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Banking Interpretations

NYSBL 590(2) and 590(5-a)

Memorandum   


To: Deputy Bielemeier

From: Harry C. Goberdhan - Legal Division

Date: February 16, 2005

Subject: [ ] Financial Corp.


Issues

Is a New York State registered mortgage broker, with a mortgage banker's license in New Jersey and a direct delegated lender for FHA loans in certain counties of New York State, exempt from the requirements of Article 12-D of the Banking Law in connection with the origination of FHA mortgage loans?

Recommendation

No. A registered mortgage broker may not make FHA insured mortgage loans in New York through federally approved sponsors, without first complying with the provisions of Section 590 (5-a) of Article 12-D.

Background

[ ] Financial Corp. is currently registered with the Department as a mortgage broker. From information provided, it is also licensed in the State of New Jersey as a mortgage banker, and is a direct-delegated lender for FHA loans in certain counties of New York State.

According to Section 590 (2) (a) of Article 12-D:

"No person, partnership, association, corporation or other entity shall engage in the business of making five or more mortgage loans in any one calendar year without first obtaining a license from the superintendent in accordance with the licensing procedure provided in this article and such regulations as may be promulgated by the banking board or prescribed by the superintendent."

According to Section 590 (5-a) (a) of Article 12-D:

"Notwithstanding the provisions of this section, a mortgage broker may enter into agreements with federally-approved sponsors and make mortgage loans, which are insured by the federal housing administration, for sale or transfer to such sponsors, provided that such mortgage broker: ...
(ii) prior to making any such federal housing administration-insured mortgage loans, receives the superintendent's approval."

Reasoning

Based on the plain language of Section 590 (2) (a), no entity is allowed to make five or more mortgage loans in one calendar year without first obtaining a mortgage banker's license. Note that under this prohibition there are no exemptions for any specific mortgage loans, including FHA mortgage loans. Mortgage loans, for purposes of Section 590 (2) (a), are defined in Section 590 (1) (a) to mean any
"loan to a natural person made primarily for personal, family or household use, primarily secured by either a mortgage on residential real property or certificates of or other evidence of ownership interests in, and proprietary leases from, corporations or partnerships formed for the purpose of cooperative ownership of
residential real property."

Although Section 590 (2) (a) broadly prohibits entities from making mortgage loans in New York State, there are certain exceptions as provided for in Section 590 (5) (d). According to Section 590 (5) (d), "[n]othing in this section shall be construed to limit any otherwise applicable state or federal law or regulations." One such applicable state law is Section 590 (5-a), which allows mortgage brokers to make
FHA related mortgage loans in New York.

Under Section 590 (5-a) (a) certain mortgage brokers are allowed to make FHA mortgage loans. However, a mortgage broker can only do so after first complying with all the requirements of Section 590 (5-a), including receiving approval from the superintendent. In this case, no information has been provided evidencing full compliance with Section 590 (5-a) and, therefore, the broker is not permitted to make mortgage loans.

Noted:
SAK

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