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Chapter 4. Financial Condition, Transaction And Bond Requirements of California Financial Code >> Division 20. >> Chapter 4.
(a) At the end of the licensee's fiscal year, but in no case
more than 12 months after the last audit conducted pursuant to this
section, each licensed residential mortgage lender or servicer shall
cause its books and accounts to be audited by an independent
certified public accountant. Beginning with all audits of business
conducted after December 31, 1995, the audit shall be sufficiently
comprehensive in scope to permit the expression of an opinion on the
financial statements prepared in accordance with generally accepted
accounting principles and shall be performed in accordance with
generally accepted auditing standards. The audit shall include a
reconciliation of the licensee's trust accounts as of the audit date.
(b) "Expression of an opinion" includes (1) an unqualified opinion, (2) a qualified opinion, (3) a disclaimer of opinion, or (4) an adverse opinion. If a financial statement, report, certificate, or opinion of the independent certified public accountant is in any way qualified, the commissioner may require the licensee to take any action that the commissioner deems appropriate to address the qualification. The commissioner may reject any financial statement, report, certificate, or opinion by notifying the licensee or other person required to make the filing of the rejection and the reason therefor. Within 30 days after the receipt of the notice, the licensee or other person shall correct the deficiencies. Failure to correct the deficiencies is a violation of this division. The commissioner shall retain a copy of all financial statements, reports, certificates, or opinions so rejected.
(c) If a qualified or adverse opinion is expressed or if an opinion is disclaimed, the reasons therefor must be fully explained.
(d) The audit report shall be filed with the commissioner within 105 days of the end of the licensee's fiscal year. The report filed with the commissioner shall be certified by the certified public accountant conducting the audit. The commissioner may promulgate rules regarding late audit reports.
(e) If a licensee required to make an audit fails to cause an audit to be made, the commissioner may cause the audit to be made by an independent certified public accountant at the licensee's expense. The commissioner shall select the independent certified public accountant by advertising for bids or by other fair and impartial means that the commissioner establishes by rule. The commissioner may summarily revoke the license of a licensee who fails to file a certified financial statement prepared by an independent certified public accountant as required by this division or at the request of the commissioner.
(f) Audits conducted in accordance with the uniform single audit procedures of the United States Department of Housing and Urban Development may be submitted in fulfillment of the requirements of this section.
(b) "Expression of an opinion" includes (1) an unqualified opinion, (2) a qualified opinion, (3) a disclaimer of opinion, or (4) an adverse opinion. If a financial statement, report, certificate, or opinion of the independent certified public accountant is in any way qualified, the commissioner may require the licensee to take any action that the commissioner deems appropriate to address the qualification. The commissioner may reject any financial statement, report, certificate, or opinion by notifying the licensee or other person required to make the filing of the rejection and the reason therefor. Within 30 days after the receipt of the notice, the licensee or other person shall correct the deficiencies. Failure to correct the deficiencies is a violation of this division. The commissioner shall retain a copy of all financial statements, reports, certificates, or opinions so rejected.
(c) If a qualified or adverse opinion is expressed or if an opinion is disclaimed, the reasons therefor must be fully explained.
(d) The audit report shall be filed with the commissioner within 105 days of the end of the licensee's fiscal year. The report filed with the commissioner shall be certified by the certified public accountant conducting the audit. The commissioner may promulgate rules regarding late audit reports.
(e) If a licensee required to make an audit fails to cause an audit to be made, the commissioner may cause the audit to be made by an independent certified public accountant at the licensee's expense. The commissioner shall select the independent certified public accountant by advertising for bids or by other fair and impartial means that the commissioner establishes by rule. The commissioner may summarily revoke the license of a licensee who fails to file a certified financial statement prepared by an independent certified public accountant as required by this division or at the request of the commissioner.
(f) Audits conducted in accordance with the uniform single audit procedures of the United States Department of Housing and Urban Development may be submitted in fulfillment of the requirements of this section.
(a) A licensee issued a license for purposes of making or
servicing residential mortgage loans, including a licensee employing
one or more mortgage loan originators, shall continuously maintain a
minimum tangible net worth at all times of two hundred fifty thousand
dollars ($250,000).
(b) Tangible net worth shall be computed in accordance with generally accepted accounting principles.
