Mortgage Banking Commentary
January 2003
New York, New York, New York: The Three Faces of
Anti-Predatory Lending Laws in New York
We have attached a Chart depicting the three various New York laws on predatory lending: the Part 41 Regulations
applicable to licensed lenders, the New York State law that takes effect on April 1, 2003 and the New York City
law that takes effect on February 18, 2003. Our colleagues, Nanci Weissgold and Suzanne Garwood, prepared
the Chart. As you will see, a single loan in New York City will be subject to three separate sets of legal requirements,
addressing similar issues in different ways. One does not typically associate multiple personality disorders with
residential mortgage lending laws, but the governmental response to predatory lending in New York clearly is
schizophrenic. The goal of any lender likely will be to try to stay below the triggers of the three laws to avoid
their application; trying to comply with the conflicting requirements of the three laws will be a tall task.
As the Chart shows, only the new state law provides explicit assignee liability. This law is modeled in part on the
Georgia Fair Lending Act. While it does not include the concept of “covered loans,” the New York State law
contains assignee liability provisions that already have rattled the capital markets. Both laws are based on the
model Home Loan Protection Act prepared and recommended by the the Public Policy Institute (the “Institute”)
of the American Association of Retired Persons (“AARP”) (see: http://research.aarp.org/ppi). The New Jersey
law also is based on this model.
The AARP, through the Institute, vigorously has fought and is fighting for the enactment of its model law around
the country. It is an aggressive advocate of its model law, and it was one of the leading voices, if not the leading
voice, behind the new New York State law. At the same time, one must begin to wonder whether the senior
officers and Board of Directors of the venerable AARP have ceded too much authority to the Institute on this
issue.
The principal authors of AARP’s model law include well known lawyers from the National Consumer Law
Center (“NCLC”), which is the intellectual engine for the class action plaintiffs’ bar. The model law contains a
disclaimer from the Institute that: “The views expressed herein ... do not necessarily represent official policies of
AARP.” The AARP’s model law, as enacted in Georgia and New York, is causing consternation in the capital
markets in a way that will impact the availability and price of home loans to the members of AARP. It may be
time for the lending industry to seek to meet with the senior leadership of the AARP to make sure they understand
the effect of the Institute’s actions on the residential lending industry. One must wonder if it is the official policy
of the AARP to promote state laws that have the effect on the market as does the Georgia version of the AARP
model act.
For more information, please contact any member of our Mortgage Banking and Consumer Finance Group,
listed on the following page.
Kirkpatrick & Lockhart LLP
MORTGAGE BANKING/CONSUMER FINANCE GROUP
Kirkpatrick & Lockhart LLP was founded in 1946, and, with more than 650 lawyers, is one of the 50 largest law firms
in the United States. K&L attorneys are based in ten offices in key U.S. cities—Boston, Dallas, Harrisburg, Los
Angeles, Miami, Newark, New York, Pittsburgh, San Francisco, and Washington. Our firm represents a broad range
of clients in a wide variety of matters, including corporate and securities, e-commerce, investment management,
insurance coverage, financial institutions, mortgage banking and consumer finance, creditors’ rights, intellectual
property, tax, labor, environmental, antitrust, health care, and government contracts. More than half our attorneys are
litigators. We litigate class actions on a range of financial issues, generally defending financial institutions, brokerdealers, public companies, and investment companies and their officers and directors against claims of violations of
securities laws, consumer credit laws, and common law tort and contract claims. You can learn more about our firm
by visiting our Internet website at www.kl.com.
The Mortgage Banking/Consumer Finance Group provides legal advice and licensing services to the consumer lending
industry. We counsel clients engaged in the full range of mortgage banking activities, including the origination,
processing, underwriting, closing, funding, insuring, selling, and servicing of residential mortgage loans and consumer
loans, from both a transactional and regulatory compliance perspective. Our focus includes both first- and subordinatelien residential mortgage loans, as well as open-end home equity, property improvement loans and other forms of
consumer loans. We also have experience in multi-family and commercial mortgage loans. Our clients include
mortgage companies, depository institutions, consumer finance companies, investment bankers, insurance companies,
real estate agencies, homebuilders, and venture capital funds. Members of the Mortgage Banking/Consumer Finance
Group and their telephone numbers and e-mail addresses are listed below:
ATTORNEYS
Laurence E. Platt
Phillip L. Schulman
Costas A. Avrakotos
Melanie Hibbs Brody
Steven M. Kaplan
Irene C. Freidel
Jonathan Jaffe
R. Bruce Allensworth
Daniel J. Tobin
Anthony P. La Rocco
David L. Beam
Emily J. Booth
Eric J. Edwardson
Suzanne F. Garwood
Tara L. Goebel
Laura A. Johnson
Kristie D. Kully
Krista Patterson
Carol M. Tomaszczuk
Nanci L. Weissgold
202.778.9034
202.778.9027
202.778.9075
202.778.9203
202.778.9204
617.261.3115
415.249.1023
617.261.3119
202.778.9074
973.848.4014
202.778.9026
202.778.9112
202.778.9387
202.778.9892
202.778.9261
202.778.9249
202.778.9301
202.778.9257
202.778.9206
202.778.9314
lplatt@kl.com
pschulman@kl.com
cavrakotos@kl.com
mbrody@kl.com
skaplan@kl.com
ifreidel@kl.com
jjaffe@kl.com
ballensworth@kl.com
dtobin@kl.com
alarocco@kl.com
dbeam@kl.com
ebooth@kl.com
eedwardson@kl.com
sgarwood@kl.com
tgoebel@kl.com
laura.johnson@kl.com
kkully@kl.com
kpatterson@kl.com
ctomaszczuk@kl.com
nweissgold@kl.com
DIRECTOR OF LICENSING
Stacey L. Riggin
202.778.9202 sriggin@kl.com
REGULATORY COMPLIANCE ANALYSTS
Dana L. Lopez
202.778.9383 dlopez@kl.com
Nancy J. Butler
202.778.9374 nbutler@kl.com
Susan C. Curtin
202.778.9129 scurtin@kl.com
Joelle Myers
202.778.9093 jmyers@kl.com
Marguerite T. Frampton 202.778.9253 mframpton@kl.com
Jeffrey Prost
202.778.9364 jprost@kl.com
Patricia E. Mesa
202.778.9219 pmesa@kl.com
Kenasha C. Scott
202.778.9384 kscott@kl.com
LEGAL ASSISTANTS
Carol A. Carson
Mera C. Choi
415.249.1091 ccarson@kl.com
202.778.9415 mchoi@kl.com
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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2002 KIRKPATRICK & LOCKHART LLP.
ALL RIGHTS RESERVED.
www.kl.com
Comparative Analysis by Kirkpatrick & Lockhart LLP of Regulation Z of the federal Truth in Lending Act to
New York State Part 41, New York A. 11856 and New York City Predatory Lending Ordinance
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
WHO MUST COMPLY WITH
THE PREDATORY LENDING
REGULATION
Section 32 of Regulation Z (12 C.F.R. §
226.32) applies to a creditor which term is
defined as a person (i) who regularly extends
consumer credit (credit offered or extended to
a consumer primarily for personal, family, or
household purposes) that is subject to a
finance charge or is payable by written
agreement in more than 4 installments (not
including a down payment), and (ii) to whom
the obligation is initially payable, either on the
face of the note or contract, or by agreement
when there is no note or contract. See id. §§
226.2(17) and (12). A person regularly extends
consumer credit under Section 32 if in any 12month period, the person originates more than
one credit extension that is subject to the
requirements of Section 32 or one or more
such credit extensions through a mortgage
broker. See id. § 226.2, fn.3.
Part 41 of the General Regulations of the
Banking Board, entitled Restrictions and
Limitations on High Cost Home Loans (N.Y.
Comp. Codes R. & Regs. tit. 41, §§ 41.1 et
seq.) (the “Regulations”), applies to high cost
home loans. Although the regulation contains
provisions that apply to lenders, mortgage
brokers and, for certain provisions, assignees
and servicers of high cost home loans, the
Department of Banking has indicated that the
Regulation applies only to originators of high
cost home loans and mortgage brokers and
does not include mere purchasers or servicers
of high cost home loans.
The term “lender” is any individual or entity
that in any twelve-month period originates
more than one high cost home loan. See id. §
41.1(a). Thus, there is a de minimis of only
one high cost home loan. The individual or
entity to whom the obligation is initially
A.11856 applies to “lenders.” The term
“lenders” means a mortgage banker or an
exempt entity as defined under Sections
590(f) and 590(e) of the Banking Law.
Section 590(f) of the Banking Law defines
a “mortgage banker” as a person or entity
who or which is licensed pursuant to
Section 591 of the Licensed Mortgage
Banker Act to engage in the business of
making mortgage loans in New York.
An “exempt entity” is any insurance
company, banking organization, foreign
banking corporation licensed by the
superintendent or the Office of the
Comptroller of the Currency to transact
business in New York, national bank,
federal savings bank, federal savings and
loan association, federal credit union, or
any bank, trust company, savings bank,
savings and loan association, or credit
Unlike a typical anti-predatory lending law, No.
