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Explanatory All Institutions Letter

September 15, 2010


RE: Proposed Revised Part 420 of the Superintendent’s Regulations and Supervisory Procedure MB 107 and repeal of Supervisory Procedure MB 108 (Mortgage Loan Originators)

The Superintendent has proposed for public comment the attached revised Part 420 of the Superintendent’s Regulations and Supervisory Procedure MB 107 and has proposed the repeal of Supervisory Procedure MB 108.  Emergency regulations in substantially similar form were most recently adopted effective September 6, 2010. 

The proposed regulations implement revised Article 12-E of the Banking Law, which became effective on July 11, 2009.  Revised Article 12-E is modeled on the provisions of Title V of the federal Housing and Economic Recovery Act of 2008, also known as the “SAFE Act”, which was intended to impose a nationwide standard for mortgage loan originator (“MLO”) regulation.  Hence, the licensing and regulation of MLOs in New York now closely tracks the federal standard.

If New York did not adopt the new federal standards for MLO regulation or failed to implement its requirements, the SAFE Act would require that HUD assume the licensing of MLOs in New York State. 

The previous Part 420 of the Superintendent’s Regulations, implementing the prior version of Article 12-E, was adopted on an emergency basis in December of 2008. Since the new version of Article 12-E is already effective, it is necessary to revise Part 420 and Supervisory Procedure MB 107.  A draft of these revised regulations was published on the Department’s website on August 27, 2009, and the comments received have been incorporated into the proposed revised regulations as appropriate.

Proposed new Part 420 differs from the prior version in a number of respects. The following is a summary of the major changes from the previous regulation:

  1. The definition of a mortgage loan originator is broadened to include any individual who takes a mortgage application or offers or negotiates the terms of the mortgage loan with a consumer.
  2. Individuals who originate loans on manufactured homes will be subject to the regulation for the first time.

  3. If licensing of individuals who work for mortgage loan servicers and who engage in loan modification activities is required by the U.S. Department of Housing and Urban Development, such individuals may be subject to the licensing requirements of the new law and to revised Part 420.
  4. Individuals who have applied for “authorization” under the prior version of Article 12-E and Part 420 have a simplified process for becoming licensed and may continue to originate loans until they are licensed under the revised regulation or their applications are denied.
  5. Individuals with a felony conviction within the last seven years or a felony conviction for fraud at any time are now prohibited from being licensed as MLOs in New York State.
  6. Individuals must satisfy new pre-license education and testing requirements. There also are new bonding requirements and continuing education requirements.
  7. A license automatically terminates if the licensee does not pay his or her annual license renewal fee or take the requisite amount of continuing education credits. The authority of the Superintendent to suspend an individual for good cause also has been clarified.

Supervisory Procedure MB107 deals with applications to become an MLO. It is proposed to be updated in line with the revisions to Article 12-E and Part 420.

Supervisory Procedure MB 108, relating to the approval of education providers and courses, was originally adopted because the prior version of Article 12-E required the Superintendent to approve both courses and providers. This activity has been transferred to the National Mortgage Licensing System and Registry (“NMLS”) under new Article 12-E. Accordingly, Supervisory Procedure MB 108 would be rescinded.

A transitional period is provided for mortgage loan originators who, as of July 11, 2009, were authorized to act as MLOs or had filed applications to be so authorized. Such MLOs may continue to engage in MLO activities, provided they submit any additional, updated information required by the Superintendent.  The transitional period runs until January 1, 2011, in the case of authorized persons, and until July 31, 2010, in the case of applicants (unless their applications are denied or withdrawn as of an earlier date).  Under revised Part 420, applicants are required to submit their applications considerably in advance of these dates in order to allow the Department to complete the necessary processing.

The Notice of Proposed Rule Making was published in the September 15, 2010 issue of the State Register

The Department will accept comments received before Monday, November 1, 2010.  Comments should be sent to Sam L. Abram, Secretary of the Banking Board, at the above address or by email at

Very truly yours,

Sam L. Abram
Secretary of the Banking Board


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