Parts: 38, 39, 79, 80, 82
August 21, 2006
Re: Brokering of Reverse Mortgage Loans
Your letter dated April 19, 2006, to Rholda L. Ricketts, Deputy Superintendent, has been referred to me for reply. You indicate that you represent [---] (the "Corporation"), which you indicate is a consolidated subsidiary of a bank and, therefore, is exempt from the requirement to be licensed as a mortgage banker under Section 590.2(a) of Article XII-D of the New York Banking Law. (We observe that in such event the Corporation also would be exempt from the requirement to be registered as a mortgage broker under Section 590.2(b) of Article XII-D of the New York Banking Law.)
In the letter, you request the concurrence of the Banking Department with your opinion that neither Part 79 of the General Regulations of the Banking Board nor, more specifically, the financial requirements of Section 79.3 of Part 79 apply to the brokering reverse mortgage loans by the Corporation.
We agree with your opinion that the financial requirements of Section 79. 3 of Part 79 do not apply to the Corporation when it is brokering reverse mortgage loans. Section 79.3 is clear that it relates to obtaining approval to make reverse mortgage loans and that it applies to the "lender" and not to an entity brokering reverse mortgage loans.
As to whether Part 79 of the General Regulations of the Banking Board otherwise applies to the brokering of reverse mortgage loans, we agree that Part 79 does not apply to the Corporation when brokering reverse mortgage loans; however, for the reasons below, we disagree with the view expressed in your letter that Parts 38, 39, 80 and 82 of the General regulations of the Banking Board do not apply to the Corporation when brokering reverse mortgage loans.
Part 79 is directed at and applies to lenders and not those brokering reverse mortgage loans. In regulating these lenders, Part 79.1(a) provides:
Notwithstanding any provisions of law or regulation to the contrary, Section 6h of the Banking Law, sections 280 and 280-a of the Real Property Law and this Part constitute the exclusive authority for lenders, as that term is defined in section 79.2 of this Part, to make or participate in reverse mortgage loans and, in connection therewith, to compound interest. General regulations of the Banking Board Parts 38, 39, 80 and 82 of this Title shall not apply to the origination of or participation in reverse mortgage loans. (Emphasis added.)
While nothing in Part 79 is specifically directed at mortgage brokers, we are of the opinion that Part 79 nevertheless contemplates the involvement of such brokers with respect to reverse mortgage loans. For example, Section 79.10 provides, in part, that
- Other than principal, interest, shared appreciation and equity participation, lenders may charge.... (18) the cost of mortgage brokerage services, not to exceed three points based on the value of the real property securing the reverse mortgage loan at the time of loan closing, as such service is defined in Part 38 of this Title and which service is rendered by an entity authorized by article 12-D of the Banking Law. (Emphasis added.)
Therefore, Part 79, in authorizing charges for mortgage brokerage services, clearly contemplates that mortgage brokers will be involved in the origination of reverse mortgage loans even though Part 79 does not apply to them.
Part 79.1(a), cited above, which applies to lenders, exempts lenders and only lenders from Parts 38, 39, 80 and 82 when they are originating reverse mortgage loans. Since Part 79 does not apply to mortgage brokers, the Part 79.1(a) exemption from Parts 38, 39, 80 and 82 likewise does not apply to them when they are broke ring reverse mortgage loans. Moreover, mortgage brokers do not "make" or "originate" loans. Hence, when Part 79.1(a) speaks of Parts 38, 39, 80 and 82 not applying to the origination of reverse mortgage loans, it is providing an exemption for lenders (who originate reverse mortgage loans) and not for mortgage brokers who broker reverse mortgage loans but do not originate them.
That mortgage brokers do not "originate" loans can be illustrated by reference to the mortgage broker registration requirement in the Banking Law, which 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.)
The activities set forth in this highlighted language are 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).
These are the activities, therefore, that constitute the "brokering" of mortgage loans and for which a registration is necessary in New York. Origination and making of loans are not mortgage brokering activities. Therefore, the Section 79.1(a) exemption related to origination of loans has no applicability to mortgage brokers and Parts 38, 39, 80 and 82, to the extent they are relevant to reverse mortgage loans, apply to mortgage brokers brokering reverse mortgage loans.
In addition to the above-stated applicability of Parts 38, 39, 80 and 82 to mortgage brokers brokering reverse mortgage loans, we observe that, under Section 79.11 of Part 79, prior to accepting an application for any loan, but in any event prior to a lender accepting an application fee, a lender must disclose to each loan applicant certain information as is relevant to the loan being offered. We note that the disclosures include whether the mortgage broker or any entity acting in a mortgage brokerage capacity, as a general business practice, utilizes the services of two or fewer lenders, and if so, the name(s) of the lender(s). (See Section 79.11(a)(18).) We note further that although these disclosure requirements are the responsibility of the lender, the lender may satisfy its disclosure obligations by having the mortgage broker provide these disclosures, as appropriate, on the reverse mortgage loan.
The opinion rendered herein is based on the facts set forth in your letter and may not be applicable to any other situation. I trust that this reply is responsive to your inquiry.
Very truly yours,