Regulations Adopted on an Emergency Basis
Explanatory All Institutions Letter
December 3, 2013
TO THE INDIVIDUAL OR INSTITUTION ADDRSSED:
Re: Emergency Adoption of Part 418 of the Superintendent’s Regulations and Supervisory Procedures MB 109 and MB 110 (Mortgage Loan Servicer Registration and Financial Responsibility Requirements)
The Superintendent has adopted new Part 418 of the Superintendent’s Regulations and Supervisory Procedures MB 109 and MB 110 on an emergency basis. The emergency regulations are effective immediately. Emergency regulations on the same subject were previously adopted on a number of occasions, starting in June, 2009. The most recent emergency adoption was effective September 5, 2013. The emergency regulations are unchanged from those adopted on September 5th.
These regulations, like those previously adopted on an emergency basis, implement certain provisions of the Subprime Lending Reform Law, which was enacted in August, 2008 (Chapter 472 of the Laws of 2008). That law, among other things, amended Article 12-D of the Banking Law to create a framework for the regulation of mortgage loan servicers (MLSs).
Effective July 1, 2009, no person or entity, except those exempted by law, may engage in the business of servicing New York residential mortgage loans without first being registered with the Superintendent of Financial Services (formerly the Superintendent of Banks) as a MLS.
MLS registration is required by any non-exempt company or person that (i) receives scheduled periodic payments from a borrower under a covered mortgage loan, including amounts for escrow accounts, and (ii) makes payments of principal and interest and other payments as may be required pursuant to the terms of the mortgage loan documents. In the case of a reverse mortgage, servicing includes making payments to the borrower.
Part 418.2 exempts from the requirement to register as an MLS (i) “Exempt Organizations”, as defined in Section 590(1)(e) of the Banking Law, and (ii) registered mortgage brokers and licensed mortgage bankers. Exempted institutions must notify the Superintendent that they act as a servicer and comply with any regulations regarding servicing issued by the Department of Financial Services (formerly the Banking Department). The Department has separately adopted regulations dealing with business conduct and consumer protection requirements for MLSs, including those exempted from the registration requirement.
The regulation provides a transitional period for mortgage loan servicers which were doing business in this state on June 30, 2009 and which filed an application for registration by July 31, 2009. Such servicers will be deemed in compliance with the registration requirement until notified by the Superintendent that their application has been denied.
The regulation implements the first component of the mortgage servicing statute – the registration of mortgage servicers. In doing so, the rule utilizes the authority provided to the Superintendent to set standards for the registration of such entities. For example, the rule requires that a potential loan servicer would have to provide evidence of its character and fitness to engage in the servicing business and demonstrate to the Superintendent its financial responsibility. The rule also utilizes the authority provided by the Legislature to revoke, suspend or otherwise terminate a registration or to fine or penalize a registered mortgage loan servicer.
Consistent with this requirement, the rule authorizes the Superintendent to refuse to register an applicant if he or she shall find that the applicant lacks the requisite character and fitness, or if any person who is a director, officer, partner, agent, employee, substantial stockholder of the applicant has been convicted of certain felonies. These are the same standards as are applicable to mortgage bankers and mortgage brokers in New York.
Further, in carrying out the Legislature’s mandate to regulate the mortgage servicing business, the regulation sets out certain application requirements for prior approval of a change in control of a registered mortgage loan servicer and notification requirements for changes in the entity’s executive officers and directors. Collectively, these various provisions implement the intent of the Legislature to register and supervise mortgage loan servicers.
The Department began managing mortgage loan servicer registrations using the Nationwide Mortgage Licensing System (NMLS), effective May 4, 2009. Companies and sole proprietors need to submit a Form MU1 through the NMLS and choose the Mortgage Servicer Registration type to apply for this registration. The Department expects to approve or deny applications within 90 days of the Department’s receipt (through NMLS) of a completed application. The NMLS system may be accessed at www.stateregulatoryregistry.org/NMLS.
A section of the Department’s website (www.dfs.ny.gov) provides information about the new regulatory framework for MLSs, including an outline of the application process.
A proposal to adopt an earlier version of Part 418 as a permanent regulation was issued for public comment in the fall of 2010. The regulation now being adopted on an emergency basis reflects changes made resulting from comments received during the comment period on that proposal. The Department is in the process of preparing a revised version of Part 418, which it expects to issue for public comment and thereafter adopt as a permanent regulation.
The Notice of Emergency Adoption is expected to be published in the September 25, 2013 issue of the State Register.
Comments should be sent to Sam L. Abram, Assistant Counsel, Department of Financial Services, One State Street, New York, NY 10004 or by email at email@example.com.
Very truly yours,
Sam L. Abram
Part 418 of the Superintendent's Regulations
Summary of Part 418
Supervisory Procedure MB 109
Summary of Supervisory Procedure MB 109
Supervisory Procedure MB 110
Summary of Supervisory Procedure MB 110