36 does not outlaw a “financial institution” from
making of predatory loans. Rather, No. 36
prohibits a “financial institution” from (i) acting
as a depository for City business, (ii) receiving
any financial assistance from the City; (iii)
contracting with the City to provide goods and
services; or (iv) having the City invest in its
stock, securities or other obligations, if the
financial institution or any of its affiliates is
classified as a “predatory lender.” A financial
institution is a bank, savings and loan
association, thrift, credit union, investment
company, mortgage banker, mortgage broker,
trust company, savings bank, securities
broker, municipal securities broker, securities
dealer, municipal securities dealer, securities
underwriter, municipal securities underwriter,
investment trust, bank holding company,
finance company, or financial services holding
company. An “affiliate” is any person that
This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
DC-555260 v1 0942600-0100
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
payable, either on the face of the note or
contract, or by agreement when there is no
note or contract, is deemed to be the lender in
the loan transaction. Id. The term “mortgage
broker” is not defined.
union organized under the laws of any
other state, or any instrumentality created
by the United States or any state with the
power to make mortgage loans.
Subject to such regulations as may be
promulgated by the banking board,
"exempt organization" may also include
any subsidiary of such entities.
controls, is controlled by, or is under common
control with another person, including any
successors in interest.
Control means
ownership of ten percent or more of any class
of outstanding stock of a company or the
power to direct or cause the direction of the
management and policies of a person.
A “predatory lender” is a lender that, in the
aggregate for such lender and its affiliates,
extends, purchases or invests in, during a
twelve-month period the lesser of ten
individual predatory loans or any number of
predatory loans constituting 5% of the total
number of home loans made, purchased or
invested in during such 12-month period. (For
purposes of this calculation, one must
aggregate the loans of a lender and any of its
affiliates.)
A lender will not be classified as a predatory
lender if, among other reasons, when directly
or indirectly purchasing or investing in high
cost home loans, or arranging for the purchase
or investment in high cost home loans by
collective investment or securitization, the
lender reasonably believes, after reasonable
investigation, conducted by or on behalf of
such lender, based upon reasonable
procedures consistent with industry practice
-2This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
for the review of the terms and other
characteristics of home loans in connection
with the purchase or securitization of, or
investment in, high cost home loans generally,
that the home loans purchased or invested in
do not constitute predatory loans. For
purposes of this paragraph, “procedures
consistent with industry practice” shall include,
but not be limited to, a random statistical
sample of not less than 10% of the home
loans for real property located in the City of
New York included in the home loan pool to be
securitized or purchased, except that if the
lender
has
an
established
business
relationship with the originator or wholesaler of
the home loans being purchased or
securitized, as demonstrated by the lender
having completed not less than four
transactions with said entity during the
preceding two years, the lender may conduct a
random statistical sample of not less than five
percent of the home loans described above.
“Lender” means any person that extends,
purchases or invests in, directly or indirectly,
including through collective investment or
securitization entities, one or more home
loans, or any person that arranges, directly or
indirectly,
including
through
collective
investment or securitization, for the extension,
-3This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
purchase of or investment in one or more
home loans, including, but not limited to, the
securities trust trustee and underwriter, and
any mortgage broker with respect to home
loans.
However, for purposes of this
definition, a lender shall not be deemed to be:
(1) collective investment entities, including,
without limitation, investment companies
as defined under the Investment
Company Act of 1940, hedge funds, bank
collective trust funds, offshore funds and
similar entities that are not created to and
do not acquire pools of mortgage loans,
or issue securities based on and backed
by pools of mortgage loans, and any
passive investor in the interests created
therein that exercises no discretion
regarding such interests other than to
buy, hold or sell them;
(2) purchasers of mortgage loans or
mortgage related securities where the
seller is obligated by written agreement
and, in fact, intends to repurchase all the
loans or securities within 180 days of
such sale;
(3) lenders whose interest in high-cost home
loans is limited to a security interest or
-4This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
who acquire title as a result of the
foreclosure of such security interest,
except that such lenders shall not extend
credit to a person found to be a predatory
lender as defined by this section;
(4) securities broker dealers that trade in but
otherwise are not involved in any material
respect in the securitization of the
underlying mortgages; or
(5) any passive investor in securities or
interests in securities based on or backed
by a pool of high-cost home loans that
exercises no discretion regarding the
securities other than to buy, hold or sell
them.
DEFINITION OF LOANS
SUBJECT TO REGULATION
A "Section 32 loan" is a consumer credit
transaction that is secured by the consumer's
principal dwelling and satisfies one of the
trigger tests. See 12 C.F.R. § 226.32(a)(1).
A "high cost home loan" is a residential
mortgage loan in which the application is taken
on or after October 1, 2000 and: (1) the
principal amount of the loan does not exceed
the lesser of (i) the conforming loan size limit
for a comparable dwelling as established by
FNMA [currently set at $322,700 for a single
family dwelling]; or (ii) $300,000; (2) the
borrower is a natural person; (3) the debt is
incurred by the borrower primarily for personal,
family or household purposes; (4) the loan is
secured by a mortgage on real estate upon
A home loan is a loan where:
(1) the principal amount of the loan does
not exceed the lesser of (a) the
conforming loan size limit for a
comparable dwelling as established
from time to time by Fannie Mae
($322,700 for a single-family dwelling
for 2003), or (b) $300,000;
Applies to a “home loan,” a “high cost home
loan” or a “predatory loan.”
A “home loan” is a residential mortgage,
where:
(1) the borrower is a natural person;
(2) the loan is secured by a residential
mortgage on real estate upon which there
is located or there is to be located a
-5This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
which there is located or there is to be located
a structure or structures, intended principally
for occupancy of from one to four families,
which is or will be occupied by the borrower as
the borrower's principal dwelling; (5) the
property is located in New York; or (6) the
terms of the loan exceed one or more of the
trigger tests (rate test or points and fees test).
See id. § 41.1(e).
(2) the borrower is a natural person;
structure or structures intended principally
for occupancy by from one to four
families, or by a residential condominium
or by a cooperative unit, or shares issued
in respect thereof, which is or will be
occupied by the borrower as the
borrower’s principal residence;
(3) the debt is incurred by the borrower
primarily for personal, family or
household purposes;
(4) the loan is secured by real estate
upon which there is located or will be
located a structure or structures
intended principally for occupancy
from one to four families, which is or
will be occupied by the borrower as
the borrower’s principal dwelling; and
(5) the property is located in New York.
A “high cost home loan” is a home loan
with an APR or points and fees that
exceed certain thresholds.
A.11856 § 1(D) and (E).
(3) the property is located in New York City;
(4) the principal amount does not exceed the
greater of: (a) the conforming loan size
limit for a comparable dwelling as
established from time to time by Fannie
Mae ($322,700 for a single family dwelling
for 2003); or (b) $300,000;
(5) the loan is primarily for personal, family or
household purposes; and
(6) the loan is entered into on or after the
date the ordinance goes into effect.
NY Mun. Code § 6-128(a)(9).
A “high cost home loan” is a home loan that
meets or exceeds certain APR and points and
-6This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
fees threshold.
Id. § 6-128(a)(8).
A “predatory loan” is a high cost loan that
contains certain prohibited terms (including no
reasonable and tangible benefit to the
borrower, failure to determine ability to repay,
financing points and fees that exceed four
percent of the total loan amount, etc.) Id. § 6128(a)(16).
-7This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
LOANS EXCLUDED FROM
REGULATION
A "Section 32 loan" does not include (i) a loan
that is secured by a dwelling which is not the
consumer's principal dwelling; (ii) a residential
mortgage transaction, which is defined,
generally, as a transaction in which a mortgage
is created or retained in the consumer's
principal dwelling to finance the acquisition or
initial construction of that dwelling; (iii) a
reverse mortgage transaction; or (iv) a
transaction under an open-end credit plan.
See id. § 226.32(a)(1). Please note that
certain prohibitions listed below contain
exceptions and, thus, may further exclude
certain loans from applicability.
A "high cost home loan" does not include a
reverse residential mortgage loan or any
product offered as a mortgage loan by an
instrumentality of the United States (i.e. VA or
FHA, as set forth in the Regulations, even
though VA and FHA do not offer any loans) or
of any state. See id. §§ 41.1(e) and 41.8.
Unlike a Section 32 loan, New York’s
regulation does not exclude a purchase money
mortgage loan or a construction loan, unless
one of the other exclusions applies.
A home loan does not include a reverse
mortgage loan.
A home loan does not include reverse
mortgages.
A.11856 § 1(D).
N.Y. Mun. Code § 6-128(a)(9).
Unlike a Section 32 loan, A. 11856 does
not exclude a purchase money mortgage
loan or a construction loan, unless one of
the other exclusions applies.
Unlike a Section 32 loan, No. 36 does not
exclude a purchase money mortgage loan or a
construction loan, unless one of the other
exclusions applies.
The
annual
percentage
rate
at
consummation exceeds by more than 8
percentage points for first-lien loans or 9
percentage points for subordinate-lien
loans the yield on Treasury securities
having comparable periods of maturity as
th
of the 15 day of the month immediately
preceding the month in which the creditor
receives the application for the extension
The annual percentage rate at consummation
exceeds by more than 6 percentage points for
first-lien loans or 8 percentage points for
subordinate-lien loans the yield on Treasury
securities having comparable periods of
th
maturity as of the 15 day of the month
immediately preceding the month in which the
creditor receives the application for the
extension of credit.
Thus, a purchase money mortgage loan or a
construction loan is not a Section 32 loan,
irrespective of whether one of the trigger tests
is met.
TRIGGER (RATE TEST)
The APR exceeds by more than 8 percentage
points for first-lien loans or 10 percentage
points for subordinate-lien loans the yield on
Treasury securities having periods of maturity
comparable to the loan maturity as of the 15th
day of the month immediately preceding the
month in which the creditor receives the
application for the extension of credit. See id.
§ 226.32(a)(1)(i).
