Banking Law §6-1
Part 41 - GRBB
September 3, 2004
Dear [ ]:
Your August 11, 2004 letter to New York State Banking Department (the "Department"), has been referred to me for response. In your letter you requested clarification as to whether "yield spread premiums" should be included in "points and fees" for the purpose of determining whether a loan is a "high cost home loan" under Part 41 of the General Regulations of the Banking Board ("Part 41"), and the recently enacted New York anti-predatory lending statute - Section 6-l of the Banking Law ("Section 6-l").
According to Part 41, "[p]oints and fees" include "[a]ll compensation paid directly or indirectly to a mortgage broker not otherwise included as points and fees pursuant to paragraphs (1) and (2)." Similarly, according to Section 6-l, "[p]oints and fees" include "[a]ll compensation paid directly or indirectly to a mortgage broker . not otherwise included in subparagraphs (i) and (ii)." In light of the above definitions of Part 41 and Section 6-l, in New York State, "yield spread premiums" are included in "points and fees" for the purpose of determining whether a loan is a "high cost home loan." Note that the Department has taken this position even though the Commentary to Regulation Z states in part that "[m]ortgage broker fees that are not paid by the consumer are not included" in determining "points and fees," Commentary para. 32(b)(1)(ii)-1. In reaching its position, the Department does recognize that "yield spread premiums" are mortgage broker fees not paid by the lender.
Further, your letter asks for a response regarding the inclusion or exclusion of yield spread premiums in the original Part 41 - Part 41 as it stood before the enactment of Section 6-l. Before the enactment of 6-l, Part 41 defined "points and fees" exclusively by reference to the federal Home Ownership and Equity Protection Act of 1994, as implemented by Regulation Z, 12 C.F.R. 226.32 ("HOEPA"). HOEPA via commentaries to Regulation Z as identified above, excluded "[m]ortgage broker fees that are not paid by the consumer." By analogy therefore, yield spread premiums - fees paid by lenders to brokers - were excluded from "points and fees" in the original Part 41.
Note that for purposes of this letter, a yield spread premium was considered to be a fee paid by a mortgage lender to a mortgage broker. Additionally, it should be noted that contrary to your letter, a yield spread premium is typically disclosed on the HUD-1 settlement statement although not required by Section 8 of RESPA (12 U.S.C 2603), which in part states that "[s]uch form shall conspicuously and clearly itemize all charges imposed upon the borrower and all charges imposed upon the seller in connection with the settlement."
I trust this is responsive to your inquiry.
Very truly yours,
Harry C. Goberdhan