Alston & Bird Consumer Finance Blog

Mortgage Loans

Expansion of New York’s Community Reinvestment Act Via New Regulation

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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.

FAPA Is Here to Stay: Understanding the NY Court of Appeals’ Retroactivity Ruling and Its Impact on Foreclosures

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On November 25, 2025, the New York Court of Appeals—the highest court in the state of New York—issued a decision in Article 13, LLC v. LaSalle National Bank Association, holding that New York’s Foreclosure Abuse Prevention Act (FAPA) applies retroactively to all foreclosure actions in which a final judgment of foreclosure and sale has not been enforced.

What Happened?

In December 2022, New York enacted FAPA to close a perceived loophole under prior case law that allowed the holders of mortgage notes to reset the statute of limitations on foreclosure. Previously, a noteholder could show that that the mortgage was not validly accelerated, or was voluntarily deaccelerated, which would reset the statute of limitations. Under FAPA, however, parties are estopped from asserting that an invalid acceleration or voluntary deacceleration reset the statute of limitations.

Two years before FAPA was enacted, Article 13 LLC—a junior mortgage holder on a property—brought a quiet title action before a federal district court seeking to cancel a senior mortgage as time-barred under the statute of limitations. Relying on pre-FAPA case law, the holder of the senior mortgage argued the statute of limitations had not run because the mortgage had not been validly accelerated. Mid-litigation, New York enacted FAPA, and the district court held that FAPA estopped the senior mortgage holder from making this argument.

The case went on appeal to the U.S. Court of Appeals for the Second Circuit, which certified the question of whether FAPA applied retroactively to the New York Court of Appeals. Based on FAPA’s plain language, the New York Court of Appeals first held that FAPA applies retroactively, at least for foreclosure actions in which a final judgment or foreclosure and sale has not been enforced. It then held that the retroactive application of FAPA does not violate substantive or procedural due process under New York’s constitution. The Court explained that retroactive application does not offend due process because it does not impair the vested rights of holders, which in the typical situation, are aware for years of the invalid acceleration and have every opportunity to take timely action to enforce their rights.

Why is it Important?

The New York Court of Appeal’s decision is significant because in cases where a prior foreclosure action was commenced (triggering the statute of limitations) but later discontinued without an express judicial determination that acceleration was invalid, lenders are now estopped from reviving the loan after the limitations period has expired. This puts an end to an old practice and represents a major shift in the mortgage foreclosure industry.

For mortgage servicers, this means that before proceeding with a foreclosure, they must first evaluate aged or delinquent loans to reassess whether pursuing foreclosure is viable. This is particularly true when prior foreclosures have been voluntarily discontinued, dismissed, or left dormant. Attempting to re-file may now lead to outright dismissal under FAPA.

For participants in the secondary market, it is now important to employ heightened diligence to determine whether mortgages held in trust are still enforceable. Mortgages or entire portfolios that were previously viewed as recoverable through renewed foreclosure actions may now be worth only their collateral value or even nothing at all.

What Do You Need to Do?

Mortgage servicers should review their foreclosure strategies, including their allocation of litigation resources, as time-barred loans may require alternative resolution strategies such as settlements or charge-offs.

Meanwhile, RMBS trusts and other holders of distressed mortgage portfolios should consider whether to audit their portfolio to identify mortgages with prior foreclosure actions that may now be time barred under FAPA. Or, in the case that they are junior lienholders, they should consider whether they can leverage FAPA in quiet title actions to cancel more senior mortgages that are now time-barred.

Ohio Mortgage Rules Have Changed: Servicing Now Covered

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What Happened?

Effective September 19, 2025, the Division of Financial Institutions (“Division”) of the Ohio Department of Commerce adopted amended rules (the “Amended Rules”) under the Ohio Residential Mortgage Lending Act (“RMLA”) to add and clarify obligations for mortgage servicers.

Why Does it Matter?

The Amended Rules are largely intended to provide clarity to mortgage servicers regarding the application of the RMLA to mortgage servicing businesses, and to implement procedures to prevent servicing problems. For entities licensed under the RMLA, the Amended Rules address registration of offices, unlicensed activity, recordkeeping, prohibited practices, servicing transfers, escrow payments, payment processing, error resolution, borrower requests for information, and a servicer’s obligations upon loss of license. The Amended Rules largely mirror the CFPB’s mortgage servicing rules (i.e., 12 C.F.R. Part 1024, Subpart C (Regulation X) and, to some extent, 12 C.F.R. Part 1026 (Regulation Z)).

Notably, an entity that violates the Amended Rules may be subject to penalties under the RMLA, which are up to $1,000 per day for each day a violation of law or rule is committed, repeated, or continued (and up to $2,000 a day of there is a pattern of repeated violations of law or rule).

Below, we highlight some of the most impactful provisions of the Amended Rules.

