Selected Opinions regarding mortgages lenders and brokers: 98-271 through 97-075

Through these opinions the Division of Banks offers perspective on issues and questions in the financial services industry.

Summary of Selected Opinion 98-271

Licensing requirements for employees of real estate association - Q1 1999

A mortgage company, that is a wholly owned subsidiary of a federally chartered thrift institution, seeks guidance relative to a proposed alliance with a realty association wherein employees of the realty association would perform certain functions on behalf of the mortgage company. The employee would pre-qualify the borrower, complete a mini mortgage application, obtain a Residential Mortgage Credit Bureau Report, order an appraisal, and assist in ordering a title. The mortgage company would be responsible for training the employee, completing the mortgage application and any additional disclosures, and processing, underwriting, and funding the loans. The mortgage company would compensate the realty association a specified amount per closed loan.

Mass. Gen. Laws chapter 255E, section 2 provides a lender and broker licensing exemption for certain entities, including a federal savings bank or any subsidiary thereof. Accordingly, the mortgage company is exempt from chapter 255E licensing. It is the opinion of the Division that the employees of the realty association who engage in the proposed activities for the benefit of the mortgage company would be required to obtain a license as a mortgage broker under chapter 255E.

Summary of Selected Opinion 98-258

Authority of mortgage broker to issue a conditional approval letter - Q1 1999

Massachusetts General Laws chapter 255E defines a "mortgage lender" as any person or entity who is in the business of making mortgage loans or issuing commitments for mortgage loans. The Division would view a conditional approval letter as a commitment. Since a commitment letter may only be issued by a licensed mortgage lender in the Commonwealth, it is the position of the Division that a broker cannot issue a commitment letter, a conditional approval letter, or other similar letter relative to a mortgage loan.

Summary of Selected Opinion 98-257

Open-end and closed-end second mortgage Loans - Q4 1998

For the purposes of licensing under Mass. Gen. Laws chapter 255E, regarding mortgage lenders, the statute makes no distinction between first or subsequent mortgage loans. Said chapter 255E and its implementing regulation 209 CMR 42.00 et seq. thus require that an entity making open-end or closed-end, first or subsequent mortgage loans, be licensed as a mortgage lender in the Commonwealth. M.G.L. c. 140D and regulation 209 CMR 32.00 et seq. cover fee disclosure requirements for each type of second mortgage loan. Open-end lines of credit secured by a mortgage are governed further by M.G.L. c. 140 § 114B, which, in general, establishes a maximum interest rate of 18% per annum on any open-end credit plan and authorizes the creditor to charge a late charge of 10% of the outstanding balance or $10, whichever is less, on any payment not made within fifteen days of its due date. M.G.L. c. 183 § 59 establishes a maximum late charge of 3% of the overdue principal and interest on any payment on a closed-end mortgage not made within fifteen days of its due date.

Note that an entity licensed as a mortgage lender may make both closed-end and open-end mortgage loans in the Commonwealth. Lenders offering open-end lines of credit in disbursements or sums less than $6,000.00 require a small loan agency license under M.G.L. c. 140 §§ 96-114A.

Summary of Selected Opinion 98-243

Truth-in-lending requirements - Q4 1998

Massachusetts is one of four states which is exempt from the federal truth-in-lending act and its accompanying Regulation Z, as Mass. Gen. Laws chapter 140D and 209 CMR 32.00 have been determined to be substantially similar to the federal requirements. The method for calculating a mortgage loan's APR, including the fees and charges which may be excluded or must be included in that calculation, is set forth by 209 CMR 32.04. The Division has adopted the Regulation Z Staff Commentary as part of the state law, to the extent that it is consistent with M.G.L. c. 140D. Note that mortgage brokers should not distribute or prepare truth-in-lending disclosures for consumers. That responsibility falls on the mortgage lender in whose name the loan is closed. The lender also is responsible for the accurate calculation of the mortgage loan's APR and other compliance issues.

Summary of Selected Opinion 98-240

Lenders requiring casualty insurance binders which guarantee full replacement cost of a property being mortgaged - Q4 1998

Massachusetts General Laws chapter 183, section 66 states that a bank, lending institution, mortgage company or any mortgagee doing business in the Commonwealth, when making a mortgage loan, "shall not require, as a condition of a mortgage or as a term of a mortgage deed, that the mortgagor purchase casualty insurance on property which is the subject of the mortgage in an amount in excess of the replacement cost of the buildings or appurtenances on the mortgaged premises." Based on the language of this section, the Division is of the opinion that insurance binders issued by insurance agents in a mortgage transaction must state that insurance coverage is for the replacement cost of the mortgaged premises. Section 66 does not include any other type of insurance, and a lender may not require such coverage in excess of that authorized by statute.

Mass. Gen. Laws chapter 175, section 95 may be implicated by banks requesting insurance in excess of the fair market value of the property. This question is a matter for the Division of Insurance to decide, as that statute falls under its jurisdiction.

Summary of Selected Opinion 98-230

Exemption from licensing requirement for account executives performing business activities from home - Q1 1999

A mortgage lender intends to permit account executives to perform certain business activities from their residence. The executives would have no contact with individual borrowers but only with mortgage brokers, would not hold out their residences in any way as affiliated with the lender, and essentially act as a conduit of mortgage applications to the regional processing centers. It is the position of the Division that the residences of account executives are not branch offices of the lender and no separate license would be required under Mass. Gen. Laws chapter 255E.

Summary of Selected Opinion 98-224

Permissibility of lender selecting the method of simple interest amortization used to service second mortgages - Q1 1999

There is no statute or regulation in Massachusetts that requires a certain method of calculating interest and applying payments on a second mortgage loan. It is the position of the Division that the loan documents and required disclosures would have to contain the method to be used and be an agreed upon part of the contract between the parties. However, it appears that the common practice in Massachusetts is the use of the amortization schedule. A deviation from that standard to the disadvantage of the consumer could be viewed as an unfair and deceptive practice under the Commonwealth's Consumer Protection Act, chapter 93A of the General Laws. Mass. Gen. Laws chapter 140, section 90A, establishes a maximum interest rate of 18% on second mortgage loans on 1-6 family, owner-occupied properties which have an assessed value of $40,000 or less. The maximum interest rate on these loans cannot be exceeded even by agreement of the parties as to a method of calculating interest and crediting payments.

Summary of Selected Opinion 98-211

Licensing and education requirements for mortgage brokers and lenders - Q4 1998

Massachusetts General Laws chapter 255E, section 2 sets forth the Commonwealth's licensing requirements for mortgage brokers and lenders. Persons who are employees of or who are working under the direction of a licensed mortgage broker or lender are exempt from this licensing requirement. For this exemption to be effective, the relationship must be exclusive, the licensee must complete a Statement of Accountability on behalf of the individual, and the individual must complete an Exemption Affidavit. The Division, in Opinions #97-061 and #96-221, requires that the individual be engaged primarily in the capacity of a mortgage broker or lender. Individuals who do not meet these requirements must apply for individual licenses.

The Division's Regulatory Bulletin 5.1-102, dated May 15, 1998, formalizes the experience and education requirements for mortgage lender and broker license applicants.

Summary of Selected Opinion 98-203

Federal preemption of state law concerning prepayment penalties for mortgage loans

The Office of Thrift Supervision opinion concerning the Alternate Mortgage Transaction Parity Act indicates that the Act preempts state laws which restrict prepayment penalties for federal thrift institutions and other housing creditors relative to adjustable rate mortgage loans, unless the state opts out of the Act's preemption provision. Under 12 U.S.C.S. §3804 of the Act, each state was given three years to reject the federal preemption with regard to alternative mortgage transactions. The Legislature voted to override this preemption by enacting Chapter 224 of the Acts of 1985. It is the position of the Division of Banks that prepayment penalties on adjustable rate mortgage loans and balloon payment mortgage loans are governed by Massachusetts law. As Mass. Gen. Laws chapter 183, section 56 makes no distinction between fixed rate mortgage loans and adjustable or balloon payment mortgages, all loans originated in the Commonwealth must be in compliance with this statute concerning maximum prepayment penalties.

Summary of Selected Opinions 98-202, -209

General mortgage lender licensing requirements - Q4 1998

Mass. Gen. Laws chapter 255E governs the licensing of residential mortgage lenders. The entity in whose name the loan is closed, as reflected in the loan documents, is the entity which must be licensed as a mortgage lender under said chapter 255E. Any entity, including a trust, which originates more than four mortgage loans in a consecutive twelve-month period must be licensed by the Commonwealth. This licensing requirement applies to mortgages on 1-4 family, owner-occupied real estate, and does not apply to investment or non-owner occupied real estate. Once the numerical threshold of five mortgage loans has been reached, the entity must be licensed. Pursuant to M.G.L. c. 93 § 70, an attorney licensed in the Commonwealth must issue a certification of title to the mortgagee and the mortgagor as part of the loan transaction.

