BNK-01-08-00020-E Authorization and Education Requirements for Mortgage Loan Originators

1/2/08 N.Y. St. Reg. BNK-01-08-00020-E

NEW YORK STATE REGISTER

VOLUME XXX, ISSUE 1

January 02, 2008

RULE MAKING ACTIVITIES

BANKING DEPARTMENT

EMERGENCY RULE MAKING

 

I.D No. BNK-01-08-00020-E

Filing No. 1379

Filing Date. Dec. 18, 2007

Effective Date. Dec. 18, 2007

Authorization and Education Requirements for Mortgage Loan Originators

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Addition of Part 420 and Supervisory Procedure MB 107 to Title 3 NYCRR.

Statutory authority:

Banking Law, art. 12-E

Finding of necessity for emergency rule:

Preservation of general welfare.

Specific reasons underlying the finding of necessity:

The Banking Department finds that the immediate adoption of this rule is necessary for the preservation of the general welfare and that compliance with the requirements of subdivision one of section 202 of the State Administrative Procedure Act would be contrary to the public interest.

The Legislature, in adopting article 12-E of the Banking Law, has determined that regulation of persons who originate mortgage loans on residential real property by the Superintendent of Banks (“Superintendent”) is necessary to ensure the public welfare.

Article 12-E becomes effective Jan. 1, 2008. The legislation requires the Superintendent to adopt implementing regulations prior to that date. Such adoption is necessary in order for mortgage bankers, mortgage brokers and mortgage loan originators (“MLOs”) to understand their obligations under the new legislation, to file the necessary applications and to plan compliance.

The process of working with other regulatory and self-regulatory organizations involved in the process of developing the nationwide MLO information system, devising and drafting the regulations necessary to implement the new legislation and consulting with other government agencies and industry groups on the new regulatory framework has taken significant time. Consequently, it will not be possible to complete the process for proposing and adopting permanent rules set forth in section 202 of SAPA by Jan. 1, 2008.

Immediate adoption of the regulation is necessary to enable the Banking Department to begin the MLO registration process as soon as possible. It is also necessary to establish the form and manner of application, and the amount of the application fee, so as to enable individuals who seek to originate mortgages after Jan. 1, 2008 to file their applications with the Banking Department. Under new section 599(c)(6) of the Banking Law, if such individuals were not employed as MLOs prior to that date, they may not engage in mortgage loan origination until the Department has received their application.

Subject:

Authorization and education requirements for mortgage loan originators.

Purpose:

To require persons who originate mortgage loans on residential real property to regulation on or after Jan. 1, 2008 to be authorized by the Superintendent of Banks; set forth application, exemption and approval procedures for authorization as a mortgage loan Originator (MLO); and set forth education requirements for MLOs, describe prohibited conduct and set forth penalties. Proposed Supervisory Procedures MB 107 sets forth the details of the application procedures.

Substance of emergency rule:

Section 420.1 summarizes Section 599-c of the Banking Law, which describes the authorization and application process to become a Mortgage Loan Originator (MLO), and Section 599-g of the Banking Law, which describes the grounds for suspension or revocation of an MLO authorization.

Section 420.2 summarizes the exemptions from the requirement to register as an MLO that are contained in Section 599-e of the Banking Law.

Section 420.3 contains a number of definitions of terms that are used in Part 420, including the crucial terms “Mortgage Loan Originator, Mortgage Loan Originating, and Originating Entity.”

Section 420.4 sets forth the application procedure for initial authorization as an MLO. It includes two grace periods that are contained in the Banking Law, and one that is being adopted by the Superintendent of Banks under authority granted in Section 599-h of the Banking Law and Section 5 of chapter 749 of the laws of 2006. Specifically, a person who was employed by or affiliated with an Originating Entity as an MLO prior to January 1, 2008 may continue to engage in Mortgage Loan Originating until the earlier of January 1, 2010 or the date such person receives notice from the Superintendent that his or her application has been denied. Such a person must file an application to become authorized by July 1, 2008, or such later date as the Superintendent may agree with such MLO's Originating Entity. A person who is initially employed by or affiliated with an Originating Entity as an MLO on or after January 1, 2008 may engage in Mortgage Loan Originating after April 1, 2008 only if he or she has submitted an application, fingerprints and required fees in accordance with Part 420 and either such person or his or her Originating Entity has received notice from the Superintendent that his or her application has been accepted for processing and has not received notice that such application has been denied.

