Responsible Lending Policy
August 18, 2011
The Federal Home Loan Bank of New York (FHLBNY) promotes the expansion of fair and equitable home ownership opportunities. We advocate flexible lending practices that are designed to responsibly service borrowers and enhance credit access for both prime and non-prime borrowers, including those with long term affordability credit needs. Providing accessible and affordable credit to borrowers at varying economic levels and life stages is a critical contributor to the overall success of all communities. Through the unique partnership with our member lenders, we are privileged in serving as a liquidity provider in support of their community lending activities. An integral element of this partnership is a shared commitment to sound and responsible lending practices for all qualifying individuals seeking home financing opportunities.
In response to the growing concern over past lending practices within the subprime sector, and the extensive use of nontraditional mortgage products that proved to be unsuitable for many borrowers, the Board of Directors of the FHLBNY has established a Responsible Lending Policy. This policy addresses FHLBNY’s firm position against predatory lending practices and further establishes the FHLBNY’s support for appropriate and responsible lending that meets the diverse credit needs of the marketplace that our members serve.
The availability of diverse residential mortgage loan products, including those with non-traditional characteristics or extended to non-prime borrowers, has created more opportunities for a wider range of borrowers to purchase a home. Most of these alternative mortgage products are, by themselves, not considered undesirable, but rather it is the unsuitability of these products for certain borrowers that may create undesirable results for both the borrower and the lender.
The Responsible Lending Policy specifies the expectation that members adhere to the provisions of the Interagency Guidance on Nontraditional Mortgage Products, as well as guidance and statements on Subprime Mortgage Lending and the Statement on Working with Mortgage Borrowers. Lending to individuals who are not prime credits and/or who have affordability credit needs, as well as offering non-traditional loan products to borrowers, requires the application of prudent underwriting practices. Matching a suitable mortgage product to the borrowers’ credit profile, and appropriately underwriting the mortgage loan to ensure affordability, are two key principles of responsible lending.
Eligible mortgage loans used as collateral supporting advances or sold into the Mortgage Partnership Finance® (MPF®) Program must comply with all applicable Anti-Predatory Lending Laws and adhere to the provisions of the Interagency Guidance on Nontraditional Mortgage Products Risks ( published October 4, 2006) and the Statement on Subprime Mortgage Lending (published July 10, 2007), (collectively “Interagency Guidance”). Members are responsible for ensuring that all residential mortgage loans originated, either internally or through contracted third-party originators, as well as all loans purchased from external sources, comply with the provisions of the FHLBNY’s Responsible Lending Policy.
The pledge of a private-label MBS (“PLMBS”), issued or acquired after July 10, 2007, must be accompanied by an enforceable representation and warranty from the issuer, stating that the residential mortgages included in the underlying collateral comply with the Interagency Guidance.
The FHLBNY will take reasonable steps to verify compliance with these policies, including but not limited to the following: (1) review member regulator exam reports for findings pertaining to unfair and/or abusive lending practices; (2) monitor member regulator alerts for newly issued supervisory agreements, memoranda of understanding, or cease-and-desist orders pertaining to unfair and/or abusive lending practices; (3) during the normal course of on-site collateral reviews, review loan documentation for compliance with provisions of this policy; (4) require from members periodic certifications that they are complying with Interagency Guidance for Subprime and Nontraditional Mortgage Lending; (5) require from members enhanced collateral reporting to include borrower credit scores and product type data; and (6) conduct pre- and post-purchase due diligence reviews of loans sold into the MPF program.
These enhanced policies are intended to underscore the FHLBNY’s support of fair lending practices through clear communication of what will constitute eligible residential mortgage loans for pledging as collateral or for sale into the MPF program.