Summary of Selected Opinion 98-201

Permissibility to offer a personal checking account containing a "sweep" feature - Q1 1999

A bank seeks to offer a checking account to personal account holders containing a feature that "sweeps" excess funds into a repurchase instrument and back into the checking account as needed to pay checks. Mass. Gen. Laws chapter 167D provides banks the authority to offer a broad variety of deposit products to consumers solely as a matter of contract. However, bank investments are governed by Mass. Gen. Laws chapter 167F. It is the opinion of the Division that the bank may offer this type of account provided that the repurchase feature of the account must, to the extent applicable, be in compliance with said chapter 167F and all relevant federal requirements, including guidelines as to non-deposit investment products. The bank must also make clear and conspicuous disclosure to depositors that the repurchase agreement is not an insured deposit and may contain risk including the loss of principal.

Summary of Selected Opinion 98-199

Licensing requirements for mortgage loan servicers - Q4 1998

Mass. Gen. Laws chapter 255E governs the licensing of mortgage lenders and brokers, but the Commonwealth does not require a license to service mortgage loans originated in the Commonwealth. Should an entity servicing home improvement loans seek to collect, in the Commonwealth, loan payments more than thirty days in default, on the behalf of the owner of the loan, the servicer must be licensed as a collection agency according to M.G.L. c. 93 § 24 and its implementing regulation 209 CMR 18.00 et seq.

Summary of Selected Opinions 98-193 (-151)

Prepayment penalties for second mortgages

Mass. Gen. Laws chapter 183, section 56 governs prepayment penalties for first mortgage loans on 1-3 family, owner-occupied residential property. Although the imposition of a prepayment penalty is a contractual issue between a mortgage lender and a borrower, said section 56 sets forth the maximum amount of prepayment penalties which may be charged on first mortgage loans. M.G.L. c. 183 § 56 does not limit prepayment penalties on second mortgages, which remain subject to negotiation and agreement by the lender and the borrower. Mass. Gen. Laws chapter 140, section 90A, though, establishes a maximum annual interest rate of eighteen percent on second mortgage loans secured by owner-occupied property of six or less separate households having an assessed value of $40,000.00 or less. This statute grants borrowers the right to repay their debts without penalty, if the property is covered by the statute.

The Attorney General's Office has promulgated 940 CMR 8.00 et. seq., governing "unfair and deceptive practices" by mortgage lenders, as that term is defined in 940 CMR 8.03. Regulation 940 CMR 9.06(10) states that it is an unfair and deceptive practice for a mortgage lender to charge a prepayment fee which violates M.G.L. c. 183 § 56, which significantly deviates from industry-wide standards, or which otherwise is unconscionable. The Attorney General's regulations apply to certain mortgage loans, including, but not limited to, refinancings, second mortgages and subsequent liens other than equity lines of credit.

The Division intends to file legislation for consideration by the Commonwealth's General Court in the 1999 session to extend the coverage of said section 56 to second and subsequent liens. The recommendation would apply the statute to 1-4 family-occupied dwellings and condominium units.

Summary of Selected Opinion 98-190

Licensing requirements for entities engaging in brokering activities with home improvement contractors - Q4 1998

An entity intends to act as a loan broker with banks and other lending institutions in order to provide loans primarily to homeowners who require financing for home improvement loans. The entity would receive prospective customer information through referrals from home improvement contractors, who have entered into agreements with the entity. The entity would assist the lender in the loan process by inspecting the property to be mortgaged, both before and after the completion of the improvements. A U.C.C. filing typically will serve as the security interest for the loans. The lending institution and/or the contractor would pay the entity for its services.

Mass. Gen. Laws chapter 255E governs the licensing of mortgage brokers and requires that, if the above-described home improvement loans were secured by the borrower's owner-occupied, 1-4 family dwelling, the entity must be licensed as a mortgage broker. If the security is a U.C.C. filing only, then a mortgage broker license is unnecessary. If the amount of the home improvement loans are for $6,000.00 or less, then the entity would require a small loan agency license, under M.G.L. c. 140 §§ 96-114A and 209 CMR 12.00 et seq. Additionally, M.G.L. c. 142A governs home improvement contractors and contracts and 940 CMR 8.00 et seq. set forth provisions for home improvement contractors and mortgage brokers and lenders.

Summary of Selected Opinion 98-187

Liability of officers providing personal financial information in relation to their Employer's mortgage lender application - Q4 1998

Mass. Gen. Laws chapter 255E and 209 CMR 42.00 et seq. require that senior officers of a corporation seeking a mortgage lender's license must provide financial statements prior to the granting of said license. Recent corporate applicants were concerned about whether filing such information could subject certain senior officers to personal liability for the corporation's activities, even though they have no ownership interest in the corporation. The Division is of the opinion that this issue of personal liability is outside its jurisdiction and typically is one that is decided in an adjudicatory process. The purpose of the filing requirement is to determine whether senior officers of prospective mortgage lenders are financially responsible and possess the requisite character, fitness and integrity. This information goes to whether the applicant corporation could operate in the public's interest, honestly, soundly and in compliance with applicable law. Information submitted in support of an application becomes a matter of public record.

Summary of Selected Opinion 98-179

Attorney's fees relating to a mortgage closing included in the APR calculation

It has been the consistent position of the Division of Banks that bona fide and reasonable attorney's fees, as listed in 209 CMR 32.04(3)(g) 1-5, specifically are excluded from the finance charge, and therefore from the calculation of the annual percentage rate (APR) for a residential mortgage loan. In addition, federal Regulation Z contains the same exclusion of attorney's fees in section 226.4(c)(7). In the event that an attorney charges a fee for a service which is not excluded by this section, then the amount of the fee would be considered a finance charge and would be included in the APR.

Summary of Selected Opinion 98-178

Third-party document preparation companies

The Division of Banks does not license or regulate document preparation companies, nor is a license required currently by any other agency or statute of the Commonwealth. The Division emphasizes that any licensed mortgage lender or mortgage broker, according to Mass. Gen. Laws c. 255E, is responsible for the accuracy and completeness of the documents which must be provided to the borrower in a mortgage loan transaction. If mortgage lenders or brokers utilize third-party document preparation companies, they must take all measures necessary to ensure that the documents are in compliance with applicable statutes and regulations.

Summary of Selected Opinion 98-176

Exemptions from the requirement that mortgagees pay interest on tax escrow accounts

Mass. Gen. Laws chapter 183, section 61 requires mortgagees, holding first mortgages on owner-occupied, 1-4 family homes, who require advance payments of real estate taxes on the property, to pay interest on such advance payments. The interest is to be paid once per year at a rate of interest and in a manner to be determined by each mortgagee. Such mortgagees must file annual reports to the Division showing the interest paid on each account and other related financial information. The Division maintains as public record those annual reports.

The Division references, in Opinion # 95-106, the well-settled position that federal thrift institutions need not comply with the interest payment or reporting requirements of said section 61, and that any filing of that information would be strictly on a voluntary basis.

Summary of Selected Opinions 98-175 (-166)

Availability of monies due at the time of closing and recording

The Commonwealth's "Good Funds" statute, Mass. Gen. Laws. chapter 183, section 63B requires that, before the mortgage may be recorded, the full amount of the loan proceeds due the mortgagor must be transferred by the mortgagee to the mortgagor, to the mortgagor's attorney, or to the mortgagee's attorney. This transfer may come in the form of a certified check, bank treasurer's check, cashier's check or by a transfer of funds processed by an automated clearinghouse. The purpose of said section 63B is to ensure that loan proceeds are available to the borrower upon consummation of the transaction, in the form of cash or a cash equivalent, and to prevent a mortgagee from funding a transaction with funds which are not immediately available to the borrower. It is the position of the Division that, in the ordinary course of events, the proceeds of the loan due to the mortgagor are to be transferred so as to allow the transaction to be consummated on the day scheduled for closing and/or recording.

In a purchase money mortgage transaction where the loan proceeds are to be disbursed by the closing attorney immediately upon recording the mortgage, "good funds" must be in the attorney's account prior to the recording. In a closed-end mortgage transaction, such as a refinancing, where the right of rescission applies, a borrower not exercising the right of rescission has the right to receive the loan proceeds on the business day following the rescission period's expiration (midnight of the third business day following the closing). In this case, the "good funds" must be in the account of the closing attorney at the beginning of the business day following the expiration of the rescission period, as the borrower is charged interest on the loan for that day.

