N.Y. Banking Law § 6-l: High-cost home loans

§ 6-l. High-cost home loans. 1. Definitions. The following definitions

apply for the purposes of this section:

(a) "Affiliate" means any company that controls, is controlled by, or

is under common control with another company, as set forth in the Bank

Holding Company Act of 1956 (12 U.S.C. § 1841 et seq.), as amended from

time to time.

(b) "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. § 1601, et seq.), and the regulations

promulgated thereunder by the federal reserve board (as said act and

regulations are amended from time to time).

(c) "Bona fide loan discount points" means loan discount points

knowingly paid by the borrower 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 that 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 section, it shall be presumed that a point is a bona fide loan

discount point if it reduces the interest rate by a minimum of

twenty-five basis points provided all other terms of the loan remain the

same.

(d) A "High-cost home loan" means a home loan in which the terms of

the loan exceed one or more of the thresholds as defined in paragraph

(g) of this subdivision.

(e) "Home loan" means a loan, including an open-end credit plan, other

than a reverse mortgage transaction or a loan made or fully or partially

guaranteed by the state of New York mortgage agency, in which:

(i) The principal amount of the loan at origination does not exceed

the conforming loan size limit (including any applicable special limit

for jumbo mortgages) for a comparable dwelling as established from time

to time by the federal national mortgage association;

(ii) The borrower is a natural person;

(iii) The debt is incurred by the borrower primarily for personal,

family, or household purposes;

(iv) The loan is secured by a mortgage or deed of trust on real estate

improved by a one to four family dwelling, or by a condominium unit, or

by any certificate of stock or other evidence of ownership in, and a

proprietary lease from, a corporation, partnership or other entity

formed for the purpose of cooperative ownership of real estate, in

either case used or occupied or intended to be used or occupied, wholly

or partly, as the home or residence of one or more persons and which is

or will be occupied by the borrower as the borrower's principal

dwelling; and

(v) The property is located in this state.

(f) "Points and fees" means:

(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 § 226.4(c)(7) of title 12 of

the code of federal regulations, 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;

otherwise, the charges are not included within the meaning of the phrase

"points and fees";

(iii) All compensation paid directly or indirectly to a mortgage

broker, including a broker that originates a loan in its own name in a

table-funded transaction, not otherwise included in subparagraphs (i)

and (ii) of this paragraph;

(iv) The cost of all premiums financed by the lender, directly or

indirectly, for any credit life, credit disability, credit unemployment,

or credit property insurance, or any other life or health insurance, or

any payments financed by the lender directly or indirectly for any debt

cancellation or suspension agreement or contract, except that insurance

premiums calculated and paid on a monthly basis shall not be considered

financed by the lender.

(g) "Thresholds" means:

(i) For a first lien mortgage loan, the annual percentage rate of the

home loan at consummation of the transaction exceeds eight percentage

points over the yield on 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 for the

extension of credit is received by the lender; or for a subordinate

mortgage lien, the annual percentage rate of the home loan at

consummation of the transaction equals or exceeds nine percentage points

over the yield on treasury securities having comparable periods of

maturity on the fifteenth day of the month immediately preceding the

month in which the application for extension of credit is received by

the lender; as determined by the following rules: if the terms of the

home loan offer any initial or introductory period, and the annual

percentage rate is less than that which will apply after the end of such

initial or introductory period, then the annual percentage rate that

shall be taken into account for purposes of this section shall be the

rate which applies after the initial or introductory period; or

(ii) The total points and fees exceed: five percent of the total loan

amount if the total loan amount is fifty thousand dollars or more; or

six percent of the total loan amount if the total loan amount is fifty

thousand dollars or more and the loan is a purchase money loan

guaranteed by the federal housing administration or the veterans

administration; or the greater of six percent of the total loan amount

or fifteen hundred dollars, if the total loan amount is less than fifty

thousand dollars; provided, the following discount points shall be

excluded from the calculation of the total points and fees payable by

the borrower:

(1) Up to and including two bona fide loan discount points payable by

the borrower in connection with the loan transaction, but only if the

interest rate from which the loan's interest rate will be discounted

does not exceed by more than one percentage point 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;

(2) Any and all bona fide loan discount points funded directly or

indirectly through a grant from a federal, state or local government

agency or 501(c)(3) organization.

(h) "Total loan amount" means the principal of the loan minus those

points and fees as defined in paragraph (f) of this subdivision that are

included in the principal amount.

(i) "Lender" means a mortgage banker as defined in paragraph (f) of

subdivision one of section five hundred ninety of this chapter or an

exempt organization as defined in paragraph (e) of subdivision one of

section five hundred ninety of this chapter.

2. Limitations and prohibited practices for high-cost home loans. A

high-cost home loan shall be subject to the following limitations:

(a) No call provisions. No high-cost home loan may contain a provision

that permits the lender, in its sole discretion, to accelerate the

indebtedness. This provision does not prohibit acceleration of the loan

in good faith due to the borrower's failure to abide by the material

terms of the loan.

