The Massachusetts Division of Banks (“DOB”) has proposed amendments to its debt collection and loan servicing regulation to address unfair mortgage loan servicing practices. The proposed amendments released on November 8 would require mortgage servicers to explore loss mitigation options to avoid foreclosure. Though exempt from debt collector and loan servicer licensing and registration requirements, banks are subject to the provisions of the DOB’s regulation governing fair debt collection and loan servicing practices, which would include the proposed mortgage loan servicing standards. According to the DOB, the amended regulations were proposed in coordination with the foreclosure prevention law signed by Governor Patrick in August, which amended Chapter 244, Section 35A of the General Laws of Massachusetts to require creditors to take reasonable steps to avoid foreclosure for certain mortgage loans. The proposed amendments would expand the limitations on debt collection contacts with a consumer to include cellular telephone and text messaging, amend the definition of “debt collector” to include so-called active debt buyers, and clarify the definition of net worth for debt collectors. The DOB held a public hearing on the proposed amendments on November 29, and written comments on the proposed amendments may be submitted to the DOB until December 6, 2012.

Nutter Notes: The proposed amendments would provide additional consumer protections in mortgage loan servicing by requiring loan servicers, including banks engaged in third-party loan servicing, to investigate all available loss mitigation options prior to foreclosure, follow detailed loan modification procedures requiring timely communication with borrowers, and identify a single point of contact for borrowers. The proposed amendments would also require loan servicers to maintain procedures to ensure accuracy and timely updating of borrowers’ account information, ensure that all foreclosure-related documents are properly prepared and executed based on personal knowledge and that the foreclosing party has the right to foreclose, and provide adequate oversight of third-party service providers, such as law firms. The proposed amendments would prohibit loan servicers from initiating foreclosure proceedings when an application by a borrower for any loss mitigation program is pending. The proposal defines a new unfair debt collection practice that would prohibit causing expense to any consumer in the form of collect telephone calls, text messaging, download fees, data usage fees, or similar charges, without the express permission of the consumer to communicate in that manner. However, the proposed regulations would allow non-collect telephone calls to a consumer’s cellular telephone or other telephone number provided by the consumer as his or her personal telephone number.