Summary of Selected Opinion 98-174

Licensing requirements for wholly-owned subsidiaries of out-of-state, state-chartered banks

Mass. Gen. Laws chapter 255E requires that any person or entity originating five or more residential mortgage loans in a consecutive twelve-month period secured by owner-occupied, 1-4 family property in the Commonwealth, must obtain a mortgage lender license from the Commissioner of Banks. Wholly-owned subsidiaries of out-of-state, state-chartered banks are not exempt from the mortgage lender licensing requirements of chapter 255E, even though the bank itself is exempt from said requirement.

Summary of Selected Opinion 98-173

Licensing requirements for entity providing telemarketing services for a licensed mortgage lender - Q4 1998

Mass. Gen. Laws chapter 255E, section 2 requires that any person who for compensation or gain, finds, places, or assists in the placement of residential mortgage loans for another entity must be licensed as a mortgage broker. The Division interprets this language to include the activity of referring prospective mortgage loan customers to a lender. A telemarketing operation that calls prospective customers to ascertain their interest in doing business with a particular licensed mortgage lender, even if the payment for the service is a flat hourly wage and is not dependent on applications received or loans originated, must be licensed under said chapter 255E. Section 2 exempts employees of a licensed mortgage broker and anyone acting as a mortgage broker fewer than five times within any period of twelve consecutive months.

Summary of Selected Opinion 98-172

Permissibility of licensed mortgage lender using employee management or leasing company to manage personnel details

Section 2 of Mass. Gen. Laws chapter 255E requires that any person or entity must be licensed to act as a mortgage broker or lender with respect to residential property in the Commonwealth. Persons who are "employed by or associated with a licensed mortgage broker or mortgage lender in the capacity of a mortgage broker or mortgage lender under the direction of said licensed mortgage broker or mortgage lender" are not required to obtain a separate license. An employee leasing or management company is an entity which would provide basic office services, such as signing office leases and arranging telephone service, and which would provide employee benefits, payroll services and human resources services, in return for a fee from the licensee. The licensee would retain complete control over the hiring and firing of personnel. The Division of Banks would have no objection to a licensee contracting with such a third-party entity for these types of services. However, the Division's main concern, which would be determined on a case by case basis, is the license status of the individuals working in an office, the relationship of those individuals with the licensee, and the contacts such individuals would have with prospective borrowers, in a mortgage lender or broker capacity.

Summary of Selected Opinion 98-165

Ability of licensed mortgage broker to do business with its mortgage lender parent company

Regulations promulgated pursuant to Mass. Gen. Laws c. 255E, at 209 CMR 42.04(4) and 42.07(4) prohibit a licensed mortgage lender that also is a licensed mortgage broker, or vice versa, from simultaneously acting as a lender and broker in the same transaction. It is the Division's long-standing position that the prohibitions of said regulations do not apply where a lender and broker operate their businesses independently from each other and neither entity receives any fees, directly or indirectly, from the other entity within the same transaction. See Opinion # 93-001. A mortgage lender which owns a partial interest in a company which will become a Commonwealth-licensed mortgage broker, may do business with said partially-owned subsidiary broker so long as the two entities act independently and neither receives fees from the other.

This situation is not changed by the fact that the mortgage lender parent company is a licensed small loan agency in the Commonwealth. A parent company that is exempt from the licensing requirements of M.G.L. c. 255E, due to its small loan agency status, still must comply with the other provisions of said chapter and the regulations promulgated pursuant to said chapter, including 209 CMR 42.04(4) and 42.07(4).

Summary of Selected Opinion 98-163

Exemptions from mortgage mender licensing requirements for federal credit unions; borrower creditworthiness

Mass. Gen. Laws chapter 255E requires that any person who intends to originate five or more residential mortgage loans in a consecutive twelve month period obtain a mortgage lender's license from the Division. Chapter 255E, section 2, however, exempts certain financial institutions from this licensing requirement because those institutions are regulated by other regulatory agencies or under other statutes. Among the institutions exempted from the licensing requirement are federally-chartered credit unions and any subsidiaries.

Additionally, neither the Division nor any statute of the Commonwealth makes any distinction between the creditworthiness of the borrower in a residential mortgage transaction. The determinative factor in mortgage lender licensing is whether the loan is secured by a first or subsequent lien on owner-occupied, 1-4 family residential property in the Commonwealth.

Summary of Selected Opinion 98-158

Mortgage lender and collection agency licensing requirements for purchasers of pre-existing mortgages

Mass. Gen. Laws chapter 255E sets forth the Commonwealth's mortgage lender licensing. It has been the consistent position of the Division that companies who are in the business of purchasing pre-existing mortgage obligations, and who do not make mortgage loans or issue commitments for mortgage loans, do not fall under the licensing requirements of said chapter 255E. Mass. Gen. Laws chapter 93, section 24 states that no person shall directly or indirectly conduct a collection agency or engage in the business of collecting or receiving payment for others of any account, bill or other indebtedness without first obtaining a license from the Commissioner of Banks. A company, such as the one described above, who is in the business of purchasing and servicing pre-existing mortgage obligations, who is collecting payments on its own behalf on the mortgages which it has purchased, and who is not collecting debts on behalf of another entity, would not have to be licensed as a collection agency in the Commonwealth.

Summary of Selected Opinion 98-157

Permissible fees and penalties

There is no statute in the Commonwealth which establishes a maximum loan-to-value ratio for mortgage loans originated by Commonwealth-licensed mortgage lenders. Mass. Gen. Laws chapter 183, section 56 establishes the maximum prepayment penalty for owner-occupied, 1-3 family mortgage loans on residential properties in the Commonwealth. M.G.L. c. 183 § 59, which applies only to 1-4 family, owner-occupied residential mortgage loans, permits a mortgagee to assess a late charge, equal to 3% of the overdue principal and interest, on any payment not made within 15 days of its due date. M.G.L. c. 183 § 63 prohibits a lender from charging loan origination fees, or points, in a 1-4 family, owner-occupied residential mortgage transaction unless such fees or points previously have been disclosed, in writing, to the borrower. Other fees related to a mortgage transaction in the Commonwealth, such as those for document preparation, processing, recording, etc., must be reasonable as compared to industry custom and practice. Mortgage lenders governed by 255E of the General Laws also must comply with the regulations of the Commonwealth's Attorney General, found at 940 CMR 8.00 et. seq.

Summary of Selected Opinion 98-154

Exemptions from mortgage lender and broker licensing requirements for wholesale mortgage bankers

Mass. Gen. Laws chapter 255E, section 2 requires that any person who makes residential mortgage loans on 1-4 family, owner-occupied property in the Commonwealth must obtain a mortgage lender's license from the Division. It has been the consistent position of the Division that the entity in whose name the loan is closed is the entity which much be licensed as a mortgage lender. In the event that a wholesale mortgage company, or other entity, is funding the loan, but the loan is being closed in the name of a licensed mortgage lender and the mortgage is assigned immediately to the wholesale mortgage company, said company would not be required to be licensed as it would be considered a subsequent purchaser.

Summary of Selected Opinion 98-138

Notifying the Mortgage Review Board of pre-qualification application rejections - Q4 1998

Mass. Gen. Laws chapter 167, section 14A, and its implementing regulations 209 CMR 39.00 et seq., established the Mortgage Review Boards to determine whether eligible mortgage loans were denied based on the location of the properties in question. It is the Division's long-standing policy that the Boards have no jurisdiction over mortgage loan denials where no specific property is identified. Pre-qualification or pre-approval applications typically do not identify specific property, thus, lenders are not required to issue the Notice of Appeal form with the applicant's denial letter. When examining applications which identify a specific property, including those for pre-qualification or pre-approval, and which contain enough information to permit the lender to make a credit decision, the lender must file a Notice of Appeal form if such applications are denied.

Summary of Selected Opinion 98-135

Mortgage loan closing procedures and requirements; permissibility to access home equity lines of credit through ATM or credit cards

The Division is of the opinion that, as there is no statute or regulation which governs how closing documents are produced, a document preparation company may be used to produce loan documents for closings in the Commonwealth. According to the law of the Commonwealth, the documents which bear the original signature of the borrower become the original contract documents.

Attorneys are not required by law to attend mortgage loan closings in the Commonwealth. Mass. Gen. Laws chapter 93, section 70, though, does require that an attorney, acting on behalf of a mortgagee in connection with a loan secured by a purchase money first mortgage on mortgagor-occupied, 1-4 family real estate, must render a title certification to the mortgagor and the mortgagee. This title certification must state that the mortgagor has good and sufficient record title to the premises. Said certification may be rendered only by a practicing attorney and is required at closing.

