California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 11.5 › Article 9 - Books and Records › Section 1950.314.8 - Nontraditional, Adjustable Rate and Mortgage Loan Products

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Best Practices. Every licensee 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 licensee 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 and report of condition required under Section
				  50307 of
				  the Financial Code, every licensee 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 licensee 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 licensee
				  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 licensee 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.dbo.ca.gov
.
(c) Books and Records. If the licensee
				  receives any reportable consumer complaints described in subsection (b), the
				  licensee shall maintain for each complaint a copy of the complaint and the
				  licensee'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 licensee reports any
				  internal controls or procedures or nontraditional or adjustable rate loans
				  described in subsection (b), the licensee 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 licensee 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 licensee
				  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 licensee. This form is available on the
				  Department of Real Estate website at
www.dre.ca.gov
; or
(3) Any other form used by the licensee 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 licensee, and
				  (B) reflect the borrower's proposed loan amount.