| 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
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."
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
"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
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
Patrick M. McQueen, Commissioner
Financial Institutions Bureau
Department of Consumer and Industry Services
Date: March 8, 1999