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

§ 6-l. High-cost home loans. 1. Definitions. The following definitions apply for the purposes of this section:  (a)  "Affiliate" means any company that controls, is controlled by, or is under common control with another company, as set forth in  the  Bank Holding  Company Act of 1956 (12 U.S.C. § 1841 et seq.), as amended from time to time.  (b) "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).  (c) "Bona fide  loan  discount  points"  means  loan  discount  points knowingly  paid  by  the  borrower  funded  through  any source, for the purpose of reducing, and which in fact result in a bona  fide  reduction of, the interest rate or time-price differential applicable to the loan, provided that the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and  practices  for secondary mortgage market transactions. For purposes of this section, it shall be presumed that a point is a bona  fide  loan discount  point  if  it  reduces  the  interest  rate  by  a  minimum of twenty-five basis points provided all other terms of the loan remain the same.  (d) A "High-cost home loan" means a home loan in which  the  terms  of the  loan  exceed  one or more of the thresholds as defined in paragraph (g) of this subdivision.  (e) "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.  (f) "Points and fees" means:  (i)  All  items  listed  in 15 U.S.C. § 1605(a)(1) through (4), except interest or the time-price differential;  (ii) All charges for items listed under § 226.4(c)(7) of title  12  of the  code of federal regulations, as amended from time to time, but only if the lender receives direct or  indirect  compensation  in  connection with  the  charge  or  the charge is paid to an affiliate of the lender; otherwise, the charges are not included within the meaning of the phrase "points and fees";  (iii) All compensation paid  directly  or  indirectly  to  a  mortgage broker,  including  a broker that originates a loan in its own name in a table-funded transaction, not otherwise included  in  subparagraphs  (i) and (ii) of this paragraph;  (iv)  The  cost  of  all  premiums financed by the lender, directly or indirectly, for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life or health insurance,  or any  payments financed by the lender directly or indirectly for any debt cancellation  or suspension agreement or contract, except that insurance premiums calculated and paid on a monthly basis shall not be  considered financed by the lender.  (g) "Thresholds" means:  (i)  For a first lien mortgage loan, the annual percentage rate of the home loan at consummation of the transaction  exceeds  eight  percentage points  over  the yield on treasury securities having comparable periods of maturity to the loan maturity measured as of the fifteenth day of the month immediately preceding the month in which the application  for  the extension  of  credit  is  received  by the lender; or for a subordinate mortgage  lien,  the  annual  percentage  rate  of  the  home  loan   at consummation of the transaction equals or exceeds nine percentage points over  the  yield  on  treasury  securities  having comparable periods of maturity on the fifteenth day of the  month  immediately  preceding  the month  in  which  the application for extension of credit is received by the lender; as determined by the following rules: if the  terms  of  the home  loan  offer  any  initial  or  introductory period, and the annual percentage rate is less than that which will apply after the end of such initial or introductory period, then the  annual  percentage  rate  that shall  be  taken  into account for purposes of this section shall be the rate which applies after the initial or introductory period; or  (ii) The total points and fees exceed: five percent of the total  loan amount  if  the  total loan amount is fifty thousand dollars or more; or six percent of the total loan amount if the total loan amount  is  fifty thousand  dollars  or  more  and  the  loan  is  a  purchase  money loan guaranteed  by  the  federal  housing  administration  or  the  veterans administration;  or  the greater of six percent of the total loan amount or fifteen hundred dollars, if the total loan amount is less than  fifty thousand  dollars;  provided,  the  following  discount  points shall be excluded from the calculation of the total points and  fees  payable  by the borrower:  (1)  Up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but  only  if  the interest  rate  from  which  the loan's interest rate will be discounted does not exceed by more than one percentage point the  yield  on  United States  treasury securities having comparable periods of maturity to the loan maturity measured as of the fifteenth day of the month  immediately preceding the month in which the application is received;  (2)  Any  and  all  bona  fide loan discount points funded directly or indirectly through a grant from a federal,  state  or  local  government agency or 501(c)(3) organization.  (h)  "Total  loan  amount" means the principal of the loan minus those points and fees as defined in paragraph (f) of this subdivision that are included in the principal amount.  (i) "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.   2.  Limitations  and  prohibited practices for high-cost home loans. A high-cost home loan shall be subject to the following limitations:  (a) No call provisions. No high-cost home loan may contain a provision that permits the lender, in  its  sole  discretion,  to  accelerate  the indebtedness.  This provision does 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  balloon  payments.  No  high-cost  home  loan  may  contain a scheduled payment that is more than twice as large  as  the  average  of earlier  scheduled payments, unless such balloon payment becomes due and payable at least  fifteen  years  after  the  loan's  origination.  This provision  does  not  apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower.  (c) No negative amortization. No high-cost home  loan  may  contain  a payment schedule with regular periodic payments that 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.  (d) No increased interest rate. No high-cost home loan may  contain  a provision   which  increases  the  interest  rate  after  default.  This provision does 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.  (e) Limitation on advance payments. No high-cost 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.  (f)  No  modification  or  deferral  fees.  