By the Division of Banks

July 31, 2003

Subject: Rate-Lock Commitments

To the Chief Executive of the Institution Addressed:

The purpose of this letter is to remind all banks, credit unions, and licensees engaged in mortgage lending activity of certain requirements and expectations regarding mortgage rate-lock commitments. Over the last several years, both consumers and the mortgage lending industries have enjoyed the advantages of a low interest rate environment. The high volume of applications for purchase or refinance mortgages may result in delays in processing applications. The following guidance is addressed to the various industries under the supervision of the Division of Banks (Division).

Mortgage Brokers

All licensed mortgage brokers are reminded that they are prohibited from issuing mortgage rate-lock commitments. As noted in the Division's regulations 209 CMR 42.02 and 42.11A, such activity is the exclusive domain of authorized mortgage lending institutions. Mortgage brokers are cautioned that if they engage in any form or unauthorized mortgage rate-lock commitment activity, they may face claims for restitution and enforcement action. In addition, mortgage brokers are advised not to unreasonably raise consumer expectations regarding rates. Express or implied verbal assurances or "guarantees" to obtain a desired rate for a consumer are neither prudent nor within the authority of mortgage brokers.

Mortgage Lenders

Licensed mortgage lenders are reminded that the Division's regulations at 209 CMR 42.11A prohibit a lender from issuing rate-lock commitments unless the lender maintains a net worth of at least $500,000. Mortgage lenders are further reminded that they must notify the Division within one business day of any change or fluctuation in market values that cause their net worth to drop below the minimum threshold for issuing rate locks.

Banks, Credit Unions, & Mortgage Lenders

All banks, credit unions, and licensed mortgage lenders are reminded that it has been the Division's clear and consistent position for over 15 years that mortgage rate-lock commitments entered into between a borrower and a lending institution which, through no fault of the borrower, expire before the closing takes place, must be honored at any closing subsequent to the expiration of the rate lock commitment. (See Division of Banks Press Release dated June 4, 1986.) This policy applies whether a delay in closing is due to the lending institution or that of its agents, servicers, or employees.

In addition, the Division expects all lending institutions to have adequate controls in place to monitor the practices of its own employees and those of third parties, including mortgage brokers, to ensure that each abides by the institution's own stated policies as well as all state and federal laws and regulations.

If you have any questions regarding this letter, please feel free to contact the Division at (617) 956-1501.

Very truly yours,

Thomas J. Curry
Commissioner of Banks