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Banking Interpretations

NYSBL  590(1) &
             590(2)

September 18, 2007

[---]

Re: Outsourcing mortgage origination services.

Dear Mr. [---]:

Your letter, dated August 22, 2007, has been referred to me for response. In your letter you asked whether the New York State Banking Department (the "Department") would object to [---] (the "Company"), an entity incorporated under the laws of California, providing certain back office support to mortgage bankers and brokers licensed and registered in this state.

In your letter, you stated that the Company will be providing services directly to mortgage bankers and brokers and will not have any interaction with borrowers. To the extent borrower information is needed to complete its services, the need for the information is communicated to the banker or broker who, in turn, must obtain same from the borrower.
 
New York's Banking Law prohibits a person from engaging in certain mortgage-related activities.  First, there is a restriction on making mortgage loans without first obtaining a license as a mortgage banker.

"No person, partnership, association, corporation or other entity shall engage in the business of making five or more mortgage loans in anyone calendar year without first obtaining a license..." Banking Law, Section 590.2(a).

Also, the Banking Law restricts activities that are associated with the application process for mortgage loans and 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.)

This highlighted language is defined in 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). (Emphasis Added.)

The term "assisting...in the processing of an application for a mortgage loan" is not defined in the statute. The other activities mentioned in Section 590.1(d) (accepting an application for a mortgage loan, soliciting a mortgage loan or negotiating a mortgage loan with a lender on behalf of a third party) seem to involve a degree of significant "customer contact." Whether the term "assisting...in the processing of an application for a mortgage loan" includes functions that are clerical in nature and do not involve customer contact is not altogether clear on the face of the statute.

However, to the extent the Company will provide back-office support, not involving any contact with consumers for registered mortgage brokers and/or licensed mortgage bankers, the Department has no objection; provided, however, that the following conditions are observed:

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan
Assistant Counsel

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