California Residential Mortgage
Lending Act
(CRMLA), enacted in 1994, became operative in
1996. The law
is administered and enforced by the
California Department of Business Oversight (DBO) under the direction of the
Commissioner of Business
Oversight. The chief executive officer
of the California Department of Business Oversight
is the Commissioner. Regulations are promulgated by the
Department’s Commissioner.
The CRMLA was enacted as an
alternative to the existing laws licensing lenders under the California
Financing Law
,
in order to provide mortgage bankers
with a licensing law specifically directed at their primary functions of
originating
and servicing residential mortgage
loans.
A
mortgage banker
is a company, individual, or institution that
originates purchases, makes, sells, or services loans
secured by mortgages on residential
real property. Mortgage bankers use
their own funds, (or funds borrowed from a
warehouse lender) to fund
mortgages.
Makes residential mortgage loans
means processing, underwriting, or as a lender
using or advancing one's own
funds, or making a commitment to
advance one's own funds, to a loan applicant for a residential mortgage
loan. [CA
Fin.Code §50003.(o)].
cash, corporate capital, or
warehouse credit lines at commercial banks, savings banks, savings and loan
associations, industrial loan
companies, or other sources that are liability items on a lender's financial
statements, whether secured or
unsecured, or
2.
a lender's affiliate's cash, corporate capital, or warehouse credit
lines at commercial banks or other sources
that are liability items on the
affiliate's financial statements, whether secured or unsecured.
Own funds
does not include funds provided by a third
party to fund a loan on condition that the third party will
subsequently purchase or accept an
assignment of that loan. [CA Fin.Code
§50003.(t)].
Residential real property
(or real estate} is real property located in
California that is improved by a one-
to-four family
dwelling. [CA Fin.Code §50003.(v)].
After a mortgage is originated, a
mortgage banker might retain the mortgage in portfolio or sell the mortgage to
an
investor. Additionally, after
a mortgage is
originated, a mortgage
banker might service
the mortgage or
sell the
servicing rights
to a mortgage
servicer. The distinguishing feature
between a mortgage
banker and a
mortgage
broker is
that mortgage bankers
close mortgages in
their own names,
using their own
funds, whereas mortgage
brokers facilitate originations for
other financial institutions.
Unlike the California Financing Law,
the CRMLA is specifically designed to authorize and regulate mortgage-banking
activities. A license can be issued as a residential
mortgage lender, a residential mortgage loan servicer, or both
residential mortgage lender and
residential mortgage loan servicer.
A
lender
is someone who is an approved lender for the
Federal Housing Administration, Veterans Administration,
Farmers Home
Administration, Ginnie Mae,
Fannie Mae, or
Freddie Mac. A
lender directly makes
residential
mortgage loans and makes the credit
decision in the loan transactions. [CA
Fin.Code §50003 (m)].
A
mortgage servicer
or
residential mortgage loan servicer
is someone who is an approved servicer for one
of the
entities listed above and directly
services or offers to service mortgage loans.
[CA Fin.Code §50003 (q)].
The
CRMLA authorizes
Residential Mortgage
Lender
(CRML) licensees to
make
federally related
mortgage
loans
, to make loans to finance the
construction of a home, to sell the loans to institutional investors, and to
service
such loans. Licensees are authorized to purchase and sell
federally related mortgage loans and to provide contract
underwriting services for
institutional lenders. Licensees are
authorized to service any federally related mortgage loan
regardless of whether they make the
loan or purchase a servicing portfolio.
A licensed CRMLA lender is also
authorized to provide brokerage services to a borrower, by attempting to obtain
a
mortgage loan on behalf of the
borrower from an institutional lender.
CRMLA Lenders must use Licensed MLOs
A CRMLA-licensed mortgage lender or
servicer may not make or broker residential mortgage loans unless the loans
are negotiated by or applied for
through licensed mortgage loan originators.
