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Banking Interpretations

NYSBL 6-L and General Regulations of the Banking Board Part 41

Alan Weinberg

11/08/2006

Subject     Re: GRBB Part 41, high-cost points and fees & seller

Your e-mail of 10/20/06 to the Department was referred to me for a reply.

You asked that the Banking Department consider the following question: "should seller-paid items be included in the New York high-cost "points and fees" calculation?" The answer is "yes," which is clear from an examination of the applicable provisions of Banking Law 6-l and Part 41 of the General Regulations of the Banking Board.

A loan may be deemed a high cost home loan in New York if, inter alia, the total points and fees exceed particular thresholds.

Under Banking Law, Section 6-l (f) "points and fees" means:

  1. All items listed in 15 U.S.C. S 1605 (a) (1) through (4), except interest or the time-price differential;
  2. All charges for items listed under S 226.4 (c) (7) of title 12 of the code of federal regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender; otherwise, the charges are not included within the meaning of the phrase "points and fees";
  3. All compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a table-funded transaction, not otherwise included in subparagraphs (1) and (2) of this paragraph;
  4. The cost of all premiums financed by the lender, directly or indirectly, for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life or health insurance, or any payments financed by the lender directly or indirectly for any debt cancellation or suspension agreement or contract, except that insurance premiums calculated and paid on a monthly basis shall not be considered financed by the lender.

Nowhere in the Banking Law's "points and fees" definition (or "high-cost home loan" definition) are points and fees limited to only those paid by the borrower (or any other party); therefore, seller-paid amounts that are encompassed within the definition(s) are not excluded.

The May 5, 2003 amendments of Part 41 deleted the phrase "by the borrower at or before loan closing" from the text of Section 41.1 (e) (6) (3), which sets forth the total points and fees payable that may cause a loan to exceed a threshold and be deemed a high cost home loan.. This amendment made Part 41 consistent with Section 6-l of the Banking Law. The amended Part 41 makes it clear that whether the payor is the borrower is not relevant to the question of whether the payment falls within the definition of "points and fees." (There are other conditions, however, that are relevant to the question of whether the payment falls within the definition of "points and fees" and those conditions may be found in the definition of "points and fees" and the other text of Section 41.1 (h). Please refer to the version of Part 41 and the accompanying explanatory material that was posted to our web site on 9/27/06.)

You may want to note that your question is often raised to us in the context of broker compensation commonly referred to as yield spread premiums. There are differences between the New York and federal rules on this point and the question has been addressed by the Department in an interpretive letter dated September 3, 2004 that is posted on our website and can be found at: http://www.banking.state.ny.us/legal/lo040903.htm. Nevertheless, we recognize that confusion among the public on this matter appears to remain despite the 9/3/04 letter, which explains how the differences came into being when, at an earlier time, the New York and federal rules did not differ on this point.

We trust that this response adequately addresses your concerns.

Alan M. Weinberg
Assistant Counsel
NYS Banking Department
One State Street Plaza
New York, NY 10004-1417

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