Memo MRM 2000-2
To: All Mortgage Registrants
From: Kevin C. Glendening, Deputy Commissioner
Date: June 5, 2000
RE: Branches of Mortgage Businesses - Net Branches
K.S.A. 9-2215 of the Kansas Mortgage Business Act requires that each registrant notify this office of the opening of a Kansas branch location. As part of our review of such notifications, it has come to our attention that a number of registrants are unclear about what constitutes a true branch location. This memorandum is designed to provide guidance concerning what this office will deem to be a legitimate branch location. Each branch location established and operated by a registrant must meet certain indicia of ownership, and be subject to extensive oversight by the registrant in order to constitute a legitimate branch location.
The following minimum criteria are used by this office to judge whether a particular location constitutes a legitimate branch of a registrant:
1. The operating expenses, including but not limited to salaries, equipment, furniture, office rent, and other similar expenses incurred in operating a branch location are the responsibility of the registrant.
2. Contractual relationships with vendors such as leases, telephones and utilities are in the name of the registrant.
3. Liability for actions of all branch employees with respect to their conduct of mortgage business lies solely with the registrant. All branch staff must meet the definition of employee as defined in K.S.A. 9-2201.
With respect to compensation of employees at the branch location, this office does not object to compensation being based on net profit of the branch. For example, the compensation of a branch manager may be based on the income of the branch minus the operating expenses of the branch. However, ultimate responsibility and payment of those operating expenses must remain the responsibility of the registrant.
A purported branch location which does not meet these minimum criteria, or any other arrangement where a registrant allows a separate entity to conduct mortgage business under the approved registrant's certificate of authority, sometimes referred to as "net branching," is not permissible under Kansas law and would constitute operation of an unregistered mortgage business by the so-called branch manager and other involved parties. Such an operation would subject those individuals to both administrative and criminal sanctions for operating a mortgage business without a certificate of registration, and would also subject any registrant who conducts business with that "branch" to both administrative and criminal sanctions for dealing with an unregistered entity. If you have any questions, please call this office.