A CRMLA-licensed lender engaged in
mortgage brokering activities must be sure that every mortgage loan originator
employed or compensated by that
entity obtains and maintains a CRML mortgage loan originator license or has a
DRE MLO license endorsement.
Any mortgage loan originator whose
license or license endorsement has lapsed cannot work or broker loans for a
CRMLA-licensed lender. [CA Fin.Code §50002.5. (a-c)].
CRML MLOs must be Registered with
the NMLS
Every CRMLA-licensed lender
engaged in the
business of making,
servicing, or making
and servicing residential
mortgage loans
and every CRML-licensed
mortgage loan originator
must shall register
with and maintain
a valid
unique identifier issued by the
Nationwide Mortgage Licensing System and Registry. [CA Fin.Code §50002.5 (d) and
10 CCR §1950.122.5 (a)].
When is a California Residential
Mortgage Lending License
Required?
The CRMLA requires that any person
engaged in the business of making or servicing residential mortgage loans
obtain a CRMLA license. In general, any form of organization may get
a license. This includes natural
persons, sole
proprietorships, corporations,
partnerships, limited liability
companies, associations, trusts,
joint ventures,
unincorporated organizations, joint
stock companies, governments,
political subdivisions of
governments, and any
other entity. [CA Fin.Code §50002 (a)].
The CRML License requires that the
company has a funding source or is in the process of obtaining a funding source
to fund their loans. The CRML License is for companies that plan
to fund mortgage loans, not just broker them.
Therefore, companies must be
financially able to fund mortgage loans with their own money, or have a
warehouse
line of credit to fund the mortgage
loans.
Exemptions to the Residential
Mortgage Lending Act
Several entities, largely because
they are already regulated by other laws and government agencies, are exempt
from
CRMLA licensing requirements. [CA Fin.Code §50002 (c)].
Entities Exempt from CRMLA Licensing
Requirements
·
Banks, trust companies, insurance companies, and industrial loan
companies
·
Federally chartered savings and loan associations, federal savings
banks, and federal credit unions
·
Savings and loan associations, savings banks, and credit unions
authorized to conduct business in California
·
Persons engaged solely in business, commercial, or agricultural mortgage
lending
·
Wholly owned service corporations of savings and loan associations or
savings banks
·
Federal, state and municipal governments
·
Pension plans making residential mortgage loans to their participants
·
Persons acting in a fiduciary capacity conferred by the authority of a
court
·
Licensed California real estate brokers
·
California finance lenders licensed under the California Financing Law
·
Trustees in a foreclosure proceeding.
[CA Fin.Code §50002]
Generally, a loan processor or
underwriter, if certain other conditions are met, is exempt from obtaining a
license. [CA
Fin.Code §50003.6]
Based on the exemptions previously
listed, a person or entity who is licensed under the CA DRE
as a real estate
broker or who has a CFL license does
not have to obtain a CRML license to conduct residential mortgage activities.
Exempt from the CFL
Banks, trust companies, savings and loan associations, insurance premium
finance agencies, credit unions,
small business investment companies,
community advantage lenders, California business and industrial
development corporations, or
licensed pawnbrokers
.
A check casher who holds an appropriate permit but the exemption does
not apply to transactions covered by
the California Deferred Transaction
Law. [CA Fin.Code §23000 et seq.]
A college or university making student loans.
A broker-dealer.
Any person who makes
5 or fewer
commercial loans in a 12-month period, and the
loans are incidental to the
business of the person relying upon
the exemption.
Any public corporation or other public entity, or agency when making a
loan, so long as the public corporation,
public entity, or agency complies
with all applicable federal and state laws and regulations.
Any nonprofit cooperative association for agricultural purposes.
Any corporation, association, syndicate, joint stock company, or
partnership engaged exclusively in the
business of marketing agricultural,
horticultural, viticultural, dairy, livestock, poultry, or bee products on a
cooperative
nonprofit basis that loans or advances money to its membbers or in connection
with those
businesses.
