§ 6-L — High-cost home loans

New York § 6-L

• Jurisdiction: New York
• Law BNK: Banking
• Art. 1: Short Title; Definitions; Miscellaneous Provisions

Text

§ 6-l. High-cost home loans. 1. Definitions. The following definitions\napply for the purposes of this section:\n (a) "Affiliate" means any company that controls, is controlled by, or\nis under common control with another company, as set forth in the Bank\nHolding Company Act of 1956 (12 U.S.C. § 1841 et seq.), as amended from\ntime to time.\n (b) "Annual percentage rate" means the annual percentage rate for the\nloan calculated according to the provisions of the Federal\nTruth-in-Lending Act (15 U.S.C. § 1601, et seq.), and the regulations\npromulgated thereunder by the federal reserve board (as said act and\nregulations are amended from time to time).\n (c) "Bona fide loan discount points" means loan discount points\nknowingly paid by the borrower funded through any source, for the\npurpose of reducing, and which in fact result in a bona fide reduction\nof, the interest rate or time-price differential applicable to the loan,\nprovided that the amount of the interest rate reduction purchased by the\ndiscount points is reasonably consistent with established industry norms\nand practices for secondary mortgage market transactions. For purposes\nof this section, it shall be presumed that a point is a bona fide loan\ndiscount point if it reduces the interest rate by a minimum of\ntwenty-five basis points provided all other terms of the loan remain the\nsame.\n (d) A "High-cost home loan" means a home loan in which the terms of\nthe loan exceed one or more of the thresholds as defined in paragraph\n(g) of this subdivision.\n (e) "Home loan" means a loan, including an open-end credit plan, other\nthan a reverse mortgage transaction or a loan made or fully or partially\nguaranteed by the state of New York mortgage agency, in which:\n (i) The principal amount of the loan at origination does not exceed\nthe conforming loan size limit (including any applicable special limit\nfor jumbo mortgages) for a comparable dwelling as established from time\nto time by the federal national mortgage association;\n (ii) The borrower is a natural person;\n (iii) The debt is incurred by the borrower primarily for personal,\nfamily, or household purposes;\n (iv) The loan is secured by a mortgage or deed of trust on real estate\nimproved by a one to four family dwelling, or by a condominium unit, or\nby any certificate of stock or other evidence of ownership in, and a\nproprietary lease from, a corporation, partnership or other entity\nformed for the purpose of cooperative ownership of real estate, in\neither case used or occupied or intended to be used or occupied, wholly\nor partly, as the home or residence of one or more persons and which is\nor will be occupied by the borrower as the borrower's principal\ndwelling; and\n (v) The property is located in this state.\n (f) "Points and fees" means:\n (i) All items listed in 15 U.S.C. § 1605(a)(1) through (4), except\ninterest or the time-price differential;\n (ii) All charges for items listed under § 226.4(c)(7) of title 12 of\nthe code of federal regulations, as amended from time to time, but only\nif the lender receives direct or indirect compensation in connection\nwith the charge or the charge is paid to an affiliate of the lender;\notherwise, the charges are not included within the meaning of the phrase\n"points and fees";\n (iii) All compensation paid directly or indirectly to a mortgage\nbroker, including a broker that originates a loan in its own name in a\ntable-funded transaction, not otherwise included in subparagraphs (i)\nand (ii) of this paragraph;\n (iv) The cost of all premiums financed by the lender, directly or\nindirectly, for any credit life, credit disability, credit unemployment,\nor credit property insurance, or any other life or health insurance, or\nany payments financed by the lender directly or indirectly for any debt\ncancellation or suspension agreement or contract, except that insurance\npremiums calculated and paid on a monthly basis shall not be considered\nfinanced by the lender.\n (g) "Thresholds" means:\n (i) For a first lien mortgage loan, the annual percentage rate of the\nhome loan at consummation of the transaction exceeds eight percentage\npoints over the yield on treasury securities having comparable periods\nof maturity to the loan maturity measured as of the fifteenth day of the\nmonth immediately preceding the month in which the application for the\nextension of credit is received by the lender; or for a subordinate\nmortgage lien, the annual percentage rate of the home loan at\nconsummation of the transaction equals or exceeds nine percentage points\nover the yield on treasury securities having comparable periods of\nmaturity on the fifteenth day of the month immediately preceding the\nmonth in which the application for extension of credit is received by\nthe lender; as determined by the following rules: if the terms of the\nhome loan offer any initial or introductory period, and the annual\npercentage rate is less than that which will apply after the end of such\ninitial or introductory period, then the annual percentage rate that\nshall be taken into account for purposes of this section shall be the\nrate which applies after the initial or introductory period; or\n (ii) The total points and fees exceed: five percent