This Section also sets forth information as to the elements of an application for authorization.

Section 420.5 allows Originating Entities to employ certain persons after the January 1, 2008 effective date of the MLO provisions of the Banking Law, even though they have not yet become authorized.

Section 420.6 sets forth the method in which the Superintendent will notify applicants of the approval or denial of an application to become an authorized MLO. It summarizes the statutory grounds on which the Superintendent may deny an application. It also repeats the statutory requirement that the Superintendent maintain on the Department's website a list of authorized MLOs.

Section 420.7 describes the “inactive status” that occurs during any period when an MLO is not employed by or affiliated with a mortgage banker or mortgage banker licensed under Article 12-D of the Banking Law, and the requirements placed on Originating Entities to notify the Superintendent when that occurs.

Section 420.8 describes the grounds for suspension and expiration of authorization as an MLO, including failure to timely pay the annual authorization fee and failure to timely complete the education requirements. It also makes clear that the suspension or expiration of an authorization does not affect the MLO's civil or criminal liability for acts committed prior to the suspension or expiration.

Section 420.9 describes the procedures for annual renewal of an authorization as an MLO.

Section 420.10 contains the requirements for surrender of an authorization as an MLO. It also makes clear that the surrender of an authorization does not affect the MLO's civil or criminal liability for acts committed prior to the surrender.

Section 420.11 first sets forth the education requirements that apply as a condition to initial authorization and as a condition to annual renewal of authorization. Second, it requires each Originating Entity to obtain proof, in the form of certificates of course completion in the form required by the Superintendent, that each MLO employed by or affiliated with it has completed the required Education Courses. Third, the rule sets out the education requirements (i.e. required number of hours of Education Courses) that must be completed by MLOs, as well as the requirements with respect to course content. Fourth, the Section describes the consequences of failure to comply with the education requirements and the procedure for requesting variances and extensions. Finally, the Section defines, for purposes of Section 599-e, an educational program that is substantially equivalent to the requirements for non-exempt MLOs. This is important to MLOs employed by or affiliated with certain Originating Entities that are subsidiaries or affiliates of certain banking organizations, which are required by the Banking Law, as a condition to their exemption from the authorization provisions of the statute, to provide Education Courses that are the substantial equivalent of those provided by non-exempt entities.

Section 420.12 summarizes the provisions of Article 12-E of the Banking Law with respect to persons or entities authorized to provide Education Courses. Some such entities are authorized in the statute to give Education Courses (referred to in Section 420 as “Authorized Providers”). Others must be approved by the Superintendent (referred to in Section 420 as “Approved Providers”). Second, the Section describes the application process for those providers that must be approved by the Superintendent. Third, it also requires Authorized Providers nevertheless to give notice to the Superintendent that they plan to provide Education Courses to MLOs in this state and provide the Superintendent with information about such courses. Fourth, the Section sets forth the procedure whereby Approved Providers must obtain approval for particular Education Courses. Fifth, the section contains rules with respect to advertising that a course has been approved by the Superintendent. Sixth, it describes information about Approved Providers, approved Education Courses, and Authorized Providers that will be listed on the Department's website. Seventh, the section notes that the Superintendent may approve Education Courses that meet the requirements of another jurisdiction that the Superintendent determines meet the standards of Article 12-E and provides for a list of such jurisdictions to be posted on the Department's website. Eighth, the Section requires Authorized Providers and Approved Providers to file an annual report with the Superintendent that provides certain information with respect to the Education Courses given by it for which it has granted a certificate of course completion to a New York MLO. Finally, it provides for the examination of providers of Education Courses and for revocation of the authorization to act as such provider.

Section 420.13 provides for certain fees for an initial authorization application and an annual re-authorization application.

Section 420.14 contains certain duties of Originating Entities.

Section 420.15 contains certain duties of MLOs.

Section 420.16 contains conduct that is prohibited to an MLO (including conduct that is prohibited under Part 38.7 of the General Regulations of the Banking Board) and conduct that is prohibited to an Originating Entity.

