Passive Mortgage Loan Servicer Exemption Application

What is a Passive Mortgage Loan Servicer?

Under the authority of section 418.2(e) of Part 418 of the Superintendent’s Regulations, the Superintendent has determined that certain Passive Mortgage Loan Servicers qualify for exemption from the registration requirements of Part 418 of the Superintendent’s Regulations.

A Passive Mortgage Loan Servicer is an entity that owns or holds mortgage servicing rights, is, or is affiliated with an entity that securitizes residential mortgages or sells/trades mortgages or mortgage servicing and does not itself engage in direct  mortgage servicing for mortgage loans on 1-4 family residential property located in New York.

Passive mortgage loan servicers seeking exemption, pursuant to section 418.2(e) of Part 418 of the Superintendent’s Regulations, must submit a written request to the Superintendent.

No application for exemption shall be considered complete until the Department has received all required information and documents. If an application is determined to be incomplete, the applicant will receive a written notice identifying the items that must be addressed for the Department to continue the application review process.

If a complete response comprehensively addressing all such items and matters to the satisfaction of the Department is not received within 30 days of such notice, the application will be considered withdrawn.

The following information and documents must be submitted to the Department at the following address:

New York State Department of Financial Services
Attention: Exempt Mortgage Loan Servicer Processing Unit
One State Street
New York, NY 10004

  1. LETTER OF UNDERTAKING. Provide a letter of undertaking, signed by an authorized executive officer or legal counsel of the passive servicer. At minimum, the letter should state the following information:
    • Applicant does not directly service residential mortgage loans on 1-4 family property located in New York.  Additionally, pursuant to contract, applicant has delegated the servicing of mortgage loans on such properties to a mortgage loan servicer registered pursuant to Part 418 of the Superintendent’s Regulations;
    • With the exception of the registration requirements, applicant will comply with the requirements of Part 418 on an ongoing basis;
    • Applicant will be bound by the Revocation, Suspension and Termination and Surrender of Registration provisions set forth in section 418.9 of Part 418.  Further, Applicant will transfer servicing activities if the Department determines in its judgment that such transfer is necessary to protect consumers;
    • Applicant is engaged in or affiliated with an entity engaged in securities and other secondary market activities with respect to mortgage loans and related servicing rights on 1-4 family residential property located in New York; and
    • Applicant has not been the subject of any state or federal government matter relating to mortgage servicing activities within the last three years.
  2. CONTACT INFORMATION. Provide name, title, telephone number and email address of the designated person(s) that will function as the regulatory, servicing and consumer complaint contact(s) for the Department.
  3. BUSINESS ACTIVITIES. Provide a brief narrative of the company’s business activities. The narrative should address both mortgage and non-mortgage related activities.
  4. MANAGEMENT AND ORGANIZATIONAL STRUCTURE. All applicants must submit an organizational chart showing the ownership and management structure. Applicants must clearly delineate ownership, subsidiaries, and affiliated relationships.
  5. FINANCIAL STATEMENTS. Provide the two most recent audited annual and most recent quarterly, financial statements.
  6. NET WORTH REQUIREMENT.  Each applicant shall demonstrate the ability to maintain adjusted net worth of at least $250,000 plus ¼ of 1% of the outstanding principal balance of aggregate mortgages serviced (whether or not in New York), as required under section 418.12 of Part 418 of the Superintendent’s Regulations. Please select and complete the appropriate Mortgage Loan Servicer Financial Responsibility Worksheet as of the most recent quarter, which must include a notarized signature of the senior executive officer authorized by the applicant’s Board of Directors to file this application. Additionally, at least 10% of adjusted net worth must consist of cash, cash equivalents, or readily marketable securities.
  7. FIDELITY BOND AND E&O COVERAGE. Pursuant to Part 418.12 of the Superintendent’s Regulations, applicants are required to have a minimum Fidelity Bond and E&O coverage.  Note: The Superintendent of Financial Services must be named as an additional loss payee.  The Fidelity Bond and E&O coverage may provide for a deductible amount not to exceed the greater of $100,000 or 5% of the face amount of such bond or coverage. See Part 418.12 for more details concerning required amounts of coverage, which increase incrementally depending on servicing volume.
  8. SURETY BOND. Provide an original mortgage loan servicer bond in the amount of $250,000 furnished by a surety company authorized to conduct business in New York.  The name of the principal insured on the bond must match exactly the full legal name of the applicant as authorized by the Secretary of State of New York.

    Note: Surety bonds are not required to be submitted until the application has been approved. The Department will not, however, issue an exemption until said bond has been received.

  9. SERVICING VOLUME.  Provide a detailed breakdown of the applicant’s portfolio of mortgage loan servicing rights (“MSRs”) on a nationwide basis, as well as separately for New York.  The information should reflect the composition of the portfolio based on MSRs owned and aggregate number of loans and unpaid principal balance of all 1-4 family residential mortgage loans segregated by subservicer.  The information provided should be as of the most recent quarter. The information must include a total amount or be provided in Excel format.
  10. SUBSERVICER(S). Provide the name(s) and contact information of entities performing subservicing activities on behalf of the applicant.  Provide both the legal name and assumed (trade) names, if any, of the subservicer(s). Also provide a description of how the applicant monitors the subservicer(s).
  11. ACTIVE SERVICING. Provide a list of states where the applicant company is actively engaged in mortgage loan servicing activities.
  12. WAIVER.  Pursuant to section 418.12(d) the Superintendent can waive or modify the financial responsibility requirements upon written request of an applicant.  Although the Department will evaluate all request for waiver or modification of the financial responsibility requirements, such waiver request will not be granted based solely on the entity’s status as a “passive servicer.”

For questions concerning applying for an exemption as a passive mortgage loan servicer, please contact the Department at [email protected].