The regulation of mortgage loan originators, mortgage brokers, and mortgage bankers. (FE)

The bill recreates the definition of mortgage broker to mean a person who, for compensation or gain or in the expectation of compensation or gain, does any of the following but does not make an underwriting decision or close a loan: 1) assists a person in obtaining or applying to obtain a loan; 2) holds oneself out as being able to assist a person in obtaining or applying to obtain a loan; or 3) engages in table funding. Current law provisions that are exceptions to the definition of mortgage broker and mortgage banker are recreated in the bill as exemptions from regulation and the bill also creates new exemptions, including for a government agency, housing finance agency, or bona fide nonprofit organization or a mortgage banker with limited transactions each year.

Under current law, DFI may not issue a mortgage loan originator license to an applicant with an unpardoned felony conviction within seven years prior to the application or, if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering, at any time.

Under this bill, DFI may consider a pardoned or expunged felony conviction and a pardoned or expunged felony conviction does not automatically disqualify an individual from being issued a mortgage loan originator license.

Under current law, an applicant for a mortgage loan originator license must include in the application the name of the mortgage banker or mortgage broker who will employ the applicant as a mortgage loan originator. A mortgage loan originator may act on behalf of only the mortgage banker or mortgage broker with which that mortgage loan originator's license is associated in DFI's records, and a mortgage loan originator's license may be associated with only one mortgage banker or mortgage broker at a time. This mortgage banker or mortgage broker is responsible for, and must supervise the acts of, the mortgage loan originator with whom it is associated.

This bill allows a licensed mortgage loan originator to associate with (be sponsored by) a depository institution, rather than a mortgage banker or mortgage broker, if the depository institution first registers with DFI. If the depository institution applies to DFI and meets certain requirements, DFI must register the depository institution as a "registered entity" and the depository institution may then sponsor licensed mortgage loan originators under the depository institution's supervision and control. The provisions of current law, discussed above, relating to the relationship between a mortgage banker or mortgage broker and a licensed mortgage loan originator also apply with respect to a registered entity that sponsors a mortgage loan originator. A registered entity must also submit reports of condition to the NMLSR and cooperate with, and provide access to records and documents required by, DFI to carry out examinations of licensed mortgage loan originators sponsored by the registered entity. Certain acts or practices that are prohibited by a mortgage banker or mortgage broker with respect to a mortgage loan originator are also prohibited by a registered entity.

Current law requires each mortgage banker, mortgage broker, and mortgage loan originator to annually submit to the NMLSR a report of condition containing information required by the NMLSR. In addition, each mortgage banker or mortgage broker must annually submit a copy of an audit of the mortgage banker's or mortgage broker's operations during the prior fiscal year. The audit must be conducted by an independent certified public accountant (CPA) in accordance with generally accepted auditing standards. The financial statements in the audit report must be prepared in accordance with generally accepted accounting principles (GAAP).

In addition to requiring registered entities to submit to the NMLSR reports of condition, this bill eliminates the requirement that reports of condition be submitted to the NMLSR annually, leaving unspecified the frequency of submissions. The bill also eliminates the annual audit requirement for mortgage brokers. Under the bill, a mortgage broker must instead annually submit reviewed financial statements for the mortgage broker's operations during the prior fiscal year. The reviewed financial statements must include certain materials, including a written statement by an independent CPA attesting that he or she conducted his or her review in accordance with GAAP.

The bill also specifies that principal offices and branch offices of mortgage bankers and mortgage brokers must be located in this state or another state and that a branch office, but not a principal office, may be located in a residence. A mortgage loan originator must be assigned to and work out of a licensed or registered office or branch office of the sponsoring mortgage banker, mortgage broker, or registered entity and the office must be the mortgage loan originator's residence or within 100 miles of this residence. There must be at least one licensed mortgage loan originator assigned to and working out of each branch office of a mortgage broker or of a mortgage banker or registered entity where loans are originated.

The bill also prohibits a mortgage banker, mortgage broker, or mortgage loan originator from using any solicitation or advertisement that: 1) misrepresents that the provider is, or is affiliated with, any governmental entity or other organization;

2) misrepresents that the product is or relates to a government benefit, or is endorsed, sponsored by, or affiliated with any government or government-related program; or 3) does not clearly and conspicuously identify the name of the mortgage broker or mortgage banker or, if a mortgage loan originator is sponsored by a registered entity, the registered entity. The bill also repeals a provision prohibiting an individual engaging solely in loan processor or underwriter activities from representing to the public that the individual can or will perform the activities of a mortgage loan originator.