New York proposes new regulation to boost fair lending by nonbank mortgage lenders

The New York State Department of Financial Services (DFS) announced a proposed regulation on Wednesday aimed at ensuring nonbank mortgage lenders provide equitable access to home loans in the communities they serve, particularly for low- and moderate-income residents. The proposal expands New York’s Community Reinvestment Act (CRA) to include nonbank lenders, reflecting their growing role in the mortgage market.

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“Everyone deserves a fair shot at owning a home, regardless of their income level or where they live,” said DFS Superintendent Adrienne A. Harris. “Nonbank mortgage companies originate a majority of home loans across the country and just like banks, these companies should be held accountable for meeting the credit needs of communities.”

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Nonbank mortgage lenders originated about two-thirds of all home loans nationwide in 2022, a dramatic increase from 39% in 2008. The proposed regulation sets clear expectations for these lenders to address community credit needs and improve access to mortgages, particularly in underserved areas.

The regulation will apply to non-depository mortgage lenders who issued at least 200 mortgages in the previous year. Because nonbank lenders often lack physical branches, their performance will be evaluated based on where loans are issued rather than where lenders are headquartered.

The proposal outlines two primary evaluation criteria: a lending test and a service test. The lending test will measure how effectively nonbank lenders serve borrowers, especially in underserved neighborhoods. The service test will assess whether lenders provide programs and services that encourage community development. However, unlike traditional banks, nonbank lenders will not be required to make community development investments due to their different business models.

DFS developed the proposal after consulting with industry representatives, consumer advocates, and other stakeholders to address the unique challenges of nonbank lending practices. The regulation is designed to hold these companies accountable while encouraging equitable lending.

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Public feedback will play a key role in shaping the final regulation. A 10-day preproposal comment period begins immediately, followed by a 60-day comment period after the proposal is published in the State Register. The final regulation, once approved, will take effect one year after issuance.

The initiative marks a significant step toward fairer lending practices in New York and aims to close the gap in homeownership opportunities for low- and moderate-income communities.

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