On September 30, 2013, the New York Department of Financial Services (DFS) adopted emergency regulations revising the calculation for subprime loans and sent a letter to supervised institutions explaining the revisions.

As we previously reported, earlier this year, the Federal Housing Administration (FHA) revised its policies concerning the annual mortgage insurance premium (MIP), as described in Mortgagee Letter 2013-04. Effective June 3, 2013, some borrowers are required to pay the annual MIP over the life of the loan. The new FHA life-of-loan MIP, together with increasing interest rates, has caused a disproportionate number of New York loans to be categorized as subprime.

The DFS previously issued two temporary orders excluding the revised FHA life-of-loan MIP from New York’s subprime loan calculations under Section 6-m of the New York Banking Law. The last of those temporary orders was set to expire on September 30, 2013.

Rather than continuing to issue temporary orders, the DFS adopted emergency regulations revising the calculation for loans subject to the revised FHA life-of-loan MIP. Under the emergency regulations, the subprime threshold for certain loans subject to the FHA life-of-loan MIP was raised by 75 basis points. Certain loans are excluded from the higher threshold, including Title I Home Improvement Loans, Home Equity Conversion Mortgages, and any FHA-insured loans that would have exceeded the subprime threshold before the implementation of the FHA life-of-loan MIP.

In a letter to supervised institutions, the DFS includes a decision tree, which can be used for determining whether loans exceed the subprime threshold under Section 6-m as amended. For loans that are not subject to the FHA life-of-loan MIP, the analysis of whether or not the loan is subprime under Section 6-m is unchanged by the emergency regulations.