Other than executing all necessary documents required by law, there is no statutory, established procedure for closing loans in the Commonwealth. However, the "good funds" statute, found at Mass. Gen. Laws chapter 183, section 63B, details the required types of funding permitted.

No statute or regulation in the Commonwealth prohibits accessing a home equity line of credit through an ATM card. The Commonwealth's statute and regulations governing electronic fund transfers are found at Mass. Gen. Laws chapter 167B and 209 CMR 31.00 et. seq. Additionally, relevant statutes pertaining to open-end credit are at Mass. Gen. Laws chapter 140, sections 96, 114B, 114C, chapter 140D and 209 CMR 32.00 et. seq.

Summary of Selected Opinions 98-124 (-077)

Foreign corporation's use Of "bank" as part of a name when doing business in Massachusetts

As provided by Mass. Gen. Laws chapter 167, section 37, a foreign corporation shall not solicit or receive deposits or transact any business whatsoever in the manner described in chapters 167, 167C through 167G, and 168 through 172A, unless authorized to do so under the laws of the Commonwealth. Said section 37 also provides that such a corporation may not make use of any sign at the place where its business is transacted or use any written or printed materials having thereon any name or other words indicating that such place or office is a bank. Additionally, the statute prohibits a foreign corporation from transacting business under any name or title that contains the word "bank." The purpose of this statute is to prohibit the practice of unauthorized banking in the Commonwealth and to prevent an entity from creating the impression that might lead the public to believe that its business is that of a bank. Nevertheless, it has been the consistent position of the Division that lending alone does not constitute a banking business.

A bank organized under the laws of any other state is exempted from the mortgage lender licensing requirement when making loans secured by one-to-four family residential property in Massachusetts pursuant to Mass. Gen. Laws chapter 255E. It is the position of the Division of Banks that a bank, organized under the laws of another jurisdiction, may conduct mortgage lending business, using a corporate name containing the word "Bank," at a loan production office in Massachusetts without first obtaining a mortgage lender's license or the Division's approval. To the extent that the bank does engage in consumer lending, other provisions of Mass. Gen. Laws and regulations, including but not limited to chapters 140D, 183, and 184, must be met.

Summary of Selected Opinion 98-121

Commercial mortgage lending

In the Commonwealth, a mortgage lender's license is required only to make mortgage loans for personal, family or household purposes secured wholly or partially by a mortgage on residential one- to-four family property located within Massachusetts pursuant to Mass. Gen. Laws chapter 255E. An entity located in the Commonwealth, but intending to engage in commercial lending for property located in Vermont, would not require a mortgage lender's license under said chapter 255E because such an entity would not be making mortgage loans on residential one-to-four family property in the Commonwealth. Prior to executing loan agreements, the entity should be aware that the Commonwealth's criminal usury statute, Mass. Gen. Laws chapter 271, section 49 limits the amount of interest and expenses on loans to twenty percent per annum, subject to certain exceptions.

Summary of Selected Opinion 98-120

Exemptions from mortgage lender licensing requirements

Mass. Gen. Laws chapter 255E, section 2 requires that any person or entity in the business of making mortgage loans or issuing commitments for mortgage loans obtain a mortgage lender's license from the Division. It has been the consistent position of the Division that making a mortgage loan means closing the loan in a lender's own name. It also has been the consistent position of the Division that the following activities do not evoke the mortgage lender's license requirement of said chapter 255E: (1) purchasing existing mortgages; and (2) being the wholly-owned subsidiary of a federal savings and loan association or a federal savings bank. Organizations which are exempt from Mortgage Lender Licensing requirements, however, may be required to comply with the Attorney General's collection regulations if such organizations engage in the collection of delinquent mortgage loans more than 30 days past due.

Summary of Selected Opinion 98-116

Mortgage brokers prohibited from providing Truth-in-Lending disclosures

It has been the consistent position of the Division that the Massachusetts Truth-In-Lending statute (Mass. Gen. Laws ch. 140D) and its regulation 209 CMR 32.00 require that creditors provide certain disclosures to the borrower in a credit transaction. Based on a strict construction of the statute and regulation, adopted in part to protect consumers from being confused as to the roles of lenders and brokers, mortgage lenders expressly are responsible for making Truth-In-Lending disclosures. Accordingly, mortgage brokers cannot make such disclosures to first mortgage applicants on behalf of lenders. See Opinion No. 97-121 and Opinion No. 97-134 for further discussion of these issues.

Summary of Selected Opinion 98-113

Exemption from licensing requirements for banks

Mass. Gen. Laws chapter 255E, section 2 exempts banks organized under the laws of other states from mortgage lender licensing. The Division confirms that, in some circumstances, a foreign industrial loan company may be a "bank" within the meaning of chapter 255E § 2 and, therefore, may be exempt from being licensed as a mortgage lender, in order to originate loans in the Commonwealth.

Summary of Selected Opinions 98-111 (-114)

Limitations on mortgage loan prepayment penalties

Mass. Gen. Laws chapter 183, section 56 governs prepayment penalties on mortgage loans within the Commonwealth. The limitations relative to prepayment penalties set forth in the statute are applicable only to the first liens on 1-3 family, owner-occupied properties. It is the position of the Division of Banks that the prepayment penalties set forth in said section 56 are not applicable to non-owner occupied mortgage loans or to second mortgage loans. Prepayment penalties on all mortgage loans remain a matter of contract between the parties, and in order to collect a prepayment penalty, the penalty provision must be included in the loan contract between the lender and borrower.

Summary of Selected Opinion 98-108

Licensing of employees of a licensed mortgage lender who also are employed by an affiliate securities firm

Mass. Gen. Laws chapter 255E provides that any person who is "employed by or associated with a licensed mortgage broker or mortgage lender in the capacity of a mortgage broker or mortgage lender under the direction of said licensed mortgage broker or mortgage lender" shall not be required to obtain a license as a mortgage broker or lender. The Division has taken the position that employees of licensed mortgage brokers or lenders, employed in the capacity of a mortgage broker or lender, would not be required to obtain a separate license. The purpose behind the employee exemption is to recognize the general nature of the employment relationship as one in which employees work under the control and direction of employers, in this case licensed mortgage brokers or lenders, who are responsible and liable for the actions of those employees. It is the Division's position that persons who are dual employees of a licensed mortgage lender and an affiliate securities firm, and who will be referring current clients of the securities firm to the licensed mortgage lender, are not required to obtain separate mortgage broker licenses in order to make those referrals.

Summary of Selected Opinion 98-103

Disclosure requirements for brokers' points

Mass. Gen. Laws chapter 183, section 63 does not set a maximum number of points or fees which mortgagees may charge to borrowers in residential mortgage transactions, but states, rather, that a mortgage lender or a mortgage broker, may not charge any points or fees on a mortgage loan except to the extent that such points and fees have been previously disclosed to the mortgagor in writing. It is the position of the Division that, provided that points and fees to be charged by a mortgage broker are previously disclosed in writing to the borrower, there is no maximum amount of such fees under said section 63. Additionally, certain disclosures required by the Attorney General's mortgage broker regulations may be applicable and should be reviewed for compliance. In particular, terms which significantly deviate from industry standards, or which are otherwise unconscionable, are prohibited under 940 CMR 8.06(6).

There is no statute or regulation in Massachusetts which establishes a maximum interest rate for residential first mortgage loans. However, mortgage broker points are considered to be finance charges under Mass. Gen. Laws chapter 140 (the Truth-In-Lending Act) and its implementing regulation 209 CMR 32.00 et seq. Therefore, such points and fees must be included as part of the finance charge and annual percentage rate on disclosure forms to the borrower. The usury statute, Mass. Gen. Laws chapter 271, section 49, establishes a maximum interest rate on loans of 20%, but it does not apply to lenders under the supervision and control of a state or federal regulatory agency. This includes licensed mortgage lenders and brokers. In addition, both Federal Regulation Z and 209 CMR 32.00 require that mortgage brokers' fees be disclosed as part of the finance charge and annual percentage rates.

Summary of Selected Opinion 98-094

Permissibility of broker providing adverse action notices on behalf of lender

Mass. Gen. Laws chapter 93, section 62 governs adverse action disclosure requirements and requires that "users" of the consumer report provide certain written notifications to consumers against whom an adverse action has been taken. M.G.L. c. 93 § 50 defines a "user" as "any person seeking or obtaining a consumer report for purposes authorized in section fifty-one." The Division considers lenders to be users under this statute.

Federal regulations implementing the Equal Credit Opportunity Act, at 12 C.F.R. 202.9 outline requirements for adverse action notifications. 12 C.F.R. 202.9(g) permits creditors taking adverse action to comply "directly or through a third party" and allows them to give notice through a third party so long as the creditor is identified as the party taking the adverse action.

