BILL NUMBER:S7224

TITLE OF BILL:  An act to amend the banking law, in relation to
subprime home loans

PURPOSE OF THE BILL: To maintain the continued availability of
FHA-insured mortgage loans in New York State. This bill adopts some
emergency rules promulgated by the Department of Financial Services to
help ensure that a federal policy change doesn't inadvertently
restrict FHA mortgage financing options.

SUMMARY OF SPECIFIC PROVISIONS: Section 6-m of the Banking Law is
amended by adding a new subparagraph (iii) to Section 6-m(1)(c). This
new subparagraph sets a separate subprime home loan threshold rate for
FHA-insured loans.

JUSTIFICATION: This legislation adjusts the subprime threshold rate in
order to help maintain the availability of FHA-insured mortgage loans
in New York State. FHA loans have been especially helpful to
first-time homebuyers, as well as to low-to-moderate income
homebuyers.

Policy changes made by the Federal Housing Administration (FHA) in
2013 have inadvertently created a situation where a significant number
of FHA-insured mortgage loans would exceed the subprime threshold
established in state law in 2008. This raised significant concerns
              

about the ability of potential homeowners to utilize this federal
program, since lenders and secondary market participants have been
extremely reluctant to make any loans which are designated as
"subprime," given the potential financial and reputational risk of
such loans.

The FHA's policy changes had simply been intended to strengthen its
Mutual Mortgage Insurance Fund. One step, which took effect in June
2013, was to basically require that the annual mortgage insurance
premiums be paid over the life of the loan. While this change does not
affect the note rate on the loan, nor does it increase the borrower's
monthly payment, it does result in an increase in the annual
percentage rate (APR).

As a practical matter, this meant that significantly more FHA-insured
loans would exceed the threshold specified in Section 6-m of New
York's Banking Law, and therefore be deemed "subprime" loans.

New York's Department of Financial Services determined that the FHA
rule change had effectively decreased the threshold on these
FHA-insured loans, resulting in an unduly negative effect on the
availability of mortgage financing.

In order to address these concerns, the Department issued a temporary
order in July 2013 regarding the method for calculating the APR on FHA
loans. The Department then issued an emergency rule making in October
2013 which adjusted the subprime threshold by 75 basis points for
affected FHA-insured loans only.

The Department noted that this action would restore the availability
of mortgage financing to approximately the same levels that had been


in existence prior to the FHA's rule change in 2013. However, the
Department's emergency rules are only valid for 90 days or less, and
the Department has twice had to extend the emergency rule making.

By enacting the emergency rules into statute, this bill will help
stabilize the market and provide certainty to both lenders and
borrowers regarding the continued availability of FHA-insured home
loans.

PRIOR LEGISLATIVE HISTORY: New bill

FISCAL IMPLICATIONS: None

EFFECTIVE DATE: This act shall take effect immediately.