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Banking Interpretations

NYSBL 590(2)

February 20, 2007

[---]

Re: Brokering and Making of Mortgage Loans

Dear Mr. [---]

Your letter dated September 29, 2006, to Ms. Sara Kelsey has been referred to me for reply. You indicate that you represent an industrial bank chartered in the State of Utah (the "Bank"), which in your view is exempt from being registered as a mortgage broker under Section 590.2(b) of Article XII-D of the New York Banking Law and from being licensed as a mortgage banker under Section 590.2(a) of Article XII-D of the New York Banking Law. You request confirmation from the New York State Banking Department ("the Department") that the Bank is exempt from such registration and licensing under the New York Banking Law.

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 or to be licensed as a mortgage banker under Section 590.2(a) of Article XII-D of the New York Banking Law does not apply to the Bank.

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. The registration provisions of this subdivision shall not apply to any exempt organization or mortgage banker. Section 590.2(b). (Emphasis Added.)

The mortgage banker licensing 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 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. The licensing provisions of this subdivision shall not apply to any exempt organization. Section 590.2(a). (Emphasis Added.)

The issue before us turns on whether the bank, which is an industrial bank chartered in the State of Utah, is an "exempt organization" for purposes of the highlighted language quoted above.

Article XII-D of the Banking Law provides that "exempt organization" shall mean

any insurance company, banking organization, foreign banking corporation licensed by the superintendent or the comptroller of the currency to transact business in this state, national bank, federal savings bank, federal savings and loan association, federal credit union, or any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state, or any instrumentality created by the United States or any state with the power to make mortgage loans. Section 590.1(e). (Emphasis Added.)

Article XII-D of the Banking Law does not expressly define or limit the term "bank."  We believe, however, that it is reasonable to conclude that a state­chartered industrial bank, such as the Bank, with deposit insurance from the Federal Deposit Insurance Corporation ("FDIC"), such as a Utah-chartered industrial bank, is exempt from the registration and licensing provisions of Article XII-D of the Banking Law even though Article XII-D does not expressly provide an exemption from registration or licensing for an industrial bank chartered by a state. This view is supported by the interplay of another section of the Banking Law with a federal law that defines a bank to include a state-chartered industrial bank.
 
Article 5-C of the Banking Law, which deals with interstate banking, sheds light on the term "bank."

The term "out-of-state state bank" means a state bank, as such term is defined in section 3(a)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(2)). Banking Law Section 222.2. In turn, section 3(a)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(2)) defines "state bank" as follows:

The term "State bank" means any bank, banking association, trust company, savings bank, industrial bank (or similar depository institution which the Board of Directors finds to be operating substantially in the same manner as an industrial bank), or other banking institution which -­ (A) is engaged in the business of receiving deposits, other than trust funds (as defined in this section); and (B) is incorporated under the laws of any State or which is operating under the Code of Law for the District of Columbia (except a national bank) ... (Emphasis Added.)

Thus, our view, based in part upon this definitional structure, is that the exemptions from registration and licensing for a "bank" extend to a FDIC-insured industrial bank chartered by a state other than New York in the same manner as the exemptions apply to any other out-of-state, state-chartered bank.

We further note that the Department has indicated informally in the past that the exemption from registration and licensing for out-of-state, state-chartered banks with federal deposit insurance would extend to state-chartered industrial banks with FDIC insurance that meet the definition of "bank" under the Federal Deposit Insurance Act.

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,

Alan Weinberg
Assistant Counsel

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