The Division is of the opinion that the creditor or lender is the "user" according to section 50 and therefore is required to prepare notices and ensure that the notices are provided to consumer applicants. A lender may delegate the delivery of said notice to a third party, such as a broker, provided that the notice is prepared by the creditor and the broker's role is limited to delivery only. Notice preparation and delivery should be done in a manner which clearly identifies that the delivering agent is not involved in the underwriting and adverse action decision.

Summary of Selected Opinion 98-076

Licensing requirements for financing manufactured homes

If the purchaser of a manufactured home owns the real estate on which the home is to be placed, and if the loan is to be secured by a first lien on both the manufactured home and the real estate, this would be considered a residential mortgage under Mass. Gen. Laws chapter 255E. A lender making such loans must obtain a mortgage lender license if it originates five or more such loans in a consecutive twelve-month period.

If a direct loan is secured only by a lien against the manufactured home itself, and not the real estate, the Commonwealth requires no license, unless such loans total $6000 or less. Mass. Gen. Laws chapter 140, section 96 requires that lenders making loans of $6000 or less, for personal, family or household purposes, at an interest rate exceeding 12% obtain a small loan license.

It is the position of the Division of Banks that persons who are licensed as mortgage lenders and small loan companies do not have to maintain an office in the Commonwealth. An entity would not be required to form a domestic corporation in order to obtain these licenses.

Summary of Selected Opinion 98-067

Licensing requirements for mortgage lenders affiliated with federally-chartered savings banks

It has been the long-standing position of the Division that federally-chartered savings banks and their direct subsidiaries, among other entities, are exempt from the licensing requirements of Mass. Gen. Laws chapter 255E. Such an exemption does not extend to a mortgage company that, although a direct subsidiary of a bank holding company, is an affiliate of a federally-chartered savings bank. Consequently, a bank affiliate may not be exempt from the licensing requirements of said chapter 255E even though the bank itself is exempt.

Summary of Selected Opinion 98-060

Prepayment penalties on residential mortgage loans originated in Massachusetts

Mass. Gen. Laws chapter 183, section 56 establishes limits on prepayment penalties for residential mortgage loans in the Commonwealth. If a lender seeks to impose a prepayment penalty on a borrower, it is the position of the Division of Banks that the loan documents themselves must include a prepayment penalty provision. The Division holds that a penalty imposed on a borrower when a borrower refinances with the original bank, after the resale of the loan to another investor, would not be permissible because the borrower has no control over sales of mortgage loans to secondary market investors. Thus, the provisions of M. G. L. ch. 183 § 56 do apply if the borrower refinance with the original bank. The provisions of section 56 are consumer protection measures. Violating such a statute constitute a violation of Mass. Gen. Laws chapter 93A, the Commonwealth's Omnibus Consumer Protection Act. That law is enforced and under the jurisdiction of the Attorney General and may subject violators to treble damages.

Summary of Selected Opinion 98-058

Exemption from licensing requirements for non-profit corporations

Pursuant to Mass. Gen. Laws ch. 255E § 2. Certain persons or entities who are engaged in the business of a mortgage lender or mortgage broker are required to be licensed by the Division unless otherwise exempted. The statute provides an exemption from licensing for "any non-profit agency or corporation incorporated under the laws of the Commonwealth for the purpose of assisting low and moderate income households in the purchase or rehabilitation of family residences of four units or less and which holds tax-exempt status granted under section 501(c)(3) or 501(c)(4) of the Internal Revenue Code." It is the position of the Division that a non-profit mortgage corporation incorporated under the laws of the Commonwealth would be exempt from licensing under Mass. Gen. Laws ch. 255E § 2 if it receives tax-exempt status from the Internal Revenue Service. In the event that such status is not granted, the mortgage corporation would not be exempted and would be required to obtain a mortgage lender's license. If the mortgage corporation is a separate non-profit corporation from its parent corporation, the exemption status of the parent corporation will not extend to the subsidiary mortgage corporation.

Summary of Selected Opinion 98-053

Mortgage lender's ability to offer insurance

Mass. Gen. Laws chapter 255, section 12G permits creditors to sell group credit life and disability insurance to borrowers in connection with a loan for personal, family or household purposes, provided that the statute's conditions are met. These conditions include: filing a schedule of rates, with the Division of Insurance, for each type of insurance sold; limiting the insurance amount to the greater of the scheduled amount or actual amount owing on the loan, exclusive of unearned finance charges; and providing for a rebate of the insurance premium in the event of prepayment of the loan. In addition, a specific disclosure notice, stating that the borrower cannot be denied credit simply for refusing to purchase insurance, must be provided to the borrower; said section 12G contains the exact language.

Summary of Selected Opinion 98-051

Licensing of loan production offices

There is no statute or regulation which governs the establishment of loan production offices by Massachusetts chartered banks. In the absence of a specific statute or regulation, the Division has no objection to the establishment of loan production office in another state by a state-chartered bank. In addition, a state-chartered bank is authorized by Mass. Gen. Laws ch. 167E to make mortgage loans anywhere regardless of whether the bank has a physical presence in that state or county. The activities at the out-of-state loan production office must be limited to loan production activities such as marketing material and loan applications. No deposit taking activities or other banking services may be offered at this office. In addition, the investment in a loan production office must be included in the bank's investment in bank premises pursuant to Mass. Gen. Laws ch. 167F § 2 (9).

Summary of Selected Opinion 98-029

Use of license number in advertisements

A licensed mortgage lender in Massachusetts pursuant to Mass. Gen. Laws ch. 255E is subject to the provisions of regulation 209 CMR 42.00. Under 209 CMR 42.15, a licensee must disclose the type and number of its license "in all advertisements". There is no distinction made in this section between advertisements made within this state or those used in national or regional advertisements. It has been the consistent position of the Division that a licensed mortgage lender in the Commonwealth must disclose the type and number of its license in all advertisements, including national or regional advertisements.

Summary of Selected Opinion 98-023

Licensing requirements for mortgages that are "table funded"

Mass. Gen. Laws chapter 255E requires any person engaged in the business of making mortgage loans or issuing commitments for mortgage loans, to obtain a mortgage lender license from the Division of Banks, if the person acts as a mortgage lender for residential mortgage loans five or more times in a consecutive twelve-month period. If mortgage loans are being closed in the name of an entity that meets the other requirements of the statute, it must be licensed as a mortgage lender in the Commonwealth. However, if a mortgage loan is immediately sold or assigned to an investor, the investor need not be licensed to purchase the loan. Note that neither M.G.L. ch. 255E nor Regulation 209 CMR 42.00 recognize the term "table funded."

Summary of Selected Opinion 98-021

Mortgage broker acting as real estate broker

There is no prohibition in Mass. Gen. Laws ch. 255E to prevent a real estate broker from being licensed as a mortgage broker in the Commonwealth. Nor does 209 CMR 42.00 address the issue of a real estate broker acting as and being compensated for providing services as a mortgage broker for the same transaction. An applicant must "possess the necessary educational and business experience to engage in the business of a mortgage broker" as required by 209 CMR 42.06. The Division recommends that an individual contemplating this dual licensure contact the Board of Registration for Real Estate Brokers in order to determine what restrictions apply to a real estate broker acting as a mortgage broker. Such an individual should also contact the federal Department of Housing and Urban Development for clarification of any federal statutes and regulations, particularly the Real Estate Settlement Procedures Act.

Summary of Selected Opinion 98-002

Mortgage broker or lender license not required For mobile home loans

Mobile homes are not considered real estate; they are considered personal property. Therefore, no mortgage broker or mortgage lender license is required under Mass. Gen. Laws ch. 255E in order to purchase mobile home loans. However, Mass. Gen. Laws ch. 255D requires that any person or entity who wishes to engage in the business of a sales finance company must first obtain a license from the Commissioner of Banks. A "sales finance company" is defined as "any person . . . engaged in the business of purchasing retail sales agreements or revolving credit agreements of one or more retail sellers." An entity engaged in the business of purchasing retail installment contracts for mobile homes around the country must obtain a sales finance company license to engage in business in the Commonwealth.

Summary of Selected Opinion 97-273

Regulation Z and disclosure for variable rate mortgage loans

The Federal Reserve Board has recently amended Regulation Z concerning disclosure requirements for closed-end variable rate mortgage loans with a term exceeding one year and secured by the consumer's principal dwelling. The effect of the change is to allow creditors to provide a statement that the periodic payment may substantially increase or decrease together with a maximum interest rate and payment based on a $10,000 loan amount, in lieu of providing a fifteen-year historical example of index values. This amendment became effective on November 21, 1997. Compliance is optional until October 1, 1998.

