The Massachusetts Division of Banks has released final amendments to its foreclosure prevention regulation that prohibit mortgage lenders, including banks, from foreclosing on certain types of home mortgage loans if modifying the mortgage is less expensive to the institution than foreclosing. The amendments became effective on June 21, and the use of the regulation’s form of “Right to Request a Modified Mortgage Loan” notice will become mandatory on September 18, 2013. The final regulation establishes a process for mortgage lenders and servicers to deliver a loan modification notice to certain borrowers along with the right-to-cure notification as required by Chapter 244, Sections 35A and 35B of the General Laws of Massachusetts. Creditors are also required to file a copy of the “Right to Request a Mortgage Loan Modification” notice with the attorney general’s office concurrent with the delivery of the notice to the borrower. The loan modification notice requirements apply to home mortgage loans with features such as a teaser rate, interest-only payments (other than an open-end home equity line of credit), negative amortization, limited or no documentation of the borrower’s income or assets, certain prepayment penalties or loans meeting certain loan-to-value criteria. If an eligible borrower requests a loan modification in response to the notice, the regulation requires the creditor to assess whether the borrower can afford a lower monthly payment and whether the modification would be in the interests of the creditor. The regulation provides that a modified mortgage loan is considered to be in the interests of the creditor in any case where the net present value of the modified mortgage loan equals or exceeds the anticipated net recovery from foreclosure and provides for an affordable monthly payment for the borrower.

     Nutter Notes: The final amendments supplement the Division’s existing foreclosure prevention regulation, 209 C.M.R. 56.00, which implements a 2010 Massachusetts law that provides a process for lenders and servicers to inform a borrower of a mortgage default and to disclose repayment options in order to prevent a foreclosure. The law was amended by Chapter 194 of the Acts of 2012 to require mortgage lenders to determine whether the value of modifying certain types of home mortgage loans would outweigh the likely value of foreclosure and, if so, the lender must make the loan modification. The Division’s revised regulation sets forth the process for borrowers to request a mortgage loan modification and details the actions that represent a lender’s and a borrower’s good faith participation in the process to develop a mortgage loan modification. The revised regulation includes requirements for how and when lenders should communicate with borrowers, how and when borrowers should respond to lenders, and sets standards to determine whether a lender has met the requirements of the foreclosure prevention law. The revised regulation also clarifies that certain streamlined refinances of mortgage loans insured by the Federal Housing Administration, or originated in accordance with Fannie Mae’s or Freddie Mac’s underwriting standards, are not subject to the foreclosure prevention regulation even though such refinance loans may have relied on limited documentation of a borrower’s income or assets.