Bill Caption

Relating to residential mortgage loans, including the financing of residential real estate purchases by means of a wrap mortgage loan; providing licensing requirements; authorizing an administrative penalty.

Fiscal Notes

No significant fiscal implication to the state is anticipated.

Bill Analysis

SB 1994 would prohibit an individual from originating or making a wrap mortgage loan unless the person is licensed to originate or make a residential mortgage loan or receives an exemption as established in this bill. Next, conditions for a borrower to bring an action would be established. Third, the Savings and Mortgage Lending Commissioner would be permitted to conduct inspections and investigations of a wrap lender. Fourth, it would stipulate that a lien securing a wrap around mortgage loan is void unless those with interest in the real estate who have an unreleased lien on the property consent to the mortgage and it was closed by an attorney or title company. Finally, an administrative penalty for the violation of a cease and desist order issued by the Commissioner for a violation of the chapter may be up to $1,000 per day of the violation.

Vote Recommendation Notes

Although we do recognize the at times predatory nature of wraparound mortgage lenders, we also acknowledge the fact that this is an issue created by government. Both state and federal governments have created, subsidized, and incentivized individuals borrowing more than they should or have the means to repay. Then when they find themselves in financial turmoil, they turn to anyone who appears to be able to help them out of the predicament they find themselves in. This has led to predatory and unsettling practices such as wraparound mortgages that can result in people losing tens of thousands of dollars and their home. 

Seeking to address this issue is admirable. However, in so doing this bill would create significant levels of new bureaucracy which concerns our principle of limited government. And though not the wisest tool, not all who provide wraparound mortgages are bad actors or have ill intentions. This bill would have the effect of bringing well intentioned businesses new burdens and penalties. It would also infringe on our principle of personal responsibility by shifting the burden of the individual to understand what they are signing and agreeing to away from the consumer and onto the provider. 

If this bill were amended to only include the provision closing the current loophole (Section 1) and the requirement that all who have an interest in the property be notified and consent to the wraparound mortgage, we would withdraw our objection. Requiring that all who have a legal interest in the property be notified and agree to the wraparound mortgage before it can be entered into is a good provision that would uphold our commitment to both personal responsibility and property rights  

For these reasons, as the bill stands, we must oppose SB 1994.