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House | March 19, 2015 | Committee Room | House Banking Committee Meeting

Full MP3 Audio File

[SPEAKER CHANGES] If I could get everybody's attention. We are going to try to start the Banking Committee on time so we can get out of here, as we are a lunch meeting. I would like to first off thank the wonderful and talented chairman, Julia Howard. Listen, this is my first time ever chairing a committee, so if I make a mistake I'm sure it's my fault. We-I'd like to thank the Sergeant-at-Arms we have here today, which are, wherever my notes went, ?? Adams, Martha Gadsden and Joe Austin. Thank them for their service today and then we have one page who is sponsored by Craig Horn ?? in the back, she's in Union County, she's here for one year on loan from Germany. So she's seeing how the American system works. We welcome you and we appreciate your interest in us. With that being said, without-Chairman Howard do you have anything to add? Chairman Howard does not have anything to add so we will go ahead and go straight into the agenda. We are taking 106 first. All three bills will be run by Representatives Bell and Jordan. 106 is a PCS. Do I have a motion for the PCS in front of us? Chairman Howard moves. All in favor say aye. The ayes have it. The PCS is in front of us, so Representative Bell. [SPEAKER CHANGES] Thank you Mr. Chairman, members of the committee, wow that's a really good echo. We're going to start with House Bill 106, each one of these bills were a part of the House Legislative Research Committee, which a number of you at the table were a part of during the interim. We had a number meeting through the interim, and this was made recommendations to represent to the full legislative research committee and they were approved. Today you had them in front of you in bill form. All of these did pass the committees and passed the overall committees to get here. The first one we'll talk about will be House Bill 106, expanding the Banking Commission membership. The original bill, before you actually expanded the Banking Committee by two members during the last couple weeks, we got together with the Banking Commission, the Bankers' Association, Treasurers' Office, Mortgage Brokers, everyone came to the agreement that we really did not want to expand the commission, but we did have a situation where we had the non-depository mortgage industry, which represented about 26% of the income that came into the Banking Commission. It did not have a seat at the table. They were actually combined with a finance, financing ??, and so if one of them were left off you did not have proper representation at the table. So the parties got together, agreed with the PCS before you to have, to actually make one of the members on the Banking Committee that does hold a mortgage seat, which is a public member. Turned that into an industry seat. That gives seven public members, seven industries, and then the treasurer who serves would be in a place to break any ties if there were ever any, and to to my knowledge there have not. I don't know who's ever been one, on the commission one years ago. But, so we do have folks here from, who will answer any questions if you have. But that's this bill before you. [SPEAKER CHANGES] Is there anybody from the audience who'd like to speak on this? Seeing none. At the appropriate time Representative Bishop, I'd be happy to ask that. Are there any questions from the committee members? Representative Martin. [SPEAKER CHANGES] Thank you very much Mr. Chair. This is your first time chairing a committee, this is my first time ever in the Banking Committee, so forgive me for some of my questions coming out of ignorance. [SPEAKER CHANGES] Not my bill, so ask as many as you want. [SPEAKER CHANGES] So as I understand this, it looked like you're taking one of the public members and transferring that to represent the non-depository, interests? Can someone explain to me what role a public member on the Banking Commission is? [SPEAKER CHANGES] Representative Bell? [SPEAKER CHANGES] I would like to redirect that to staff if possible. That way we'll get you an appropriate answer. [SPEAKER CHANGES] The definition under Chapter 33C, is, for a public member, is a member of the commission who is not a practical banker, a consumer finance licensee, or a part person, licensed under Article 19B, the one that's being added. And who is not at the time of the appointment to the commission, nor was within the five years preceding the appointment an employee of an

