Industry Letter

Adoption of amendments to Part 39 of the General Regulations of the Banking Board (Exempt Organizations; Subsidiaries of Exempt Organizations)

January 4, 2012

PART 39. EXEMPT ORGANIZATIONS; SUBSIDIARIES OF EXEMPT ORGANIZATIONS; EXEMPT MORTGAGE PRODUCTS

(Statutory authority: Banking Law §14, art. 12-D)

39.1 Purpose

The purpose of this Part is to define the entities engaged in the business of soliciting, negotiating, placing, processing or making mortgage loans secured by a first or junior lien [which] that will be exempt from the registration or licensing requirements of [article] Article 12-D of the Banking Law, and to define mortgage loan products, the brokering or funding of which do not require registration or licensing as a mortgage banker or mortgage broker under [article] Article 12-D.

39.2 Definitions

As used in this Part:

(a) The term exempt organization shall mean any insurance company, banking organization, foreign banking corporation licensed by the [superintendent] Superintendent or the Comptroller of the Currency to transact business in this State, national bank, Federal savings bank, Federal savings and loan association, Federal credit union, any bank, trust company, savings bank, savings and loan association, and credit union organized under the laws of any other state; any instrumentality created by the United States or any state with the power to make mortgage loans and any entities exempt pursuant to [sections] Section 39.4 of this Part. [The term does not include any nonbanking subsidiary of a bank holding company. However, an exempt organization shall not be relieved of the advertising, solicitation, application and commitment procedures and disclosure requirements or penalties set forth in article 12-D of the Banking Law and Part 38 of this Title.]

(b) The term bank holding company shall mean a business corporation which is deemed to be a bank holding company, savings bank holding company, or savings and loan holding company for purposes of Federal or any State law. The term bank holding company shall not include a bank holding company which is a banking organization.]

(c) The term consolidated subsidiary shall mean a subsidiary of an insurance company, banking organization, foreign banking corporation licensed by the superintendent or the Comptroller of the Currency to transact business in this State, national bank, Federal savings bank, Federal savings and loan association, Federal credit union, or of any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state; or any instrumentality created by the United States or any state with the power to make mortgage loans as to which consolidated financial statements are issued with its parent pursuant to title 26 of the United States Code.]

(d) The term credit line mortgage shall mean any mortgage or deed of trust, other than a mortgage or deed of trust made pursuant to a building loan contract as defined in subdivision 13 of section 2 of the Lien Law, which states that it secures indebtedness under a note, credit agreement or other financing agreement that reflects the fact that the parties reasonably contemplate entering into a series of advances, or advances, payments and readvances, and that limits the aggregate amount at any time outstanding to a maximum amount specified in such mortgage or deed of trust. ]

(e)](b) The term exempt products shall mean any mortgage loan products meeting the requirements of section 39.5 of this Part. The brokering or funding of such products shall not be a business activity requiring registration or licensing pursuant to [article] Article 12-D, nor shall such products be subject to the advertising, solicitation, application and commitment procedures, disclosure requirements or penalty provisions set forth in article 12-D of the Banking Law and Part 38 of this Title.

(f) The term home improvement loan shall mean a loan made pursuant to subdivision 4 of section 108 of the Banking Law.]

(g) The term installment loan shall mean a loan made pursuant to subdivision 4 of section 108 of the Banking Law.]

(h)](c) As used in this Part, terms defined in [General Regulation section 38.1 of this Title] Section 38.1 of the General Regulations of the Banking Board shall have the same meaning as prescribed therein.

39.3 General provisions

(a) An entity not exempt by New York law [statute] which shall otherwise not establish its exempt status in accordance with this Part shall become licensed or registered in accordance with the procedures described in Part 410 of this Title prior to April 1, 1988. Entities exempt under a prior version of this Part that are no longer exempt shall file an application to become licensed or registered prior to April 3, 2012 and shall become licensed or registered by July 2, 2012, or such later date as the Superintendent may approve for good cause.

(b) An exempt organization shall not be relieved of the advertising, solicitation, application and commitment procedures and disclosure requirements set forth in Article 12-D of the Banking Law and Part 38 of this Title or the penalties for violations of such requirements set forth in the Banking Law. An [Entities] entity exempt from[registration or] licensing or registration as a mortgage banker or mortgage broker shall not be subject to periodic examination by the [Banking} Department but may at any time become subject to special investigation. Accordingly, consistent with section 597 of the Banking Law, each such [entities] entity shall keep [their]its books and records in a manner which will allow the Superintendent to determine whether such [exempt organization] entity is complying with the advertising, solicitation, application and commitment procedures and disclosure requirements prescribed in Part 38 of this Title, except for books and records relating to exempt products. Information and forms regarding recordkeeping can be obtained at: [Banking] Department of Financial Services, Mortgage Banking [Division] unit at the address set forth in section 1.1 of Supervisory Policy G 1. Books and records shall be available for inspection by the Superintendent in accordance with Superintendent's Regulation Part 410 of this Title.

