Bill Text: CA ABX22 | 2009-2010 | Regular Session | Introduced
Bill Title: Lending.
Spectrum: Partisan Bill (Democrat 23-0)
Status: (Introduced - Dead) 2009-02-06 - From printer. [ABX22 Detail]
Download: California-2009-ABX22-Introduced.html
BILL NUMBER: ABX2 2 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Members Lieu, Bass, and Nava
(Principal coauthor: Assembly Member Price)
(Principal coauthor: Senator Wolk)
(Coauthors: Assembly Members Carter, Chesbro, Coto, Eng, Furutani,
Huffman, Jones, Krekorian, Bonnie Lowenthal, Ma, John A. Perez,
Ruskin, Salas, Saldana, Swanson, and Yamada)
(Coauthors: Senators DeSaulnier and Florez)
FEBRUARY 5, 2009
An act to amend Section 10177 of the Business and Professions
Code, to add Section 2923.1 to the Civil Code, and to amend Section
50505 of, to add Sections 1242, 14961, and 22346 to, and to add
Division 1.9 (commencing with Section 4995) to, the Financial Code,
relating to lending.
LEGISLATIVE COUNSEL'S DIGEST
AB 2, as introduced, Lieu. Lending.
(1) The Real Estate Law provides for the licensure and regulation
of real estate brokers and salespersons by the Real Estate
Commissioner. Existing law authorizes the commissioner to suspend or
revoke the license of a real estate licensee or corporation, or to
deny the issuance of a license to an applicant or corporation, for
specified violations.
This bill would further authorize the commissioner to suspend or
revoke those licenses, or to deny issuance of those licenses, upon a
violation of specified federal lending laws or regulations.
(2) Existing law imposes certain limitations and prohibitions on
licensed persons, as defined, with respect to the making of a covered
loan, defined as a consumer loan in which the original principal
balance of the loan does not exceed the most current conforming loan
limit for a single-family first mortgage loan established by the
Federal National Mortgage Association in the case of a mortgage or
deed of trust, and as specified. Existing law does not regulate or
define the term "higher-priced mortgage loan."
This bill would establish "higher-priced mortgage loans," as
defined, as a new category of regulated loans. The bill would, among
other things, limit prepayment penalties and prohibit provisions for
negative amortization. The bill would prohibit a licensed person, as
defined, from making false, deceptive, or misleading statements or
representations in connection with higher-priced mortgage loans. The
bill would also, among other things, prohibit a mortgage broker, as
defined, who arranges higher-priced mortgage loans with prepayment
penalties from receiving a compensation that exceeds certain amounts.
The bill would provide that a violation of the provisions regulating
higher-priced mortgage loans by a licensed person is also a
violation of the person's licensing law. The bill would authorize a
licensing agency or the Attorney General to enforce the provisions
regulating higher-priced mortgage loans. The bill would authorize
civil penalties in an amount up to $10,000 against a licensed person
who willfully and knowingly violates the provisions regulating
higher-priced mortgage loans, would nullify prepayment penalties or
yield spread premiums that violate these provisions, would make a
licensed person who violates these provisions liable to the borrower
in the amount of the borrower's actual damages, and would authorize
the court to award court costs and attorney's fees to a prevailing
plaintiff. The bill would also establish specified duties for
mortgage brokers performing mortgage brokerage services for
higher-priced mortgage loans. The bill's provisions would apply to
higher-priced mortgage loans originated on or after July 1, 2010.
(3) Existing law imposes certain limitations and prohibitions on
specified licensees, including commercial banks, credit unions,
finance lenders, and residential mortgage lenders, with respect to
the making of consumer loans.
This bill would provide that a violation of specified federal
lending laws or regulations by those licensees is also a violation of
the licensing law of the licensee.
The bill would also provide that a mortgage broker, as defined,
providing mortgage brokerage services, as defined, to a borrower is
the fiduciary of the borrower, and any violation of the broker's
fiduciary duties is a violation of the mortgage broker's licensing
law and specified civil penalty and liability provisions. The bill
would further provide that this fiduciary duty includes a requirement
that the mortgage broker place the economic interest of the borrower
ahead of his or her own economic interest.
