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Amendments to Part 41 of the General Regulations of the Banking Board (High Cost Home Loans)

September 27, 2006

Amendments to General Regulations of the Banking Board Part 41

RESTRICTIONS AND LIMITATIONS ON HIGH COST HOME LOANS

(Statutory authority: Banking Law §§6-i, 6-l

§ 41.1 Definitions.

The following definitions shall apply for the purpose of this Part. 

(a)      “Lender” means [any individual or entity that in any 12-month period originates more than one high cost home loan as defined in this Part] a mortgage banker licensed pursuant to article 12-D of the Banking Law or an exempt organization as defined in paragraph (e) of subdivision one of section five hundred ninety of such article. The [individual or entity] mortgage banker or exempt organization to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract, shall be deemed to be the lender.

(b)      “Affiliate” means any company that controls, is controlled by, or is under the common control of another company. “Control” shall [mean ownership of 10 percent or more of any class of outstanding capital stock of the company or the power to direct or cause the direction of the management and policies of the company] have the same meaning as control of a bank or any other company is defined pursuant to 12 USC at 1841(a)(2), (3), and (4), as amended from time to time. This publication may be viewed at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR and the Department of State located at 41 State Street, Albany, NY 12231. The United States Code is published by the Office of the Law Revision Council of the House of Representatives and is for sale by the United States Government Printing Office, Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-0001.

(c)      “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. section 1601 et seq.), the regulations promulgated thereunder by the Federal Reserve Board, and the official staff commentary thereto. For open-end lines of credit, the “annual percentage rate” is the highest corresponding annual percentage rate required to be disclosed under sections 226.6(a)(2) and 226.14(b) of title 12 of the Code of Federal Regulations, excluding any annual percentage rate imposed solely in the event of default. These publications may be viewed at [the New York State Banking Department located at Two Rector Street, New York, NY 10006] the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR and the Department of State located at 41 State Street, Albany, NY 12231. The United States Code is published by the Office of the Law Revision Council of the House of Representatives. [This publication is] The Code of Federal Regulations is published by the United States Government Printing Office and both publications are for sale by the United States Government Printing Office, Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-[9328] 0001.

(d)      “Bona fide loan discount points” means loan discount points knowingly paid by the borrower and funded through any source for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the loan, provided the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions. For purposes of this Part and section 6-l(1)(c) of the Banking Law, it shall be presumed that a point is a bona fide loan discount point if it reduces the interest rate by a minimum of [35] 25 basis points or [3/8] 1/4 of a point provided all other terms of the loan remain the same.

(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:
    1. the loan is secured by a first mortgage on the borrower's principal dwelling and the annual percentage rate at consummation, [calculated to include any lower introductory rate and] including without limitation any points and/or bona fide discount points, will exceed by more than eight percentage points the yield on United States Treasury securities having comparable periods of maturity to the loan maturity measured as of the 15th day of the month immediately preceding the month in which the application for the residential mortgage loan is received by the [creditor] lender; provided, however, if the terms of such loan offer any initial or introductory rate, and the annual percentage rate is less than such rate that will apply after the end of the period of such initial or introductory rate, then the annual percentage rate for purposes of determining the application of this threshold to such loan shall be the rate which applies after such initial or introductory period; or
    2. the loan is secured by a junior mortgage on the borrower's principal dwelling and the annual percentage rate at consummation, [calculated to include any lower introductory rate and] including without limitation any points and/or bona fide discount points, will exceed by nine or more [than nine] percentage points the yield on United States Treasury securities having comparable periods of maturity to the loan maturity measured as of the 15th day of the month immediately preceding the month in which the application for the residential mortgage loan is received by the [creditor] lender; provided, however, if the terms of such loan offer any initial or introductory rate, and the annual percentage rate is less than such rate that will apply after the end of the period of such initial or introductory rate, then the annual percentage rate for purposes of determining the application of this threshold to such loan shall be the rate which applies after such initial or introductory period; or
    3. the total points and fees payable [by the borrower at or before loan closing] exceed (1) five percent of the total loan amount[; provided, however that bona] if such amount is $50,000 or more; or (2) six percent of the total loan amount if such amount is $50,000 or more and the loan is a purchase money loan guaranteed by the Federal Housing Administration or the U.S. Department of Veterans Administration; or (3) the greater of six percent of the total loan amount or $1500 if such amount is less than $50,000. Bona fide loan discount points payable by the borrower in connection with the loan transaction, up to and including two such points, may be excluded from the calculation of the total points and fees payable by the borrower for purposes of this paragraph[;or] but only if the loan’s interest rate that is to be discounted is not greater than one percent above the yield on United States Treasury securities having comparable periods of maturity to the loan maturity measured as of the fifteenth day of the month immediately preceding the month in which the application is received; or bona fide discount points may be discounted that are funded directly or indirectly through a grant from a federal, state or local government agency or a not-for-profit organization having a taxable status under section 501(c)(3) of the Internal Revenue Code.
    4. [in] In determining the applicable yield on United States Treasury securities pursuant to subparagraphs (i) and (ii) of this paragraph, the lender may utilize the yield published by the Banking Department on its website or the yield as determined by reference to section 226.32(a) of Title 12 of the Code of Federal Regulations and the official staff commentary thereto, provided that the lender notes in the loan file which yield is being utilized and uses that yield consistently. This publication may be viewed at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR and the Department of State located at 41 State Street, Albany, NY 12231.

