NY Banking L § 6-M (2021)
2021 New York Laws BNK - Banking Article 1 - Short Title; Definitions; Miscellaneous Provisions. 6-M - Subprime Home Loans.

§  6-m. Subprime home loans. 1. Definitions. The following definitions apply for the purposes of this section:  (a) "Annual percentage rate" means the annual percentage rate for  the loan   calculated   according   to   the   provisions   of  the  Federal Truth-in-Lending Act (15 U.S.C. § 1601, et seq.),  and  the  regulations promulgated  thereunder  by  the  federal reserve board (as said act and regulations are amended from time to time).  (b) "Fully indexed rate" means: (i) for an adjustable rate loan  based on  an index, the annual percentage rate calculated using the index rate on the loan on the date the lender provides the  "good  faith  estimate" required  under  12  USC §2601 et seq. plus the margin to be added to it after the expiration of any introductory period or periods; or (ii)  for a  fixed  rate loan, the annual percentage rate on the loan disregarding any introductory rate or rates and any interest rate caps that limit how quickly the contractual interest rate may be reached calculated  at  the time the lender issues its commitment.  (c)  "Subprime  home  loan"  means  a  home  loan in which the initial interest rate or the fully-indexed rate, whichever is higher, exceeds by more than one and three-quarters  percentage  points  for  a  first-lien loan,  or  by more than three and three-quarters percentage points for a subordinate-lien loan, the average commitment  rate  for  loans  in  the northeast region with a comparable duration to the duration of such home loan, as published by the Federal Home Loan Mortgage Corporation (herein "Freddie  Mac")  in  its  weekly  Primary  Mortgage Market Survey (PMMS) posted in the week prior to the week in which the  lender  provides  the "good  faith  estimate"  required  under  12  USC §2601 et seq. The term "subprime home loan" excludes  a  transaction  to  finance  the  initial construction  of a dwelling, i.e., a construction only loan, a temporary or "bridge" loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the  borrower  plans  to  sell  a  current dwelling within twelve months, or a home equity line of credit but shall include  any loan, however structured, that thereafter is converted into a permanent loan.  (i) The comparable duration for a home loan  shall  be  determined  as follows:  for  an  adjustable or variable home loan with an initial rate that is fixed for less than three years, the Freddie Mac  survey  result for  a  one-year adjustable rate mortgage; for an adjustable or variable home loan with an initial rate that is fixed for at least  three  years, the  Freddie  Mac  survey  result for a five-year hybrid adjustable rate mortgage; for a fixed rate home loan with a term  of  fifteen  years  or less,  the  Freddie  Mac  survey  result  for  a fifteen-year fixed rate mortgage; and for a fixed rate home  loan  with  a  term  of  more  than fifteen  years,  the  Freddie  Mac survey result for a thirty-year fixed rate  mortgage.  The  superintendent  may  prescribe  by  regulation   a different  comparable  duration  standard as necessary or appropriate to reflect changes in the terms and types  of  mortgages  included  in  the Freddie Mac survey.  (ii) Notwithstanding the comparable rates set forth in this paragraph, and notwithstanding any other law, if the superintendent determines that by  statute,  rule  or  regulation, different thresholds for determining underwriting  standards  for  subprime  loans   become   applicable   to nationally  chartered  lending  institutions,  or the provisions of this section have had an unduly negative  effect  upon  the  availability  or price  of  mortgage financing in this state, the superintendent may from time to time designate such other threshold rates as may be necessary to achieve  parity  between  such  nationally  chartered  institutions  and banking organizations, mortgage banks and mortgage brokers in this state or  to  alleviate such unduly negative effects. Such determination shall  promptly be published on the website  of  the  department  of  financial services.  (iii) Notwithstanding the thresholds set forth in this paragraph, if a home  loan  is  insured  by  the  federal housing administration, and if annual mortgage insurance premiums are collected by the federal  housing administration for the maximum duration permitted under federal statute, and  if  such  loan  is  not  a Title 1 home improvement loan nor a home equity conversion mortgage, then the term "subprime home loan"  means  a home  loan in which the initial interest rate or the fully-indexed rate, whichever is higher, exceeds by more than  two  and  a  half  percentage points for a first-lien loan, or by more than four and a half percentage points  for  a  subordinate-lien  loan,  the average commitment rate for loans in the northeast region with a comparable duration to the duration of such home loan, as  published  by  the  Federal  Home  Loan  Mortgage Corporation (herein "Freddie Mac") in its weekly Primary Mortgage Market Survey  (PMMS)  posted in the week prior to the week in which the lender provides the "good faith estimate" required under 12 USC §2601 et seq.  (d) "Home loan" means a loan, including an open-end credit plan, other than a reverse mortgage transaction or a loan made or fully or partially guaranteed by the state of New York mortgage agency, in which:  (i) The principal amount of the loan at origination  does  not  exceed the  conforming  loan size limit (including any applicable special limit for jumbo mortgages) for a comparable dwelling as established from  time to time by the federal national mortgage association;  (ii) The borrower is a natural person;  (iii)  The  debt  is  incurred by the borrower primarily for personal, family, or household purposes;  (iv) The loan is secured by a mortgage or deed of trust on real estate improved by a one to four family dwelling, or by a condominium unit,  or by  any  certificate  of  stock or other evidence of ownership in, and a proprietary lease from,  a  corporation,  partnership  or  other  entity formed  for  the  purpose  of  cooperative  ownership of real estate, in either case, used or occupied or intended to be used or occupied, wholly or partly, as the home or residence of one or more persons and which  is or  will  be  occupied  by  the  borrower  as  the  borrower's principal dwelling; and  (v) The property is located in this state.  (e) "Lender" means a mortgage banker as defined in  paragraph  (f)  of subdivision  one  of  section  five hundred ninety of this chapter or an exempt organization as defined in paragraph (e) of  subdivision  one  of section five hundred ninety of this chapter.  (f)  "Mortgage broker" means a mortgage broker as defined in paragraph (g) of subdivision one of section five hundred ninety  of  this  chapter and  a mortgage banker as defined in paragraph (f) of subdivision one of section five hundred ninety of this chapter, when such  mortgage  banker solicits, processes, places or negotiates a mortgage loan for others.   2.  Limitations  and  prohibited  practices for subprime home loans. A subprime home loan shall be subject to the following limitations:  (a) No call provisions. No subprime home loan may contain a  provision that  permits  the  lender,  in  its  sole discretion, to accelerate the indebtedness. This provision shall not prohibit acceleration of the loan in good faith due to the borrower's failure to  abide  by  the  material terms of the loan.  (b)  No  negative  amortization.  No  subprime home loan may contain a payment schedule with regular periodic payments that cause or may  cause the  principal  balance to increase. A loan is considered to have such a schedule if the borrower is given the option to  make  regular  periodic payments  that  cause  the  principal  balance  to increase, even if the  borrower is also given the option to make regular periodic payments that do not cause the principal balance to increase. This paragraph shall not prohibit negative amortization as a result of  a  temporary  forbearance sought by a borrower.  (c)  No  increased  interest rate. No subprime home loan may contain a provision  which  increases  the  interest  rate  after  default.   This provision  shall  not  apply to interest rate changes in a variable rate loan otherwise consistent with the provisions  of  the  loan  documents; provided  that  the  change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness.  (d) Limitation on advance payments. No subprime home loan may  include terms  under  which  more  than two periodic payments required under the loan are consolidated  and  paid  in  advance  from  the  loan  proceeds provided to the borrower.  (e)  No  modification  or  deferral  fees.  A  lender may not charge a borrower any fees to modify, renew, extend, or  amend  a  subprime  home loan  or to defer any payment due under the terms of a suprime home loan if, after the modification, renewal, extension or amendment, the loan is still a subprime home loan or, if no longer a subprime  home  loan,  the annual percentage rate has not been decreased by at least two percentage points.  For purposes of this paragraph, fees shall not include interest that is otherwise payable and consistent with the provisions of the loan documents. This paragraph shall not  prohibit  a  lender  from  charging points  and  fees in connection with any additional proceeds received by the borrower in connection with the modification, renewal, extension  or amendment  (over and above the current principal balance of the existing subprime home loan) provided that the points and  fees  charged  on  the additional sum must reflect the lender's typical point and fee structure for  subprime home loans. This paragraph shall not apply if the existing subprime home loan is in default or is sixty or more days delinquent and the modification, renewal, extension, amendment or deferral is part of a work-out process.  (f) No oppressive mandatory arbitration clauses. No subprime home loan may be subject to a mandatory arbitration  clause  that  is  oppressive, unfair,  unconscionable, or substantially in derogation of the rights of consumers.  (g) No financing of insurance or other  products  sold  in  connection with  the  loan.  No  subprime  home  loan  shall  finance,  directly or indirectly, any credit life, credit disability, credit unemployment,  or credit  property  insurance,  or  any  other  life  or  health insurance premiums,  or  any  payments  directly  or  indirectly  for   any   debt cancellation  or  suspension  agreement  or  contract, or any product or service that is not necessary or related to the home loan such  as  auto club  memberships  or  credit  report monitoring, but not including fees paid to the lender, broker,  or  closing  agent,  fees  related  to  the recording  of  the  mortgage,  title insurance or other settlement fees. Insurance premiums or debt cancellation or  suspension  fees  calculated and paid on a monthly basis shall not be considered financed.  (h)  No  "loan  flipping".  No  lender  or  mortgage  broker making or arranging a subprime home loan may engage in the unfair act or  practice of  "loan flipping". "Loan flipping" is making a home loan to a borrower that refinances an existing home loan when the new loan does not have  a tangible   net   benefit   to   the  borrower  considering  all  of  the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the borrower's situation.  (i) No refinancing of special mortgages. No lender making  a  subprime home loan may refinance an existing home loan that is a special mortgage originated,  subsidized  or  guaranteed by or through a state, tribal or  local government,  or  nonprofit  organization,  which  either  bears  a below-market   interest   rate  at  the  time  of  origination,  or  has nonstandard payment terms beneficial to the borrower, such  as  payments that  vary  with income, are limited to a percentage of income, or where no payments are required under specified conditions,  and  where,  as  a result  of  the  refinancing,  the borrower will lose one or more of the benefits of the special mortgage, unless the lender is provided prior to loan closing documentation by a HUD approved housing  counselor  or  the lender  who  originally  made the special mortgage that the borrower has received home loan counseling about the advantages and disadvantages  of the refinancing.  (j)  No  lending  without providing information on the availability of counseling. A lender or mortgage broker must deliver, place in the mail, fax or electronically transmit the following notice in at  least  twelve point  type  to  the  borrower  of  a  subprime home loan at the time of application:  "You  should  consider  financial  counseling   prior   to executing loan documents. The enclosed list of counselors is provided by the  New York State Department of Financial Services." In the event of a telephone application, the disclosures must be  made  immediately  after receipt  of  the application by telephone. Such disclosure shall be on a separate form. In order  to  utilize  an  electronic  transmission,  the lender  or  broker  must  first  obtain either written or electronically transmitted permission from the borrower. A list of approved counselors, available from the New York  state  department  of  financial  services, shall  be  provided to the borrower by the lender or the mortgage broker at the time that this disclosure is given.  (k) No encouragement of default. In making  or  arranging  a  subprime home  loan, a lender or mortgage broker shall not recommend or encourage default on an existing loan or other debt prior  to  and  in  connection with  the  closing  or  planned  closing  of the subprime home loan that refinances all or any portion of such existing loan or debt.  (l) Prohibited payments to mortgage bankers and brokers. In making  or arranging  a  subprime home loan, no lender, mortgage banker or mortgage broker shall accept or give any fee, kickback, thing of value,  portion, split  or  percentage  of  charges,  other  than as payment for goods or facilities that were actually furnished or services that  were  actually performed.  Such  payment must be reasonably related to the value of the goods or facilities that were actually furnished or services  that  were actually performed.  (m)  No  prepayment  penalties  on  subprime home loans. No prepayment penalties or fees shall be charged or collected on a subprime home loan. A prepayment penalty in a subprime home loan shall be unenforceable.  (n) No yield  spread  premiums.  In  connection  with  the  making  or brokering  of a home loan, no person may provide, and no mortgage broker or mortgage lender may receive, directly or indirectly, any compensation that is based on, or varies with, the  terms  of  any  home  loan.  This paragraph shall not prohibit compensation based on the principal balance of the loan.  (o)  Mandatory  escrow  of  taxes and insurance. No subprime home loan shall be made after July first,  two  thousand  ten  unless  the  lender requires  and  collects  the monthly escrow of property taxes and hazard insurance.  With respect to a subprime home loan, a borrower  may  waive escrow  requirements  by  notifying the lender in writing after one year from consummation of the loan. The provisions of  this  paragraph  shall not  apply  to  a subprime home loan that is a subordinate lien when the taxes and insurance are escrowed through another home loan or where  the borrower can demonstrate a record of twelve months of timely payments of taxes and insurance on a previous home loan.  (p) Mandatory disclosure of taxes and insurance payments. With respect to  a  subprime  home loan, the first time a borrower is informed of the anticipated or actual periodic  payment  amount  in  connection  with  a first-lien residential mortgage loan for a specific property, the lender or  mortgage  broker shall inform the borrower that an additional amount will be due for taxes and insurance and shall disclose to  the  borrower as  soon  as  reasonably  possible the approximate amount of the initial periodic payment for property taxes and hazard insurance.  (q) No teaser rates. No  lender  or  mortgage  broker  shall  make  or arrange  a  subprime home loan which has an initial or introductory rate with a duration of less than six months.   