Mortgage brokers and bankers, their role, and the Banking Law dual agency disclosure
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Arranging versus making the loan
A mortgage broker solicits, processes, places, or negotiates mortgage loans for others. A mortgage banker makes mortgage loans. In New York, Banking Law § 590 generally connects the first business to registration and the second to licensing by the superintendent of financial services.
Statutory exemptions apply, and § 590 contains a narrow approved Federal Housing Administration loan correspondent exception to the general prohibition on brokers making loans. Do not assume that every participant needs the same credential.
Real estate work and an overlapping role
Under New York Banking Law § 590(2)(b), a real estate broker or salesperson is not deemed to be in the mortgage brokerage business if no fee is accepted, directly or indirectly, for soliciting, processing, placing, or negotiating a mortgage loan. A separate mortgage services fee changes that analysis; a real estate credential does not itself authorize a mortgage brokerage business.
New York's Department of Financial Services mortgage broker dual agency disclosure rule concerns a mortgage broker who also acts as a real estate broker in the transaction. The borrower must receive disclosure of that dual role. Keep this mortgage disclosure separate from identifying buyer and seller representation in the property sale. Neither disclosure makes a mortgage broker the lender.
Disclosures and business practices
New York Banking Law § 595-a requires disclosure, at or before application, of fees payable at application and the conditions under which they may be refunded. Advertisements must identify the business; broker advertisements must indicate that brokers may not make loans. Material misrepresentation or concealment, including pertinent third-party payments, can lead to regulatory penalties.
For example, collecting an application and negotiating with a lender is brokerage work; making the loan is the banker's role. If the arranging firm also brokers the property transaction, consider the dual role disclosure separately. Ask: Who arranges? Who lends? What roles and fees must be disclosed?
Key terms
Sample questions
Which activity defines a mortgage broker’s role in New York under Banking Law article 12-D?
Reveal answer
Correct answer: Arranging mortgage loans for others.
A mortgage broker solicits, processes, places, or negotiates mortgage loans for others. Making loans and servicing payments are different functions.
A nonexempt company plans to enter the business of making residential mortgage loans in New York. Which article 12-D authorization does this business generally require?
Reveal answer
Correct answer: A mortgage banker license.
The business of making mortgage loans generally requires a mortgage banker license, rather than registration to arrange loans.
Which New York official administers the mortgage banker licensing and mortgage broker registration requirements described in article 12-D?
Reveal answer
Correct answer: The superintendent of financial services.
Article 12-D places these licensing and registration requirements under the superintendent of financial services.