APR exceeds by more than 8 percentage
points for first-lien loans or 9 percentage
points for junior loans the yield on Treasury
securities having periods of maturity
comparable to the loan maturity measured as
of the 15th day of the month immediately
preceding the month in which the creditor
receives the application for the residential
mortgage loan. See id. §§ 41.1(e)(6)(i)-(ii).
-8-
This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
When calculating the APR for adjustable rate
loans, the creditor must use the interest rate
that would be effective once the introductory
rate has expired. Id.
In determining the applicable yield on United
States Treasury securities, the lender may
utilize the yield published by the Banking
Department on its website or the yield as
determined by reference to Section 12 C.F.R.
§ 226.32(a) and commentary thereto, provided
the lender notes in the loan file which yield is
being utilized and uses that yield consistently;
Id. § 41.1(e)(6)(ii).
TRIGGER (POINTS AND
FEES TEST)
Total points and fees exceed the greater of 8%
of the total loan amount or $488 (for the year
2003, adjusted annually based on Consumer
Price Index). See id. § 226.32(a)(1)(ii).
Total points and fees exceed 5% of the total
loan amount, provided that bona fide loan
discount points (i.e. reduces the interest rate
by a minimum of 35 basis points or 3/8 of a
point) payable by the borrower in connection
with the loan transaction may be excluded
from the points and fees test. See id. §
41.1(e)(6)(iii).
of credit.
NY Mun. Code § 6-128(a)(8).
Annual percentage rate is defined to mean
the annual percentage rate calculated
according to the federal Truth in Lending
Act, Regulation Z as amended from time
to time. With respect to variable rate
loans, where the interest rate has a lower
introductory period, the APR is the rate
that applies after the lower introductory
period.
Generally, the APR is calculated according to
the federal Truth in Lending Act, as amended
by HOEPA, and its implementing regulations,
as amended from time to time. With respect to
variable rate loans, if the loan contains an
initial or introductory rate that is less than the
APR that will apply after the initial or
introductory period, then the APR that must be
used to calculate the threshold is the APR that
is calculated and disclosed on the initial
disclosure statement required under Section
226.6 of Regulation Z for the period after the
initial or introductory period.
A.11856 § 1(G) and (B)
Total points and fees exceed: (i) five
percent of the total loan amount if the total
loan amount is $50,000 or more; (ii) six
percent of the total loan amount if the total
loan amount is $50,000 or more and the
loan is an FHA-insured or VA-guaranteed
purchase money loan; or (iii) the greater of
six percent of the total loan amount or
$1,500 if the total loan amount is less than
$50,000.
Lenders may exclude up to and including
two bona fide loan discount points payable
by the borrower in connection with the
The total points and fees on the loan exceed:
(i)
(ii) the greater of five percent of the total loan
or $1,500, if the total loan amount is less
than $50,000.
Lenders can exclude up to four bona fide loan
discount points payable by the borrower in
connection with the loan transaction if the
interest rate from which the loan’s interest rate
-9This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
four percent of the total loan amount if the
total loan amount is $50,000 or more;
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
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.
Id. § 1(G)(1). Lenders also may exclude
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. Id.
Bona fide loan discount points are 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 market transactions.
For
purposes of the above, a discount point is
presumed to be a bona fide loan discount
point if it reduces the interest rate by a
will be discounted does not exceed by more
than two percentage points the required net
yield for a 90-day standard mandatory delivery
commitment for a reasonably comparable loan
from the greater of Fannie Mae or Freddie
Mac. NY Mun. Code § 6-128(a)(8).
“Bona fide loan discount points” means
discount points knowingly paid by the
borrower, funded through any source, for the
purpose of reducing, and which in fact results
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.
Id. § 6128(a)(3).
-10This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
minimum of 25 basis points provided all
other terms of the loan remain the same.
A.11856 § 1(C).
DEFINITION OF POINTS AND "Points and fees" are (1) all items to be
FEES
disclosed under section 226.4(a) [Definition of
Finance Charge] and 226.4(b) [Example of
Finance Charge], except interest or the timeprice differential; (2) all compensation paid to
mortgage brokers; (3) all items required to be
disclosed under section 226.4(c)(7) [Charges
Excluded from the Finance Charge] (other than
amounts held for future payment of taxes)
unless the charge is reasonable, the creditor
receives no direct or indirect compensation in
connection with the charge, and the charge is
not paid to an affiliate of the creditor; and (4)
premiums or other charges for credit life,
accident, health, or loss-of-income, or debtcancellation coverage (whether or not the debtcancellation coverage is insurance under
applicable law) that provides for cancellation of
all or a part of the consumer’s liability in the
event of the loss of life, health, or income or in
the case of accident, written in connection with
the credit transaction. See id. § 226.32(b)(1).
Definition of "points and fees" is the same as
that under TILA. See id. § 41.1(g). Despite
New York’s apparent attempt to adopt the
federal definition of points and fees in its
entirety, note that Part 41 defines the term
affiliate as any company that controls, is
controlled by, or is under the common control
of another company.
“Control” means
ownership of ten percent or more of any class
of outstanding capital stock of the company or
the power to direct or cause the direction of
management and policies of the company.
The definition of “affiliate” for HOEPA
This
purposes effectively is 25 percent.
difference will affect what types of fees are
included for “4(c)(7)” charges that are paid to
affiliates.
Arguably, by incorporating the
federal definition by reference, then Part 41
also should adopt the federal “4(c)(7)” test,
including the 25 percent affiliate threshold.
The New York Banking Department, however,
does not appear to have adopted this
interpretation. We spoke informally with Fred
Drexler of the New York State Banking
Department who indicated that the affiliate
Points and fees means:
Points and fees is defined to mean:
(i)
(i)
all items listed in paragraphs 1-4 of
12 USC § 1605(A).
These fees
include: (a) any amount payable
under a point, discount or other
system of charges except interest or
the time price differential; (b) service
or carrying charges; (c) a loan fee,
finders fee, or similar charge; and (d)
fees for investigation of credit reports;
(ii) 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
above;
(iii) all items listed under 12 CFR Section
226.4(c)(7) unless (i) the creditor
receives no direct or indirect
compensation in connection with the
charge, or (ii) the charge is not paid to
(ii) all charges for items listed under Section
226.4(c)(7), as amended from time to
time, but only if the lender receives direct
or indirect compensation with the charge
or the charge is paid to an affiliate* of the
lender;
(iii) all compensation not otherwise specified
in the definition of points and fees paid
directly or indirectly to a mortgage broker,
including a broker that originates a home
loan in its own name through an advance
of funds and subsequently assigns the
home loan to the person advancing the
funds;
(iv) the premium of any single premium credit
life, credit disability, credit property, credit
-11This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
all items listed in 15 USC Sections
1605(a)(1) through (4), except interest or
the time price differential;
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
definition of 10 percent, as described above,
rather than the federal 25 percent test, is the
proper test for affiliation notwithstanding the
legislature’s apparent attempt to adopt the
federal definition of points and fees in its
entirety.
Nevertheless, we believe that there is some
evidence to support an interpretation that the
“federal” test should be used for purposes of
calculating points and fees. First, the term
“affiliate” is used throughout Part 41 in the
context of certain prohibited practices.
Second, the New York legislature expressly
adopted the definition of points and fees as set
forth under Section 32 and the Official Staff
Commentary thereto, which contains a 25
percent affiliate test for 4(c)(7) charges. Thus,
if lenders were to follow the direction of the
Banking Department, they would apply a
definition of points and fees that is different
from that adopted under the federal law.
unemployment or other life or health
insurance, including any payments for
debt cancellation or suspension, except
that insurance premiums calculated and
paid on a monthly basis may not be
included; and
an affiliate* of the creditor; and
(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 payments calculated and
paid on a monthly basis are not
considered financed by the lender.
*A.11856 adopts the definition of “affiliate”
as set forth under the Bank Holding
Company Act for purposes of determining
those fees that are included as points and
fees.
In any event, the Part 41 definition of affiliate is
a lower threshold than that which applies
under Section 32. Thus, by adopting the New
York definition of affiliate, lenders are adopting
(v) all prepayment fees or penalties that are
charged to the borrower if the loan
refinances a prior loan made by the same
lender or an affiliate of the lender.*
NY Mun. Code § 6-128(a)(14).
* An affiliate, for purposes of the above is
defined as any person that controls, is
controlled by, or is under common control
with another person, including any
successor in interest.
Control means
ownership of ten percent or more of any
class of outstanding stock of a company or
the power to direct or cause the direction of
the management and policies of a person.
Id. § 6-128(a)(1).
-12This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
a more conservative approach to complying
with the regulation.
APPLICATION-RELATED
NOTICES /DISCLOSURES
For Section 32 loans, creditors must disclose to
the borrower at least three business days prior
to consummation of a mortgage transaction the
following: (i) a notice that states: "You are not
required to complete this agreement merely
because you have received these disclosures
or have signed a loan application. If you obtain
this 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." (ii) the
APR; (iii) amount of regular monthly (or other
periodic) payment; and (iv) for variable-rate
transactions, a statement that the interest rate
and monthly payment may increase, and the
amount of the single maximum monthly
payment, based on a maximum interest rate to
be disclosed under Section 226.30. See id. §
226.32(c).
There are four application-related disclosures
required in connection with the origination of a
high cost home loan. First, for any high cost
home loan, mortgage brokers and lenders
must deliver, place in the mail, fax, or
electronically transmit to the borrower a
statement in substantially the following form at
or prior to taking an application: “Although
your aggregate monthly debt payment may
decrease, the high cost home loan may
increase both (i) your aggregate number of
monthly debt payments and (ii) the aggregate
amount paid by you over the term of the high
cost home loan” if such are likely the case.
