or state agency.                                                                                              
The amendment  also inserts  a new  subsection to  Sec. 06.60.120                                                               
added by Section 2 following line 18, page 8 to read as follows.                                                                
          (i)  While a  license is  inactive under  this section,                                                               
     the person  holding the inactive  license shall  continue to                                                               
     maintain  records  as  required  by  AS  06.60.250  for  the                                                               
     business  transactions of  the person  that occurred  before                                                               
     the license became inactive.                                                                                               
          (j)  While a  license is  inactive under  this section,                                                               
     the  department may  take action  against  the license,  the                                                               
     person  holding  the  inactive license,  or  both  under  AS                                                               
     06.60.300  -   06.60.360  and  06.60.500  -   06.60.540  for                                                               
     noncompliance with  this chapter  before the  license became                                                               
     inactive or  for noncompliance with  this section  while the                                                               
     license is inactive.                                                                                                       
          (k) Except  as otherwise  provided in this  section and                                                               
     by regulations adopted by the  department, the provisions of                                                               
     this chapter do not apply to a person holding an inactive                                                                  
     license under this section.                                                                                                
Co-Chair   Green  moved   for  adoption   and  objected   for  an                                                               
3:39:18 PM                                                                                                                    
Ms. Seitz explained that this  amendment would address two issues                                                               
raised  in  a memorandum  from  Division  of Legal  and  Research                                                               
Services, as  well as  make a  technical deletion.  The amendment                                                               
clarified additional  grounds for denial of  license as specified                                                               
in Sec.  06.60.090, added by  Section 2. It also  specified which                                                               
provisions would be applicable to  an inactive license, requiring                                                               
the licensee to retain records  for three years and providing the                                                               
Division the authority to investigate  claims brought against the                                                               
licensee while they were active.                                                                                                
Co-Chair Green remarked that "this is a lot of new law".                                                                        
3:41:23 PM                                                                                                                    
Without further objection, Amendment #1 was ADOPTED.                                                                            
Co-Chair Green  stated that Mr. Williams  had proposed additional                                                               
language changes  for the  bill, which  would be  addressed after                                                               
completion of public testimony.                                                                                                 
3:42:58 PM                                                                                                                    
LAURIE   HOLT,   Officer   of   Residential   Lending,   Mortgage                                                               
Operations,   Alaska   Housing    Finance   Corporation   (AHFC),                                                               
Department  of  Revenue  testified  via  teleconference  from  an                                                               
offnet  location on  behalf of  AHFC. While  she had  not had  an                                                               
opportunity to review the current  committee substitute, AHFC was                                                               
supportive  of  the  "concept"  of  the  legislation.  She  urged                                                               
passage of the bill.                                                                                                            
3:44:07 PM                                                                                                                    
Mr. Prince was available to answer questions.                                                                                   
3:44:48 PM                                                                                                                    
JOE BRAMMER,  Alaska Association  of Mortgage  Brokers, testified                                                               
via teleconference  from Anchorage  in support  of the  intent of                                                               
this legislation.  His Association had been  working closely with                                                               
the Alaska Association of Mortgage  Bankers and others to address                                                               
obstacles  within  the  industry.  Many  members  of  the  Alaska                                                               
Association of  Mortgage Brokers  are small  businesses employing                                                               
only a  few people. Alaska  regulations have been  detrimental to                                                               
these   businesses;   therefore,   they  support   the   proposed                                                               
legislation. He  was concerned about  the nine  exemptions within                                                               
the bill. During a Senate  Labor & Commerce Committee hearing, he                                                               
had  proposed  that  a  person  must apply  for  and  be  granted                                                               
exemption.  This  provision is  not  currently  contained in  the                                                               
bill. He  told of "chatter"  within the industry  indicating that                                                               
many mortgage  brokers have been attempting  to define themselves                                                               
as "exempt" based on the current language.                                                                                      
3:46:51 PM                                                                                                                    
JOHN  MARTIN, testified  via teleconference  from Anchorage,  and                                                               
referred to  his written  testimony [copy  on file].  He informed                                                               
that his suggestions  had not been incorporated  into the current                                                               
committee substitute.  He requested  his submissions  be included                                                               
in the  bill. He stated that  licensing is needed, and  this bill                                                               
is "on the right track".                                                                                                        
3:48:40 PM                                                                                                                    
KEN  GAIN, Secretary/Treasurer,  Independent  Lenders of  Alaska,                                                               
testified via  teleconference from  Anchorage, that  the proposed                                                               
legislation is  "not unduly burdensome" to  small businesses, and                                                               
provides  needed  protection.  He  described  the  amendments  as                                                               
appropriate,  and  noted that  the  bill  is supported  by  three                                                               
regulated trade associations as well as by the Department.                                                                      
3:49:57 PM                                                                                                                    
JOHN   CARMAN,   Past    President,   Alaska   Mortgage   Bankers                                                               
Association,  testified via  teleconference from  Anchorage, that                                                               
he had  been involved in  advancing legislation of this  type for                                                               
approximately five  years. He noted  the efforts  and compromises                                                               
that  have  occurred  to  reach  this  position.  No  regulations                                                               
