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Banking Interpretations

NYSBL 6-I and GRBB 41

August 23, 2005 02:11 PM

Christine Tomczak

To gsterrett@hudco.com
cc Ken Bielemeier/mbk/NYSBD@NYSBD, Steven Barras/legal/NYSBD@NYSBD, Cheryl Lewis/legal/NYSBD@NYSBD
Subject Fw: Clarification requested of definition of " Home Loan" per Part 41 for junior lien mortgage loans

Dear Ms. Sterrett,

Your inquiry below has been forwarded to me for reply. I have reviewed Section 6-I of the Banking Law, Part 41.1(e) of the General Regulations of the Banking Board and FNMA loan limits for 2005.

I believe that the answer to your question is that the the limit for a junior lien loan is $300,000 irrespective of lien placement. I have discovered that $300,000 was the regulatory intended maximum. Concerning your specific question below, I believe that your second argument is correct. The lender should apply the values established by FNMA for first lien mortgages for comparable dwellings, in which case any loan in which the principal amount exceeds $300,000 (first or junior lien) would be outside the scope of a "high cost home loan" as that term is defined under Banking Law 6-I or Part 41 and therefore exempt from any of the New York "high cost home loan" restrictions/requirements.

I hope that this is helpful and I apologize for the delay in my response.

Christine


---- Forwarded by Ken Bielemeier/mbk/NYSBD on 06/09/2005 03:31 PM ----

"Sterrett, Grace" <gsterrett@hudco.com> To <ken.bielemeier@banking.state.ny.us>

05/24/2005 02:00 PM

cc
Subject Clarification requested of definition of " Home Loan" per Part 41 for junior lien mortgage loans

Dear Deputy Superintendent Bielemeier:

I submit this email seeking a clarification of the definition of a "High Cost Home loan" under Part 41.1(e)(1) with reference to a junior lien mortgage as the Federal National Mortgage Association( "FNMA") currently has loanlimits of less than $300,000 for junior lien loans.

Question :

In determining whether a junior lien residential mortgage loan qualifies as a " high cost home loan", is the lender to apply the FNMA junior lien maximum loan limit ( currently $179,825- which is not broken down further depending on whether it is a 1, 2, 3, or 4 family dwelling) or should a lender apply the values established by FNMA for a first lien mortgage for comparable dwellings, in which case any loan in which the principal amount exceeded $300,000 ( first or junior lien) would be outside the scope of a" high cost home loan" as that term is defined under Banking Law 6- l or Part 41?

Background

  1. New York Banking Law 6-1(e) defines a "Home Loan" , in part, by measuring a conforming loan size limit for a comparable dwelling based on the lesser of $300,000 or the loan size loan limits that are established by the FNMA from time to time. See below- emphasis supplied.

"(e) "Home loan" means a home loan, including an open-end credit plan, other than a reverse mortgage transaction, in which:

    1. The principal amount of the loan does not exceed the lesser of: (A) conforming loan size limit for a comparable dwelling as established from time to time by the federal national mortgage association; or (B) three hundred thousand dollars;
    2. The borrower is a natural person;
    3. The debt is incurred by the borrower primarily for personal, family, or household purposes;
    4. The loan is secured by a mortgage or deed of trust on real estate upon which there is located or there is to be located a structure or structures intended principally for occupancy of from one to four families which is or will be occupied by the borrower as the borrower's principal dwelling; and
    5. The property is located in this state."
  1. Part 41 .1 (e) of the General Regulations of the New York Banking Board similarly defines " high cost home loan" in relevant part as follows - emphasis supplied :

"(e) High cost home loan means a residential mortgage loan , including an open-end line of credit but not including a reverse mortgage transaction, in which:

  1. the principal amount of the loan does not exceed the lesser of:
    1. the conforming loan size limit for a comparable dwelling as established from time to time by the Federal National Mortgage Association; or
    2. $300,000;
  2. the borrower is a natural person;
  3. the debt is incurred by the borrower primarily for personal, family or household purposes;
  4. the loan is secured by a mortgage or deed of trust on real estate upon which there is located or there is to be located a structure or structures, intended principally for occupancy of from one to four families, which is or will be occupied by the borrower as the borrower's principal dwelling;
  5. the property is located in New York State; and
  6. the terms of the loan exceed one or more of the following thresholds:...."
    ( remainder intentionally omitted as not relevant to the question )
  1. The Federal National Mortgage Association currently has established the following loan size limits for 2005.

