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The New York State Department of Financial Services (NYDFS) has proposed a new regulation to extend the Community Reinvestment Act (CRA) framework to nonbank mortgage lenders. The rule proposal was open for public comment until December 31, 2024. Upon publication of the proposed rule, comments on the rule will be accepted for 60 days. If adopted, it will take effect one year from issuance.
Key Points:
Nonbank Lender Market Share: Nonbank lenders now originate around two-thirds of mortgages, up from 39% in 2008.
Adaptation of CRA: The proposed regulation acknowledges the operational model of nonbanks where many lack physical branches and focuses on where lending activity occurs rather than branch locations.
Evaluation and Public Disclosure: Nonbank lenders originating 200+ mortgages annually in New York will be evaluated on lending practices, community development services, and fair lending compliance. Performance will be rated and disclosed to the public.
Lending and Service Tests: Lenders will undergo lending tests assessing loan volume, distribution, and borrower characteristics, and service tests evaluating mortgage product delivery and community development efforts.
Data Reporting: Nonbanks must file reports, including HMDA data, and maintain internal controls to ensure accuracy and regulatory compliance.
Implications:
- Increased Scrutiny: Nonbank mortgage lenders in New York will face new regulatory scrutiny and accountability.
Enhanced Access to Home Loans: The regulation aims to increase access to affordable home loans, especially for low- and moderate-income communities.
Level Playing Field: The proposal seeks to create parity between banks and nonbanks in terms of CRA obligations.
We are prepared to answer any questions you may have regarding this proposed rule and its implications. Please reach out to your Woods Oviatt Gilman attorney or any member of our Financial Services industry group at Woods Oviatt Gilman LLP.
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