Banking Interpretations

Gen. Reg. of the BB Parts 38, 80, 82

August 19, 2004

[ ]

RE: Permissibility of "Teaser" Rates on Home Equity Loans

Dear Mr. [ ]:

Your June 25, 2004 letter on behalf of your client, [ ] regarding low introductory interest rates on home equity loans, has been referred to me for response.

Low introductory interest rates on home equity loans are not per se illegal or impermissible in this State provided, however, all the necessary disclosures are made, including the annual percentage rate. It should be noted, though, that in the event the rates are merely for advertising purposes, and are not given to qualified customers, then such practice can be considered deceptive advertisement and a violation of Part 38.2(e) of the General Regulations of Banking Board ("Part 38.2"). Part 38.2 provides regulations for solicitation and advertisement by mortgage brokers, mortgage bankers and exempt organizations engaged in the business of making mortgage loans, collateralized by residential real property, as such term is defined in Part 38.1(p) of the General Regulations of Banking Board.

Further, you inquired as to what state statute regulates these types of home equity loans. Regulations covering home equity loans, which have New York real properties as the collateral, are listed in Parts 80 and 82 of the General Regulations of Banking Board. However, you should note that Parts 80 and 82 are not the only regulations that apply to home equity loans in this State; Federal regulations may also apply including, the Real Estate Settlement Procedures Act, which should be reviewed for all additional, necessary disclosures.

I trust the foregoing is responsive to your inquiry.

Very truly yours,

Harry C. Goberdhan 
Assistant Counsel