Legislature(2005 - 2006)

03/07/2006 02:31 PM Senate L&C

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SB 272-MORTGAGE LENDING                                                                                 
2:39:04 PM                                                                                                                    
SENATOR BUNDE announced SB 272 to be up for consideration.                                                                      
AMY  SEITZ, staff  to Senator  Wagoner, sponsor,  said she  would                                                               
address version I.                                                                                                              
SENATOR  BETTYE DAVIS  moved to  adopt version  I as  the working                                                               
document. There were no objections.                                                                                             
MS. SEITZ explained that currently  Alaska is the only state that                                                               
doesn't  license  and   regulate  residential  mortgage  lending.                                                               
Because of  this, the Division  of Banking and Securities  has no                                                               
authority to  investigate the complaints that  it receives weekly                                                               
on protecting consumers.  It receives about 20  complaints and 50                                                               
phone calls on questionable lending practices per week.                                                                         
Increased  access  to Internet  lending  has  contributed to  the                                                               
growing number  of complaints. The  mortgage lending  industry in                                                               
Alaska has  been meeting  for several  years to  develop language                                                               
for a bill  that balances protection of  Alaska's consumers while                                                               
insuring sufficient access to residential  mortgage loans. SB 272                                                               
is  a starting  point to  address  this problem  by granting  the                                                               
division  enough  licensing  and regulatory  authority  to  begin                                                               
addressing the growing complaints  from Alaska homebuyers. It has                                                               
the support of the division and several groups in the industry.                                                                 
SENATOR BUNDE  asked if the  Department of Law had  completed its                                                               
MS. SEITZ [L1]replied that it is forthcoming.                                                                                   
2:42:51 PM                                                                                                                    
MARK  DAVIS,  Director,  Division   of  Banking  and  Securities,                                                               
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCCED), said  Alaska is the  last state  that does not  have any                                                               
form of  regulation. It  operates a  mortgage [L2]referral hotline                                                              
with the  Department of Law[L3]. He gets inquiries from companies                                                               
outside of Alaska  that might want to do business  here that have                                                               
to be told the state doesn't  have licensing; they then decide to                                                               
not  come here.  Also, because  the state  has no  regulation, it                                                               
might  be  attracting  companies  that  are  less  desirable.  He                                                               
supported this legislation as does the Department of Law.                                                                       
He  said their  comments  on the  committee  substitute would  be                                                               
technical  and  focused  on  the  enforcement  provisions  in  AS                                                               
06.604.20. The Department of Law  wants to make sure that nothing                                                               
in  that chapter  excludes the  powers it  already has  under the                                                               
Consumer  Protection  Act,  which   allows  for  restitution  and                                                               
significant  monetary  damages.   He  supported  the  restitution                                                               
MR. DAVIS  said this regulation should  attract more competition,                                                               
not less,  and that  the cost  to the consumer  would be  low; it                                                               
would better regulate contractor activity and protect consumers.                                                                
2:46:17 PM                                                                                                                    
SENATOR BUNDE asked about opposition.                                                                                           
MR. DAVIS replied that there  is opposition. Some brokers thought                                                               
that a bill that does  not include licensing of originators would                                                               
not protect consumers and would  be inappropriate. That is why he                                                               
and  the Department  of Law  felt they  should make  the mortgage                                                               
companies  liable   for  the  acts   of  the  employees   or  the                                                               
independent contractors in this bill.                                                                                           
SENATOR BUNDE asked if this has a neutral fiscal note.                                                                          
MR. DAVIS  replied yes; it would  require two positions -  a bank                                                               
examiner  and a  licensing person.  The fees  should cover  those                                                               
costs, however.                                                                                                                 
2:47:45 PM                                                                                                                    
AL SHAW,  Shaw Mortgage Inc.,  from Alaska and  Hawaii, testified                                                               
that predatory  lending should  be addressed  and defined  in the                                                               
legislation. Complaints  should be in writing  and not anonymous.                                                               
Audits should be limited in  frequency and scope unless justified                                                               
in writing. The reason for the  audit should be given in writing.                                                               
It should  contain a provision for  continuing education classes.                                                               
He felt  that brokers should be  liable for the actions  of their                                                               
2:51:36 PM                                                                                                                    
JOHN  CARMAN, President,  Home State  Mortgage, said  he is  also                                                               
Chairman of  the Alaska  Mortgage Bankers  Legislative Committee.                                                               