See id. § 41.4(a). Unlike the second required
disclosure below, the Regulation is silent as to
whether application must occur within a certain
time frame (i.e. three days prior to closing) so
as to be in compliance with this requirement.
This disclosure does not have to be a separate
document. See id.
Second, mortgage brokers and lenders are
required to give the disclosures required
pursuant to Part 38 of the General Regulations
at the time of application, which application
must be at least three days prior to the closing
There
are
two
application-related
disclosures required in connection with the
origination of a high-cost home loan. First,
a lender or mortgage broker must deliver,
place in the mail, fax or electronically
transmit the following notice in at least 12point 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
of a telephone application, the disclosures
must be made immediately after receipt of
the application by telephone. Disclosure
must 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,
must be provided to the borrower by the
lender or mortgage broker at the time the
disclosure is given. Second a lender or
broker may not make or arrange for high
cost home loans unless either the lender
There are no required disclosures to
borrowers or assignees, but a Predatory Loan
characteristic under No. 36 includes violations
of Part 41, so No. 36 indirectly requires that
the same disclosures as those found in Part
41 be made but only for those high-cost home
loans under No. 36 that are high cost home
loans under Part 41.
-13This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
whether or not funds are then disbursed. See
id. § 41.4(a). As Part 39 of the Regulations
exempts open-end loans from Part 38, it is
unclear if an open-end loan deemed a “highcost home loan” under
Part 41 will become subject to the disclosures
under Part 38 or if the “as applicable”
language could be interpreted as exempting
such open-end loans from the Part 38
disclosures. We raised this issue on an
informal
basis
with
state
regulators.
Regulators strongly suggest providing the Part
38 disclosures on a loan subject to Part 41,
even if the loan is in the nature of an open-end
product.
or the mortgage broker gives the notice
entitled “Consumer Caution and Home
Ownership Counseling Notice,” as set
forth in the statute, in writing to the
borrower
within
three
days
after
determining that the loan is a high cost
home loan, but no less than three days
prior to closing.
The text of this notice is set forth in the
law.
A.11856 § 2(L)(II).
Mortgage brokers and lenders are exempt
from providing these disclosures at the time of
application if the lender or broker did not know
the borrower’s application was a high cost
home loan application, however, such
disclosures must be made as soon as the
lender determines that it is a high cost home
loan application, and in any event, at least
three days prior to the closing. See id. §§
41.4(a) and 41.4(d).
In the event of a
telephone application, the disclosure must be
made immediately after receipt of the
application by telephone, but in any event, at
-14This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
least three days prior to the closing. See id.
In order to utilize electronic transmission, the
lender or broker must first obtain written or
electronically transmitted permission from the
borrower. See id. A lender may agree with a
broker that the broker shall make the
disclosures required; however, it remains the
responsibility of the lender to ensure that such
disclosures are made. See id.
Third, for high cost home loans, the following
statement in a minimum of twelve point type
must appear directly above the borrower’s
signature line on the application: “The loan
which may be offered to you is not necessarily
the least expensive loan available to you and
you are advised to shop around to determine
comparative interest rates, points and other
fees and charges.” See id. § 41.4(d). Fourth,
see "Counseling" for disclosure required at
time of application.
Although not an application-related disclosure,
we note that there is a disclosure required in
connection with credit life, accident and health,
disability
or
unemployment
insurance
products, see “Packing."
-15This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
DISCLOSURES REQUIRED
ON THE NOTE/SECURITY
AGREEMENT OR
OTHERWISE AT CLOSING
No express requirement, but see “Assignee
Liability” for notice requirement that arises
when creditor sells or otherwise assigns a high
cost home loan.
A high cost home loan must include a legend
on top of the mortgage in twelve point type
stating that the mortgage is a high cost home
loan subject to Part 41 of the General
Regulations of the Banking Board. See id. §
41.7.
A high cost home loan must contain a
legend on top of the mortgage in 12-point
type stating that the mortgage is a high
cost home loan subject to N.Y. Banking
Laws § 6-L.
No specific requirement but a Predatory Loan
characteristic includes violations of Part 41 for
those high-cost home loans under the No. 36
that also are high cost home loans under Part
41.
A.11856 § 2-A(A).
ADVERTISING
RESTRICTIONS
N/A
For high cost home loans, it is an unfair,
deceptive or unconscionable practice to
advertise that refinancing pre-existing debt
with such a loan will reduce a borrower’s
aggregate monthly debt payment without also
disclosing, if such are likely to be the case,
that the high cost home loan will increase both
(i) a borrower’s aggregate number of monthly
debt payments and (ii) the aggregate amount
paid by a borrower over the term of the high
cost mortgage loan. See id. § 41.5(b)(7).
N/A
No specific requirement but a Predatory Loan
characteristic includes violations of Part 41 for
those high-cost home loans under No. 36 that
also are high cost home loans under Part 41.
-16This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
COUNSELING
N/A
Counseling is not required; however, for high
cost home loans, lenders and mortgage
brokers 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 Banking
Department.”
See id. § 41.3(a).
The
Regulation is silent as to whether application
must occur within a certain time frame (i.e.
three days prior to closing) so as to be in
compliance with this requirement; however, in
the event the lender or broker does not know
whether the borrower’s application is a high
cost home loan at application, such disclosure
must be made as soon as the lender
determines that it is a high cost home loan
application, but in any event, at least three
days prior to the closing whether or not funds
are disbursed. See id.
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. See id. The lender or
mortgage broker may provide to the borrower
the entire list of counselors or those portions of
Counseling is not required; however, for
high-cost home loans, lenders and
mortgage brokers 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,
accompanied by a list of approved
counselors available from the New York
State Banking Department:
You should consider financial counseling
prior to executing loan documents. The
enclosed list of counselors is provided by
the New York State Banking Department.
The disclosure must be on a separate
form.
If application is taken by telephone, the
disclosure must be made immediately
after receipt of the application by
telephone.
A high-cost loan is a predatory loan if prior to
making the high-cost home loan, a lender
does not receive written certification from a
HUD- approved independent housing or credit
counselor that the borrower either has
received counseling on advisability of loan
transaction and appropriateness of loan for the
borrower or has waived the loan counseling,
provided that a borrower may waive the loan
counseling by contacting such an independent
housing or credit counselor by personal
meeting or live telephone conservation at least
three days prior to the closing of the home
loan and certifying in a notarized written
statement to the counselor that he or she has
elected to waive the loan counseling. No such
waiver is valid if the lender or its affiliates has
recommended or advised the borrower to
make such waiver.
N.Y. Mun. Code § 6-128(a)16(d).
Lenders and brokers may make disclosure
electronically, provided the lender or
broker receives written or electronic
permission from the borrower.
-17This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
the list which pertain to both the geographic
area in which the borrower resides and any
adjacent area or areas. Id. This disclosure
must be a separate form. See id.
In the event of a telephone application, the
disclosures must be made immediately after
receipt of the application by telephone, but in
any event, at least three days prior to the
closing whether or not funds are disbursed.
See id.
In order to utilize electronic transmission, the
lender or broker must first obtain either written
or electronically transmitted permission from
the borrower. See id.
REPAYMENT ABILITY
For Section 32 loans, a lender is prohibited
from engaging in any pattern or practice of
extending credit based on the consumer's
collateral if, considering the consumer's current
and expected income, current obligations, and
employment status, the consumer will be
unable to make the scheduled payments and
repay the obligation. See id. § 226.32(e)(1).
When underwriting a high cost loan where the
borrower’s income (as reported on the loan
application) is less than or equal to (i) 120% of
the median family income for the Metropolitan
Statistical Area (“MSA”) in which the security
property is located; or (ii) 120% of the nonmetropolitan median family income for New
York for loans secured by properties not within
an MSA, the underwriter must reasonably
believe that the borrower or borrowers will be
able to make the scheduled payments to repay
the obligation based upon a consideration of
their current and expected income, current
A lender or mortgage broker may 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 that secures
repayment of the loan), as verified by
detailed documentation of all sources of
income and corroborated by independent
A Predatory Loan characteristic includes a
loan where a lender does not reasonably
believe at the time it makes the high-cost
home loan that the borrower will be able to
make at the time it makes the high cost home
loan 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 security property.
A borrower is presumed to be able to make
-18This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
obligations, employment status, and other
financial resources other than the borrower’s
equity in the security property. Id. § 41.3(b).
For purposes of determining whether monthly
income is less than or greater than 120% of
median income, only the income of the
borrower(s) shall be considered.
In
determining repayment ability, lenders should
consider indications of residual income such
as guidelines utilized by the Veterans
Administration. Id.
An obligor is presumed to be able to make the
scheduled payments to repay the obligation if,
at the time the loan is consummated, or at the
time of the first rate adjustment in the case of
a low introductory interest rate, the obligor’s
scheduled monthly payments do not exceed
50% of the obligor’s monthly gross income as
verified by the credit application, the obligor’s
financial statement, a credit report, financial
information provided to the lender by or on
behalf of the obligor, or any other reasonable
means.
verification.
