NY Seeks Fairer Lending From Nonbank Mortgage Companies

New York’s financial watchdog has proposed new measures governing nonbank mortgage lenders.

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The New York State Department of Financial Services (DFS) says this new regulation would ensure these lenders are supporting access to home loans in the communities they serve, especially in neighborhoods with low- and moderate-income residents.

“Everyone deserves a fair shot at owning a home, regardless of their income level or where they live,” DFS Superintendent Adrienne Harris said in a Tuesday (Dec. 17) news release.

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“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.”

The release notes that nonbank mortgage lenders have expanded their market share significantly. While these companies originated 39% of mortgages in 2008, that number had grown to two-thirds by 2022.

The new regulation — an expansion of the Community Reinvestment Act (CRA) — will create clear expectations for how nonbanks should meet New Yorkers’ credit needs, improving access to home loans while providing more accountability. The regulation covers “non-depository mortgage bankers” who have made at least 200 originations in the prior year.

“Unlike banks, many nonbank mortgage companies do not have physical branches,” the release said. “As a result, the proposed regulation tests where the lending takes place, not where the lenders have physical branches, to the extent they have any at all.”

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The DFS will test lenders to see how well they serve all borrowers, especially those in underserved communities. The regulator will also examine whether mortgage bankers offer programs and services that promote community development, though unlike banks, the companies won’t need to make community development investments.

The proposed rule is happening at a time when nonbank financial institutions (NBFIs) are increasing in popularity, and gaining increased attention from regulators.

As PYMNTS wrote in May, research showed that — at the start of the year — an average of close to 36% of Americans used NBFIs, up from 33% the year before. That number is more pronounced for certain age groups and income categories: 44% of millennials, and 37% of those earning more than $100,000 per year.

At the same time, regulators have warned of risks associated with these financial institutions. Last month, the Bank of England said it wanted to begin lending to NBFIs to address potential liquidity challenges in core financial markets that could threaten the U.K.’s financial stability.