He  testified that  more loans  in  Alaska are  made by  mortgage                                                               
brokers  than by  banks or  savings and  loans and  they are  not                                                               
regulated  in  any way.  Many  federal  laws  are in  place  that                                                               
mortgage brokers are  required to adhere to, but there  is no one                                                               
to enforce  them. Alaska is  the only state  without regulations.                                                               
He has worked many  years to get a bill, but  it is impossible to                                                               
make everyone happy.                                                                                                            
People who  don't want  regulation fall into  two groups  - those                                                               
that  are  honest  and  admit  they  don't  want  regulation  for                                                               
whatever  reason and  others that  say they  are for  regulation,                                                               
just not  this regulation  or any regulation  that would  stand a                                                               
chance of passing.                                                                                                              
Consumers  don't  understand   the  difference  between  mortgage                                                               
brokers and mortgage lenders. The  difference in the two entities                                                               
occurs  as the  loan is  closed and  sold. Most  of the  problems                                                               
occur  on  mortgage  loans  that are  reported  to  his  division                                                               
because of abuses in the  application processing and locking part                                                               
of  the loan  process,  which  brokers do  the  same as  mortgage                                                               
bankers. Those that oppose this  legislation say that everyone is                                                               
being exempted  from this legislation. Numerous  brokers in House                                                               
testimony were  saying that two-thirds  of all  originators would                                                               
be exempt. But that is just a red-herring issue. He explained:                                                                  
     This can  only be a  misunderstanding of the  way these                                                                    
     exemptions  work.  The  exemption  for  bank-affiliated                                                                    
     entities  only  applies  to  those  entities  that  are                                                                    
     already subject  to examination and audit  by a federal                                                                    
     or state agency. If you  aren't subject to examination,                                                                    
     you  aren't  exempt.  This  also  applies  to  Internet                                                                    
     lenders. If  they aren't  subject to  examination, they                                                                    
     aren't exempt.                                                                                                             
He estimated that  his company originates about  one-third of all                                                               
loans in  the Anchorage area.  It would  not be exempt.  "If they                                                               
are subject to outside examination,  then we don't want to burden                                                               
the  state  with examining  them  a  second  time when  there  is                                                               
already an examination going on."                                                                                               
He  said  the  other  exemptions are  for  non-profits  like  the                                                               
Anchorage Neighborhood House  or quasi-governmental agencies like                                                               
Alaska Housing Finance or parents  lending to their children. All                                                               
of those should be exempt.                                                                                                      
Some say there are no  consumer protections provided in the bill,                                                               
but the  parts of the  bill that have  the most problems  are the                                                               
ones  in the  90  percent  letters and  the  good faith  estimate                                                               
sections, which give  great protection to the  consumers. It also                                                               
puts the Division  of Banking in a place where  it can respond to                                                               
problems.  He didn't  want to  be  regulated, but  he wanted  the                                                               
other guy  to be regulated bad  enough that he was  willing to be                                                               
regulated under the same rules they are regulated under.                                                                        
MR. CARMAN advised against  attaching originator licensing, which                                                               
is needed, because that would delay  the bill further. Even if it                                                               
passes, its  effects would take one  or two years. He  noted that                                                               
someone complained  about a  section that  would make  loans more                                                               
difficult in rural Alaska, but  the CS addresses those issues. He                                                               
felt  that some  were worried  about  the vindictive  use of  the                                                               
audit  process  by  the  Division  of Banking  and  that  is  far                                                               
outweighed by the system he has now with no controls or audit.                                                                  
2:58:51 PM                                                                                                                    
KEN  GAIN, President,  Cash Now  Financial  Corporation, a  small                                                               
private  lender, said  he is  also the  Legislative Chairman  and                                                               
Secretary  Treasurer of  the Independent  Lenders  of Alaska.  He                                                               
worked  very closely  with the  Division of  Banking to  have the                                                               
original bill  introduced. At  first he  thought Cash  Now didn't                                                               
need to  be regulated because  it lent  its own money,  but after                                                               
finding out about the complaints  and that federal legislation is                                                               
pending  that would  require states  to do  this, he  changed his                                                               
The first draft would have cost  his firm about $25,000 a year to                                                               
comply,  but  the  current  bill  would have  a  nominal  cost  -                                                               
