Explanatory All Institutions Letter
September 14, 2006
TO THE INDIVIDUAL OR INSTITUTION ADDRESSED:
RE: Adoption of Amendments to Part 41 of the General Regulations of the Banking Board (Restrictions and Limitations on High Cost Home Loans)
The Banking Board has adopted the attached amendments to Part 41 of its General Regulations. The amendments will become effective upon publication in the State Register, which is expected to occur on September 27, 2006. The adopted amendments are substantially similar in form to amendments contained in an emergency regulation which has been in effect since September, 2003.
Chapter 626 of the laws of 2002, which added a new section 6-l to the Banking Law, became effective April 1, 2003. Section 6-l regulates the making of high cost home loans and establishes new penalties for violations of the law and certain remedies for homeowners who are affected by such violations.
A revised Part 41was adopted by the Banking Board that conforms Part 41 to, and makes it consistent with, the provisions of section 6-l.
The amendments make a number of changes to the previous Part 41 standards. The following are among the more significant provisions of the revised Part 41 standards:
- Different points and fees thresholds determine whether a loan will be a high cost home loan with respect to FHA and VA loans and loans under $50,000.
- The definition of points and fees with respect to third-party charges is revised to exclude certain charges, such as premiums for insurance required by the lender to guarantee payment upon default and title insurance premiums.
- All broker compensation is included within points and fees.
- Only 3 percent of the points and fees of any high cost home loan may be financed.
- A new disclosure notice must be given not less than 10 days prior to closing.
- A lender of an existing high cost home loan shall not charge points and fees when refinancing such high cost home loan, even when additional proceeds may be provided in the refinancing. A lender of an existing high cost home may charge points and fees when such loan is modified, renewed, extended or amended but only on any additional proceeds as the result of such modification, renewal, extension or amendment.
- Standards are provided to implement the new requirement for “independent verification” of a borrower’s financial resources when determining whether the loan is affordable.
- Lenders must use the VA residual income guidelines in addition to the 50% debt to income ratio, if they wish to have a rebuttal presumption that the borrower is able to afford the loan.
- Standards are provided to determine when a refinanced loan has a “tangible net benefit” to the borrower, if lenders wish to avoid accusations of loan “flipping.”
- The affordability provisions apply to all borrowers, not just those whose income is less than 120% of the income of the applicable Standard Metropolitan Statistical Area (“SMSA”).
Very truly yours,
Sam L. Abram
Secretary of the Banking Board