NYSBL 590(1) &
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:
- The Company only performs "back-office" functions with no customer contact. Customer contact shall be made by employees of the registered mortgage broker or licensed mortgage banker.
- The Company may only perform these functions on behalf of a licensed mortgage banker or registered mortgage broker. The Company may not perform these functions for itself or any other person or entity with respect to mortgage loans to be made, which mortgage loans are covered by Article XII-D of the Banking Law.
- The files related to performance of the functions by the Company shall be transmitted by the Company to the licensed mortgage banker and/or a registered mortgage broker and shall be maintained by them (and not by the Company) and made available for examination by the Department.
- The Company's performance of functions shall be pursuant to the terms and conditions of a written agreement between the Company and any licensed mortgage banker and/or a registered mortgage broker.
- Any licensed mortgage banker or registered mortgage broker that engages the Company to perform these "back-office" functions must notify the Department to that effect within ten days of such engagement and must certify to the Department that such licensed mortgage banker or registered mortgage broker agrees to be responsible to the Department and to any mortgage applicant(s) and borrower(s) for the acts or omissions of the Company in performing any mortgage processing or related functions.
- Any licensed mortgage banker or registered mortgage broker that engages the Company must notify the Department, within ten days, in the event such entity or the Company terminates the arrangement under which the Company performs mortgage processing or related functions for such entity.
I trust the foregoing is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan