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Banking Interpretations

NYSBL 595-a
Gen. Reg. Part 38

February 9, 2007

[---]

Re: [---] Mortgage Corp.

Dear Mr. [---]

Your letter, dated December 15, 2006, to the New York State Banking Department (the "Department"), has been referred to me for response. In your letter you asked: (i) whether a mortgage banker, licensed in the state of New York, may lawfully reserve to itself a right to rescind a mortgage loan commitment; and (ii) whether it matters that such mortgage banker requires that borrowers sign a document that purports to grant such right to it.

As to your first question, a mortgage banker can lawfully rescind a commitment prior to it being accepted by the borrower; provided, however, that in accordance with Section 38.4(a)(2)(i) of the General Regulations of the Banking Board the commitment is irrevocable by the mortgage banker for a period of time, which period of time cannot be less than seven calendar days from the date of commitment or date of mailing, whichever is later, and in accordance with Section 38.4(a)(2)(iii) the expiration date of the commitment is disclosed, which must be a reasonable time for a consumer to arrange for a closing date.

Additionally, a mortgage banker may lawfully reserve the right to rescind a mortgage loan commitment when there might be conditions existing at the time of the issuance of the commitment or additional documents needed, which must be cleared or provided prior to closing.  However, in such cases Section 595-a (3)(c) of the Banking Law requires that the mortgage banker, in each commitment issued, "include a list of all documents foreseeably required to be produced and conditions foreseeably required to be satisfied for closing of a mortgage loan based on information provided by the applicant."

As to your second question, assuming that the borrower has accepted the commitment and has satisfied all outstanding conditions and provided all necessary documents, can a mortgage banker reserve to itself the right to rescind the commitment by requiring that the borrower sign a document granting such right to it.  Clearly, this question has to be answered in the negative. To reach a different conclusion would permit two contradicting documents (the commitment, and the other document signed by the borrower) to be in effect at the same time, which is neither in line with basic contract law, nor with the spirit of the Banking Laws and Regulations.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan
Assistant Counsel