California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 6 - California Financing Law › Article 3 - Books, Records and Examinations › Section 1436 - Nontraditional, Adjustable Rate and Mortgage Loan Products

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Best Practices. Every mortgage lender,
				  mortgage broker, and mortgage lender and broker shall implement best practices
				  to manage loan product risk on a continuous basis. These best practices shall
				  include practices set forth in the Guidance on Nontraditional Mortgage Product
				  Risks published on November 14, 2006 by the Conference of State Bank
				  Supervisors and the American Association of Residential Mortgage Regulators,
				  which is hereby incorporated by reference, and the Statement on Subprime
				  Mortgage Lending published on July 17, 2007 by the aforementioned entities and
				  the National Association of Consumer Credit Administrators, which is hereby
				  incorporated by reference. Both publications are collectively referred to
				  herein as the "Guidance" and are available on the Department's web site at
www.dbo.ca.gov
. A mortgage loan originator
				  employed by a mortgage lender, mortgage broker, or mortgage lender and broker
				  shall follow the best practices policies and procedures developed by his or her
				  employer. For purposes of this section, "best practices" shall mean lawful
				  processes, policies, and procedures to manage risks associated with use of
				  nontraditional mortgage products and adjustable rate mortgage products as
				  defined and prescribed by the Guidance.
(b) Written Compliance Report. In a separate
				  written document, submitted as an addendum to its annual financial report or
				  report of condition required under Section
				  22159 of
				  the Financial Code, every mortgage lender, mortgage broker, and mortgage lender
				  and broker shall state whether it made or arranged nontraditional mortgage
				  products and adjustable rate mortgage products, as defined by the Guidance,
				  during the reporting period covered by the annual report. If any such loans
				  were made or arranged, the mortgage lender, mortgage broker, and mortgage
				  lender and broker shall also explain how it has implemented best practices and
				  explain whether and how it has put into effect the following internal controls
				  or procedures during the reporting period: adopted processes, policies and
				  procedures to ensure compliance with the Guidance; designated a compliance
				  officer (including contact information of that officer) to ensure compliance
				  with the Guidance; implemented a consumer complaint process to resolve consumer
				  complaints involving loans covered by the Guidance; and educated employees and
				  agents to help them understand how to apply the best practices. In addition,
				  the mortgage lender, mortgage broker, and mortgage lender and broker shall
				  indicate the number of any consumer complaints it received during the reporting
				  period regarding loans that are subject to the Guidance, including the number
				  of resolved complaints and unresolved complaints and the number of workout
				  arrangements used for resolved complaints. For purposes of this section,
				  "workout arrangement" shall mean a modified or converted loan product with
				  predictable payment requirements to help the financially-stressed borrower. If
				  any nontraditional mortgage loans or adjustable rate mortgage loans subject to
				  the Guidance were made or arranged, the mortgage lender, broker, and mortgage
				  lender and broker shall also submit information regarding those loan products
				  on the form entitled Non-traditional, Adjustable Rate and Mortgage Loan Survey
				  (Rev. 8/07), which is hereby incorporated by reference. This form is available
				  on the Department's website at www.corp.ca.gov.
(c) Books and Records. If the mortgage
				  lender, mortgage broker, and mortgage lender and broker receive any reportable
				  consumer complaints described in subsection (b), the mortgage lender, mortgage
				  broker, and mortgage lender and broker shall maintain for each complaint a copy
				  of the complaint and the mortgage lender, mortgage broker, and mortgage lender
				  and broker's written response or explanation of how the company resolved the
				  complaint including any workout arrangement, shall maintain this documentation
				  as part of its books and records, and shall make the documentation available to
				  the commissioner upon request. In addition, if the mortgage lender, mortgage
				  broker, and mortgage lender and broker report any internal controls or
				  procedures or nontraditional or adjustable rate loans described in subsection
				  (b), the mortgage lender, mortgage broker, and mortgage lender and broker shall
				  maintain documentation of those controls or procedures as part of its books and
				  records, and any loan documentation required by law, and shall make the
				  documentation available to the commissioner upon request.
(d) Loan Disclosures. Every mortgage lender,
				  mortgage broker, and mortgage lender and broker shall, within three business
				  days after receipt of a completed application for a nontraditional loan or an
				  adjustable rate loan that is subject to the Guidance, or before the borrower
				  becomes obligated on the note, whichever is earlier, cause to be delivered to
				  the borrower statements in writing disclosing, in a clear and conspicuous
				  manner, information comparing payment scenarios and loan balance scenarios
				  among any nontraditional loan and adjustable rate loan products offered by the
				  finance company and that are subject to the Guidance. This information shall be
				  provided by one of the following methods:
(1)
				  The form entitled Comparison of Sample Mortgage Features: Typical Mortgage
				  Transaction (8/1/07), which is hereby incorporated by reference. This form and
				  its instructions are available on the Department's website at
www.dbo.ca.gov
; or
(2) The form of the typical mortgage
				  transaction disclosures set forth in the Comparison of Single Mortgage Features
				  of the Form RE 885 of the Department of Real Estate, as required by Title 10,
				  California Code of Regulations, Section
				  2842, when provided by a real
				  estate broker on behalf of the mortgage lender, mortgage broker, and mortgage
				  lender and broker. This form is available on the Department of Real Estate
				  website at
www.dre.ca.gov
; or
(3) Any other form used by the mortgage
				  lender, mortgage broker, and mortgage lender and broker to compare payment
				  scenarios and loan balance scenarios among any nontraditional loan and
				  adjustable rate loan products that are subject to the Guidance; provided,
				  however, that the form shall, at a minimum, (A) compare monthly payments and
				  loan balances of these loan products offered by the mortgage lender, mortgage
				  broker, and mortgage lender and broker and (B) reflect the borrower's proposed
				  loan amount.