(f)      “[Loan] Total loan amount” [is the same amount as is defined in the official staff commentary to Regulation Z Truth in Lending Section 226.32(a)(1)(i) Comment 1] means the principal of the loan minus those points and fees as defined in paragraph (h) of this section that are included in the principal amount.

(g)      “[Obligor] Borrower” refers to [each borrower,] a natural person and shall be deemed to include a co-borrower[,] or co-signer [or guarantor] obligated to repay a high cost home loan.

(h)      “Points and fees” means [the points and fees as defined in] (i) all items listed in 15 U.S.C. § 1605(a)(1) through (4), except interest or the time-price differential; (ii) all charges for items listed under section [226.32(b)] 226.4(c)(7) of title 12 of the Code of Federal Regulations,[and the official staff commentary thereto] 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; and (iii) all compensation paid directly or indirectly to a mortgage broker not otherwise included as points and fees pursuant to clauses (i) and (ii) of this subdivision 41.1(h). These publications may be viewed at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR and the Department of State located at 41 State Street, Albany, NY 12231. Any payments to finance premiums for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life or health insurance, or any debt cancellation or suspension agreement or contract, whether or not interest is charged, shall constitute points and fees for purposes of this Part and section 6-l of the Banking Law. Credit property insurance shall not be deemed to include insurance coverage for fire, miscellaneous property, or water damage, as defined pursuant to section 1113 of the Insurance Law, placed upon such mortgaged property.  Payments for title insurance premiums related to such mortgaged property and payments for premiums for insurance required by the lender which guarantees payment of all or part of the outstanding principal loan amount upon the default of the borrower, which shall include but not be limited to private mortgage insurance, the Federal Housing Administration mortgage insurance premium fee, and the U.S. Veterans Administration funding fee, or any fee charged by the Federal National Mortgage Association or the Federal Mortgage Assistance Corporation, which provides for a similar guarantee of such payment, shall not constitute points and fees for purposes of this Part and section 6-l of the Banking Law. Any payments for a mortgage recording tax shall not constitute points and fees for purposes of this Part and section 6-l of the Banking Law.

(i)       “Scheduled monthly payments” means minimum sums required to be paid with respect to all of the borrower's debts that are reported on a nationally recognized consumer credit bureau report and the monthly mortgage payment due under the high cost home loan (ignoring any reduction arising from a lower introductory rate) plus one twelfth of the annualized cost of real estate tax and insurance premium payments during the immediately preceding 12 months. Scheduled monthly payments shall not include any debts that are consolidated with or paid off by the high cost home loan.

