SENATE, No. 647

SECTION 1.   Chapter 171 of the General Laws, as appearing in the 2004 Official Edition, is hereby amended by striking out Section 65 and inserting in place thereof the following section:--

Section 65.  The following words as used in this section, unless the context otherwise requires, shall have the following meanings:--

a)      “Real estate”, land or property, including improved land with a dwelling, owner occupied or unoccupied dwellings, unimproved land, farmland, a unit of a condominium, shares of stock issued by a co-operative housing corporation, leasehold interests under a lease which does not expire for at least five years beyond the maturity date of the loan, leasehold interests created in air rights over land, and any other interest in land.

b)      “Mortgage loan”, a loan, line of credit, or borrowing secured primarily by a lien on an interest in real estate.   The following categories of mortgage loans are specifically authorized by this section:

(1)   Residential mortgage loans secured by a first mortgage lien on a dwelling with four or less separate households and occupied or to be occupied by the borrower;

(2)   Residential mortgage loans secured by a subordinate mortgage lien on a dwelling with four or less separate households and occupied or to be occupied by the borrower including home improvement loans, home equity lines of credit and second mortgage loas;

(3)   Mortgage loans secured by a lien on real estate held or used for investment, governmental, nonprofit or other purposes;

(4)   Land loans;

(5)   Construction loans to improve real estate with improvements, structures, or projects for residential, investment, governmental or non-profit use and purposes related to incident thereto including infrastructure or development;

(6)   Mortgage loans secured by a lien on real estate saleable in the secondary market or underwritten in accordance with mortgage loan programs of public instrumentalities created by the commonwealth or the federal government for the purpose of financing and expanding the supply of residence mortgages or affordable housing.

c) The following loans shall not be deemed mortgage loans for purposes of paragraph (b) but shall be treated as loans pursuant to paragraph (d):

Loans for which a lien on or interest in real estate is taken as additional collateral through an abundance of caution, including loans pursuant to which the credit union takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real estate is low relative to the aggregate value of all collateral.

d) The term “loan” means any loan, or line of credit, whether secured by collateral or security of any nature or unsecured, for consumer or other purposes, other than a real estate loan.

e) Extensions of credit under paragraphs (a) through (d) of this section may contain any such agreed to terms and conditions including, but not limited to, those governing the payment of principal and interest, collateral, maximum loan-to-value ratios, maximum debt-to-income ratios, aggregate amounts, amortization, prepayment, loan servicing and the apportionment of taxes, betterment assessments and insurance of any kind applicable to the loan, subject to any limitations imposed by this chapter or other provisions of law.   A credit union also may subsequently revise or modify any such terms or conditions subject to agreement of the parties.

f) Notwithstanding the provisions of paragraphs (a) though (e), reverse mortgage loans and adjustable rate mortgage loans on owner occupied dwellings shall be subject to the provisions of section 4 and 5 respectively.

g) The commissioner may by directive, guideline or regulation, carry out the purposes of this section and to further define the terms used in this section to promote safe and sound banking practices.

1.     Credit unions may make or acquire loans and mortgage loans as specified in this section.

A credit union may also subsequently revise or modify any terms or conditions of such loans subject to agreement of the parties.

2.     Each credit union shall adopt and maintain comprehensive written loan policies that establish appropriate limits and standards for extensions of credit made pursuant to this section that are consistent with safe and sound banking practices and are appropriate to the size, nature and scope of the credit union’s operations.

(a)  Such loan policies shall establish prudent loan underwriting standards that clearly and measurably address, at a minimum: (1) maximum loan-to-value, loan amount, aggregate amounts, loan maturities, and debt-to-income requirements; (2) collateral and appraisal requirements; (3) application and loan approval requirements; and (4) loan administration procedures.  Such written loan policies shall be reviewed and approved annually by the credit union’s board of directors.

(b)   The commissioner may by directive, guideline or regulation, establish additional minimum safe and sound lending requirements. 