A  lender may not charge a borrower any fees to modify, renew, extend, or amend  a  high-cost  home loan  or  to  defer  any payment due under the terms of a high-cost home loan if, after the modification, renewal, extension  or  amendment,  the loan  is  still a high-cost loan or, if no longer a high-cost 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 high-cost home loan) provided that the points and fees charged on the additional sum must reflect the lender's typical point and fee structure for high-cost home loans.  (g) No oppressive mandatory arbitration  clauses.  No  high-cost  home loan   may  be  subject  to  a  mandatory  arbitration  clause  that  is oppressive, unfair, unconscionable, or substantially  in  derogation  of the rights of consumers.  (h)  No  financing  of  insurance or other products sold in connection with the loan.  No  high-cost  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 high-cost 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.  (i)  No  "loan  flipping".  No  lender  or  mortgage  broker making or arranging a high-cost 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.  (j) No refinancing of special mortgages. No lender or mortgage  broker making or arranging a high-cost 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  a  borrower  has  received  home  loan  counseling  in  which  the advantages and disadvantages of the refinancing has been received.  (k)  No  lending  without due regard to repayment ability. A lender or mortgage broker shall not make or arrange a high-cost home loan  without due  regard  to  repayment  ability,  based  upon  consideration  of the resident borrower or borrowers' current  and  expected  income,  current obligations,  employment  status,  and  other financial resources (other than the borrower's equity in the dwelling which  secures  repayment  of the  loan),  as  verified  by  detailed  documentation of all sources of income and corroborated by independent verification. However,  a  lender making a high-cost home loan shall benefit from a rebuttable presumption that  the  loan  was  made  with  due regard to repayment ability if the lender demonstrates that at  the  time  the  loan  is  consummated,  the resident  borrower  or borrowers' total monthly debts, including amounts owed under the loan,  do  not  exceed  fifty  percent  of  the  resident borrower  or borrowers' monthly gross income; and the lender follows the residual income guidelines established in 38 C.F.R. § 36.4337(e) and  VA Form 26-6393.  (l)   (i)  No  lending  without  counseling  disclosure  and  list  of counselors.  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  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 servcies, shall be provided to the borrower by the lender or the  mortgage  broker  at  the time that this disclosure is given.  (ii) A lender or mortgage broker shall not make or arrange a high-cost home  loan  unless  either  the  lender or mortgage broker has given the following notice in writing to the  borrower  within  three  days  after determining that the loan is a high-cost home loan, but no less than ten days before closing:           "CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE    If  you  obtain  this  loan, which pursuant to New York State Law is a High-Cost Home Loan, the lender will have a mortgage on your  home.  You could  lose your home, and any money you have put into it, if you do not meet your obligations under the loan.   You should shop around and compare loan rates and fees. Mortgage  loan rates  and  closing costs and fees vary based on many factors, including your  particular  credit  and  financial  circumstances,  your  earnings history, the loan-to-value requested, and the type of property that will secure  your  loan.  The  loan  rate  and fees could vary based on which lender or mortgage broker you select.  Higher  rates  and  fees  may  be related  to  the  individual  circumstances  of  a particular consumer's application.   You  should  consider  consulting  a  qualified   independent   credit counselor  or  other  experienced  financial adviser regarding the rate, fees, and provisions of this  mortgage  loan  before  you  proceed.  The enclosed list of counselors is provided by the New York State Department of Financial Services.   You are not required to complete any loan agreement merely because you have  received  these  disclosures or have signed a loan application. If you proceed with this mortgage loan, you should also remember  that  you may  face serious financial risks if you use this loan to pay off credit card debts and other debts in connection with this transaction and  then subsequently  incur  significant new credit card charges or other debts. If you continue to accumulate debt after this loan is  closed  and  then experience  financial  difficulties,  you  could  lose your home and any equity you have in it if you do not meet your mortgage loan obligations.   Your payments on existing debts contribute to your credit ratings. You should not accept any advice to ignore your  regular  payments  to  your existing creditors."  (m)  Financing  of points and fees. In making a high-cost home loan, a lender shall not, directly or indirectly, finance any points and fees as defined in paragraph (f) of subdivision  one  of  this  section,  in  an amount that exceeds three percent of the principal amount of the loan.  (n) Restrictions on home improvement contracts. A lender shall not pay a  contractor  under  a home improvement contract from the proceeds of a high-cost home loan other than: by an instrument payable to the borrower or jointly to the borrower and the contractor; or at the election of the borrower, through a third-party escrow agent in  accordance  with  terms established  in  a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement.  (o) No encouragement of default. In making or  arranging  a  high-cost 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  a high-cost home loan that refinances all or any portion of such existing loan or debt.  (p) Prohibited payments to mortgage brokers. In making or arranging  a high-cost  home  loan, no lender 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.  (q) No points and fees when a lender refinances its own high-cost home loan  with  a  new  high-cost  home  loan.  A  lender shall not charge a borrower points and fees in connection with a high-cost home loan if the  proceeds of the high-cost home loan are used to  refinance  an  existing high-cost home loan held by the lender or an affiliate of the lender.  (r)   No   prepayment   penalties.   Notwithstanding  paragraph  b  of subdivision three of section 5-501 of the general  obligations  law,  no prepayment  penalties  or  fees  shall  be  charged  or  collected  on a high-cost home loan. A prepayment penalty in a high-cost home loan shall be unenforceable.  (s) 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.  (t)  Mandatory  escrow  of taxes and insurance. No high-cost 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 high-cost 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 high-cost 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.  (u) Mandatory disclosure of taxes and insurance payments. With respect to  a  high-cost 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.  (v) No teaser rates. No  lender  or  mortgage  broker  shall  make  or arrange  a high-cost home loan which has an initial or introductory rate with a duration of less than six months.   2-a. (a) High-cost home loan mortgages shall include a legend  on  top of  the  mortgage  in  twelve-point  type stating that the mortgage is a high-cost home loan subject to this section.  (b) The lender shall report both the favorable and unfavorable payment history of the borrower  to  a  nationally  recognized  consumer  credit bureau  at  least  annually  during  such  period as the lender holds or services the high-cost home loan.   3. The provisions of this section shall apply to any person who in bad faith  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.   4.  A lender of a high-cost home loan that, when acting in good faith, fails to comply with the provisions of this section, will not be  deemed to have violated this section if the lender establishes that either:  (a)  Within  thirty  days  of  the  loan  closing  and  prior  to  the institution of any action under this section, the borrower  is  notified of the compliance failure, appropriate restitution is made, and whatever adjustments  are necessary are made to the loan to either, at the choice of  the  borrower,  (i)  make  the  high-cost  home  loan  satisfy   the requirements  of this section, or (ii) change the terms of the loan in a manner beneficial to the borrower so  that  the  loan  is  no  longer  a high-cost home loan subject to the provisions of this section; or  (b)   The   compliance   failure  resulted  from  a  bona  fide  error notwithstanding the maintenance  of  procedures  reasonably  adapted  to avoid  such  errors  and,  within  sixty days after the discovery of the compliance failure and prior to the institution of any action under this section  or the receipt of written notice of the compliance failure, the borrower is notified of the compliance failure, appropriate  restitution is  made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, (i) make the high-cost home  loan satisfy  the  requirements  of this section, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan  is  no longer  a high-cost home loan subject to the provisions of this section. Examples of a bona fide error include  clerical,  calculation,  computer malfunction  and  programming,  and  printing  errors. An error of legal judgment with respect to a person's obligations under  this  section  is not a bona fide error.   5.  The  attorney  general,  the  superintendent,  or  any  party to a high-cost home loan may enforce the provisions of this section.   6. A private action against the lender or mortgage broker pursuant  to this  section  must  be commenced within six years of origination of the high-cost home loan.   7. Any person found  by  a  preponderance  of  the  evidence  to  have violated this section shall be liable to the borrower for the following:  (a)  actual  damages,  including consequential and incidental damages; and  (b) statutory damages as follows (i) all of the  interest,  earned  or unearned,  points  and fees, and closing costs charged on the loan shall be forfeited and any amounts paid shall be refunded;  except  that  this element of statutory damages shall not be awarded for violations of:  (1)  paragraph  (i)  of subdivision two of this section regarding loan flipping; and  (2) paragraph  (k)  of  subdivision  two  of  this  section  regarding ensuring the borrower's ability to repay the loan, so long as the lender demonstrates  that  at  the  time  of  the loan, it verified by detailed documentation all sources of the borrower's income and  corroborated  it with independent verification; or  (ii) five thousand dollars per violation or twice the amount of points and  fees  and  closing  costs  as defined in this section, whichever is greater, for violations of:  (1) paragraph (i) of subdivision two of this  section  regarding  loan flipping; and  (2)  paragraph  (k)  of  subdivision  two  of  this  section regarding ensuring the borrower's ability to repay the loan, where the borrower is not entitled to relief under subparagraph (i) of this paragraph.   8. A court may also award reasonable attorneys' fees to  a  prevailing borrower.   9.  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.   10.  Upon  a  finding  by the court of an intentional violation by the lender  of  this  section,  or  regulation  thereunder,  the  home  loan agreement  shall be rendered void, and the lender shall have no right to collect, receive or retain any principal,  interest,  or  other  charges whatsoever  with  respect  to the loan, and the borrower may recover any payments made under the agreement.   11. Upon a judicial finding that a high-cost home  loan  violates  any provision  of  this  section,  whether  such  violation  is raised as an affirmative  claim  or  as  a  defense,  the  loan  transaction  may  be  rescinded.  Such  remedy  of  rescission shall be available as a defense without time limitation.   12.  The  remedies provided in this section are not intended to be the exclusive remedies available to a borrower of a high-cost home loan.   13. In any action by an assignee to enforce a loan against a  borrower in default more than sixty days or in foreclosure, a borrower may assert any claims in recoupment and defenses to payment under the provisions of this  section  and  with  respect to the loan, without time limitations, that the borrower could assert against the original lender of the loan.   14. 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,  the  provisions  of  this  section  shall nonetheless continue to apply with respect to all other points and fees.