(j)       “Unconscionable” means oppressive or unreasonably harsh or unfair, considering all of the circumstances of the loan transaction as such term “unconscionable” is described in the Official Comment and New York Annotations for section 2-302 of the Uniform Commercial Code. This publication may be viewed at the New York State Banking Department located at [the New York State Banking Department located at Two Rector Street, New York, NY 10006] the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR and the Department of State located at 41 State Street, Albany, NY 12231. The Uniform Commercial Code is published by West Publishing Company and is for sale by the West Group, 620 Opperman Drive, P.O. Box 64526, St. Paul, MN 55164-0779.

For purposes of this Part, the singular shall include the plural.

§ 41.2 Limitations.

A high cost home loan shall be subject to the following limitations.

(a)      No call provision. No high cost home loan may contain a call provision that permits the lender, in its sole discretion, to accelerate the indebtedness. This prohibition does not apply when repayment of the loan has been accelerated [by] in good faith, due either to a bona fide default or other failure of the borrower to abide by the material terms of the loan, or pursuant to a due-on-sale provision, or pursuant to some other provision of the loan agreement unrelated to the payment schedule such as bankruptcy or receivership.

(b)      No balloon payment. No high cost home loan may contain a scheduled final payment that is more than twice as large as the average of earlier scheduled monthly payments unless such balloon payment becomes due and payable at least [seven] fifteen years after the loan's origination. This prohibition does not apply when the payment schedule is adjusted to account for the seasonal or irregular income of the borrower or if the purpose of the loan is a “bridge” loan connected with the acquisition or construction of a dwelling intended to become the borrower's principal dwelling. This subdivision shall not apply to open-end high cost home loans.  

(c)      No negative amortization. Notwithstanding any statute or regulation to the contrary, no high cost home loan may contain a payment schedule with regular periodic payments that cause the principal balance to increase. This shall not prohibit negative amortization as a consequence of a temporary forbearance sought by the borrower. This subdivision shall not apply to open-end high cost home loans.

(d)      No increased interest rate. No high cost home loan may contain a provision that increases the interest rate after default. This provision does not apply to periodic interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan agreement, provided the change in the interest rate is not occasioned by the event of default or the acceleration of the indebtedness.

(e)      No oppressive mandatory arbitration clause. No high cost home loan may be subject to a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers. Arbitration clauses that comply with the standards set forth in the Statement of Principles of the National Consumer Dispute Advisory Committee [(http://www.adr.org/education/education/consumer_protocol.html) in effect as of the effective date of this regulation (Oct. 1, 2000)], as such Statement is on file at the New York State Banking Department, shall be presumed not to violate this subdivision. The Statement of Principles may be viewed at the New York State Department of Banking located at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR or through internet access at http://www.banking.state.ny.us/41.htm.

(f)      No advance payments. No high cost 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.

[(g)     No modification or deferral fees. A lender may not charge a borrower any fees to modify, renew, extend, or amend a high cost home loan or defer any payment due under a high cost home loan if, after the modification, renewal, extension or amendment, the loan is still a high cost loan or, if no longer a high cost home loan, the APR has not been decreased by at least two percentage points. For purposes of this subdivision, fees do not include interest that is otherwise payable and consistent with the provisions of the loan documents. This provision 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 high cost home loan) provided that the points and fees charged on the additional sum must reflect the lender's typical point and fee structure for high cost home loans. This provision shall not apply if the existing high cost home loan is in default or is 60 or more days delinquent and the modification, renewal, extension, amendment or deferral is part of a work-out process.]

§ 41.3 Prohibited acts and practices.

The following acts and practices are prohibited in the making of a high cost home loan.

(a) No lending without counseling disclosure and list of counselors and consumer and home ownership counseling notice.

  1. A lender or mortgage broker must deliver, place in the mail, fax or electronically transmit the following notice in at least 12-point type to the borrower 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 Banking Department". In the event that the lender or broker does not know whether the borrower's application is a high cost home loan application, such disclosure must be made as soon as the lender determines that it is a high cost home loan application[, but in any event, at least three days prior to the closing whether or not funds are disbursed]. In the event of a telephone application, the disclosures must be made immediately after receipt of the application by telephone[, but in any event, at least three days prior to the closing whether or not funds are disbursed]. 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 Banking Department, shall be provided to the borrower by the lender or the mortgage broker at the time that this disclosure is given. The lender or mortgage broker may provide to the borrower the entire list of counselors or those portions of the list which pertain to both the geographic area in which the borrower resides and any adjacent area or areas.
  2. Within three days after determining that the loan is a high cost home loan, but no less than ten days before closing, a lender or mortgage broker shall not make or arrange a high cost home loan unless either the lender or the mortgage broker has delivered to the borrower in writing, either placed in the mail, faxed or electronically transmitted, the following notice in at least twelve-point type:

“CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE

If you obtain this loan, which pursuant to New York State Law is a High-Cost Home Loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.

