We are a portfolio lender for our residential loans. It is our policy to honor the rate in place as of issuing the commitment letter. We issue a commitment letter that includes the rate. The commitment letter is signed by the borrower and does have an expiration date. Is this considered a rate lock? For Massachusetts's 209 CMR 42: Rate lock regulations. I am unsure if listing the rate on the commitment letter triggers the need to provide the full rate lock agreement as described in 42.11a? It states:

(4) Required disclosures and notices. Prior to taking of any points or a rate lock commitment fee or otherwise offering or entering a mortgage loan rate lock commitment with a borrower, a mortgage lender must provide the borrower with a mortgage loan rate lock commitment signed and dated by the mortgage lender which incorporates the following information...

We don't charge a rate lock fee or any points. Ideally, we'd rather not issue the full rate lock agreement described in 209 CMR 42.

Well, I think you need to be talking to legal counsel. This statement is a little concerning to me: " It is our policy to honor the rate in place as of issuing the commitment letter.". If this is a commitment letter, how could you not honor the rate.

But since you are a portfolio lender, you might also want to look at 209 CMR 42.11A(3):

(3) The provisions of 209 CMR 42.11A(1)(a) and (2)(a) shall not apply to interest rate lock commitments entered into or issued in connection with mortgage loans which are to be held for investment purposes only and are not to be sold or held for less than six months for sale into the secondary mortgage market or to other investors.

Either way, this is a question for your legal counsel.

Thanks for the feedback. I may have been unclear on the commitment letter. We always honor that rate as long as the loan closes prior to the commitment expiring as we are obligated to do so.

I somehow missed that language in 209 CMR 42.11A(3). Very helpful.

Lastly, I assume we should issue a revised LE with the rate lock info once we get the signed commitment letter back? We don't use a specific rate lock agreement form but the since it is a legal rate agreement and signed by the applicants should we indicate the rate is locked on the LE?

Well, I am not sure. That is why I suggested talking to your legal counsel. The use of the term "commitment letter" is confusing to me if you are requiring that the consumer sign the letter and return it. A lender usually issues a commitment letter only after they have fully underwritten the loan transaction and is committing to make/fund on specific terms and conditions, except under potentially very limited conditions. Otherwise, it is not much of a loan commitment.

I think it might be a good time to have this whole process reviewed by your legal counsel under the current laws and regulations, if it has not been done in a while.

Personally, these sorts of processes seem to be derived from "we have always done it like this" and the original process has been influenced over the years by this and that person and it never makes it back for a vetting by legal counsel.