Any corporation securing money or credit from any federal intermediate
credit bank organized “Agricultural
Credits Act of 1923” that loans or
advances money or credit so secured.
A California Small Business Financial Development Corporation created pursuant
to Corporations Code
§14000 et seq.
Credit cards issued pursuant to a
plan whereby the organization issuing the cards can acquire those
obligations that its members in good
standing incur with those persons with whom the organization has
entered into written agreements
setting forth the plan, and where the obligations are incurred pursuant to
those agreements; or whereby the
organization issuing the cards can extend credit to its members.
Additional conditions apply to this
exemption.
A bona fide conditional contract of sale involving personal
property.
Premium financing as defined in CA Fin.Code 18563.
The California Infrastructure and Economic Development Bank.
A licensed cemetery broker.
A license to act as a broker under this division does not authorize the
licensee to negotiate or perform any act
as a broker in connection with loans
made or to be made by a lender not licensed as a finance lender under
this division.
Any nonprofit church extension fund (provided certain requirements are
met).
A commercial bridge loan made by a venture capital company to an
operating company (provided certain
requirements are met).
A franchise loan made by a franchisor to a franchisee or a sub
franchisor or by a sub franchisor to a
franchisee.
A program-related investment, a loan, guaranty, or investment made by a
public charity, tax-exempt
organization (provided certain requirements
are met).
xempt Company Registration
Persons exempt from the CFL may
apply to the DBO Commissioner for an
exempt company registration
in order to
sponsor one or more individuals
required to be licensed as mortgage loan originators pursuant to the federal
Secure
and Fair Enforcement for Mortgaging
Licensing Act (SAFE).
A mortgage loan originator who is an
insurance producer eligible for a CFL license must originate mortgage loans
solely on behalf of the exempt
person/company. [CA Fin.Code §22065]
A mortgage loan originator who is an
insurance producer eligible for licensure must meet all of the following
requirements:
Be covered under an exclusive written contract with, and originate
mortgage loans solely on behalf of, that
exempt person.
Hold a current insurance producer license.
Have a current notice of appointment under Article 9 [commencing with
Section 1702] of Chapter 5 of Part 2
of Division 1 of the Insurance Code
from an insurer that controls, is controlled by, or is under common control
with that exempt person.
A
licensed mortgage loan
originator who is
an insurance producer
for an insurer
authorized to do
business in
California may
originate loans on
behalf of a
person registered under
CFL, or of a licensed
finance lender that
originates loans exclusively for a
single person that is engaged in premium financing and exempt from CFL
licensing.
[See exemptions previously
discussed.]
A finance lender, broker, or
mortgage loan originator licensee can only have one place of business under a
license.
[CA Fin.Code §22152]. A finance lender, broker, or mortgage loan
originator licensee can only transact business
under the name and at the place of
business named in the license. There are
two exceptions. First, if the borrower
requests that a loan be initiated or
made at another location. Second, if the
licensee uses a webpage for solicitation,
initiation, and making loans. [CA Fin.Code §22155.]
A
finance lender license,
broker license, and
the license of
every employed mortgage
loans originator must
be
conspicuously displayed
at the authorized
place of business.
A license is
not transferable or
assignable. [CA
Fin.Code §22151.]
A
licensee must notify
the Department of
a change of
address at least
ten days prior
to the move.
The DBO
Commissioner has 10 days to notify
the licensee if the change is
disapproved, otherwise it is deemed
approved.
Failure to notify the DBO
Commissioner can result in a penalty not to exceed $500. [CA Fin.Code §22153.]
A finance lender, broker, or
mortgage loan originator licensee can only have one place of business under a
license.
[CA Fin.Code §22152]. A finance lender, broker, or mortgage loan
originator licensee can only transact business
under the name and at the place of
business named in the license. There are
two exceptions. First, if the borrower
requests that a loan be initiated or
made at another location. Second, if the
licensee uses a webpage for solicitation,
initiation, and making loans. [CA Fin.Code §22155.]