39.4 [Exempt organizations]Organizations Exempt from Licensing or Registration; conditions precedent to exemptions from registration or licensing requirements of [article]Article 12-D.

(a) Consolidated subsidiaries. 

(1) Prior to commencing business in this State, a consolidated subsidiary shall file an undertaking to the superintendent containing the following provisions: 

(i)that the consolidated subsidiary shall maintain its books and records relating to the making of mortgage loans for a three-year period in a manner permitting inspection by the superintendent; 

(ii)that the superintendent shall be authorized to inspect such books and records upon reasonable notice;

(iii)that the consolidated subsidiary shall bear all the costs and expenses relating to the inspection; and 

(iv)that in the case of a consolidated subsidiary of an out-of-state exempt organization, it designated the superintendent as agent for service of process in connection with any transaction subject to the requirements of the Banking Law and regulations.

(2) Prior to commencing business in this State, the consolidated subsidiary shall provide the superintendent with an undertaking affirming that the advertising, solicitation, application and commitment procedures and disclosure requirements of article 12-D of the Banking Law and Part 38 of this Title shall be applied to all mortgage loans secured by real property located in New York State except for exempt products offered by the subsidiary.

(3) When so required by the superintendent, the consolidated subsidiary shall furnish copies of its mortgage loan forms and other documents to the Banking Department for review.]

(4) Only consolidated subsidiaries shall be eligible for exemption from licensing or registration. Wholly owned subsidiaries shall be deemed to be consolidated subsidiaries.]

In addition to the entities defined as exempt organizations in Part 39.2 above, the following are exempt from licensing or registration as a mortgage banker or mortgage broker under Article 12-D of the Banking Law or the rules and regulations promulgated thereunder:

(b)](a) Loan [servicers and] investors. Persons who [act as servicers for mortgage loans, or persons who] acquire [such] mortgage loans from lenders for investment but who do not make mortgage loans [shall not be subject to the registration or licensing requirement of article 12-D of the Banking Law or the rules and regulations promulgated thereunder.

(c)] (b) Licensed real estate brokers. Licensed real estate brokers who or which do not accept a separate fee (in addition to any earned real estate brokerage fee), directly or indirectly, for services performed in connection with the brokering of a mortgage loan [shall not be required to be registered as a mortgage broker.

(d)](c) Mortgage bankers engaged in mortgage brokerage activities. Section 590 of the Banking Law provides that a license to engage in the business of making mortgage loans shall be deemed to include the authority to engage in the business of soliciting, processing, placing and negotiating mortgage loans. No additional registration with the [d]Department shall be required to engage in the mortgage brokerage business, nor shall additional registration fees be required of any mortgage banker. [Nothing in either of this Part or Part 38 of this Title or article 12-D of the Banking Law shall require the employees of an exempt organization to obtain a license or registration certificate when assisting the exempt organization in the performance of business activities of the type described in article 12-D.

(e)](d) Entities offering mortgage loan products [which are] exempt under section 39.5 of this Part. Entities offering only mortgage loan products [which] that are exempt products pursuant to section 39.5 of this Part [are exempt from the registration and licensing requirements of article 12-D of the Banking Law and Part 410 of this Title.

(f)](e) Not-for-profit organizations. Not-for-profit organizations may be eligible for exemption [from the registration and licensing requirements of article 12-D of the Banking Law]. Such organizations which seek exemption may submit a letter application to the [mortgage banking division] Mortgage Banking unit of the Department at the address set forth in section 1.1 of Supervisory Policy G 1, together with such information as may be prescribed by the [superintendents] Superintendent.

39.5 Exempt products

The following loan products are exempt products [from all of the requirements of article 12-D of the Banking Law and Part 38 of this Title:

(a) purchase money mortgages extended by a seller [or an organization controlled by a seller of residential real property] to buyers thereof[.], where the seller is an individual, estate or trust that sells not more than three properties in any 12-month period, provided that the seller has not constructed or acted as a contractor for the construction of a residence being sold.[Included within this exemption are loans made by sponsors of cooperative and condominium developments to unit purchasers, and loans made by organizations controlled by sponsors of cooperative and condominium developments to unit purchasers;

(b) construction loan mortgages;

(c) relocation mortgage loans. A mortgage loan made by an applicant's employer if the purpose of the loan is to assist the employee to relocate;

(d) any product offered as a mortgage loan by an instrumentality created by the United States or any state; and

(e) credit line mortgages, installment loans and home improvement loans; and

(f)](e) such other loan products [which] as may be specifically exempted upon application to the [superintendants] Superintendent.