The New York Department of Financial Services (DFS) recently extended for 90 days its emergency rule adjusting the criteria for determining when a Federal Housing Administration (FHA) mortgage loan is classified as subprime. The DFS has renewed the same emergency regulation numerous times to afford the state Legislature time to find a permanent solution. Most recently, the emergency rule was adopted again on June 22, 2014.

Specifically, the DFS’ rule raises the subprime threshold 75 basis points under Section 6-M of the New York Banking Law for those loans subject to the revised FHA life-of-loan mortgage insurance premium (MIP). Last year, the FHA revised its MIP policies, as described in Mortgagee Letter 2013-04. Among other things, the new policy required many borrowers to pay an MIP for the life of their mortgage loans and would have triggered subprime status for numerous home loans under Section 6-M of the New York Banking Law.

The DFS emergency rule does not apply to Title I home improvement loans, home equity conversion mortgages, and any FHA-insured loans that would have exceeded the subprime threshold before the date of the FHA rule change. In June, we wrote that the New York Assembly had passed legislation to permanently codify the DFS’ emergency rules. To date, however, Governor Andrew Cuomo, who supports the bill, has yet to sign it.