The following excerpt was taken from their website a direct link to which can be found at : http://www.efanniemae.com/singlefamily/reference tools/loan limits/loan limits.jhtml?role=ou

"2005 Loan Limits
These amounts will apply to all conventional mortgages that are delivered to us for cash purchase or MBS pool issuance on or after January 1, 2005 — including mortgages originated prior to that date, provided the original unpaid principal balance (UPB) was equal to or less than the new maximum. Lenders may deliver mortgages with these higher amounts under any outstanding contracts or commitments.

Number of Units
Maximum original principal balance
Alaska, Guam, Hawaii, and U.S. Virgin Islands only
1
$359,650
$539,475
2
$460,400
$690,600
3
$556,500
$834,750
4
$691,600
$1,037,400

Second mortgages

The maximum allowable original loan amount for a second mortgage is $179,825 (or $269,725 in Alaska, Guam, Hawaii and the U.S. Virgin Islands). Furthermore, the sum of the original loan amounts of the first and second mortgages cannot exceed $359,650 (or $539,475 in Alaska, Guam , Hawaii, and the U.S. Virgin Islands). These limits apply whether or not we own or have an interest in the first mortgage. "

  1. Analysis- First Lien

Therefore, the FNMA loan limit for a first lien loan ranges from $359,650 to $691,600 for a first lien residential mortgage loan secured by a 1-4 family dwelling located in New York.

Applying NY Banking Law 6-1 and Part 41.1(e) definitions, a" high cost home loan is a loan" is a loan for the principal amount of the lesser of $300,000 or the FNMA loan limits for a comparable dwelling. As all of the FNMA comparable loan limits for a 1-4 family exceed $300,000 it seems clear that a loan secured by a first lien mortgage in a principal amount in excess of $300,000 would not meet the definition of a high cost home loan under the statute or the regulation and therefore be excluded from consideration as a "high cost home loan."

  1. Analysis - Junior Lien

The maximum original loan amount for a second mortgage has been set by FNMA at $179,825 regardless of whether the loan is secured by a 1,2,3, or 4 family dwelling.[ FNMA imposes other conditions such as the fact that the combined original loan amounts for the first and second may not exceed $359,650.] FNMA has opted to measure its loan limits for first and junior lien mortgage loans based on different methods. The loan size limits for junior lien mortgages are not dependent upon the type of dwelling securing the loan. Does this difference in how FNMA operates impact the definition of a high cost home loan in New York?

Question:

In determining whether a junior lien residential mortgage loan qualifies as a " high cost home loan",:

  1. Is the lender to apply the FNMA junior lien maximum loan limit ( currently $179,825- which is not broken down further depending on whether it is a 1, 2, 3, or 4 family dwelling) in which case any junior lien residential mortgage in excess of $179.825 would be outside the scope of Banking Law 6-1 and Part 41 and therefore exempt from any of the New York " high cost home loan" restrictions/requirements?

or

  1. Should a lender apply the values established by FNMA for first lien mortgages for comparable dwellings, in which case any loan in which the principal amount exceeded $300,000 ( first or junior lien ) would be outside the scope of a" high cost home loan" as that term is defined under Banking Law 6-1 or Part 41 and therefore exempt from any of the New York "high cost home loan" restrictions/requirements"?

I look forward to your response and thank you, in advance, for clarifying this issue.

Grace Sterrett
Hudson Cook, LLP

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