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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.