Office of Consumer Affair’s Division of Banks’ New Regulations Will Prohibit Lenders from Foreclosing if Modification Costs Less
Enhanced Regulations Continue Commonwealth's Leadership on Foreclosure Prevention
BOSTON – Massachusetts homeowners will see enhanced protections under regulations filed by the Patrick Administration’s Division of Banks (DOB) and finalized last Friday that will prevent national and state lenders from foreclosing on a property if a modification costs less.
“These regulations are the strongest on the books so far and are an added tool for homeowners across the Commonwealth,” said Undersecretary of Consumer Affairs and Business Regulation Barbara Anthony. “Lenders are now required to do a net present value analysis before foreclosing. The absence of a requirement like this was certainly a factor in the foreclosure crisis, and we in Massachusetts have taken strong action to remedy this.”
The new regulations were created as a result of the law signed by Governor Patrick in August 2012. They will require lenders to consider all available loss-mitigation options before proceeding to foreclosure, similar to standards created in the national mortgage servicer settlement between the U.S. Attorneys General with five national servicers. Lenders must compare the cost of mortgage loan modification to the cost of foreclosing using a net present value (NPV) analysis prior to foreclosing on certain mortgage loans, such as those with teaser rates, interest only payments or loans that were originated without full documentation. The NPV analysis must mirror models available through the Home Affordable Mortgage Program, the Federal Deposit Insurance Corporation, MassHousing or a model approved by the state DOB. These regulations add further protections for homeowners by preventing a servicer from initiating foreclosure when an application for a modification is in progress.
“The final regulations include documentation requirements and response times that are more consistent with national rules and requirements,” said Commissioner of Banks David Cotney. “This is a win-win for lenders and consumers, because the cost of modifying a loan is often less expensive than foreclosing. This will assist us in Massachusetts to continue to restore the housing market back to a healthy state.”
The law also requires lenders to send a notice to borrowers informing them of their right to request a loan modification for certain mortgage loans. The regulations provide a sample notice that, beginning on September 18, 2013, lenders must send to inform borrowers of the right to request a modification. A copy of the final regulations is available on the Division’s Website .
Borrowers will have 30 days to request a modification from the date that the lender sends the notice to the borrower. The regulations outline both the lender’s and borrower’s responsibilities if the borrower requests a modification, including how borrowers may provide documentation for additional consideration.
The finalization of these regulations comes on the heels of the first ever Commonwealth Housing Week, which Governor Patrick proclaimed from June 10 – June 16, 2013. Governor Patrick kicked-off Commonwealth Housing Week by announcing a new compact that creates a goal of providing 10,000 mortgage loans to first-time homebuyers over the next five years. The Home Ownership Compact includes a commitment among lenders to originate a specific number of mortgage loans to first-time home buyers with household incomes below the area median income through the MassHousing and the Massachusetts Housing Partnership programs. As part of Housing Week, Undersecretary Anthony and Housing and Community Development Undersecretary Aaron Gornstein toured the state, delivering foreclosure prevention grants from the DOB to regional housing counseling agencies in Springfield, Framingham and Brockton.
The DOB oversees state-chartered banks and credit unions as well as mortgage lenders and brokers, debt collectors and check-cashers, and is an agency within the Office of Consumer Affairs and Business Regulation. Follow the Office at its blog, on Facebook and on Twitter, @Mass_Consumer.