SB 102-MORTGAGE LENDING  1:56:13 PM CHAIR ELLIS announced SB 102, version C, to be up for consideration. He said they are in receipt of a second letter in support of SB 102 from AARP that had worked through its concerns with Mr. Davis. MARK DAVIS, Director, Division of Banking and Securities, Department of Commerce, Community & Economic Development (DCCED), said he had conversations with the American Financial Services Association (AFSA) and outside firms like Countrywide, but they didn't come to an agreement that pleased all parties. He explained that as division director, the difficulty he has is if they exempt the originators who work for an affiliate of a bank, that would include the state bank, and he didn't think that would be in the consumers' best interest. Right now the division regulates state bank mortgages, which is very beneficial for consumers. If the change is adopted, the state bank could adopt an affiliate and entirely avoid licensing as originators. He talked with them about carving out an exemption for federal banks. But in looking at the state statutes, he is required to preserve parity between the state and federal banks. However, he said he understood their concerns more thoroughly now and had made progress in one area - having to comply with different education requirements in all 50 states - and a fellow regulator said they were adopting Internet-based testing that is standardized and adapted to each state - much like the multi- state bar exam. He thought that would make it much easier for out-of-state companies to comply. On education, he does not want to discipline everyone, but he also wants everyone to be educated. As an example he said he gets complaints every month from young couples who have bought their first home in Alaska and who have gone to a company that is not familiar with Alaska law. That company does not tell them about Alaska Housing Finance Corporation's first time homebuyer program. Then they get told by a relative and realize they could have saved one or two points. He gets called and he has to tell them the company was not regulated. He also knows that certain outside companies are writing mortgages that have prepayment penalty clauses in them, which are not legal in this state. So, he is a proponent of education. On the other hand, he can understand AFSA not wanting to comply with 50 different education requirements. MR. DAVIS said it would cost $5,000 to license 20 originators in Alaska per year. Some states have call center licensing where all the originators meet all the other requirements. He thought a lot things they are concerned with could be dealt by regulation or perhaps some modification of the bill rather than an exemption - if absolutely necessary. He reminded them that the effective date is July 1, 2008 and the bill wouldn't apply to the AFSA members until March 1, 2009. 1:59:51 PM He also reported checking with the Department of Financing Institutions in Washington State, which has adopted the AFSA language allowing for exemptions. He was told they are processing a couple thousand exemptions and it has become as onerous as probably doing the licensing. Its statute also didn't provide for payment of processing those exemptions. So it cost Washington State money. So if you were going to process exemptions, it might require another fiscal note. MR. DAVIS said he thought the bill should be passed as is, but they should be very careful not to target any part of the industry. You don't want to discriminate against people from out of state. He wanted everyone to have education and background checks. Right now, people with felonies are mortgage originators and last weekend a mortgage originator pled guilty to two counts in federal court. This bill will correct that. 2:01:19 PM SENATOR BUNDE said he had written testimony from the Alaska Association of Realtors dated this weekend and it says the Division of Banking receives as many as 50 complaints a week. MR. DAVIS responded that he receives about 20 complaints, but he is getting 5 or 6 inquiries from mortgage companies a week that want to enter into the state. The people who answer the phone tell him that they get two reactions when they say there is no licensing. Some say great and others say they don't want to come here. His experience with payday lending is that loans to the public were substantially cut with that bill, but the state also had 30 new companies enter because it's now legal to do so. Ten companies have exited who couldn't comply with the statute. He thought a similar thing would happen with mortgage companies. SENATOR BUNDE asked the average number of complaints a week over the last year. MR. DAVIS replied about 4 or 5. The complaints include not knowing about the programs like AHFC, switching fees, and tying groups into a closing, which is illegal, but no one can enforce that. He said the State of Maine recommended the best thing for state mortgaging to do is to adopt federal standards into state law. That's exactly what this bill does. 2:02:05 PM SENATOR HOFFMAN joined the committee. 2:03:54 PM SENATOR STEVENS asked how the exemptions would be applied. MR. DAVIS explained that Southcentral Mortgaging would be exempt from this program. Some complaints are people not getting what they were promised and education so originators can tell people what programs are out there to help them if they fall into a certain category. CHAIR ELLIS asked if he was recommending the original bill after talking to AFSA folks. MR. DAVIS replied yes with the understanding that the regulatory burden is evenly applied. CHAIR ELLIS asked if he had all of the statutory authority to promulgate the regulations that would address some if not all of the concerns of the AFSA under this bill. MR. DAVIS answered that after checking with other states on the education, he thought he could work with that and make sure the test is similar to other tests in states with licensure; he could also offer reciprocity. CHAIR ELLIS asked him what other states do to regulate AFSA members. 