(4) Because a violation of the bill's provisions by certain
licensees may be punished as crimes under the licensing law of the
licensees, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10177 of the Business and Professions Code is
amended to read:
10177. The commissioner may suspend or revoke the license of a
real estate licensee, or may deny the issuance of a license to an
applicant, who has done any of the following, or may suspend or
revoke the license of a corporation, or deny the issuance of a
license to a corporation, if an officer, director, or person owning
or controlling 10 percent or more of the corporation's stock has done
any of the following:
(a) Procured, or attempted to procure, a real estate license or
license renewal, for himself or herself or a salesperson, by fraud,
misrepresentation, or deceit, or by making a material misstatement of
fact in an application for a real estate license, license renewal,
or reinstatement.
(b) Entered a plea of guilty or nolo contendere to, or been found
guilty of, or been convicted of, a felony, or a crime substantially
related to the qualifications, functions, or duties of a real estate
licensee, and the time for appeal has elapsed or the judgment of
conviction has been affirmed on appeal, irrespective of an order
granting probation following that conviction, suspending the
imposition of sentence, or of a subsequent order under Section 1203.4
of the Penal Code allowing that licensee to withdraw his or her plea
of guilty and to enter a plea of not guilty, or dismissing the
accusation or information.
(c) Knowingly authorized, directed, connived at, or aided in the
publication, advertisement, distribution, or circulation of a
material false statement or representation concerning his or her
designation or certification of special education, credential, trade
organization membership, or business, or concerning a business
opportunity or a land or subdivision, as defined in Chapter 1
(commencing with Section 11000) of Part 2, offered for sale.
(d) Willfully disregarded or violated the Real Estate Law (Part 1
(commencing with Section 10000)) or Chapter 1 (commencing with
Section 11000) of Part 2 or the rules and regulations of the
commissioner for the administration and enforcement of the Real
Estate Law and Chapter 1 (commencing with Section 11000) of Part 2.
(e) Willfully used the term "realtor" or a trade name or insignia
of membership in a real estate organization of which the licensee is
not a member.
(f) Acted or conducted himself or herself in a manner that would
have warranted the denial of his or her application for a real estate
license, or has either had a license denied or had a license issued
by another agency of this state, another state, or the federal
government revoked or suspended for acts that, if done by a real
estate licensee, would be grounds for the suspension or revocation of
a California real estate license, if the action of denial,
revocation, or suspension by the other agency or entity was taken
only after giving the licensee or applicant fair notice of the
charges, an opportunity for a hearing, and other due process
protections comparable to the Administrative Procedure Act (Chapter
3.5 (commencing with Section 11340), Chapter 4 (commencing with
Section 11370), and Chapter 5 (commencing with Section 11500) of Part
1 of Division 3 of Title 2 of the Government Code), and only upon an
express finding of a violation of law by the agency or entity.
(g) Demonstrated negligence or incompetence in performing an act
for which he or she is required to hold a license.
(h) As a broker licensee, failed to exercise reasonable
supervision over the activities of his or her salespersons, or, as
the officer designated by a corporate broker licensee, failed to
exercise reasonable supervision and control of the activities of the
corporation for which a real estate license is required.
(i) Has used his or her employment by a governmental agency in a
capacity giving access to records, other than public records, in a
manner that violates the confidential nature of the records.
(j) Engaged in any other conduct, whether of the same or a
different character than specified in this section, which constitutes
fraud or dishonest dealing.
(k) Violated any of the terms, conditions, restrictions, and
limitations contained in an order granting a restricted license.
(l) (1) Solicited or induced the sale, lease, or listing for sale
or lease of residential property on the ground, wholly or in part, of
loss of value, increase in crime, or decline of the quality of the
schools due to the present or prospective entry into the neighborhood
of a person or persons having a characteristic listed in subdivision
(a) or (d) of Section 12955 of the Government Code, as those
characteristics are defined in Sections 12926, 12926.1, subdivision
(m), and paragraph (1) of subdivision (p) of Section 12955, and
Section 12955.2 of the Government Code.
(2) Notwithstanding paragraph (1), with respect to familial
status, paragraph (1) shall not be construed to apply to housing for
older persons, as defined in Section 12955.9 of the Government Code.
With respect to familial status, nothing in paragraph (1) shall be
construed to affect Sections 51.2, 51.3, 51.4, 51.10, 51.11, and
799.5 of the Civil Code, relating to housing for senior citizens.
Subdivision (d) of Section 51 and Section 1360 of the Civil Code and
subdivisions (n), (o), and (p) of Section 12955 of the Government
Code shall apply to paragraph (1).