(c) The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(b) Tangible net worth shall be computed in accordance with generally accepted accounting principles.
(c) The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(a) Escrow funds for a purpose authorized by the residential
mortgage loan contract (1) shall be subject to and satisfy all
applicable state and federal requirements, including Section 2609 of
the federal Real Estate Settlement Procedures Act of 1974, as amended
(12 U.S.C. Sec. 2601 et seq.) and all applicable provisions of the
Civil Code, (2) shall be maintained in a depository institution as
described in subdivision (b), and (3) may not be commingled with a
licensee's funds.
(b) Except as provided in subdivision (f), a trust account shall be placed in a non-interest-bearing account in a federally insured depository institution, a federal home loan bank, a federal reserve bank, or other similar government-sponsored enterprise, to be removed and used only for the following:
(1) Payments authorized by the borrower, allowed by the mortgage loan contract, or required by federal or state law.
(2) Refunds to the borrower.
(3) Transfer to another institution that is described in this subdivision.
(4) Forwarding to the appropriate servicer in case of a transfer of servicing.
(5) Any other purpose authorized by the residential mortgage loan contract.
(6) Compliance with a regulatory or court order.
(c) As used in this section, "trust funds" means funds collected by a licensee in connection with the making or servicing of a residential mortgage loan that the licensee holds on behalf of another.
(d) Notwithstanding any other provision of law, but subject to the limitations of Section 854, benefits accruing from the placement in a non-interest-bearing account of a commercial bank (including a national banking association) of funds received by a licensee who services mortgage loans under this law, shall inure to the licensee, unless otherwise agreed in writing by the licensee and the investor on whose behalf the licensee services the loan. A borrower shall receive at least 2 percent simple interest per annum on impound account payments covered by Section 2954.8 of the Civil Code.
(e) Trust funds are not subject to the enforcement of a money judgment arising out of a claim against the licensee or person acting as the servicing agent, and in no instance shall the trust funds be considered or treated as an asset of the licensee or person performing the functions of a residential mortgage lender or loan servicer.
(f) A licensee may, at the request of the owner of the trust funds, transfer the funds initially deposited in a non-interest-bearing trust account into an interest-bearing account in a federally insured depository institution if all of the following requirements are met:
(1) The account is in the name of the residential mortgage lender licensee in trust for the specified beneficiary.
(2) All of the funds in the account are federally insured.
(3) The funds in the account are kept separate and distinct from the funds of the licensee or funds of any other person for whom the licensee holds funds in trust.
(4) The licensee discloses to the person from whom the funds are received and the beneficiary of the account how interest will be calculated and paid, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5) All interest earned on the account will be paid to the owner of the trust funds or the beneficiary.
(b) Except as provided in subdivision (f), a trust account shall be placed in a non-interest-bearing account in a federally insured depository institution, a federal home loan bank, a federal reserve bank, or other similar government-sponsored enterprise, to be removed and used only for the following:
(1) Payments authorized by the borrower, allowed by the mortgage loan contract, or required by federal or state law.
(2) Refunds to the borrower.
(3) Transfer to another institution that is described in this subdivision.
(4) Forwarding to the appropriate servicer in case of a transfer of servicing.
(5) Any other purpose authorized by the residential mortgage loan contract.
(6) Compliance with a regulatory or court order.
(c) As used in this section, "trust funds" means funds collected by a licensee in connection with the making or servicing of a residential mortgage loan that the licensee holds on behalf of another.
(d) Notwithstanding any other provision of law, but subject to the limitations of Section 854, benefits accruing from the placement in a non-interest-bearing account of a commercial bank (including a national banking association) of funds received by a licensee who services mortgage loans under this law, shall inure to the licensee, unless otherwise agreed in writing by the licensee and the investor on whose behalf the licensee services the loan. A borrower shall receive at least 2 percent simple interest per annum on impound account payments covered by Section 2954.8 of the Civil Code.
(e) Trust funds are not subject to the enforcement of a money judgment arising out of a claim against the licensee or person acting as the servicing agent, and in no instance shall the trust funds be considered or treated as an asset of the licensee or person performing the functions of a residential mortgage lender or loan servicer.