Section 420.17 summarizes the circumstances in which the Superintendent may revoke a person's authorization as an MLO or suspend such authorization. It also states that an order of suspension may include, as a condition of reinstatement, that restitution be made to consumers with respect to fees or other charges that the MLO has improperly charged or collected, as determined by the Superintendent. Furthermore, it reminds MLOs that, under Section 44 of the Banking Law, the Superintendent may impose fines against MLOs. The section sets forth a number of grounds for disciplinary action, and states that administrative hearings will be conducted under Supervisory Procedure G111.

Section 420.18 provides that Section 420 will be effective immediately upon adoption.

Supervisory Procedure 107

Section 107.1 contains definitions of defined terms used in the Supervisory Procedure. Importantly, it defines the National Mortgage Licensing System (NMLS), the web-based system with which the Superintendent has entered into a written contract to process applications for authorization and applications for annual re-authorization of MLOs.

Section 107.2 contains general information about applications for authorization and annual re-authorization as an MLO, including the address where certain parts of the application for authorization must be mailed.

Section 107.3 describes the parts of an application for initial authorization and states that a sample of the application form (which must be completed online) may be found on the Department's website. The application includes (1) the application form, (2) fingerprint cards, (3) the fees, (4) applicant's credit report, (5) an affidavit subscribed under penalty of perjury in the form prescribed by the Superintendent, and (6) any other information that may be required by the Superintendent. It also describes the procedure when the Superintendent determines that the information provided by the application is not complete.

Section 107.4 describes the required submissions for annual re-authorization of an MLO.

Section 107.5 covers inactive status.

Section 107.6 provides information on places where applicants may obtain additional instructions and assistance on the Department's website, by email, by mail, and by telephone.

This notice is intended

to serve only as a notice of emergency adoption. This agency intends to adopt this emergency rule as a permanent rule and will publish a notice of proposed rule making in the State Register at some future date. The emergency rule will expire March 16, 2008.

Text of emergency rule and any required statements and analyses may be obtained from:

Sam L. Abram, Secretary to the Banking Board, Banking Department, One State St., New York, NY 10004-1417, [phone], e-mail: [e-mail]

Regulatory Impact Statement

1. Statutory Authority. Article 12-E of the Banking Law, as amended by the Legislature in 2007, creates a framework for the regulation of mortgage loan originators. Mortgage loan originators (MLO) are individuals employed by or affiliated with an originating entity who engage in mortgage loan originating. An originating entity means a person or entity licensed or registered pursuant to Article 12-D of the Banking Law. Article 12-E authorizes the Superintendent to make such rules and regulations as may in his or her judgment be necessary or appropriate for the effective administration or enforcement of this article.

Section 599-c of 12-E prohibits a person from engaging in mortgage loan originating without first being authorized by the Superintendent. In addition, it authorizes the Superintendent, in determining whether to grant authorization to an applicant, to assess the applicant's general character, fitness and education qualifications warrant a belief that the applicant will engage in mortgage loan originating honestly, fairly and efficiently. This section also requires the Superintendent to apply the same character and fitness standards to MLOs that apply to originating entities (i.e. mortgage bankers and mortgage brokers) pursuant to Sections 592 and 592-a, respectively, of Article 12-D of the Banking Law. As part of the authorization process, MLOs are also required to pay a fee under 599-c. This fee can be adjusted annually by the Superintendent.

Section 599-d requires authorized MLOs to take continuing education courses relating to the current business of mortgage loan originating. These courses must include education in the statutory and regulatory requirements and judicial interpretations governing the mortgage industry and mortgage practices in New York, as well as courses in the ethics of mortgage loan originating and mortgage lending.

Section 599-f requires the originating entity to retain course credit documentation for each MLO and also requires the Superintendent to maintain an internet listing of all authorized MLOs.

Section 599-g gives the Superintendent grounds to revoke or suspend any mortgage loan originator's authorization where the MLO has violated Article 12-E or a rule or regulation promulgated by the Banking Board or the Superintendent under the Banking Law, or a federal law or regulation pertaining to mortgage banking, mortgage brokerage or loan originating, or if there is a substantial risk of public harm. Also, it allows the Superintendent to determine what measures should be taken to penalize an MLO who has engaged in dishonest or inequitable practices that may cause substantial harm to persons afforded protections under 12-D. This authority is specifically granted under Section 44 of Article 2 of the Banking Law, which authorizes the Superintendent to impose a fine against an MLO for any violation of the Banking Law, any regulation promulgated thereunder or any final or temporary order issued by the Superintendent.

