March 8, 1999
|STATE OF MICHIGAN
DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
FINANCIAL INSTITUTIONS BUREAU
IN THE MATTER OF CITIZENS FIRST SAVINGS BANK INVESTING IN A SUBSIDIARY WHICH WILL ENGAGE IN THE BUSINESS OF PERFORMING REAL ESTATE SURVEYS PURSUANT TO SECTION 401(2) OF MICHIGAN'S SAVINGS BANK ACT, AS AMENDED
Davidson, Staiger and Hill, P.C., counsel for Citizens First Savings Bank (Citizens), Port Huron, Michigan, a state-chartered savings bank, has asked the Financial Institutions Bureau to confirm that Citizens is authorized, pursuant to section 401(1) of the Savings Bank Act (Act), as amended, to use a subsidiary to conduct real estate surveys in support of Citizens' real estate mortgage business. Alternatively, the Bureau has been asked to issue a declaratory ruling or order pursuant to section 401(2) permitting Citizens' subsidiary to engage in performing real estate surveys in support of Citizens' real estate mortgage business.
Counsel represents the surveys will be conducted by licensed surveyors who will be either employees of the subsidiary or independent contractors. The surveys will be done in support of Citizen's real estate mortgage loans. A survey is defined as a document that shows the exact boundaries of a property, including lot lines and placement of improvements on the property and is said to look much like a map of the property. A survey is an important element of the real estate mortgage underwriting process.
Because of the broad applicability of the issue, it is the Bureau's position that a declaratory ruling is more appropriate than an order as a vehicle for a decision issued pursuant to Section 401(2) of the Act.
May a Michigan state-chartered savings bank own and operate a subsidiary that performs real estate surveys in support of the savings bank's real estate mortgage business?
Section 401 of the Savings Bank Act (MCL 487.3401; MSA 23.710(3401) states in part:
"Except as otherwise provided by this act, a savings bank may engage in the business of banking and exercise all powers incidental to the business of banking or which further or facilitate the purposes of a savings bank."Section 401(1)(p), supra, states that a savings bank is authorized:
"To conduct its business through subsidiaries, at the same location or a location different from the savings bank . . "Section 401(2), supra, states:
"The commissioner may promulgate rules under section 208, or issue declaratory rulings, or issue orders, permitting savings banks to exercise powers not authorized by this act. It is intended that this subsection shall vest in the commissioner the discretion and authority to authorize savings banks to exercise all powers appropriate and necessary to compete with other depository financial institutions and other providers of financial services. In the exercise of the discretion permitted by this subsection, the commissioner shall consider the ability of savings banks to exercise any additional power in a safe and sound manner, the authority of state and national banks, associations, and state and federal credit unions, operating under state or federal law or regulation, the powers of other competing entities providing financial services in this state, and any specific limitations on powers contained in this act or in any other state law. On at least a quarterly basis, the commissioner shall give notice to all savings banks of rules promulgated, or declaratory rulings or determinations, or orders, issued under this subsection."Section 201(2) of the Act (MCL 487.3201(2); MSA 23.710(3201)(2)), provides:
"The commissioner shall maximize the capacity of savings banks in this state to offer convenient and efficient financial services, to promote home ownership and economic development, and to ensure that savings banks remain competitive with other types of financial institutions and providers of financial services."Discussion:
Section 201 of the Act requires the commissioner to consider the evolution of the financial marketplace and, if justified, act favorably on matters that promote competition among financial institutions.
Section 401 of the Act defines the corporate powers of a savings bank by providing the initial parameters for the operation of a savings bank. A savings bank is authorized to engage in the business of banking and exercise those powers contained in the Act as well as engage in a business that is incidental to the business of banking or which furthers or facilitates the purposes of a savings bank. Section 401 also provides a list of additional specific corporate powers authorized to a state-chartered savings bank. More specifically, section 401(2) authorizes the commissioner to issue a declaratory ruling permitting a savings bank to exercise powers not authorized by the Act.
Section 401(2) of the Act requires the commissioner to consider four factors in exercising the discretion to authorize savings banks to exercise a new power.
First, the commissioner must consider a savings bank's ability to exercise the new power in a safe and sound manner. Bank ownership of a subsidiary that conducts real estate surveys represents very little risk. The investment would be nominal. Possible risks might involve clerical errors and property misidentification. Risks of this nature are the type commonly taken by savings banks in their traditional activities. Adequate insurance coverage combined with proper policies and procedures will mitigate most survey risks.
Second, the commissioner must consider the authority of state and national banks, associations, and state and federal credit unions to exercise the power. On September 22, 1988, the Comptroller of the Currency issued Interpretive Letter 450. This Interpretive Letter concluded:
"The most restrictive test of bank powers, that applied in Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972), permits national banks to engage in an activity that is 'convenient or useful in the performance of one of the bank's established activities pursuant to its express powers . . . 'since surveys, title searches, and title opinions are a necessary part of the real estate lending process, it would be convenient or useful for banks to be able to perform these tasks themselves. Surveying, performing title searches, and arriving at legal title opinions are at least as integral to the process of real estate lending as is the previously-authorized sale of title insurance. National banks may, therefore, perform surveys and title searches, and produce title opinions, in connection with their real estate mortgage business."While national banks have been authorized by the Comptroller of the Currency to perform real estate surveys, no state banks, associations, or state or federal credit unions have received such authority.
Third, the commissioner must consider powers of competing entities providing financial services in Michigan. This requirement is met given the authority of national banks to engage in performing real estate surveys.
Fourth, the commissioner must determine whether there are any specific limitations on savings bank powers contained in the Act or in any other state law. The Act does not prohibit a state-chartered savings bank from engaging in the proposed activity. Further, no other Michigan law prohibits a savings bank from engaging in the proposed activity directly or through a wholly-owned subsidiary.
FINDINGS OF FACT AND OR LAW
Real estate lending and activities incidental thereto are normally associated with the operation of a savings bank. A survey is one of the principal documents obtained as part of the real estate mortgage underwriting process. Performing real estate surveys furthers and facilitates the business of a savings bank while introducing manageable safety and soundness concerns. Owning a subsidiary that performs real estate surveys in conjunction with a savings bank's mortgage lending business presents no more risk than if the activity is done by the savings bank itself. The risk is manageable through proper policies and procedures and appropriate insurance.
A savings bank is authorized to conduct its business through subsidiaries. National banks are authorized to perform surveys in connection with their real estate mortgage business.
Finally, neither the Act nor any other state law prohibits a savings bank or its subsidiary from performing real estate surveys.
Consistent with the spirit and intent of sections 201 and 401(2) of the Act, the commissioner finds that a Michigan state-chartered savings bank may own and operate a subsidiary that performs real estate surveys.
Date: March 8, 1999