(f) A licensee may, at the request of the owner of the trust funds, transfer the funds initially deposited in a non-interest-bearing trust account into an interest-bearing account in a federally insured depository institution if all of the following requirements are met:
(1) The account is in the name of the residential mortgage lender licensee in trust for the specified beneficiary.
(2) All of the funds in the account are federally insured.
(3) The funds in the account are kept separate and distinct from the funds of the licensee or funds of any other person for whom the licensee holds funds in trust.
(4) The licensee discloses to the person from whom the funds are received and the beneficiary of the account how interest will be calculated and paid, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5) All interest earned on the account will be paid to the owner of the trust funds or the beneficiary.
(a) A licensee may not require a borrower to pay fees or
charges prior to the residential mortgage loan closing, except for:
(1) Actual charges to be incurred by the licensee on behalf of the borrower for services from third parties necessary to process the application, such as credit reports, appraisals, flood certification, and tax service, and in transactions where these services are provided by the licensee, a charge not to exceed the prevailing market rate for the service.
(2) An application fee.
(3) A rate-lock fee, provided:
(A) There is a written agreement signed by the borrower and licensee.
(B) The terms of the agreement include, but are not limited to:
(i) The expiration date of the rate-lock fee agreement.
(ii) The principal amount of the mortgage loan, the term of the mortgage loan, and identification of the property.
(iii) The initial interest rate and the discount (points) to be paid.
(iv) The amount and payment term of the rate-lock fee along with a statement disclosing whether the fee is refundable and the terms and conditions necessary to obtain a refund.
(C) The licensee demonstrates to the commissioner that it is able to perform under the terms of the agreement.
(4) A commitment fee, upon approval of the residential mortgage loan application, provided:
(A) The commitment is in writing and signed by the licensee and the borrower.
(B) The commitment contains all of the following information:
(i) The terms and conditions of the residential mortgage loan.
(ii) The terms and conditions of the commitment, including, but not limited to, all of the following:
(I) The time period during which the commitment is irrevocable and may be accepted by the borrower, which may not be less than three calendar days from the date of commitment or the date of mailing, whichever is later.
(II) The amount and payment terms of the commitment fee, along with a statement disclosing whether the fee is refundable and the terms and conditions necessary to obtain a refund.
(III) The expiration date of the commitment.
(IV) Conditions precedent to closing.
(b) If the licensee has performed its obligations under the law related to the transaction, fees or charges collected pursuant to this section, other than those collected pursuant to paragraphs (1) and (2) of subdivision (a), shall be refunded if a valid commitment or closing, respectively, does not occur, except that the licensee may retain appropriate fees upon the licensee's demonstration to the commissioner that any of the following occurred:
(1) The borrower withdrew the loan application.
(2) The borrower made a material misrepresentation or omission on the loan application.
(3) The borrower failed, after written request, to provide documentation necessary to the processing or closing of the loan application.
(4) The closing failed to occur due solely to the fault of the borrower.
(1) Actual charges to be incurred by the licensee on behalf of the borrower for services from third parties necessary to process the application, such as credit reports, appraisals, flood certification, and tax service, and in transactions where these services are provided by the licensee, a charge not to exceed the prevailing market rate for the service.
(2) An application fee.
(3) A rate-lock fee, provided:
(A) There is a written agreement signed by the borrower and licensee.
(B) The terms of the agreement include, but are not limited to:
(i) The expiration date of the rate-lock fee agreement.
(ii) The principal amount of the mortgage loan, the term of the mortgage loan, and identification of the property.
(iii) The initial interest rate and the discount (points) to be paid.
(iv) The amount and payment term of the rate-lock fee along with a statement disclosing whether the fee is refundable and the terms and conditions necessary to obtain a refund.
(C) The licensee demonstrates to the commissioner that it is able to perform under the terms of the agreement.
(4) A commitment fee, upon approval of the residential mortgage loan application, provided:
(A) The commitment is in writing and signed by the licensee and the borrower.
(B) The commitment contains all of the following information:
(i) The terms and conditions of the residential mortgage loan.
(ii) The terms and conditions of the commitment, including, but not limited to, all of the following:
(I) The time period during which the commitment is irrevocable and may be accepted by the borrower, which may not be less than three calendar days from the date of commitment or the date of mailing, whichever is later.
