Permissible Mortgage Lending Activities of Exempt Entities

A. Recitation of the Facts

In your request for an opinion you identify an entity known as EmPOWERment and indicate that it is a nonprofit community development corporation, qualified under Section 501(c)(3) of the Internal Revenue Code (charitable organizations), engaged in assisting disadvantaged residents of Orange and Chatham Counties in securing affordable housing by making mortgage loans to these residents. You next indicate that on April 22, 2003, EmPOWERment submitted an application to the Office of the Commissioner of Banks (“OCOB”) for exemption from the MLA under G.S. § 53-243.15, and that on April 30, 2003, the OCOB granted the requested exemption.

You also advise that, although the OCOB issued an exemption letter to EmPOWERment, that office determined that the corporation was not permitted to engage in mortgage brokering without meeting additional licensure requirements. Finally, you suggested that since EmPOWERment had met the exemption provisions of G.S. § 53-243.02(8)(h), it should be lawfully entitled to engage in mortgage brokering or mortgage banking without meeting additional licensure requirements. In view of what you believed to be a contradiction between The Honorable Ellie Kinnaird August 3, 2004 Page 2

the clear language of the MLA and its administrative interpretation by the OCOB, you have asked us for our opinion on the matter.

B. Discussion of the Law

1. Licensure and Exemption Provisions Generally

First, as you have noted in your request for an opinion, G.S.§ 53-243.02(a) provides that other than an exempt person, it is unlawful for any person in this State to act as mortgage broker or banker without first being licensed by the Commissioner of Banks. The term “person” is broadly defined to include an individual as well as a business entity. G.S. § 53-243.01(16).

Upon close examination of the exemption provisions, G.S. § 53-243.01(8)(a) through (i), it appears that the MLA draws a distinction between persons who are generally exempt from licensure and those who have a limited exemption. There also appear to be more specific exemptions from licensure for persons making mortgage loans than for persons brokering these loans.

(a) General Exemptions.

Subsection (8)(a) exempts from licensure the federal government or any state or municipal government “granting mortgage loans under specific authority of the laws of any state or the United States.” Sections 8(c) and (e) exempt banks, thrifts, credit unions, farm credit systems, and their employees acting within the scope of their employment. Section (8)(f) exempts the North Carolina Housing Finance Agency and the North Carolina Agriculture Finance Authority, and Subsection (8)(i) exempts insurance companies doing business in this State. These are either government sponsored enterprises or financial institutions chartered by and subject to the jurisdiction of a state or federal financial regulatory agency.

(b) Limited Exemptions.

Subsection (8)(b) exempts from licensure clerical employees of a licensee who do “not solicit borrowers, accept applications, or negotiate the terms of loans on behalf of the employer” (acts which would generally constitute “acting as a mortgage broker,” defined at G.S. § 53-243.01(1)). Section (8)(d) exempts licensed real estate agents and brokers who are performing their duties under the authority of the North Carolina Real Estate Commission, but these agents and brokers may not receive a commission for originating, placing or referring a mortgage loan without being licensed as a mortgage broker. Section 8(f) exempts up to five seller-financed transactions per year, and as discussed more fully below, Section 8(h) provides a limited exemption for qualified nonprofit corporations which make mortgage loans to promote The Honorable Ellie Kinnaird August 3, 2004 Page 3

home ownership or home improvements.

We think it is significant that the General Assembly drew a distinction between persons who are generally exempt – – government sponsored enterprises and highly regulated financial institutions, both of which are subject to certain oversight, and those persons who have a limited exemption. Again, the General Assembly appears to permit greater exemption for making mortgage loans than brokering these loans.

2. Exemption for Nonprofit (501(c)(3)) Corporations.

EmPOWERment’s authority to make mortgage loans without licensure is expressly governed by G.S. § 53-243.01(8)(h), which provides an exemption for:

Any nonprofit corporation qualifying under section 501(c)(3) of the Internal Revenue

Code which makes mortgage loans to promote home ownership or home improvements

for the disadvantaged, provided that such corporation is not primarily in the business of

soliciting or brokering mortgage loans. (Emphasis added)

There have been no reported decisions construing the MLA; therefore, we must interpret this statute, as would the courts of our State, using principles of statutory construction. First, and most importantly, legislative intent is the controlling factor. Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 388 S.E.2d 134 (1990). Based on our review of the matter, we believe the General Assembly intended to carve out broad exemptions for governmental entities and financial institutions already subject to regulatory oversight, while narrowing those exemptions for persons not subject to the same level of audit or review.

It is clear that EmPOWERment may make mortgage loans without licensure. Making mortgage loans means “to close a mortgage loan, to advance funds, to offer to advance funds, or to make a commitment to advance funds to a borrower under a mortgage loan.” G.S. § 53-243.01(11). Where a statute is clear and unambiguous on its face, there is no room for judicial construction, and courts are required to give it its plain and definite meaning. Biltmore Square Associates v. City of Asheville, 129 N.C. App. 101, 497 S.E.2d 121 (1998), disc. rev. den. 336 N.C. 314, 445 S.E.2d 392, writ of cert. den. 513 U.S. 824, 115 S.Ct. 90.

EmPOWERment’s authority to make mortgage loans is limited by the phrase “ … provided that such corporation is not primarily in the business of soliciting or brokering mortgage loans.” The ordinary function of a proviso of a statute is to qualify the statute so as to exclude from its scope something which would otherwise be within its terms. Robbins v. Charlotte, 241 N.C. 197, 84 S.E.2d 814 (1954). In other words, EmPOWERment may only employ its exemption for making mortgage loans without licensure so long as it is not primarily The Honorable Ellie Kinnaird August 3, 2004 Page 4

in the business of soliciting or brokering loans. The word “primarily” is not defined in the MLA, thus it must be given its ordinary everyday meaning. In Re Lunsford, 143 N.C.App. 646, 547 S.E.2d 483, vacated and remanded on other grounds 354 N.C. 571, 556 S.E.2d 292 (2001). Primarily is generally defined as chiefly or mainly. The American Heritage College Dictionary, 3rd. Ed. (1997).

In summary, the General Assembly chose to limit the mortgage lending exemption for qualified nonprofit corporations to those entities that are not engaged primarily in the business of soliciting or brokering mortgage loans. Based on the information provided, EmPOWERment may solicit or broker mortgage loans without being licensed by the OCOB but only to the extent that such transactions do not become a primary business activity. Employees of EmPOWERment who accept, or offer to accept application for mortgage loans, or who solicit, or offer to solicit mortgage loans, or negotiate the terms and conditions of a mortgage are not, however, exempt from the MLA. Thus they must meet the licensing requirements of G.S. § 53-243.02.

Sincerely,

M. Ann Reed Senior Deputy Attorney General

L. McNeil Chestnut Special Deputy Attorney General