Makes provisions allowing any individual to make not more than three mortgage loans, nor more than five in a two year period, to family members without requiring an individual to obtain a mortgage banking license.
Ayes (62): Adams, Addabbo, Alesi, Avella, Ball, Bonacic, Breslin, Carlucci, DeFrancisco, Diaz, Dilan, Duane, Espaillat, Farley, Flanagan, Fuschillo, Gallivan, Gianaris, Golden, Griffo, Grisanti, Hannon, Hassell-Thomps, Huntley, Johnson, Kennedy, Klein, Krueger, Kruger, Lanza, Larkin, LaValle, Libous, Little, Marcellino, Martins, Maziarz, McDonald, Montgomery, Nozzolio, O'Mara, Oppenheimer, Parker, Peralta, Perkins, Ranzenhofer, Ritchie, Rivera, Robach, Saland, Sampson, Savino, Serrano, Seward, Skelos, Smith, Squadron, Stavisky, Stewart-Cousin, Valesky, Young, Zeldin
Ayes (59): Adams, Addabbo, Alesi, Avella, Ball, Bonacic, Breslin, Carlucci, DeFrancisco, Diaz, Dilan, Duane, Farley, Flanagan, Fuschillo, Gallivan, Gianaris, Golden, Griffo, Grisanti, Hannon, Hassell-Thomps, Huntley, Johnson, Kennedy, Klein, Krueger, Lanza, LaValle, Libous, Little, Marcellino, Martins, Maziarz, McDonald, Montgomery, Nozzolio, O'Mara, Oppenheimer, Parker, Peralta, Perkins, Ranzenhofer, Ritchie, Rivera, Robach, Saland, Sampson, Savino, Serrano, Seward, Skelos, Smith, Squadron, Stavisky, Stewart-Cousin, Valesky, Young, Zeldin
Excused (2): Espaillat, Larkin
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.
STATE OF NEW YORK ________________________________________________________________________ 3779 2011-2012 Regular Sessions IN SENATE March 3, 2011 ___________Introduced by Sen. SMITH -- read twice and ordered printed, and when printed to be committed to the Committee on Banks AN ACT to amend the banking law, in relation to the requirement for licensure to make mortgage loans THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Paragraph (a) of subdivision 2 of section 590 of the bank- ing law, as amended by chapter 472 of the laws of 2008, is amended to read as follows: (a) No INDIVIDUAL, person, partnership, association, corporation or other entity shall engage in the business of making
[five or more]mort- gage loans [in any one calendar year]without first obtaining a license from the superintendent in accordance with the licensing procedure provided in this article and such regulations as may be promulgated by the banking board or prescribed by the superintendent. The licensing provisions of this subdivision shall not apply to: (I) any exempt organ- ization [nor to]; (II) any entity or entities which shall be exempted in accordance with regulations promulgated by the banking board hereunder; OR (III) ANY INDIVIDUAL, PERSON, PARTNERSHIP, ASSOCIATION, CORPORATION OR OTHER ENTITY WHICH MAKES NOT MORE THAN THREE SUCH LOANS IN A CALENDAR YEAR, NOR MORE THAN FIVE IN A TWO YEAR PERIOD, PROVIDED THAT NO SUCH MORTGAGE LOANS HAVE BEEN MADE WHICH WERE SOLICITED, PROCESSED, PLACED OR NEGOTIATED BY A MORTGAGE BROKER, MORTGAGE BANKER OR EXEMPT ORGANIZATION. S 2. Paragraph (b) of subdivision 5 of section 590 of the banking law, as amended by chapter 472 of the laws of 2008, is amended to read as follows: (b) Mortgage brokers shall solicit, process, place and negotiate mort- gage loans WITH A MORTGAGE BANKER LICENSED PURSUANT TO THE PROVISIONS OF THIS ARTICLE OR EXEMPT ORGANIZATION AS DEFINED HEREIN OR PURSUANT TO REGULATIONS AS PROMULGATED BY THE BANKING BOARD OR PRESCRIBED BY THE SUPERINTENDENT AND in conformity with the provisions of this chapter,EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD09853-01-1 S. 3779 2
such rules and regulations as may be promulgated by the banking board or prescribed by the superintendent thereunder and all applicable federal laws and the rules and regulations promulgated thereunder; S 3. This act shall take effect on the first of January next succeed- ing the date on which it shall have become a law.