The following article is reprinted from Basis Points® , Vol. 3, Issue 7, Copyright © 2004, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.

Two states, Massachusetts by regulation and Connecticut by law, recently made changes to their existing mortgage loan rate lock-in requirements.

Massachusetts

Effective June 1, 2004, the Massachusetts Division of Banks amended regulations pertaining to mortgage loan rate lock commitments. The regulations, 209 CMR 42.02 et seq., apply to licensed nonbank mortgage lenders and brokers and will be the subject of an upcoming hearing to allow public comments on the revised regulations.

Under the revised rules, a licensed nonbank mortgage lender must provide the borrower with a signed and dated mortgage loan rate lock commitment before accepting any points or any rate lock commitment fee, and before offering or entering into a mortgage loan rate lock commitment with a borrower. The signed and dated rate lock commitment must identify the mortgaged property, the principal amount and term of the loan, the locked interest rate, the length of the lock-in period and the consequence of failing to close the loan within the lock-in period, and the rate lock fee, and must disclose whether and under what conditions the rate lock fee is refundable.

The revised regulations also set forth that a mortgage broker may not issue rate lock commitments or imply that it can lock a rate on behalf of a borrower. However, the revised regulations allow a mortgage broker to accept a check from a consumer, payable directly to the applicable mortgage lender, for a rate lock commitment fee, provided that the broker provides the consumer with the lender's rate lock commitment already signed by the applicable mortgage lender.

Licensed mortgage brokers may not advertise any interest rate or loan term in any media without including the following statement: "We arrange but do not make loans." No advertisement by a licensed mortgage broker in any media may contain language indicating or suggesting that the broker will fund or approve a mortgage loan or guarantee any rate.

The Division of Banks also issued a new required "Loan Origination and Compensation Agreement." This "Loan Origination and Compensation Agreement" must be provided by licensed mortgage brokers to borrowers at the time of application. The Agreement provides for the name of the mortgage broker and its Massachusetts Mortgage Broker License Number, states the nature of the relationship between the mortgage broker and the borrower, and sets forth how the mortgage broker is compensated and the various fees the borrower will pay to the mortgage broker, based on the borrower's loan application.

In addition, the revised rules define "mortgage loan rate lock commitment" and "rate lock commitment fee," require a mortgage broker to retain for at least three years the original "Loan Origination and Compensation Agreement," a copy of the settlement statement, an account of fees received in connection with the loan, and correspondence, papers, or records related to the loan, and require a mortgage broker and mortgage lender to maintain for three years a copy of each advertisement used.

Connecticut

On May 21, 2004, the Governor of Connecticut signed into law Senate Bill 157, concerning mortgage rate lock-ins. The bill, which was effective upon passage, includes within the definition of "mortgage rate lock-in" an electronically transmitted rate lock-in and also includes a rate lock-in transmitted to a representative of a mortgage applicant.

The bill prohibits a mortgage lender from committing to a first mortgage loan applicant or the applicant's representative that the lender will make a loan at a specified rate if the loan is closed within a certain period, except by issuing a mortgage rate lock-in.

Last, the law provides that no mortgage broker shall collect a rate lock-in fee, except where required by a government agency to be collected directly by the mortgage broker, issue a mortgage rate lock-in, or otherwise represent to a first mortgage loan applicant or the applicant's representative that the loan will be made at a specified rate if the loan is closed within a certain period.

However, a mortgage broker may provide a mortgage lender's mortgage rate lock-in to a mortgage loan applicant or the applicant's representative and collect a rate lock-in fee on behalf of the mortgage lender, payable to the mortgage lender.

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