Line a financial one. ?? Representative Martin I know you have a follow up. I will yield that to you in a second. I will remind you that the circular items in front of you are read right before you ask your question or respond. Please turn that degree and turn it off so we can make sure that people at home who want to listen can listen. [SPEAKER CHANGES] Representative Martin do you have a followup? [SPEAKER CHANGES] Thank you Mr. Chair. I don't know if anybody at home cares to listen to me but I pushed the button anyway. [SPEAKER CHANGES] I appreciate that. [SPEAKER CHANGES] So it sounds, a statement and then a question, it sounds to me as if the public members were put in place in order to surprisingly represent the interests of the public. As distinct from that, various portions of the industry. So my question then is why would we take one of those seats away from the public, and give it to someone in industry when it seems to me a better option might have been to expand the size, keep the number of seats that we have there representing everyone in the public, and then also do what I think I hope we all would agree we need to do, and have representation on there for the non-depository. [SPEAKER CHANGES] Representative Bellman. [SPEAKER CHANGES] Currently the way the banking commission is made up, if you look down at the bill under a gentleman by the name of Don ?? who actually serves as a public member on that committee. Don Thader actually worked for the non-depository mortgage industry. So what you had is if one of the finances, ?? you have a combined seat, that would either a member of the finance company or non-depository mortgage company. If one or the other did not get that seat, then they would fight for a public member seat to be sure they're getting the representative at the table. So when we got together with the stakeholders we really didn't want to go back in the direction where if you were a member a couple years ago, we lowered the banking commission I believe it was from 22 to 17 if I'm not mistaken, to 15, if we went back up to 17, then we start creeping back up in that direction. But the non-depository mortgage represents such a large portion of the income, if you're a stockholder in any other company and you represent 25% of the stock, there's a good chance you're going to have a voice at the table. And listening to the list that seat was filled by that entity, they did not have a seat at the table unless they acquired a public member seat. That was an agreement that was made, if you look at the first, before the PCS, it was done the way that you said that. But when we talked among the stakeholders involved, our goal in the committee was to make sure there was appropriate voices and appropriate representation heard on the board. And everyone felt that this would be a way to solve that without expanding industry but also being able to have the public members have a larger enough voice to compete against the industry seats if necessary. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] I'll shut up after this. This concerns me that we are taking a seat away potentially from public members. I'm inclined not to support the bill now but I want to make it clear to the bill sponsors that that comes just from inexperience as a newbie on this committee, based on what little I know on the small amount of experience in these arenas right now, I can't support the bill. But I look forward to learning more and happy to sit down with you and asking you some further questions. [SPEAKER CHANGES] Any other questions or comments from committee members. Seeing none, Representative Bishop, you are recognized for a motion. [SPEAKER CHANGES] I move to approve the committee, the sub-committee substitute. [SPEAKER CHANGES] Unfavorable to the original? [SPEAKER CHANGES] Yes. [SPEAKER CHANGES] It does not have a serial referral so that motion is in order. All in favor say aye. All opposed say no. Ayes have it. House Bill 106 is passed. House Bill 105 is before us. Representative Bell. [SPEAKER CHANGES] Thank you members, and I will go through this as quick as possible. I know this is very entertaining information. House Bill 105 amends the safe mortgage licensing act to reduce the amount of the surety bond requirement for licensed mortgage brokers, mortgage lenders and mortgage services. It would also allow the commission to waive the requirement of a bond if the licensee has a net worth of at least the required bond amount. Once again this is a recommendation upon the legislative research committee. The bond amounts are in front of you. If you have any questions, I would be more than happy to answer them. [SPEAKER CHANGES] Does anybody from the audience have anything they'd like to add? Don't get too excited, don't rush the stage at one time. Seeing none, any comments or questions from the committee members? Representative Blust. Please push the button in front of you, Representative Blust. [SPEAKER CHANGES] Has there been a problem or have we found that the lower bond will protect everyone the bond's supposed to protect? Has there been any problem in the past that might indicate we need to keep it at that level? [SPEAKER CHANGES] Representative Bell. [SPEAKER CHANGES] It is a current situation. If you look

