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Adopted Regulations

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Amendments To Part 38 of the General Regulations of the Banking Board
Definitions of Terms; Advertising; Application and Commitment Disclosures and Procedures; Improper Conduct Under Article 12-D

December 23, 2009

DEFINITIONS OF TERMS; ADVERTISING; APPLICATION AND COMMITMENT DISCLOSURES AND PROCEDURES; IMPROPER CONDUCT UNDER ARTICLE 12-D

(Statutory authority: Banking Law §§ 6-l, 9-o, 14, 590[3], 595-a)

§38.1 is amended to read as follows:

(a)     The term advertisement shall mean material used or intended to be used to induce the public to apply for a mortgage loan.  Such term shall include anyprinted or published material, electronic media, audio or visual material, or descriptive literature concerning a mortgage loan to be solicited, processed, negotiated or funded by a mortgage broker, mortgage banker or exempt organization whether disseminated by direct mail, newspaper, magazine, radio or television broadcast, billboard, electronic media or similar display.  The term advertisement shall not include promotional material containing 15 words or fewer relating to the mortgage business of the entity which material does not contain references to a specific rate or product, such as balloons, hats, pencils or pens, calendars or rulers displaying the name of the registrant, licensee or exempt organization.  The term advertisement also shall not include any disclosures, program descriptions or other published materials prepared or authorized by any State or Federal government agency, nor shall such term include any material or communication which has been excluded from any definition of advertisement for purposes of any regulation of the Board of Governors of the Federal Reserve System regulating consumer credit disclosures. 

(b)      The term "application" shall have the same meaning as that term has in section 202.2(f) of Regulation B of the Federal Reserve System (12 CFR 202). The regulation, including the interpretations thereof contained in Supplement 1 to Part 202-Official Staff Interpretations, is incorporated by reference and is authored by the Board of Governors of the Federal Reserve System and published by the United States Government Printing Office, Washington, DC 20402. A copy is available for public inspection and copying at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR.

[(b)] (c) The term application fee shall mean any fee taken by a mortgage broker, mortgage banker or exempt organization in connection with an application for a mortgage loan including any charge for soliciting, processing, placing or negotiating a mortgage loan.  The term application fee does not include a commitment fee taken pursuant to section 38.4 or a lock-in fee taken pursuant to section 38.6 of this Part, nor does such term include payments to be remitted to third-party service providers, such as appraisal fees or fees for credit reports, nor payments or remittances to the mortgage broker, mortgage banker or exempt organization by the lender.  In addition, the term application fee does not include a processing fee so long as the application fee does not include the cost of processing the application.

(e)  The term “branch” shall mean any location, separate from the head office, at which loan solicitation and/or loan processing takes place irrespective of whether the only contact with an applicant from that location is by internet, telephone, facsimile or other electronic process.  The term shall not include the residences of any director, officer, partner, employee, independent contractor or consultant provided that the primary purpose of such residence is for personal, household or family use.      

(f)  The term “branch manager” shall mean the individual who is in charge of the operations of one or more branch locations irrespective of the title given to that individual.

[(c)] (g) The term commitment shall mean a written or electronically transmitted offer to make a mortgage loan signed by a licensee or exempt organization. 

[(d)] (h) The term commitment agreement shall mean a commitment accepted by an applicant for a mortgage loan.  Such acceptance shall be evidenced by either a hand-written or digital signature to the extent that such signatures are recognized as binding under New York State law.

[(e)] (i)  The term commitment fee shall mean a fee, exclusive of third-party charges, imposed by the licensee or exempt organization as consideration for binding the licensee or exempt organization to make a mortgage loan or as a lender’s requirement for acceptance by the consumer of a commitment.

[(f)] (l) The term employee shall mean:

  1. any individual performing a service for any one of either a mortgage broker, mortgage banker or exempt organization for whom such entity would be liable for withholding taxes pursuant to Title 26 of the United States Code: or
  2. any individual engaged in regulated activities as an independent contractor pursuant to Title 26 of the United States Code of any one of either a mortgage broker, mortgage banker or exempt organization.