of the total loan\namount if the total loan amount is fifty thousand dollars or more; or\nsix percent of the total loan amount if the total loan amount is fifty\nthousand dollars or more and the loan is a purchase money loan\nguaranteed by the federal housing administration or the veterans\nadministration; or the greater of six percent of the total loan amount\nor fifteen hundred dollars, if the total loan amount is less than fifty\nthousand dollars; provided, the following discount points shall be\nexcluded from the calculation of the total points and fees payable by\nthe borrower:\n (1) Up to and including two bona fide loan discount points payable by\nthe borrower in connection with the loan transaction, but only if the\ninterest rate from which the loan's interest rate will be discounted\ndoes not exceed by more than one percentage point the yield on United\nStates treasury securities having comparable periods of maturity to the\nloan maturity measured as of the fifteenth day of the month immediately\npreceding the month in which the application is received;\n (2) Any and all bona fide loan discount points funded directly or\nindirectly through a grant from a federal, state or local government\nagency or 501(c)(3) organization.\n (h) "Total loan amount" means the principal of the loan minus those\npoints and fees as defined in paragraph (f) of this subdivision that are\nincluded in the principal amount.\n (i) "Lender" means a mortgage banker as defined in paragraph (f) of\nsubdivision one of section five hundred ninety of this chapter or an\nexempt organization as defined in paragraph (e) of subdivision one of\nsection five hundred ninety of this chapter.\n 2. Limitations and prohibited practices for high-cost home loans. A\nhigh-cost home loan shall be subject to the following limitations:\n (a) No call provisions. No high-cost home loan may contain a provision\nthat permits the lender, in its sole discretion, to accelerate the\nindebtedness. This provision does not prohibit acceleration of the loan\nin good faith due to the borrower's failure to abide by the material\nterms of the loan.\n (b) No balloon payments. No high-cost home loan may contain a\nscheduled payment that is more than twice as large as the average of\nearlier scheduled payments, unless such balloon payment becomes due and\npayable at least fifteen years after the loan's origination. This\nprovision does not apply when the payment schedule is adjusted to the\nseasonal or irregular income of the borrower.\n (c) No negative amortization. No high-cost home loan may contain a\npayment schedule with regular periodic payments that cause the principal\nbalance to increase. A loan is considered to have such a schedule if the\nborrower is given the option to make regular periodic payments that\ncause the principal balance to increase, even if the borrower is also\ngiven the option to make regular periodic payments that do not cause the\nprincipal balance to increase. This paragraph shall not prohibit\nnegative amortization as a result of a temporary forbearance sought by a\nborrower.\n (d) No increased interest rate. No high-cost home loan may contain a\nprovision which increases the interest rate after default. This\nprovision does not apply to interest rate changes in a variable rate\nloan otherwise consistent with the provisions of the loan documents;\nprovided that the change in the interest rate is not triggered by the\nevent of default or the acceleration of the indebtedness.\n (e) Limitation on advance payments. No high-cost home loan may include\nterms under which more than two periodic payments required under the\nloan are consolidated and paid in advance from the loan proceeds\nprovided to the borrower.\n (f) No modification or deferral fees. A lender may not charge a\nborrower any fees to modify, renew, extend, or amend a high-cost home\nloan or to defer any payment due under the terms of a high-cost home\nloan if, after the modification, renewal, extension or amendment, the\nloan is still a high-cost loan or, if no longer a high-cost home loan,\nthe annual percentage rate has not been decreased by at least two\npercentage points. For purposes of this paragraph, fees shall not\ninclude interest that is otherwise payable and consistent with the\nprovisions of the loan documents. This paragraph shall not prohibit a\nlender from charging points and fees in connection with any additional\nproceeds received by the borrower in connection with the modification,\nrenewal, extension or amendment (over and above the current principal\nbalance of the existing high-cost home loan) provided that the points\nand fees charged on the additional sum must reflect the lender's typical\npoint and fee structure for high-cost home loans.\n (g) No oppressive mandatory arbitration clauses. No high-cost home\nloan may be subject to a mandatory arbitration clause that is\noppressive, unfair, unconscionable, or substantially in derogation of\nthe rights of consumers.\n (h) No financing of insurance or other products sold in connection\nwith the loan. No high-cost home loan shall finance, directly or\nindirectly, any credit life, credit disability, credit unemployment, or\ncredit property insurance, or any other life or health insurance\npremiums, or any payments directly or indirectly for any debt\ncancellation or suspension agreement or contract, or any product or\nservice that is not necessary or related to the high-cost home loan such\nas auto club memberships or credit report monitoring, but not including\nfees paid to the lender, broker, or closing agent, fees related to the\nrecording of the mortgage, title insurance or other settlement fees.