(m) Violated the Franchise Investment Law (Division 5 (commencing
with Section 31000) of Title 4 of the Corporations Code) or
regulations of the Commissioner of Corporations pertaining thereto.
(n) Violated the Corporate Securities Law of 1968 (Division 1
(commencing with Section 25000) of Title 4 of the Corporations Code)
or the regulations of the Commissioner of Corporations pertaining
thereto.
(o) Failed to disclose to the buyer of real property, in a
transaction in which the licensee is an agent for the buyer, the
nature and extent of a licensee's direct or indirect ownership
interest in that real property. The direct or indirect ownership
interest in the property by a person related to the licensee by blood
or marriage, by an entity in which the licensee has an ownership
interest, or by any other person with whom the licensee has a special
relationship shall be disclosed to the buyer.
(p) Violated Article 6 (commencing with Section 10237).
(q) Violated any provision of any of the following federal acts or
regulations:
(1) The federal Real Estate Settlement Procedures Act, as amended
(12 U.S.C. Sec. 2601 et seq.).
(2) The federal Truth in Lending Act, as amended (15 U.S.C. Sec.
1601 et seq.).
(3) The federal Home Ownership Equity Protection Act (15 U.S.C.
Sec. 1639).
(4) Any regulation promulgated under any of the federal acts cited
in paragraph (1), (2), or (3).
If a real estate broker that is a corporation has not done any of
the foregoing acts, either directly or through its employees, agents,
officers, directors, or persons owning or controlling 10 percent or
more of the corporation's stock, the commissioner may not deny the
issuance of a real estate license to, or suspend or revoke the real
estate license of, the corporation, provided that any offending
officer, director, or stockholder, who has done any of the foregoing
acts individually and not on behalf of the corporation, has been
completely disassociated from any affiliation or ownership in the
corporation.
SEC. 2. Section 2923.1 is added to the Civil Code, to read:
2923.1. (a) A mortgage broker providing mortgage brokerage
services to a borrower is the fiduciary of the borrower, and any
violation of the broker's fiduciary duties shall be a violation of
the mortgage broker's license law. This fiduciary duty includes a
requirement that the mortgage broker place the economic interest of
the borrower ahead of his or her own economic interest. A mortgage
broker who provides mortgage brokerage services to the borrower owes
this fiduciary duty to the borrower regardless of whether the
mortgage broker is acting as an agent for any other party in
connection with the residential mortgage loan transaction.
(b) For purposes of this section, the following definitions apply:
(1) "Licensed person" means a real estate broker licensed under
the Real Estate Law (Part 1 (commencing with Section 10000) of
Division 4 of the Business and Professions Code), a finance lender or
broker licensed under the California Finance Lenders Law (Division 9
(commencing with Section 22000) of the Financial Code), a
residential mortgage lender licensed under the California Residential
Mortgage Lending Act (Division 20 (commencing with Section 50000) of
the Financial Code), a commercial or industrial bank organized under
the Banking Law (Division 1 (commencing with Section 99) of the
Financial Code), a savings association organized under the Savings
Association Law (Division 2 (commencing with Section 5000) of the
Financial Code), and a credit union organized under the California
Credit Union Law (Division 5 (commencing with Section 14000) of the
Financial Code).
(2) "Mortgage broker" means a licensed person who provides
mortgage brokerage services. For purposes of this section, a licensed
person who makes a residential mortgage loan is a "mortgage broker,"
and subject to the requirements of this section applicable to
mortgage brokers, only with respect to transactions in which the
licensed person provides mortgage brokerage services.
(3) "Mortgage brokerage services" means arranging or attempting to
arrange, as exclusive agent for the borrower or as dual agent for
the borrower and lender, for compensation or in expectation of
compensation, paid directly or indirectly, a residential mortgage
loan made by an unaffiliated third party.
(4) "Residential mortgage loan" means a consumer credit
transaction that is secured by residential real property that is
improved by four or fewer residential units.
(c) The duties set forth in this section shall not be construed to
limit or narrow any other fiduciary duty of a mortgage broker.
SEC. 3. Section 1242 is added to the Financial Code, to read:
1242. Any licensee who violates any provision of any of the
following federal acts or regulations violates this division:
(a) The federal Real Estate Settlement Procedures Act, as amended
(12 U.S.C. Sec. 2601 et seq.).
(b) The federal Truth in Lending Act, as amended (15 U.S.C. Sec.
1601 et seq.).
(c) The federal Home Ownership Equity Protection Act (15 U.S.C.
Sec. 1639).