Amended Rules

  • Registration Requirements: The Division amended Section 1301:8-7-02 of the Ohio Administrative Code (the “OAC”) to require entities subject to the RMLA (mortgage brokers, lenders and servicers) to register each office location at which it transacts business.
  • Standards for Applications, License, and Registration: The Division amended Section 1301:8-7-03 of the OAC, to clarify that a mortgage broker, mortgage servicer, or loan originator cannot conduct business if they fail to renew their registration on or before December 31. (The Division indicated that it was amending the renewal date to correct a drafting error that incorrectly identified January 31 as the renewal date.)
  • Recordkeeping: The Division amended Section 1301:8-7-06 of the OAC, which relates to recordkeeping, to require a mortgage servicer to retain records that document actions taken with respect to a borrower’s account for four years following the date the loan is discharged or transferred to another servicer; and to maintain specified documents and data in a manner that facilitates compiling the documents and data into a servicing file within five days. (The rule does not expressly address maintenance of records of telephone calls with borrowers.) While the rule requires retention of the same records required under Regulation X (12 C.F.R. § 1024.38(c)), note that the retention period is much longer than Regulation X’s and does not exempt small servicers under Regulation X.
  • Prohibited Practices: The Division amended Section 1301:8-7-16 of the OAC, to add a list of actions specific to servicing that constitute improper, fraudulent, or dishonest dealings under Ohio Revised Code section 1322.40.  Specifically, the rule prohibits a servicer from, among other things:
    • assessing a borrower any premium or charge related to force-placed insurance unless the servicer: (i) has a reasonable basis to believe that the borrower has failed to comply with the residential mortgage loan contract’s requirement to maintain hazard insurance; and (ii) delivers or mails to the borrower a written notice at least 45 days before assessing such charge or fee;
    • misrepresenting or omitting any material information in connection with the servicing of a residential mortgage loan, including misrepresenting the amount, nature, or terms of any fee or payment due or claimed to be due on a residential mortgage loan, the terms and conditions of the servicing agreement, or the borrower’s obligations under the residential mortgage loan;
    • failing to apply payments in accordance with a servicing agreement or the terms of a note; (d) making payments in a manner that causes a policy of insurance to be canceled or causes property taxes or similar payments to become delinquent;
    • failing to credit a periodic payment to the borrower’s account as of the date of receipt, except when a delay in crediting does not result in any charge to the borrower or in the reporting of negative information to a consumer reporting agency (except where the servicer specifies in writing requirements for the borrower to follow in making payments, but accepts a payment that does not conform to the requirements, where the servicer has five days to credit the payment);
    • requiring any amount of money to be remitted by means which are more costly to the borrower than a bank or certified check or attorney’s check from an attorney’s account to be paid by the borrower;
    • charging a fee for handling a borrower dispute, facilitating routine borrower collection, arranging a forbearance or repayment plan, sending a borrower a notice of nonpayment, or updating records to reinstate a loan; or
    • pyramiding late fees.
  • Mortgage Servicing Definitions: The Division added Section 1301:8-7-35 to the OAC, which defines terms relevant for the provisions of other new sections (as discussed below), including: (a) “confirmed successor in interest,” “escrow account,” and “qualified written request,” which are consistent with Regulation X; and (b) “federal lending law” and “residential mortgage loan,” the latter of which is defined to limit the Amended Rules’ application to closed-end loans, consistent with Regulation X and Regulation Z.
  • Mortgage Servicing Transfers: The Division added Section 1301:8-7-36 to the OAC, to prohibit a transferee servicer from treating an on-time payment made to the old servicer within the 60-day period following the transfer of servicing. It also requires the old servicer to either forward the payment to the new servicer, or return it to the borrower and notify the borrower of the proper recipient. This rule generally mirrors 12 C.F.R. § 1024.33(c).
  • Escrow Accounts: The Division added Section 1301:8-7-37 to the OAC, which requires a mortgage servicer to: (i) make all required escrow payments in a timely manner, and (ii) timely return any payments due to the borrower. It also allows a servicer, if the borrower agrees, to credit any amount remaining in a borrower’s account to a new escrow account for a new loan. This rule generally mirrors 12 C.F.R. §§ 1024.34 and 1024.17(k).
  • Error Resolution Procedures: The Division added Section 1301:8-7-38 to the OAC, which establishes error resolution procedures that mirror the requirements of the CFPB mortgage servicing rules (12 C.F.R. § 1024.35).
  • Requests for Information: The Division added Section 1301:8-7-39 to the OAC, which establishes information request procedures that mirror the requirements of the CFPB mortgage servicing rules (12 C.F.R. § 1024.34).
  • Mortgage Servicer Obligations upon Loss of License: Finally, the Division added Section 1301:8-7-40 to the OAC, which provides that the revocation, suspension, or failure of a servicer to obtain or maintain a license does not affect a servicer’s obligations under a preexisting contract with a lender or borrower.