The surrounding states, were actually higher than all the surrounding states, and even with this we'll still be a little higher than our states. On the issue came forward by the industry, and you wouldn't have these but, in the committee it was brought up that from 2005 to 2012, the claims against these bonds were about $500,000. The premiums were 11.6 million, collected. So, so what we wanna do is kind of bring that down, put ourselves on the line, and make us as competitive within our region of the country. [SPEAKER CHANGES] Further questions? Representative Hall. [SPEAKER CHANGES] I don't have a microphone. ?? If you press that one, I'll be in stereo. Question about the, the reason we have these bonds. Now, it appears that if we lower this amount of coverage, we're gonna end up with the companies themselves taking riskier actions. Is that something that has been determined, whether or not this results in greater problems that we have as a result of it? [SPEAKER CHANGES] Representative Bell. Representative's up. [SPEAKER CHANGES] Thank you mister chairman. Representative Bell asked me to help him with some of these things because I'm a licensed mortgage loan officer. I've been involved in mortgage brokering and mortgage loaning for the last 16 years. In answer to your question, the lending landscape has changed dramatically over the past several years, and specifically in the last ten or fifteen since these limits were put in place. There is a plethora of federal legislation that really a lot of our state legislation mirrors now. You might recall last session that there was a, several bill that I sponsored that had state lending standards no more strict than federal lending standards. There is a level of scrutiny on the mortgage industry be it lenders or brokers that is, I'm not sure what it's comparable to. Maybe to coal ash or, no, maybe that's a bad one. But there are federal inspectors, state inspectors. The bottom line here is that the committee listened to substantive discussion on this, and determined that there is really sufficient oversight that this level is a little bit too much, and to, it does provide still sufficient consumer protection. Does that answer your question? [SPEAKER CHANGES] Follow up, and that does answer my question. ?? the rate we raise these standards has resulted in mortgages loan prices. Is that correct? Can someone? [SPEAKER CHANGES] I would have to direct that to staff for the last time they were raised. I don't remember. [SPEAKER CHANGES] Representative Hall, these standards were placed in the law in 2009, but that was pursuant to the federal law that changed it, required that all states licensed mortgage loan officers. I don't believe ??. Sorry. I, we have had standards, we've had ?? standards in our law prior to that when we had just the mortgaging licensing act since 2002. I'm not sure whether they were raised in 2009 or whether they stayed the same. Someone from the commissioner's office may be able to tell you whether or not they've gone up or whether they've stayed the same since 2002. [SPEAKER CHANGES] Anyone from the commissioner's office here and care to comment? [SPEAKER CHANGES] ?? In 2009 the loan was increased. I am not aware of the amount that they were prior to that. I believe there was an increase in 2008 or 2009 ?? [SPEAKER CHANGES] Thank you ma'am. Representative Hall, does that answer your question or do you have a follow up? [SPEAKER CHANGES] That answered the question. I want to make a comment then at this point. [SPEAKER CHANGES] Mr. Hall for a comment. [SPEAKER CHANGES] My concern then is we're trying to protect the folks who are ultimately receiving these loans, and this as far as the process has provided that protection. We raised it for a reason. We don't want to go back to that situation again. I don't know that this puts us above or below any federal guideline amounts, but certainly, we don't want to get back to where we were, and there was a reason we did this. And I would hate to see us take away protections that we currently have. If we're currently functioning well under the law, we're providing the protection that was intended to be put there. I don't know why we would take the protections away and possibly send us back down that road. I'd like to not go back down

Representative Szoka your response.. [SPEAKER CHANGES] And that's a very good point, Representative Hall. And let me tell you a little bit, what's different in the lending landscape that prompted the increases and some of these other laws.. to where we are today. The lending crisis was brought about, in large part, because people who, otherwise, shouldn't have been purchasing houses - because of their credit scores or their qualifications were allowed to in the sub-prime mortgage industries, is what it was. And, currently, that industry is gone. There are only four types of loans that you can get today. Three of them are backed by the government. One's a VA loan, there's an FHA loan, there's the USDA rural development loan, and then there's the conventional conforming loan, which, it's called conventional conforming loan cause it's normally offered by banks and lenders, you can put down as much as twenty percent and avoid PMI, that's for mortgage insurance, or you can put down as little as five percent. However, in the conforming world, to put down only five percent, your credit score has to be above 740. Credit score, as you may know, is an indication of the probability that a consumer is going to re-pay a loan, not just a general loan, within the next 90 days. The higher the score, the greater the probability that the loan will be repaid. So, the system itself, has this error-trapping if you will, that you, in a 740 the probability of not making a payment in the next 90 days is like one in 535. So, the loans that were there, that were a problem, sub-prime loans are, they simply don't exist anymore. And for the