by Calculated Risk on 6/06/2007 09:57:00 PM

Mathew Padilla notes: State Senate passes bill on tougher loan underwriting

SB 385, passed on a 33-1 vote, requires all state-licensed lenders and brokers to follow federal guidelines issued on Sept. 29, 2006. The bill still must face the Assembly and governor.

Here are the key passages from SB 385:

SB 385 does the following:

1) directs the DFI to apply the nontraditional mortgage product risk guidance issued by the federal government to state-regulated financial institutions,

2) directs the DOC to apply the risk guidance issued by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators (CSBS/AARMR) to licensed finance lenders and residential mortgage lenders,

3) directs the DRE to apply the risk guidance of CSBS/AARMR to real estate brokers,

4) authorizes all three commissioners to adopt emergency regulations and final regulations to clarify the application of the applicable guidance documents to their licensees as soon as possible,

5) directs all affected licensees to develop policies and procedures to achieve the objectives set forth in the guidance, and

6) requires the Secretary of BT&H toensure that all three commissioners coordinate theirpolicymaking and rulemaking efforts.

Additionally, amendments were added in the Senate Banking, Finance and Insurance Committee to expand the definition of real estate brokers to include a person who engages as a principal in the business of making loans, and makes 8 or more specified loans to the public from the person's own funds. The bill also now provides the Commissioner of DRE with clearer statutory authority to compel brokers to provide more information on their renewal forms relating to the types of licensed activities they had engaged in since their last renewal.

The intent of this bill is to ensure that all mortgage lenders and brokers, regardless of their regulator, are subject to the federal guidance on nontraditional mortgage product risks.

emphasis added

The CSBS reports 35 agencies have adopted the CSBS/AARMR Guidance on Nontraditional Mortgage Product Risks. California is about to join the list.