Regulation 209 CMR 32.00 governs truth-in-lending disclosure requirements for creditors within the Commonwealth. 209 CMR 32.19 sets forth disclosure requirements for variable rate mortgage loans secured by a consumer's principal dwelling and includes a requirement of a 15-year historical example of the index to be used to calculate the interest charges for such a loan. The recent amendment to Regulation Z has not been adopted on the state level. However, 209 CMR 32.19(2) n. 45a states that "information provided in accordance with variable rate regulations of other federal agencies may be substituted for the disclosures required by 209 CMR 32.19(2)." It is the position of the Division of Banks that footnote 45a provides Massachusetts creditors, including state-chartered banks, the authority to disclose variable rate mortgage transactions under the recent amendment to Regulation Z and still be deemed in compliance with 209 CMR 32.00.

Summary of Selected Opinion 97-266

Licensing requirements for stockbrokers acting as referrals to mortgage lender

A "mortgage broker" is defined as "any person who for compensation or gain, or in the expectation of compensation or gain, directly or indirectly negotiates, places, assists in placement, finds or offers to negotiate, place, assist in placement or find mortgage loans on residential property of others" according to Mass. Gen. Laws ch. 255E § 2. The Division of Banks considers the activity of making referrals of prospective mortgage loans customers to a lender to be included within this language, specifically, one who, "assist[s] in placement or find[s]" mortgage loans for others. Additionally, the reference to "compensation or gain, or in the expectation of compensation or gain" has been viewed broadly by the Division and without regard to the source of the compensation or gain. Accordingly, the referral of mortgage loan customers by stockbrokers to a mortgage lender subsidiary of the umbrella corporation for the receipt of "internal compensation credit" would be considered made "in the expectation of compensation or gain".

Summary of Selected Opinion 97-263

Record retention for closed, withdrawn, and denied mortgage loans

Mass. Gen. Laws ch. 255E § 8 states that each licensed mortgage lender and mortgage broker shall preserve all business records "for as long a period as the Commissioner shall prescribe by regulation." Pursuant to 209 CMR 42.09(1)(b), licensed mortgage brokers shall retain "the original contract for broker's compensation, a copy of the settlement statement, an account of fees received in connection with the loan, correspondence, papers or records relating to the loan and such other documents as the Commissioner may require" for a minimum of three months after the mortgage loan is made. It is anticipated that proposed regulations will authorize electronic and out-of-state recordkeeping.

A licensee must disclose the type and number of its license(s) to all applicants in writing at the time a loan application is accepted or a fee is paid and to disclose said information in all advertisements pursuant to 209 CMR 42.15. This requirement would apply to any on-line advertisements or applications.

Summary of Selected Opinion 97-260

Internet mortgage lender activity

Taking mortgage loan applications and making mortgage loans over the internet raises various compliance issues. A discussion of some of these issues follows.

General disclosure requirements for creditors offering open and closed-end credit are set forth under 209 CMR 32.00 et seq. Creditors must make disclosures "in writing, in a form that the consumer may keep" pursuant to 209 CMR 32.05(1)(a) and 32.17(1)(a). Therefore, a general on-screen description of the required disclosures with a "mouse-click" acknowledgment of receipt would violate this regulation. Additionally, disclosures cannot be provided through on-line "dialogue boxes," as they must be in written form. However, the provisions of 209 CMR 32.05(1)(a) and 32.17(1)(a) could be satisfied by mailing a written copy of the required description directly to consumers. There are additional requirements to the mortgage application and approval process set out in 209 CMR 38.00 et seq.

Record retention requirements for mortgage lenders are set forth in 209 CMR 42.09. Pursuant to 209 CMR 42.09(1) such licensees are required to "keep and use within the Commonwealth . . . books, records and accounts in a manner which will allow the Commissioner to determine whether the Licensee is complying with the provisions of the M.G.L. c. 255E and applicable state and federal laws and regulations." Therefore, such licensees must keep there records in hard copy form within the Commonwealth or designate a resident agent within the Commonwealth to keep such records for them to comply with the regulations. However, new regulations are anticipated which will conditionally allow certain licensees to keep and use business records at a location outside of Massachusetts. These regulations may address the electronic record retention, but until these regulations are promulgated records must be kept in hard copy or in microfiche form.

Summary of Selected Opinion 97-259

Advertising material

Advertising of consumer loan products is governed by Regulation 209 CMR 32.00 (the Truth-In-Lending regulation). Pursuant to 209 CMR 32.24(3)(a) if any of the following triggering terms is used in an advertisement, the creditor must include certain other terms in the advertisement. The use of either the amount or percentage of any down payment, the number of payments or period of repayment, the amount of any payment or the amount of any finance charge would require the creditor to also disclose the following terms in the advertisement: 1) the amount or percentage of down payment; and 2) the terms of repayment and the annual percentage rate, using that term; and, if the rate may be increased after consummation. A creditor may meet the requirements of the additional disclosures by providing an example of one or more typical extensions of credit with a statement of all terms applicable to each, pursuant to 209 CMR 32.24 fn. 49. It is the position of the Division of Banks that if a licensed mortgage lender's and mortgage broker's advertisement includes the amount of each monthly payment under the loan, the licensee is required to disclose the additional terms required by 209 CMR 32.24. However, a licensee may comply with the requirement by including an example of a typical extension of credit which includes all applicable terms as provided by 209 CMR 32.24 n. 49. Advertisements must also include the type and license number(s) of the licensee as required by 209 CMR 42.00 and 940 CMR 8.00.

Summary of Selected Opinion 97-245

Permissibility of a non-bank entity displaying signs indicating that financing is available through a particular bank

Loans for personal, household or family purposes in the amount less than may $6,000 trigger the requirements of Mass. Gen. Laws chapter 140, § 96. In the event that a building supply company displays signs indicating that financing is available through a bank and provides interest rate sheets to customers, licensing requirements under said statute would not be triggered. Although such a building supply company may fall within the description of a "loan arranger", under Mass. Gen. Laws chapter 140, § 96, the building supply company would not be required to obtain a small loan license if it does not receive a fee for the referral services. Additionally, it is the position of the Division of Banks that the building supply company would not be required to register as a mortgage broker, even if the bank intends to secure the loans with a mortgage on the borrower's principal residence, if the building supply company does not receive any compensation or gain for its services in the transaction under Mass. Gen. Laws chapter 255E.

Summary of Selected Opinion 97-234

Number and types of disclosures to prospective applicants

It is the position of the Division of Banks that the mortgage broker fee agreement must be provided by the mortgage broker to the customer. Any statute or regulation that requires a lender or creditor to give certain information to the borrower, such as the good faith estimate of closing costs pursuant to Mass. Gen. Laws ch. 184 § 17D, must be given by the lender or creditor. It is the position of the Division that Mass. Gen. Laws ch. 184 § 17B requires disclosure by the mortgage lender, and not mortgage broker, because it is the mortgage lender who has access to the disclosure information required.

Summary of Selected Opinion 97-233

Licensing requirements for seller-financed mortgages

Any person who makes five or more residential mortgage loans in a consecutive twelve month period is required to obtain a mortgage lender license from the Commissioner of Banks unless otherwise exempted pursuant to Mass. Gen. Laws chapter 255E. The statute contains no exception for seller financing. It is the position of the Division of Banks that a seller of residential property who makes five or more mortgage loans, secured by said residential property, in a consecutive twelve month period is required to be licensed as a mortgage lender under Mass. Gen. Laws chapter 255E unless otherwise exempted.

Summary of Selected Opinion 97-227

Restrictions on out-of-state banks soliciting mortgage loans in Massachusetts

Mass. Gen. Laws chapter 255E prohibits any person from acting as a mortgage lender in the Commonwealth without first obtaining a license from the Commissioner. However, the statute contains an exemption for "any bank, trust company, or savings bank...organized under the laws of any other state." The position of the Division of Banks is that a license is not required for a commercial bank chartered in another state to engage in the business of a mortgage lender in Massachusetts. In the event that such a bank seeks to purchase existing mortgage loans, no license would be required pursuant to Mass. Gen. Laws chapter 255E.

Summary of Selected Opinion 97-223

Licensing requirements for the purchase of home improvement installment contracts secured by a second mortgage

Mass. Gen. Laws chapter 255D governs retail installment sales agreements and recognizes that retail installment agreements may cover home improvements which become fixtures. This chapter, however, does not provide the method of perfecting the security interest. Based upon general real estate concepts, the Division of Banks is of the opinion that a mortgage is the only appropriate means of perfecting such an interest.

