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Banking Interpretations

Regs Part 39

March 5, 2002

Dear    : 

Your correspondence to the Banking Department has been referred to me for response.  You have asked for a copy of the law that allows homeowners to offer financing as an incentive to a buyer and a copy of the law that specifies the maximum amount a private individual can charge as a rate of interest on a mortgage. You have also asked if there is law or policy that governs third party involvement in financing mortgages as an investment or buying existing notes from homeowners.  

Currently Section 39.5 (a) of the General Regulations of the Banking Board (“GRBB”) exempts a seller of residential real estate who makes a loan to the purchaser from Banking Department licensing requirements.  Enclosed please find a copy of that regulation with this letter.  Interest rates on first lien residential mortgages may have been deregulated pursuant to federal law, Public Law 96-161 (“PL”).  However, in any event, a purchase money mortgage of the type listed in GRBB Section 39.5 (a) is considered outside the usury laws and the interest rate can be set by agreement of the parties to the mortgage.

The Banking Department does not regulate the purchase of mortgages on the secondary market. Additionally, you might want to seek the advice of private counsel on all these issues before disseminating information.

I hope that you will find the enclosed information helpful.

Sincerely,

Robert Nori
Associate Attorney

RN: enc.