comparable to  what he pays  as a licensed real  estate appraiser                                                               
with  an initial  application  fee  of $500  and  $250 per  year.                                                               
Having  to undergo  an audit  every 36  months or  if there  is a                                                               
complaint would  add some costs,  but those wouldn't be  that out                                                               
of line. He  estimated the audit would take a  small firm about a                                                               
half-day.  Also, he  asked  himself  how else  could  the law  be                                                               
enforced  if the  division  didn't  have the  right  of audit  of                                                               
records, loan  applications, etc. and figured  that authority was                                                               
MR. GAIN  reiterated that this  bill regulates those who  are not                                                               
now  regulated and  most  of the  exempted  entities are  already                                                               
regulated by the federal law that is referenced in it.                                                                          
Most of the arguments against  this regulation are from banks and                                                               
credit unions  that are  already regulated.  The others  would be                                                               
government  agencies and  non-profit  charitable agencies,  which                                                               
are  giving charitable  loans,  which would  not  be abusive  and                                                               
certain court appointed  people. "So, the only one  that might be                                                               
arguable  is one  that allows  exemptions for  lenders only,  not                                                               
brokers, loaning their own money who  do an average of one loan a                                                               
MR. GAIN summarized that he would like to see this bill passed.                                                                 
3:05:28 PM                                                                                                                    
JOHN MARTIN, testifying offnet, noted  he sent an email detailing                                                               
his points.  He said some of  the current language is  vague. The                                                               
intent is to regulate mortgage  entities, but the language refers                                                               
to  a "person"  in many  places. So  he suggested  using "entity"                                                               
whenever  possible. He  estimated  that about  two-thirds of  all                                                               
mortgage originators would  be exempt and the  bill is incomplete                                                               
because it  is missing the  most important  element of all  - the                                                               
licensing  of  individual  mortgage   originators.  He  felt  the                                                               
control of  the business  needs to  be with  the people  who deal                                                               
directly  with  the  general  public and  that  is  the  mortgage                                                               
MR. MARTIN  said that most  licensing deals with  the individuals                                                               
who face the  client. He used a real estate  agent for an example                                                               
of a  person who must take  a competency test and  has to undergo                                                               
ongoing education in order to do  business. He also must work for                                                               
a licensed broker. The buck stops with the broker.                                                                              
     It's a good  system. We should have the  same thing for                                                                    
     mortgage lending. All mortgage  lending entities in the                                                                    
     state should be licensed on  a fair and even basis. All                                                                    
     mortgage originators  should be  licensed in  the state                                                                    
     and  have  to work  for  a  licensed entity,  as  well.                                                                    
     Utilization  of  that   concept  brings  accountability                                                                    
     sharply into  focus and better serves  the residents of                                                                    
     our great state....                                                                                                        
MR. MARTIN  thought the bill  should cover licensing  of mortgage                                                               
entities and originators  so that all players know  the rules and                                                               
how they interact.                                                                                                              
3:09:40 PM                                                                                                                    
DWIGHT DEELY,  President, Evergreen Alaska  Mortgage Corporation,                                                               
said they  are an Internet  mortgage company based in  Alaska. It                                                               
is a  member of the  Alaska Association of Mortgage  Brokers, the                                                               
National Association of Mortgage  Brokers, and is a correspondent                                                               
for  large  wholesale  lenders  across the  nation.  It  is  also                                                               
affiliated with a federally chartered bank in Washington State.                                                                 
He was essentially in favor of  some form of regulation, but this                                                               
bill  would  not  prevent  "predatory  lending,"  if  that's  the                                                               
ultimate  goal. It's  poorly written  and "predatory  lending" is                                                               
not  well defined.  There are  also  too many  exemptions and  it                                                               
seems  to  focus  primarily  on  mortgage  brokers  and  mortgage                                                               
lenders. Third,  he felt they  needed to consider  regulating the                                                               
conduct of loan originators and officers rather than brokers.                                                                   
MR.  DEELY   related  that  Bill  Graham,   Chairman,  US  Senate                                                               
Committee on Banking,  Housing and Urban Affairs,  concluded in a                                                               
     Predatory lending not defined by regulators seems [L4]to                                                                   
     encompass  an  ever-changing  and broad  assortment  of                                                                    
     terms  and  conditions  associated with  a  variety  of                                                                    
     financial transactions.  It is difficult  to understand                                                                    
     how  regulators  can   formulate  proposals  to  combat                                                                    