However, 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 50 percent of the resident
borrower or borrower’s monthly gross
income and if the lender follows the
residual income guidelines established in
38 C.F.R. § 35.4337(E) and VA form 266393.
The Banking Department will furnish and
update annually, a list of counties that are
located within MSAs, together with the
corresponding median income figures for both
the scheduled payments to repay
obligation if, at the time the loan is made:
(i)
scheduled monthly payments (after giving
effect to any index adjustment with
respect to the loan) both on the loan
(including principal, interest, taxes,
insurance, assessments, condominium
fees, cooperative maintenance expenses)
combined with the scheduled payments
for all other debt do not exceed 50% of
the obligor’s documented and verified
monthly gross income; and
(ii) the borrower has sufficient residual
income under VA guidelines to pay
essential monthly expenses after paying
scheduled monthly payment and any
additional debt; or
(iii) if clause (i) or (ii) do not apply, the home
loan is a predatory loan unless the lender
determines and documents prior to the
closing of the loan that the making of the
loan is justified based upon specific
compensating factors, such as the
borrower’s excellent long-term credit
history, the borrower’s demonstrated
ability to make payments under
-19This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
the
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
comparable or greater debt obligations to
income ratios, the conservative use of
credit
standards,
the
borrower’s
significant liquid assets or other
reasonable factors.
MSAs and non-metropolitan areas.
Currently, there are 12 MSAs in New York
State. Id.
Superintendent McCaul has
stressed that lenders should consider the
residual income when making a high cost
home loan in addition to debt to income ratios
and has placed the residual income guidelines
utilized by VA on its website.
N.Y. Mun. Code § 6-128(a) 16(b).
It is an unfair, deceptive or unconscionable
practice if one brokers or makes a high cost
home loan with repayment terms that so
exceed the borrower’s financial capacity to
repay as to be unconscionable.
See id. §
41.5(b)(3). Evidence that the repayment terms
exceed the borrower's reasonable capacity to
repay may be rebutted by: (i) a showing that
the lender reasonably believed the borrower
had the capacity to repay; or (ii) a showing that
other compelling circumstances existed that
justified the making of the loan. Id.
BALLOON PAYMENTS
Balloon payments are prohibited on Section 32
loans with a term of less than 5 years
(exception: bridge loans of less than one year).
See id. § 226.32(d)(1).
Balloon payments are prohibited on high cost
home loans (exception: (i) bridge loans; (ii)
open-end high cost home loans; (iii) if
payments are due and payable at least 7
years after the loan's origination, or (iv) if the
payment schedule is adjusted to account for
A high cost home loan may not contain a
scheduled payment that is more than twice
as large as the average of earlier
scheduled payments. (exception: (i) such
balloon payment becomes due and
payable at least 15 years after the loan’s
A Predatory Loan characteristic include loan
terms where there is a required scheduled
payment that is twice as large as the average
of the earlier scheduled payments, unless
such
increases
are
justified
by
a
reamortization as a result of a new withdrawal
-20This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
the seasonal irregular income of borrower).
See id. § 41.2(b). Balloon payments are not
restricted on a loan with a term of seven years
or more.
origination, or (ii) the payment schedule is
adjusted to the seasonal or irregular
income of the borrower.)
A. 11856 § 2(B).
in an open-ended lien of credit. (exception: (i)
when the payment schedule is adjusted to the
seasonal or irregular income of the borrower;
or (ii) if the purpose of the loan is a
construction bridge loan connected on with the
construction of a dwelling intended to become
the borrower’s principal residence.)
N.Y. Mun. Code § 6-128(a) 16(i).
CALL PROVISIONS
N/A
It is an unfair act or practice for a creditor to
engage in a call provision that permits the
creditor, in its sole discretion, to accelerate the
indebtedness for any high cost home loan
unless repayment of the loan has been
accelerated by bona fide default, pursuant to a
due-on-sale provision, or pursuant to some
other provision of the loan agreement
unrelated to the payment schedule such as
bankruptcy or receivership.
A high cost home loan may not contain a
provision that permits the lender, in its sole
discretion, to accelerate the indebtedness.
This provision does not prohibit an
acceleration of the loan in good faith due
to the borrower’s failure to abide by the
material terms of the loan.
A.11856 § 2(A).
See id. § 41.2(a).
A Predatory Loan characteristic includes loan
terms where the lender, at its sole discretion,
may accelerate the indebtedness and demand
repayment of the entire outstanding balance of
a high-cost home loan.
The above does not apply when repayment of
the loan has been accelerated by bona fide
default, pursuant to a due-on-sale provision, or
pursuant to some other provision of the loan
agreement unrelated to the payment schedule,
such as bankruptcy or receivership.
Id.
-21This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
NEGATIVE AMORTIZATION
Negative amortization is prohibited on Section Negative amortization is prohibited on high
32 loans. See id. § 226.32(d)(2).
cost home loans. (exception: open-end high
cost home loans, and instances where the
negative amortization is the consequence of a
temporary forbearance sought by the
borrower).
A high cost home loan may not contain a
payment schedule with regular periodic
payments that causes the principal
balance to increase.
A. 11856 § 2(C).
See id. § 41.2(c).
SINGLE PREMIUM CREDIT
INSURANCE
Included in points and fees test.
A Predatory Loan characteristic includes loan
terms where the payment schedule for the
high-cost home loan requires regular periodic
payments that cause the principal balance to
increase except as a result of a temporary
forbearance sought by the borrower.
N.Y. Mun. Code § 6-128(a) 16(h).
Included in the points and fees test.
In addition, no lender or affiliate shall finance
single premium credit life, accident, health,
disability, or loss of income insurance in
connection with a high-cost home loan subject
to Part 41. Id. § 41.11.
A high cost home loan may not 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, except that insurance premiums
or debt cancellation or suspension fees
calculated and paid on a monthly basis are
not considered “financed.”
1.
The “fees” test includes the premium of
any single-premium credit life, credit
disability, credit unemployment or other
life or health insurance, including any
payments for debt cancellation or
suspension
except
that
insurance
premiums paid on a monthly basis shall
not be included.
2.
A Predatory Loan characteristic includes
loan terms where the high-cost home loan
finances any credit life, credit disability,
credit property, credit unemployment,
health, life,
debt cancellation
or
suspension agreement. N.Y. Mun. Code
§ 6-128(a) 16(m). Insurance premiums
calculated and paid on a monthly basis
shall not be considered financed by the
home loan. Id.
A.11856 § 2(H).
-22This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
DEFAULT INTEREST RATE
PROVISIONS
ARBITRATION CLAUSES
Provisions that increase the interest rate after Provisions that increase the interest rate after
default are prohibited on Section 32 loans. default are prohibited on high cost home
See id. § 226.32(d)(4)
loans. (exception: variable rate loans that
base interest rate changes on criteria other
than default or the acceleration of the
indebtedness). See id. § 41.2(d).
N/A
Mandatory arbitration clauses that are
oppressive,
unfair,
unconscionable
or
substantially in derogation of the rights of
consumers are prohibited on high cost home
loans. See id. § 41.2(e). Clauses set forth in
the statement of principles of the National
Consumer Dispute Advisory Committee
(“NCDAC”) are presumed to not violate this
prohibition.
A high cost home loan may not contain a
provision, which increases the interest rate
after default.
(exception: 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).
A Predatory Loan characteristic includes loan
terms where default by the borrower triggers
an interest rate increase. (exception: where
the periodic interest rate change in a variable
rate loan is otherwise consistent with the
provisions of the loan agreement provided the
change in the interest rate is not occasioned
by the event of a default or the acceleration of
the indebtedness).
A. 11856 § 2(D).
N.Y. Mun. Code § 6-128(a) 16(f).
A high cost home loan may not be subject
to a mandatory arbitration clause that is
“oppressive,” unfair, unconscionable, or
substantially in derogation of the rights of
consumers. The term “oppressive” is not
defined.
A Predatory Loan characteristic includes loan
terms where the loan agreement contains a
mandatory
arbitration
clause
that
is
oppressive,
unfair,
unconscionable,
or
substantially in derogation of the rights of the
borrower. The term “oppressive” is not
defined.
A. 11856 § 2(G).
N.Y. Mun. Code § 6-128(a) 16(k).
Id.
ADVANCE PAYMENTS
Advance payments where a payment schedule
consolidates more than 2 periodic payments
and pays them in advance from the proceeds
are prohibited on Section 32 loans. See id. §
A high cost home loan is prohibited from
having a payment schedule that consolidates
more than two periodic payments and pays
them in advance from the proceeds. See id. §
A high cost home loan may not include
terms under which more than two periodic
payments required under the loan are
consolidated and paid in advance from the
A Predatory Loan characteristic includes loan
terms where more than two periodic payments
required under the high-cost home loan are
consolidated and paid in advance from the
loan proceeds provided to the borrower other
-23This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
226.32(d)(3).
41.2(f).
loan proceeds provided to the borrower.
A. 11856 § 2(E).
than a loan issued by or guaranteed by an
instrumentality of the United States or of any
state or any city agency, such as loan
products offered by the United States
Department of Veterans Administration, Fair
Housing Administration or State of New York
Mortgage Agency.
N.Y. Mun. Code § 6-128(a) 16(e).
MODIFICATION OR
DEFERRAL FEES
N/A
Fees to modify, renew, extend or amend a
high cost home loan or defer any payment due
under a high cost home loan are prohibited
unless, after the modification, renewal,
extension, or amendment, the loan is no
longer a high cost home loan and the APR has
been decreased by at least two percentage
points. See id. § 41.2(g).
For purposes of this provision, fees do not
include interest that is otherwise payable and
consistent with the provisions of the loan
documents. Id. Additionally, this provision
does not prohibit a creditor 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
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 home 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 the above, fees do not
include interest that is otherwise payable
and consistent with the provisions of the
loan documents.
