HB 145-MORTGAGE LENDING 3:31:18 PM CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 145, "An Act relating to the regulation of residential real property mortgage lending, including the licensing of mortgage lenders, mortgage brokers, and mortgage loan originators and compliance with certain federal laws relating to residential mortgage lending; and providing for an effective date." 3:31:28 PM REPRESENTATIVE NEUMAN made a motion to adopt the committee substitute (CS) for HB 145, Version 26-LS0598\E, Bannister, 3/30/09, as the work draft. CHAIR OLSON objected for the purposes of discussion. [Version E was before the committee.] 3:32:09 PM TYSON FICK, Legislative Liaison, Office of the Commissioner, Department of Commerce, Community, & Economic Development (DCCED), stated that HB 145 makes many changes to mortgage lending statutes to bring the state into compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008, also referred to as the SAFE Mortgage Licensing Act of 2008 (SAFE Act). This bill resulted from efforts by the sponsor, the Department of Law (DOL), the Division of Banking and Securities, Department of Commerce, Community, & Economic Development (DCCED), industry representatives, and the legislative drafters. 3:33:11 PM LORIE HOVANEC, Director, Division of Banking and Securities (DBS), Department of Commerce, Community, & Economic Development (DCCED), offered the division's support for the committee substitute Version E. She explained that the committee substitute will bring current mortgage lending statutes in compliance with federal law. Congress passed a new law that required the division to revise its current statute. In the interim the DCCED added back into the bill what is necessary to grant authority for policy changes and to incorporate as much of the SAFE Act into law as possible. She highlighted the banking industry was concerned that the division might make changes by regulation instead of by statute. She offered the Division of Banking and Securities' support for the committee substitute, Version E. 3:35:15 PM MS. HOVANEC emphasized the need for compliance with federal law by July 30, 2009. She explained that the federal law consists of two parts. First is to bring the statutes into compliance. Second is to join the national mortgage licensing database registry system, referred to as the National Mortgage Licensing System (NMLS). She further explained that states can join the NMLS prior to the effective date of their statute. She indicated that the NMLS is activated by groups of states. She noted that Alaska, along with six or seven other states will join the NMLS licensing system on August 1, 2009. She offered her belief if HB 145 does not pass that the division will need some authorization to join the NMLS. Additionally, under the federal statutes, the U.S. Department of Housing and Urban Development (HUD) will regulate mortgage licensing. She opined the DCCED does not wish to have that occur. She highlighted that the state could apply for an extension, but the HUD standards are not yet set up. She related her understanding that no states have applied for an extension. She hoped that the legislature could support HB 145. Further, two sections of the bill do not refer to mandated changes. She referred members to item 10 in members' packets, titled "Talking Points- Lorie Hovanec, Director, Division of Banking and Securities." She offered to discuss the talking points, but related her preference to have committee members digest the bill and discuss the points at a later date. 3:38:36 PM CHAIR OLSON remarked that HB 145 has been expanded from 9 to 36 pages. He inquired as to whether she has prepared a sectional analysis for the bill. MS. HOVANEC related that she received a copy of Version E about an hour ago so she has not had time to revise the sectional analysis to correspond to the committee substitute. She offered to provide a sectional analysis for the next meeting. 3:39:24 PM REPRESENTATIVE HOLMES mentioned that she appreciates the forthcoming details. She said she did not see a fiscal note, but recalled reading the state would share implementation costs. She inquired as to the financial implications for the state. MS. HOVANEC answered that the initial cost would likely be $50,000, the minimum fee to join based on the number of licensees. She explained that the state is just now licensing mortgage lender broker, and orginators. Thereafter, the licensing system is industry supported. She mentioned some initial training sessions may be necessary for staff to learn to operate the system, but by the third year the fiscal note is a zero fiscal note. She referred to a fiscal note from the DCCED, Banking and Securities approved by Commissioner Notti on 3/11/09. 3:40:51 PM REPRESENTATIVE NEUMAN referred to page 3, lines 18-21, which read, "For the purpose of participating in the registry, the department may waive or modify, in whole or in part, by regulation or order, any or all of the requirements of this chapter ... " He opined this appears to be a blanket waiver. MS. HOVANEC related her understanding the purpose is in the event of an unexpected change that the state can modify via regulation. She highlighted that this specific waiver language is derived from the model state language approved by HUD. She offered to review the intent of the provision. In response to Chair Olson, Ms. Hovanec agreed that this is the first time the language has been proposed to the legislature. 