New York State Banking Department Proposes Regulations for Mortgage Loan Servicers

On May 13, the New York State Banking Department (NYSBD) issued proposed regulations that would impose registration, financial responsibility, and business background requirements on mortgage loan servicers doing business in the state. Under the proposed rules, any entity engaging in the business of servicing mortgage loan must register with the NYSBD Superintendent, unless the entity is specifically exempted under the regulations. Currently, the proposed regulations exempt state and federally regulated financial institutions, New York licensed mortgage bankers and mortgage brokers, and their employees. The proposed regulations seek to impose financial responsibility requirements that would be applicable to registrants and exempt entities alike. Under these requirements, all servicers must have (i) an adjusted net worth of at least 1% of the outstanding principal balance of loans serviced, but never less than $250,000, (ii) a ratio of adjusted net worth to total assets of at least 5%, (iii) a corporate surety bond, and (iv) an Errors & Omissions bond that varies based on the dollar amount of the loans serviced. Apart from registration and financial responsibility requirements, non-exempt entities would also need to satisfy the proposed rules’ business background and character and fitness requirements, including proof of five year experience in the mortgage servicing business. The NYSBD is currently accepting public comment on the rules, but expects to exercise its emergency authority to adopt final regulations on or before July 1, 2009.