(b) No balloon payments. No high-cost home loan may contain a

scheduled payment that is more than twice as large as the average of

earlier scheduled payments, unless such balloon payment becomes due and

payable at least fifteen years after the loan's origination. This

provision does not apply when the payment schedule is adjusted to the

seasonal or irregular income of the borrower.

(c) No negative amortization. No high-cost home loan may contain a

payment schedule with regular periodic payments that cause the principal

balance to increase. A loan is considered to have such a schedule if the

borrower is given the option to make regular periodic payments that

cause the principal balance to increase, even if the borrower is also

given the option to make regular periodic payments that do not cause the

principal balance to increase. This paragraph shall not prohibit

negative amortization as a result of a temporary forbearance sought by a

borrower.

(d) No increased interest rate. No high-cost home loan may contain a

provision which increases the interest rate after default. This

provision does not apply to interest rate changes in a variable rate

loan otherwise consistent with the provisions of the loan documents;

provided that the change in the interest rate is not triggered by the

event of default or the acceleration of the indebtedness.

(e) Limitation on 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.

(f) 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 to defer any payment due under the terms of 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 shall not

include interest that is otherwise payable and consistent with the

provisions of the loan documents. This paragraph 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.

(g) No oppressive mandatory arbitration clauses. 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.

(h) No financing of insurance or other products sold in connection

with the loan. No high-cost home loan shall finance, directly or

indirectly, any credit life, credit disability, credit unemployment, or

credit property insurance, or any other life or health insurance

premiums, or any payments directly or indirectly for any debt

cancellation or suspension agreement or contract, or any product or

service that is not necessary or related to the high-cost home loan such

as auto club memberships or credit report monitoring, but not including

fees paid to the lender, broker, or closing agent, fees related to the

recording of the mortgage, title insurance or other settlement fees.

Insurance premiums or debt cancellation or suspension fees calculated

and paid on a monthly basis shall not be considered financed.

(i) No "loan flipping". No lender or mortgage broker making or

arranging a high-cost home loan may engage in the unfair act or practice

of "loan flipping". "Loan flipping" is making a home loan to a borrower

that refinances an existing home loan when the new loan does not have a

tangible net benefit to the borrower considering all of the

circumstances, including the terms of both the new and refinanced loans,

the cost of the new loan, and the borrower's situation.

(j) No refinancing of special mortgages. No lender or mortgage broker

making or arranging a high-cost home loan may refinance an existing home

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 HUD approved

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.

(k) No lending without due regard to repayment ability. A lender or

mortgage broker shall not make or arrange a high-cost home loan without

due regard to repayment ability, based upon consideration of the

resident borrower or borrowers' 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. However, a lender

making a high-cost home loan shall benefit from a rebuttable presumption

that the loan was made with due regard to repayment ability if the

lender demonstrates that at the time the loan is consummated, the

resident borrower or borrowers' total monthly debts, including amounts

owed under the loan, do not exceed fifty percent of the resident

borrower or borrowers' monthly gross income; and the lender follows the

residual income guidelines established in 38 C.F.R. § 36.4337(e) and VA

Form 26-6393.

(l) (i) No lending without counseling disclosure and list of

counselors. A lender or mortgage broker must deliver, place in the

mail, fax or electronically transmit the following notice in at least

twelve 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

Department of Financial Services". In the event of a telephone

application, the disclosures must be made immediately after receipt of

the application by telephone. 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 department of financial servcies, shall be

provided to the borrower by the lender or the mortgage broker at the

time that this disclosure is given.

(ii) A lender or mortgage broker shall not make or arrange a high-cost

home loan unless either the lender or mortgage broker has given the

following notice in writing to the borrower within three days after

determining that the loan is a high-cost home loan, but no less than ten

days before closing:

"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 Department

of Financial Services.

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.

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."

(m) Financing of points and fees. In making a high-cost home loan, a

lender shall not, directly or indirectly, finance any points and fees as

defined in paragraph (f) of subdivision one of this section, in an

amount that exceeds three percent of the principal amount of the loan.

(n) Restrictions on home improvement contracts. A lender shall 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.

(o) No encouragement of default. In making or arranging a high-cost

home loan, a lender or mortgage broker shall not recommend or encourage

default 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.

(p) Prohibited payments to mortgage brokers. In making or arranging a

high-cost home loan, no lender or mortgage broker shall accept or give

any fee, kickback, thing of value, portion, split or percentage of

charges, other than as payment for goods or facilities that were

actually furnished or services that were actually performed. Such

payment must be reasonably related to the value of the goods or

facilities that were actually furnished or services that were actually

performed.

(q) No points and fees when a lender refinances its own high-cost home

loan with a new high-cost home loan. 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.

(r) No prepayment penalties. Notwithstanding paragraph b of

subdivision three of section 5-501 of the general obligations law, no

prepayment penalties or fees shall be charged or collected on a

high-cost home loan. A prepayment penalty in a high-cost home loan shall

be unenforceable.

