September 7, 2004
Dear [ ]:
Your letter of May 14, 2004 addressed to Kenneth Bielemeier, Deputy Superintendent, has been forwarded to me for a response. I apologize for the delay in responding. You request that the Department confirm that certain proposed business activities of your client (the "Company") do not require registration with the Banking Department as a mortgage broker under Article 12-D of the Banking Law.
According to your letter, the Company maintains a website that will allow consumers the opportunity to compare services, products, availability, prices and potential savings between certain providers of different products and services, including insurance products, credit cards, automobile loans, and residential mortgage loans. Consumers are not charged a fee to access the website, or any subscription or membership fee to participate.
Your letter further states that consumers can enter certain basic and limited personal information in order begin a search of providers on the website or they can call a toll free number for direction from a customer service representative as to how to proceed using the website service. The information to be entered which constitutes the "consumer's profile" can include name, address, and phone number; basic personal information such as employment, income, or driving record; or product interest. The consumer will also be asked to provide his or her credit standing. The Company will not request the consumer's social security number. An automated system will compare the consumer profile with the directory of service providers, and if there is a match, up to four providers will be displayed to the consumer. At that point the consumer can elect to submit his or her contact information to the provider, and consent to being contacted directly by the provider. If the consumer chooses to pursue a loan or insurance product, the Company does not complete, accept, or process applications, negotiate loan terms or conditions, nor collect any loan origination fees from consumers.
Each provider that lists its products on the Company's website will pay a fee ranging from $10.00 to $40.00, depending on the products offered, for each consumer profile transmitted. You indicate that unlike the typical mortgage broker compensation, the fee is not based on whether the consumer applies for a loan or an insurance product from the provider, the amount of the loan or the insurance policy, or the number of loans or policies approved over any given period.
Section 590.2(b) of the Banking Law provides that no person, partnership, association, corporation or other entity shall engage in the business of soliciting, processing, placing or negotiating a mortgage loan in this state without first being registered with the Superintendent as a mortgage broker. Section 590.1(d) states that "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.
In your opinion, the activities of the Company do not constitute accepting or offering to accept a mortgage loan application, or assisting or offering to assist in the processing of an application. You contend that the Company's website merely facilitates the ability of the consumer to transmit his or her information to the service provider through the website. You state that if the consumer wishes to submit an application for a residential mortgage loan to a selected lender, the consumer would have to submit an application directly to the lender through the lender's traditional origination channels. You believe that since all the information necessary to reach a decision on a loan is collected by the lender and not by the Company, and any decision regarding the application and subsequent loan activity is made solely by the lender with no input or participation from the Company, the Company is not assisting or offering to assist in the processing of loan applications.
Since the term "application" is not defined in the Banking Law or regulations promulgated thereto, the Department has looked to the definition of "Application" set forth in Federal Reserve Board Regulation B, Equal Credit Opportunity ("Regulation B"). (See 12 CFR Part 202). Pursuant to Regulation B, an Application is defined as "an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested." Although the consumer would have to provide the lender with additional information such as his/her social security number in order for the underwriting process to be completed, the Department's position is that there is sufficient information provided by the consumer through the Company's website (i.e., the consumer profile) 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 in order to determine whether to contact the consumer. Therefore, the Department's view is that the service provided by your client constitutes an offer to solicit an application for a mortgage loan since the information provided is sufficient to render a credit decision, even though the Company's compensation is paid by each lender receiving the consumer's profile regardless of whether an application is submitted, a loan is approved, or a loan is closed.
Accordingly, the Company is required to obtain a mortgage broker registration in order to engage in the activity discussed herein.
With regard to the fee paid by the service provider for each consumer profile transmitted by the Company, we note that with regard to residential mortgage transactions, the federal Real Estate Settlement Procedures Act ("RESPA") prohibits the payment of referral fees. However your letter states that if mortgage loans are involved, the compensation method will be consistent with RESPA which allows for certain compensated computerized services related to a mortgage loan, which services are not considered referral for purposes of HUD'S policy. We are not addressing this issue and leave it for you to ensure that the fee payment does not violate RESPA.
cc: Kenneth Bielemeier, Deputy Superintendent