GRBB Part 38
TO: Deputy Superintendent Bielemeier, Licensed Financial Services Division
FROM: Assistant Counsel Kane, Legal Division
RE: [ ] - Internet Mortgage Activities
DATE: September 26, 2003
[ ] conducts certain mortgage-related activities over the internet. As set forth in a letter dated July 11, 2003, [ ] counsel argues that [ ] is not conducting activities which constitute mortgage brokerage, but rather is acting as an "advertiser", marketing the services of the lenders in its network, and then, electronically transmitting, to said lenders, information provided by consumers who access [ ] website. For providing these services [ ] is compensated by payment of a flat fee from each lender in [ ] network for marketing such lender's services and transmitting consumer's information electronically.
[ ] argues that it is not conducting mortgage brokerage activities requiring licensing under Article 12-D of the Banking Law. In support of its position, [ ] cites the following facts: (i) the form which [ ] transmits to the lenders is not a mortgage loan application; (ii) [ ] does not pre-qualify borrowers with lenders, obtain credit reports on consumers or provide any settlement services to lenders; (iii) [ ] does not have any direct contact with the consumer; and (iv) [ ] is not involved in any way with the negotiation and processing of the consumer's mortgage loan.
With respect to its "advertising" activities [ ] notes that under Banking Law Section 590(2)(b), a person or entity "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 must be registered with the Banking Department. [ ] argues that the use of the term "soliciting" in the statute implies that the Legislature intended for the registration requirements to apply to a much broader section of commercial activity than that performed by actual mortgage brokers. In support of this argument [ ] provides that the Legislature did not intend for the term "soliciting" to include all websites that offer information regarding or advertising mortgage loans, based on the legislative history, the purpose of the statute, and when the statute was enacted. Rather, the "soliciting" language was designed to prevent arrangements whereby a registered mortgage broker would engage unregistered persons to sell his services to the public. Thus, while [ ] website may be accessible by New York residents, this does not mean that the operator of the website has solicited such residents and that the company has no way to shut off its website to New York State residents.
We note, by way of introduction, that the legislative history cited by [ ] in support of its position is in fact silent as to what activities the Legislature intended constitute "soliciting". While it is true that internet advertising was unknown at the time that Article 12-D was enacted in 1987, one can reasonably conclude that the Legislature was aware of the scope of such advertising when it subsequently amended Article 12-D and saw no need to specifically address internet activities. One may draw a similar conclusion regarding the Banking Board's amendments to Part 38 of the General Regulations of the Banking Board.
With respect to [ ] argument that it is not accepting "applications" on its website or conducting activities which constitute mortgage brokerage activities, we note that the term "application" is not defined in either the Banking Law or the regulations promulgated thereto. Therefore, it is instructive to look at the definition of "application" set forth in Federal Reserve Board Regulation B, Equal Credit Opportunity ("Regulation B"). Under Regulation B, an application is defined to be, "[a]n oral or written request for an extension of credit that is made in accordance with the procedures established by a creditor for the type of credit requested."
The Department believes that there is sufficient information provided by the consumer through [ ] website for a lender to render a decision on the loan type selected pending verification of the information supplied. Clearly, the lender reviews the information provided by the consumer in accordance with its underwriting guidelines to determine whether to contact the consumer. While [ ] has no direct contact with the consumer, and its compensation is not contingent up an application being taken or the loan closing, in the view of the Department, the service provided by [ ] constitutes an offer to solicit an application for a mortgage loan since the information provided is sufficient to render a credit decision. Thus, it would be logical to conclude that an "application" is the document presented by a prospective mortgagor to a mortgage broker that is "soliciting, processing, placing or negotiating a mortgage loan".
Moreover, Part 38.1(b) of the General Regulations of the Banking Board indicates that [ ] internet activities involve the acceptance of an "application". Part 38.1(b) defines an "application fee" as "any fee taken by a mortgage broker.in connection with an application for a mortgage loan including any charge for soliciting, processing, placing or negotiating a mortgage loan."
This position is consistent with the definition of "soliciting, processing, placing or negotiating a mortgage loan" in Section 590(1)(d) of the Banking Law. It is noteworthy that the definition of that phrase therein not only mentions the acceptance of an application for a mortgage loan, but also brings within that phrase "soliciting or offering to solicit a mortgage loan on behalf of a third party." Thus, based on the foregoing, it can only be concluded that the activities for which [ ] is paid a fee -- both advertising and accepting applications on the behalf of the lenders - clearly falls within the phrase "soliciting or offering to solicit a mortgage loan on behalf of a third party."
The Legal Division concludes that [ ] activities with respect to the applications filed with lenders by [ ] for consumers, and the advertising [ ] conducts on behalf of lenders for a fee, constitute solicitation on behalf of third parties, as defined under Section 590(1) of the Banking Law and Part 38.1(b) of the General Regulations of the Banking Board. Accordingly, [ ], which is currently an unregistered mortgage broker in the State of New York, must register as a mortgage broker with the Department.