The above provision does not prohibit a
lender from charging points and fees in
connection with any additional proceeds
received by the borrower in connection
A predatory loan characteristic include loan
terms where the borrower is charged any fees
or other charges to modify, renew, extend or
amend a high cost home loan or defer any
payment due under a high cost home loan are
prohibited if, after the modification, renewal,
extension, or amendment, the loan is still a
high cost home loan or, if no longer a highcost home loan, the APR has not been
decreased by at least two percentage points.
N.Y. Mun. Code § 6-128(a) 16(n).
For purposes of this provision, fees do not
include interest that is otherwise payable and
consistent with the provisions of the loan
documents. Id. Additionally, this provision
does not prohibit a creditor from charging
points and fees in connection with any
additional proceeds received by the borrower
in connection with the modification, renewal,
-24This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
fees charged on the additional sum must
reflect the creditor’s typical point and fee
structure for high cost home loans. Id.
This provision does 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 workout process. Id.
PREPAYMENT FEES
For Section 32 loans, prepayment fees on a full
or partial prepayment are permissible only if (i)
exercised during the first 5 years of the loan's
term; (ii) the creditor or its affiliate is not
refinancing the loan; and (iii) at consummation,
the consumer's total monthly debt-to-income
ratio (including amounts owed under the
mortgage) does not exceed 50%. See id. §§
226.32(d)(6) and (7).
For high cost home loans, a lender is
prohibited from directly or indirectly financing
any prepayment fees or penalties payable by
the borrower in a refinancing transaction if the
lender or an affiliate is the originator of the
loan being refinanced. See id. § 41.3(c).
Otherwise, the Regulation is silent as to
prepayment fees.
with the modification, renewal, extension
or amendment (over and above the
current principal balance of the existing
high cost hoe loan) provided that the
points and fees charged on the additional
sum reflect the lender’s typical point and
fee structure for high cost home loans.
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 creditor’s typical point and fee
structure for high cost home loans. Id.
A. 11856 § 2(F).
N/A
1.
The “fees” test includes all prepayment
fees or penalties that are charged to the
borrower if the loan refinances a previous
loan made by the same lender or an
affiliate of the lender.
2.
A Predatory Loan characteristic includes
loan terms where the loan agreement
imposes a penalty or fee on the borrower
in violation of General Obligations Law
Section 5-501(3)(b) or Section 393(2) of
the Banking Law for paying the balance of
the loan, in whole or in part.
N.Y. Mun. Code § 6-128(a) 16(j).
Section
5-501(3)(b)
provides
that,
notwithstanding any other provision of law,
borrowers may prepay the unpaid balance of a
-25This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
loan or forbearance, in whole or in part, at any
time. If prepayment is made on or after one
year from the date the loan or forbearance is
made, no penalty may be imposed.
If
prepayment is made prior to such time, no
penalty may be imposed unless provision
therefore is expressly made in the loan
contract. In all cases, the right of prepayment
shall be stated in the instrument evidencing
the loan or forbearance, provided, however,
that the provisions of this subdivision do not
apply to the extent such provisions are
inconsistent with any federal law or regulation.
Section 393(2) sets forth prepayment fee
restrictions applicable to savings and loan
associations. Specifically, any mortgage loan
made by a savings and loan association to a
member may be repaid in whole or in part at
any time, but the loan contract may expressly
provide for a period during which prepayment
may not be made without incurring prepayment
penalties. When such provision is contained
therein, the loan contract must also expressly
provide for prepayment penalties or no
prepayment penalties may be collected when
the loan is prepaid. However, where a loan is
secured by mortgage on a one to six family
residence, or is extended to finance the
purchase of a cooperative which residence or
-26This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
cooperative is or will be occupied in whole or in
part by the member, prepayment penalties may
be imposed only during the first twelve months
from the date the mortgage or cooperative loan
was made and may not exceed:
(1) Interest for a period of three months on the
principal so prepaid; or
(2) Interest for the remaining months of the first
year on the principal so prepaid if the
prepayment is made at any time within one
year from the date the loan is made.
An argument could be made that the
prepayment fee restriction arising under Section
5-501, and not the one applicable to savings
and loan associations generally, should apply to
mortgage lenders, who are not savings and loan
associations, making high cost loans in New
York City. Nevertheless, where the “savings
and loan” prepayment fee restriction is more
restrictive than the one arising under Section 5501 and there is no express language in the
Ordinance exempting mortgage lenders from
this more restrictive provision, mortgage lenders
should be aware of the prepayment fee
limitations arising under Section 393 when
originating high cost loans so that they do not
-27This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
inadvertently originate a predatory loan.
INCORPORATING OTHER
LAWS
N/A
N/A
N/A
A Predatory Loan characteristic includes
where the high-cost home loan violates any
applicable provisions of the federal TILA, as
amended by the Home Ownership and Equity
Protection Act of 1994 (15 U.S.C. §1601, et
seq.), the federal RESPA of 1974 (12 U.S.C.
§2601, et seq.), or any regulations
implementing these statutes, or the restrictions
and limitations on high-cost home loans in the
general regulations of the New York State
Banking Board (3 NYCRR Part 41), as these
statutes and regulations may be amended
from time to time.
N.Y. Mun. Code § 6-128(a) 16(r).
RESPA-STYLE
PROHIBITION
N/A
N/A
In connection with making or arranging
high cost home loans, lenders or mortgage
brokers are prohibited from accepting or
giving any fee, kickback or 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.
N/A
A.11856 § 2(P).
-28This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
FINANCING OF POINTS,
FEES AND CHARGES
N/A
A lender cannot require the direct or indirect
financing of points and/or fees on a high cost
home loan. Moreover, a lender may not
directly or indirectly finance points and fees
payable to the lender or charges payable to
third parties (other than appraisal fees, credit
report fees, mortgage recording tax, fire and
miscellaneous property insurance, voluntary
credit, disability, unemployment and/or life
insurance, title report and title insurance
charges) in an amount that exceeds 5% of the
principal amount of a closed-end high cost
home loan, or the maximum line of credit
amount for open-end high cost home loans,
other than refinancing. See id. § 41.3(c).
In connection with the making of a high
cost home loan, a lender cannot, directly
or indirectly, finance any points and fees
(as defined above) in an amount that
exceeds three percent of the principal
amount of the loan.
A high cost home loan is a predatory home
loan if the lender finances points and fees (as
defined above) in an amount that exceeds four
percent of the total loan amount for a closedend high cost home loan or four percent of the
maximum line of credit for an open-end line of
credit.
A.11856 § 2(M).
N.Y. Mun. Code § 6-128(a) 16(c).
For refinancing, a lender cannot finance such
fees if they exceed 5% of the additional
proceeds received by the borrower in
connection with the refinancing, other than
appraisal fees, credit report fees, mortgage
recording tax, fire and miscellaneous property
insurance,
voluntary
credit,
disability,
unemployment and/or life insurance, title
report and title insurance charges. Id.
The term “additional proceeds” for a closedend loan is the amount over and above the
current principal balance of the existing high
cost home loan. Id. For an open-end loan,
-29This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
“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. Id.
FINANCING OF CREDIT,
See Definition of “Points and Fees”
DISABILITY,
UNEMPLOYMENT, FIRE AND
PROPERTY INSURANCE
In making a high cost home loan, a lender may
not finance voluntary unemployment insurance
unless the underwriting for the loan is
predicated on the borrower's W-2, 1099,
income statement or original, current payroll
check stub. Id.
See Definition of “Points and Fees”
Additionally, with regard to obligors subject to
the “repayment ability” provisions of Section
41.3(b), a lender may not finance fire and
miscellaneous property insurance and/or
voluntary credit, disability, unemployment
and/or life insurance in addition to the 5% limit
set forth above, unless the obligor’s scheduled
monthly payments do not exceed 50% of the
obligor’s monthly gross income as verified by
the credit application, the obligor’s financial
statement, a credit report, financial information
provided to the lender by or on behalf of the
obligor, or any other reasonable means.
A high cost home loan is a predatory home
loan if it finances any credit life, credit
disability,
credit
property,
credit
unemployment, health or life insurance, or
proceeds of the loan are used to make
payments pursuant to debt cancellation or
suspension agreements. Insurance premiums
calculated and paid on a monthly basis are not
considered financed by the home loan.
N.Y. Mun. Code § 6-128(a) 16(m).
Finally, under Section 41.11, no lender or
affiliate shall finance single premium credit life,
accident, health, disability, or loss of income
insurance in connection with a high cost home
-30This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
loan subject to Part 41.
REFINANCING OF LOAN
N/A
It is an unfair act or practice for a creditor to
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 refinancing was within two years
of the current refinancing. Id. § 43.3(d).
Exceptions from this prohibition exist if: (1) no
broker is involved in the transaction and the
new lender is not affiliated with the original
creditor on the loan; or (2) points and fees are
charged only in connection with any additional
proceeds received by the borrower in
connection with the refinancing. Points and
fees charged on the additional sum must
reflect the lender’s typical points and fee
structure for high cost refinance loans. Id.
The term “additional proceeds” for a closedend loan is the amount over and above the
current principal balance of the existing high
cost home loan. Id. For an open-end loan,
“additional proceeds” is the amount by which
the line of credit in the new loan exceeds the
current principal balance of the existing high
cost home loan. Id.
A lender making a high cost home loan
may not 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 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 have
been received.
A high cost home loan is a predatory loan if
the high cost home loan refinances 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 bears either 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 would lose one or more of the
benefits of the special mortgage, unless the
lender is provided prior to the loan closing
documentation
by
a
HUD-approved
independent housing or credit counselor, or
the lender who originally made the special
mortgage, that the borrower has received
home loan counseling on the advantages and
disadvantages of the refinancing.
