§ 6-M — Subprime home loans

§ 6-m. Subprime home loans. 1. Definitions. The following definitions\napply for the purposes of this section:\n (a) "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 (b) "Fully indexed rate" means: (i) for an adjustable rate loan based\non an index, the annual percentage rate calculated using the index rate\non the loan on the date the lender provides the "good faith estimate"\nrequired under 12 USC §2601 et seq. plus the margin to be added to it\nafter the expiration of any introductory period or periods; or (ii) for\na fixed rate loan, the annual percentage rate on the loan disregarding\nany introductory rate or rates and any interest rate caps that limit how\nquickly the contractual interest rate may be reached calculated at the\ntime the lender issues its commitment.\n (c) "Subprime home loan" means a home loan in which the initial\ninterest rate or the fully-indexed rate, whichever is higher, exceeds by\nmore than one and three-quarters percentage points for a first-lien\nloan, or by more than three and three-quarters percentage points for a\nsubordinate-lien loan, the average commitment rate for loans in the\nnortheast region with a comparable duration to the duration of such home\nloan, as published by the Federal Home Loan Mortgage Corporation (herein\n"Freddie Mac") in its weekly Primary Mortgage Market Survey (PMMS)\nposted in the week prior to the week in which the lender provides the\n"good faith estimate" required under 12 USC §2601 et seq. The term\n"subprime home loan" excludes a transaction to finance the initial\nconstruction of a dwelling, i.e., a construction only loan, a temporary\nor "bridge" loan with a term of twelve months or less, such as a loan to\npurchase a new dwelling where the borrower plans to sell a current\ndwelling within twelve months, or a home equity line of credit but shall\ninclude any loan, however structured, that thereafter is converted into\na permanent loan.\n (i) The comparable duration for a home loan shall be determined as\nfollows: for an adjustable or variable home loan with an initial rate\nthat is fixed for less than three years, the Freddie Mac survey result\nfor a one-year adjustable rate mortgage; for an adjustable or variable\nhome loan with an initial rate that is fixed for at least three years,\nthe Freddie Mac survey result for a five-year hybrid adjustable rate\nmortgage; for a fixed rate home loan with a term of fifteen years or\nless, the Freddie Mac survey result for a fifteen-year fixed rate\nmortgage; and for a fixed rate home loan with a term of more than\nfifteen years, the Freddie Mac survey result for a thirty-year fixed\nrate mortgage. The superintendent may prescribe by regulation a\ndifferent comparable duration standard as necessary or appropriate to\nreflect changes in the terms and types of mortgages included in the\nFreddie Mac survey.\n (ii) Notwithstanding the comparable rates set forth in this paragraph,\nand notwithstanding any other law, if the superintendent determines that\nby statute, rule or regulation, different thresholds for determining\nunderwriting standards for subprime loans become applicable to\nnationally chartered lending institutions, or the provisions of this\nsection have had an unduly negative effect upon the availability or\nprice of mortgage financing in this state, the superintendent may from\ntime to time designate such other threshold rates as may be necessary to\nachieve parity between such nationally chartered institutions and\nbanking organizations, mortgage banks and mortgage brokers in this state\nor to alleviate such unduly negative effects. Such determination shall\npromptly be published on the website of the department of financial\nservices.\n (iii) Notwithstanding the thresholds set forth in this paragraph, if a\nhome loan is insured by the federal housing administration, and if\nannual mortgage insurance premiums are collected by the federal housing\nadministration for the maximum duration permitted under federal statute,\nand if such loan is not a Title 1 home improvement loan nor a home\nequity conversion mortgage, then the term "subprime home loan" means a\nhome loan in which the initial interest rate or the fully-indexed rate,\nwhichever is higher, exceeds by more than two and a half percentage\npoints for a first-lien loan, or by more than four and a half percentage\npoints for a subordinate-lien loan, the average commitment rate for\nloans in the northeast region with a comparable duration to the duration\nof such home loan, as published by the Federal Home Loan Mortgage\nCorporation (herein "Freddie Mac") in its weekly Primary Mortgage Market\nSurvey (PMMS) posted in the week prior to the week in which the lender\nprovides the "good faith estimate" required under 12 USC §2601 et seq.\n (d) "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 (e) "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 (f) "Mortgage broker" means a mortgage broker as defined in paragraph\n(g) of subdivision one of section five hundred ninety of this chapter\nand a mortgage banker as defined in paragraph (f) of subdivision one of\nsection five hundred ninety of this chapter, when such mortgage banker\nsolicits, processes, places or negotiates a mortgage loan for others.\n 2. Limitations and prohibited practices for subprime home loans. A\nsubprime home loan shall be subject to the following limitations:\n (a) No call provisions. No subprime home loan may contain a provision\nthat permits the lender, in its sole discretion, to accelerate the\nindebtedness. This provision shall 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 negative amortization. No subprime home loan may contain a\npayment schedule with regular periodic payments that cause or may cause\nthe principal balance to increase. A loan is considered to have such a\nschedule if the borrower is given the option to make regular periodic\npayments that cause the principal balance to increase, even if the\nborrower is also given the option to make regular periodic payments that\ndo not cause the principal balance to increase. This paragraph shall not\nprohibit negative amortization as a result of a temporary forbearance\nsought by a borrower.