3:42:27 PM REPRESENTATIVE BUCH asked for the reason for the federal changes incorporated in the SAFE Act. MS. HOVANEC offered her belief that the federal law changed due to the mortgage lending issues and problems precipitated some of the financial crises. She expressed her understanding the former director, Mark Davis, related that the draft legislation included some items the federal government was considering such as pre-licensing, educational requirements, and background checks. 3:43:59 PM REPRESENTATIVE BUCH offered his belief that this is a "work in progress" and some provisions may need to be adjusted. MS. HOVANEC recalled a Congressional report that indicated the state and federal government will work together on credit transactions. She highlighted that the division has attempted to keep some of the statutory requirements for licensing in regulation in anticipation of changes the division may need to adapt to next few years. 3:45:12 PM CHAIR OLSON inquired as to who developed the model legislation and if it has been adopted by other states. MS. HOVANEC answered yes, that as of a month ago, two other states have enacted their legislation, using a substantial portion of the model language. She explained that the model language was developed by the entities tasked under the SAFE Act with creating the NMLS registry. The Conference of State Bank Supervisors (CSBS), and [the American Association of Residential Mortgage Regulators] (AARMR) developed the system and to date over 20 governmental agencies are using the NMLS system. She offered to forward HB 145 to the CSBS for review. 3:47:03 PM REPRESENTATIVE CHENAULT asked who is requesting HB 145. He opined one reason that some lending institutions are in the position they currently are in is the institutions moved away from good business practices by loaning money to people who were a credible risk. He further opined the federal government told them to lend money to anyone that wanted to buy a home. He expressed concern about the source of the changes, particularly if the federal government is the source of the bill. He said: If it is the bankers whose job it is to turn a profit for their stockholders and their shareholders, then I feel a lot more comfort in that. But, I think the biggest reason we're in the position we are in is that we had the federal government determine what was best for the citizens of the U.S. and now we find what they promoted is definitely going to be with us for a long period of time, Mr. Chairman. 3:48:24 PM REPRESENTATIVE NEUMAN pointed out the House Resources Standing Committee just passed three resolutions "that told the federal government to stay out of our business." He asked if the provisions requirements background checks and fingerprints, are subject to privacy clauses. MS. HOVANEC offered to report back to the committee on confidentiality. She related that the provisions are similar to current statute. She stated that under the current statutes, fingerprint cards are submitted to the Department of Public Safety. While she said she was not certain, she offered her belief that the statutes contain provisions for some level of confidentiality. She stressed that the whole purpose of the NMLS and registry is to prevent someone who "may not be an upstanding member of the industry" from transacting business in one state from moving to another part of the country to start another operation. She opined that running background checks creates more transparency and better consumer protection. 3:50:48 PM REPRESENTATIVE NEUMAN asked whether any "profiling" can happen as a result of the bill. MS. HOVANEC answered that the background information is performed by the national licensing system, and is sent to the state to examiners in the Division of Banking and Securities who make the licensing determination. She mentioned that licensing examiners may also run their own check of records. She highlighted that the state licenses individuals. 3:51:58 PM REPRESENTATIVE NEUMAN referred to page 5 and 6 of HB 145 which relates to examination fees that may be assessed. He inquired as to whether the fee has been determined. MS. HOVANEC offered her belief that the division is not anticipating changing educational testing fees at this time. 3:53:01 PM MS. HOVANEC, in response to Representative Neuman, stated that the state statute became effective on July 1, 2008. The SAFE Act became effective on July 30, 2008. She related that the DCCED has worked with the Department of Law since then to make some of the changes that would be required under the SAFE Act. 3:54:18 PM MS. HOVANEC, in response to Chair Olson, stated the reason the longer bill was not previously submitted is due to the lag time in obtaining approval for the provisions in Version E. She said, "Believe me, it certainly was not my preference. I've put in 70 hours just this past week and all weekend, so, my apologies." 3:54:54 PM CHAIR OLSON indicated the committee did not even have 24 hours advance notice to review the committee substitute. He announced that HB 145, Version E, would be held over for further consideration.