A
finance lender license,
broker license, and
the license of
every employed mortgage
loans originator must
be
conspicuously displayed
at the authorized
place of business.
A license is
not transferable or
assignable. [CA
Fin.Code §22151.]
On or before September 30th of each
year, the Department notifies each licensee of the amount assessed and levied
against it and that amount must be
paid by October 31st. The minimum
assessment is $250 per licensed location.
Failure to pay the assessment can
result in loss of the license. [CA
Fin.Code §22107.]
ential mortgage loans, based on the
dollar amount of residential mortgage loans
originated by
that licensee and
any mortgage loan
originators employed by
that licensee. Every
mortgage loan
originator employed by the licensee
must be covered by the surety bond. [CA
Fin.Code §22112.]
The minimum surety bond amount for a
licensee who does not originate residential mortgage loans is $25,000. The
surety bond amounts for a licensee
who is engaged in residential mortgage loans is based on the aggregate dollar
amount of residential mortgage loans
originated by the licensee in the preceding calendar year, as follows:
Aggregate Dollar Amount
Bond Amount
0
-
$1,000,000
$25,000
$1,000,001
-
$50,000,000
$50,000
$50,000,001
-
$500,000,000
$100,000
Over $500,000,001
Net Worth Requirements
Each licensee must
maintain a net worth of at least $25,000 at all times. A licensed finance broker that employs one
or more mortgage loan
originators and that arranges, but does not make, residential mortgage loans
must maintain a
minimum net worth of at
least $50,000. A licensed finance lender
and broker that employs one or more mortgage
loan originators and
that makes residential mortgage loans must maintain a minimum net worth of at
least $250,000.
[CA Fin.Code
§22104.] These amounts are also
displayed in the table below:
Licensee Activity
Net Worth Requirement
All licensees
$25,000
Broker/employs MLO/does
not
make residential loans
$50,000
Lender and broker make
residential loans
$250,000
Each licensee is subject to a
regulatory examination by the Department at any time even if no business has
been
conducted. “Examination”, in this context means a review
of the licensee’s books and records, much like an audit.
The licensee must pay the actual
cost of the regulatory examination.
Failure to pay the cost of examination may
subject the licensee to
administrative action including the revocation of the license. [CA Fin.Code §§22701, 22707,
22714.]
DBO Commissioner, through the
Attorney General or a district attorney can have criminal proceedings
filed. Conviction can result in a fine not to exceed
$10,000 or imprisonment in county jail not to exceed one year, or
both. [CA Fin.Code §§22753 & 22780.]
he DBO Commissioner may require
licensees to maintain a file of all advertising copy for 2 years from the
date of its use. The file must be available to the DBO
Commissioner upon request. [CA Fin.Code
§22166.]
A licensee must not advertise, in any way, a statement or representation
that is false, misleading or
deceptive. [CA Fin.Code §22161[b].]
Blind ads are prohibited.
Blind advertising
is an advertisement used to solicit business
that gives only a
telephone number, post office or newspaper
box number, or name other than that of the licensee. [10 CCR
1557.]
If any advertisement refers to interest rates, charges, or cost of
loans, those items must be stated fully and
clearly, and in a manner that the
DBO Commissioner deems necessary to give adequate information to
prospective borrowers. [CA Fin.Code §22164.]
alifornia Civil Code §§2924(a)(6)
and 2924.17, the California Homeowner Bill of Rights applies only to
first lien, consumer purpose
residential mortgage loans secured by a one-
to-four family residence that is
occupied by
its owner/borrower. The borrower must be a natural person who is
the trustor under the deed of trust.
[CCC §§
2920.5, 2924.15.]
The
Homeowner Bill of
Rights places the
burden of compliance
on the
mortgage servicer
,
i.e., the person
who
services the loan or is responsible
for interacting with the borrower, either as the current owner of the note or
as the
owner’s agent. [CCC §2920.5(a).]
