N.Y. Comp. Codes R. & Regs. tit. 3 § 41.3

Current through Register Vol. 46, No. 51, December 18, 2024

Section 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. 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 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 10 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 12-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 borrower or the borrowers (when considered collectively in the case of multiple 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. A lender shall benefit from a rebuttable presumption that a 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 borrower's scheduled monthly payments do not exceed 50 percent of the borrower's monthly gross income as verified by the credit application, the borrower's financial statement, a credit report, financial information provided to the lender by or on behalf of the 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 at the New York City office of the New York State Banking Department located at the address stated in Supervisory Policy G1 of this Title 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 G1 of this Title 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. For purposes of determining monthly income, only the income of the borrower(s) shall be considered.

(c) Financing of points and fees. 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, in an amount that exceeds 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 in an amount that exceeds three percent of the additional proceeds received by the borrower in connection with the refinancing. 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 subdivision, 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) Refinancing and modification of existing 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) 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. For purposes of this subdivision, 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 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.

(g) List of counselors, residual income guidelines and yield on United States Treasury securities. The list of counselors in subdivision (a) of this section, the residual income guidelines in subdivision (b) of this section, and the yield on the United States Treasury securities in section 41.1(e) of this Part shall be published by the Banking Department on its website. Lenders may rely upon and use such information until 90 days after the Banking Department publishes new information on its website.

N.Y. Comp. Codes R. & Regs. Tit. 3 § 41.3