A First Mortgage Loan Product As A Revision Of Terms Pursuant To Massachusetts General Laws Chapter 183, Section 63A - Q4 1999

By the Division of Banks

This issue pertains to a mortgage product which would enable the borrower, at his/her sole direction, to choose to decrease the interest rate on said mortgage loan at any time during the term of the loan in a period of declining interest rates. This would be accomplished by granting the borrower an option to exercise an interest rate reduction as part of the original note and mortgage loan. In order to exercise this modification option, the borrower would pay a fee of 2.5 points to the lender and sign a modification agreement confirming the new interest rate. The benefit to the borrower would not only be in the form of a reduced interest rate but also would save the borrower the costs associated with a full refinancing of the loan in order to obtain a lower rate.

The Division has determined that a mortgage loan product which includes in the original loan documents an option on behalf of the borrower to decrease the interest rate on said loan at any time during the term of the mortgage loan at the complete discretion of the borrower is not a revision of the terms. There is no revision being made to the existing mortgage note. Instead an option in the mortgage note is being exercised by the borrower. Since the product is not a revision of terms pursuant to said section 63A of Massachusetts General Laws chapter 183, the restrictions relative to permissible fees and additional money to be loaned contained in said section 63A would not apply to this product.