Mortgage Law Blog, LLC

On January 2, 2008, new regulations under the Massachusetts Consumer Protection Act became effective.  The new regulations were issued by the Massachusetts Attorney General’s Office, and identify unfair and deceptive acts and practices in mortgage brokering and lending. 

The new regulations purport to apply to all residential mortgage lenders, including banks and depository institutions.  They apply to all residential mortgage loans, except reverse mortgages, open-end home equity lines of credit and reduced interest rate mortgages originatedunder governmental affordable housing programs. 

Under the new regulatons, to avoid committing an unfair or deceptive act or practice, mortgage brokers and lenders (among other things) must not: 

Make any representation or statement of fact if the representation or statement is false or misleading or has the tendency or capacity to be misleading, or if the mortgage broker or lender does not have sufficient information upon which a reasonable belief in the truth of the representation or statement could be based.  Such claims or representations include, but are not limited to the availability, terms, conditions, or charges, incident to the mortgage transaction and the possibility of refinancing.  In addition, other such claims and representations by the broker may include the amount of the brokerage fee, the services which will be provided or performed for the brokerage fee, the borrower’s right to cancel any agreement with the mortgage broker, the borrower’s right to a refund of the brokerage fee, and the identity of the mortgage lender that will provide the mortgage loan or commitment;

Charge an application and/or broker fee which significantly deviates from industrywide standards or is otherwise unconscionable;

Procure or negotiate for a borrower a mortgage loan with rates or other terms which significantly deviate from industrywide standards or which are otherwise unconscionable. 

Conduct business with a person which should be licensed under M.G.L. c. 255E, and which it knows or should know is an unlicensed mortgage broker or lender.

Charge certain types of prepayment fees.

Make a mortgage loan unless the mortgage broker or lender, based on information known at the time the loan is made, reasonably believes at the time the loan is expected to be made that the borrower will be able to repay the loan based upon a consideration of the borrower’s income, assets, obligations, employment status, credit history, and financial resources, not limited to the borrower’s equity in the dwelling which secures repayment of the loan.  The determination under this section of a borrower’s ability to repay a loan shall take into account, without limitation: i) the borrower’s ability to repay at the fully indexed rate, assuming a fully amortizing repayment schedule, and the resulting scheduled payments that may be charged under the loan accounting for interest rates, financial terms or scheduled payments that may adjust upward; and ii) the property taxes that are required on the subject property at the time the loan is expected to be made and the reasonably anticipated insurance costs if the loan requires that insurance be maintained on the property, regardless whether the broker or lender will collect an escrow for such taxes or insurance in connection with loan payments.  For purposes of this subsection, the “fully indexed rate,” with respect to loan rates that may adjust upward, shall mean the index rate prevailing at the date of loan origination plus the margin to be added to it after the expiration of an introductory interest rate.

One of the provisions of the new regulations specifically applies only to mortgage lenders.  Under this provision, the lender  must not: 

Use a pricing model for its mortgage loans which treats borrowers with similar credit criteria and bona fide qualification criteria differently; or (b) to make a mortgage loan when any or all of the cost features of the mortgage loan are based on criteria other than the borrower’s credit and other bona fide qualification criteria. For purposes of this paragraph, “bona fide qualification criteria” shall mean those criteria that a lender, pursuant to written loan underwriting or origination policies, takes into account in determining whether to extend a mortgage loan, including by way of example, income, assets, credit history, credit score, income-to-debt ratios or loan-to-value ratios. For purposes of sub-paragraph (b), the term “cost features” shall include, but not be limited to, the interest rate; the index; margin; and other adjustment features if the interest rate is adjustable; points; and prepayment penalties.

Similarly, one provision requires that a boker not:

Process, make or arrange a loan that is not in the borrower’s interest. Where the financial interest of a mortgage broker conflicts with the interests of the borrower (for example, where the broker’s compensation will increase directly or indirectly if the borrower obtains a loan with higher interest rates, increased charges or less favorable terms than those for which a borrower would otherwise qualify), the broker shall disclose the conflict and shall not proceed to process, make or arrange the loan so long as such a conflict exists. It is an unfair or deceptive act or practice for a mortgage broker to disclaim the duty established by this subsection (17) in a written contract or to assert in oral representations that a broker does not have such a duty in communications with the borrower.

The new regulations contain a variety of other provisions, and the Attorney General’s Office has also issued guidance interpreting portions of the new regulations.  The new regulations apply to all laon applications received on or after January 2, 2008.

Tags: Consumer Protection, Unfair or Deceptive Acts //