Source: https://dfs.ny.gov/legal/industry/il080827.htm
Timestamp: 2020-07-16 01:24:25
Document Index: 659989095

Matched Legal Cases: ['§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6']

Subprime Lending Reform Bill | Department of Financial Services
Subprime Lending Reform Bill
Re: Subprime Lending Reform Bill
To assist the industry and public in understanding the impact of this broad and comprehensive legislation, we are providing an overview of the various components, including their effective dates. In addition, definitions for terms used throughout the law are included at the end of this letter.
The sections of the law that govern foreclosure proceedings (e.g. the 90-day pre-foreclosure notice, the foreclosure notice and the mandatory settlement conferences) apply to all persons who wish to foreclose a covered mortgage, including lenders, subsequent investors and servicers, whether or not such persons are chartered, licensed or supervised under New York State law. Several other sections of the law, including those involving mortgage loan servicers, distressed property consultants, and mortgage fraud apply to all persons who engage in the regulated activities in New York, whether or not they are otherwise subject to the jurisdiction of the New York State Banking Department.
ELEMENTS OF THE LAW TO ASSIST BORROWERS CURRENTLY FACING FORECLOSURE:
Pre-foreclosure Notice: This provision of the law requires lenders to send a notice to borrowers of high-cost home loans, subprime home loans and non traditional home loans at least 90 days before the lender may commence legal action against the borrower. The notice must advise borrowers that they are at risk of losing their home, and that, if they are experiencing financial difficulty, they should consider contacting a housing counselor to help reach a resolution with their lender. The lender will be required to list in the notice the names and telephone numbers of at least five HUD-approved housing counselors or other housing counseling agencies designated by the Division of Housing and Community Renewal (DHCR) serving the region where the borrower resides.
A list of housing counseling agencies that meet the requirements outlined above will be available on the Banking Department website as of September 1, 2008.
Foreclosure Notice: This provision revises the notice that the foreclosing party must provide to the mortgagor of any owner-occupied 1-to-4 family dwelling, not only those that are subprime home loans. The notice, delivered with the summons and complaint, advises borrowers to consult an attorney or local legal aid office, and that they may want to contact non-profit organizations and government agencies for information about possible options, including trying to work with their lender during this process. The letter notifies the borrower that information on organizations providing assistance with the foreclosure process is available from the Banking Department. It also warns borrowers about foreclosure prevention scams.
Mandatory Settlement Conference: This provision of the law requires a court in a residential foreclosure action to schedule a settlement conference with the parties to a foreclosure action within 60 days of when the plaintiff files a proof of service of the complaint. The plaintiff, or its counsel, must appear with the authority to dispose of the matter. Representatives for the plaintiff may attend in person, via telephone conference call, or via video-conference. For those borrowers who cannot afford an attorney, the court may appoint one. This provision also applies to foreclosure proceedings that were commenced before September 1, 2008, where a final order has not been issued.
Effective Date: August 5, 2008
Affirmative Allegation of Ownership: This provision of the law requires the plaintiff in an action to foreclose a high-cost or subprime home loan to make an affirmative allegation in the complaint that (i) the plaintiff is the holder of the note and mortgage at the time the action is commenced, or has been delegated the authority to institute an action against the homeowner by the holder of the note and mortgage, and (ii) the mortgage complies with the underwriting standards in § 6-m of the Banking Law, as well as the pre-foreclosure notice requirements.
Effective Date: Actions commenced on or after September 1, 2008
Rescue Scams: This provision of the law targets foreclosure rescue scams operated by those who seek to take advantage of homeowners in default. Among other things, this provision of the law would prohibit distressed property consultants from: (1) performing any services for the homeowner without a written contract; (2) charging or accepting fees without first completing the service; and (3) taking power of attorney from a homeowner, except under very limited circumstances. The law also establishes strict standards for contracts, and provides homeowners with the right to cancel the consulting contract within five business days of consummation. Certain regulated entities, such as depository institutions and registered mortgage brokers, are exempt. However, exempt institutions are expected to conduct business based on the standards established by the statute.
ELEMENTS OF THE LAW TO PREVENT SIMILAR FUTURE CRISIS:
Extending Predatory Lending Prohibitions to a New Class of Subprime Loans: The law provides for strict underwriting standards for a new class of mortgages called “subprime home loans.” These standards are in a new section of the Banking Law, § 6-m, to distinguish them from the state’s existing anti-predatory lending law, § 6-l, which governs “high-cost” mortgages.
