NY Mortgage Companies:
Are You Ready For Your New Section 120 Responsibilities?
On January 6, 2026, the New York State Department of Financial Services published its new Section 120 regulations. Section 120 imposes on mortgage companies that extended 200 or more mortgage originations in New York State during the prior calendar year an obligation to meet the needs for credit services in the communities they serve. All mortgage companies active in New York State that meet the reporting threshold are subject to the new regulations even if they are not based in NY State and even if they have no offices in New York. The new regulation has an implementation or compliance date of July 6, 2026. Based on the 2024 HMDA data (the latest available data as of March 20, 2026) approximately 70 mortgage companies active in NY State would be “covered” by the new regulations.
What obligations are imposed on covered mortgage companies?
The new regulations require a covered mortgage company to “meet the credit needs” of the communities served by the mortgage company. The communities served by a mortgage company fall into two types of “assessment areas”. First, there is a “branch based” assessment area and next there is a “lending based” assessment area. The regulations in Section 120.5 specify the rules for identifying and configuring each assessment area.
How is performance determined?
To measure if a lender is fulfilling its obligations to serve the credit needs of the communities served, 2 tests are determinative. First, there is a “lending test” and second, there is a “service test”.
The lending test consists of 4 different criteria:
- The proportionate volume of lending activity within the assessment areas
- The geographic dispersion of lending within the assessment areas including the number and amount of mortgage lending by tract income class
- The “Borrower characteristics” test, specifically lending to low- and moderate-income borrowers
- Innovative or flexible lending practices to address the credit needs of low- or moderate-income borrowers or geographies
The service test:
- Evaluates a mortgage banker’s record of helping to meet the credit needs of its assessment area by analyzing both the availability and effectiveness of a mortgage banker’s systems for delivering mortgage products
- Ascertains the innovativeness of a mortgage banker's community development services, qualified investments, community outreach, marketing, and educational programs
- Scrutinizes the range of services provided, and the degree to which the services are tailored to meet the needs of low- and moderate-income geographies and individuals, and other underserved communities and individuals.
- Examines the innovativeness or complexity of qualified investments
- Reviews the “responsiveness” of qualified investments to credit and community development needs
How is performance measured?
The regulations in Part 120, although describing performance tests do not specify exact performance standards. But the NY State CRA regulations largely mimic the performance tests and performance benchmarks and practices of federal examinations under the Community Reinvestment Act and there is a long history of detailed benchmarks for measuring performance under that regulation.
Test 1 measures loan volume adequacy and expects a lender to extend the majority of its loans within its defined assessment areas
Test 2 is called “gap analysis” and is designed to review the geographic dispersion of lending within an assessment area to determine if there are unexplained concentrations of census tracts inside the defined community in which the lender has not extended credit.
Test 3 often called the “Geographic Dispersion Test” calculates “penetration rates” in the low- and moderate-income census tracts and compares a lenders penetration rates to that of other lenders active in the community as well as to the relative concentration of owner-occupied properties among tracts by income class
Test 4 called the “Borrower Characteristics Test” measures the relative volume of mortgages extended to low- and moderate-income borrowers. As is true for Test 3, examiners compare a lender’s relative penetration lending to low- and moderate-income borrowers to that of other lenders active in the defined community. Examiners also will apply a demographic benchmark (the relative concentration of low- and moderate-income families in the community) to the lender’s penetration rate to LMI borrowers.
Test 5 measures community development. Once again “performance context” factors are used as a reference point. In this sense it would be very helpful if a mortgage company develops a “Community Needs Assessment” report that would document community needs such as shortages of affordable housing. This can be done by interviewing organizations in the community that meet the needs for affordable housing, community services, economic development, etc.
It should be understood that a lender’s performance and the benchmarks against which activity is measured are significantly affected by the configuration of an assessment area. Consequently, how an assessment area is delineated is the most important decision a lender can make. This should not be done casually or quickly, but it should be one of the first decisions a mortgage company makes as part of its Part 120 responsibilities. Given that mortgage companies have no experience with CRA-type responsibilities every mortgage lender covered by Part 120 should confer with a qualified compliance professional before the July 6, 2026, implementation date.