ones where people have options, to put money down, that's not government-backed, the system in essence protects against somebody not being qualified. So, in my humble opinion, I think that the protections are there, it's not legal protections if you.. well it is, protections because a lot of that's determined by the federal government as well. [SPEAKER CHANGES] Thank you sir, Representative Martin next, I would remind you, after your question, please put your button back to red. Representative Martin. [SPEAKER CHANGES] Thanks mister chair, I pushed my button so as a legislator all I'm qualified to do is to either push a red or green button. So I'm well qualified, for this task. [SPEAKER CHANGES] ?? out of South Carolina. [SPEAKER CHANGES] Question for Representative Szoka. What I think I heard you say, was that, right now, in addition to some of the federal protections, the current situation in the market is also, either providing protection or at least.. rendering these protections unnecessary based on the way things ?? [SPEAKER CHANGES] And I wish I would have.. [SPEAKER CHANGES] Representative Szoka. [SPEAKER CHANGES] I wish I would have stated it like that, it would have taken three less minutes. But you are correct. [SPEAKER CHANGES] Follow up, for Representative Martin? [SPEAKER CHANGES] Yes sir, mister chair, I've had fewer bad parachute landings than you, I think. So my concern is, markets rise and fall, and they shift different ways, I want to make sure that we're not, eliminating protections that, although they may or may not be necessary in the current markets, might become necessary in a future market. And, rather than having to come back, and go through the process having to change it again, why would we not just keep them in place? [SPEAKER CHANGES] ?? Representative Szoka? [SPEAKER CHANGES] Fair question, my belief is that with pending federal legislation, the way it's going, with Dodd-Frank in particular, that we're not gonna see a return. But that is my opinion only.. a return to sub-prime lending. Could that change? It could, and that's.. that's why we're here. [SPEAKER CHANGES] Representative Martin, if you'll hold on, we've now got excitement from the back of the room, this young man over here, has raised his hand. Please identify your self, and state your name and where you come from, and go ahead. [SPEAKER CHANGES] ?? Mortgage choice cares, I don't have a button to push, I'll help out.. ?? I hope this helps you. We're talking about a period of time about where we were, when there was a change ?? of a second change, and where we are today. I think that we can all agree that, we had a problem in the mortgage industry, and I think we will all agree that, that problem seemed largest, and manifested itself the most, outwardly, in 2000 and maybe early 2006 but 6, 7, 8, 9, maybe 10, maybe 11 and we're starting to get back under control. So, in, before the ?? were made, 2006 we had 4 claims, 2007 we had 9 claims and that was 7 broker 2 lender. 2008, the worst year, right? Probably that was the year of the..

One, 2009 one then by this point we had those we had those volume adjustments. Remember the volume adjustment doesn't stop because of a ?? it's just a bigger bond in case there is something. 2010 one claim three thousand eight hundred seventy five dollars and that was on volume of I want to say 2010 was seventeen million dollars and about seventy eighty transactions. In other words 2011 there was five claims. For what was 2012 there was five claims. Not trying to say any claim on a ?? is okay just want to make sure we see that I don't believe we had a knee jerk reaction. I think we may have had a knee jerk reaction that caused us to raise the bond ?? higher than every other state in our US region except Arkansas. So we went way above everyone else now we're seeing that those bond claims have come down substantially but I don't believe that's a function of the bond claim the bond premiums being raised because we weren't losing money there were claims there the bonds that were already there were likely in place there ?? cover them. I think what I'm getting at is I don't think we should have made the decision in 2014, 2015 based on what we saw happen in 2008, 9, and 10 because lots of that has already changed the market is entirely different now we have Dodd Frank we now have ?? hope that helps a little bit ?? but maybe give some color about what happened in 2006 to 2012 which incorporates before and then the first change and then the second change and then where we are today. [SPEAKER CHANGES] Thank you sir I still lose fights with my wife from things that happened in 2008 and nine, and ten. Representative Hardister is next. [SPEAKER CHANGES] Thank you Mr. Chair. I think the changes in this bill are well thought out and reasonable and therefore I'd like to be recognized for favorable motion [SPEAKER CHANGES] When appropriate Representative Hardister, Representative John Bradford. [SPEAKER CHANGES] Thank you Mr. Chairman just a question. It seems as though the spirit of this bill is to help alleviate the premium pain that the industry is feeling in relationship to actual premiums being paid out on claim. So my question is has there been any analysis in not so much