This
counseling may not be waived.
N.Y. Mun. Code § 6-128(a) 16(o).
A.11856 § 2(J).
In addition, when a lender refinances its
In addition, a high cost home loan is a
predatory loan if the lender charges points and
-31This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
own high cost home loan with a new high
cost home loan, the lender may not charge
a borrower points and fees in connection
with the 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.
fees on a high cost home loan that refinances
a prior high cost home loan extended by the
same lender or an affiliate of the lender and
the refinancing occurs within five years of the
extension of the prior home loan. Id. § 6128(a) 16(p).
A.11856 § 2(Q).
LIMITATIONS ON
DISTRIBUTION OF
PROCEEDS ON HOME
IMPROVEMENT
CONTRACTS
Lenders are prohibited from paying a
contractor under a home-improvement contract
from the proceeds of a Section 32 loan.
(Exception: (1) if the instrument is payable to
the borrower; (2) if the instrument is payable
jointly to the borrower and contractor; or (3) if
the instrument is payable, at the election of the
borrower, through a third-party escrow agent).
See id. § 226.32(e)(2).
On a high cost home loan, all home
improvement contract disbursements made
from loan proceeds must be made payable: (1)
to the borrower; (2) to the borrower and
contractor jointly; or (3) at the election of the
borrower to a third party escrow agent
provided there is a written agreement signed
by the borrower, lender and contractor, prior to
disbursement, which spells out the payment
terms. See id. § 41.3(e).
A lender cannot pay a home improvement
contractor under a home improvement
contract from the proceeds of a high cost
home loan other than by an instrument
payable: (1) to the borrower; (2) jointly to
the borrower and the contractor, or (3) 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.
A high cost home loan is a predatory loan if
any of the proceeds of the high cost home
loan are paid to either a home improvement
contractor that is an affiliate of the lender or
any home improvement contractor other than:
(1) by an instrument payable solely to the
borrower; or (2) 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 disbursement.
N.Y. Mun. Code § 6-128(a) 16(l).
A.11856 § 2(N).
RECOMMENDING/
ENCOURAGING DEFAULT
N/A
Recommending or encouraging default or
further default on an existing loan or other
debt, prior to the closing of a high cost home
In making or arranging a high-cost home
loan, a lender or mortgage broker may not
recommend or encourage default on an
No specific requirement but a Predatory Loan
characteristic includes violations of Part 41 for
those high-cost home loans under No. 36 that
-32This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
FLIPPING
N/A
also are high cost home loans under Part 41.
loan that refinances all or any portion of such
existing loan or debt is an unfair, deceptive or
unconscionable practice and prima facie
evidence that the lender does not possess the
requisite character and fitness required to be
licensed or registered by the Banking
Department. See id. § 41.5(b)(6).
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.
Flipping high cost home loans is an unfair,
deceptive or unconscionable practice and
prima facie evidence that the lender does not
possess the requisite character and fitness
required to be licensed by the Banking
Department. See id. § 41.5(b)(4). "Flipping" is
defined as brokering or making a high cost
home loan to a borrower that refinances an
existing mortgage loan when, considering all
of the circumstances of the refinancing, such
refinancing is unconscionable. See id. The
term
"unconscionable"
is
defined
as
oppressive or unreasonably harsh or unfair,
considering all of the circumstances of the
loan transaction. See id. § 41.1((i). A loan
that complies with the "Refinancing of Existing
High Cost Home Loan” requirements is
presumed to not violate this requirement. Id. §
41.5(b)(4).
Lenders or mortgage brokers are
prohibited from engaging in the unfair act
or practice of “loan flipping in connection
with the making or brokering of a high-cost
home loan.” Loan flipping is defined as
the making of 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.
A high cost home loan constitutes a predatory
home loan where the proceeds of the high
cost home loan are used to pay all or party of
an existing home loan and the borrower does
not receive a reasonable and tangible benefit
from the new home loan considering all the
circumstances, including the terms of both the
new and existing home loan and any other
debt being refinanced by the new loan, the
cost of the new home loan, and the borrower’s
circumstances.
The phrase “tangible net benefit” is not
defined and the law provides no guidance
with respect to how lenders or mortgage
brokers should test for such benefit.
For purposes of the above, a borrower is
presumed to have received a reasonable and
tangible benefit if, at the time the refinance
loan is made, any of the following is true:
A. 11856 § 2(I).
(i)
A.11856 § 2(O).
N.Y. Mun. Code § 6-128(a) 16(a).
-33This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
as a result of the refinance there is a net
reduction in the borrower’s total monthly
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
payments on all debts consolidated not
the new home loan and this reduction will
continue for at least 36 months after the
refinance;
(ii) as a result of the refinance there is a
reduction in the borrower’s blended
interest rate on all debts consolidated into
the new home loan, and it will not take
more than five years for the borrower to
recoup the points and fees charged for
the refinance; or
(iii) the refinance loan is necessary to prevent
default under an existing home loan or
other secured debt of the borrower,
provided that the lender for the refinanced
loan is not the same as or an affiliate of
the lender for the existing home loan or
other secured debt. Id. § 6-128(a) 16(b).
-34This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
PACKING
N/A
Packing high cost home loans is an unfair,
deceptive or unconscionable practice and
prima facie evidence that the lender does not
possess the requisite character and fitness
required to be licensed or registered by the
Banking Department unless certain oral or
written disclosures are made to the borrower.
N/A
No specific requirement but a Predatory Loan
characteristic includes violations of Part 41 for
those high-cost home loans under No. 36 that
also are high cost home loans under Part 41.
The term "packing" is defined as the practice
of selling credit life, accident and health
disability or unemployment insurance products
or unrelated goods or services without the
informed consent of the borrower under
circumstances where (i) the broker or lender
solicits the sale of such insurance, goods or
services, (ii) the broker or lender receives
direct or indirect compensation for the sale of
such insurance, goods or services, or (iii) the
charges for such insurance, goods or services
are prepaid with the proceeds of the loan and
financed, whether interest is charged or not,
as part of the principal amount of the loan.
See id. § 41.5(b)(5).
It shall not constitute the packing if the broker
or lender, at least three business days before
the loan is closed whether or not funds are
then disbursed, makes a separate oral and a
separate clear and conspicuous written
disclosure in at least twelve point type to the
-35This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
borrower containing the following information:
(i) the cost of the credit insurance or other
goods and services; (ii) the fact that the
insurance, goods or services will be prepaid
and, if applicable, financed at the interest rate
provided for in the loan; and (iii) that the
purchase of such insurance, goods or services
is not required to obtain the mortgage loan. Id.
Insurance premiums cannot be considered
financed as part of the loan transaction if
insurance premiums are calculated, earned
and paid on a monthly or other regular,
periodic basis. Id.
The written disclosure must contain a signed
and dated acknowledgment by the obligor(s)
that the oral disclosure was made and a
signed and dated acknowledgment by the
broker or lender that the oral disclosure was
made. See id.
CERTIFICATION
REQUIREMENTS
N/A
N/A
N/A
As a condition of receiving any form of
financial assistance from a city agency, a
financial institution shall provide a statement to
the city agency certifying that neither the
financial institution nor any of its affiliates is or
will become a predatory lender.
The
statement shall be certified by the chief
executive or chief financial officer of the
institution, or the designee of any such person,
-36This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
and shall be made a part of the award, grant
or assistance agreement.
REPORTING OF PAYMENT
HISTORY
REPORTING OF
REFERRALS
N/A
N/A
For high cost home loans, lenders must report
both 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 loan. See id. § 41.4(b).
As the Regulations only apply to lenders and
mortgage brokers, and not mortgage
servicers, it is unclear how this provision will
apply to entities that solely service loans and
are not licensed as lenders or mortgage
brokers.
Lenders must 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.
For high cost home loans, mortgage brokers
and lenders that broker or make 10 or more
high cost home loans per year must annually
disclose to the Banking Department, on or
st
before March 31 in each year, the names and
addresses of the 3 home improvement
contractors, 3 consultants and 3 attorneys who
obtain the largest number of payments directly
from the proceeds of high cost home loans
made or brokered by the lender or mortgage
broker. See id. § 41.4(c). Additionally, they
must provide the names and addresses of (i) 3
entities to which the broker and lender made
the most referrals of high cost home loans;
N/A
No specific requirement but a Predatory Loan
characteristic includes violations of Part 41 for
those high-cost home loans under No. 36 that
also are high cost home loans under Part 41.
A.11856 § 2-A(B).
No specific requirement but a Predatory Loan
characteristic includes violations of Part 41 for
those high-cost home loans under No. 36 that
also are high cost home loans under Part 41.
-37This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
and (ii) any home improvement company that
is an affiliate. See id. (Exception: mortgage
brokers and lenders that make less than 10
high cost home loans per year, referrals from
customers, or referrals from attorneys, or
referrals from attorneys in their capacity as
closing attorneys for lenders).
PENALTIES
N/A
A violation of the Regulations is prima facie
evidence that lender does not possess the
requisite character and fitness required to be
licensed or registered by the New York State
Banking Department. Id. § 41.
Any person found by a preponderance of
the evidence to have violated the law is
liable to the borrower for:
•
actual
damages,
consequential
and
damages;
•
statutory damages as follows: (a) all
of the interest, earned or unearned,
points and fees, and closing costs
charged on the loan are forfeited and
any amounts paid must be refunded
except this element of statutory
damages shall not be awarded for (1)
a violation of loan flipping; or (2)
ensuring the borrower’s ability to
repay the loan if 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
including
incidental
Any person found to have made false
statements in connection with filing a
certification as to the financial institution’s
status as a predatory lender is liable to the city
for a civil penalty not less than $25,000 in
addition to the other remedies that the city
agency may have under local law.
