BILL NUMBER:S3779

TITLE OF BILL:
An act to amend the banking law, in relation to the requirement for
licensure to make mortgage loans

PURPOSE:
This bill would tighten the mortgage banker licensing exemption,
thereby helping to prevent and address problems resulting from
unregulated residential mortgage loans which are not subject to
existing consumer protections.

SUMMARY:
Section 590(2) of the Banking Law -- which currently exempts from the
mortgage banker licensing requirement any person or entity that does
not make five or more personal mortgage loans in a calendar year is
amended so that the exemption applies only to a person or entity which
makes not more than three loans in a calendar year, or more than five
in a two year period. This subdivision is also amended to provide that
an entity shall not be exempt if any loan is made which was solicited,
processed, placed or negotiated by a mortgage broker, mortgage banker
or exempt organization.

Section 590(5) (b) is amended to provide that mortgage brokers may
solicit, process, place and negotiate mortgage loans only with a
mortgage banker or exempt organization, thereby prohibiting
              

relationships with unlicensed and unregulated private lenders.

EXISTING LAW:
Section 590(2) of the Banking Law currently prohibits persons or
entities from making five or more mortgage loans in any one calendar
year unless they have obtained a mortgage banker license from the
Superintendent of Banks.

JUSTIFICATION:
In order to protect consumers, legislation was enacted in 1981 to
require the licensing and regulation of persons or entities who make
mortgage loans. This law originally exempted anyone who made fewer
than 20 mortgage loans within any 12 month period.

In 1986, New York's laws governing mortgage banking were overhauled
and strengthened in response to continuing problems and abuses within
the industry. As part of that effort, the licensing exemption was
tightened so that anyone who made five or more mortgage loans in a
calendar year had to be licensed. This revised exemption was intended
to enable persons who are not in the regular business of making such
loans -- such as a. person making a loan to a family member -- to make
occasional mortgage loans without having to be subject to the
statutory and regulatory scheme applicable to those whose primary
occupation is that of a mortgage banker.

Unfortunately, the exemption continues to be subject to abuse by
unscrupulous persons within the mortgage industry. In particular, the
Banking Department has found that certain mortgage brokers have
developed active mortgage businesses by steering consumers to exempt
private lenders that they have recruited, thus exploiting this


exemption. These private loans are not governed by the statutory and
regulatory requirements which have been adopted in New York to protect
consumers from deceptive and abusive lending practices. As a result,
these loans are often made on grossly unfair terms to persons in
distress, with brokers charging excessive points and the lenders
charging the maximum allowable interest rate and structuring the loan
in a manner which typically leads to foreclosure. While the Banking
Department has received complaints about these types of private loans,
they have been unable to provide assistance as these private lenders
are not subject to regulation.

By tightening the licensing exemption, this bill should help ensure
that borrowers are protected from the abusive practices which are
currently being committed by some unlicensed and unregulated private
lenders.  Higher risk customers, who are typically involved in these
loans, can be better served by dealing with licensed entities that are
subject to the consumer protections, disclosure requirements and
regulatory structure established by the Banking Law. These borrowers
have an increasing number of legitimate alternatives, from
government-sponsored programs to loans from regulated mortgage
companies which have expanded their market to better serve borrowers
who may have less desirable credit histories.

This bill seeks to ensure that the licensing exemption remains limited
to the person or entity that makes the occasional mortgage loan to
family or friends, rather than persons or entities who engage in such
activities as a business venture. Private lenders who have
relationships with mortgage brokers or mortgage bankers are clearly
involved in the business of making mortgage loans, and should be
regulated to the same extent as other mortgage lenders. Potential
borrowers who have gone to a mortgage broker or banker should be
assured that they will be afforded all of the existing statutory and
regulatory protections applicable to licensed mortgage bankers.

PRIOR LEGISLATIVE HISTORY:
4/21/09 - S.3703-A, advanced to third reading, 5/5/09 - passed Senate,
delivered to Assembly and referred to Assembly Banks, 1/6/10- died in
Assembly, 2/23/10- S.3703-A advanced to third reading, 3/1/10 - passed
Senate, delivered to Assembly and referred to Assembly Banks

FISCAL IMPACT:
None.

EFFECTIVE DATE:
The first of January next succeeding the date on which it shall have
become a law.