October 12, 2006
Re: Brokering of Mortgage Loans
Your letter dated October 11, 2005, to Mr. Harry Goberdhan has been referred to me for reply. You indicate that you represent [---] Inc, (the "Retailer"), which you also indicate wishes to enter into an agreement to promote a mortgage loan program to be offered by a lender that is licensed as a mortgage banker under Section 590.2(a) of Article XII-D of the New York Banking Law (the "Lender"). You ask whether the Retailer would be required to be registered as a mortgage broker under Section 590.2(b) of Article XII-D of the New York Banking Law in order to participate in the program as described in your above-mentioned letter and in your e-mail correspondence to me of April 12, 2006.
Your letter and correspondence state that the purpose of the mortgage loan program is to offer residential mortgage products with favorable interest rates and discounts on closing costs for customers and associates of the Retailer. You have told us the following about the program:
- The program would be offered at locations of the Retailer in the State of New York and would involve real property located in the State of New York as well as other jurisdictions. It is also possible that some customers or associates at locations of the Retailer in other states where the program is offered could obtain loans secured by property located in New York.
- The Retailer will provide marketing and communications services to the Lender. The Retailer will use various channels of communication to notify customers and associates of the availability of the Lender's mortgage services, including creating marketing materials and providing customers and associates with copies of marketing materials pursuant to the marketing plan with the Lender. In the participating Retailer locations, mortgage services offered by the Lender may be accessed via the Lender's website and toll-free telephone number. The Retailer will direct all questions relating to the program to the Lender's call center.
- The Retailer will not be paid a marketing fee for any services it provides to the Lender; rather, it will receive reimbursement for its actual expenses for the program, including production of marketing materials and other expenses associated with the program.
- No specific data or personally identifiable information would be shared between the Retailer and the Lender with respect to participants in the program and, in particular, Retailer would not be involved in accepting mortgage loan applications, participating in the negotiation of the terms of mortgage loans, or providing specific information about interest rates or fees.
- Lender will perform all steps of the fulfillment process to originate, process, or fund a mortgage loan and be responsible for ensuring compliance with all applicable statutes and regulations relating to loans made pursuant to the program. None of these responsibilities would rest with the Retailer.
Based on the foregoing and for the reasons set forth below, we agree with your opinion that the requirement to be registered as a mortgage broker under Section 590.2(b) of Article XII-D of the New York Banking Law does not apply to the Retailer in order for it to participate in the program as described by your correspondence. However, as further discussed below, there is an issue that affects the Lender that you may want to note. We believe that the Lender may be required to apply to open and maintain one or more loan solicitation branches for each location of the Retailer in New York State in which the mortgage loans will be marketed and for each location of the Retailer outside of New York State where marketing may occur for loans that may be made on NY properties.
The mortgage broker registration requirement in Article XII-D 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 or offering to solicit, process, place or negotiate a mortgage loan in this state without first being registered with the superintendent as a mortgage broker in accordance with the registration procedure provided in this article and by such regulations as may be promulgated by the banking board or prescribed by the superintendent. Section 590.2(b). (Emphasis Added.)
The activities set forth in this highlighted language are defined in Article XII-D of the Banking Law, as follows:
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. Section 590.1(d).
These are the activities, therefore, that constitute the "brokering" of mortgage loans and for which a registration is necessary in New York. Although the Department broadly construes Section 590 to ensure that the state's scheme of registration and regulation for participants in the mortgage lending process is comprehensively applied and thus effectuates the statutory purpose of consumer protection, the activities that you describe for the program are not, in our view, mortgage brokering activities under that section.
Neither "soliciting" nor "application" is defined in Article XII-D of the Banking Law. Among the dictionary definitions of an "application" is a request for something, or the form or document on which a request is made. As indicated in a prior opinion regarding a similar factual situation, it is the position of the Department that when the information collected from the consumer on behalf of a lender is sufficient for the lender to make a credit decision, the process constitutes the acceptance of an application. This is true even if the lender's credit decision is preliminary and subject to confirmation of the information provided. Whether a particular situation involves an application will be a question of fact which may vary from case to case. Importantly, however, you have indicated that the Retailer's associates will direct all questions relating to this program to the Lender's call center, will share no specific data or personally identifiable information with the Lender with respect to participants in the program and will not accept mortgage loan applications or participate in the negotiation of the terms of mortgage loans. Therefore, the Retailer would not be accepting or offering to accept an application for a mortgage loan for compensation within the meaning of Section 590(1)(d).
While "soliciting" is not defined in Article XII-D of the Banking Law, loan solicitation is very broadly defined in Article IX governing licensed lenders, where it includes "any solicitation, request or inducement to enter into a loan ... whether or not such solicitation, request or inducement constitutes an offer to enter into a contract." Section 355(2). Dictionary definitions of soliciting are also very broad, including "seeking or endeavoring to obtain something."
Although the role of the Retailer, as described by you, in inducing and assisting consumers to seek financing goes beyond passively displaying mortgage banker advertising, the Retailer does not make a business of inducing consumers to contact the Lender regarding mortgage financing, as it is compensated only for its out-of-pocket expenses and may garner some good will from associates and consumers. Further, the Retailer does not obtain from those consumers personal and financial information or provide it to the Lender or otherwise actively interact with them. Thus, we believe that, based upon the descriptions provided, the Retailer's activities are not a sufficiently significant element of the mortgage lending process that they properly can be considered soliciting or offering to solicit a mortgage loan. For the foregoing reasons, our view is that the Retailer need not be registered as a mortgage broker.
However, you should note that we believe that the Lender may need to apply to open and maintain a loan solicitation branch office for each location of the Retailer in New York State in which its mortgage loans will be marketed and for each location of the Retailer outside of New York State where marketing may occur for loans that may be made on NY properties. See Section 410.6 of the Superintendent's Regulations.
Although the term "loan solicitation branch" is not defined in the Superintendent's Regulation, it is defined in the General Regulations of the Banking Board along with "full service branch" 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.
(v)The term loan solicitation branch shall mean any location at which only loan solicitation takes place.
Part 38, Sections 38.1(u) and (v).
The Department, in its mortgage banker and broker applications, further defines loan solicitation branch to mean:
any location at which only loan solicitation takes place and the licensee or registrant owns or pays rent or any other form of consideration for the use thereof.
This definition is consistent with the definitions in Sections 38.1(u) and (v) and would apply to the Retailer's locations vis a vis the Lender. Thus, under current regulations, the Retailer's locations in New York State at which mortgage loans will be marketed and each location of the Retailer outside of New York State where marketing may occur for loans that may be made on NY properties will require the filing of a loan solicitation branch application by the Lender. Although this requirement will apply to the Lender and not the Retailer, you may wish to further note that a proposal is pending to do away with the distinction between full service branches and loan solicitation branches. It is difficult to speculate on the full extent of any future changes; however, if such a change were to be made to the regulations, it is possible that the Lender would need to file for full service branches for each of the Retailer's locations where marketing may occur for loans that may be made on NY properties. (Please note that the proposal also would define what constitutes an "application," which is discussed above, in a manner substantially similar to the Federal Equal Credit Opportunity Act and Regulation B definitions.)
The opinion rendered herein is based on the facts set forth in your letter and may not be applicable to any other situation. I trust that this reply is responsive to your inquiry.
Very truly yours,