2. Legislative Objectives. The legislature deems it necessary, in order to ensure the public welfare, that mortgage loan originators be subject to regulation by the Superintendent. The problems related to sub-prime lending require immediate attention, and enhanced supervision of the mortgage industry will address many of the concerns that have been identified in the sub-prime mortgage market. The legislation seeks to improve the integrity and professionalism of individuals in the mortgage lending industry. The bill has two main components: it requires the authorization (i.e., registration) of individual mortgage loan originators by the Banking Department, and it sets continuing educational standards for such individuals.

The legislative intent of the authorized mortgage loan originators (MLO) law was to create a level of consistency between the authorization process of mortgage entities found in Article 12-D of the Banking Law and Article 12-E; and 12-D is referenced throughout the statute. The Legislature deemed it necessary to regulate MLOs and originating entities on the same level. Thus, many of the regulatory requirements made pursuant to Article 12-D were referenced and borrowed to maintain consistency between Articles 12-E and 12-D.

The continuing education requirements, similar to those imposed on insurance brokers and real estate brokers, ensure that individuals engaging in the business of mortgage loan origination have a solid understanding of the mortgage business as well as an understanding of ethical business practices and relevant federal and state laws and regulations. In addition, the continuing education component of the law recognizes that laws, regulations and practices governing the mortgage industry are subject to continuing change and requires those individuals involved in mortgage origination to maintain an understanding of these changes.

3. Needs and Benefits. This regulation is needed to implement the statute and is necessary to address problems that have surfaced over the past year in the mortgage industry. Increased oversight of mortgage loan originators is necessary to curb disreputable and deceptive businesses practices by MLOs. Individuals engaging in abusive practices have avoided detection by moving from company to company and in some instances, from state to state. The registration of MLOs will greatly assist the department in its efforts to oversee the mortgage industry and protect consumers. The regulation will enable the Department to identify, track and hold accountable those individuals who engage in abusive practices, and ensure continuing education for all MLOs that are authorized by the Department. The Department estimates as many as 40,000 originators may register in 2008.

In addition to including statutory requirements, the regulation requires MLO applications to be submitted electronically, specifies particular conduct which is prohibited, imposes requirements upon originating entities that employ MLOs and upon providers of continuing education.

These regulatory requirements will improve accountability among mortgage industry professionals, protect and promote the integrity of the mortgage industry, and improve the quality of service, thereby helping to restore consumer confidence.

4. Costs. The mortgage business will experience increased costs associated with the continuing education requirements and the fees associated with MLO authorization and annual re-authorization. The regulation sets forth an investigatory background check fee of $125, an initial authorization processing fee of $50 and an annual authorization fee of $50. There will also be a fee for the processing of fingerprints and fees to cover the cost of third party processing of the application. The latter two fees will be posted on the Department's website. The cost of continuing education is estimated to be approximately $500 every two years. Education providers will not be charged fees for submission of applications for provider and course approval. Providers may incur administrative costs associated with preparing applications for provider and curriculum approval. Providers will, however, charge MLOs fees for attending the continuing education courses. The Department's increased effectiveness in fighting mortgage fraud and predatory lending is expected to lower costs related to litigation and to decrease losses to consumers and the mortgage industry by hundreds of millions of dollars.

The regulation will not result in any fiscal implications to the State. The Banking Department is funded by the regulated financial services industry. Fees charged to the industry will be adjusted periodically to cover Department expenses incurred in carrying out this regulatory responsibility.

5. Local Government Mandates. None.

6. Paperwork. An application process will be established for an MLO to apply for authorization electronically and to submit additional background information to the Mortgage Banking Division of the Banking Department. The electronic application form requests information about the applicant's educational and employment background, as well as certain information about legal proceedings involving the applicant. The additional information will consist of fingerprints, a recent credit report, and an attestation as to the truthfulness of the applicant's statements. Mortgage brokers and bankers are required to retain acceptable documentation as evidence of satisfactory completion of required education courses for each MLO for a period of six years. Persons or entities seeking to be approved by the Superintendent as education providers must submit an application for provider approval and separate applications for course approval. Originating entities must also submit to the Department four reports per year documenting currently employed or affiliated MLOs, and dismissals of MLOs for alleged or actual violations.

