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Banking Interpretations

NYSBL 6-l and
GRBB Part 41

April 26, 2006

[ ]

Re: Banking Law § 6-l(1)(g)(i) and Part 41.1(e)(6)(i) of the General Regulations of the Banking Board

Dear [ ]:

In your March 2, 2006 letter, you write that you are seeking the Banking Department’s guidance concerning the proper construction of Banking Law § 6-l(1)(g)(i) and Part 41.1(e)(6)(i) of the General Regulations of the Banking Board with respect to particular loan products. Specifically, you request clarification of the language used in the second half of the Part 41.1(e)(6)(i),

  1. the loan is secured by a first mortgage on the borrower’s principal dwelling and the annual percentage rate at consummation, including without limitation any points and/or bona fide discount points, will exceed by more than eight percentage points the yield on United States Treasury securities having comparable periods of maturity to the loan maturity to the loan maturity measured as of the 15 th day of the month immediately preceding the month in which the application for the residential mortgage loan is received by the lender; provided, however, if the terms of such loan offer any initial or introductory rate, then the annual percentage rate for purposes of determining the application of this threshold tosuch loan shall be the rate which applies after such initial or introductory period; (italics added).

The Banking Department agrees with your interpretation of the above, italicized language. You are correct in your inference that this language refers to loans with discounted initial rates that would significantly increase after a short period of time. You are also correct in your understanding that Part 41.1(e)(6)(i) would not apply to traditional loan products, such as 3/27 or 2/28 ARM products that have fixed rates for the first two or three years.

I trust that this is responsive to your inquiry.

Sincerely,

Christine M. Tomczak
Assistant Counsel