\nInsurance premiums or debt cancellation or suspension fees calculated\nand paid on a monthly basis shall not be considered financed.\n (i) No "loan flipping". No lender or mortgage broker making or\narranging a high-cost home loan may engage in the unfair act or practice\nof "loan flipping". "Loan flipping" is making a home loan to a borrower\nthat refinances an existing home loan when the new loan does not have a\ntangible net benefit to the borrower considering all of the\ncircumstances, including the terms of both the new and refinanced loans,\nthe cost of the new loan, and the borrower's situation.\n (j) No refinancing of special mortgages. No lender or mortgage broker\nmaking or arranging a high-cost home loan may refinance an existing home\nloan that is a special mortgage originated, subsidized or guaranteed by\nor through a state, tribal or local government, or nonprofit\norganization, which either bears a below-market interest rate at the\ntime of origination, or has nonstandard payment terms beneficial to the\nborrower, such as payments that vary with income, are limited to a\npercentage of income, or where no payments are required under specified\nconditions, and where, as a result of the refinancing, the borrower will\nlose one or more of the benefits of the special mortgage, unless the\nlender is provided prior to loan closing documentation by a HUD approved\nhousing counselor or the lender who originally made the special mortgage\nthat a borrower has received home loan counseling in which the\nadvantages and disadvantages of the refinancing has been received.\n (k) No lending without due regard to repayment ability. A lender or\nmortgage broker shall not make or arrange a high-cost home loan without\ndue regard to repayment ability, based upon consideration of the\nresident borrower or borrowers' current and expected income, current\nobligations, employment status, and other financial resources (other\nthan the borrower's equity in the dwelling which secures repayment of\nthe loan), as verified by detailed documentation of all sources of\nincome and corroborated by independent verification. However, a lender\nmaking a high-cost home loan shall benefit from a rebuttable presumption\nthat the loan was made with due regard to repayment ability if the\nlender demonstrates that at the time the loan is consummated, the\nresident borrower or borrowers' total monthly debts, including amounts\nowed under the loan, do not exceed fifty percent of the resident\nborrower or borrowers' monthly gross income; and the lender follows the\nresidual income guidelines established in 38 C.F.R. § 36.4337(e) and VA\nForm 26-6393.\n (l) (i) No lending without counseling disclosure and list of\ncounselors. A lender or mortgage broker must deliver, place in the\nmail, fax or electronically transmit the following notice in at least\ntwelve point type to the borrower at the time of application: "You\nshould consider financial counseling prior to executing loan documents.\nThe enclosed list of counselors is provided by the New York State\nDepartment of Financial Services". In the event of a telephone\napplication, the disclosures must be made immediately after receipt of\nthe application by telephone. Such disclosure shall be on a separate\nform. In order to utilize an electronic transmission, the lender or\nbroker must first obtain either written or electronically transmitted\npermission from the borrower. A list of approved counselors, available\nfrom the New York state department of financial servcies, shall be\nprovided to the borrower by the lender or the mortgage broker at the\ntime that this disclosure is given.\n (ii) A lender or mortgage broker shall not make or arrange a high-cost\nhome loan unless either the lender or mortgage broker has given the\nfollowing notice in writing to the borrower within three days after\ndetermining that the loan is a high-cost home loan, but no less than ten\ndays before closing:\n "CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE\n If you obtain this loan, which pursuant to New York State Law is a\nHigh-Cost Home Loan, the lender will have a mortgage on your home. You\ncould lose your home, and any money you have put into it, if you do not\nmeet your obligations under the loan.\n You should shop around and compare loan rates and fees. Mortgage loan\nrates and closing costs and fees vary based on many factors, including\nyour particular credit and financial circumstances, your earnings\nhistory, the loan-to-value requested, and the type of property that will\nsecure your loan. The loan rate and fees could vary based on which\nlender or mortgage broker you select. Higher rates and fees may be\nrelated to the individual circumstances of a particular consumer's\napplication.\n You should consider consulting a qualified independent credit\ncounselor or other experienced financial adviser regarding the rate,\nfees, and provisions of this mortgage loan before you proceed. The\nenclosed list of counselors is provided by the New York State Department\nof Financial Services.