7. Duplication. The regulation does not duplicate, overlap or conflict with any other regulations.

8. Alternatives. The industry has supported passage of Article 12-E and has had substantial opportunity to comment on the specific requirements of this statute and its supporting regulation. In addition, the industry has been involved in an on-going policy dialogue with the Department during rule development. Meetings have been held with representatives of the mortgage industry to ensure regulation that will impose an adequate level of supervisory oversight where none previously existed. The purpose of the regulation is to address problems that have arisen in the mortgage market while at the same time avoiding overly complex and restrictive rules that would have imposed unnecessary burdens on the industry. For example, the Department considered an examination requirement for mortgage loan originators, as is currently the practice with real estate brokers and sales persons. The Department, however, believes that the education and continuing education requirements will be sufficient to raise the knowledge of originators to acceptable levels. Similarly, the Department discussed whether it was desirable to require that MLO's with less than four years' experience to obtain continuing education only in a traditional live classroom setting, to facilitate the answering of questions and to ensure a high level of attention. Although the Department believes this may be the most desirable educational setting for inexperienced MLOs, the Department, concluded that alternative settings for continuing education would adequately address the intent of the statute, without imposing undue burdens upon regulated parties. Such alternative settings may include online programs, web casts, video conferences, teleconferences, and computer-based training programs. The Department also considered specifying a number of obligations of MLOs in avoiding predatory lending practices. However, discussions with representatives of the industry raised a number of inconsistencies between such duties and the duties already placed on mortgage bankers and mortgage brokers. Accordingly, the Department determined that the standards for MLOs with respect to subprime mortgages should be the same as those that apply to mortgage bankers and mortgage brokers under Part 38.7 of the General Regulations of the Banking Board. The ongoing discussion with the industry helped the Department achieve a workable, efficient and effective regulation to implement the statute.

9. Federal Standards. While federal regulators have issued guidance on the origination of mortgage products, the responsibility for regulating non-bank entities such as mortgage bankers and mortgage brokers is largely assumed by the states. Moreover, as the mortgage industry has fragmented in recent years, a significant share of the residential mortgage business, particularly the non-prime sector, has been served by these entities, which are typically licensed through state agencies. The New York State Banking Department currently licenses over 2,700 such entities. State regulators, through the Conference of State Bank Supervisors (CSBS), are developing a nationwide registry of mortgage lenders, mortgage brokers and mortgage loan originators to assist regulators in identifying and tracking individuals who have engaged in predatory origination practices. New York has participated in the development of this system and will be using it as part of its MLO authorization program.

10. Compliance Schedule. The emergency regulation will become effective upon filing; and the Department expects to begin receiving applications through the web-based National Mortgage Licensing System on or about January 2, 2008. By January 15, 2008, mortgage originating entities must provide the Superintendent with a report of MLOs employed by or affiliated with them on December 31, 2008. Each Mortgage Loan Originator who was employed by or affiliated with an originating entity before January 1, 2008, must file an application to be authorized by July 1, 2008 (or such later date as the Superintendent may agree with such MLO's originating entity). To make this process minimally disruptive to the industry, the regulation allows these “grandfathered” mortgage loan originators to continue to engage in origination on while the Department conducts the necessary background checks. An individual who became employed by or affiliated with an originating entity for the first time on or after January 1, 2008 may not originate mortgages after April 1, 2008 until he or she has filed an application (along with the necessary fees and fingerprint cards) and received notice from the Department that the application has been received. These MLOs may then continue to originate mortgages unless they are given notice that their application has been denied. In instances in which applications are incomplete, the MLO will be given thirty days to remedy the deficiency.

Individuals who engaged in mortgage loan origination before January 2008 will have until January 1, 2010 to comply with the initial education requirements. Those who became employed on or after January 1, 2008 must complete the initial education requirements by the end of the year in which the first anniversary of their authorization occurs.

Regulatory Flexibility Analysis

1. Effect of the Rule: The regulation will not have any impact on local governments. However, the majority of originating entities (i.e., licensed and registered mortgage bankers and mortgage brokers who employ or are affiliated with mortgage loan originators are considered small businesses. In excess of 2,700 of these businesses are licensed or registered by the Department.

