Enacted in 1994, the California Residential Mortgage Lending Act (CRMLA) became effective in 1996. The California Assembly formulated the CRMLA as an alternative to existing regulations that licensed lenders under existing law including the California Finance Lenders Law (CFLL). The purpose of the CRMLA was to provide a licensing law specifically intended to regulate mortgage bankers and their primary functions of originating and servicing residential mortgage loans.
Licensees under the CRMLA must have a certified public accountant (CPA) audit their books and accounts at the end of each fiscal year, but no more than 12 months after the last audit was conducted. Licensees must file the certified audit report within 105 days of the end of their fiscal year. If a licensee fails to file the required report, a certified public accountant may be selected to perform the audit at the licensee’s expense.
The license of a licensee who fails to file a certified financial statement prepared by a certified public accountant at the request of the state’s Commissioner of Business Oversight (the “Commissioner”) may be summarily revoked. Audits must be sufficiently comprehensive that the CPA can issue an “expression of opinion,” which can be an unqualified opinion, a qualified opinion, a disclaimer of opinion, or an adverse opinion. If a certified public accountant provides a qualified opinion, the Commissioner may require the licensee to address the opinion’s qualification.
The Commissioner may also reject an audit report by:
- Providing notice of the rejection and a statement of the underlying reasons;
- Giving the licensee 30 days to correct any deficiencies; and
- Retaining a copy of all rejected reports.
Audits that comply with HUD’s Uniform Single Audit Procedures will fulfill the requirements for an audit required by the Residential Mortgage Lending Act.
The CRMLA is contained in Division 20 of the California Financial Code, commencing with § 50000. The CFLL is contained in Division 20 of the California Financial Code, commencing with § 22000. The regulations are contained in Subchapter 11.5 of Chapter 3 of Title 10 of the California Code of Regulations, commencing with Section 1950.003 (10 C.C.R. §1950.003, et seq.).
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