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Opinion

Opinion Summary of Selected Opinion 00-116

Date: 07/15/2000
Organization: Division of Banks
Docket Number: 00-116

This opinion was issued during the third quarter of 2000.

Loans permitted by Chapter 47 of the Acts Of 2000

Chapter 47 of the Acts of 2000, permits state-chartered banks to offer second mortgage loans secured by the residence of the borrower where the proceeds of the loan may be used for business purposes.

The act also states that these loans may be written subject to guidelines issued by the Commissioner of Banks. The Massachusetts Bankers Association has inquired as to whether the Division of Banks would be issuing guidelines and what procedures should be implemented in writing these loans.

It is the Division's position that such loan guidelines are not a precondition loan in the future. All lending activities including those authorized by G.L. 167, sec. 11(b), must confirm to safe and sound business practices.

In sum, this standard requires a bank to adopt and maintain comprehensive written loan policies that establish appropriate limits and standards for extensions of credit under the Act that are consistent with safe and sound banking practices and are appropriate to the size, nature and scope of the bank's operation. The Division believes that the financial safety and soundness examination process, rather than formal written agency guidelines, is the most appropriate tool to monitor this newly authorized type of commercial loan. Guidelines, however, will be issued if industry-wide loan underwriting issues or asset quality weakness emerge from the examination process.

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