By the Division of Banks


  1. APPLICABILITY AND SCOPE

    The purpose of this Regulatory Bulletin is to provide a standard for determining when an extension of credit with an adjustable or variable rate of interest made to a first time home loan borrower and secured by a mortgage lien on the borrower's residential property qualifies as a subprime loan and triggers the counseling and opt-in requirements set forth in General Laws chapter 184, section 17B½. See SECTION 7 of Chapter 206 of the Acts of 2007.

  2. DEFINITIONS

    As used in this Bulletin the following words shall, unless the context otherwise requires, have the following meanings:

    Affirmatively opt-in writing: At or before the loan closing, but in no event prior to the borrower(s) receiving the in person counseling required by General Laws chapter 184, section 17B½, the mortgagee shall obtain a separate statement signed by the borrower(s) which includes a statement in at least 16-point capitalized boldface font indicating that the borrower elects to opt into a subprime loan with an adjustable or variable interest rate.

    Annual percentage rate: This term shall have the same meaning as found in General Laws chapter 140D and 209 CMR 32.00 et seq.

    First-time home loan borrower: A natural person obtaining a mortgage loan to purchase a residential property for the first time.

    Fully indexed rate: The index rate prevailing at origination plus the margin that will apply after the expiration of an introductory interest rate. The index rate is a published interest rate to which the interest rate on an adjustable or variable rate mortgage loan is tied.

    Mortgage loan: A loan to a natural person made primarily for personal, family or household purposes secured wholly or partially by a mortgage on residential property.

    Residential property: Real property located in the commonwealth having thereon a dwelling house with accommodations for four or less separate households and occupied, or to be occupied, in whole or in part by the obligor on the mortgage debt, but excluding mortgage liens on vacation and investment properties.

    Simultaneous second lien: A loan secured by a second or subsequent mortgage lien originated and closed in conjunction with a first mortgage loan on the same residential property, the proceeds of which are used as part of the purchase price of the residential property.

  3. POLICY

    General Laws chapter 184, section 17B½ states in part that "no mortgagee shall make a subprime loan at a variable or adjustable rate of interest unless the mortgagor affirmatively opts in writing for the variable or adjustable rate subprime loan and receives certification from a counselor." Accordingly, the Division hereby adopts the following standard for determining when a loan made to a first time home loan borrower with an adjustable or variable rate of interest qualifies as a subprime loan. In addition, the Division adopts the following guidelines to meet the counseling and opt-in requirements.

    1. Determination of Subprime Mortgage Loans

      For the purposes of General Laws chapter 184, section 17B½, the determination of whether an extension of credit with an adjustable or variable rate of interest made to a first time home loan borrower will be deemed to be a subprime mortgage loan shall be made in accordance with the following:

      1. First Lien Mortgage Loans
        1. A first lien mortgage loan shall not be deemed to be subprime if the loan amount does not exceed the conforming loan limits set for the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") and is eligible for purchase by FNMA or FHLMC.
        2. Otherwise, a first lien mortgage loan shall be deemed to be a subprime mortgage loan if either of the following apply:
          1. The loan amount does not exceed the conforming loan limits set for FNMA or FHLMC and the fully indexed rate is greater than three (3.0) percentage points above the yield on United States Treasury securities having comparable periods of maturity, as of the 15 th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
          2. The loan amount exceeds the conforming loan limits set for FNMA or FHLMC and the fully indexed rate is greater than four (4.0) percentage points above the yield on United States Treasury securities having comparable periods of maturity, as of the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.
      1. Simultaneous Second Lien Mortgage Loans

        For loans secured by a simultaneous second lien on residential property, the mortgage loan shall be deemed to be a subprime mortgage loan if the fully indexed rate for the simultaneous second lien is greater than five (5.0) percentage points above the yield on United States Treasury securities having comparable periods of maturity, as of the 15 th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.

    2. Counseling and Opt-in requirements

      At or before the closing of the mortgage loan, the lender shall obtain from a first-time home loan borrower seeking a subprime loan with an adjustable or variable interest rate, a written certification from a third-party nonprofit approved counseling organization, prior to the day of the loan closing, that the borrower received in person counseling on the advisability of the loan transaction. The lender must then obtain the borrower's written statement to affirmatively opt in for the variable or adjustable rate subprime loan. Such third-party nonprofit organization shall be approved by one of the following entities: (1) the United States Department of Housing and Urban Development; (2) MassHousing; or (3) Massachusetts Homeownership Collaborative also known as Citizens’ Housing and Planning Association (CHAPA).

  4. HISTORICAL NOTES

    This bulletin was issued on January 30, 2008. The bulletin was revised on May 8, 2012.

  5. AUTHORITY

    G.L. c. 184 section 17B½.