Licensure of secondary mortgage brokers

Entities that broker secondary mortgage loans for licensed secondary mortgage lenders must be licensed under the provisions of the secondary mortgage act.

An entity that brokers secondary mortgages exclusively to a depository financial institution, that is exempt from licensure under the secondary mortgage act, must itself be licensed under that act.

The licensure requirement for secondary mortgage brokers is not dependent upon whether the exempt mortgage lender it brokers for is located in or out of Michigan.

Opinion No. 6920
October 15, 1996

Patrick M. McQueen, Commissioner
Financial Institutions Bureau
Department of Consumer & Industry Services
P.O. Box 30224
Lansing, MI 48909

You have asked several questions relating to the secondary mortgage act, 1981 PA 125, MCL 493.51 et seq; MSA 26.568(1) et seq, which you and the Financial Institutions Bureau are statutorily charged with administering and enforcing. Your questions concern the licensing of brokers of secondary mortgage loans. You first ask if the entities that broker secondary mortgage loans for licensed secondary mortgage lenders must be licensed under the provisions of 1981 PA 125.

The term broker is not expressly defined in the secondary mortgage act. The courts have observed that the business of a mortgage broker "is to bring together, for a consideration, the primary borrower and a mortgage lender." Mortgage Bankers Assoc. of New Jersey v New Jersey Real Estate Commission, 200 NJ Super 584; 491 A2d 1317, 1319 (1985), rev'd and remanded on other grounds 102 NJ 176; 506 A2d 733 (1986). A person who brings parties together for the purpose of obtaining a loan secured by a mortgage is a broker involved in negotiating the loan. Baird v Krancer, 138 Misc. 360; 246 NYS 85, 88 (1930); Corson v Keane, 4 NJ 221; 72 A2d 314, 316-317 (1950).

Section 2 of the secondary mortgage act includes brokers in its general licensing requirement:

Except for a person licensed under the consumer financial services act, a person shall not make or negotiate, or offer to make or negotiate, a secondary mortgage loan in the regular course of business unless that person or that person's broker, agent, or other representative is licensed as provided in this act. A person is acting in the regular course of business if that person makes or negotiates more than 2 secondary mortgage loans in a calendar year. [Emphasis added.]

A person, association, nonprofit corporation, common law trust, joint stock company, or any other group of individuals, however organized, or any owner, partner, member, officer, director, trustee, employee, agent, broker, or representative thereof who or which willfully or intentionally engages in this state in the business of making secondary mortgage loans as defined in this act without a license, as required under this act, is guilty of a misdemeanor and upon conviction shall be fined not more than $5,000.00, or imprisoned for not more than 3 years, or both, at the discretion of the court. [Emphasis added.]

It is my opinion, therefore, in answer to your first question, that entities that broker secondary mortgage loans for licensed secondary mortgage lenders must be licensed under the provisions of the secondary mortgage act.

You next ask whether an entity that brokers secondary mortgages exclusively to a depository institution, that is exempt from licensure under the secondary mortgage act, must itself be licensed under that act.

Section 1(b) of the secondary mortgage act defines a "[l]icensee" as "a person licensed under this act." Section 1(c) of the same statutes defines "[p]erson" as follows:

"Person" means an individual, corporation, partnership, association, or other legal entity, but does not include a state or national bank, a state or federal savings and loan association, insurance company, or other financial institution subject to another law of this state or of the United States regulating the power of the financial institution to engage in secondary mortgage loan transactions. [Emphasis added.]

This act shall not be construed to have any effect upon the existing powers of a state or national bank, or federal savings and loan association, insurance company, or other financial institution which is subject to other laws of this state or the United States regulating the power of the financial institution to engage in secondary mortgage loan transactions or upon the conditions and limitations imposed by law upon the exercise of this power. [Emphasis added.]

It is my opinion, therefore, in answer to your second question, that an entity that brokers secondary mortgages exclusively to a depository financial institution, that is exempt from licensure under the secondary mortgage act, must itself be licensed under the act.

Finally, you ask if the licensure requirement for secondary mortgage brokers is dependent upon whether the exempt mortgage lender it brokers for is located in or out of Michigan.

Again, there is no language in the secondary mortgage act that makes the licensing requirement for secondary mortgage brokers dependent upon whether the exempt mortgage lender is located instate or out of state. Thus, if the broker engages in Michigan in those activities for which a license is required under section 2 of that act, a license must be obtained regardless of whether the exempt entity it brokers for is located instate of out of state.

It is my opinion, therefore, in answer to your third question, that the licensure requirement for secondary mortgage brokers is not dependent upon whether the exempt mortgage lender it brokers for is located in or out of Michigan.

FRANK J. KELLEY
Attorney General