reducing the level of coverage but maybe studying the premium because if very few premiums are being paid then it seems to me maybe the insurance rates could come down without adjusting coverage levels for consumers. [SPEAKER CHANGES] Representative [SPEAKER CHANGES] I'll take it. [SPEAKER CHANGES] That's not the purpose of this committee to study that. And that's a good question that needs to be studied because bond premiums have been escalating not only for mortgage industry but other industries. So I think we need to find somebody on the insurance committee to take a look at that. [SPEAKER CHANGES] Representative ?? [SPEAKER CHANGES] Thank you Mr. Chairmain. I to some degree agree with what Mr. Tindall said which seemed to say that the system we have in place now is working. It seems this is a vetting process that ensures the people who are actually bringing these loans then have some responsibility and who you would take loans from is determined by that as well. So it seems this function to debts some of the folks in the industry and as a result we've had less claims. I again am concerned that if we make these changes there will be less or removal of the degree of debting that we currently have which may be the reason we have these lower claims. Finally as we compare ourselves to surrounding states I'm wondering as we talk about the rates that's around these states what's their level of claims have been and was there a comparison done to say here's the ideal amount based on the number of claims or some other metrics or measurement done so that we could say other than the fact our rate is higher that there's a reason or some causality something. Does anyone have any information like that?

Representative ?? for the first part. [SPEAKER CHANGES] For the first part of that the difference in vetting and having been through this myself I owned a I was a mortgage broker I worked for a mortgage lender. When I was a mortgage broker the vetting that the bond company did on me personally was essentially a little different if I had applied for a twenty five thousand dollar bond or if I applied for a seventy five thousand dollar bond. The difference was I had to pay more for a higher bond. Because they get into your personal financials they get into the financials of the company and I'm not sure I don't run a bonding company so I don't know where that level is. But by my personal experience I don't see these moves are really that big. At one time I had a bond for two hundred fifty thousand dollars and asked me the same questions the same forms I had to fill out for two hundred fifty thousand as I did for twenty five thousand so I don't know there's a higher level of vetting for a higher bond. But that's just based on my personal experience. [SPEAKER CHANGES] Representative Bell. [SPEAKER CHANGES] Thank you for your question I don't have the statistics on the claims for the state. Someone in the audience may have those but at this time I do not have those. [SPEAKER CHANGES] The audience is shaking their head no. [SPEAKER CHANGES] Chair Howard. [SPEAKER CHANGES] Thank you. On all three of the bills ?? one and five but ?? has sanctioned all three of the bills? [SPEAKER CHANGES] Bill sponsors. [SPEAKER CHANGES] If commissioner Banks is here I'd like for him to answer that himself. [SPEAKER CHANGES] Question Mr. Grace if commissioner Banks or yourself [SPEAKER CHANGES] He'll have to answer that himself. [SPEAKER CHANGES] Question Mr. Grace does commissioner Banks or yourself have a comment or endorsement or lack of endorsement for this bill? [SPEAKER CHANGES] At the risk of sounding old fashion but I have a great respect for the constitutional government. And my understanding is the legislature makes the laws ?? enforce the laws so I take no position on this bill. If your asking me about the impact of ?? really we have to assess what that ?? might be and how we compensate for it in the legislation. So ?? I'm not sure exactly we have heard from the bond company ?? could be a higher level of due diligence for higher bonds I don't know what the rate point are there if it's twenty five, seventy five, a hundred ?? really no information about that. And so if we don't ?? out of the bill ?? the legislature pass the laws and ?? [SPEAKER CHANGES] Chairman Howard for follow up. [SPEAKER CHANGES] I see in the bill that you would totally eliminate the bond. And that would the law also allows us the commissioner to delay the bond ?? the circumstances ?? that's current law that your able to do that. I hear you say you don't have a comfort level one way or the other. I'd like you to be a little more assertive ?? [SPEAKER CHANGES] Mr. Grace we'd appreciate your assertiveness on the issue. [SPEAKER CHANGES] ?? I'm not trying to be evasive ?? we do indeed have discretionary authority ?? the statue with our agency ?? bonding partner ?? as far as comfort level I think it's clear that there is a threshold of net worth that is a tipping point for ?? but beyond that we look at the reputation of the company and the size of the company and the overall financial strength of that company and so it will be done on a case by case basis. So I'm not sure how many companies will be graded ?? she can probably answer that question.