\n You are not required to complete any loan agreement merely because you\nhave received these disclosures or have signed a loan application. If\nyou proceed with this mortgage loan, you should also remember that you\nmay face serious financial risks if you use this loan to pay off credit\ncard debts and other debts in connection with this transaction and then\nsubsequently incur significant new credit card charges or other debts.\nIf you continue to accumulate debt after this loan is closed and then\nexperience financial difficulties, you could lose your home and any\nequity you have in it if you do not meet your mortgage loan obligations.\n Your payments on existing debts contribute to your credit ratings. You\nshould not accept any advice to ignore your regular payments to your\nexisting creditors."\n (m) Financing of points and fees. In making a high-cost home loan, a\nlender shall not, directly or indirectly, finance any points and fees as\ndefined in paragraph (f) of subdivision one of this section, in an\namount that exceeds three percent of the principal amount of the loan.\n (n) Restrictions on home improvement contracts. A lender shall not pay\na contractor under a home improvement contract from the proceeds of a\nhigh-cost home loan other than: by an instrument payable to the borrower\nor jointly to the borrower and the contractor; or at the election of the\nborrower, through a third-party escrow agent in accordance with terms\nestablished in a written agreement signed by the borrower, the lender,\nand the contractor prior to the disbursement.\n (o) No encouragement of default. In making or arranging a high-cost\nhome loan, a lender or mortgage broker shall not recommend or encourage\ndefault on an existing loan or other debt prior to and in connection\nwith the closing or planned closing of a high-cost home loan that\nrefinances all or any portion of such existing loan or debt.\n (p) Prohibited payments to mortgage brokers. In making or arranging a\nhigh-cost home loan, no lender or mortgage broker shall accept or give\nany fee, kickback, thing of value, portion, split or percentage of\ncharges, other than as payment for goods or facilities that were\nactually furnished or services that were actually performed. Such\npayment must be reasonably related to the value of the goods or\nfacilities that were actually furnished or services that were actually\nperformed.\n (q) No points and fees when a lender refinances its own high-cost home\nloan with a new high-cost home loan. A lender shall not charge a\nborrower points and fees in connection with a high-cost home loan if the\nproceeds of the high-cost home loan are used to refinance an existing\nhigh-cost home loan held by the lender or an affiliate of the lender.\n (r) No prepayment penalties. Notwithstanding paragraph b of\nsubdivision three of section 5-501 of the general obligations law, no\nprepayment penalties or fees shall be charged or collected on a\nhigh-cost home loan. A prepayment penalty in a high-cost home loan shall\nbe unenforceable.\n (s) No yield spread premiums. In connection with the making or\nbrokering of a home loan, no person may provide, and no mortgage broker\nor mortgage lender may receive, directly or indirectly, any compensation\nthat is based on, or varies with, the terms of any home loan. This\nparagraph shall not prohibit compensation based on the principal balance\nof the loan.\n (t) Mandatory escrow of taxes and insurance. No high-cost home loan\nshall be made after July first, two thousand ten unless the lender\nrequires and collects the monthly escrow of property taxes and hazard\ninsurance. With respect to a high-cost home loan, a borrower may waive\nescrow requirements by notifying the lender in writing after one year\nfrom consummation of the loan. The provisions of this paragraph shall\nnot apply to a high-cost home loan that is a subordinate lien when the\ntaxes and insurance are escrowed through another home loan or where the\nborrower can demonstrate a record of twelve months of timely payments of\ntaxes and insurance on a previous home loan.\n (u) Mandatory disclosure of taxes and insurance payments. With respect\nto a high-cost home loan, the first time a borrower is informed of the\nanticipated or actual periodic payment amount in connection with a\nfirst-lien residential mortgage loan for a specific property, the lender\nor mortgage broker shall inform the borrower that an additional amount\nwill be due for taxes and insurance and shall disclose to the borrower\nas soon as reasonably possible the approximate amount of the initial\nperiodic payment for property taxes and hazard insurance.\n (v) No teaser rates. No lender or mortgage broker shall make or\narrange a high-cost home loan which has an initial or introductory rate\nwith a duration of less than six months.\n 2-a. (a) High-cost home loan mortgages shall include a legend on top\nof the mortgage in twelve-point type stating that the mortgage is a\nhigh-cost home loan subject to this section.\n (b) The lender shall report both the favorable and unfavorable payment\nhistory of the borrower to a nationally recognized consumer credit\nbureau at least annually during such period as the lender holds or\nservices the high-cost home loan.\n 3. The provisions of this section shall apply to any person who in bad\nfaith attempts to avoid the application of this section by any\nsubterfuge, including but not limited to splitting or dividing any loan\ntransaction into separate parts for the purpose of evading the\nprovisions of this section.