          You should shop around and compare loan rates and fees. Mortgage loan rates and closing costs and fees vary based on many factors, including your particular credit and financial circumstances, your earnings history, the loan-to-value requested, and the type of property that will secure your loan. The loan rate and fees could vary based on which lender or mortgage broker you select. Higher rates and fees may be related to the individual circumstances of a particular consumer's application.

          You should consider consulting a qualified independent credit counselor or other experienced financial adviser regarding the rate, fees, and provisions of this mortgage loan before you proceed. The enclosed list of counselors is provided by the New York State Banking Department.  

          You are not required to complete any loan agreement merely because you have received these disclosures or have signed a loan application. If you proceed with this mortgage loan, you should also remember that you may face serious financial risks if you use this loan to pay off credit card debts and other debts in connection with this transaction and then subsequently incur significant new credit card charges or other debts. If you continue to accumulate debt after this loan is closed and then experience financial difficulties, you could lose your home and any equity you have in it if you do not meet your mortgage loan obligations.

          Property taxes and homeowner's insurance are your responsibility. Not all lenders provide escrow services for these payments. You should ask your lender about these services.

          Your payments on existing debts contribute to your credit ratings. You should not accept any advice to ignore your regular payments to your existing creditors. Accordingly, it is important that you make regular payments to your existing creditors.” 

If the notice required by this paragraph is given to the borrower separately from counseling notice required by paragraph (1) of this subdivision, then the list of counselors so enclosed in the counseling notice disclosure shall be enclosed also with this disclosure notice. 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.

(b)     No lending without due regard to repayment ability. A lender or mortgage broker may not make or arrange a high cost home loan unless the lender reasonably believes at the time the loan is consummated that the [obligor] borrower or the [obligors] borrowers (when considered collectively in the case of multiple [obligors] borrowers) will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources (other than the borrower's equity in the dwelling which secures repayment of the loan) as verified by detailed documentation of all sources of income and corroborated by independent verification. [An obligor shall be presumed to be] A lender shall benefit from a rebuttable presumption that an borrower is able to make the scheduled payments to repay the obligation, if, at the time the high cost home loan is consummated, or at the time of the first rate adjustment in the case of a lower introductory interest rate, the [obligor's] borrower’s scheduled monthly payments do not exceed 50 percent of the [obligor's] borrower’s monthly gross income as verified by the credit application, the [obligor's] borrower’s financial statement, a credit report, financial information provided to the lender by or on behalf of the [obligor] borrower, or any other reasonable means, and the lender, in making such high cost home loan, follows the residual income guidelines pursuant to section 36.4337(e) of Title 38 of the Code of Federal Regulations and U.S. Veterans Administration VA Form 26-6393. VA Form 26-6393 may be viewed atthe New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR or by internet access at http://www.vba.va.gov/pubs/homeloanforms.htm. The U.S. Veterans Administration residual incomes for the northeast region may be viewed at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G 1 of Title 3 of the NYCRR or by internet access at http://www.banking.state.ny.us/41.htm. A borrower’s repayment ability shall be presumed “corroborated by independent verification” for purposes of this Part and section 6-l(2)(k) of the Banking Law if the borrower’s income, employment status, obligations, and other financial resources are verified by documents prepared by persons or entities having no direct relationship with the lender or mortgage broker or a relationship with the borrower, other than an employment, debtor-obligor, or fiduciary relationship, or by governmental documents, such as an income tax return. [The requirement of this subdivision shall apply only to obligors whose income, as reported on the loan application which the lender relied upon in making the credit decision, is no greater than 120 percent of the median family income for the metropolitan statistical area (MSA) (as defined by the director of the U.S. Office of Management and Budget), in which the property to be secured is located. For loans secured by properties that are not located within an MSA, the requirement shall apply only to obligors whose incomes do not exceed 120 percent of the non-metropolitan median family income for New York State. For purposes of this section, the median family income shall be derived from the most recent estimates made available by the U.S. Department of Housing and Urban Development, at the time the application is received.] For purposes of determining [whether] monthly income [is less than or greater than 120% of median income e], only the income of the borrower(s) shall be considered. [In addition, in determining repayment ability, lenders should consider indications of residual income such as the guidelines utilized by the Veteran's Administration.]

