DFS-51-13-00002-A Regulation of Shared Appreciation Mortgages

7/9/14 N.Y. St. Reg. DFS-51-13-00002-A

NEW YORK STATE REGISTER

VOLUME XXXVI, ISSUE 27

July 09, 2014

RULE MAKING ACTIVITIES

DEPARTMENT OF FINANCIAL SERVICES

NOTICE OF ADOPTION

 

I.D No. DFS-51-13-00002-A

Filing No. 517

Filing Date. Jun. 20, 2014

Effective Date. Jul. 09, 2014

Regulation of Shared Appreciation Mortgages

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Addition of Part 83 to Title 3 NYCRR.

Statutory authority:

Banking Law, section 6-f

Subject:

Regulation of shared appreciation mortgages.

Purpose:

Permits shared appreciation mortgages in certain limited circumstances.

Substance of final rule:

§ 83.1 describes the scope and application of Part 83. It notes that Section 6-f of the Banking Law authorizes the Superintendent to adopt rules and regulations relating to shared appreciation mortgages that would permit banks and other financial institutions to make residential mortgage loans that provide for the lender or its assignee (the “Holder”) to receive a share in the appreciation of the market value of the residential property securing the loan.

§ 83.2 defines certain terms used in Part 83.

§ 83.3 sets forth the eligibility requirements for a shared appreciation mortgage modification.

§ 83.4 sets forth the calculation of the mortgagor’s unpaid principal balance.

§ 83.5 sets forth the circumstances that can lead to a sharing of the appreciation under a shared appreciation mortgage agreement.

§ 83.6 sets forth the calculation used to determine the Holder’s share of the appreciation.

§ 83.7 sets forth the disclosures that must be provided to borrowers in connection with shared appreciation mortgage modifications.

§ 83.8 sets forth language that must be conspicuously placed on every shared appreciation mortgage agreement.

§ 83.9 requires Holders that offer shared appreciation mortgage modifications to adopt policies and procedures for notifying eligible borrowers of the existence of that option.

§ 83.10 sets forth fees, charges, and interest rates that may be imposed or used in connection with shared appreciation mortgage modifications.

§ 83.11 sets forth prohibitions on certain conduct by the Holder in connection with shared appreciation mortgage modifications.

Final rule as compared with last published rule:

Nonsubstantive changes were made in sections 83.2, 83.4, 83.7 and 83.11.

Revised rule making(s) were previously published in the State Register on

March 19, 2014.

Text of rule and any required statements and analyses may be obtained from:

Ted Anastasiou, New York State Department of Financial Services, One State Street, New York, NY 10004, [phone], email: [e-mail]

Revised Regulatory Impact Statement, Regulatory Flexibility Analysis, Revised Rural Area Flexibility Analysis and Job Impact Statement

The changes made to the revised proposed rule do not necessitate a revision to the RIS, RFA, RAFA or JIS because they are non-substantive revisions or minor clarifications of the text which do not affect the accuracy or completeness of the impact statements.

The Department clarified the definition of a mortgagor’s “gross monthly income” to reflect HUD’s HOME income verification requirements.

Additionally, the Department clarified the definition of “capital improvements” to be consistent with New York State Department of Taxation and Finance, Tax Bulletin ST-104.

The Department also revised the requirement for mortgagors to consult with “certified housing counselors” to refer to “government-approved housing counseling agencies,” and deleted language in section 83.7(b)(1).

Initial Review of Rule

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2017, which is no later than the 3rd year after the year in which this rule is being adopted.

Assessment of Public Comment

Proposed new Part 83 was originally published in the December 18, 2013 State Register. Following the receipt of public comments, a revised proposal was published in the March 19, 2014 State Register.

The Department received three written comments on the revised proposal.

Organizations Commenting:

Comments were received from: (i) an attorney who represents homeowners seeking mortgage modifications; (ii) two public interest law firms (commenting jointly); and (iii) a not-for-profit organization engaged in promoting affordable homeownership in New York City.

Summary of Comments:

Overall, the comments strongly supported the Department’s objective of adopting regulations permitting the use of shared appreciation mortgage modifications for borrowers at risk of foreclosure and commended the Department’s efforts towards that goal. Additionally, the comments included specific recommendations for certain clarifications in the revised proposed rule and for broadening access so that a larger population of homeowners could take advantage of the program.

The lawyer commented that the proposed regulations will do a good job protecting the interests and rights of borrowers and will also provide borrowers with a clear understanding of the transactions they are entering into. He suggested that in order to avoid potential conflicts, the regulations should include clarifications of the distinction between “capital improvements” and “general maintenance.” In response, the Department amended the definition of “capital improvement “in the regulation to specify that it shall be determined in accordance with New York State Department of Taxation and Finance, Tax Bulletin ST-104.

The not-for-profit law firms also supported adoption of the proposed regulations, and suggested various clarifications and corrections to the revised proposal. A number of their recommendations have been incorporated in the adopted regulation, some of which are noted in the summary below. However, the Department determined not to adopt the commenters’ recommendation that the regulation permit shared appreciation mortgage modifications to be offered to borrowers who are not significantly delinquent.

The not-for-profit organization, which had provided comments on the regulations as initially proposed, expressed appreciation for changes the Department made as a result of those comments. In expressing its appreciation, the organization recognized that the changes would “broaden access to this new resource beyond what was originally included in the proposed regulations.” In its comments on the revised proposal, the organization suggested additional changes intended to further broaden access of Modified Mortgage Loans. However, the Department has determined that the consumer benefits of further broadening access to these loans are questionable.

Changes Made to Revised Proposed Rule:

The adopted rule includes the following changes from the revised proposal:

1. The description of Debt to Income Ratio (“DTI”) has been moved to the definition section and revised. Sec. 83.2(d) defines “Debt-to-Income Ratio” or “DTI” to be “the result of dividing the Mortgagor’s monthly housing payment (principal, interest, taxes and insurance) by the Mortgagor’s gross monthly income. Gross monthly income shall be deemed to be income determined in accordance with 24 CFR 92.203(a)” – HUD’s HOME income verification requirements;

2. The Sec. 83.2(c) definition of “Capital Improvements” now tracks the New York State Department of Taxation and Finance, Tax Bulletin ST-104.

3. The Department also changed the Sec. 83.11(f) provision regarding consultation by Mortgagors with an attorney or “HUD certified counselors” to substitute for the latter a “government approved housing counseling agency”; and

4. Amended Sec. 83.7(b)(1) to eliminate certain duplicative provisions from the regulation.