Speaker changes: ?? Speaker changes:?? any questions Speaker changes:Representative Brian Speaker changes:Thank you ?? i was on the interim commission working in banking so we ask some of these questions ?? but I'm surprised that no one knows the answer ?? the other states bout the answer with no problem and discussion about that s the time i think is one of the chairs from the interim commission i thought we my on the chairs unanimously out of commission Speaker changes:Representative bell Speaker changes:we didn't pass the bill i don't have the ?? committee there and her ?? as far is suggested some one of that incidence my have that Speaker changes:further discussion further question Representative ?? Speaker changes:I'm not fine with this bill i think the overall and is not as risky as it was the level was raised i don thank the ?? as above your potential losses based on history and lot of factor is do this bill some extent predicts the passage of the extent bill which is ?? but never the less I'm support this going for i think this is good bill I'm not sure that this yet predict this bill ?? eliminates the ?? Speaker changes:Representative hall Speaker changes:?? we don't necessarily notice that is gonna achieve may be what the desire objective is we don't have the information ?? but passing the bill is I'm concerned bout i thank we herd some ?? if you have higher bonding and requirement and if you not gonna have bond ?? is working as it is and it does require some betting that goes on the process ?? Speaker changes:?? go ahead Speaker changes:?? the gentlemen from nation ?? national security association whatever that is Robert men ?? this is i guess the question ?? ratio notionally

Virginia, Tennessee, South Carolina, Kentucky and Georgia – all states that presently have bond levels lower than ours. There is no movement afoot in any of those states to raise their bond levels, so they are lower than us now, and they will still be lower than us if these new levels go through. ?? Those states feel that their bonding levels are adequate at levels lower than where we are now and even where we were before. [SPEAKER CHANGES] Thank you, Mr. Tendell. Representative Bell, he has an answer. We will vote on this bill, Borrowing and Displacement Bonds to Sponsors, in three minutes. [SPEAKER CHANGES] I guess this will partly answer Mr. Hall’s, or Representative Hall’s question. I do have a security bond comparison of other states that the staff just received. If you’d like to take a look at that, it may ask, or it may answer, or not answer or partly answer your question, but this was part of the information presented before the research committee. [SPEAKER CHANGES] Further questions, further comments? Seeing none, Representative Hardister is recognized for a motion. [SPEAKER CHANGES] Thank you, Mr. Chair. I move for a favorable report on House Bill 105. [SPEAKER CHANGES] All in favor of the motion, say “aye”. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] All opposed? [SPEAKER CHANGES] No. [SPEAKER CHANGES] House Bill 105 has passed; House Bill 104 is before us. Representative Bell. [SPEAKER CHANGES] This is the last one of the day for this committee. House Bill 104; Eliminate all Financial Statement Requirements. House Bill 104 amends the Safe Mortgage License Act to eliminate the requirement that the license or mortgage lender’s net worth and funding capacity be demonstrated by an unqualified audit statement of financial condition. This bill substitutes a requirement that a license or mortgage lender need only attain the certified public accountants’ confirmation of financial condition. Once again, this bill is recommended by the Legislative Study Research Committee on Banking Laws, and as mentioned before, Representative Blust was exactly right – these two kind of mirror, and if the last bill passed, if for some reason this does not – and I do hope this bill does pass, but if it does not, I would work to get it amended before it hits the floor. [SPEAKER CHANGES] Are there any comments from the gallery, other than from Mr. Tendell? Seeing none, Representative Pendleton. [SPEAKER CHANGES] I’m going to tell ya’ll about the dark side of my life. I hope - [SPEAKER CHANGES] Representative Pendleton, we only have 10 minutes left. I hope ?? [SPEAKER CHANGES] In 1985, I went on the State Banking Commission. Great Grace was there and I enjoyed working with him, but in 1986, I was approached by the American Civil Liberties Union, and you know I’m about 180 degrees the other way, and the young lady came over and she said “We’ve got a problem with this bank, and I’ve heard you’re fair,” and I said “Okay. What have you got?” She said “I want you to go in with me