Are you making a subprime loan?
by. Henry Meier
One of the most amazing things about watching the legislative process in New York State is that, as a friend of mine once explained, key staff people in the Capitol tend to draw their powers from the night. As a result, almost all the important legislation passed in New York State is negotiated in the wee small hours of the morning when any normal group of people would be in bed. Therefore, it is amazing to me that there arent’ as many drafting mistakes as you would expect given New York’s proclivity for late night hijinks.
This came to my mind yesterday as I read a recently finalized regulation from the State’s Department of Financial Services, which provides guidance for the interpretation of Section 6-m of the Banking Law — New York’s subprime loan law. As anyone who has tried to comply with the myriad of disclosures tied to mortgage loans these day knows, timing is everything. For instance, in New York State, a subprime loan is a first lien mortgage, the rate for which exceeds the weekly primary market survey for comparable mortgages by one and three quarters percentage points.
According to the statute, you would review the survey posted in the week prior to which the lender provided the good faith estimate. The new regulation provides useful guidance as to how this should be interpreted on an operational level. For example, let’s say a member comes in on a Friday afternoon. Do you base your subprime loan determination on the survey posted a day ago or a week ago? Since the primary mortgage market survey is posted on Thursdays, the relevant survey to be used for purpose of determining whether or not a loan is sub-prime “is the one published on the Thursday prior to receiving the Good Faith Estimate.” This means that, for the example above, you would look at the survey published the day prior.
What happens if a new GFE is provided to the member? That triggers a new look back period to determine whether or not we have a subprime loan on our hands.continue reading »