Sacramento Summary: Q2 2019

by Michael J. Arnold & Michael Belote, Esq., Legislative Advocates

As we write this article, the Legislature is in full swing. Almost 3,000 legislative proposals have been introduced this year on issues from A to Z! Your legislative advocates and the CMA Legislative Committee have reviewed all of the legislative proposals and have identified 65 bills which could impact the members of the CMA.

Note that the number of bills we follow closely will change throughout the year due to amendments which can cause a bill being followed to no longer be of interest or a bill we were initially not following to suddenly be something of key concern to the Association. We will review all amendments to all legislative proposals throughout the legislative session.

Key Legislative Deadlines

The deadline for bills to be out of the “house of origin” is June 1. The budget must be adopted by June 15 and must be signed into law by the Governor by July 1st. Any bill which remains alive after the June 1st deadline is then considered by the second house. The Legislature will adjourn on September 13th and the Governor has until October 13th to sign or veto legislation. New bills will take effect on January 1st unless the terms of the bill call for a different effective date.

Governor’s Budget

On May 9th, Governor Newsom released his May Revision of the budget he published in January. The “May Revise” focuses on a number of big-ticket items such as housing/homelessness; a new “Parents Agenda” that includes additional money for child care and full-day kindergarten programs; extended paid family leave for new parents; a tax exemption for menstrual products and diapers; and education, including enhanced funding on a permanent basis for special education and teacher training along with one-time cash infusions for universities and community colleges.

The proposed budget for the 2019-2020 fiscal year totals $213 Billion! The state is flush this year, with a sizeable budget surplus anticipated. Governor Newsom’s May Revise also proposes to put additional emphasis on California’s housing crisis by adding an additional $500 million to a fund designed to remove barriers to building mixed-income housing.

CMA Sponsored Bill

AB 1384 (O’Donnell) Increases the dollar limit on loans for construction or rehabilitation projects — where the completed value of the project will be used to meet the loan-to-value ratios of current law — from $2.5 million to $4.5 million. Rising construction costs and property values have dramatically driven up the costs of construction and rehabilitation projects since the $2.5 million cap was placed into law back in 2003. When this issue was raised at a CMA seminar on construction/rehabilitation lending pursuant to Article 5 and Article 6 of the Business and Professions Code, the CMA Board heard the membership and AB 1384 was introduced. The bill has passed the Assembly and is awaiting a hearing in the Senate policy committee.

Financial Code 4970 Issue

During a routine audit of one of our members, a DRE auditor determined that a clear business purposes loan on an owner-occupied property was a “covered loan” under Financial Code section 4970. Following an administrative appeal, the DRE confirmed the auditor’s determination, finding that 4970 applied to business purpose loans on owner-occupied properties.

Since the enactment of Section 4970, the CMA and its members have interpreted the statute as only applying to non-business purpose owner occupied loans. As a result, many members have originated, and continue to originate, business purpose loans on owner occupied properties that would otherwise violate the APR and point limits of 4970. The DRE’s ruling, if allowed to stand, will put those loans and their originating lenders in jeopardy of being found in violation of 4970.

The CMA Board is considering this new development re Section 4970 and will be acting on behalf of the CMA membership by taking one or more of the following actions: meeting with the DRE to convince the Department that their interpretation should be changed; pursuing a court challenge; and securing corrective language via legislative enactment. We shall keep the membership apprised of our progress on this very important matter of mutual concern.