The Truth in Lending Act (TILA), 15
U.S.C. 1601 et seq., was enacted to
promote the informed use of consumer
credit by requiring disclosures
about financing terms and costs. TILA,
implemented by Regulation Z (12 CFR 1026),
became effective July 1, 1969. The Real Estate Settlement Procedures Act
(RESPA), 12 U.S.C. 2601 et seq., was
enacted to provide borrowers with
pertinent and timely disclosures regarding the nature and costs of the real
estate
settlement process
.
RESPA, implemented by Regulation X (12 CFR 1024), became effective June
20, 1975.
Cong
ress has amended TILA and RESPA
significantly since they were enacted.
On December 31, 2013, the CFPB
published the
TILA
-RESPA Integrated Disclosure rule (TRID)
implementing sections 1098(2) and 1100A(5) of
the
Dodd-Frank Act, which direct
ed the CFPB to publish integrated
disclosures for mortgage transactions under the Truth
in Lending Act (TILA) and sections 4
and 5 of RESPA.
The TRID rule created
integrated disclosure
forms
(Loan Estimate and Closing Disclosure) to be
used for most
closed-end mortgage loan
transactions. The
Loan Estimate
replaces the Good Faith Estimate (GFE) and the
“early”
Truth-
in-Lending disclosure. The Loan Estimate provides borrowers with good-faith estimates of credit costs and
transaction terms. The
Closing Disclosure
integrates and replaces the existing HUD-1 and
the final TILA disclosure.
For
loans that require
a Loan Estimate
and that go
to closing, lenders
must provide borrowers
with the Closing
Disclosure reflecting the actual
terms of the transaction. The Loan
Estimate and Closing Disclosure are discussed in
Regulation Z sections 1026.37 and
1026.38.
he TRID rule applies to most
closed-end residential mortgages.
Additionally, the integrated disclosure requirements
apply to construction-only loans and
to loans secured by vacant land or by 25 or more acre, all of which are
currently
exempt from
RESPA coverage. [12
CFR §1026.19(e)]. Most
closed-end mortgage loans
are exempt from
the
requirement to provide the GFE,
HUD-1, and servicing disclosure requirements of RESPA under Regulation X.
[12
CFR §1024.6, §1024.7, §1024.8,
§1024.10, and §1024.33(a)]. Instead,
these loans are subject to disclosure, timing,
and other requirements under the
TRID rule.
The integrated disclosures are not
used to disclose information about reverse mortgages, home equity lines of
credit
(HELOCs), mobile homes or by a
dwelling that is not attached to real property, or other transactions not
covered by
the TRID rule. The TRID rule also does not apply to loans
made by a person who is not a
creditor
as defined by
Regulation Z
(e.g., a person
who makes 5 or fewer
mortgages in a
year). Creditors originating
these types of
mortgages must continue to use, as
applicable, the GFE, HUD-1, and TIL disclosures.
NOTE: A creditor may not use the
TILA-RESPA Integrated Disclosure forms instead of the GFE, HUD-1, and TIL
forms for transactions that continue
to be covered by TILA or RESPA that require those disclosures (e.g., reverse
mortgages).
Use TILA-RESPA Integrated
Disclosures
•
Most closed-end mortgage loans,
including:
o
Construction-only loans
o
Loans secured by vacant land or by 25 or more acres
Continue to use existing TIL and
RESPA disclosures (as applicable)
•
HELOCs (subject to disclosure
requirements under 12 CFR 1026.40)
•
Reverse mortgages (An open-end
reverse mortgage receives open-end disclosures, not a GFE or HUD-1.
)
•
Chattel-secured mortgages (i.e.,
mortgages secured by a mobile home or by a dwelling that is not attached to
real property, such as land)
(subject to existing TIL disclosures, and not RESPA)
The Truth in Lending Act (TILA), 15
U.S.C. 1601 et seq., was enacted to
promote the informed use of consumer
credit by requiring disclosures
about financing terms and costs. TILA,
implemented by Regulation Z (12 CFR 1026),
became effective July 1, 1969. The Real Estate Settlement Procedures Act
(RESPA), 12 U.S.C. 2601 et seq., was
enacted to provide borrowers with
pertinent and timely disclosures regarding the nature and costs of the real
estate
settlement process
.