Mass. Gen. Laws chapter 255E governs mortgage lending and requires that any entity, including the building contractor, originating a home improvement retail installment agreement, which is secured by a mortgage on the property, must obtain a mortgage lender license from the Commonwealth. A subsequent purchaser of these retail installment contracts need not be licensed as a mortgage lender under said chapter 255E, but must obtain a sales finance company license pursuant to said chapter 255D.

Additionally, chapter 255D provides that "no fee, expense or other charge whatsoever shall be taken, received, reserved or contracted for, except as provided in this section and in sections sixteen to twenty-two, inclusive, and except for official fees, and for items expressly provided for in the retail installment sales agreement as set forth in section nine." Official fees may be charged in the sales agreements described above.

Summary of Selected Opinion 97-222

License requirements for entities with exclusivity contracts

A mortgage broker is defined as "any person who for compensation or gain, or in the expectation of compensation or gain, directly or indirectly negotiates, places, assists in placement, finds or offers to negotiate, place, assist in placement or find mortgage loans on residential property for others" under Mass. Gen. Laws chapter 255E, § 1. Any person "employed by or associated with a licensed mortgage broker or mortgage lender in the capacity a mortgage broker or mortgage lender under the direction of said license mortgage broker or mortgage lender" is also exempt under said section 2.

The position of the Division of Banks is that such an exemption is available only to individuals and not to a corporate entity. The relationship between the licensee and the individual must be exclusive and the individual must execute an Exemption Affidavit to that effect. The licensee must execute a Statement of Accountability for all activities of the individual associated with it. The individual seeking the exemption must be primarily engaged in the activity it is seeking to perform under the direction of a licensed mortgage broker.

Summary of Selected Opinion 97-221

Licensing exemptions for mortgage lenders

Any person or entity is prohibited from acting as a mortgage lender within the Commonwealth without first obtaining a mortgage lender license from the Commissioner of Banks, under Mass. Gen. Laws chapter 255E, § 2. However, no license is required for any mortgage lender making fewer than five mortgage loans in "any period of twelve consecutive months". It is the position of the Division that the numerical trigger of five or more mortgage loans for licensing to be applicable is calculated for any period of twelve consecutive months and not simply a calendar year.

Summary of Selected Opinion 97-220

Licensing requirements for referring debtors to mortgage companies

Under Mass. Gen. Laws chapter 255E, § 2 any person who, "for compensation or gain", finds, places, or assists in the placement of individual mortgage loans for others must be licensed as a mortgage broker in the Commonwealth. If a collection agency provides a list of mortgage lenders to debtors for the purpose of refinancing debts, but does not receive any type of fee or gratuity from the arrangement, the entity does not meet the definition of mortgage broker and no license is required. If at any time the mortgage lenders pay a referral or finder's fee to the collection agency, or if the collection agency is the recipient of any type of compensation or gain from this arrangement, a mortgage broker license will be required under the statute. The same requirements would apply to any employee of the collection agency who receives such compensation or gain for providing the list of mortgage lenders.

Summary of Selected Opinion 97-209

Maximum Annual Percentage Rate (APR) and other limitations affecting mortgage lenders and brokers

Any lender subject to control, regulation or examination by an state or federal regulatory agency is exempt from the criminal usury limit pursuant to Mass. Gen. Laws chapter 271, § 49(e). Accordingly, the criminal usury limitations in Mass. Gen. Laws chapter 271, § 49 do not apply to Massachusetts-licensed mortgage lenders. Licensed mortgage lenders, however, are subject to the Truth-In-Lending disclosure requirements pursuant to Massachusetts General Laws chapter 140D and its implementing regulations found at 209 CMR 32.00 et seq. Certain closed end home mortgages, including those with an APR at consummation which exceed by more than 10% points the yield on Treasury securities having comparable periods of maturity, are subject to additional disclosure requirements under 209 CMR 32.32. Each violation of a Truth-In-Lending disclosure requirement may result in a fine of up to $5,000 and/or imprisonment of up to one year pursuant to Mass. Gen. Laws chapter 140D, § 31. Also, any creditor that fails to comply with such requirements may be liable for damages as set forth under Mass. Gen. Laws chapter 140D, § 32.

Summary of Selected Opinion 97-207

Licensing requirements for investors in the secondary market

No statute or regulation limits a licensee's ability to sell real estate loans and attendant servicing rights to investors in the secondary market. Thus, a licensee which intends to sell loans in the secondary market does not need any type of license or approval of the Division of Banks in order to do so. It has also been the consistent position of the Division that no license is required under Mass. Gen. Laws chapter 255E in order to purchase mortgage loans which have been originated in Massachusetts. However, an investor servicing mortgage loans may require a collection agency license in order to collect "debts" as defined under 209 CMR 18.00 et seq. Also, no records in addition to those already required need be maintained relative to mortgage loans sold on the secondary market.

Summary of Selected Opinion 97-200

Mortgage lender licensing requirements for mortgage bankers regulated by another state

Any person or entity which engages in the business of making residential mortgage loans or issuing commitments for mortgage loans in Massachusetts must obtain a mortgage lender's license pursuant to Mass. Gen. Laws chapter 255E.

A lender making less than 5 mortgage loans in any 12 consecutive month period, however, is exempt from the licensing requirement pursuant to Mass. Gen. Laws chapter 255E, § 2. Also, an entity that funds a mortgage loan, which is closed in the name of another mortgage lender licensed in the Commonwealth, would not require a mortgage lender's license under the statute. However, an entity which funds a mortgage loan that is closed in such entity's name would require a mortgage lender's license pursuant to Mass. Gen. Laws chapter 255E.

Summary of Selected Opinion 97-192

Mortgage brokers and lenders licensing exemption

It is the position of the Division of Banks that individuals engaged primarily in the capacity of a mortgage broker or mortgage lender under Mass. Gen. Laws chapter 255E would be eligible for an exemption from licensing as being "associated with" and "under the direction of" a licensed lender or broker. For the exemption to be effective, however, the relationship must be exclusive and the licensee must complete a Statement of Accountability on behalf of the individual and the individual would be required to complete an Exemption Affidavit. The Division has previously opined that individuals whose primary occupation was that of an accountant, attorney or financial planner would not be eligible to claim a licensing exemption as an individual "associated with" and "under the direction of" a licensed lender or broker. See Opinion # 96-221 and Opinion # 97-061. The purpose of the statutory exemption was to exempt persons associated with the licensee who are not employees but who act in the capacity of a mortgage broker or lender as independent contractors. The requirement for completion of a Statement of Accountability and Exemption Affidavit was implemented by the Division to ensure accountability on the part of the licensee for the actions of individuals engaging in mortgage broker or lender activities under their direction.

Summary of Selected Opinion 97-186

Permissibility of mortgage brokers offering an appraisal voucher

Licensees must disclose the type and number of their license on all advertisements pursuant to 209 CMR 42.15. It is the general position of the Division of Banks not to endorse any particular marketing or advertising materials proposed for use by a licensee, including any program offering a voucher good toward a borrower's appraisal fee upon the funding of a residential mortgage loan. However, the Division would look to ensure, through its periodic examinations, that the implementation of such a program is done in a fair and consistent manner which results in a consumer receiving the benefits of the offer presented.

Summary of Selected Opinion 97-178

Mortgage lender licensing requirements for bank holding company subsidiaries

Neither bank holding company subsidiaries nor affiliates established in accordance with state or federal law are exempt from the mortgage lender licensing provisions in Mass. Gen. Laws chapter 255E, unless such entities make fewer than five mortgage loans in any consecutive twelve month period. However, such entities that only purchase existing mortgage loans would not require a lender's license.

Summary of Selected Opinion 97-164

Offering credit life insurance products

Creditors, including licensed mortgage lenders, are permitted to offer credit life, credit accident and health, and credit involuntary unemployment insurance pursuant to Mass. Gen. Laws chapter 255, § 12G, and subject to the limitations of Mass. Gen. Laws chapter 175, §§ 110, 117D, and 133. Section 12G also provides that obtaining any of the authorized types of insurance cannot be a condition of obtaining financing and that such insurance cannot be offered in connection with a consumer credit transaction subject to section 12G until the credit decision has been made and communicated to the applicant. Disclosure requirements applicable to insurance premium charges are also set forth under Mass. Gen. Laws chapter 140D and its implementing regulation 209 CMR 32.00 et seq.

Mortgage lenders and brokers are currently prohibited from obtaining a license to sell insurance products pursuant to Mass. Gen. Laws chapter 175, § 174E. However, as stated above such entities may conduct certain business transactions with insurance companies under that statute. The Division of Insurance should be contacted for questions regarding permissible activities under said chapter 175.