\n 4. A lender of a high-cost home loan that, when acting in good faith,\nfails to comply with the provisions of this section, will not be deemed\nto have violated this section if the lender establishes that either:\n (a) Within thirty days of the loan closing and prior to the\ninstitution of any action under this section, the borrower is notified\nof the compliance failure, appropriate restitution is made, and whatever\nadjustments are necessary are made to the loan to either, at the choice\nof the borrower, (i) make the high-cost home loan satisfy the\nrequirements of this section, or (ii) change the terms of the loan in a\nmanner beneficial to the borrower so that the loan is no longer a\nhigh-cost home loan subject to the provisions of this section; or\n (b) The compliance failure resulted from a bona fide error\nnotwithstanding the maintenance of procedures reasonably adapted to\navoid such errors and, within sixty days after the discovery of the\ncompliance failure and prior to the institution of any action under this\nsection or the receipt of written notice of the compliance failure, the\nborrower is notified of the compliance failure, appropriate restitution\nis made, and whatever adjustments are necessary are made to the loan to\neither, at the choice of the borrower, (i) make the high-cost home loan\nsatisfy the requirements of this section, or (ii) change the terms of\nthe loan in a manner beneficial to the borrower so that the loan is no\nlonger a high-cost home loan subject to the provisions of this section.\nExamples of a bona fide error include clerical, calculation, computer\nmalfunction and programming, and printing errors. An error of legal\njudgment with respect to a person's obligations under this section is\nnot a bona fide error.\n 5. The attorney general, the superintendent, or any party to a\nhigh-cost home loan may enforce the provisions of this section.\n 6. A private action against the lender or mortgage broker pursuant to\nthis section must be commenced within six years of origination of the\nhigh-cost home loan.\n 7. Any person found by a preponderance of the evidence to have\nviolated this section shall be liable to the borrower for the following:\n (a) actual damages, including consequential and incidental damages;\nand\n (b) statutory damages as follows (i) all of the interest, earned or\nunearned, points and fees, and closing costs charged on the loan shall\nbe forfeited and any amounts paid shall be refunded; except that this\nelement of statutory damages shall not be awarded for violations of:\n (1) paragraph (i) of subdivision two of this section regarding loan\nflipping; and\n (2) paragraph (k) of subdivision two of this section regarding\nensuring the borrower's ability to repay the loan, so long as the lender\ndemonstrates that at the time of the loan, it verified by detailed\ndocumentation all sources of the borrower's income and corroborated it\nwith independent verification; or\n (ii) five thousand dollars per violation or twice the amount of points\nand fees and closing costs as defined in this section, whichever is\ngreater, for violations of:\n (1) paragraph (i) of subdivision two of this section regarding loan\nflipping; and\n (2) paragraph (k) of subdivision two of this section regarding\nensuring the borrower's ability to repay the loan, where the borrower is\nnot entitled to relief under subparagraph (i) of this paragraph.\n 8. A court may also award reasonable attorneys' fees to a prevailing\nborrower.\n 9. A borrower may be granted injunctive, declaratory and such other\nequitable relief as the court deems appropriate in an action to enforce\ncompliance with this section.\n 10. Upon a finding by the court of an intentional violation by the\nlender of this section, or regulation thereunder, the home loan\nagreement shall be rendered void, and the lender shall have no right to\ncollect, receive or retain any principal, interest, or other charges\nwhatsoever with respect to the loan, and the borrower may recover any\npayments made under the agreement.\n 11. Upon a judicial finding that a high-cost home loan violates any\nprovision of this section, whether such violation is raised as an\naffirmative claim or as a defense, the loan transaction may be\nrescinded. Such remedy of rescission shall be available as a defense\nwithout time limitation.\n 12. The remedies provided in this section are not intended to be the\nexclusive remedies available to a borrower of a high-cost home loan.\n 13. In any action by an assignee to enforce a loan against a borrower\nin default more than sixty days or in foreclosure, a borrower may assert\nany claims in recoupment and defenses to payment under the provisions of\nthis section and with respect to the loan, without time limitations,\nthat the borrower could assert against the original lender of the loan.\n 14. The provisions of this section shall be severable, and if any\nphrase, clause, sentence, or provision is declared to be invalid, or is\npreempted by federal law or regulation, the validity of the remainder of\nthis section shall not be affected thereby. If any provision of this\nsection is declared to be inapplicable to any specific category, type,\nor kind of points and fees, the provisions of this section shall\nnonetheless continue to apply with respect to all other points and fees.\n