NYDFS announces benchmark for mortgage lending institutions

State Issues New York NYDFS Mortgages Bank Regulatory State Regulators Subprime

On December 16, NYDFS issued industry guidance to all mortgage lending institutions in the state regarding a New York subprime law requirement and the discontinued publication of the primary mortgage market survey rate for 5/1 adjustable rate mortgage (ARM) loans. According to NYDFS, as required by state law, lending institutions must use the weekly Primary Mortgage Market Survey (PMMS), published by Freddie Mac, for loans that are comparable to the term of the underlying loan, to assess whether a home loan qualifies as “subprime” in New York. In November, Freddie Mac discontinued publication of its weekly PMMS average commitment rate for loans in the U.S. for the 5/1 ARM. NYDFS noted that Freddie Mac’s decision “disrupted the ability of lending institutions to determine whether a residential mortgage loan with a comparable duration to the 5/1 ARM is a subprime home loan.” NYDFS continued that the “inability to ensure compliance with the requirements of Section 6-m has made it impossible for lending institutions to offer this loan product in New York, limiting the availability of certain mortgage financing for consumers in New York.” To address availability of mortgage financing in New York, NYDFS announced the designation of the Average Prime Offer Rate for 5/1 ARMs, as published by the Federal Financial Institutions Examination Council, as the replacement benchmark lending institutions should use for calculating the subprime threshold for loans with a fixed rate for at least three years.