License and Bond Requirements
CALIFORNIA RESIDENTIAL MORTGAGE LENDING ACT
The California Residential Mortgage Lending Act (CRMLA) is contained in Division 20 of the California Financial Code, commencing with Section 50000. The regulations are contained in Subchapter 11.5 of Chapter 3 of Title 10 of the California Code of Regulations, commencing with Section 1950.003 (10 C.C.R. §1950.003, et seq.).
The CRMLA was enacted in 1994 and became operative in 1996. The CRMLA was enacted as an alternative to the existing laws licensing lenders under the Real Estate Law and the California Finance Lenders Law, in order to provide mortgage bankers with a licensing law specifically intended to regulate their primary functions of originating loans and servicing loans. Unlike the Real Estate Law and the California Finance Lenders Law, the CRMLA is specifically designed to authorize and regulate mortgage banking activities. An applicant under the CRMLA may obtain a license as a lender, a servicer, or both.
The CRMLA authorizes 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.
Effective March 20, 1996 , a licensed CRMLA lender is authorized to provide brokerage services to a borrower, by attempting to obtain a mortgage loan on behalf of the borrower from another lender.
The CRMLA requires that any person engaged in the business of making or servicing residential mortgage loans within California do so only under the authority of a license under the CRMLA. The following entities are exempt from the 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;
- Persons making residential mortgage loans with their own funds, for their own investment, and without intent to resell more than eight residential loans in any one calendar year;
- 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; and
- Trustees in a foreclosure proceeding.
Mortgage bankers licensed under the CRMLA may be in the form of a natural person, a sole proprietorship, a corporation, a partnership, a limited liability company, an association, a trust, a joint venture, an unincorporated organization, a joint stock company, a government or political subdivision of a government, or any other entity.
Prior to obtaining a license, each applicant must demonstrate the following:
- Approval from the Federal Housing Administration (FHA), Veterans Administration (VA), Farmers Home Administration (FmHA), Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) as a lender and/or servicer.
- Audited financial statements demonstrating tangible net worth of at least $250,000.
- A surety bond in the amount of $50,000.
All stockholders, principal officers and directors must have a background check performed by the Department. This includes obtaining criminal history information through the Department of Justice and conducting civil court checks for activities that indicate previous involvement in fraud, embezzlement, fraudulent conversion, or misappropriation of property.
CALIFORNIA FINANCE LENDERS LAW
The California Finance Lenders Law is contained in Division 9 of the California Financial Code, commencing with Section 22000. Effective July 1, 1995 , the Personal Property Brokers Law, Consumer Finance Lenders Law, and Commercial Finance Lenders Law were consolidated without substantive change into the California Finance Lenders Law (AB 2885, Chapter 1115, Stats. 1994). The regulations under the California Finance Lenders Law are contained in Chapter 3, Title 10 of the California Code of Regulations, commencing with Section 1404 (10 C.C.R. §1404, et seq.).
Finance lenders and brokers, by number of licensees and dollars of loans originated, are the largest group of financial service providers regulated by the Department. A finance lender is defined in the law as "any person who is engaged in the business of making consumer loans or making commercial loans." A finance lenders license provides the licensee with an exemption from the usury provision of the California Constitution.
Licensed under the law are individuals, partnerships, associations, limited liability companies and corporations, including many of the largest "Fortune 500" companies.
There are a number of "non-loan" transactions, such as bona fide leases, automobile sales finance contracts (Rees-Levering Motor Vehicle Sales and Finance Act) and retail installment sales (Unruh Act), that are not subject to the provisions of the California Finance Lenders Law.
In addition to the lending authority provided by the law, the California Finance Lenders Law provides limited brokering authority. A "broker" is defined in the law as "any person engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender." Brokers licensed under this law may only broker loans to lenders that hold a California Finance Lenders license.
The requirements for a license are set forth in Section 22100, et seq. of the California Financial Code. The law requires applicants to have and maintain a minimum net worth of at least $25,000 and to obtain and maintain a $25,000 surety bond. In general, principals of the company may not have a criminal history or a history of non-compliance with regulatory requirements.