Mortgage Loans : California Residential Mortgage Lending Act

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.

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.

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)].

mortgage servicer

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

$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

$200,000

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:

Construction-only loans

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.

9/18/2019

California Residential Mortgage Lending Act