Industry Letters

Responsibilities of the Banking and Brokering Industry

March 11, 1997


This past week, the Banking Department was forced to take severe regulatory actions against a licensed mortgage banker. The actions consisted of the issuance of a thirty day suspension order against the licensee and a notice of hearing and statement of charges. In addition, the Banking Department obtained, through court action, two Temporary Restraining Orders ("TROs").

The mortgage banker in question was experiencing both legal problems with the Securities and Exchange Commission as well as financial difficulties. Yet the legal difficulties were only brought to the attention of the Banking Department by newspaper articles while the financial difficulties were only learned of from individual investors who were informed by the licensee that there would be a moratorium on all payments to investors. At no time were any of the legal or financial problems brought to the attention of the Department by any officials or staff members of the licensee nor their representatives.

To exacerbate the situation further, when examiners arrived on the licensee’s premises to review the situation, representatives of the licensee initially prevented them from viewing the official books and records and demanded that the Banking Department issue a subpoena. Although the books and records were ultimately made available, the licensee continued to attempt to obstruct the Department’s investigation.

Such egregious conduct will not be tolerated by the Banking Department. Accordingly, the Banking Department believes that this is an appropriate time to remind the entire residential mortgage banking and brokering industry of its responsibilities.

The New York State Banking Law and General Regulations of the Banking Board impose a responsibility on all licensees, registrants and exempt organizations to promptly inform the Banking Department of any adverse developments, financial or otherwise, which might affect their ability to continue to operate in a safe and sound manner or which might impugn the character and fitness of the individuals who own and operate the licensee, registrant, or exempt organization. Furthermore, the law and regulations clearly give the Superintendent and his representatives immediate and unlimited access to the books and records of all licensed mortgage bankers, registered mortgage brokers and exempt organizations.

The Department’s ability to regulate is driven by strict adherence by the industry to two tenets. The first is the immediate notification to the Department by our regulated entities of legal or financial concerns, or what is known as our "no surprises" tenet. The second is the consistent provision of unfettered access to the books and records of the entities we supervise.

Failure to promptly provide information on any investigation or proceeding by a governmental body, as required by section 38.10 of the General Regulations, or to notify the Banking Department of any financial difficulties, including any failure to meet the net worth requirements or to maintain an appropriate warehouse line and/or surety bond, will result in the strongest enforcement actions authorized by the law and regulations including appropriate court action. Furthermore, any attempt to obstruct any examiner, duly authorized by the Department, to perform any examination or special investigation will be viewed in similar fashion.

Based upon the historically good experience we have had, the Banking Department believes that the majority of the members of the industry are fully aware of their duties and responsibilities in communicating with the Department and fulfilling their regulatory requirements. Nevertheless, given the unacceptable behavior encountered in this recent and, we trust, isolated incident, we want to take the time to remind the industry that the Banking Department’s position as regulator is one that it takes and will continue to take very seriously.

Very truly yours,

Walter J. O’Meara
Deputy Superintendent of Banks
Mortgage Banking Division