Banking Interpretations

NYSBL 590 

April 7, 2006


TO: Deputy Ricketts

FROM: Alan M. Weinberg

Subject - [ ] – Mortgage Banking Licensing/Registration


Issue

Does a company located in India, [ ] ("Company"), which proposes to assist New York licensed mortgage bankers and/or registered brokers in processing mortgage loans, need to itself obtain a license or registration in order to provide such assistance?

Recommendation

No, there is no need for the Company to obtain a license or registration so long as it limits its assistance to those mortgage loan processing activities set forth in its letter dated December 9, 2005 and otherwise complies with the conditions set forth below.

Background

The Company, which is located in India, sent an inquiry to the Department asking whether it needs to obtain a license or registration in order to assist New York licensed mortgage bankers and/or registered brokers by performing on their behalf certain mortgage loan processing functions that are clerical in nature. The Company states that it will order titles, appraisals, verifications of employment, credit, deposits, etc., and clear conditions for closings using the Internet and other communication vehicles from India . They will not do any telemarketing, solicitation or lead generation for the New York licensed mortgage bankers and/or registered brokers. The Company further states that all files and records relating to the mortgage loans on which it provides assistance will be kept by the New York licensed mortgage bankers and/or registered brokers.

Reasoning

New York 's Banking law prohibits engaging in certain mortgage-related activities without obtaining a license or being registered. First, there is the restriction on making mortgage loans.

"No person, partnership, association, corporation or other entity shall engage in the business of making five or more mortgage loans in any one calendar year without first obtaining a license..." Banking Law, Section 590.2(a).

Since the Company does not propose to make any mortgage loans, this licensing requirement is not applicable.

Also, the Banking Law restricts activities that are associated with the making of mortgage loans and provides that:

No person, partnership, association, corporation or other entity shall engage in the business of soliciting, processing, placing or negotiating a mortgage loan or offering to solicit, process, place or negotiate a mortgage loan in this state without first being registered with the superintendent as a mortgage broker in accordance with the registration procedure provided in this article and by such regulations as may be promulgated by the banking board or prescribed by the superintendent. Section 590.2(b). (Emphasis Added.)

This highlighted language is defined in the Banking Law, as follows:

Soliciting, processing, placing or negotiating a mortgage loan shall mean for compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, assisting or offering to assist in the processing of an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a third party or negotiating or offering to negotiate the terms or conditions of a mortgage loan with a lender on behalf of a third party. Section 590.1(d). (Emphasis Added.)

The term "assisting...in the processing of an application for a mortgage loan" is not defined in the statute. The other activities mentioned in Section 590.1(d) (accepting an application for a mortgage loan, soliciting a mortgage loan or negotiating a mortgage loan with a lender on behalf of a third party) seem to involve a degree of significant "customer contact." Whether the term "assisting...in the processing of an application for a mortgage loan" includes functions that are clerical in nature and do not involve customer contact is not altogether clear on the face of the statute.

The Company has indicated in its letter that it will be engaged in ministerial acts in obtaining documents. It states that it will order titles, appraisals, verifications of employment, credit, deposits, etc., and clear conditions for closings. The functions enumerated in the Company's letter do not include items such as credit reviews and the Company states that it will not be closing loans.

We believe that, under these circumstances, the Company does not appear to need to be registered as a mortgage broker as required by Section 590.2(b) provided that the following conditions are observed:

  • The Company may perform the functions enumerated in the Company's letter provided that no additional functions are performed without the prior written approval of the Department.
  • The Company may perform the functions enumerated in the Company's letter with respect to mortgage loans to be made to New York residents, provided these functions are performed only for one or more New York-licensed mortgage bankers and/or New York-registered mortgage brokers. The Company may not perform these functions for itself or any other person or entity with respect to mortgage loans to be made to New York residents.
  • The files related to performance of the functions by the Company shall be transmitted by the Company to the licensed mortgage bankers and/or a registered mortgage brokers and shall be maintained by them (and not by the Company) and made available for examination by the Department.
  • The Company's performance of the functions enumerated in the Company's letter may not involve any customer contact. Any customer contact shall be made by employees of a licensed mortgage banker or registered mortgage broker.
  • The Company's performance of functions shall be pursuant to the terms and conditions of a written agreement between the Company and any licensed mortgage banker and/or a registered mortgage broker.
  • Any licensed mortgage banker or registered mortgage broker that engages the Company to perform the functions enumerated in the Company's letter must notify the Department to that effect within ten days of such engagement and must certify to the Department that such licensed mortgage banker or registered mortgage broker agrees to be responsible to the Department and to any mortgage applicant(s) and borrower(s) for the acts or omissions of the Company in performing any mortgage processing or related functions.
  • Any licensed mortgage banker or registered mortgage broker that has engaged the Company must notify the Department, within ten days, in the event that the licensed mortgage banker or registered mortgage broker or the Company terminates the arrangement under which the Company performs mortgage processing or related functions.

Based on the foregoing, there is no need for the Company to obtain a license as a mortgage banker or a registration as a mortgage broker where the Company limits its mortgage loan processing activities to those clerical functions set forth in their letter dated December 9, 2005, which are ministerial in nature, and otherwise observes the conditions set forth above.

Noted______________
S.A.K.