Provides that where a home improvement contractor is acting as a mortgage broker without being registered as required under the Banking Law, a mortgage banker, mortgage broker or exempt organization may not engage in such transaction with the contractor, and shall promptly notify the banking department that such person is acting as an unregistered broker.
BILL NUMBER: S2843
TITLE OF BILL :
An act to amend the banking law and the general business law, in
relation to home improvement contractors
To help address and prevent abusive practices which have resulted from
relationships between some home improvement contractors and some
mortgage lenders or mortgage brokers.
SUMMARY OF PROVISIONS :
A new Section 595-c is added to the Banking Law. Subdivision one of
this new section provides that a mortgage banker, exempt organization
(i.e. a banking institution or insurance company) or mortgage broker
shall not pay a referral fee or other compensation to a home
improvement contractor, in connection with a mortgage loan, unless the
following conditions are met:
* the contractor is an agent or employee of the lender or broker;
* the lender or broker has given prior notice to the Banking
Department of such relationship;
* the consumer is provided conspicuous notice in writing about the
relationship between the contractor and lender or broker; and
* such relationship is subject to any additional requirements or
conditions as provided in regulations of the Banking Board.
Subdivision two of this new section specifically provides that where a
home improvement contractor is acting as a mortgage broker without
being registered as required under the Banking Law, a mortgage banker,
mortgage broker or exempt organization may not engage in such
transaction with the contractor, and shall promptly notify the Banking
Department that such person is acting as an unregistered broker.
Subdivision three of this new section authorizes the Superintendent of
Banks to impose special conditions and restrictions on a mortgage
banker, mortgage broker or exempt organization if there has been a
pattern of bona fide complaints of abusive practices involving a
relationship between such entity and a home improvement contractor
with whom it has a formal or informal business arrangement.
Subdivision four of this new section defines "home improvement
contractor" and "home improvement contract."
The bill also amends Section 771 of the General Business Law in regard
to the written agreement which a home improvement contractor must
provide to the homeowner. This amendment provides that, where the
contractor is referring or recommending the homeowner to a lender for
a loan that will be secured by the property, the written agreement
must include a conspicuous statement that "If you obtain or use any
type of mortgage loan to finance this project, you could lose your
home and any money you have put into it if you do not meet your
obligations under the loan."
State and federal regulators have been focusing on the problem of
abusive lending practices, in which some lenders and mortgage brokers
use unfair, deceptive or fraudulent means to target vulnerable
homeowners for excessive high cost loans. The elderly, in particular,
are a frequent target, since they may own their homes or have a high
level of equity that can be exploited.
One continuing problem involves abusive or questionable practices
which have resulted' from relationships between some home improvement
contractors and some mortgage lenders or mortgage brokers.
Some homeowners have been subjected to high pressure sales tactics,
often by door-to-door salespeople, to agree to home repairs and to
finance such improvements. These contractors or salespeople may
pressure, intimidate, and mislead homeowners into taking out a
high-priced home equity loan, or refinancing an existing mortgage as a
high cost loan, to pay for these repairs. In the most egregious cases,
homeowners may not realize that, in agreeing to the home improvement
contract, they are also signing documents which commit them to a
mortgage loan or a refinancing.
There has also been concern about contractors which have been acting
in the capacity of a mortgage broker, without being registered and
regulated as required by the Banking Law. Through the regulation of
mortgage brokers, the State seeks to ensure that consumers are treated
fairly and are protected from abusive practices. When a contractor or
other person evades regulation and acts as a broker, there is a much
greater likelihood of deceptive and fraudulent practices.
As a result of these practices, a homeowner who may have had a
relatively low-balance, low rate loan may now be burdened with a
high-balance, high-rate loan that they cannot afford. Furthermore, in
many cases the home improvement work may be poor and inferior, or may
not even be undertaken or completed.
This bill seeks to improve accountability and ensure that mortgage
bankers and mortgage brokers are responsible for the activities of any
home improvement contractors with whom they have relationships. This
bill enables the Banking Department to impose special conditions and
restrictions in any cases where it identifies a pattern of abusive
practices between a lender or broker and home improvement contractors.
LEGISLATIVE HISTORY :
2007-08: S.2613-A/52-A; 2005-06: S.7148/A.2152, passed Assembly both
years; 2003-04: A.4980; 2001-02: A.5969; 1999-00: A.4046; 1997-98:
S.256/A.124; 1995-96: A.3150; 1993-94: S.4007.
FISCAL IMPLICATIONS :
EFFECTIVE DATE :
Section one will take effect 120 days after it shall have become a
law; section two will take effect 180 days after it shall have become
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