\n (c) No increased interest rate. No subprime home loan may contain a\nprovision which increases the interest rate after default. This\nprovision shall 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 (d) Limitation on advance payments. No subprime 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 (e) No modification or deferral fees. A lender may not charge a\nborrower any fees to modify, renew, extend, or amend a subprime home\nloan or to defer any payment due under the terms of a suprime home loan\nif, after the modification, renewal, extension or amendment, the loan is\nstill a subprime home loan or, if no longer a subprime home loan, the\nannual percentage rate has not been decreased by at least two percentage\npoints. For purposes of this paragraph, fees shall not include interest\nthat is otherwise payable and consistent with the provisions of the loan\ndocuments. This paragraph shall not prohibit a lender from charging\npoints and fees in connection with any additional proceeds received by\nthe borrower in connection with the modification, renewal, extension or\namendment (over and above the current principal balance of the existing\nsubprime home loan) provided that the points and fees charged on the\nadditional sum must reflect the lender's typical point and fee structure\nfor subprime home loans. This paragraph shall not apply if the existing\nsubprime home loan is in default or is sixty or more days delinquent and\nthe modification, renewal, extension, amendment or deferral is part of a\nwork-out process.\n (f) No oppressive mandatory arbitration clauses. No subprime home loan\nmay be subject to a mandatory arbitration clause that is oppressive,\nunfair, unconscionable, or substantially in derogation of the rights of\nconsumers.\n (g) No financing of insurance or other products sold in connection\nwith the loan. No subprime 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 home loan such as auto\nclub memberships or credit report monitoring, but not including fees\npaid 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 (h) No "loan flipping". No lender or mortgage broker making or\narranging a subprime 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 (i) No refinancing of special mortgages. No lender making a subprime\nhome loan may refinance an existing home loan that is a special mortgage\noriginated, subsidized or guaranteed by or through a state, tribal or\nlocal government, or nonprofit organization, which either bears a\nbelow-market interest rate at the time of origination, or has\nnonstandard payment terms beneficial to the borrower, such as payments\nthat vary with income, are limited to a percentage of income, or where\nno payments are required under specified conditions, and where, as a\nresult of the refinancing, the borrower will lose one or more of the\nbenefits of the special mortgage, unless the lender is provided prior to\nloan closing documentation by a HUD approved housing counselor or the\nlender who originally made the special mortgage that the borrower has\nreceived home loan counseling about the advantages and disadvantages of\nthe refinancing.\n (j) No lending without providing information on the availability of\ncounseling. A lender or mortgage broker must deliver, place in the mail,\nfax or electronically transmit the following notice in at least twelve\npoint type to the borrower of a subprime home loan at the time of\napplication: "You should consider financial counseling prior to\nexecuting loan documents. The enclosed list of counselors is provided by\nthe New York State Department of Financial Services." In the event of a\ntelephone application, the disclosures must be made immediately after\nreceipt of the application by telephone. Such disclosure shall be on a\nseparate form. In order to utilize an electronic transmission, the\nlender or broker must first obtain either written or electronically\ntransmitted permission from the borrower. A list of approved counselors,\navailable from the New York state department of financial services,\nshall be provided to the borrower by the lender or the mortgage broker\nat the time that this disclosure is given.\n (k) No encouragement of default. In making or arranging a subprime\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 the subprime home loan that\nrefinances all or any portion of such existing loan or debt.\n (l) Prohibited payments to mortgage bankers and brokers. In making or\narranging a subprime home loan, no lender, mortgage banker or mortgage\nbroker shall accept or give any fee, kickback, thing of value, portion,\nsplit or percentage of charges, other than as payment for goods or\nfacilities that were actually furnished or services that were actually\nperformed. Such payment must be reasonably related to the value of the\ngoods or facilities that were actually furnished or services that were\nactually performed.\n (m) No prepayment penalties on subprime home loans. No prepayment\npenalties or fees shall be charged or collected on a subprime home loan.\nA prepayment penalty in a subprime home loan shall be unenforceable.