3.      A credit union shall inspect the real estate securing a loan in the event that a payment of interest or principal upon any such loan or on account of real estate taxes upon the parcel mortgaged to secure the same shall be in default.  Inspection for the purpose aforesaid shall be made within ninety-one days from the date of such default in payment of interest or principal or within one hundred and eighty-one days from the date of such default in payment on account of taxes, as the case may be, and thereafter periodic inspection shall continue in accordance with the foregoing provision of this clause until such loan shall no longer be in default. 

4.      The commissioner may cause an appraisal of real estate to be made at the expense of the credit union whenever the commissioner deems an excessive loan has been made or is about to be made upon real estate.

5.      A credit union may make or acquire a reverse mortgage loan, pursuant to the provisions of any program for reverse mortgage loans which has been submitted to and approved by the commissioner, to the owner of real estate improved with a dwelling designed to be occupied by not more than four families; provided, however, that each such owner shall be at least sixty years of age and shall occupy the mortgaged real estate in whole or in part; and provided further, that a person shall be deemed to be the owner of real estate notwithstanding that legal title thereto is held in the name of a trust if said person is the beneficiary of such trust.

a)      For the purposes of this section, a reverse mortgage loan shall not be considered a residential mortgage transaction, as defined in section 1 of chapter 140D or any other transaction specified in subsection (e) of section 10 of said chapter 140D.   The notices and rights contained herein shall be in addition to the disclosure and rights provided for in said chapter 140D, including the right of rescission set forth in said section 10 of said chapter 140D.

b)      The proceeds from a reverse mortgage loan shall be disbursed to the borrower, pursuant to the provisions of such program, and together with unpaid interest, if any, shall become due and payable (i) at the end of a fixed term, if any; (ii) upon the death of the borrower; (iii) upon the conveyance of title to the mortgaged real estate; (iv) upon such borrower ceasing to occupy such real estate as a principal dwelling; or (v) upon default by the borrower in the performance of its obligations under the loan agreement.

c)      The commissioner shall not approve any program for reverse mortgage loans which does not include the following:

(1)   the type of loan, whether open-end or closed and whether a recourse or non recourse loan;

(2)   an applicant for any such loan shall not be bound for seven days after his acceptance, in writing, of the lender’s written commitment to make the loan;

(3)   the credit union shall obtain a written statement signed by the borrower acknowledging receipt of disclosure of all contractual contingencies which could force a sale of the mortgaged real estate;

(4)   a provision permitting prepayment of the loan without penalty at any time prior to said loan becoming due and payable;

(5)   the interest rate, which may be fixed or variable, and the method of calculation thereof shall be established at loan origination; quote and, at the option of the borrower, may be contingent on the value of the mortgaged real estate at closing or at maturity or on changes in said value during the period between closing and maturity;

(6)   the method of disbursement of the proceeds of the loan to the borrower; provided, however, that at the request of the borrower, disbursement may be made to a third party pursuant to the terms of the loan agreement;

(7)   a copy of the form of the note and mortgage deed that will be utilized for such loans;

(8)   a detailed description of how the plan will function; and

(9)   such other information as the commissioner may require.

d)      Prior to making any such loan, a credit union shall provide a prospective borrower with written materials explaining in plain language, the type of mortgage being offered and its specific terms, including but not limited to:

(1)   a schedule, if applicable, and explanation of payments to the borrower pursuant to the terms of the mortgage agreement and whether or not property taxes and insurance premiums are to be deducted:

(2)   a schedule of outstanding debt over time, if applicable;

(3)   repayment date, if a fixed term loan, and other provisions which cause the loan to become due and payable;

(4)   method of repayment and schedule, if any;

(5)   all contractual contingencies, including lack of home maintenance and other default provisions which may result in a forced sale of the mortgaged property;

(6)   interest rate and annual percentage rate, and for a reverse mortgage loan for a specified term, total interest payable thereon;

(7)   loan fees and charges;

(8)   description of prepayment and, if applicable, refinancing features; and

(9)   inclusion of a statement that any such mortgage has tax and estate planning consequences and may affect levels of, or eligibility for, certain government benefits, grants or pensions, and that applicants are advised to explore such matters with appropriate authorities.

