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Banking Interpretations

General Regulations of the Banking Board Part 82

March 2, 2006

[ ]

Re: Alternative Mortgage Instruments – General Regulations of the Banking Board - Part 82

Dear [ ]:

In your December 2, 2005 letter, you state that it is your understanding that Part 82 of the General Regulations of the Banking Board deems that “Alternative Mortgages”, including all varieties of “Alternative Rate Mortgages (“ARM”) loans may only be offered up to a 90% Loan to Value (“LTV”) unless they contain both escrows for taxes and either mortgage insurance or a comparable guarantee via a pledged deposit. You also ask whether your understanding is correct that ARM loans above 90% LTV may not be offered without mortgage insurance (or similar guarantee) and escrows.

Part 82.2(c) states that “mortgage loans may be made in an amount not exceeding 90 percent of the appraised value of the property, or 90 percent or the purchase price or the appraised value of the stock and lease in the case of a cooperative apartment unit, as calculated at the time the loan is made, provided that such loan-to-value may equal 97 percent for any such loan except a balloon-payment mortgage loan if: (1) in addition to provisions for full amortization of the loan, the loan contract requires, except in the case of cooperative apartment loans, that the pro rata portion of estimated annual taxes and assessment on the security property (based on the number of installments due annually) be paid to the lending institution with each installment payment; and (2) during the time that the unpaid balance of the loan exceeds a loan-to-value ratio of 90 percent (as determined at the time the loan is made) the part of such balance exceeding 80 percent of value is guaranteed or insured by a mortgage insurance company; except that any unpaid loan balance secured by a pledged savings account or pledged securities or other guarantee or collateral, the value of which, as found in good faith by an officer of the lender, equals or exceeds the part of the loan balance exceeding 80 percent of the loan need not be so guaranteed or insured.” Therefore, ARM loans above 90% LTV may not be offered without mortgage insurance (or similar guarantees) and escrows.

The Banking Department will take your suggestion to revisit the issue of allowing higher loan-to-value ratios under advisement.

I trust that this is responsive to your inquiry. If you have any questions, I can be reached at (212) 709-1642.

Sincerely,

Christine M. Tomczak-Asst. Counsel

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