[(g)] (m)  The term exempt organization shall mean any person or entity engaged in the business of making mortgage loans which entity is exempt from licensing under article 12-D of the Banking Law and Part 39 of this Title.

[(h)] (o)  The term lock-in agreement shall mean a written or electronically transmitted agreement between a mortgage banker or exempt organization and an applicant for a mortgage loan which, subject to the terms set forth therein, obligates the mortgage banker or exempt organization to make a mortgage loan at a specified rate and a specific number of points, if any.

[(i)] (p) The term lock-in fee shall mean points or other fees, or discounts taken by a mortgage broker for transmittal to a mortgage banker or exempt organization or taken directly by a mortgage banker or exempt organization as consideration for the making of a lock-in agreement.

 [(j)] (r) The term mortgage banker or licensee shall mean any person or entity licensed pursuant to article 12-D of the Banking Law and Superintendent’s Regulation Part 410 of this Title to make mortgage loans.

[(k)] (s) The term mortgage broker or registrant shall mean any person or entity registered pursuant to article 12-D of the Banking Law and Superintendent’s Regulation Part 410 of this Title.

[(l)] (q) The term [to] make a loan or making a loan, shall mean for compensation or gain, either directly or indirectly, advancing funds, offering to advance funds, or making a commitment to advance funds to a mortgagor as a mortgage loan.  As used in this Part, the term mortgagor shall refer only to a retail consumer/borrower.

 [(m)] (t)  The term mortgage loan shall mean a loan made to one or more individuals primarily for personal, family or household use primarily secured by a first of junior mortgage on residential real property located in this State or by certificates of stock or other evidence of ownership interests in, and proprietary leases from, corporations or partnerships formed for the purpose of cooperative ownership of real estate in this State. Such term shall not include residential loan products exempt pursuant to section 39.5 of this Title.

 [(n)] (v)  The term point shall mean any fee or discount calculated as one percent of the principal amount of the loan or one percent of the amount financed, irrespective of how such point may be denominated by the mortgage broker, mortgage banker or exempt organization.  The term point shall include, but not be limited to, percentage-based fees denominated as brokerage fees (excluding fees taken for real estate brokerage services), origination fees, or warehousing fees.

[(o)] (x)   The term prevailing rate shall mean a mortgage loan rate that is set by the mortgage banker or exempt organization after the time a commitment is issued but prior to or on the closing date.  Such rate may be fixed or variable.

[(p)] (y)  The term residential real property shall mean real property located in the State improved by a one-to-four-family owner-occupied dwelling used or occupied, or intended to be used or occupied, wholly or partly, as the home or residence of one or more owners, but shall not refer to unimproved real property upon which such dwelling is to be constructed.

[(q)] (z)  The term settlement cost shall mean the total cost to the consumer for each service required to be listed as a settlement service in the “Good Faith Estimate of Settlement Services” required in certain mortgage loan transactions by regulation X of the Department of Housing and Urban Development (24 CFR part 3500).  The term settlement cost shall have the meaning described herein irrespective of whether the mortgage loan is subject to regulation X.

[(r)] (aa)  The terms soliciting, processing, placing and negotiating a mortgage loan shall mean performing or offering to perform such activities for compensation or gain, either directly or indirectly, with a lender on behalf of a third party.

[(s)] (d)  The terms bonus and premium shall mean money or an equivalent given in addition to usual compensation. 

[(t)] (w)  The term premium pricing shall mean any pricing arrangement under which a loan application is submitted to a lender at an interest rate (including points) that will:

(1)      meet the lender’s minimum yield requirements; and
(2)      enable the mortgage broker, mortgage banker or exempt organization when acting in a mortgage brokerage capacity to receive as all or part of the difference between the interest rate (including points) received by the lender and the minimum interest rate (including points) at which the lender would have been willing to make the loan to the consumer/borrower.

[(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.]