(c)      Financing of points[,] and fees [or charges]. In making a high cost home loan, a lender may not require a borrower to directly or indirectly finance any portion of the points and/or fees [nor, in any case, directly or indirectly finance points and fees payable to the lender or charges payable to third parties (other than appraisal fees, credit report fees, mortgage recording tax, fire and miscellaneous property insurance, title report and title insurance charges)], in an amount that exceeds [five] three percent of the principal amount of a closed end high cost home loan, or of the maximum line of credit amount for open end high cost home loans, for loans other than refinancings. For refinancings, a lender may not finance such points[,] or fees [or charges] in an amount that exceeds [five] three percent of the additional proceeds received by the borrower in connection with the refinancing [other than appraisal fees, credit report fees, mortgage recording tax, fire and miscellaneous property insurance, title report and title insurance charges]. In making a high cost home loan, a lender may not finance voluntary credit, disability, unemployment and/or life insurance as part of the principal amount of the loan, whether interest is charged or not. In making a high cost home loan, a lender may not directly or indirectly finance any prepayment fees or penalties payable by the borrower in a refinancing transaction if the lender or an affiliate of the lender is the originator of the loan being refinanced. For purposes of this subsection 41.3(c), “additional proceeds” for a closed end loan is the amount over and above the current principal balance of the existing home loan. For an open end loan, “additional” proceeds is the amount by which the line of credit on the new loan exceeds current principal balance of the existing home loan.

(d)      [Frequent refinancing] Refinancing and modification of existing high cost home loan [with new high cost home loan].

(1)      (i)       A lender shall not charge a borrower points and fees in connection with a high cost home loan if the proceeds of the high cost home loan are used to refinance an existing high cost home loan held by the lender or an affiliate of the lender.

(ii)      [A] In all other instances, a lender may not charge a borrower points and fees in connection with a high cost home loan if the proceeds of the high cost home loan are used to refinance an existing high cost home loan and the last financing was within two years of the current refinancing. This provision shall not prohibit a lender from charging points and fees in connection with any additional proceeds received by the borrower in connection with the refinancing, provided that the points and fees charged on the additional sum must reflect the lender's typical point and fee structure for high cost refinance loans. [This subdivision shall apply only in those instances in which the existing high cost home loan was made by the lender or an affiliate of the lender, provided that the new high cost home loan does not involve the use of a mortgage broker, and to all existing high cost home loans in which the new high cost home loan involves the use of a mortgage broker.] For purposes of this subdivision 41.3(d), “additional proceeds” for a closed end loan is the amount over and above the current principal balance of the existing high cost home loan. For an open end loan, “additional proceeds” is the amount by which the line of credit on the new loan exceeds current principal balance of the existing high cost home loan.

(2)      A lender may not charge a borrower any fees to modify, renew, extend, or amend a high cost home loan or defer any payment due under a high cost home loan if, after the modification, renewal, extension or amendment, the loan is still a high cost loan or, if no longer a high cost home loan, the annual percentage rate has not been decreased by at least two percentage points. For purposes of this paragraph, fees do not include interest that is otherwise payable and consistent with the provisions of the loan documents. This provision 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 high cost home loan) provided that the points and fees charged on the additional sum must reflect the lender's typical point and fee structure for high cost home loans. This provision shall not apply if the existing high cost home loan is in default or is sixty (60) or more days delinquent and the modification, renewal, extension, amendment or deferral is part of a work-out process.