(II) The amount and payment terms of the commitment fee, along with a statement disclosing whether the fee is refundable and the terms and conditions necessary to obtain a refund.
(III) The expiration date of the commitment.
(IV) Conditions precedent to closing.
(b) If the licensee has performed its obligations under the law related to the transaction, fees or charges collected pursuant to this section, other than those collected pursuant to paragraphs (1) and (2) of subdivision (a), shall be refunded if a valid commitment or closing, respectively, does not occur, except that the licensee may retain appropriate fees upon the licensee's demonstration to the commissioner that any of the following occurred:
(1) The borrower withdrew the loan application.
(2) The borrower made a material misrepresentation or omission on the loan application.
(3) The borrower failed, after written request, to provide documentation necessary to the processing or closing of the loan application.
(4) The closing failed to occur due solely to the fault of the borrower.
A licensee may not do any of the following:
(a) Disburse the mortgage loan proceeds in a form other than direct deposit to the borrower's or borrower's designee's account, wire, bank or certified check, ACH funds transfer, or attorney's check drawn on a trust account. An entity may apply to the commissioner for a waiver of the requirements of this subdivision by demonstrating, in a letter application, that it has adopted or will adopt another method of disbursement of loan proceeds that will satisfy the purposes of this subdivision.
(b) Fail to disburse funds in accordance with a commitment to make a mortgage loan that is accepted by the applicant.
(c) Accept fees at closing that are not disclosed to the borrower on the federal HUD-1 Settlement Statement.
(d) Commit an act in violation of Section 2941 of the Civil Code.
(e) Obtain or induce an agreement or other instrument in which blanks are left to be filled in after execution.
(f) Intentionally delay closing of a mortgage loan for the sole purpose of increasing interest, costs, fees, or charges payable by the borrower.
(g) Engage in fraudulent home mortgage underwriting practices.
(h) Make payment of any kind, whether directly or indirectly, to an in-house or fee appraiser of a government or private money lending agency, with which an application for a home mortgage has been filed, for the purpose of influencing the independent judgment of the appraiser with respect to the value of real estate that is to be covered by the home mortgage.
(i) Engage in any acts in violation of Section 17200 or 17500 of the Business and Professions Code.
(j) Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which it is a party.
(k) Do an act, whether of the same or a different character than specified in this section, that constitutes fraud or dishonest dealings.
(l) Sell more than eight loans in a calendar year made under the authority of this license to a person who is not an institutional investor.
(m) Commit an act in violation of Section 1695.13 of the Civil Code.
(n) Make or service a loan that is not a residential mortgage loan under the authority of the license.
(o) Commit an act in violation of Section 2948.5 of the Civil Code. Evidence of compliance with Section 2948.5 of the Civil Code may be evidenced by (1) a certification executed by the licensee, at no cost to the borrower, pursuant to Section 2015.5 of the Code of Civil Procedure, or (2) other evidence in the loan file acceptable to the commissioner.
(p) Make or broker a loan that is offered by, negotiated by, or applied for through a mortgage loan originator who is not licensed in this state through the Nationwide Mortgage Licensing System and Registry, unless the mortgage loan originator is exempt from licensure.
(a) Disburse the mortgage loan proceeds in a form other than direct deposit to the borrower's or borrower's designee's account, wire, bank or certified check, ACH funds transfer, or attorney's check drawn on a trust account. An entity may apply to the commissioner for a waiver of the requirements of this subdivision by demonstrating, in a letter application, that it has adopted or will adopt another method of disbursement of loan proceeds that will satisfy the purposes of this subdivision.
(b) Fail to disburse funds in accordance with a commitment to make a mortgage loan that is accepted by the applicant.
(c) Accept fees at closing that are not disclosed to the borrower on the federal HUD-1 Settlement Statement.
(d) Commit an act in violation of Section 2941 of the Civil Code.
(e) Obtain or induce an agreement or other instrument in which blanks are left to be filled in after execution.
(f) Intentionally delay closing of a mortgage loan for the sole purpose of increasing interest, costs, fees, or charges payable by the borrower.
(g) Engage in fraudulent home mortgage underwriting practices.
(h) Make payment of any kind, whether directly or indirectly, to an in-house or fee appraiser of a government or private money lending agency, with which an application for a home mortgage has been filed, for the purpose of influencing the independent judgment of the appraiser with respect to the value of real estate that is to be covered by the home mortgage.
