New York has finalized regulations that will require large nonbank mortgage lenders to meet community lending standards similar to those long applied to banks, as state officials move to close a regulatory gap in the housing finance market.

The rules, set to take effect in early July, will apply to mortgage companies that originated at least 200 home loans in New York during the previous year. Covered lenders will be subject to periodic reviews assessing how well they serve low- and moderate-income borrowers across the state.

Under the new framework, the New York Department of Financial Services will conduct examinations modeled on the Community Reinvestment Act, the federal law enacted in 1977 to combat redlining and expand access to credit in underserved communities.

The reviews will result in performance ratings that may influence licensing decisions, branch approvals, and other regulatory applications submitted to the department.

Acting Financial Services Superintendent Kaitlin Asrow said the rules are intended to reflect today’s mortgage market, where nonbank lenders now originate most home loans.

“Nonbank mortgage companies play a dominant role in home lending, and New York is ensuring they are held to comparable standards of responsibility,” Asrow said in a statement.

The regulations implement legislation passed by New York lawmakers in 2021, aimed at extending community lending obligations to large nonbank mortgage firms that previously operated outside CRA-style oversight.

Since the 2008 financial crisis, nonbank lenders have steadily gained market share as traditional banks scaled back mortgage activity. Federal data shows that nonbank firms accounted for nearly two-thirds of U.S. mortgage originations in the second quarter of last year, compared with just over 40% a decade earlier.

Supporters of the law say the rules are designed to ensure fair access to home financing as lending models evolve.

“This initiative helps expand equitable access to mortgage credit and strengthens local communities,” Assembly Majority Leader Crystal Peoples-Stokes said. State Sen. James Sanders Jr., who co-sponsored the legislation, said the final rules ensure nonbank lenders are held to the same accountability standards as banks.

The examinations will focus exclusively on residential mortgage lending, not business or consumer credit. Regulators will analyze federal mortgage disclosure data and other information to evaluate where and to whom loans are made, as well as lenders’ involvement in community-focused services.

Unlike banks, nonbank mortgage firms will not be required to make community development investments or grants. However, the department may penalize lenders for discriminatory practices or conduct that could harm low- and moderate-income borrowers.

To reflect the rise of digital lending, the rules allow regulators to assess companies based on where they conduct significant lending activity, even if they do not maintain physical branches in those areas.

Initial estimates suggest the rules will apply to several dozen mortgage companies, covering roughly one-third of the firms active in New York’s residential lending market.

The state action comes as federal Community Reinvestment Act standards remain uncertain. A major overhaul finalized in 2023 to modernize CRA enforcement was blocked by a court challenge, and the current administration has signaled plans to revisit those changes.

New York officials say the state-level rules provide stability and oversight regardless of the outcome of the federal debate.