     predatory lending when there  is no clear understanding                                                                    
     as to what  it is. In the absence of  a definition, not                                                                    
     only  might we  miss the  target,  but we  may hit  the                                                                    
     wrong target....                                                                                                           
     The  letters from  the  regulators  recognize that  the                                                                    
     practice can  be abusive  in some  context, but  it can                                                                    
     also  in  absence  of  fraud  or  deception  be  highly                                                                    
     beneficial  to consumers.  Moreover, this  lack of  any                                                                    
     definition hamstrings  the effort to  gather systematic                                                                    
     data on predatory lending....                                                                                              
MR. DEELY added  that he thought that any regulation  needs to be                                                               
applied  across  the board,  not  just  to brokers  and  bankers.                                                               
Lastly, he thought it best  to license individual originators, no                                                               
matter who [L5]they work for.                                                                                                   
3:14:04 PM                                                                                                                    
CRIS  SKINNER,  President/Broker,  Kelstar  Financial  of  Alaska                                                               
Mortgage Company, said  she is also on  the legislative committee                                                               
of  the Alaska  Association of  Mortgage Brokers.  She criticized                                                               
the bill in  its current form for being  hollow. The questionable                                                               
activities take  place at the  mortgage loan  originator's level.                                                               
She said,  "By the time the  client file reaches the  lender, the                                                               
damage to the consumer has already taken place."                                                                                
She   asserted  that   the  licensing   and  education   of  loan                                                               
originators  must  be incorporated  in  this  bill for  effective                                                               
consumer  protection.  Licensing  of loan  originators  is  being                                                               
pushed even on a national level, although it has been set aside.                                                                
Another reason  this bill  lacks merit is  because it  allows far                                                               
too  many exemptions  and is  not in  the best  interests of  the                                                               
consumer. Consumer complaints  have been made to  the Division of                                                               
Banking against  all entities,  even those  who are  exempt under                                                               
this  bill. She  formally  asked this  committee  to require  the                                                               
division  to provide  documentation of  consumer complaints  that                                                               
may  prove the  entities  exempt  under this  bill  are also  the                                                               
subject of consumer complaints.                                                                                                 
MS. SKINNER  said that language in  the bill has many  gray areas                                                               
and needs  clarification. It is  evident that it  regulates small                                                               
independent  brokers and  will impose  financial burdens  on them                                                               
that  will passed  on to  the consumer.  It is  questionable with                                                               
regards to fair trade and small business protection.                                                                            
She disagreed  that any  licensing is  better than  no licensing.                                                               
The  licensing  in this  bill  won't  protect the  consumer  from                                                               
unscrupulous activities due to its  many exemptions. It will take                                                               
options  away from  the  consumer and  allow  larger entities  to                                                               
monopolize the market.                                                                                                          
3:16:56 PM                                                                                                                    
JOE BRAMMER,  Manager, First Metropolitan Mortgage,  said he also                                                               
serves  on the  Legislative Board  of the  Alaska Association  of                                                               
Mortgage Brokers. He observed:                                                                                                  
     I know of no federal  regulations that exist, let alone                                                                    
     that are being  enforced that relate to  the issuing or                                                                    
     preparation   of   prequalification   letter   or   the                                                                    
     preparation of  a good faith  estimate for  the ability                                                                    
     to refinance  to refinance a consumer's  mortgage loan.                                                                    
     I have never  known the comptroller of  the currency to                                                                    
     audit a prequalification letter.                                                                                           
He said that this bill doesn't  create a level playing field and,                                                               
therefore,  doesn't protect  the consumer  because most  of those                                                               
involved  are exempt.  The supposition  that something  is better                                                               
than  nothing is  preposterous.  He said,  "The  true problem  is                                                               
unscrupulous   mortgage   loan   originators.   This   is   where                                                               
regulations  must begin."  He suggested  that including  brokers,                                                               
bankers  and   lenders  would  make   this  a  better   piece  of                                                               
legislation  and  insisted  that all  mortgage  loan  originators                                                               
should be licensed.                                                                                                             
3:20:32 PM                                                                                                                    
DUANE  MATHES, Associate  Broker, Dynamic  Properties, said  this                                                               
bill  discriminates  against  small  business  people  and  small                                                               