2. Compliance Requirements: The bill has two main components: it requires the authorization (i.e., registration) of individual mortgage loan originators by the Banking Department, and it sets continuing educational standards for such individuals. The small businesses that MLOs are employed by or affiliated with will be required to ensure that all MLOs employed by them have been duly authorized, report four times a year on the MLOs newly employed by them or dismissed for actual or alleged violations, determine that each MLO employed by or affiliated with them has the character, fitness and education qualifications to warrant the belief he or she will engage in mortgage loan originating honestly, fairly and efficiently; and, finally, retain acceptable documentation as evidence of satisfactory completion of required education courses for each MLO for a period of six years. Some education providers seeking to participate in the MLO continuing education program may also be small businesses. Those providers must submit an application for provider approval and separate applications for course approval and maintain records of course programs and attendance.

3. Professional Services: None.

4. Compliance Costs: Some mortgage entities may choose to pay for costs associated with authorization and annual re-authorization for their MLOs and continuing education requirements, but are not required to do so. Costs associated with electronic filing of quarterly employment reports and retaining for six years evidence of completion by MLOs of required continuing education are expected to be minimal. Education providers will not be charged fees for submission of applications for provider and course approval. Providers may incur administrative costs associated with preparing applications for provider and curriculum approval. Providers may, however, recover these expenses by charging fees for attending the continuing education courses.

5. Economic and Technological Feasibility: The rule-making should impose no adverse economic or technological burden on mortgage bankers and brokers who are small businesses.

6. Minimizing Adverse Impacts: The industry, and specifically small businesses who are licensed and registered mortgage businesses, supported passage of Article 12-E and has had substantial opportunity to comment on the specific requirements of this statute and its supporting regulation. In addition, these businesses were involved in an on-going policy dialogue with the Department during rule development. Meetings have been held with representatives of the mortgage industry to ensure regulation that will impose an adequate level of supervisory oversight where none previously existed without having an adverse impact on small business. The Department worked with mortgage businesses during rule development to minimize adverse impacts in many instances. For example, we considered an examination requirement for mortgage loan originators, as is currently the practice with real estate brokers and sales persons. The Department, however, believes that the education and continuing education requirements will be sufficient to raise the knowledge of originators to acceptable levels. Similarly, the Department discussed whether it was desirable to require that MLO's with less than four years' experience to obtain continuing education only in a traditional live classroom setting, to facilitate the answering of questions and to ensure a high level of attention. Although the Department believes this may be the most desirable educational setting for inexperienced MLOs, the Department, concluded that alternative settings for continuing education would adequately address the intent of the statute, without imposing undue burdens upon regulated parties. Such alternative settings may include online programs, web casts, video conferences, teleconferences, and computer-based training programs. The Department also considered specifying a number of obligations of MLOs in avoiding predatory lending practices. However, discussions with representatives of the industry raised a number of inconsistencies between such duties and the duties already placed on mortgage bankers and mortgage brokers. Accordingly, the Department determined that the standards for MLOs with respect to subprime mortgages should be the same as those that apply to mortgage bankers and mortgage brokers under Part 38.7 of the General Regulations of the Banking Board. The ongoing discussion with the industry helped the Department achieve a workable, efficient and effective regulation to implement the statute.

7. Small Business and Local Government Participation: Representatives of the following entities have been invited to participate in a number of outreach meetings that were conducted during both the statutory and regulatory drafting process: New York Association of Mortgage Brokers; New York Bankers Association; Empire State Mortgage Bankers Association; Citigroup; HSBC; Mortgage Bankers Association; and representatives from GORR.

Rural Area Flexibility Analysis

Types and Estimated Numbers of Rural Areas. The New York State Banking Department currently licenses over 2,700 mortgage bankers and brokers throughout the state and anticipates that up to 40,000 mortgage loan originators may register in 2008. Many of these entities and MLOs will be operating in rural areas of New York State and would be impacted by the proposal.

