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Banking Interpretations

Gen. Regs. of BB Part 38

June 8, 2005

[ ]

Re:[ ] Definition of Full service Branch" contained in Part 38 of the General Regulations of Banking Board

Dear [ ]:

Your letter of April 22, 2005 addressed to Sara Kelsey, Deputy Superintendent and Counsel, has been forwarded to me for a response. You state that in the course of a routine examination of your client [ ] a New York licensed mortgage banker, an issue arose as to the definition of a "full service branch." You are seeking clarification of the proper definition of a "full service branch."

According to your Ietter, [ ] is a wholesale mortgage lender which originates loans through mortgage brokers and also purchases loans from correspondents. [ ] has several offices at which it performs application review services including offices in [ ] and [ ]. Specifically, at these offices, employees review residential mortgage loan applications and perform various back office functions including verification of information provided on the application, appraisal review, and various other services for the purpose of determining whether an application is to be approved or denied. These offices at which such back office services are performed are not licensed branches. The Mortgage Banking Division has preliminarily concluded that the Company is performing "processing" functions at these locations and therefore has determined that [ ] is required to have these and similar locations licensed as full service branches.

Your letter further states that the Mortgage Banking Division has indicated that Department policy is that as long as any processing activities are conducted at an office location, that location must be licensed as a full service branch. In support of this view field examiners have referenced the Mortgage Banking Division's Industry Letter dated December 5, 1997. A relevant portion of that letter is as follows:

"As most of you are aware Part 38, Section 38.11 was revised by eliminating the then-existing definition of a "branch" as a place "routinely" open to the public and adopting sections 38.1(u) and (v) which created two new types of branches:

(u) Full service branch – "any location at which loan processing takes place, whether or not loan solicitation also occurs." This type of branch has the following annual fee structure:

(v) Loan solicitation branch - "any location at which only loan solicitation takes place." This type of branch has the following annual fee structure:

This Industry letter reflected certain amendments to Part 38 that were made in 1997. However, we agree that this Industry Letter does not state the complete definition of "full service branch" as currently contained in section 38.1(u). Our review of the regulatory history of Part 38 indicates that additional amendments to Part 38 were made in 1998 and became effective May 27, 1998. As you noted, the 1998 amendments included adding a second sentence to subdivision 38.1(u). Therefore, section 38.1(u) currently reads as follows:

(u) "The term full service branch shall mean any location at which loan processing takes place, whether or not loan solicitation also occurs thereat, and the licensee or registrant owns or pays rent or any other form of consideration for the use thereof. This term shall not include processing locations that are never available to the public and which do not conduct any written, electronic or telephonic (including facsimile transmissions) communications with any applicant."

Therefore, as you requested, we hereby confirm that the legal definition of a "full service branch" is as set forth in section 38.1(u) and that includes an exemption from the term "full service branch" for processing locations that are never available to the public and do not conduct any written, electronic or telephonic (including facsimile transmissions) communications with any applicant.

The remaining issue is whether [ ] processing locations fall within the exemption contained in section 38.1(u). In your letter you state that despite repeated directives to the various office locations that no contact with the applicants is permitted, there have been a few isolated breaches of that policy and in most cases contact was made in situations where there was a concern with possible fraud. However, it is clear from the wording that the exemption only applies to locations that are never available to the public and where there is no communication with any applicant. There is no special exception for isolated incidents of contact with applicants even in situations involving possible fraud. We also note that at the April 25, 2005 meeting with the Department, a [ ] representative stated that the company is listed in the telephone book and it could not prevent an applicant from calling these locations. The Department's position is that if these locations are truly back office processing offices, applicants should not be able to obtain telephone numbers for these offices. Therefore, we conclude that the previously described processing locations for [ ] were not entitled to an exemption from the licensing requirements.

Sincerely,

Sharon Cherry
Associate Attorney

cc: Kenneth Bielemeier, Deputy Superintendent

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