(i) Engage in any acts in violation of Section 17200 or 17500 of the Business and Professions Code.
(j) Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which it is a party.
(k) Do an act, whether of the same or a different character than specified in this section, that constitutes fraud or dishonest dealings.
(l) Sell more than eight loans in a calendar year made under the authority of this license to a person who is not an institutional investor.
(m) Commit an act in violation of Section 1695.13 of the Civil Code.
(n) Make or service a loan that is not a residential mortgage loan under the authority of the license.
(o) Commit an act in violation of Section 2948.5 of the Civil Code. Evidence of compliance with Section 2948.5 of the Civil Code may be evidenced by (1) a certification executed by the licensee, at no cost to the borrower, pursuant to Section 2015.5 of the Code of Civil Procedure, or (2) other evidence in the loan file acceptable to the commissioner.
(p) Make or broker a loan that is offered by, negotiated by, or applied for through a mortgage loan originator who is not licensed in this state through the Nationwide Mortgage Licensing System and Registry, unless the mortgage loan originator is exempt from licensure.
(a) A residential mortgage lender or servicer licensee shall
maintain a surety bond in accordance with this subdivision. The bond
shall be used for the recovery of expenses, fines, and fees levied
by the commissioner in accordance with this division or for losses or
damages incurred by borrowers or consumers as the result of a
licensee's noncompliance with the requirements of this division. The
bond shall be payable when the licensee fails to comply with a
provision of this division and shall be in the amount of fifty
thousand dollars ($50,000), and may be increased by order of the
commissioner to one hundred thousand dollars ($100,000) upon a
determination by the commissioner that the licensee is not in
compliance with any provision of this chapter or any rule or order
adopted or issued by the commissioner to implement or enforce
provisions of this chapter. The bond shall be payable to the
commissioner and issued by an insurance company authorized to do
business in this state. An original surety bond, including any and
all riders and endorsements executed subsequent to the effective date
of the bond, shall be filed with the commissioner within 10 days of
its execution.
(b) When an action is commenced on a licensee's bond, the commissioner may require the filing of a new bond. Immediately upon the recovery of an action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c) The commissioner may by rule require a higher bond amount for a licensee employing one or more mortgage loan originators, 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 shall be covered by the surety bond.
(b) When an action is commenced on a licensee's bond, the commissioner may require the filing of a new bond. Immediately upon the recovery of an action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c) The commissioner may by rule require a higher bond amount for a licensee employing one or more mortgage loan originators, 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 shall be covered by the surety bond.
(a) Prior to a change of control of the business of a
licensee, the person wishing to acquire control shall submit an
application to the commissioner and pay an investigation fee of one
hundred dollars ($100). The application shall contain the information
that the commissioner, by rule, may prescribe as necessary to
determine that the person meets the requirements of Section 50121.
(b) The commissioner shall approve or disapprove the proposed change of control of a licensee in accordance with the provisions of Section 50126.
(c) Upon notification by the commissioner that the change of control has been disapproved, the acquiring party shall immediately cease any activity subject to regulation under this division.
(b) The commissioner shall approve or disapprove the proposed change of control of a licensee in accordance with the provisions of Section 50126.
(c) Upon notification by the commissioner that the change of control has been disapproved, the acquiring party shall immediately cease any activity subject to regulation under this division.
(a) A license, along with any currently effective order of
the commissioner approving use of a different name pursuant to
Sections 50120 and 50130, shall be conspicuously posted in the place
of business authorized by the license.
(b) A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(b) A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
The license shall state the name of the licensee. If the
licensee is a partnership, the license shall state the names of its
general partners. If the licensee is a corporation or an association,
the license shall state the date and place of the corporation's
incorporation or organization. If the licensee is a residential
mortgage lender or servicer, the license shall state the address of
the licensee's principal business location. The license shall state
whether the licensee is licensed as a residential mortgage loan
lender or servicer or as a mortgage loan originator.
The unique identifier of any licensed mortgage loan
originator shall be clearly shown on all residential mortgage loan
application forms, solicitations, or advertisements, including
business cards or Internet Web sites, and any other documents as
established by rule, regulation, or order of the commissioner.