mortgage  brokers, in  particular.  It doesn't  serve the  public                                                               
well, either. He finds that  mortgage lenders are more responsive                                                               
than mortgage bankers to their  clients. He hoped the Legislature                                                               
could see  that mortgage bankers had  a big hand to  play in this                                                               
bill and that wasn't very fair.                                                                                                 
3:22:46 PM                                                                                                                    
VERNON RUSH, Alaska Capital, noted  that he emailed and faxed his                                                               
comments.  He related  a personal  story about  how the  arena on                                                               
Fireweed had been  passed off to him as a  commercial building of                                                               
grade "A" quality. He said:                                                                                                     
     My point to you is  that any fraud or misrepresentation                                                                    
     starts at  the customer level.  By the time it  gets to                                                                    
     the  lenders and  the  secondary  market, it's  already                                                                    
He  submitted  that  mortgage  bankers   are  the  ones  who  are                                                               
interested  in this  legislation  and an  exemption  is a  hollow                                                               
argument.   He  concluded saying  there will  always be  customer                                                               
3:25:47 PM                                                                                                                    
ULRIKE JOHNSON, Double Eagle Real  Estate, testified that she was                                                               
totally  delighted  there was  a  bill  and hoped  would  mandate                                                               
education  for loan  originators and  processors straight  across                                                               
the board. But  this bill isn't even a good  band-aid. It doesn't                                                               
protect the public.  When times are good, everyone  hires and the                                                               
training is forgotten.                                                                                                          
She said that realtors, appraisers,  home inspectors are licensed                                                               
and, "What's good  for the goose is good for  the gander. I think                                                               
it should be  straight across for everybody."  Everyone should be                                                               
licensed with continuing education and competency required.                                                                     
3:27:14 PM                                                                                                                    
SHELLIE BUCK,  Platinum Funding Group,  Inc., said she is  also a                                                               
member of  the National Association  of Mortgage Brokers  and the                                                               
Alaska  Association  of  Mortgage   Brokers.  She  advocated  for                                                               
education.  She  said  consumer-level predatory  lending  happens                                                               
with originators. She related that a  client could put down a lot                                                               
of money and turn around and  not get their mortgage loan because                                                               
the mortgage originator had no idea  he did not qualify under the                                                               
standard of the  mortgage product he was offered.  "This is where                                                               
predatory lending is at its highest and worst."                                                                                 
If  licensing for  mortgage originators  is not  added, consumers                                                               
won't  be helped.  Many  areas  of the  bill  are  vague and  she                                                               
offered to submit further comments through email about them.                                                                    
3:28:50 PM                                                                                                                    
JAY PRICE,  Aurora Mortgage  Corporation, Wasilla,  supported the                                                               
idea of  the bill, but  found the language  in it was  not clear.                                                               
For  instance, Section  60.080. (2)  had no  definitions of  what                                                               
experience  is  required or  what  is  meant by  "character."  He                                                               
suggested  including  specifics.  As  written,  this  legislation                                                               
wouldn't protect the public.                                                                                                    
3:30:39 PM                                                                                                                    
LINDA PATRICK, Evergreen Alaska  Mortgage, Fairbanks, supported a                                                               
bill  for  licensing loan  originators,  but  there are  so  many                                                               
points that  need to be clarified  that she didn't support  it as                                                               
3:31:22 PM                                                                                                                    
DOUG   ISAACSON,  President,   Alaska  Association   of  Mortgage                                                               
Brokers,  didn't support  the  bill as  written.  He accused  the                                                               
chairman of taking preferential testimony.                                                                                      
CHAIR BUNDE informed  him that he took people as  they had signed                                                               
up to  speak and this bill  would be heard again.  "Everyone will                                                               
have an opportunity. I don't have a dog in this fight."                                                                         
MR. ISAACSON said he wanted this bill modified before it passed.                                                                
3:32:12 PM                                                                                                                    
SENATOR BUNDE  announced he  would hold SB  272 in  committee. He                                                               
said  he  wanted  the  bill's sponsor  to  work  with  interested                                                               
parties  to accommodate  a majority  of the  problems. He  wanted                                                               
more specifics  on the complaints  from the Division  of Banking.                                                               
He  wanted   "predatory  lending"  defined  and   the  audit  and                                                               
continuing education requirements fleshed out.                                                                                  

Document Name Date/Time Subjects