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Banking Interpretations

February 1, 2002

Andrew J. Jaloza, Esq.
307 Glen Cove Road
Greenvale, NY 11548

Re:      Request for Legal Opinion regarding proposed referral plan. 

Dear Mr. Jaloza: 

Your November 13, 2001 letter[1] to Sara A. Kelsey, Deputy Superintendent and Counsel, New York State Banking Department ("Department"), requesting a legal opinion as to whether your client, a licensed mortgage banker ("Banker"), may engage in a proposed marketing campaign has been referred to me for response. 

According to your letter, the Banker intends to contact former borrowers and other consumers ("referring parties") offering them "points" in return for the referral of an individual seeking to obtain a purchase money mortgage or refinance an existing mortgage.  Points received and accrued by the referring individual under this program could then be redeemed for various items contained in a catalogue. 

You presented following three (3) alternate scenarios for implementing the program: 

  1. The Banker will send a mailing to the referring parties offering to award points for the referral of borrowers upon closing of a loan; 

  2. The Banker will send a mailing to the referring parties offering points for the referral of a "bona fide" person, which would be defined as an individual having good creditworthiness looking to obtain a mortgage loan.  The bona fide person would not have to close a loan in order for the Banker to award points to the referring party; and

  3. The Banker will send a mailing to the referring parties offering points under the same terms and conditions set forth in scenario two above and would award additional points to the referring party should the borrower close the loan. 

You ask whether any of the above three scenarios would violate the provisions of Section 8 Regulation X of the Department of Housing and Urban Development ("HUD"), 24 C.F.R. Part 3500 et. seq.  Regulation X was promulgated pursuant to the Real Estate Settlement Practices Act of 1974, 12 U.S.C. §2601 et. seq. ("RESPA").

Congress vested HUD with sole regulatory authority with respect to RESPA and any regulations promulgated thereto.  Accordingly, the Department declines to provide an opinion as to whether the Banker's proposed marketing campaign violates the provisions of Section 8 of Regulation X.  Please be advised that Section 3500.3 of Regulation X states that requests for legal interpretations from HUD staff regarding the regulation should be forwarded to the attention of the HUD Assistant General Counsel, GSE/RESPA Division, 451 7th Street, Washington, DC 20410-8000. 

I would also note that with respect whether the marketing campaign is permissible under New York Banking Law, please be advised that Banking Law §590(2)(b) states that a person, partnership, association, corporation or other entity must be a registered mortgage broker in order to 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 New York State.  Therefore, the referral of a potential borrowers to the Banker by the referring parties on a routine basis or pursuant to an arrangement as described above, as opposed to an unsolicited referral, would constitute the business of soliciting a mortgage loan on behalf of the Banker that may only be engaged in by registered mortgage brokers. 

Thank you for your attention to the above.

Very truly yours, 

Alvin A. Narin
Assistant Counsel



[1]  On January 16, 2002, you submitted a second letter to Deputy Superintendent and Counsel Kelsey, with your November 13, 2001 letter attached, regarding the status of your inquiry.

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