By the Division of Banks
As of July 29, 2005

In order to facilitate the implementation of the High Cost Mortgage Loan amendments to 209 CMR 32.32, the Division is creating this general Question and Answer site. The Division will use this site to respond to the most frequently asked questions. The site will be updated on an ongoing basis.

Individual opinion requests made in writing to the Division will receive a response. However, to the extent than an opinion request asks a question of general interest, the issue raised and the Division's response will be added to this site.


Q. When will the regulations become effective?

A. The Division has changed the effective date of the regulations to Thursday, March 22, 2001. The Division initially established January 22, 2001 as the effective date for the amendments to 209 CMR 32.32 and 209 CMR 42.12A. The Division determined that a sixty day delay in the effective date is necessary for creditors to have all required disclosures available and in compliance with the regulations and to make certain technological changes to existing documentation and calculation systems. During this time period the Division will add its responses to additional frequently asked questions to this site.

Q. Do the regulations apply to loans closed on the effective date or applications made on that date?

A. The regulations will become effective for high cost mortgage loans for which the application is taken on or after March 22, 2001.

Q. The regulations require lenders to provide borrowers with a list of approved counselors. How do I obtain this list?

A. The list of approved counselors is available from the Division.

Q. The regulations require that an analysis of the obligors income be made in comparison to the median family income for the Metropolitan Statistical Area (MSA) in which the property is located. How can I obtain this information on various MSA's?

A. Information on income within the various MSA's is produced by the United States Department of Housing and Urban Development ("HUD") and is updated annually. The table below contains the data issued by HUD for the year 2005. The Division will update the information when the 2006 data becomes available.

MASSACHUSETTS 2005 MEDIAN FAMILY HOUSEHOLD INCOMES

MSA/CBSA or MD (Name & Number)

2005 Median Family Income

2005 Family Median Income Limits

Low(<50%) Mod(<80%) High(>120%)

Barnstable, MA MSA / 12700

$65,700

$32,850

$52,560

$78,840

Boston - Cambridge - Quincy, MA-NH MSA / CBSA / 14460

$80,250

$40,125

$64,200

$96,300

Boston-Quincy, MA (MD) /14484

$76,400

$38,200

$61,120

$91,680

Cambridge-Newton-Framingham, MA (MD) / 15764

$89,350

$44,675

$71,480

$107,220

Essex County, MA (MD) /21604

$76,700

$38,350

$61,360

$92,040

Pittsfield, MA MSA /38340

$60,450

$30,225

$48,360

$72,540

Providence-New Bedford-Fall River, RI-MA MSA/CBSA /39300

$64,750

$32,375

$51,800

$77,700

Springfield, MA MSA/CBSA / 44140

$61,800

$30,900

$49,440

$74,160

Worcester, MA MSA/CBSA / 49340

$70,400

$35,200

$56,320

$84,480

Statewide Non-Metropolitan Area

$70,450

$35,225

$56,360

$84,540

Q. Certain terms and words are not defined within 209 CMR 32.32. If a definition is necessary where do I find it?

A. The high cost home loans amendments to 209 CMR 32.32 are contained within the Commonwealth's regulations governing Truth-in-Lending. Definitions set out in that regulation or its statute, Massachusetts General Laws, chapter 140D as well as the Commentary to federal Regulation Z are to be used unless the context requires otherwise.

Q. The regulations at 209 CMR 32.32(3)(e) and 209 CMR 32.32(6)(m) both require specified disclosures to be given at the time of application or when it is determined that the application will result in a high cost mortgage loan. Can these disclosures be combined?

A. Yes, as long as each disclosure meets the requirements set out in the separate provisions of the regulations.

Q. The regulations require various disclosures to be made by the creditor. Would it be permissible for the broker to provide these disclosures?

A. No. It is the Division's long-standing position that the statutes or regulations requiring disclosures to be made by the creditor cannot be met by having a broker make the required disclosures.

Q. Where can a creditor find the yields on Treasury securities to calculate the annual percentage rate in order to determine if a loan is a high cost loan?

A. The Federal Reserve releases statistics on selected interest rates, including Treasury securities, which can be found by clicking http://www.federalreserve.gov/releases/H15/

Q. How does a creditor determine if an adjustable rate loan is a high cost loan using "interest rate that would be effective once the introductory rate has expired"?

A. The intent of 209 CMR 32.32(1)(a)1.c. is to calculate the Annual Percentage Rate (APR) on an adjustable rate mortgage (ARM) using the fully indexed rate as opposed to an introductory or "teaser" rate, subject to the terms of the note, for the purposes of determining whether the loan is a high cost home loan. It is important to remember that the threshold for first mortgage loans is 8 points over Treasury securities with a comparable maturity. In the case of a 30-year ARM, the comparable Treasury securities would be those with a 30-year maturity, regardless of when the adjustment occurs.

Below are two examples of a 30-year ARM with different terms and adjustment periods. Assuming that each loan application was received on January 15, 2001, the interest rate on 30-year Treasury securities on December 15, 2000 was 5.49%, meaning a loan would have to exceed 13.49% in order to be a high cost home loan (exclusive of the threshold for points and fees).

Example A

Introductory Rate - 9.5%
Current Index = 3 month Treasury securities (6.06% on December 15, 2000)
Rate determined at adjustment by adding 7.5% over the Current Index, rounded to nearest 1/8 th

While the rate for the first three months is 9.5%, using the fully indexed rate of 7.5% over the current index yields 13.56% which rounds to 13.5%. Therefore, without considering any other charges that may be calculated in the APR, this loan would be a high cost home loan.

Example B

Introductory Rate - 11.5%
Current Index = 3 year Treasury securities (5.35% on December 15, 2000)
Rate determined at adjustment by adding 7.5% over the Current Index, rounded to nearest 1/8 th

While the rate for the first three years is 11.5%, using the fully indexed rate of 7.5% over the current index yields 12.85%. Therefore, without considering any other charges that may be calculated in the APR, this loan would not be a high cost home loan.

Q. Did the two month delay in implementation of the amendments to 209 CMR 32.32 and 209 CMR 42.12A pertain only to enforcement by the Division or were the effective dates in the regulations officially changed to reflect the March 22, 2001 date?

A. Upon request, the Division filed Emergency Regulations with the Secretary of State on January 23, 2001 which officially changed the effective date of the Regulations from January 22, 2001 to March 22, 2001. The Emergency Regulations were subsequently published in Massachusetts Register #915 on February 16, 2001. The Division is proceeding to complete the process associated with the filing of Emergency Regulations.

Q. The regulations at 209 CMR 32.32(2)(a)3 require, among other things, the inclusion of payments to "an affiliate of the creditor" in determining points and fees. Does it also apply to payments of an affiliate of a broker, assuming that the broker and creditor are not affiliated themselves?

A. Absent an affiliation between the broker and creditor, it is the position of the Division that the cited provision of 209 CMR 32.32(2)(a)3 does not extend to payments to an affiliate of a broker.

Q. Do the regulations apply to an open-end credit plan?

A. Yes, the regulations apply to secured open-end credit plans. That is a change made by the amended regulations. To emphasize this change the word "unsecured" was added to 209 CMR 32.32(1)(b)2. Therefore loans not covered by the amended 209 CMR 32.32 are a reverse mortgage transaction and an unsecured open-end credit plan.

Q. What should a creditor do to assess repayment ability if the property is not located in an MSA?

A. The regulations address that issue in 209 CMR 32.32(5)(a). In such a case, it states that the requirement shall apply only to obligors whose incomes do not exceed 120% of the non-metropolitan median family income for Massachusetts. That information is on the table listed with the response to the proceeding MSA question.