New York State on Monday approved the extension of the state Community Reinvestment Act (CRA) to non-depository lenders, a controversial rule that has received criticism as “unnecessary” and “discouraging” from the mortgage industry.
Gov. Kathy Hochul approved the bill – S.5246-A/A.6247-A – 10 days after being delivered by the New York State Senate. According to the bill, the act shall take effect one year after it becomes a law.
“This legislation will ensure everyone has fair and equal access to lending options in their pursuit of purchasing a home,” Hochul said in a statement.
She emphasized that the rule benefits “especially communities of color which continue to be impacted by the effects of the pandemic and have historically faced many more hurdles when seeking a mortgage.”
Enacted in 1978, the CRA rule mandates that banks help meet the credit needs of communities in which they take deposits, specifically in low- and – moderate-income neighborhoods.
Some states, such as Massachusetts and Illinois, are adopting the same rule for nonbank lenders, as these lenders have increased their market share in the mortgage loans activity.
Independent mortgage banks in New York originated 51% of home purchase mortgage loans to minority homebuyers in 2020, according to the Mortgage Bankers Association (MBA).
Opponents said that, as non-depository lenders cannot accept deposits, by definition, they do not fail to “reinvest” in communities. Instead, they take funds gathered from global capital markets to invest in New York.
They also noted that the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) apply to all mortgage lenders, including nonbanks, and contain strict discrimination penalties.
The Community Home Lenders Association (CHLA) told HousingWire that it is “disappointed” that New York will apply the CRA Act to independent mortgage banks.
“We believe it is unnecessary and could discourage lenders from entering the state due to new regulatory burdens,” the CHLA said. “The important thing is that it be implemented in a balanced fashion, with appropriate streamlining for small lenders.”
Democratic State Sen. Tim Kennedy, the bill’s sponsor, cited “redlining,” a form of lending discrimination, as the primary reason to extend the CRA rule to nonbank lenders.
“This legislation seeks to hold lending institutions accountable and to ensure they truly serve the communities where they do business,” Kennedy said in a statement.
In February, he cited that the New York Department of Financial Services issued a report into potential redlining in the Buffalo metro area. Lenders had little or no engagement with local communities of color and made scant efforts to engage them, the report found.
(The agency also announced a settlement with nonbank lender Hunt Mortgage Corporation, which it said lacked fair lending and compliance programs but did not intentionally discriminate against minorities.)
