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This entry was published on 2014-11-28
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SECTION 6-M
Subprime home loans
Banking (BNK) CHAPTER 2, ARTICLE 1
§ 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.