Banking Interpretations

Regs Part 38

November 30, 2001

Mr. [                           ]
[                                  ]
[                                  ]

Re:  Fee charged in connection with a mortgage.

Dear Mr. [                ]:

Your letter regarding a fee charged by Executive Lending Services ("Executive"), a division of Baltimore American Savings Bank ("BASB"), in connection with a mortgage received by you has been referred to me for response.

According to your letter, subsequent to receiving a mortgage commitment from Executive, you decided to take a mortgage with a different bank. Upon informing Executive of your decision, BASB imposed a cancellation fee of one point of the mortgage loan.  You acknowledge that when you submitted your application, you executed a written disclosure indicating your understanding that BASB would impose a fee of one point of the mortgage loan amount should you cancel subsequent to BASB issuing a commitment.  After learning that this cancellation fee may be illegal, you contacted BASB's regulator, the Office of Thrift Supervision ("OTS"), and were informed by the OTS that since a specific Federal law or regulation does not exist regarding the imposition of this fee by a Federal thrift institution, the OTS would defer to applicable state law.  As a result, you request that the New York State Banking Department ("Department") provide you with an opinion as to whether the imposition of such a fee is permissible under New York law.

Neither the New York Banking Law nor the regulations promulgated thereto prohibit an exempt institution[1] from imposing a fee against an applicant upon cancellation of a mortgage application.  Consequently, since BASB disclosed the terms and conditions under which said fee would be imposed, acknowledged by you, the imposition of such a fee is not prohibited in New York. 

Thank you for your attention to the above.

Very truly yours,

Alvin A. Narin
Assistant Counsel

[1]  Pursuant to Section 38.1(g), Federal thrift institutions are considered exempt organizations subject to the provisions of Part 38.