Division issues opinion relative to mortgage licensing requirements for CUSOs

By the Division of Banks


May 10, 2011

Wendy B. Morin
VP of HR and Administration
Central One Federal Credit Union
714 Main Street
Shrewsbury, MA 01545-3018

Dear Ms. Morin:

This letter is in response to your correspondence dated March 23 and March 28, 2011 on behalf of Central One Federal Credit Union (the "Credit Union") to the Division of Banks (the "Division") in which you request an opinion relative to whether a Credit Union Service Organization ("CUSO") owned, in part, by a federal credit union is exempt from being licensed as a mortgage broker in the Commonwealth. The Division has also discussed this matter with you in a telephone conference on March 28, 2011.

In your letter you state that the Credit Union owns 95% of a CUSO, Acorn Allocations, LLC (the "LLC"). The Certificate of Organization for the LLC indicates that the business purpose of the LLC is to, among many services and activities, provide consumer mortgage loan origination services and loan processing services to the Credit Union. You do not indicate the owner of the remaining 5% interest in the LLC. You ask if the LLC is exempt from being licensed as a mortgage broker in this state based on an exemption from licensing for a federal credit union or any subsidiary. Your letter consistently refers to the CUSO as the Credit Union's subsidiary.

Massachusetts General Laws chapter 255E, section 2 requires that any person or entity

acting as mortgage broker five or more times in a consecutive twelve month period obtain a mortgage broker's license from the Division unless otherwise exempted. Section 2 contains a number of exemptions to the licensing requirement including an exemption for a federally chartered credit union or any subsidiary of such credit union.

Based on the information provided in your letters and supporting documentation, the Division has determined that the LLC is a CUSO owned in part by, but is not a subsidiary of the Credit Union. The Division has reviewed and analyzed both state and federal law governing CUSOs. Since both federally-chartered and state-chartered credit unions do not have the authority to establish operating subsidiaries, a CUSO is not considered a subsidiary of a credit union. The National Credit Union Administration ("NCUA") states on its website and policy manuals that it has no regulatory and enforcement authority over CUSOs and does not examine CUSOs as part of an examination of a federal credit union. As the regulatory agency for state-chartered credit unions, the Divisions has no authority to examine the Credit Union or the CUSO. It is the position of the Division that the LLC is not a subsidiary of a federal credit union under said chapter 255E and therefore the LLC is required to be licensed as a mortgage broker by the Division. In addition, mortgage loan originators employed by the CUSO would be required to be licensed under Massachusetts General Laws chapter 255F. Information relative to the licensing requirements and procedures are available on the Division's website at www.mass.gov/dob under the heading industry services, forms and applications. Additionally, the NCUA has established Frequently Asked Questions on the SAFE Act and can be accessed on the website at www.ncua.gov . It contains a question on CUSO employees which was also reviewed in issuing this Opinion.

The conclusions reached in this letter are based solely on the facts presented. Fact patterns which vary from those presented may result in a different position statement by the Division.

Sincerely,

Joseph A. Leonard, Jr.
Deputy Commissioner of Banks
and General Counsel