(e)      Restrictions on home improvement contracts. A lender may not pay a contractor under a home-improvement contract from the proceeds of a high cost home loan other than by an instrument payable to the borrower or jointly to the borrower and the contractor or, at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement of funds to the contractor.

(f)      No refinancing of special mortgages. No lender making a high cost home loan may refinance an existing mortgage 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 U.S. Department of Housing and Urban Development certified housing counselor or the lender who originally made the special mortgage that a borrower has received home loan counseling in which the advantages and disadvantages of the refinancing has been received.

[(f)](g) List of counselors [and median family income figure], residual income guidelines and yield on United States Treasury securities. The list of counselors in [subsection 41.3(a)] subdivision (a) of this section, [and the median family income figures and] the residual income guidelines [for subsection 41.3(b)] in subdivision (b) of this section, and the yield on the Unites States Treasury securities in [subsection] section 41.1(e) of this Part shall be published by the Banking Department on its web site. Lenders may rely upon and use such information until ninety days after the Banking Department publishes new information on its web site.

§ 41.4 Additional requirements.

The following are required in order to make a high cost home loan.

(a)      Mortgage brokers and lenders must give the disclosures required pursuant to Part 38 of this Title, as applicable, to the borrower and any other obligor in writing at the time of application which shall be at least [three] ten days prior to the closing whether or not funds are then disbursed. In addition, at or prior to taking an application, mortgage brokers and lenders must also deliver, place in the mail, fax or electronically transmit to the borrower a statement in substantially the following form: "Although your aggregate monthly debt payment may decrease, the high cost home loan may increase both (i) your aggregate number of monthly debt payments and (ii) the aggregate amount paid by you over the term of the high cost home loan" if such are likely the case. This disclosure need not be a separate document. A lender may agree with a broker that the broker shall make the disclosures required by this Part and Part 38 of this Title on behalf of the lender. However, it remains the responsibility of the lender to ensure that such disclosures are made. In the event that the lender or broker does not know whether the borrower's application is a high cost home loan application, such disclosure must be made [as soon as] within three days after the lender determines that it is a high cost home loan application, but in any event, at least [three] ten days prior to the closing. In the event of a telephone application, the disclosure must be made [immediately] within three days after receipt of the application by telephone, but in any event, at least [three] ten days prior to the closing. In order to utilize electronic transmission, the lender or broker must first obtain either written or electronically transmitted permission from the borrower.

(b)      The lender must report both the favorable and unfavorable payment history of the borrower to a nationally recognized consumer credit bureau at least annually during such period as the lender holds or services the high cost home loan.

(c)      Mortgage brokers and lenders that broker or make 10 or more high cost home loans per year must report to the Banking Department annually, on or before March 31st in each year, the names and addresses of the three home improvement contractors, the three consultants and the three attorneys who obtain the largest number of payments directly from the proceeds of high cost home loans made or brokered by the lender or mortgage banker. They must also provide the names and addresses of any home improvement company that is an affiliate. This provision shall not apply to attorneys in their capacity as closing attorneys for lenders.

(d)      The following statement in a minimum of 12-point type must appear directly above the borrower's signature line on the application: "The loan which may be offered to you is not necessarily the least expensive loan available to you and you are advised to shop around to determine comparative interest rates, points and other fees and charges." In the event of telephone applications, this disclosure shall be made to the borrower within three days of receipt of an application, but in any event at least [three] ten days prior to the closing whether or not funds are then disbursed. In the event that the lender or broker does not know whether the borrower's application is a high cost home loan application, such disclosure must be made [as soon as] within three days after the lender determines that it is a high cost home loan application, but in any event, at least [three] ten days prior to closing whether or not funds are then disbursed. If the mortgage application form is prescribed by a government-sponsored entity, such statement shall be placed on a separate document and attached to the front of the mortgage application.

§ 41.5 Unfair and deceptive acts or practices.