and get all these banking companies regulated in North Carolina.” At that time, at least ??, but if it was a national bank or a state charter bank, you weren’t regulated. People could just come in there and rape the folks and go back wherever they came from. So I did. I went in for the front page story. There were a few Republicans in the general assembly and I knew all of them, and one of them called me up and he said “Gary, I’m coming ??”, and so he still thinks he can do that ?? [SPEAKER CHANGES] Not my bill. I prefer not to comment. [SPEAKER CHANGES] Anyway, I am totally opposed to this. I don’t want to loosen it up for mortgage bankers. I worked hard to get that bill passed 30 years ago; I don’t think we ought to loosen the standard up. [SPEAKER CHANGES] Thank you, Representative Pendleton. If that’s the dark days of your life, you’ve lived a cherished life. Representative Bell. [SPEAKER CHANGES] Representative Jeter, if you would like to put forth an amendment to Representative Pendleton, transfer him to the digs, I’d be more than happy to accept that friendly amendment today. Thank you. [SPEAKER CHANGES] The gentleman is out of order. [SPEAKER CHANGES] Just to let you know, your larger mortgage companies, this would not actually apply, so you’re talking about a handful of small mortgage companies across the state, around 100 or less, so this would actually apply to those small businesses here in our state. [SPEAKER CHANGES] Representative Blust. [SPEAKER CHANGES] Here’s my concern with this bill: You’re taking an unqualified audited statement requirement, which is the gold standard

And you’re replacing it with something that has absolutely no real credibility as to accuracy because the audit, when you do an audit someone has to, an independent, someone unrelated to the management of the company, independent trained CPA comes in and does certain tests and runs mathematical analysis to know what kinds of tests, how many, how many things to examine, to get a certain confidence level that the numbers in those statements are accurate and even the unqualified is still there is a possibility that you won’t detect a problem, but the unqualified means that the independent auditor renders an opinion that based upon these tests in accordance with generally accepted accounting principles these financial statements are accurate, but it’s within a range. A compellation is just you have, you take all the documents and you put the in financial statement form. There’s no, absolutely no confidence that what they handed you is accurate, what the managers handed you is accurate, so I’m just wondering from the Commissioners here how are you gonna know that their net worth is at least $100,000 and that they have liquidity of $1 million? How will you replace this confidence that you can have to some degree with the unqualified audit? How would you replace that confidence with just a compellation? That’s what I’m wondering. [SPEAKER CHANGES] Mr. Grace before you answer that question Representative Szoka would like to comment and then we will allow you the opportunity if you feel so inclined. [SPEAKER CHANGES] Representative Blust, allow me to respond to this, and you’re right, it is the grand standard. At today’s rates it’s about six gold ?? the ten to pay for an audit and that’s exactly part of the point. It costs between $5-10 thousand for audits for very small companies. Once again things have changed in the last several years and lenders, to qualify for a million dollar warehouse line, I mean, the way it goes is if a person comes to ?? to a lender to get a loan, they lend money on this warehouse line. Now, to qualify for a warehouse line is not easy. I have never done that. I’ve seen the prices, I’ve seen the paperwork, but there’s no bank out there that’s gonna tell anyone that they have authority to lend on that line for a million dollars without doing an incredibly thorough analysis of their financials and everything else and surprisingly many lenders do not require audited financials to do that. Some do, some don’t. So what we’re saying here is that what is similar in my mind at least to the bonding issue, that we’re overqualifying people in order to let them do their job. You already have to get a million dollars, like I say you go through an incredible amount of work to get that and then to pay somebody $5-10 thousand, a CPA to do an audited financial, it just seems like it’s too much and that’s why, the committee heard a lot of these same points come up, some of the other ones and worked through this and that’s why the recommendation came out like it did. Hopefully that helps a little bit. [SPEAKER CHANGES] Mr. Grace would you like to add. You don’t have