3. Certain loan provisions rendered void. Any provision in a  subprime home  loan  that  violates  subdivision  two  of  this  section shall be rendered void.   4. Ability to repay. No  lender  or  mortgage  broker  shall  make  or arrange  a  subprime  home  loan  unless  the  lender or mortgage broker reasonably and in good faith believes at the time of  the  loan  closing that  one  or  more  of  the  borrowers, when considered individually or collectively, has the ability to repay the loan according to  its  terms and  to  pay applicable real estate taxes and hazard insurance premiums. If a lender or mortgage broker making or arranging a subprime home  loan knows that one or more home loans secured by the same real property will be  made  contemporaneously  to the same borrower with the subprime home loan being made or arranged by  that  lender  or  mortgage  broker,  the lender  or  mortgage  broker  making or arranging the subprime home loan must document the borrower's ability to repay the combined  payments  of all loans on the same real property.  (a)  A lender or mortgage broker's analysis of a borrower's ability to repay a subprime home loan according  to  the  loan  terms  and  to  pay related  real  estate  taxes  and insurance premiums shall be based on a consideration of the borrower's credit  history,  current  and  expected income,  current  obligations,  employment  status,  and other financial resources other than the borrower's equity in  the  real  property  that secures repayment of the subprime home loan.  (b) In determining a borrower's ability to repay a subprime home loan, the  lender or mortgage broker shall take reasonable steps to verify the accuracy and completeness of information provided by or on behalf of the borrower using tax returns, payroll receipts, bank  records,  reasonable alternative methods, or reasonable third-party verification.  (c)  In determining a borrower's ability to repay a subprime home loan according to its terms when the loan has an adjustable rate feature, the lender or mortgage broker shall calculate the monthly payment amount for principal and interest by assuming  (i)  the  loan  proceeds  are  fully disbursed on the date of the loan closing, (ii) the loan is to be repaid in  substantially  equal  monthly  amortizing  payments of principal and interest over the entire term of the loan, with no balloon payment,  and (iii) the interest rate over the entire term of the loan is a fixed rate equal  to  the  higher of the initial interest rate or the fully indexed rate at the time of the loan closing, without  considering  any  initial discounted rate.  (d)  A lender or mortgage broker's analysis of a borrower's ability to repay  a  subprime  home  loan  may  utilize   reasonable   commercially recognized underwriting standards and methodologies, including automated underwriting  systems,  provided  the standards and methodologies comply with the provisions of this section.   5. Required legend. Subprime  home  loan  mortgages  shall  include  a legend  on  top  of  the  mortgage in twelve-point type stating that the mortgage is a subprime home loan subject to this section.    6. Evasion of statutory requirements. The provisions of  this  section shall  apply to any person who attempts to avoid the application of this section by any subterfuge, including but not limited  to,  splitting  or dividing  any  loan  transaction  into separate parts for the purpose of evading the provisions of this section.   7.  Good  faith  errors.  A  lender of a subprime home loan that, when acting in good faith, fails  to  comply  with  the  provisions  of  this section,  shall not be deemed to have violated this section if, prior to the institution of any action and before the borrower is prejudiced, the lender notifies the borrower  of  the  compliance  failure,  appropriate restitution  is  made,  and  whatever adjustments that are necessary are made to the loan to make the  loan  satisfy  the  requirements  of  this section.   8. Enforcement. The attorney general or the superintendent may enforce the provisions of this section.   9.  Damages.  Any  person  found by a preponderance of the evidence to have violated this section shall be liable to the borrower of a subprime home loan for actual damages.   10. Attorneys fees. A court may also award reasonable attorneys'  fees to a prevailing borrower in a foreclosure action.   11.   Equitable   relief.   A  borrower  may  be  granted  injunctive, declaratory  and  such  other  equitable  relief  as  the  court   deems appropriate in an action to enforce compliance with this section.   12.  Remedies not exclusive. The remedies provided in this section are not intended to be the exclusive remedies available to a borrower  of  a subprime home loan.   13.  Defense  to foreclosure. In any action by a lender or assignee to enforce a loan against a borrower in default more than sixty days or  in foreclosure,  a  borrower may assert as a defense, any violation of this section.   14. Severability. The provisions of this section shall  be  severable, and  if  any  phrase,  clause,  sentence, or provision is declared to be invalid, or is preempted by federal law or regulation, the  validity  of the  remainder  of  this  section  shall not be affected thereby. If any provision of this section is declared to be inapplicable to any specific category, type, or kind of points and fees with respect to a home  loan, the  provisions of this section shall nonetheless continue to apply with respect to all other points and fees.