Last week, the New York State Department of Financial Services (DFS) announced a new regulation designed to ensure that licensed nonbank mortgage bankers in New York (“mortgage lenders”) meet the needs of the communities they serve in the state, particularly low- and moderate-income (LMI) neighborhoods and borrowers. Under New York law, “low-income” means income that is less than 50% of the area median income, in the case of an individual, or a median family income that is less than 50% of the area median income, in the case of a geography. Further, “moderate-income” means income that is at least 50% and less than 80% of the area median income, in the case of an individual, or a median family income that is at least 50% and less than 80% of the area median income, in the case of a geography.
By way of background, in November 2021, New York amended the state’s Community Reinvestment Act (CRA), which at the time mirrored the federal Community Reinvestment Act, to expand coverage to New York state-licensed mortgage bankers. This made New York the third state (after Illinois and Massachusetts) to pursue such action.
The new regulation, effective July 7, 2026, takes things further by imposing following parameters and requirements on mortgage lenders as set forth below.
Origination Threshold
Non-depository mortgage bankers that have made at least 200 HMDA-reportable originations in the preceding year are subject to performance evaluation under the new regulation and will receive a rating of Outstanding, Satisfactory, Needs Improvement, or Substantial noncompliance.
No Branches, No Problem
A mortgage banker with one or more branches within the state must delineate one or more branch-based assessment areas for evaluating performance. However, “branchless” lenders will be evaluated based on where they do a substantial portion of their business. Specifically, the lender must delineate a lending-based assessment area in each MSA or nonmetropolitan area in which it originated, in each of the two preceding calendar years, at least 100 mortgage loans outside of any branch-based assessment areas.
Performance Tests
The regulation imposes a lending test and service test on non-bank mortgage lenders, to arrive at a performance rating. Notably, the DFS, when reviewing a mortgage lender’s change of control, branch, or other application, will consider the mortgage lender’s record of CRA performance.
- Lending test. The lending test assesses how well mortgage bankers serve all borrowers and neighborhoods within their assessment areas, particularly LMI communities. The lending test considers the geographic distribution of loans in LMI tracts and to LMI borrowers. In addition, the lending test considers the lender’s innovative and flexible lending practices, carried out safely and soundly, to meet the needs of these communities.
- Service test. The service test evaluates whether mortgage lenders offer programs and services that promote community development. Unlike banks, however, mortgage bankers will not be required to make community development investments or grants, recognizing the differences in how these institutions operate. Nevertheless, mortgage lenders will be evaluated on the extent and innovativeness of their community development services, qualified investments, community outreach, marketing, and educational programs; each of which are defined terms under the regulation.
Discrimination and Other Illegal Credit Practices
The evaluation of a mortgage banker’s performance in meeting the credit needs of the community is adversely affected by evidence of discriminatory or other illegal credit practices in any geography by the mortgage lender, including violations of (1) Section 5 of the FTC Act, (2) Section 8 of RESPA, (3) TILA’s right of rescission, (4) HOEPA or New York’s high cost lending law, or (5) ECOA, Fair Housing Act or section 296-a of New York Executive Law.
Given the above, New York-licensed mortgage lenders should prepare for these CRA obligations by conducting preliminary analysis of their lending in LMI census tracts and to LMI borrowers, to ensure that both marketing efforts and loan product offerings are meeting the needs of these communities. While federal redlining enforcement may currently be deprioritized, state-level CRA inquiries and investigations are likely to ramp up. Alston & Bird is able to assist mortgage lenders with proactive efforts to ensure compliance with New York’s CRA law.
