New York has adopted new regulations that expand Community Reinvestment Act (CRA) obligations to nonbank mortgage lenders. Known as 3 NYCRR Part 120, the rule is set to take effect on July 7, 2026, and requires certain lenders to demonstrate equitable access to home loans, particularly for low- and moderate-income borrowers.
The regulation targets non-depository mortgage bankers licensed by the New York State Department of Financial Services (DFS). To be covered by the rule, lenders must have originated at least 200 mortgage loans in New York during the previous calendar year. This threshold ensures the rule applies to lenders with significant activity, helping focus on larger institutions.
Regulators argue that extending CRA obligations to nonbank lenders aligns them with banks, which have long been responsible for meeting community credit needs. By doing so, the rule reflects the growing importance of nonbank lenders in the mortgage market and aims to hold them to similar standards of accountability.
The Growing Role of Nonbank Lenders
Nonbank mortgage companies have become dominant players in the housing finance system. According to DFS, nonbanks were responsible for a significant share of mortgage originations in recent years. This growing market share highlights the need for consistent regulatory standards across all lender types.
Nonbank lenders, unlike traditional banks, do not take deposits and often rely on secondary markets for funding. Their business model allows them to operate more flexibly but raises questions about their accountability to local communities. By extending CRA obligations to nonbanks, New York seeks to ensure these lenders contribute to equitable access to credit, which is now central to the mortgage landscape.
Requirements Under the New Rule
Part 120 requires lenders to demonstrate fair access to credit, particularly for low- and moderate-income borrowers. The rule emphasizes lending to underserved neighborhoods that may otherwise be overlooked. DFS will evaluate performance based on lending patterns and how lenders respond to community needs.
Similar to federal and state CRA frameworks, the new regulation mandates that lenders maintain records demonstrating equitable lending practices. Transparency and accountability will be critical components of compliance.
Evaluations will not only focus on loan volume but also consider the geographic distribution of loans, ensuring lending is not concentrated in wealthier areas while neglecting underserved communities.
Addressing Market Shifts in the Mortgage Industry
The extension of CRA obligations to nonbank lenders comes at a time when these lenders are becoming more influential in the mortgage industry. As they now account for a growing portion of mortgage originations, their practices significantly shape access to home loans. The rule ensures that their influence is matched by responsibility.
By holding nonbank lenders accountable, New York aims to reflect changes in the mortgage market and ensure that underserved communities receive fair access to credit. This move aligns with broader efforts to address disparities in lending and promote greater financial equity.
Industry and Community Reactions to the New Regulation
Responses to the rule have been mixed, with both support and caution expressed by different stakeholders. Advocacy groups have largely supported the move, arguing that extending CRA obligations to nonbank lenders is crucial for closing gaps in oversight and ensuring fair lending practices.
Industry voices have called for clearer guidance on how evaluations will be conducted and what criteria will be prioritized. Lenders are looking for detailed information to ensure they can meet the new requirements.
Community groups have viewed the regulation positively, seeing it as an opportunity to increase access to home loans in underserved areas. By holding nonbank lenders accountable, the regulation is expected to encourage lending practices that benefit communities in need.
Preparing for the Rule’s Implementation
As the July 2026 effective date approaches, nonbank lenders are preparing to comply with the new rule. Many are reviewing their origination volumes to ensure they meet the 200-loan threshold, while others are assessing their lending practices to align with the new requirements.
DFS has emphasized that this regulation is part of a broader modernization of CRA obligations, designed to keep up with changes in the mortgage market. The rule aims to proactively address industry shifts and ensure that equitable access to credit remains a priority.
The impact of Part 120 will become clearer as lenders adapt to the new requirements and as communities begin to see tangible improvements in access to home loans. The rule signals a significant shift in the regulatory landscape and reinforces the importance of equitable lending in today’s housing market.
Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal, financial, or professional advice. Readers are encouraged to consult with relevant professionals for specific guidance related to the New York CRA rule and its implications.