Summary of Selected Opinion 97-163

Limitations on the revision of terms on existing mortgage loans

Under Mass. Gen. Laws chapter 183 § 63A, a mortgagee cannot revise the rate of interest on an existing note and mortgage to an interest rate which is greater than the interest rate being paid by the borrower prior to the revision. However, it is the position of the Division that said section 63A does not apply to an original adjustable rate mortgage loan product which provides the borrower with the option to either choose an index different from that in the original contract or choose to convert the loan to a fixed rate loan. This is not a revision of terms since the change in the index or conversion to a fixed interest rate is an option granted to the borrower in the original loan documents. There is no revision being made to the terms of the original mortgage note, but rather an option in the note is being exercised by the borrower. Additionally, it has been the consistent position of the Division that the revision of terms statute is not limited to cases of default and may be used to provide rate relief to an existing customer during periods of decreasing interest rates in order to, among other things, prevent the customer from refinancing the loan with another bank.

Summary of Selected Opinion 97-162

Finance charge limitations for home equity lines of credit

It has been the consistent position of the Division of Banks that a home equity line of credit is open-end credit under the provisions of Mass. Gen. Laws chapter 140 § 114B and the maximum interest rate is 1½% per month or 18% per year, subject to certain other provisions, and not the small loan annual rate of 23% plus a $20.00 administrative fee. Furthermore, an equity line of credit is secured by real estate because the equity which may be accessed against the line is the equity which exists in the real estate. The Division treats individual advances of $6,000.00 or less on an equity line of credit as small loans for the purpose of licensing. For other aspects, however, an equity line of credit is governed by the provisions of Mass. Gen. Laws chapter 140 § 114B.

Summary of Selected Opinion 97-159

Requirements for corporate name change

When a mortgage lender licensed under Mass. Gen. Laws chapter 255E changes its name without changing officers or corporate ownership, the Division of Banks must be provided with a copy of the Amendments to the Articles of Organization reflecting the name change, a copy of the changes to the Foreign Corporation Certificate if the licensee is an out-of-state corporation, and the licensee's original license which will then be amended to reflect the name change.

Summary of Selected Opinion 97-147

License requirements for persons offering mortgage reduction programs

It has been the consistent position of the Division of Banks that mortgage reduction programs in which bi-weekly payments are forwarded to the mortgage holder in order to reduce the term of the existing mortgage are not governed by statute or regulation in Massachusetts. Such programs are a contractual matter between the borrower and the person or entity providing the mortgage reduction program and would be governed by the provisions of the contract. Since the borrower is not granting a mortgage on his or her principal residence under such programs, but is contracting for a method of payment, entities offering such programs which are otherwise not acting in the capacity of a mortgage broker would not be required to be licensed under Mass. Gen. Laws chapter 255E.

Summary of Selected Opinion 97-146

Confidentiality of lender license applications

It has been the general position of the Division of Banks that all applications for licenses from the Division are public records under Mass. Gen. Laws chapter 4 §7, and thus, any of the information submitted as part of such applications is a public record and will not be treated by the Division as confidential. However, pending legislation may amend Mass. Gen. Laws chapter 255E and establish some confidentiality protection for information submitted as part of the license application or license renewal process.

Summary of Selected Opinion 97-141

Revising a mortgage loan from a fixed to an adjustable rate

Under Mass. Gen. Laws chapter 183 § 63A, a mortgagee may, at the request of the owner of the equity of redemption in the property, revise the rate of interest on the mortgage loan, extend the term of the loan, or change the amount of periodic payments of principal or interest or both, on an existing mortgage note on an owner-occupied 1-4 family residence located in the Commonwealth, provided that the interest rate on any such note and mortgage, after any such revision does not exceed the interest rate on the existing note and mortgage. It is the position of the Division of Banks that the statutory limitation on the revised interest rate refers to the initial interest rate after the revision, and not a potential future interest rate in the case of an adjustable rate note. The revision of terms occurs at the request of the borrower and such borrower would assume the risk of future increases in the interest rate if an adjustable rate note is chosen. However, the Division would view any form of a teaser rate which would automatically exceed the interest rate of the existing note and mortgage after a short period of time, or similar action, as a circumvention of the statute.

Summary of Selected Opinion 97-139

Licensing requirements to make construction loans and rehab property loans

It is the position of the Division of Banks that the making of construction loans does not require a license pursuant to Mass. Gen. Laws chapter 255E § 2 because even if the loan is secured by a mortgage on the property, the property being constructed does not meet the definition of "residential property" found in the statute. A license may be required, however, if such loans are written so as to be converted into permanent financing where the lender providing the interim construction financing also provides the permanent construction loan. With respect to loans provided for "rehab properties", a mortgage lender license would be required if the loans are secured by a mortgage on property which meets the above referenced definition of "residential property" which includes the component that the dwelling is occupied or is expected to be occupied by the obligor on the mortgage debt. Additionally, the construction loans and loans provided for rehab properties are subject to the requirements of Mass. Gen. Laws chapter 140D and 209 CMR 32.00 et seq., the Commonwealth's Truth-in-Lending Law.

Summary of Selected Opinion 97-131

Fee disclosure mortgage loan

It is the position of the Division of Banks that whatever fees are charged to a borrower in a residential mortgage transaction must be disclosed in accordance with the Mass. Gen. Laws chapter 140D. Late charges and prepayment penalties on mortgage loans are governed by Mass. Gen. Laws chapter 183 §§ 56 and 59.

Summary of Selected Opinion 97-127

Retaining proof of mortgage disclosures

Financial institutions must comply with each applicable law and regulation and review suggested industry record retention practices in order to establish appropriate policies for making mortgage disclosures as required under Mass. Gen. Laws chapter 184 § 17D and 209 CMR 32.00 et seq. Such policies are necessary since such institutions have discretion buy may have to evidence compliance. The Official Staff Commentary to the federal Truth-in-Lending statute found at 12 CFR 226.25(a)(2) states, in part, that creditors need only enough information to reconstruct the required disclosures or other records. While a disclosure receipt is an acceptable form to evidence compliance, it is not required by the Division of Banks. However, any disclosure for which timing is an element of compliance would require additional documentation.

Summary of Selected Opinion 97-121

Mortgage brokers providing disclosures on behalf of mortgage lenders

Under Mass. Gen. Laws chapter 184 § 17D and 209 CMR 38.03, a mortgage lender must provide a prospective first mortgage borrower with a copy of a Uniform Mortgage Loan Cost Worksheet and the Uniform Mortgage Information Disclosure Sheet at the time of application, or before application if requested by the borrower. Additionally, Mass. Gen. Laws chapter 140D and 209 CMR 32.00 et seq. governing Truth-in-Lending require that creditors provide certain disclosures. Based on a strict construction of the statutes and regulations adopted in part to protect consumers from being confused as to the roles of lenders and brokers, it has been the position of the Division of Banks that mortgage lenders are expressly responsible for making such disclosures. Accordingly, mortgage brokers cannot make such required disclosures to first mortgage applicants on behalf of lenders even if such disclosures are provided on the lender's letterhead.

Summary of Selected Opinion 97-118

Mortgage lender and broker license number disclosure on signs

Licensed mortgage lenders and brokers must disclose the type and number of their license in all advertisements pursuant to 209 CMR 42.15. Additionally, such licensees must prominently post their licenses or copies thereof in each place of business pursuant to 209 CMR 42.13(3). Although the regulations governing the licensing of mortgage lenders and brokers do not define an "advertisement", the term is defined as "a commercial message in any medium that promotes, directly or indirectly, a credit transaction," under Mass. Gen. Laws chapter 140D § 1. It is the position of the Division of Banks that an exterior and/or interior building sign that only identifies the location of the licensee's office does not promote directly or indirectly a credit transaction. Therefore, such a sign would not require the licensee's number and type of license. However, an exterior sign used to display not only a company's name but also interest rates and/or current programs would directly or indirectly be promoting a credit transaction. Consequently, such a sign would require a licensee's number and type of license to be displayed.

Summary of Selected Opinion 97-075

Interest payment requirements on mortgage escrow accounts

Under Mass. Gen. Laws chapter 183 § 61, any mortgagee who holds a first mortgage on an owner-occupied, 1 to 4 family property in the Commonwealth must pay interest on a real estate property tax escrow account. However, federal law preempts Mass. Gen. Laws chapter 183 § 61 in regard to federal-chartered thrift institutions. Therefore, such institutions need not comply with the interest payment or reporting requirements of Mass. Gen. Laws chapter 183 § 61. The Division of Banks, however, does provide the reporting form for any federal savings bank which voluntarily chooses to comply with that requirement.