\n (n) 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 (o) Mandatory escrow of taxes and insurance. No subprime 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 subprime 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 subprime 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 (p) Mandatory disclosure of taxes and insurance payments. With respect\nto a subprime 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 (q) No teaser rates. No lender or mortgage broker shall make or\narrange a subprime home loan which has an initial or introductory rate\nwith a duration of less than six months.\n 3. Certain loan provisions rendered void. Any provision in a subprime\nhome loan that violates subdivision two of this section shall be\nrendered void.\n 4. Ability to repay. No lender or mortgage broker shall make or\narrange a subprime home loan unless the lender or mortgage broker\nreasonably and in good faith believes at the time of the loan closing\nthat one or more of the borrowers, when considered individually or\ncollectively, has the ability to repay the loan according to its terms\nand to pay applicable real estate taxes and hazard insurance premiums.\nIf a lender or mortgage broker making or arranging a subprime home loan\nknows that one or more home loans secured by the same real property will\nbe made contemporaneously to the same borrower with the subprime home\nloan being made or arranged by that lender or mortgage broker, the\nlender or mortgage broker making or arranging the subprime home loan\nmust document the borrower's ability to repay the combined payments of\nall loans on the same real property.\n (a) A lender or mortgage broker's analysis of a borrower's ability to\nrepay a subprime home loan according to the loan terms and to pay\nrelated real estate taxes and insurance premiums shall be based on a\nconsideration of the borrower's credit history, current and expected\nincome, current obligations, employment status, and other financial\nresources other than the borrower's equity in the real property that\nsecures repayment of the subprime home loan.\n (b) In determining a borrower's ability to repay a subprime home loan,\nthe lender or mortgage broker shall take reasonable steps to verify the\naccuracy and completeness of information provided by or on behalf of the\nborrower using tax returns, payroll receipts, bank records, reasonable\nalternative methods, or reasonable third-party verification.\n (c) In determining a borrower's ability to repay a subprime home loan\naccording to its terms when the loan has an adjustable rate feature, the\nlender or mortgage broker shall calculate the monthly payment amount for\nprincipal and interest by assuming (i) the loan proceeds are fully\ndisbursed on the date of the loan closing, (ii) the loan is to be repaid\nin substantially equal monthly amortizing payments of principal and\ninterest over the entire term of the loan, with no balloon payment, and\n(iii) the interest rate over the entire term of the loan is a fixed rate\nequal to the higher of the initial interest rate or the fully indexed\nrate at the time of the loan closing, without considering any initial\ndiscounted rate.\n (d) A lender or mortgage broker's analysis of a borrower's ability to\nrepay a subprime home loan may utilize reasonable commercially\nrecognized underwriting standards and methodologies, including automated\nunderwriting systems, provided the standards and methodologies comply\nwith the provisions of this section.\n 5. Required legend. Subprime home loan mortgages shall include a\nlegend on top of the mortgage in twelve-point type stating that the\nmortgage is a subprime home loan subject to this section.\n 6. Evasion of statutory requirements. The provisions of this section\nshall apply to any person who attempts to avoid the application of this\nsection by any subterfuge, including but not limited to, splitting or\ndividing any loan transaction into separate parts for the purpose of\nevading the provisions of this section.\n 7. Good faith errors. A lender of a subprime home loan that, when\nacting in good faith, fails to comply with the provisions of this\nsection, shall not be deemed to have violated this section if, prior to\nthe institution of any action and before the borrower is prejudiced, the\nlender notifies the borrower of the compliance failure, appropriate\nrestitution is made, and whatever adjustments that are necessary are\nmade to the loan to make the loan satisfy the requirements of this\nsection.\n 8. Enforcement. The attorney general or the superintendent may enforce\nthe provisions of this section.\n 9. Damages. Any person found by a preponderance of the evidence to\nhave violated this section shall be liable to the borrower of a subprime\nhome loan for actual damages.\n 10. Attorneys fees. A court may also award reasonable attorneys' fees\nto a prevailing borrower in a foreclosure action.\n 11. Equitable relief. A borrower may be granted injunctive,\ndeclaratory and such other equitable relief as the court deems\nappropriate in an action to enforce compliance with this section.\n 12. Remedies not exclusive. The remedies provided in this section are\nnot intended to be the exclusive remedies available to a borrower of a\nsubprime home loan.\n 13. Defense to foreclosure. In any action by a lender or assignee to\nenforce a loan against a borrower in default more than sixty days or in\nforeclosure, a borrower may assert as a defense, any violation of this\nsection.\n 14. Severability. The provisions of this section shall be severable,\nand if any phrase, clause, sentence, or provision is declared to be\ninvalid, or is preempted by federal law or regulation, the validity of\nthe remainder of this section shall not be affected thereby. If any\nprovision of this section is declared to be inapplicable to any specific\ncategory, type, or kind of points and fees with respect to a home loan,\nthe provisions of this section shall nonetheless continue to apply with\nrespect to all other points and fees.\n