to. [SPEAKER CHANGES] ?? Chairman ?? but I don’t ?? so. [SPEAKER CHANGES] It’s always wise to heed her advice. [SPEAKER CHANGES] Again with respect to the audit I can say that Representative Blust is correct that a compilation really gives us no assurance of the accuracy of the numbers. Really more to the point does an unqualified opinion or a ?? that gives an opinion, an opinion of the competitor that this is a ?? description and we want to ?? and ?? for perfecting that for the public ?? product. That’s something you’ll be hearing tomorrow and next week ?? on the presidential ?? . So it would give us a greater, a higher level or assurance so speaking to our leaders we would have to respond. We would respond

?? I think it's fair to say ?? have to look at ?? a more closer look at ?? the state ?? to get a better ?? [SPEAKER CHANGES] Representative Jordan. [SPEAKER CHANGES] Thank you Mr. Chairman. I'm not in this industry, I only deal with lenders as far as being a closing attorney. But what struck me from our committee's investigation here is you're talking about licensees that have to have a net worth of $100,000 at least. Five to ten thousand dollars every single year is five to ten percent of your entire net worth being used on these audits. And the only other two words I have to add are Arthur Anderson. [SPEAKER CHANGES] Thank you Representative Jordan. Representative Blust do you have a follow up? [SPEAKER CHANGES] And I understand it would be a relatively big expense for a smaller firm than it would be for a bigger firm to eat the cost, because I don't think these would be that expensive audits because you don't have any inventory, the receivables would all be from people you had screened in the lending process, so it seems like the lending audit would be a pretty simple one. There's no depreciation and you've got one main creditor who one confirmation letter could take care of that. But I do think you're going to end up shifting the costs, and I know that's a good argument for your bill, but you're going to shift the cost from the firm I think on to the public in that they're going to need more people to go out and look at these small lenders and try to make sure that everything's copacetic at all these little firms, so I think the cost is going to come somewhere and the bill comes down to will it come from the tax payer or will it come from the company? [SPEAKER CHANGES] Thank you Representative Blust. We are going to vote this bill at ten 'till. Representative Hall, Representative Baumgartner will have questions, they will make them short, they will answer and we will vote at ten 'till. [SPEAKER CHANGES] Your larger mortgage companies, they still maintain their ?? they still have to comply with all the financial statements. It's your smaller ones that this will actually benefit. During the committee process, as we were going through this, we did actually have some of these business owners come in. Some of them are here today at the chairman's discretion, instead of imaging the cost or projecting the cost, we can let you know exactly what they cost. [SPEAKER CHANGES] Representative Hall. [SPEAKER CHANGES] Thank you Mr. Chairman. I will just make a brief statement. I have registered my concern earlier about removing the safeguards we have in the system that have allowed us to recover to this point and now once again we seem to be removing another safeguard. I certainly can't support this happening, especially in light of what we just did. And I would have to oppose this at this time. [SPEAKER CHANGES] Representative Baumgartner. [SPEAKER CHANGES] Thank you Mr. Chairman. I thought Representative Blust made a good point here about how the people that are really paying for this are the mortgagees, because the people that are originating them have to pass the cost on like every other cost and the people that are getting the loans are the ones paying for all of this. And having done, audited and certified and every other kind of financial statement you can do, I can tell you that the difference in them is about five or ten thousand dollars. Other than that, it may or may not be much different. [SPEAKER CHANGES] Thank you Representative Baumgartner. Representative Martin, and then if the will of the committee is if they have more questions, I'm happy to have the will of the committee and we will be happy to finish this next week if you want. Otherwise, is there anyone, Representative Earl. [SPEAKER CHANGES] ?? [SPEAKER CHANGES] Somebody ?? All in favor, sit down please. [LAUGHTER] Please. The motion still has to be voted on. It does not? It was seconded. All in favor of the motion. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] Meeting is adjourned.