(s) No yield spread premiums. In connection with the making or

brokering of a home loan, no person may provide, and no mortgage broker

or mortgage lender may receive, directly or indirectly, any compensation

that is based on, or varies with, the terms of any home loan. This

paragraph shall not prohibit compensation based on the principal balance

of the loan.

(t) Mandatory escrow of taxes and insurance. No high-cost home loan

shall be made after July first, two thousand ten unless the lender

requires and collects the monthly escrow of property taxes and hazard

insurance. With respect to a high-cost home loan, a borrower may waive

escrow requirements by notifying the lender in writing after one year

from consummation of the loan. The provisions of this paragraph shall

not apply to a high-cost home loan that is a subordinate lien when the

taxes and insurance are escrowed through another home loan or where the

borrower can demonstrate a record of twelve months of timely payments of

taxes and insurance on a previous home loan.

(u) Mandatory disclosure of taxes and insurance payments. With respect

to a high-cost home loan, the first time a borrower is informed of the

anticipated or actual periodic payment amount in connection with a

first-lien residential mortgage loan for a specific property, the lender

or mortgage broker shall inform the borrower that an additional amount

will be due for taxes and insurance and shall disclose to the borrower

as soon as reasonably possible the approximate amount of the initial

periodic payment for property taxes and hazard insurance.

(v) No teaser rates. No lender or mortgage broker shall make or

arrange a high-cost home loan which has an initial or introductory rate

with a duration of less than six months.

2-a. (a) High-cost home loan mortgages shall include a legend on top

of the mortgage in twelve-point type stating that the mortgage is a

high-cost home loan subject to this section.

(b) The lender shall 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.

3. The provisions of this section shall apply to any person who in bad

faith attempts to avoid the application of this section by any

subterfuge, including but not limited to splitting or dividing any loan

transaction into separate parts for the purpose of evading the

provisions of this section.

4. 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 section if the lender establishes that either:

(a) Within thirty days of the loan closing and prior to the

institution of any action under this section, 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 section, 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 section; 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 this

section 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 section, 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 section.

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 section is

not a bona fide error.

5. The attorney general, the superintendent, or any party to a

high-cost home loan may enforce the provisions of this section.

6. A private action against the lender or mortgage broker pursuant to

this section must be commenced within six years of origination of the

high-cost home loan.

7. Any person found by a preponderance of the evidence to have

violated this section shall be liable to the borrower for the following:

(a) actual damages, including consequential and incidental damages;

and

(b) statutory damages as follows (i) all of the interest, earned or

unearned, points and fees, and closing costs charged on the loan shall

be forfeited and any amounts paid shall be refunded; except that this

element of statutory damages shall not be awarded for violations of:

(1) paragraph (i) of subdivision two of this section regarding loan

flipping; and

(2) paragraph (k) of subdivision two of this section regarding

ensuring the borrower's ability to repay the loan, so long as the lender

demonstrates that at the time of the loan, it verified by detailed

documentation all sources of the borrower's income and corroborated it

with independent verification; or

(ii) five thousand dollars per violation or twice the amount of points

and fees and closing costs as defined in this section, whichever is

greater, for violations of:

(1) paragraph (i) of subdivision two of this section regarding loan

flipping; and

(2) paragraph (k) of subdivision two of this section regarding

ensuring the borrower's ability to repay the loan, where the borrower is

not entitled to relief under subparagraph (i) of this paragraph.

8. A court may also award reasonable attorneys' fees to a prevailing

borrower.

9. A borrower may be granted injunctive, declaratory and such other

equitable relief as the court deems appropriate in an action to enforce

compliance with this section.

10. Upon a finding by the court of an intentional violation by the

lender of this section, or regulation thereunder, the home loan

agreement shall be rendered void, and the lender shall have no right to

collect, receive or retain any principal, interest, or other charges

whatsoever with respect to the loan, and the borrower may recover any

payments made under the agreement.

11. Upon a judicial finding that a high-cost home loan violates any

provision of this section, whether such violation is raised as an

affirmative claim or as a defense, the loan transaction may be

rescinded. Such remedy of rescission shall be available as a defense

without time limitation.

12. The remedies provided in this section are not intended to be the

exclusive remedies available to a borrower of a high-cost home loan.

13. In any action by an assignee to enforce a loan against a borrower

in default more than sixty days or in foreclosure, a borrower may assert

any claims in recoupment and defenses to payment under the provisions of

this section and with respect to the loan, without time limitations,

that the borrower could assert against the original lender of the loan.

14. The provisions of this section shall be severable, and if any

phrase, clause, sentence, or provision is declared to be invalid, or is

preempted by federal law or regulation, the validity of the remainder of

this section shall not be affected thereby. If any provision of this

section is declared to be inapplicable to any specific category, type,

or kind of points and fees, the provisions of this section shall

nonetheless continue to apply with respect to all other points and fees.