The following acts shall be prima facie evidence that the lender does not possess the requisite character and fitness required to be licensed or registered by the New York State Banking Department:

(a)      the making of high cost home loans that demonstrate a pattern and practice of violating any provision of this Part. The provisions of this section shall apply to any lender that seeks to avoid its application by any device, subterfuge or pretense whatsoever, which shall include but not be limited to splitting or dividing any loan transaction into separate parts for the purpose of evading the provisions of this Part and section 6-l of the Banking Law; [and]

(b)     engaging in unfair, deceptive or unconscionable practices in the course of advertising, brokering or making high cost home loans to residents of this State. Such practices include, but are not limited to, the following:

  1. brokering or making a high cost home loan which includes points, fees or other finance charges that, considering the loan transaction as a whole (including the creditworthiness of the borrower, the terms of the loan, the value of the collateral, and the owner's equity in the collateral), so significantly exceed the usual and customary charges incurred by mortgage consumers generally in this State for such points, fees or other finance charges as to be unconscionable; 
  2. brokering or making high cost home loans in which the broker or lender charges and retains fees [paid by the borrower] in any manner or form:
    1. for services that are not actually performed;
    2. for which the fees bear no reasonable relationship to the value of the services actually performed; or
    3. which are otherwise unconscionable; [and]
  3. brokering or making high cost home loans with repayment terms that so exceed the borrower's financial capacity to repay as to be unconscionable. A loan that complies with section 41.3(b) of this Part shall be presumed not to violate this paragraph. Evidence that the repayment terms exceed the borrower's reasonable capacity to repay may be rebutted by:
    1. a showing that the lender reasonably believed at the time the loan was consummated that the borrower and any obligor had the capacity to repay the loan based upon consideration of their current and expected income, current obligations, employment status, and other financial resources, excluding the owner's equity in the dwelling that secures repayment of the loan and including any other collateral securing repayment of the loan; or
    2. a showing that other compelling circumstances existed that justified the making of the loan notwithstanding the borrower's apparent lack of capacity to repay the loan based upon the factors stated in subparagraph (i) of this paragraph;
  4. [flipping] “flipping” high cost home loans; that is, brokering or making a high cost home loan to a borrower that refinances an existing mortgage loan when, considering all the circumstances of the refinancing, such refinancing [is unconscionable. A loan that complies with section 41.3(d) of this Part shall be presumed not to violate this paragraph] does not have a tangible net benefit to the borrower. A lender shall be considered by the Superintendent to have provided a tangible net benefit to the borrower if a high cost home loan meets the following criteria: the borrower receives a monetary benefit, such as receipt of additional proceeds, a reduction of the outstanding mortgage debt, a lowering of the annual percentage rate, and/or a lowering of the monthly payments of principal and interest, taking into consideration the totality of the circumstances, including, but not limited to, the amount of the monetary benefit, the loan product and the borrower’s repayment ability, current and expected income and current obligations; provided, however, that if the monthly payment of principal and interest and/or the mortgage debt increases, a commensurate monetary benefit shall ensue to the borrower;
  5. [“Packing”] “packing” high cost home loans; that is, the practice of selling credit life, accident and health, disability, property, or unemployment insurance products, any other life or health insurance product, debt cancellation or suspension agreement products, or unrelated goods or services in conjunction with a high cost home loan without the informed consent of the borrower under circumstances where:
    1. the broker or lender solicits the sale of such [insurance] products, goods or services; and
    2. the broker or lender receives direct or indirect compensation for the sale of such [insurance] products , goods or services; [and
    3. the charges for such insurance, goods or services are prepaid with the proceeds of the loan and financed, whether interest is charged or not, as part of the principal amount of the loan.]
    [Provided] provided, however, it shall not constitute the practice of "packing" if the broker or lender, at least [three] ten business days before the loan is closed whether or not funds are then disbursed, makes a separate oral and a separate clear and conspicuous written disclosure in at least twelve point type to the borrower containing the following information: (i) the cost of [the credit insurance] such products or other goods and services; (ii) the fact that the [insurance] such products, goods, or services, as offered to the borrower by the broker or lender, will be either prepaid or calculated, earned, and paid on a monthly or other regular, periodic basis [and, if applicable, financed at the interest rate provided for in the loan] ; and (iii) that the purchase of such [insurance] products, goods or services is not required to obtain the mortgage loan[; provided further, that insurance premiums shall not be considered financed as part of the loan transaction if insurance premiums are calculated, earned and paid on a monthly or other regular, periodic basis]. In addition, the written disclosure shall contain a signed and dated acknowledgment by the [obligor(s)] borrower(s) that the oral disclosure was made and a signed and dated acknowledgment by the broker or lender that the oral disclosure was made[.];
  6. recommending or encouraging default or further default by a borrower on an existing loan or other debt, prior to and in connection with the closing or planned closing of a high cost home loan that refinances all or any portion of such existing loan or debt; [and] or(7)      advertising that refinancing pre-existing debt with a high cost home loan will reduce a borrower's aggregate monthly debt payment without also disclosing, if such are likely the case, that the high cost home loan will increase both:
  1. a borrower's aggregate number of monthly debt payments; and
  2. the aggregate amount paid by a borrower over the term of the high cost mortgage loan.

