Insights

In the August 2012 issue of Basis Points®, we provided an in-depth discussion of Chapter 194 of the Massachusetts Acts of 2012 (“An Act Preventing Unlawful and Unnecessary Foreclosures,” referred to hereinafter as the “Act”), which is aimed at stemming the foreclosure tide in the commonwealth. Among the provisions found in Act is a new right for consumers to pursue a modification of their mortgage if it qualifies as a “certain mortgage loan” (generally speaking ARMs with low introductory rates, loans with interest-only provisions, negatively amortizing loans, loans that do not require documentation of income, loans with high prepayment penalties, and loans with a low loan-to-value ratio or high debt-to-income ratio). Creditors were required to provide notices to their qualifying borrowers of this new right effective with the passage of the Act.

As we outlined in our earlier article, one of the challenges created by the Act was that – although it discussed what should be included in this notice – it did not provide a form of model notice. In the absence of such a “safe harbor” document creditors were generally left to their own devices to formulate a notice that they believed complied with the statutory requirements.

The Division of Banks partially closed this gap when it published a sample notice on its web site, along with a document discussing the process that creditors should follow when providing the notice and responding to customer requests. Both the sample notice and the process document are available at the Division of Banks web site at: http://www.mass.gov/ocabr/business/banking-services/preventing-foreclosure/. Several aspects of the sample form and process document are worthy of mention:

• The sample notice includes a “Mortgage Modifications Options” response form to be used by the borrower to indicate whether or not the borrower would like to proceed with a request for modification, seek a different foreclosure alternative (such as a short sale or deed-in lieu of foreclosure), attempt to cure the default or waive such right and proceed to foreclosure. The sample notice form contemplates that the response form will be returned to the creditor in an enclosed envelope, which should allow creditors to create a centralized location to receive and respond to borrower requests.
• The sample notice includes a checklist that highlights the materials borrowers seeking modification should return with the response form. Among them:
  • A list of information that must be returned by all borrowers, including:
    • If required by the creditor, an application that includes a complete list of monthly income and expenses;
    • Tax return transcripts;
    • Copies of the last two years’ tax returns with all applicable schedules;
    • Copies of the borrower’s two most recent bank statements;
    • Proof of expenses and monthly obligations;
    • Copies of utility bills showing the homeowner’s name and address;
    • Copies of credit card statements showing payments due on all balances; and
    • Copies of mortgage statements for other mortgages on the property (if applicable).
  • For wage earners, copies of the most recent pay stubs reflecting at least 30 days of year-to-date income of the borrower or co-borrower.
  • For self-employed individuals, a copy of the most recent signed and dated quarterly or year-to-date profit and loss statement.
  • For individuals who receive alimony, child support or separation maintenance payments, documentation of such amounts (but only if the party pursuing the modification wishes to have them considered as a basis for repayment of the mortgage).
  • For individuals who receive income from other sources, proof of such income (such as documentation of tips, commissions, bonuses, unemployment income, social security income, death benefits, income from rental properties, etc.).

Inclusion of these materials bring additional clarity, not found in the Act, as to what creditors may require when considering whether or not to offer a modified mortgage loan to a borrower. Although it is not included on the sample notice, the Division has specified that a copy of the notice should be sent to the attention of the Director of the Attorney General’s HomeCorps Program at One Ashburton Place in Boston.

The Division of Banks has clarified, in the process document released simultaneously with the sample notice, that the sample notice may be used by creditors pending the adoption of final regulations to implement the Act are finalized. Once finalized, creditors will be required to use the form of modification rights notice found in the regulation.

Coupled with the release of the sample notice, the Division of Banks also released a spreadsheet template for reporting the final outcome of each loan modification on all loans for which the creditor has sent the notice regarding the borrower’s right to pursue a modification. Such reporting is due to the Division on a bi-annual basis, with the first report due by February 8, 2013. The spreadsheet can be found on the Division of Bank’s site at http://www.mass.gov/ocabr/business/banking-services/preventing-foreclosure/.

If provision of these materials were not enough, the Division also released (in advance of a public hearing on February 6th) a draft of proposed revisions to the Commonwealth’s right to cure regulation (found at 209 C.M.R. Part 56). As proposed, the revised regulation would discuss both the right to cure requirements (under Section 35A of the foreclosure statutes) and right to modify requirements (under Section 35B of the foreclosure statutes, as added by the Act). Included among the proposed revisions are codifications of both the sample notice and process document. The proposal also would permit borrowers to submit documentation consistent with what is required under the Making Home Affordable (MHA), Home Affordable Modification Program (HAMP) or similar federal modification programs in furtherance of a modification request under the Act. As proposed, the revised regulation also would require creditors to provide, within three business days of receiving a modification request, a notice to borrowers informing them of whether their request is complete (and the date by which the borrower should expect a response) or, if the request is incomplete, what additional information is required for the creditor to complete its assessment. Depending on volume, this review and initial response window could be difficult to meet.

A copy of the proposed revisions to the regulation is available on the Division of Banks web site at http://www.mass.gov/ocabr/business/banking-services/dob-notice-of-public-hearings/2013-dob-public-hearings/pubhear02062013.html. Although the public hearing will occur on February 6th, the Division will accept written comments on the proposal through close of business on February 15, 2013.

Thomas P. Quinn is a partner in the Massachusetts office of Hudson Cook, LLP. Tom can be reached at 774-365-4758 or by email at tquinn@hudco.com.