Compliance Requirements. Mortgage loan originators in rural areas must be authorized by the Superintendent to engage in the business of mortgage loan origination. An application process will be established requiring an MLO to apply for authorization electronically and to submit additional background information to the Mortgage Banking Division of the Banking Department. This additional information will consist of fingerprints, a recent credit report, supplementary background information and an attestation as to the truthfulness of the applicant's statements. Mortgage brokers and bankers are required to ensure that all MLOs employed by them have been duly authorized, report four times a year on the MLOs newly employed by them or dismissed for cause, determine that each MLO employed by or affiliated with them has the character, fitness and education qualifications to warrant the belief he or she will engage in mortgage loan originating honestly, fairly and efficiently; and, finally, retain acceptable documentation as evidence of satisfactory completion of required education courses for each MLO for a period of six years. Education providers seeking to participate in the MLO continuing education program must submit an application for provider approval and separate applications for course approval. Originating entities must also submit to the Department four reports per year documenting currently employed or affiliated MLOs, and dismissals of MLOs for alleged or actual violations. The Department believes that this rule will not impose a burdensome set of requirements on entities operating in rural areas.

Costs. Some mortgage businesses in rural areas may choose to pay the increased costs associated with the continuing education requirements and the fees associated with authorization and re-authorization of their MLOs, but are not required to do so. The regulation sets forth a background investigation fee of $125.00, an initial authorization processing fee of $50.00 and an annual authorization fee of $50.00. There will also be a fee for the processing of fingerprints and fees to cover the cost of third party processing of the application. The latter two fees will be posted on the Department's website. Costs associated with electronic filing of quarterly employment reports and retaining for six years evidence of completion by MLOs of required continuing education courses are expected to be minimal. The cost of continuing education is estimated to be approximately $500 every two years. Education providers will not be charged fees for submission of applications for provider and course approval. Providers may incur administrative costs associated with preparing applications for provider and curriculum approval. Providers will, however, charge MLOs fees for attending the continuing education courses. The Department's increased effectiveness in fighting mortgage fraud and predatory lending will lower costs related to litigation and will decrease losses to consumers and the mortgage industry by hundreds of millions of dollars.

Minimizing Adverse Impacts. The industry has supported passage of Article 12-E and has had substantial opportunity to comment on the specific requirements of this statute and its supporting regulation. In addition, the industry has been involved in an on-going policy dialogue with the Department during rule development. Meetings have been held with representatives of the mortgage industry to ensure regulation that will impose an adequate level of supervisory oversight while at the same time avoiding overly complex and restrictive rules that would have imposed unnecessary burdens on mortgage companies in rural areas. In addition, the Department considered an examination requirement for mortgage loan originators, as is currently the practice with real estate brokers and sales persons. The Department, however, believes that the education and continuing education requirements will be sufficient to raise the knowledge of originators to acceptable levels. The Department noted opposition related to requiring MLOs with less than four years experience to obtain continuing education only in a traditional face-to-face setting. Although this may be the most desirable educational setting for inexperienced MLOs, alternative forums for continued education would adequately address the intent of the statute, without imposing undue burdens upon regulated parties in rural areas. Discussions with representatives of the industry also revealed objections to certain provisions of the regulation which related to duties of mortgage loan originators and prohibited conduct. In their view these standards were not consistent with those previously set forth for brokers and mortgage bankers. As requested by the industry, the Department modified the proposal, bringing it into conformity with the mortgage industry standards established in Part 38.7 of the General Regulations of the Banking Board. The ongoing discussion with the industry helped the Department achieve a workable, efficient and effective regulation to implement the statute and minimize adverse impacts wherever possible.

Rural Area Participation. Representatives of the following entities have been invited to participate in a number of outreach meetings that were conducted during both the statutory and regulatory drafting process: New York Association of Mortgage Brokers; New York Bankers Association; Empire State Mortgage Bankers Association; Citigroup; HSBC; Mortgage Bankers Association. These entities include mortgage bankers and brokers conducting business in rural areas and entities that conduct mortgage originating in rural areas.

Job Impact Statement

Article 12-E of the Banking Law sets forth conditions under which certain individuals may be authorized by the Superintendent to engage in the business of mortgage loan origination. This regulation requires Mortgage Loan Originator applicants to meet those statutorily set qualifications for authorization as a Mortgage Loan Originator (MLO) and fulfill the statutory continuing education requirements. The Department acknowledges that applicants who fail to qualify for authorization will be barred from employment as MLOs. However, it is apparent that any impact on jobs and employment opportunities is due to the nature and purpose of the statute rather than the provisions of this proposal.