§ 41.6 Multiple borrowers.

Where there is more than one borrower on a high cost home loan, and this Part requires a notice to be given or a signature obtained, such requirement shall be deemed satisfied by the delivery or placing in the mail to, or obtaining the signature of, any borrower who is primarily liable on the high cost home loan.

§ 41.7 Legend.

High cost home loan mortgages shall include a legend on top of the mortgage in 12-point type stating that the mortgage is a high cost home loan subject to this Part and section 6-l of the Banking Law.  If the mortgage document form is prescribed by a government-sponsored entity, such legend shall be placed on a separate document and attached to the front of the mortgage document.

§ 41.8 Exempt products.

[Any product] Certain products offered as a mortgage loan by an instrumentality of the United States or of any state shall be exempt from this Part such as loan products offered by the [VA, FHA or] SONYMA.

§ 41.9 Correction of errors.

[A lender or assignee has no liability under this Part for any failure to comply with any requirement imposed under this Part, if within 60 days after discovering an error, whether pursuant to a final written examination report, through the lender's or assignee's own procedures, or through a complaint from the obligor, and prior to the institution of an action under this Part, the lender or assignee notifies the individual(s) concerned of the error and makes whatever adjustments are necessary to either correct the error or assure that the person will not be required to pay an amount that will make the loan subject to this Part. Moreover, a lender or assignee has the right to correct errors and may not be held liable for a violation of this Part, only if the lender or assignee shows by a preponderance of evidence that the error was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid any such error. Examples of a bona fide error include, but are not limited to, clerical, calculation, computer malfunction and programming, and printer errors, except that an] A lender of a high cost home loan that, when acting in good faith, fails to comply with the provisions of this section, will not be deemed to have violated this Part and section 6-l of the Banking Law if the lender establishes that either:

(a)      Within thirty days of the loan closing and prior to the institution of any action under section 6-l of the Banking Law, the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, (i) make the high cost home loan satisfy the requirements of this Part, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan is no longer a high cost home loan subject to the provisions of this Part; or

(b)      The compliance failure resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such errors and, within sixty days after the discovery of the compliance failure and prior to the institution of any action under section 6-l of the Banking Law or the receipt of written notice of the compliance failure, the borrower is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the borrower, (i) make the high cost home loan satisfy the requirements of this Part, or (ii) change the terms of the loan in a manner beneficial to the borrower so that the loan is no longer a high  cost home loan subject to the provisions of this Part. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person's obligations under this Part is not a bona fide error.

§ 41.10 Good faith reliance.

A lender or assignee may not be held liable under this Part for any act done or omitted in good faith in conformity with any rule, regulation, release, bulletin, or interpretation thereof by:

(a)      the Banking Department; or

(b)      with respect to provision of this Part that follow provision of the Federal Truth-in-Lending Act, the Federal Reserve Board or any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the board to issue such interpretations or approvals under such procedures as the board may prescribe therefore, notwithstanding that after such act or omission has occurred, such rule, regulation, interpretation, or approval is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

§ 41.11 Single premium insurance; debt cancellation and suspension agreement payments.

No lender or Affiliate shall finance single premium credit life, accident, health, disability, or loss of income insurance, or any other life or health insurance premiums, in connection with a high cost home loan subject to this Part, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, except that such insurance premiums or payments calculated and paid on a monthly basis shall not be considered so financed.

Explanatory All Institutions Letter

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