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Banking Department Adopts Guidance on Nontraditional Mortgage Products

New York joins 34 states and the District of Columbia in promoting consistent mortgage regulation

May 25, 2007

New York , NY : The New York State Banking Department today announced its adoption of a nationwide set of guidelines for mortgage bankers and brokers who make “nontraditional” or “exotic” mortgage loans.

The “Guidance on Nontraditional Mortgage Product Risks” is a set of guidelines which were developed in cooperation with the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR). The guidelines were designed to protect consumers while offering mortgage providers prudent strategies for managing their loan origination operations.

“ New York is proud to stand with its fellow state regulators in supporting a consistent set of regulatory standards for all state-licensed mortgage bankers and brokers,” said Richard H. Neiman, Superintendent of Banks. “While the Banking Department supports the ability of our institutions to innovate mortgage products that address a wide range of consumer needs, it is essential that our lenders take appropriate steps to manage the risks associated with these products. Even more importantly, lending institutions must understand their responsibility to evaluate the capacity of the borrowers to repay the loan.”

Nontraditional mortgage products are those that allow borrowers to defer the payment of principal or interest and include “interest-only” and “payment-option” adjustable-rate mortgages. These products generally allow borrowers to exchange lower payments during an initial period for higher payments later. While such products have been available to consumers for many years, the number of lenders offering them and their availability to a broader spectrum of borrowers has recently increased.

In addition to adopting the guidance, the Department also announced its support of both the “Proposed Federal Interagency Statement on Subprime Lending” and the “Federal Interagency Statement on Working with Mortgage Borrowers”. The statements encourage lenders to adopt best practices when lending to subprime borrowers and further encourage them to avoid foreclosure, whenever possible, and work with borrowers who are unable to meet their monthly payment obligations.

In a letter issued to its supervised institutions, the Department reminded mortgage bankers and brokers that it views the CSBS/AARMR guidance as a minimum standard that neither supersedes existing Department laws and regulations nor prevents the Department from issuing additional guidance or regulations when appropriate.

The New York State Banking Department is the regulator for all state-chartered banking institutions, virtually all of the United States offices of international banking institutions, all of the State’s mortgage brokers, mortgage bankers, check cashers and budget planners. The aggregate assets of the depository institutions supervised by the Banking Department are over $1.5 trillion.

In addition to regulating banking institutions, the Banking Department is active in informing and educating all New Yorkers on banking matters. To contact the Banking Department, please call 1-877-BANK-NYS or visit our Web site at

Department of Financial Services


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