Proposed NY Regulation Targets Nonbanks’ Equity in Mortgage Lending

New York’s financial services watchdog unveiled a proposed regulation on Tuesday that it says is aimed at fostering equitable lending practices by nonbank mortgage lenders.

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Under the proposed regulation, a lending test will assess how well these mortgage bankers serve borrowers in all areas, particularly those in underserved communities, the Department of Financial Services said.

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In addition, a service test will evaluate whether mortgage bankers offer programs and services that promote community development.

The agency is proposing to evaluate non-depository mortgage bankers who have made at least 200 originations in the preceding year.

The proposed regulation would establish clear expectations for how these institutions—which tend to not have physical branches—should meet the credit needs of New Yorkers, providing greater accountability and improving access to home loans, the agency said.

Developed with input from industry groups and consumer advocates, the proposal considers the realities of non-depository mortgage lending and is an expansion of New York’s Community Reinvestment Act, regulators said.

“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 statement. “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.”

Following a 10-day preproposal comment period, which opened on Wednesday, there will be a 60-day comment period upon publication in the State Register, and the final regulation would take effect a year after it’s issued.