(d) Any regulation promulgated under any of the federal acts in
subdivision (a), (b), or (c).
SEC. 4. Division 1.9 (commencing with Section 4995) is added to
the Financial Code, to read:
DIVISION 1.9. HIGHER-PRICED MORTGAGE LOANS
4995. The following definitions shall apply for purposes of this
division:
(a) "Higher-priced mortgage loan" has the meaning set forth in
Part 226 of Title 12 of the Code of Federal Regulations.
(b) "Licensed person" means a real estate broker licensed under
the Real Estate Law (Part 1 (commencing with Section 10000) of
Division 4 of the Business and Professions Code), a finance lender or
broker licensed under the California Finance Lenders Law (Division 9
(commencing with Section 22000)), a residential mortgage lender
licensed under the California Residential Mortgage Lending Act
(Division 20 (commencing with Section 50000)), a commercial or
industrial bank organized under the Banking Law (Division 1
(commencing with Section 99)), a savings association organized under
the Savings Association Law (Division 2 (commencing with Section
5000)), and a credit union organized under the California Credit
Union Law (Division 5 (commencing with Section 14000)).
(c) "Mortgage broker" means a licensed person who provides
mortgage brokerage services. For purposes of this division, a
licensed person who makes home loans is a "mortgage broker," and
subject to the requirements of this division applicable to mortgage
brokers, only with respect to transactions in which the licensed
person provides mortgage brokerage services.
(d) "Mortgage brokerage services" means arranging or attempting to
arrange, as exclusive agent for the borrower or as dual agent for
the borrower and lender, for compensation or in expectation of
compensation, paid directly or indirectly, a higher-priced mortgage
loan made by an unaffiliated third party.
4995.1. Notwithstanding any other provision of law, the maximum
amount of a prepayment penalty that may be imposed by a licensed
person in connection with a higher-priced mortgage loan shall not
exceed 2 percent of the principal balance prepaid, for prepayment of
the loan during the first 12 months following loan consummation or 1
percent of the principal balance prepaid, for prepayment of the loan
during the second 12 months following loan consummation.
4995.2. (a) This division shall apply to any licensed person who
in bad faith attempts to avoid the application of this division by
doing either of the following:
(1) Dividing any loan transaction into separate parts for the
purpose and with the intent of evading the provisions of this
division.
(2) Any other subterfuge.
(b) Notwithstanding any other provision of law, a licensed person
shall not make, or cause to be made, any false, deceptive, or
misleading statement or representation in connection with a
higher-priced mortgage loan.
(c) A mortgage broker who arranges only higher-priced mortgage
loans shall disclose that fact to a borrower, both orally and in
writing, at the time of initially engaging in mortgage brokerage
services with that borrower.
(d) A mortgage broker who provides mortgage brokerage services
shall not steer, counsel, or direct a borrower to accept a loan at a
higher cost than that for which the borrower could qualify based upon
the loans offered by the persons with whom the broker regularly does
business.
(e) (1) A mortgage broker who provides mortgage brokerage services
for a borrower shall not receive compensation, including a yield
spread premium, fee, commission, or any other compensation, for
arranging a higher-priced mortgage loan with a prepayment penalty
that exceeds the compensation that the mortgage broker would
otherwise receive for arranging that higher-priced mortgage loan
without a prepayment penalty.
(2) When providing mortgage brokerage services for a borrower, a
mortgage broker shall receive the same compensation for providing
those services whether paid by the lender, borrower, or a third
party.
(f) No licensed person shall recommend or encourage default on an
existing loan or other debt prior to and in connection with the
closing or planned closing of a higher-priced mortgage loan that
refinances all or any portion of the existing loan or debt.
(g) A licensed person shall not make a higher-priced mortgage loan
that contains a provision for negative amortization. This
subdivision shall not preclude a licensed person from entering into a
subsequent agreement with a borrower to capitalize payments as a
means of permitting a borrower to cure or prevent a delinquency.
(h) A licensed person who makes a higher-priced mortgage loan and
who, when acting in good faith, fails to comply with this section,
shall not be liable if the licensed person establishes either of the
following:
(1) Within 90 days of the loan closing and prior to the
institution of any action against the licensed person under this
section, the licensed person did all of the following:
(A) Notified the borrower of the compliance failure.
(B) Tendered appropriate restitution.