(u)      The term net branch shall mean any location for which the branch manager does either or both of the following: (1) incur or assume liability to a third party other than in the licensee or registrant’s name except for credit reports, appraisals and/or de minimus office supplies or makes payment on behalf of the licensee or registrant to the third party; or (2) incur or assume liability to a third party other than in the licensee or registrant’s name by executing the lease for the branch premises or makes payment on behalf of the licensee or registrant to the third party.  In addition, the term “net branch” shall mean any location for which the branch manager assumes a combination but not necessarily all, of the following indicia of ownership:  (1) sharing in profits and/or losses of such location; (2) controlling a corporate checkbook; or (3) exercising control of personnel through the power to hire or fire individuals.  

[(v) The term loan solicitation branch shall 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.]

[(w)] (k)  The term electronically transmitted or electronic media shall mean any transmission via diskette, wire or tape including but not limited to the Intranet (interactive or otherwise), the Internet, any other computer network, electronic mail, or any other similar method of transmission.

[(x)] (n) The term lender shall mean a mortgage banker or an exempt organization pursuant to article 12-D of the New York Banking Law.

[(y)] (j)  [A] The term digital signature shall mean any electronic authentication method that provides the same assurance as a signature in a paper-based system.

§ 38.3 Application disclosures and procedures.

Article 12-D requires and authorizes the Banking Board to promulgate regulations governing the disclosures which must be given and the procedures which must be followed at the time an application is taken. No mortgage broker, mortgage banker or exempt organization may take an application, application fee, credit report fee or property appraisal fee prior to making the disclosures set forth in this section. Each entity shall also comply with the procedures set forth in this section regarding the processing of applications. An application may be taken in writing, over the telephone or electronically transmitted. A written application, irrespective of how it is transmitted, should contain the following statement:  “It is a crime to intentionally falsify information on this application.”   For oral applications, the mortgage broker, mortgage banker or exempt organization must make this statement to the borrower(s).

A new §38.3(a)(1)(vii) will be added as follows:

[(vii) the maximum points, including premium pricing, payable by the lender to the mortgage broker and any fees or points to be paid by the applicant directly to the mortgage broker;]

(vii) (a) the maximum consideration, including premium pricing, fees and points, payable by the lender to the mortgage broker; (b) the maximum of any fees or points to be paid by the applicant directly to the mortgage broker; and (c) the  combined total consideration set forth in (a) and (b) above. 

 

§38.3(b)(1) a new subdivision (v) is added to read as follows:

(v) in those instances in which the lender charges discount points, the following statement: Discount points should lower the interest rate paid on the loan but may not lower the overall cost of the loan.  If you refinance or pay off your loan quickly, you will lose the benefit of any lower interest rate provided by the discount points.  Furthermore, if you finance the discount points, this will increase the amount of money that you must repay to the lender and you will have to pay interest on the discount points as part of the amount you have borrowed.

 

§38.7(a) a new paragraph (16) is added to read as follows:

(16) enter into an employment agreement or otherwise engage any employee or independent contractor who has an employment or independent contractor relationship with any other mortgage banker, mortgage broker or exempt organization, except with the written approval of the superintendent. 

                    
Section 38.11 is amended to read as follows:

§ 38.11 Requirements for [full service and loan solicitation] branches.

  1. In addition to such application and investigation fees as may be required under Banking Law [a]Article [12-C] 12-D to establish any branches, with respect to any [full service] branch as defined in section 38.1 of this Part, a particular person shall be designated as being responsible for the operation thereof.  In addition, [full service] such branch stationary, if any, shall include the address and telephone number of the branch or the main office at the licensee’s or registrant’s option and must use the name of the licensee or registrant.  The foregoing requirements shall not apply to mortgage brokers or mortgage bankers having more than 10 [offices] branches in New York State.
  2. A licensee or registrant shall not permit the establishment of or the maintenance of a net branch
  3. Any employee, independent contractor or consultant who works from a place other than a branch as defined in section 38.1 shall be assigned to a specific branch location for purposes of managerial and regulatory oversight.  All applicants and borrowers who interact with such employee, independent contractor or consultant must be provided with complete contact information for the branch location to which the employee, independent contractor or consultant is assigned.  All documents pertaining to an application and the correspondent loan, if any, which involve such employee, independent contractor or consultant must go through the branch location to which the employee, independent contractor or consultant is assigned.