e)      A credit union shall not make a reverse mortgage loan as provided in this section until it has received a notice, in writing, that the prospective borrower has completed a reverse mortgage counseling program which has been approved by the executive office of elder affairs and which shall include instruction on reverse mortgage loans.   Any such program shall include, but is not limited to, the subject matter of subparagraphs (1) to (9), inclusive, with respect to all reverse mortgage loan programs approved by the commissioner pursuant to this section.   For the purpose of providing such counseling, said executive office of elder affairs shall establish and maintain a list of counseling programs approved by it and shall make such list available to all credit unions and to the public.

f)       A reverse mortgage loan shall constitute a lien against the property securing the loan to the extent of all advances made pursuant to the reverse mortgage and all interest accrued on such advances, and the lien shall have priority over any lien filed or recorded after recordation of a reverse mortgage loan.  The commissioner may promulgate regulations necessary to carry out the provisions of this paragraph.  For the purposes of this paragraph, the term “non-recourse reverse mortgage loan” shall mean a reverse mortgage loan which limits the lender’s recovery solely to the value of the property at the time the loan becomes due and payable.  The provisions of sections 96 to 114A, inclusive, of chapter 140 shall not apply to a reverse mortgage loan.

6.      Any credit union may make or acquire mortgage loans evidenced by a note which provides for variation in the rate of interest over the term of the note; provided, however, that such a loan made to finance or refinance the purchase of and secured by a first lien on a dwelling house of 4 or fewer separate households occupied in whole or in part by the mortgagor shall be subject to but not limited to the following conditions and restrictions imposed by the commissioner:--

(1)   the method by which the rate of interest may be adjusted;

(2)   the frequency with which the rate of interest may be adjusted, provided that successive rate adjustments shall be no less than 6 months apart;

(3)   the maximum increase in the rate of interest allowed for any such adjustment;

(4)   provisions for decreases in the rate of interest as may be warranted by market conditions;

(5)   requirements for advance notification and explanation of adjustments in the rate of interest, provided that such notification and explanation shall occur no less than thirty days prior to such adjustments; and

(6)   methods of disclosure to the mortgagor of the terms and conditions of the loan as required under the provisions of chapter 140 D. 

Notwithstanding any provision of the law to the contrary, the commissioner may by further conditions and restrictions provide that the rate of amortization may be varied, including utilizing a period of negative amortization, in order to adjust the rate of interest.

7.      Every credit union, subject to any limitations imposed by this section or other provisions of the General Laws, shall have the following powers and whatever further incidental or complementary powers that may fairly be implied from those expressly conferred and such as are reasonably necessary to enable it to exercise fully those powers according to common customs and usages:

(1)     To discount, buy, invest in, hold, assign, transfer, sell and negotiate promissory notes, drafts, bills of exchange, mortgages, bonds, debentures, bonds or notes secured by mortgages, installment obligations, and other evidences of debt;

(2)     To advance money or credits on real estate, on improvements thereto or on personal security, on terms to be agreed upon; and

(3)     To buy, sell or make loans as participation loans with any other federally-insured credit union, bank or insurance company and to service any loans sold by it.

Section 2.   Chapter 171 of the General Laws, as so appearing, is hereby further amended by striking out Section 66 and inserting in place thereof the following new section:--

Section 66.  In making mortgage loans on real estate pursuant to section sixty-five, a credit union shall also be subject to the following conditions:

1.      The person obligated from time to time to make payments under a mortgage, whether as the original borrower or as a subsequent owner of the mortgaged property, shall be or shall become a member of the credit union. 

2.      Each loan shall be on real estate situated within the commonwealth or within a radius of one hundred miles of the main office of the credit union without regard to geographical location.

3.      A credit union having assets of not more than one hundred thousand dollars may invest not more than fifty percent of its assets in real estate mortgages.  A credit union having assets of more than one hundred thousand dollars may invest not more than seventy percent of its assets in real estate mortgages.  A credit union having assets of five hundred thousand dollars or more may invest not more than eighty percent of its assets in real estate mortgages.