(C) Offered, at the borrower's option, either to make the
higher-priced mortgage loan comply with the requirements of this
division or change the terms of the loan in a manner beneficial to
the borrower so that the loan will no longer be considered a
higher-priced mortgage loan subject to the provisions of this
division.
(D) Within a reasonable period of time following the borrower's
election of remedies, took appropriate action based on the borrower's
choice.
(2) (A) The compliance failure was not intentional and resulted
from a bona fide error notwithstanding the maintenance of procedures
reasonably adopted to avoid those errors, and within 120 days after
receipt of a complaint or the discovery of the compliance failure or
the licensed person's receipt of written notice of the compliance
failure, the licensed person did all of the following:
(i) Notified the borrower of the compliance failure.
(ii) Tendered appropriate restitution.
(iii) Offered, at the borrower's option, either to make the
higher-priced mortgage loan comply with the requirements of this
division or change the terms of the loan in a manner beneficial to
the borrower so that the loan will no longer be considered a
higher-priced mortgage loan subject to the provisions of this
division.
(iv) Within a reasonable period of time following the borrower's
election of remedies, took appropriate action based on the borrower's
choice.
(B) For purposes of this subdivision, examples of a bona fide
error include clerical, calculation, computer malfunction and
programming, and printing errors.
4995.3. (a) Any licensed person who violates any provision of
this division shall be deemed to have violated that person's
licensing law.
(b) The licensing agency may, by order and after appropriate
administrative hearing, prohibit licensees under this division from
engaging in acts or practices in connection with higher-priced
mortgage loans that the licensing agency finds to be unfair,
deceptive, or designed to evade laws of this state.
(c) A violation of Section 2923.1 of the Civil Code in connection
with a higher-priced mortgage loan is a violation of this division.
(d) A violation of the provisions of Part 226 of Title 12 of the
Code of Federal Regulations, relating to prepayment penalties in
connection with higher-priced mortgage loans, is a violation of this
division.
(e) The provisions of this division may be enforced only by the
Attorney General or the licensed person's licensing agency. Any
licensed person who willfully and knowingly violates any provision of
this division shall be liable for a civil penalty of not more than
ten thousand dollars ($10,000) for each violation.
(f) A prepayment penalty or yield spread premium provision of a
higher-priced mortgage loan that violates this division shall be
unenforceable.
(g) Notwithstanding subdivision (e), a borrower may bring a civil
action against a licensed person to recover actual damages that occur
as the result of a violation of this division and may recover
reasonable attorney's fees and costs if he or she prevails in the
action.
4995.4. The provisions of this division shall apply to
higher-priced mortgage loans originated on or after July 1, 2010.
4995.5. The provisions of this division are severable. If any
provision of this division or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.
SEC. 5. Section 14961 is added to the Financial Code, to read:
14961. Any licensee that violates any provision of any of the
following federal acts or regulations violates this division:
(a) The federal Real Estate Settlement Procedures Act, as amended
(12 U.S.C. Sec. 2601 et seq.).
(b) The federal Truth in Lending Act, as amended (15 U.S.C. Sec.
1601 et seq.).
(c) The federal Home Ownership Equity Protection Act (15 U.S.C.
Sec. 1639).
(d) Any regulation promulgated under any of the federal acts in
subdivision (a), (b), or (c).
SEC. 6. Section 22346 is added to the Financial Code, to read:
22346. Any licensee that violates any provision of any of the
following federal acts or regulations violates this division:
(a) The federal Real Estate Settlement Procedures Act, as amended
(12 U.S.C. Sec. 2601 et seq.).
(b) The federal Truth in Lending Act, as amended (15 U.S.C. Sec.
1601 et seq.).
(c) The federal Home Ownership Equity Protection Act (15 U.S.C.
Sec. 1639).
(d) Any regulation promulgated under any of the federal acts in
subdivision (a), (b), or (c).
SEC. 7. Section 50505 of the Financial Code is amended to read:
50505. Any person who violates any provision of the
any of the following federal acts or regulations
violates this division:
(a) The federal Real Estate
Settlement Procedures Act, as amended (12 U.S.C.A.
U.S.C. Sec. 2601 et seq.) , or any regulation
promulgated thereunder, violates this division .
(b) The federal Truth in Lending Act, as amended (15 U.S.C. Sec.
1601 et seq.).
(c) The federal Home Ownership Equity Protection Act (15 U.S.C.
Sec. 1639).
(d) Any regulation promulgated under any of the federal acts in
subdivision (a), (b), or (c).
SEC. 8. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
