Banking Interpretations

Regs Part 41.5

October 3, 2001

David W. Meyers, Esq.
Meyers & Meyers
1734 Western Avenue
Albany, NY 12203

Re:  Part 41 of the General Regulations of the Banking Board.

Dear Mr. Meyers:

Your June 14, 2001 letter to Richard Ehli, Deputy Superintendent, New York State Banking Department ("Department"), on behalf of your client, a registered mortgage broker, inquiring about several issues regarding Part 41 of the General Regulations of the Banking Board ("Part 41"), has been referred to me for response.

Initially, you ask whether Part 41, or any other regulation, restricts the amount of the fee that a mortgage broker may charge a borrower in connection with a mortgage loan.  Further, you state that it appears to you that a registered mortgage broker is a "lender" for the purposes of Part 41.

Thereafter, you ask whether for the purposes of Sections 41.1(e)(6)(iii) and 41.39(c ) of Part 41, the application fee charged by a mortgage broker is a "Point and fee" pursuant to section 226.32(b) of Title 12 of the Code of Federal Regulations ("Regulation Z") and the official staff commentary thereto, thereby causing it to be considered a point and fee for the purposes of said sections.

With respect to Section 41.5 of Part 41, "Unfair and deceptive acts and practices," you ask whether the Department has issued an opinion setting forth the specific dollar amount that would cause the Department to consider the application fee to be "unconscionable."

At the outset, I would note that there is no law or regulation specifically limiting the fee that a mortgage broker may charge a borrower in connection with a mortgage loan.  Section 41.3(c) of Part 41 only limits the amount of points and fees that may be financed, not charged, in a high cost home loan.  However, I would note that Article 12-D of the Banking Law requires that any fee charged by a mortgage broker be reasonably related to the services performed.  Further, contrary to your statement, mortgage brokers are not "lenders" under Part 41 since mortgage brokers are prohibited by Banking Law §590(a) and (b) from funding mortgage loans and are strictly limited to soliciting, processing, placing and negotiating mortgage loans on behalf of the borrower.[1]

As stated in Section 41.1(g) of Part 41, a charge to a borrower is considered a "Point and fee" if it would be considered a point and fee under section 226.32(b) of Title 12 of the Code of Federal Regulations (Regulation Z) and the official commentary thereto.  Accordingly, this definition of "Points and fees" is applicable to both Sections 41.1(e)(6)(iii) and 41.39(c ) of Part 41.  Pursuant to Regulation Z, an application fee is excluded from the definition of  "points and fees" provided that the application fee is charged by the mortgage broker to all applicants for credit, whether the credit is actually extended.  Since your letter does not set forth whether your client charges an application fee in all cases, I am unable to provide an opinion as to whether such application fee is a "point and fee" for the purposes of Part 41.

With respect to that portion of your inquiry regarding Section 41.5 of Part 41, please be advised that the Department has not issued an opinion regarding a specific dollar amount that would cause an application fee to be deemed unconscionable.  However, when determining whether an application is unconscionable, it is also important to consider the requirement of Section 38.39a)(2)(i) of Part 38 of the General Regulations of the Banking Board that the application fee charged to the borrower be reasonably related to the services performed on his behalf and that it cannot be based upon a percentage of the principal loan amount or the amount financed.

Thank you for your attention to the above.

Very truly yours,

Alvin A. Narin
Assistant Counsel