By the Division of Banks

September 10, 2007

To the Chief Executive of the Institution Addressed:

This letter is to inform you that the Division of Banks (the "Division") recently finalized Regulatory Bulletin 5.1-104 pdf format of 5_1-104.pdf
as well as the amendments to the Division's regulation 209 CMR 42.00 et seq. Regulatory Bulletin 5.1-104 sets forth guidance which is intended to address the risks and concerns associated with the origination of subprime mortgage products and became effective on September 10, 2007. The amendments to 209 CMR 42.00 et seq. went into effect on September 7, 2007. The Division is also announcing its intention to issue Regulatory Bulletin 5.2-101 which provides guidelines relative to the establishment and maintenance of the corporate surety bond by licensed mortgage lenders and mortgage brokers.

Guidance on Subprime Mortgage Products pdf format of 5_1-104.pdf

Regulatory Bulletin 5.1-104 was issued in order to clarify how licensed mortgage lenders and mortgage brokers (referred to therein as "providers") can offer certain subprime mortgage products in a way that clearly discloses the risks that borrowers may assume. As indicated above, the effective date of Regulatory Bulletin 5.1-104 was September 10, 2007.

As you may recall, on July 19, 2007, the Division sent an industry letter regarding proposed Regulatory Bulletin 5.1-104 to licensed mortgage lenders and mortgage brokers as well as to related associations. The guidance relative to subprime mortgage product risks contained in Regulatory Bulletin 5.1-104 substantially mirrored federal guidelines issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration on June 29, 2007, to all banks and their subsidiaries, bank holding companies and their nonbank subsidiaries, savings associations and their subsidiaries, savings and loan holding companies and their subsidiaries, and credit unions.

The Division's industry letter requested comments on Regulatory Bulletin 5.1-104 from interested parties through August 8, 2007. The Division appreciates the time taken by those individuals who submitted comments on the guidelines. The Division concluded that the guidelines, as proposed by the Division, should remain intact without revision. All licensed mortgage lenders and mortgage brokers should carefully review Regulatory Bulletin 5.1-104 which is available on the Division's web site at www.mass.gov/dob.

Amendments to 209 CMR 42.00 <em>et seq.</em> pdf format of cmr4209072007.pdf

The Division also filed final amendments to 209 CMR 42.00: The Licensing of Mortgage Lenders and Mortgage Brokers for publication in the Massachusetts Register on Friday, September 7, 2007 and took effect on that date.

The public hearing was held on the proposed amendments on July 10, 2007 and the comment period remained open until the close of business on July 20, 2007. The Division reviewed the oral comments received as well as all the written comments filed.

The amendments increase the minimum net worth requirement for licensed mortgage lenders and establish a minimum net worth requirement to implement the financial responsibility requirement for licensed mortgage brokers. The amendments exclude from the calculation of an applicant's or a licensee's net worth the value of a residence occupied in whole or in part by the applicant or licensee. The amendments require an applicant for a mortgage broker license to submit audited or reviewed financial statements. A surety bond requirement for both licensed entities was also established.

The final amendments include only one substantive change which is to add the failure to fund closed loans to the list of prohibited acts. The prohibition was added at 209 CMR 42.12A(16). Other technical rephrasing of certain provisions was done for clarification purposes. No other substantive changes were made. Accordingly, the minimum net worth as well as the range of the dollar amount for the surety bond for lenders and the dollar amount of the surety bond for a broker, although reviewed and discussed internally, were not changed.

As specified in the regulation in 209 CMR 42.17, the new net worth and surety bond requirements will apply to all applicants filing on or after the date of promulgation of the amendments to the regulation which became effective on Friday, September 7, 2007. Any entity licensed on or before September 7 th will be required to comply with the new net worth and surety bond requirements by December 31, 2008. Other amendments to the regulations are effective for all licensees on September 7, 2007. A copy of the final red-lined version of the regulations is available on the Division's website at www.mass.gov/dob under 'News and Updates' as well as 'Legal Resources.'

Proposed Regulatory Bulletin on the Surety Bond Requirement for Lenders and Brokers

In order to implement the surety bond requirement for licensed mortgage lenders and mortgage brokers, the Division is also announcing its intention to issue Regulatory Bulletin 5.2-101 and to provide an opportunity to comment on the proposed Regulatory Bulletin in advance of its issuance by the Division. The proposed Regulatory Bulletin sets forth guidelines relative to the establishment and maintenance of the corporate surety bond and can likewise be found on the Division's web site at www.mass.gov/dob under 'News and Updates' as well as 'Legal Resources.'

The Division is pleased to accept comments on the proposed Regulatory Bulletin 5.2-101 from interested parties which should be submitted by October 10, 2007 via e-mail to dob.comments@state.ma.us or by mail addressed to Steven L. Antonakes, Commissioner of Banks, One South Station, 3 rd Floor, Boston, MA 02110.

Very truly yours,

Steven L. Antonakes
Commissioner of Banks