January 14, 2002
The New York Bankers Association
High Cost Home Lending "Best Practices"
 
The New York Bankers Association (NYBA) opposes predatory lending practices and is committed to working with state and federal officials to help combat this problem through consumer education and community-based programs. Among other things, NYBA members support education initiatives designed to make consumers more financially aware and to protect them against predatory lending practices. Members are also committed to the full enforcement of existing federal and New York laws and regulations designed to combat predatory lending practices.

To go even further to protect consumers, NYBA has developed these Best Practices to provide guidance to NYBA members in developing lending policies for Covered Loans in the State of New York (that is, those home loans which currently fall within the scope of federal and New York State regulatory high cost home loan thresholds.) These guidelines are not intended to be an exclusive description of the various ways in which NYBA members can develop and implement effective home lending practices designed to safeguard consumers.

No lending without due regard to repayment ability . NYBA members should not make Covered Loans without regard to the individual consumer’s repayment ability. In this regard, when making Covered Loans, NYBA members may consider, among other things, the consumer’s current and expected income, credit history, current obligations, and employment status and other financial resources (other than the consumer’s equity in the dwelling which secures repayment of the loan).

Limitations on credit insurance. Credit insurance on Covered Loans should always be completely at the option of the consumer. NYBA members support full disclosure of all credit insurance terms and conditions. Where applicable, consumers should be made aware that although single premium credit insurance is financed over the life of the loan, insurance coverage may not extend for the full loan term. Members presently offering single premium credit insurance on Covered Loans, where practicable, will offer a monthly payment credit insurance product in lieu of (or as an alternative to) single premium credit insurance provided that such a product is approved by the state and necessary procedures are in place.

Limitations on refinancings. In the event a NYBA member refinances its own Covered Loan with a new Covered Loan within one year of the refinanced loan’s origination (or such longer time as permissible under applicable law or regulation), it will charge points only on the new money in the new loan. Alternatively, at the member’s option, where permissible, the member may refund the points on the old loan. “New money” is the amount by which the new principal exceeds the payoff amount of the old loan. As a matter of principle NYBA members will only refinance an existing loan if there is a reasonably anticipated present or potential benefit to the customer of the refinance.

Limitations on negative amortization. NYBA members should not make a Covered Loan where the contract provides for a payment schedule with regular periodic payments that cause the principal balance to increase. This provision does not apply to negative amortization as a consequence of a temporary forbearance or restructure sought by the consumer.

Limitations on demand clauses. NYBA members should not enter into a Covered Loan that contains call provisions that permit the member, in its sole discretion, to accelerate the indebtedness. This prohibition does not apply when repayment of the loan has been accelerated: by default; pursuant to a due-on-sale provision or pursuant to some other provision of the loan agreement; or where there is fraud or material misrepresentation by the consumer in connection with the loan; or where there is any action or inaction by the consumer that adversely affects the member’s security for the loan or any rights of the member in such security.

Limitations on increased interest rate upon default. No Covered Loan may contract for any increase in the interest rate after default. This provision does not apply to periodic interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan agreement, provided the change in the interest rate is not occasioned by the event of default or a permissible acceleration of the indebtedness.

Limitations on advance payments. No Covered Loan may include terms under which any periodic payments required under the loan are paid in advance from the loan proceeds provided to the obligor. This provision does not apply to rehabilitation or similar loans where the property is currently uninhabitable and advance payments are offered as an option to the borrower during the rehabilitation process.

Limitations on mandatory arbitration. NYBA members should not enter into a Covered Loan with a mandatory arbitration clause unless the arbitration clause complies with the rules set forth by a nationally recognized arbitration organization, such as the standards set forth in the Statement of Principles of the National Consumer Dispute Advisory Committee.

Reporting to credit bureaus. NYBA members shall report at least quarterly to a nationally recognized consumer credit reporting agency the payment history information of consumers on payments due to them on Covered Loans.

Limitations on payments of proceeds to home improvement contractors. NYBA members shall not pay a contractor under a home-improvement contract from the proceeds of a Covered Loan other than by an instrument payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, through a third-party escrow agent in accordance with terms established in a written agreement signed by the consumer, the member, and the contractor prior to the disbursement of funds to the contractor.

Verification of broker licensure. A Lender shall verify that each mortgage broker with whom it does business in connection with Covered Loans holds a valid license or other authorization currently in effect to do business within New York State.

Notice to Brokers of Fair Lending Policies. The Lender will make mortgage brokers, with whom it does business in connection with Covered Loans, aware of its fair lending policies.