N.Y. Mun. Code § 6-128(f)(4).
-38This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
with independent verification; or (b)
$5,000 per violation or twice the
amount of points and fees and closing
costs (as identified above), whichever
is greater for violation of (1) loan
flipping; or (2) ensuring that the
borrower can repay the loan, where
the borrower is not entitled to relief
under paragraph (a) above.
A court may award attorney’s fees to
prevailing parties.
A.11856 §§ 7 and 8.
Upon a finding by the court of an
intentional violation by the lender of this
law or regulation thereunder, the home
loan agreement will be rendered void, and
the lender will 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.
A.11856, § 10.
Upon a judicial finding that a high-cost
home loan violates any provision under
the law, whether such violation is raised as
-39This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
an affirmative claim or as a defense, the
loan transaction may be rescinded.
Rescission will be available as a defense
without time limitation.
A.11856, § 11.
A borrower may be entitled to injunctive,
declaratory or other equitable relief, as the
court deems appropriate.
A.11856, § 9.
Remedies provided are not intended to be
the exclusive remedies available to a
borrower of a high-cost home loan. Id. §
12.
The Attorney General, the Superintendent,
or any party to a high-cost home loan may
enforce the provisions of Section 6-L of
the Banking Law.
ASSIGNEE LIABILITY
Creditors are prohibited from selling or
otherwise assigning a Section 32 loan without
furnishing a statement that discloses the
following to the purchaser or assignee:
"Notice: This is a mortgage subject to special
rules under the federal Truth in Lending Act.
Although the New York State Banking
Department has informally advised our office
that the Regulations only apply to mortgage
brokers and lenders, the Regulations state that
for loans that satisfy the definition of a high
cost home loan, an assignee (or lender) has
In any action by an assignee to enforce a
loan against a borrower in default more
than 60 days or in foreclosure, a borrower
may assert any claims in recoupment and
defenses to payment under the provisions
of the law with respect to the loan, without
Assignees are included in the definition of
lender.
-40This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
Purchasers or assignees of this mortgage
could be liable for all claims and defenses with
respect to the mortgage that the borrower
could assert against the creditor." See id. §
226.32(e)(3).
Assignees are not liable if they can
demonstrate, by a preponderance of the
evidence, that a reasonable person exercising
ordinary due diligence, could not determine,
based on the documentation required by the
law, the itemization of the amount financed,
and other disclosure of disbursements that the
mortgage was a high cost mortgage.
UNFAIR AND DECEPTIVE
TRADE PRACTICES
N/A
no liability for any failure to comply with the
regulations if within 60 days after discovering
an error, such assignee (or lender) notifies the
individual(s) and prior to the institution of an
action under Part 41, makes whatever
adjustments are necessary to either correct
the error or assure that the person will not be
required to pay an amount that will make the
loan subject to Part 41. See id. § 41.9. Also
an assignee (or lender) will not be held liable if
it shows by a preponderance of the evidence
that the error was not intentional and resulted
from a bona fide error, or was an act done or
omitted in good faith. See id. §§ 41.9 and
41.10.
time limitations that the borrower could
assert against the original borrower.
Section 41.5 of Part 41 of New York's
Regulations address unfair and deceptive acts
or practices and states that certain acts are
prima facie evidence that the lender does not
possess the requisite character and fitness
required to be licensed by the Banking
Department. These acts are (i) the making of
a high cost home loan that demonstrates a
pattern or practice of violating any provision of
Part 41; and (ii) engaging in any unfair,
deceptive or unconscionable practices in the
course of advertising, brokering or making
high cost home loans to residents of New York
such as (1) brokering or making a high cost
N/A
A.11856, § 13.
Also, upon a judicial finding that a highcost home loan violates any provision
under the law, whether such violation is
raised as an affirmative claim or as a
defense, the loan transaction may be
rescinded. Rescission will be available as
a defense without time limitations.
A.11856, § 11.
A Predatory Loan characteristic includes
where the home loan is secured as a result of
fraudulent or deceptive marketing or sales
efforts.
N.Y. Mun. Code § 6-128(a) 16(q).
-41This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
home loan which includes points, fees or other
finance charges that, considering the loan
transaction as a whole, so significantly exceed
the usual and customary charges incurred by
mortgage consumers generally in New York
for such points, fees or other finance charges
as to be unconscionable; (2) brokering or
making high cost home loans in which the
broker or lender charges and retains fees paid
by the borrower (i) for services that are not
actually performed, or (ii) for which the fees
bear no reasonable relationship to the value of
the services actually performed; or (iii) are
otherwise unconscionable; (3) brokering or
making a high cost home loan with repayment
terms that so exceed the borrower's financial
capacity to repay as to be unconscionable
(see “Repayment Ability”); (4) flipping (see
“Flipping”); (5) packing (see “Packing”); (6)
recommending or encouraging default by a
borrower on an existing loan or debt prior to
the closing of a high cost home loan that
refinances all or any portion of such existing
“Recommending/
loan
or
debt
(see
Encouraging Default”); and (7) advertising that
refinancing a preexisting debt with a high cost
home loan will reduce a borrower's aggregate
monthly debt payment without providing a preapplication disclosure (see “Refinancing of
-42This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
Existing Loan”). See id. § 41.5.
CURE PROVISION
Standard TILA cure provisions apply to Section For high cost home loans, a lender (or
32 loans. See 15 U.S.C.A. §§ 1640 and 1641. assignee) has no liability for any failure to
comply with the regulations if within 60 days
after discovering an error, such lender (or
assignee) notifies the individual(s) and prior to
the institution of an action under Part 41,
makes whatever adjustments are necessary to
either correct the error or assure that the
person will not be required to pay an amount
that will make the loan subject to Part 41. See
id. § 41.9. Also a lender (or assignee) will not
be held liable if it shows by a preponderance
of the evidence that the error was not
intentional and resulted from a bona fide error,
or was an act done or omitted in good faith.
See id. §§ 41.9 and 41.10.
A lender of a high-cost home loan that,
when acting in good faith, fails to comply
with the provisions of the law is not
deemed to have violated the law if the
lender establishes that either:
(i)
within 30 days of the loan closing and
prior to the institution of any action
under the law, 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, (a) make the high-cost
home loan satisfy the requirements of
Section 6-L of the Banking Law or (b)
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 terms of
Section 6-L of the Banking Law; or
If a financial institution or its affiliate is found to
have violated the provisions of Section 6-128,
the financial institution or its affiliate has 30
days to cure the violation or to submit to the
comptroller for his or her approval a corrective
plan to discontinue the predatory lending
practices. NY Mun. Code § 6-128(f)(3). Upon
a showing of good cause, the comptroller may
extend the initial 30-day period up to an
additional 30 days. Id.
(ii) the compliance failure resulted from a
bona fide error notwithstanding the
maintenance
of
procedures
reasonably adopted to avoid such
errors and, within 60 days after the
-43This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
discovery of the compliance failure
and prior to the institution of any
action under the law 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: (a) make the
high-cost home loan satisfy the
requirements of the Act or (b) 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 terms of the Act.
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.
A.11856 § 4.
PRIVATE RIGHT OF ACTION
express
authorization
under
the
Standard TILA penalty provisions apply to No
Section 32 loans. See 15 U.S.C.A. 1640 and Regulation; however, under New York’s
1641.
General Business Law, deceptive acts in the
conduct of any business, trade or commerce
are unlawful, and the Attorney General of New
Any person found by a preponderance of
the evidence to have violated the law is
liable to the borrower for:
•
actual
damages,
N/A
including
-44This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
York can bring an action against the entity
engaged in such conduct. See NY CLS Gen.
Bus. § 349. As both licensees and exempt
entities are subject to penalties under the
Licensed Mortgage Bankers Act, see also N.Y.
Banking Law § 598(1).
consequential
damages;
•
and
incidental
statutory damages as follows: (a) all
of the interest, earned or unearned,
points and fees, and closing costs
charged on the loan are forfeited and
any amounts paid must be refunded
except this element of statutory
damages shall not be awarded for (1)
a violation of loan flipping; or (2)
ensuring the borrower’s ability to
repay the loan if 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 (b)
$5,000 per violation or twice the
amount of points and fees and closing
costs (as identified above), whichever
is greater for violation of (1) loan
flipping; or (2) ensuring that the
borrower can repay the loan, where
the borrower is not entitled to relief
under paragraph (a) above.
A court may award attorney’s fees to
prevailing parties.
-45This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved
Kirkpatrick & Lockhart LLP
www.kl.com
FEDERAL TRUTH IN LENDING ACT (“TILA”)
NEW YORK REGULATION
NEW YORK A.11856
(Section 32 Loans)
(“Part 41” or the “Regulation”)
(“A. 11856” to be codified as N.Y.
Banking Law § 6-L)
(“No. 36” to be codified as N.Y. Admin. Code §
6-128)
Effective for loan applications made on or
after April 1, 2003
Effective February 18, 2003
NEW YORK CITY LOCAL LAW NO. 36
Effective October 1, 2000
A.11856 §§ 7 and 8.
Remedies provided are not intended to be
the exclusive remedies available to a
borrower of a high-cost home loan. Id. §
12.
A private right of action against the lender
or mortgage broker must be commenced
within six years or origination of the high
cost home loan.
Id. § 6.
-46This publication is for informational purposes only and does not contain or convey legal advice.
The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2003 - Kirkpatrick & Lockhart LLP – All Rights Reserved