This is in comment to the above-referenced regulatory proposal regarding branch office requirements.
Current provisions in N.J.A.C. 3:15-2.3 prohibit branch office arrangements whereby the branch office is a separate business entity, has separate bank accounts, or maintains contractual relationships, among other limitations. The proposal would permit licensees to apply for an exemption from these requirements by agreeing to provide assurance of adequate oversight, by providing policies and procedures for oversight and training, and by taking full responsibility for activities at the branch office. The company would also need to significantly increase the amount of its surety bond.
A licensed company under the Licensed Lenders Act, N.J.S.A. 17:11C-1 et seq. may not assign its license. N.J.S.A. 17:11C-10. We believe that permitting a branch office to set up a separate bank account, receive payment through a separate company and to enter into contractual arrangements is inconsistent with this limitation in the Act. Further, we believe that a licensee under the Act and the Department's regulations, as currently in place, is already responsible for branch activities. Accordingly, the requirements in the proposal regarding the licensee taking responsibility add little in this regard.
Further, we do not believe it is not in the interest of the public or the licensed company to have branch managers operating in this manner. To maintain total control of the branch, all funds should be deposited into a company account and all agreements should be entered into by the officers of the company. At the very least, we suggest that any company taking advantage of this exemption have an individual at each exempt branch who has an individual license with the Department.
We note that a provision such as this proposal could cause problems with licensees who are licensed with HUD or in other states. For example, Paragraph 2-14 of HUD's Mortgagee Approval Handbook, 4060.1, REV-2 (copy enclosed), specifically prohibits a mortgagee from permitting a separate entity as a branch, allowing branches to enter into contractual agreements or permitting employees at the branch to indemnify the company or personally provide funds to operate the branch office. New York has similar provisions, and we include a copy of the June 14, 1999 letter from the New York Banking Department which prohibits such practices. Accordingly, any entity seeking to take advantage of the proposed exemption in New Jersey would be in violation of FHA guidelines if FHA approved, or New York guidelines if the branch is also licensed in New York.
We do believe the branch requirements need to be modernized, but not in the proposed manner. Instead, we suggest the following:
1. Permit a mortgage banker or broker to establish a branch office within a real estate office so long as the office is sufficiently separate from the real estate office to allow for private discussions and secure recordkeeping. Current rules require a separate entrance from the outside or from a common hallway and floor to ceiling walls. These current requirements limit the ability of many licensees to establish a branch office within a real estate office.
2. Remove any inference that a loan officer's residence should be licensed as a branch office unless the loan officer meets at the residence in person with consumers. No consumer protection is advanced by requiring loan officers to license locations where they only communicate with consumers by telephone or by the Internet.
3. Permit secondary licensees to close secondary mortgage loans at title agencies without any requirement that the title agency obtain a license as a branch.
4. Allow branch managers to lease space and then sub-lease the space to the mortgage company. This is permitted by HUD and the surrounding states. In such a situation, the licensed company during the term of the sub-lease and while licensed at that location is responsible for the rent.