RESPA, implemented by Regulation X (12 CFR 1024), became effective June
20, 1975.
Cong
ress has amended TILA and RESPA
significantly since they were enacted.
On December 31, 2013, the CFPB
published the
TILA
-RESPA Integrated Disclosure rule (TRID)
implementing sections 1098(2) and 1100A(5) of
the
Dodd-Frank Act, which direct
ed the CFPB to publish integrated
disclosures for mortgage transactions under the Truth
in Lending Act (TILA) and sections 4
and 5 of RESPA.
The TRID rule created
integrated disclosure
forms
(Loan Estimate and Closing Disclosure) to be
used for most
closed-end mortgage loan
transactions. The
Loan Estimate
replaces the Good Faith Estimate (GFE) and the
“early”
Truth-
in-Lending disclosure. The Loan Estimate provides borrowers with good-faith estimates of credit costs and
transaction terms. The
Closing Disclosure
integrates and replaces the existing HUD-1 and
the final TILA disclosure.
For
loans that require
a Loan Estimate
and that go
to closing, lenders
must provide borrowers
with the Closing
Disclosure reflecting the actual
terms of the transaction. The Loan
Estimate and Closing Disclosure are discussed in
Regulation Z sections 1026.37 and
1026.38.
The TRID rule applies to most
closed-end residential mortgages.
Additionally, the integrated disclosure requirements
apply to construction-only loans and
to loans secured by vacant land or by 25 or more acre, all of which are
currently
exempt from
RESPA coverage. [12
CFR §1026.19(e)]. Most
closed-end mortgage loans
are exempt from
the
requirement to provide the GFE,
HUD-1, and servicing disclosure requirements of RESPA under Regulation X.
[12
CFR §1024.6, §1024.7, §1024.8,
§1024.10, and §1024.33(a)]. Instead,
these loans are subject to disclosure, timing,
and other requirements under the
TRID rule.
The integrated disclosures are not
used to disclose information about reverse mortgages, home equity lines of
credit
(HELOCs), mobile homes or by a
dwelling that is not attached to real property, or other transactions not
covered by
the TRID rule. The TRID rule also does not apply to loans
made by a person who is not a
creditor
as defined by
Regulation Z
(e.g., a person
who makes 5
or fewer mortgages
in a year).
Creditors originating these
types of
mortgages must continue to use, as
applicable, the GFE, HUD-1, and TIL disclosures.
NOTE: A creditor may not use the
TILA-RESPA Integrated Disclosure forms instead of the GFE, HUD-1, and TIL
forms for transactions that continue
to be covered by TILA or RESPA that require those disclosures (e.g., reverse
mortgages).
or closed-end credit transactions
secured by real property (other than reverse mortgages), the lender is required
to
provide the borrowers with
good-faith estimates of credit costs and transaction terms on the Loan Estimate. [12 CFR
1026.19(e)].
Requirements for Loan Estimates
•
Loan Estimate must be in writing.
•
Loan Estimate must contain a good
faith estimate of credit costs and transaction terms.
•
The lender must deliver the Loan
Estimate or place it in the mail no later than the third business day after
receiving the application.
•
If a mortgage broker receives a
borrower’s application, either the lender or the mortgage broker may provide
the Loan Estima
te.
A lender can rely on a mortgage broker to deliver the Loan Estimate; but
the lender
remains responsible for its
accuracy.
•
Lenders generally may not issue
revisions to Loan Estimates because they later discover technical errors,
miscalculations, or underestimations
of charges
.
Lenders can issue revised Loan Estimates only in certain
situations such as when changed
circumstances result in increased charges.
•
Circumstances result in increased
charges.