Senate Bill S4871

                                 BILL NUMBER:  S4871

 TITLE OF BILL :
An act to amend the banking law, in relation to unauthorized entities,
unregistered mortgage brokers and mortgage fraud


 PURPOSE :
To help prevent and address illegal and fraudulent activities in the
mortgage industry.

 SUMMARY :
Section 78-a is added to the Banking Law to provide that the Criminal
Investigations Bureau of the Banking Department shall refer any
instances of a person, partnership, association, corporation or other
entity which is operating without being chartered, licensed or
registered as required under this chapter to the Attorney General and
to any other federal, state or local agency or entity for appropriate
enforcement action. At least every six months, the Attorney General
shall provide the Bureau with a written update of the status of any
enforcement actions it has taken against such persons or entities.

Paragraph (f) is added to Section 590(5) of the Banking Law to
prohibit a mortgage banker, mortgage broker or exempt organization
from conducting business with any person, partnership, association,
corporation or other entity which it knows or should have known is
              

acting as a mortgage banker or a mortgage broker without being
licensed or registered as required by the Banking Law. In addition, a
mortgage banker, mortgage broker or exempt organization shall promptly
notify the Banking Department if it becomes aware of any such
unlicensed or unregistered operations.

Section 598(5) of the Banking Law is amended to increase the maximum
amount of civil penalties assessable against an unlicensed or
unregistered person engaged illegally in mortgage banking or brokering
activities. Currently, such person may be liable for a sum of not less
than the amount paid, nor more than four times the amount paid. This
amendment would provide that, where a non-exempt unlicensed or
unregistered person has continued to engage in such unauthorized
activities after receiving a cease and desist notice from the
Superintendent of Banks, the maximum amount of liability shall be up
to ten times the amount paid.

Section 598-a is added to the Banking Law to establish the crime of
Mortgage Fraud. A fraudulent mortgage act is committed by an officer,
director, trustee, employee or agent of a mortgage broker, mortgage
banker or exempt organization when such person, knowingly and with
intent to defraud, forges a mortgage applicant's signature or presents
(or prepares with the knowledge or belief that it will be presented)
to a licensed mortgage banker or an exempt mortgage lending
organization a form of identification, verification of deposit form,
bank or securities statement, tax return, W-2 form, documentation
regarding employment status, rental property lease or property
appraisal which such person knows to contain false information
concerning any fact material thereto.

A person is guilty of mortgage fraud in the second degree when he
commits a fraudulent mortgage act. Mortgage fraud in the second degree
is a class E felony. A person is guilty of mortgage fraud in the first
degree when he commits a fraudulent mortgage act and thereby
wrongfully defrauds or attempts to wrongfully defraud mortgage bankers
or exempt organizations of more than ten million dollars. Mortgage
fraud in the first degree is a class D felony.

 JUSTIFICATION :

New York State has established a comprehensive system for regulating,
examining and overseeing the activities and operations of financial
institutions. This regulatory system is important for the promotion
and protection of the financial system, and for ensuring the
protection of consumers.

There continue to be some problems with persons undertaking financial
activities without the required approval of the Banking Department.
Licensing and regulation are crucial for the protection of consumers.
Because some entities are avoiding regulation and are not complying
with the rules established for the protection of consumers, there is a
much greater likelihood that consumers will be defrauded.

In particular, a number of people have operated without authorization
as mortgage brokers, mortgage bankers and money transmitters. Several
homeowners have been subjected to abusive lending practices as a
result of the activities of unregulated persons.

Operating without the required authorization under the Banking Law is
already a crime, and in some cases civil penalties may also apply.
However, additional steps need to be taken to attack this problem. One
concern raised in a State Comptroller's audit was the lack of
coordination between the Banking Department and the Attorney General's
Office in addressing the problem of unregistered mortgage brokers.
These entities have often engaged in misleading, deceptive and
fraudulent practices, harming many homeowners.

In order to encourage and promote better cooperation, this bill would
require the Banking Department to inform the Attorney General and
other appropriate agencies if it learns of any such unauthorized
entities. The Attorney General is directed to provide the Department
with regular updates on the status of any enforcement action being
taken to prevent the continued operation of unauthorized entities.
This should help ensure that the State remains focused on shutting
down entities which flaunt the laws and harm consumers.

Given the number of problems with unauthorized mortgage brokers, the
bill also establishes an affirmative obligation on licensed mortgage
bankers and registered mortgage brokers to not conduct business with
these unauthorized entities, and to notify the Banking Department if
they become aware of such illegal operations.

The bill would also establish the specific crime of mortgage fraud in
order to provide law enforcement officials with the improved ability
to address this growing problem. Law enforcement officials and
financial regulators have seen a disturbing number of incidents in
which a mortgage broker (or a mortgage banker acting in the capacity
of a broker) falsifies data and documents in order to secure approval
of a loan, thereby enabling the banker or broker to close the loan and
collect its fees. This type of fraudulent action may occur either with
or without the knowledge of the applicant.

This type of fraud victimizes both the borrower and the lender. In
these cases, the homeowner usually receives a loan they can't afford,
which typically ruins them financially and ultimately results in the
loss of the home. The lender is also victimized as it loses money on
these bad loans.

Federal law already imposes strict penalties for knowingly making
false statements in an attempt to influence the action of a banking
institution on a loan application. However, that law only applies to
fraudulent applications submitted to federally-insured banking
institutions. This bill creates state level penalties that can be used
for crimes affecting both insured banking institutions and other types
of mortgage bankers who are not currently protected by the federal
law. This new crime targets those brokers and bankers who actively
engage in the forging of false supporting documents for a mortgage
loan. By cracking down on this abusive practice, this legislation will
help protect both the consumers and lenders who are victimized by this
practice.

 LEGISLATIVE HISTORY :
Bill S.2856 of 2005-06 Passed Senate both years
Bill S.2746 of 2007-08 Passed Senate both years

 FISCAL IMPACT :
None.

 EFFECTIVE DATE :
This act shall take effect on the thirtieth day after it shall have
become a law.