A “subprime home loan” is defined under § 6-m as a home loan with a fully-indexed annual percentage rate (APR) that exceeds by more than 175 basis points for a first-lien loan, or by more than 375 basis points for a subordinate-lien loan, the average commitment rate for loans in the northeast region with a comparable duration as published in the weekly Freddie Mac Primary Mortgage Market Survey (PMMS) in the week prior to the week in which the lender received a completed loan application. Freddie Mac publishes rates for loans with four different durations – 15- and 30-year fixed rate mortgages, and so-called 5/1 and 1/1 adjustable rate mortgages, i.e. loans with an initial rate that is fixed for either five years or one year, and which adjusts annually thereafter. A subprime home loan would trigger the new standards if the principal amount is equal to or below the conforming loan size limit established by Fannie Mae. Current and historic conforming loan limits can be found on the Fannie Mae website at www.fanniemae.com.
If the Banking Superintendent determines that federal regulators have adopted different thresholds for determining underwriting standards for subprime home loans or the provisions of the new law have had an unduly negative effect on the availability or price of mortgage financing in New York, the Superintendent may adopt other rates that are necessary to achieve parity between New York and nationally-chartered institutions or to alleviate those unduly negative effects.
Listings of all relevant rates will be available on the Banking Department website as of September 1, 2008.
Underwriting Standards for Subprime Home Loans: The law establishes an ability to pay standard for making and arranging subprime home loans. Under this provision of the law, lenders have to make a reasonable and good faith determination of whether the borrower has the ability to repay the loan, including the principal, interest, taxes, insurance, assessments, points and fees, based upon the borrower’s income, employment status and other financial resources. The lender must take reasonable steps to verify the accuracy of the information provided by the borrower, using reasonable methods such as tax returns, payroll receipts, and bank records. This does not prevent a lender or mortgage broker from using commercially recognized underwriting standards and methodologies, including automated underwriting systems, provided the standards and methodologies comply with § 6-m of the Banking Law.
Prohibitions for Subprime Home Loans: This provision of the law, which applies specifically to subprime loans, provides for the following ability to pay and underwriting standards and prohibitions, among others:
no negative amortization (which will eliminate certain option adjustable rate mortgages where one or more options cause the loan balance to increase);
Any provision in a subprime home loan that violates the underwriting standards is void.
Actions may be brought by the Superintendent and by the Attorney General to enforce the provision of § 6-m.
The defense to a foreclosure action may also be asserted against assignees.
A mortgage broker who violates the duty of care is liable to the borrower for actual damages.
A lender or mortgage broker who violates the prohibitions on improper influence over appraisers is liable to the borrower for actual damages.
A mortgage broker who violates Section 590-b(1) (the broker duty of care) is liable to the borrower for actual damages.
The following definitions apply to the new Banking Law § 6-m:
Subprime home loan is defined under § 6-m as a home loan with a fully-indexed annual percentage rate (APR) that exceeds by more than 175 basis points for a first-lien loan, or by more than 375 basis points for a subordinate-lien loan, the average commitment rate for loans in the northeast region with a comparable duration as published in the weekly Freddie Mac Primary Mortgage Market Survey (PMMS) in the week prior to the week in which the lender received a completed loan application. Freddie Mac publishes rates for loans with four different durations – 15- and 30-year fixed rate mortgages, and so-called 5/1 and 1/1 adjustable rate mortgages, i.e. loans with an initial rate that is fixed for either 5 years or 1 year, and which adjusts annually thereafter.
The following definitions apply to the pre-foreclosure notice:
Subprime home loan is a loan consummated between January 1, 2003 and September 1, 2008 with an APR of three percentage points over comparable Treasuries for a first lien loan and five percentage points for a subordinate lien mortgage. A subprime home loan principal amount is equal to or below the conforming loan size limit established by Fannie Mae.
Non traditional mortgage is a loan consummated between January 1, 2003 and September 1, 2008 that is a payment option adjustable rate mortgage or an interest-only mortgage.
The following definitions apply to the mandatory settlement conference:
The complete text of the law is available on the Banking Department website at www.banking.state.ny.us.
If you have any questions regarding this law or its implementation, please contact: Marjorie Gross, Deputy Superintendent and General Counsel, at (212) 709-1640 or [email protected]; or Rholda Ricketts, Deputy Superintendent, at (212) 709-5540 or [email protected]