currently exist, and he offered  anecdotal evidence that the lack                                                               
of regulations make mortgage  lending attractive to untrustworthy                                                               
persons. He urged passage of the bill.                                                                                          
AT EASE 3:53:08 PM / 3:54:58 PM                                                                                             
Amendment #2:  This conceptual amendment  inserts "as  defined in                                                               
15.  U.S.C.A.  1602(a)"  following  "a  mortgage  loan";  deletes                                                               
"best" following "borrower's"; and  inserts "may include, but are                                                               
not limited to" following "interest"  in Sec. 06.60.430, added by                                                               
Section 2 on  page 16, lines 20 through 24.  The amended language                                                               
reads as follows.                                                                                                               
          Sec. 06.60.430. Certain refinancing prohibited. (a) A                                                                 
     mortgage  broker  may  not  refinance  a  mortgage  loan  as                                                               
     defined in 15  U.S.C.A. 1602(aa) within 12  months after the                                                               
     date  the  mortgage loan  is  originated  by the  lender  or                                                               
     broker,  unless   the  refinancing  is  in   the  borrower's                                                               
          (b) The factors to be considered when determining if a                                                                
     mortgage is in the borrower's  interest may include, but are                                                               
     not limited to, whether                                                                                                    
This amendment  also deletes "mortgage  broker" where  it appears                                                               
in  Sec.  06.60.440  and   makes  necessary  conforming  changes;                                                               
deletes "30  days before a  change occurs in the  billing address                                                               
of the mortgage lender or  mortgage broker"; inserts new language                                                               
following "writing" in subsection (c);  and adds a new subsection                                                               
(d). The amended language reads as follows.                                                                                     
          Sec. 06.60.440. Escrow accounts. (a) A mortgage lender                                                                
     and a borrower may agree  that the mortgage lender will keep                                                               
     in  an  escrow  account  all  money  that  the  borrower  is                                                               
     required  to  pay  to  defray   future  taxes  or  insurance                                                               
     premiums or  for other lawful  purposes. The  escrow account                                                               
     must  be  a  trust  account   or  another  account  that  is                                                               
     segregated from  the other accounts of  the mortgage lender.                                                               
     The mortgage  lender may not commingle  the borrower's money                                                               
     with the general funds of the mortgage lender.                                                                             
          (b) A mortgage lender may not require a borrower to                                                                   
     pay  money into  escrow to  defray future  taxes, to  defray                                                               
     insurance premiums,  or for  another purpose,  in connection                                                               
     with a  subordinate mortgage loan, unless  an escrow account                                                               
     for that  purpose is not  being maintained for  the mortgage                                                               
    loan that is superior to the subordinate mortgage loan.                                                                     
          (c) A mortgage lender who is holding money in escrow                                                                  
     for insurance  premiums shall notify the  insurer in writing                                                               
     within 30  days after  the billing  address of  the mortgage                                                               
     lender changes,  or 60 days  before the renewal date  of the                                                               
     insurance policy, whichever is later.                                                                                      
          (d) A mortgage broker who accepts funds belonging to a                                                                
     borrower in  connection with a  mortgage loan  shall deposit                                                               
     all those funds into a  trust fund account maintained by the                                                               
     broker in  a bank  or recognized  depository in  this state.                                                               
     The mortgage  broker may not commingle  the borrower's money                                                               
     with the  general funds  of the  mortgage broker.  All funds                                                               
     deposited by  the broker  in a trust  fund account  shall be                                                               
     maintained   there  until   disbursed  by   the  broker   in                                                               
     accordance with the instructions from the borrower.                                                                        
Co-Chair Green moved the amendment and objected for explanation.                                                                
3:55:23 PM                                                                                                                    
Ms. Seitz  explained that because  no legal definition  of "best"                                                               
is provided  in regard to  the phrase "borrower's  best interest"                                                               
the amendment removes  the word "best" from  Sec. 06.60.430 lines                                                               
28 and 30. It also clarifies  other restrictions that may be used                                                               
to determine what is in the borrower's best interest.                                                                           
Co-Chair Green  read the amended  language, "may include  but are                                                               
not limited to".                                                                                                                
Ms.  Seitz  continued  that  the   amendment  also  modifies  the                                                               
requirements for  escrow accounts  in Sec. 06.60.440,  creating a                                                               
new subsection  (d) in that  section to regulate how  those funds                                                               
shall be managed.                                                                                                               
Co-Chair Green read the language added by the amendment.                                                                        
3:57:31 PM                                                                                                                    
Co-Chair  Green asked  Senator Bunde,  as  Chair of  the Labor  &                                                               
Commerce Committee, if he found the changes acceptable.                                                                         
Senator Bunde affirmed.                                                                                                         
Co-Chair Green removed her objection.                                                                                           
Amendment #2 was ADOPTED without further objection.                                                                             
3:57:57 PM                                                                                                                    
Senator  Bunde  moved  to  report  the  bill,  as  amended,  from                                                               
Committee  with   individual  recommendations   and  accompanying                                                               
fiscal notes.                                                                                                                   
There  being  no objection,  CS  SB  272(FIN) was  REPORTED  from                                                               
Committee with  $259,200 fiscal  note #1  from the  Department of                                                               
Commerce, Community and Economic Development.                                                                                   
AT EASE 3:58:53 PM / 3:59:09 PM                                                                                             

Document Name Date/Time Subjects