What To Do Now?

The Amended Rules significantly expand the requirements applicable to mortgage servicers subject to the RMLA. While many of the Amended Rules mirror those under the CFPB’s mortgage servicing rules, certain provisions impose additional obligations on mortgage servicers and/or apply to servicers that may otherwise be exempt from certain requirements under the CFPB’s mortgage servicing rules (e.g., small servicers). Accordingly, mortgage servicers should carefully review the Amended Rules and ensure that their policies, procedures, and controls are updated as appropriate to ensure compliance. Alston & Bird’s Consumer Financial Services Team is actively engaged and monitoring these developments and can assist with any compliance concerns regarding the changes imposed by the Amended Rules.

Fannie, Freddie Update ROV Requirements

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Mortgage lenders who do business with the Government Sponsored Enterprises (“GSEs”) should note recent updates to their reconsideration of value (“ROV”) requirements.

 What Happened?

On September 3, Fannie Mae and Freddie Mac announced updates to their ROV requirements relating to disclosures and documentation. Specifically, Fannie Mae and Freddie Mac have updated their guidance to sellers (the Selling Guide and the Single-Family Seller/Servicer Guide, respectively) to: (a) no longer require a lender to provide an initial ROV disclosure at the time of loan application, and instead to require delivery of the disclosure with the appraisal report; and (b) no longer require a lender to retain documentation relating to the initiation of an ROV, and instead to require retention only of documentation relating to the outcome of an ROV).

Why Does it Matter?

The GSEs’ announcement follows back and forth on ROVs at the federal level. In May 2024, the Department of Housing and Urban and Development issued a mortgagee letter addressing ROV requirements; that guidance was rescinded in March of this year. The GSE announcements represent a smaller-scale reduction in the regulatory compliance obligations associated with offering ROVs to borrowers.

What To Do Now?

Our team is happy to assist lenders in reviewing their ROV processes to ensure compliance with federal agency and GSE requirements.

Pennsylvania: What is a Bona Fide Discount Point?

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What Happened?

Effective August 29, 2025, Pennsylvania enacted House Bill 1103 (the “Bill”) impacting discount points on residential mortgage loans by making amendments to Pennsylvania’s usury code (the Loan Interest and Protection Law (“Law”)), and the Mortgage Licensing Act.  First, the Bill amends the Law by repealing the definition of discount points in section 101 and repealing all of section 402, which prohibits lenders from collecting discount points from sellers on non-government mortgages. Second, the Bill amends the Mortgage Licensing Act to permit licensed mortgage lenders of first and secondary mortgage loans to offer “discount points,”  which the measure defines as “fees knowingly paid by the consumer for the purpose of reducing, and which result in a bona fide reduction of, the interest rate or time-price differential applicable to the mortgage.”

Why is it Important?

The Legislative history states that the purpose of these amendments is to allow borrowers to buy down their interest rate and align with the majority of states that do not restrict lenders from charging discount points.  It is worth noting that the usury’s law restriction on discount points was very narrowly drafted to apply only to points paid by the seller with several exclusions and was arguably preempted for first-lien residential mortgage loans under the Depository Institutions Deregulation and Monetary Control Act. Moreover, in the context of residential mortgages the usury law applies only to residential mortgage loans with an original principal amount of the base figure or less (currently, $319,777 and adjusted annually for inflation).

As amended, mortgage lenders licensed under the Mortgage Licensing Act have the power to charge discount points on a “mortgage loan,” which includes both first or secondary mortgage loans, irrespective of the dollar amount, provided such discount points are for the purpose of reducing the rate and result in a “bona fide” reduction of rate.  The statute does not define “bona fide.”  While not dispositive, it is worth noting that the federal Truth in Lending Act (“TILA”) defines the term “bona fide” discount point in the context of high cost residential mortgage loans. More specifically, under TILA, “[t]he term bona fide discount point means an amount equal to 1 percent of the loan amount paid by the consumer that reduces the interest rate or time-price differential applicable to the transaction based on a calculation that is consistent with established industry practices for determining the amount of reduction in the interest rate or time-price differential appropriate for the amount of discount points paid by the consumer.”  Absent concrete guidance from the regulators, it is not clear what constitutes “bona fide” for purposes of Pennsylvania law.  With that said, Pennsylvania regulators have informally suggested that any actual reduction in rate would be deemed bona fide.

What to do now?

Given that violations of the Mortgage Licensing Act could result in fines of $10,000 per offense, licensed mortgage lenders should ensure that any discount points charged on first or secondary mortgage loans meet the Pennsylvania’s Department of Banking’s interpretation of “bona fide” and result in an actual reduction of the rate.