2:06:29 PM MR. DAVIS replied there are differences. The States of Washington and Idaho have language similar to what AFSA is proposing and they process exemptions. That just took place in Washington on January 1, 2007; Montana just passed a new statute that licenses originators and does not exempt the AFSA members. Georgia does not license originators; they make the mortgage banker responsible for the originator. His division favors originator licensing because that's the person who meets with the consumer and sits down with them and makes the representations. If that person is education, less enforcement will be needed. If he has to go to court, the Department of Law would charge $170,000 to $200,000 for that representation. The best thing to do is have the originators be educated and be sensitive to minorities. 2:07:39 PM SENATOR STEVENS asked if he intends to return at some point to talk more about a bill that would concern predatory lending. MR. DAVIS replied very much so. If Alaska wants to get in line with other states, it needs to have a predatory lending act. He intended to find a sponsor for that bill next session and it would have to include enforcement powers. 2:09:09 PM CHAIR ELLIS asked him for the history of the mortgage lending bill. MR. DAVIS replied that last year SB 272 proposed licensing mortgage brokers and mortgage bankers and it was his intention to come back with an originator licensing bill this year. But over the summer the industry decided to prepare a bill that included all three. 2:09:38 PM KEVIN BREELAND, President, Alaska State Mortgage Bankers Association, said he is also a partner in Residential Mortgage in Anchorage. They both supported CSSB 102(L&C). This bill defines an originator, which is exactly what he does every day - and every originator in the State of Alaska should be doing exactly what the definition says. He said Alaska is the only state with no licensing for mortgage companies and it is one of the few states left that doesn't require any licensing for loan originators. Currently 26 states do require it and that number continues to grow on an annual basis. He said that mortgage originator licensing has become such an important component against predatory lending that at the federal level a bi- partisan bill with 236 sponsors was introduced with a component for a nationwide mortgage originator national registry so that all originators in the United State would have to be registered there. This is a key component in looking at predatory lending practices. 2:13:31 PM He said that currently, when a consumer has a complaint the only recourse he has is to contact the attorney general's office that has limited resources and there's only so much they can do. Under this bill, the Division of Banking and Securities gets an opportunity to look at what companies and originators are doing and it can fend off predatory lending and other illegal acts that may be going on. MR. BREELAND said that Alaska has a dual banking system, which makes state banks competitive with federal banks. The proposed AFSA amendment adding the word "affiliate," would start stripping away at the core of the dual banking system by allowing state banks to take their mortgage operations, move them out of the bank and put them into an affiliate where they would be completely unregulated. 2:16:11 PM MR. BREELAND said he is sensitive to the fact that some of companies would have 200 or 300 originators they would have to license, but out-of-state lenders should not receive privileges that instate lenders don't. Residential Mortgage has 70 originators statewide; it will spend thousands of dollars licensing all of them and they welcome the opportunity to do it. He also drew their attention to language on page 36, lines 18 - 27, that does not require loan processors, loan underwriters, shipping departments, and clerical staff to be licensed saying it is not the intent to license all the support staff, only originators. "If someone gains financially from the origination of a loan, they should be licensed. It's that simple." He said he gets up to 80 emails a day from out-of-state mortgagers, which he doesn't respond to, but he knows that other Alaskans do respond to them. He reminded them that SB 102 is a collaboration effort between the Mortgage Bankers Association and the Alaska Association of Mortgage Brokers; they are both asking for regulation and this level of consumer protection. 2:18:10 PM He said SB 102 [version C] is an industry friendly bill that will promote competition and doesn't bar anybody from competing in Alaska. 2:18:49 PM SENATOR STEVENS asked if his employees would need additional training to become licensed and if they are talking about a major investment in education. MR. BREELAND replied that continuing education would take a sizeable investment from his company. He explained that one of the components of the bill is an education committee consisting of seven members. He said the Alaska Mortgage Bankers has an association with the National Mortgage Bankers Association and within that association they have what is called Campus NBA that has a lot of training programs that can be submitted to this education committee for approval. They would more than likely be approved. The Alaska Association of Mortgage Brokers through their national chapter has the same thing; Countrywide has in- house training programs that can be submitted for approval and on and on. That was the intent of this bill - to allow all of these education programs that already exist to just be submitted for approval so they can be used for continuing education. MR. BREELAND said the competency test is going to be a test that basically anyone who is an originator of mortgage loans in the State of Alaska should be able to pass. The "Kevin provision" will allow him or anyone else to take it more than once in case he fails it the first time. It is not a difficult test, but it gives some level of competency to the people who are talking to families about the purchase of a home. He said money his company spends on educating its people will at the very least enhance their current understanding. The mortgage industry is extremely technical and always changing and people need to keep abreast through education. 2:22:09 PM CHAIR ELLIS noted that Roger Prince with the State of Alaska, John Martin with the Alaska Association of Mortgage Brokers and Julia Koester from the Department of Law, were available to answer questions. He asked the committee to have their questions ready for next Thursday and held SB 102.