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Banking Interpretations

NYSBL 6-l and General Regulations of the Banking Board Part 41

From: Alan Weinberg/legal/NYSBD

To [ ]

06/19/2006 03:31 PM

Subject Fw: Title Insurance Question regarding Amendments to Part 41

This is in reply to the inquiry in your e-mail of 6/6/06 below. You asked whether, under Part 41, one needs to include as "points and fees" premiums paid by a borrower for title insurance from a title insurance company that is an affiliate of the lender?

The answer to your question is no. In the memorandum dated May 8, 2006 from Sam L. Abram, Secretary of the Banking Board, it is indicated that one of the more significant amendments in the Emergency Adoption of Amendments to Part 41 is that title insurance premiums are excluded from the definition of points and fees.

Prior to these amendments, premiums paid by a borrower for title insurance from a title insurance company that is an affiliate of the lender were included in the definition of points and fees. Indeed, the regulatory language to this effect continues to appear in Section 41.1(h)(ii), which refers to certain charges listed in federal Regulation Z (including title insurance premiums) and states generally that they are included in the definition of points and fees where they are paid to an affiliate of the lender (or the lender receives compensation). In the view of the Banking Department, however, the new, more-specific language added as part of the amendments to Section 41.1(h) supersedes the older, more-general regulatory language. The new language provides, in part, that "Payments for title insurance premiums related to such mortgaged property...shall not constitute points and fees for purposes of this Part and section 6-I of the Banking Law."

This new language clearly provides that title insurance premiums paid by the borrower to a title insurance company that is the lender's affiliate are not to be considered "points and fees." The Banking Department intends to apply this new Part 41 language as controlling both Part 41 and Section 6-I of the Banking Law.

However, you ought to note that there has been no comparable change to the language in Section 6-I of the Banking Law and, therefore, there can be no assurance that a court would interpret Section 6-I of the Banking Law in the same manner as the Banking Department. It is altogether possible that a court could find that, under Section 6-I of the Banking Law, premiums paid by a borrower for title insurance from a title insurance company that is an affiliate of the lender are to be included in the definition of points and fees.


From: [ ]

To <consumer@banking.state.ny.us>

06/06/2006

Subject Question regarding Amendments to Part 41

To Whom it May Concern:

I need a clarification on the memorandum dated May 8, 2006 from Sam L. Abram, Secretary of the Banking Board titled Emergency Adoption of Amendments to Part 41.

Second bullet point on the first page regarding title insurance premiums being excluded from the definition of points and fees - explained in more detail on page 5.

The revision states "Payments for title insurance premiums related to such mortgaged property and payments for premiums for insurance required by the lender which guarantees payment of all or part of the outstanding principal loan amount upon the default of the borrower...................shall not constitute points and fees for purposes of this Part and section 6-1 of the Banking Law."

Does this apply to title insurance premiums paid by the borrower from a title insurance company that is our affiliate?

Although our institution is regulated by the OTS, we must comply with NYS predatory lending laws in order to sell loans to Freddie Mac.

Sincerely,
[ ]

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