NY State Senate Bill 2009-S7669

Archive: Last Bill Status - In Senate Committee Banks Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Apr 29, 2010	referred to banks

2009-S7669 (ACTIVE) - Details

See Assembly Version of this Bill:: A10977
Current Committee:: Senate Banks
Law Section:: Banking Law
Laws Affected:: Amd §§590-b, 6-l & 6-m, Bank L
Versions Introduced in 2011-2012 Legislative Session:: S886, A5407, A7329

2009-S7669 (ACTIVE) - Summary

Prohibits compensation based on home loan terms by mortgage brokers or mortgage lenders.

2009-S7669 (ACTIVE) - Sponsor Memo

                                 BILL NUMBER:  S7669

 TITLE OF BILL :
An act to amend the banking law, in relation to prohibiting
compensation based on the terms of a home loan by mortgage brokers and
mortgage lenders


 PURPOSE OR GENERAL IDEA OF BILL :
The purpose of this bill is to ban yield spread premiums which will
help prevent the abuse of steering or directing a consumer to rates or
payment terms that are more expensive than that for which the consumer
qualifies.

 SUMMARY OF SPECIFIC PROVISIONS :
Bans the use of yield spread premiums by prohibiting mortgage brokers
or mortgage lenders from receiving compensation that is based on or
varies with the terms of any home loan.

 JUSTIFICATION :
"Yield spread premium," or YSP's, is the fee paid by the lender to the
mortgage broker in exchange for placing the borrower in a loan with a
higher interest rate. Though the borrower may qualify for a loan with
a lower rate, the broker can receive payment from the lender for
giving the borrower a higher rate loan. This practice rewards brokers
for acting against the interest of borrowers and provides a mechanism

to steer potential homeowners into higher interest loans.

Financing costs or fees through the interest rate is very confusing
for most consumers. Consumer testing by both HUD and the Federal
Reserve Board shows that consumers have a great deal of trouble
comparing deals that involve financing portions of costs/fees through
the rate.

The traditional way mortgage brokers are compensated is through the
direct payments of various fees from the customer, such as an
origination fee of one percent of the loan amount. Yield spread
premiums are paid from lending institutions to mortgage brokers
thereby providing a financial incentive to the mortgage broker to act
in the interest of the bank or lending institution instead of the
borrower.

FDIC Chair Sheila Bair wrote in an April 7, 2008 letter to Federal
Reserve Chairman Ben Bernake, "the FDIC recommends that the Federal
Reserve Board prohibit the use of yield spread premiums to compensate
mortgage brokers ... Disclosures alone will not address the
fundamental problems with YSP's, which is that they provide an
inappropriate financial incentive for mortgage brokers to steer
consumers to unaffordable loans." As Bair adds in the same letter,
"there are ample alternative means of compensation available, such as
flat fees or fees based on the total principal amount of the mortgage,
which would not present skewed incentives or increase borrower costs
and which would be much more transparent and understandable to
borrowers."

We heard ample evidence at the Senate's mortgage Fraud hearing that
was conducted in October 2009 that lenders and brokers have steered
numerous borrowers into higher cost loans. Banning yield spread
premiums will help prevent the abuse of steering or directing a
consumer to rates or payment terms that are more expensive than for
which the consumer qualify.

 PRIOR LEGISLATIVE HISTORY :
New bill.

 FISCAL IMPLICATIONS :
None to the state.

 EFFECTIVE DATE :
This act shall take effect immediately.

2009-S7669 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  7669

                            I N  S E N A T E

                             April 29, 2010
                               ___________

Introduced  by  Sen. SCHNEIDERMAN -- read twice and ordered printed, and
  when printed to be committed to the Committee on Banks

AN ACT to amend the banking law, in relation to prohibiting compensation
  based on the terms of a home loan by  mortgage  brokers  and  mortgage
  lenders

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Section 590-b of the banking law is amended by adding a new
subdivision 3-a to read as follows:
  3-A. 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 SUBDIVISION SHALL NOT
PROHIBIT COMPENSATION BASED ON THE PRINCIPAL BALANCE OF THE LOAN.
  S 2. Paragraph (s) of subdivision 2 of section 6-l of the banking law,
as amended by chapter 507 of the laws of 2009, is  amended  to  read  as
follows:
  (s) No [abusive] yield spread premiums. [In arranging a high-cost home
loan,  the  mortgage broker shall, within three days after receipt of an
application, disclose the exact amount and methodology of total  compen-
sation  that  the broker will receive. Such amount may be paid as direct
compensation from the lender, direct compensation from the borrower,  or
a combination of the two if permitted by applicable law.  The provisions
of  this  paragraph  shall  not  restrict  the  ability of a borrower to
utilize a yield spread premium in order to offset any up front costs  by
accepting  a higher interest rate if permitted by applicable law. If the
borrower chooses this option, any  compensation  from  the  lender  that
exceeds  the  amount  of  total  compensation owed to the broker must be
credited to the borrower. The superintendent shall  prescribe  the  form
that  such  disclosure  shall  take. This provision shall not restrict a
broker from accepting a lesser amount of  compensation.]  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 INDIRECT-
LY, ANY COMPENSATION THAT IS BASED ON, OR VARIES WITH, THE TERMS OF  ANY

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.

                                                           LBD17036-02-0

S. 7669                             2

HOME  LOAN.  THIS PARAGRAPH SHALL NOT PROHIBIT COMPENSATION BASED ON THE
PRINCIPAL BALANCE OF THE LOAN.
  S 3. Paragraph (n) of subdivision 2 of section 6-m of the banking law,
as  amended  by  chapter  507 of the laws of 2009, is amended to read as
follows:
  (n) No [abusive] yield spread premiums. [In arranging a subprime  home
loan,  the  mortgage broker shall, within three days after receipt of an
application, disclose the exact amount and methodology  for  determining
the  total compensation that the broker will receive. Such amount may be
paid as direct compensation from the lender,  direct  compensation  from
the  borrower,  or  a  combination of the two if permitted by applicable
law. The provisions of this paragraph shall not restrict the ability  of
a  borrower  to  utilize  a  yield spread premium in order to offset any
upfront costs by accepting a higher interest rate if permitted by appli-
cable law. If the borrower chooses this option,  any  compensation  from
the  lender  that exceeds the exact amount of total compensation owed to
the broker must be credited to the borrower.  The  superintendent  shall
prescribe the form that such disclosure shall take. This paragraph shall
not  restrict  a broker from accepting a lesser amount of compensation.]
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.
  S 4. This act shall take effect immediately.

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Senate Bill S7669

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Archive: Last Bill Status - In Senate Committee Banks Committee

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2009-S7669 (ACTIVE) - Details

2009-S7669 (ACTIVE) - Summary

2009-S7669 (ACTIVE) - Sponsor Memo

2009-S7669 (ACTIVE) - Bill Text download pdf

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Sponsored By

Eric T. Schneiderman

Archive: Last Bill Status - In Senate Committee Banks Committee

Actions

2009-S7669 (ACTIVE) - Details

2009-S7669 (ACTIVE) - Summary

2009-S7669 (ACTIVE) - Sponsor Memo

2009-S7669 (ACTIVE) - Bill Text download pdf

Comments