Applicability Of Restrictions On Late Fee And Prepayment Penalties On Residential Mortgage Loans To Federally-Chartered And Out-Of-State Banks - Q1 1999

By the Division of Banks

Mass. Gen. Laws chapter 183, section 56 sets forth the maximum allowable prepayment penalty on one-to-three family, owner-occupied residential mortgage loans originated in the Commonwealth and is applicable to "any mortgage note secured by a first lien" in the state. It has been the consistent position of the Division that since the language in said section 56 refers to the mortgage note itself, and not to a specific type of lender, the prepayment penalty restrictions are applicable to all lenders, including federally-chartered banks and out-of-state banks, which seek to assess a prepayment penalty on first mortgage loans in the Commonwealth. Mass. Gen. Laws chapter 183, section 59 clearly states that no mortgagee shall assess a late charge in excess of 3%.