New York is the latest state to implement a nonbank Community Reinvestment Act, with laws already in place in Massachusetts and Illinois and
While it will be a compliance burden for these lenders, at least one nonbank executive also thinks it is an opportunity.
A regulation has been finalized to implement the standard, over four years
Nonbanks which make at least 200 originations in the state are required to comply with the new Part 120 of the code. It goes into effect on July 7.
The shift in market share away from depositories was cited by the New York Department of Financial Services as the reason behind the legislation. The regulator pointed out that nonbank lenders did 64% of all mortgage originations in the second quarter of 2025, compared with 42% in 2014.
Much of this change since the 2008 economic crisis was driven by banks exiting mortgage, said Matthew VanFossen, the CEO of Absolute Home Mortgage and the chairman of the Mortgage Bankers Association's state and local regulatory committee. As a result, 60% of the market share for the underserved consumer is already being covered by nonbank lenders.
"IMBs already bring funds from Wall Street to Main Street and IMBs are already leading the market in [working with] underserved borrowers to begin with," VanFossen said.
Why New York says nonbank CRA is needed
The nonbank rule is modeled on the one banks are required to follow at both the state and federal level, NYDFS added.
"Banks have long been expected to meet the credit needs of the whole communities where they operate," Acting Superintendent Kaitlin Asrow said in a press release. "Nonbank mortgage companies originate the majority of home loans nationwide, and New York is taking action to ensure that they are held to the same CRA standard."
The 2021 legislation was sponsored by State Senate Banks Committee Chair James Sanders Jr., and Assembly Majority Leader Crystal Peoples-Stokes, both Democrats.
In 2021, Federal Reserve Chair Jerome Powell
Under the rule, mortgage bankers would have to define "one or more assessment areas" in the state based on where their branches are. However, those which do not have a physical branch in New York will have their assessment areas as the ones where they do a substantial portion of their business.
The rule calls for a lending test and a service test. The former will examine how well the mortgage banker serves all borrowers and neighborhoods within those areas, and in particular how they serve low- and moderate-income communities.
The service test will evaluate any programs and/or services that promote community development.
But unlike banks, the nonbanks will not have to make community development investments or grants. This is a recognition of the different business models, NYDFS said.
What will be the impact on nonbank lenders in New York
That point was reiterated by the mortgage bankers National Mortgage News spoke with. These companies do not take deposits so they do not have funds to reinvest.
This change will definitely increase Absolute's compliance costs. Which then leads to higher operating costs, and those eventually are worked down to consumers, VanFossen said.
Lenders like his company will have to do more data testing. "We have to be more on top of where our geographic targets are and where we're putting our marketing dollars, and ensuring that we're making a concentrated effort when we establish new branches, go through the proper vetting processes," VanFossen noted.
Regulators could tie performance on these exams to new branch applications.
It might be overkill because "we feel that we're already serving these markets to begin with," VanFossen said.
It is likely in the examination process, regulators will be looking at Home Mortgage Disclosure Act activities and making sure companies are not discriminating against protected classes and they are serving underserved communities, said Jim Bopp, vice president of national renovation lending at Planet Home Lending. Bopp is also a founder and former two-time president of the New York Mortgage Bankers Association.
What might have finally pushed the bill forward is what's happening
Some states will be inclined to start implementing things like this as a result.
Bopp is located in upstate New York, near Albany and close to the New York-Massachusetts border.
Which product could help with compliance
Given his specialty in renovation lending, Bopp is of the view that these are well suited for lenders to meet the requirements, such as the Federal Housing Administration's 203(k) loan, which he noted is its "primary CRA lending product."
Fannie Mae and Freddie Mac have conforming renovation products which Planet also offers to lenders on a correspondent basis. Both Fannie's Homepossible and Freddie's Home Ready have borrower counselling requirements with non-profits.
"That's another opportunity for IMBs to show their commitment to affordable lending by partnering with the nonprofit organizations" to bring their clients these products, Bopp added.
These renovation products are targeted to consumers at 80% of the area median income.
"Anybody who's doing renovation is most likely going to be making loans on homes that are in need of repair, that may or may not be in an underserved ZIP code," Bopp said. "I think offering renovation loans will garner people positive ratings in that regard."
Absolute is looking at additional internal programs. It is working on an equity lending academy to provide a free web series for underserved consumers to educate them on how to qualify for a low down payment home loan, VanFossen said.
"It's imperative when you're a mid-size IMB organization that you are proactive and aware of these compliance needs," he noted.
