Today's Trends in Credit Regulation

Massachusetts Issues Right to Modify Regulation and Model Form
By Thomas P. Quinn, Jr.

The Massachusetts Division of Banks finalized revisions to its Foreclosure Prevention Options Regulation (209 C.M.R. Part 56) to implement the Commonwealth’s “Right to Modify” statute (Section 35B of Chapter 244 of the General Laws). An analysis of the proposed version of these revisions may be found in our December 2012 / January 2013 issue of Basis Points®. The amendments to the regulation will become effective on June 21, 2013. Use of the model “Right to Request a Modified Mortgage Loan Notice” (or “Right to Modify Notice”) found in the regulation will become mandatory on September 18, 2013. Until that time use of the notice is voluntary.

To highlight some of the requirements of the now finalized regulation:

  • Establishes Notification Processes for Both the Creditor and the Borrower: The revised regulation generally tracks the requirements of both the statute and previously issued process guidance on the manner in which the creditor must provide the Right to Modify Notice and how the borrower should respond. One change from the proposed version of the rule is an allowance for provision of alternative methods for the consumer to deliver his / her election of modification options to the creditor.
  • Discusses What Constitutes a “Good Faith Effort” by Creditor: The regulation details certain actions which, if done, will establish that the creditor has acted in good faith to avoid foreclosure. Included among these actions are properly determining what constitutes an affordable monthly payment for the borrower, identifying a modification program for which the borrower is eligible and providing the Right to Modify Notice as required by the regulation. Creditors are also required to promptly establish policies and procedures to investigate alleged errors in the preparation of the written assessment and provide access to a representative who will be responsible for the negotiation and approval of the modification request.

    New to the final version of the regulation is a requirement for the creditor to modify the loan in a manner that provides for an affordable monthly payment if the net present value of the modified mortgage is greater than the amount anticipated if the creditor were to foreclose. If the net present value is less than the anticipated foreclosure recovery (or if an affordable mortgage payment cannot be met) the creditor must provide its net present value analysis along with the borrower’s current ability to repay.
  • Model Right to Modify Notice: Included with revised regulation is a model form of the Right to Modify Notice. (209 C.M.R. § 56.09). Use of the model form will become mandatory on September 18, 2013. Use of the model form is voluntary from June 21, 2013 through September 17, 2013. The model form includes a response form for the borrower to indicate how s/he would like to proceed. A response envelope must be included with the Right to Modify Notice for the borrower to use when returning the response form.

    Model Checklist of Required Documents: The revised regulation also includes a model form of checklist that creditors may use in connection with the Right to Modify Notice. The checklist recommends requesting certain information from all borrowers (such as a list of income and expenses, a tax transcript form, bank statements, etc.) as well as various types of proof of income (depending on the source of the income). (209 C.M.R. § 56.10) Use of the model checklist is not mandatory. (209 C.M.R. § 56.05(1)(b))
  • Compliance Safe Harbors: The regulation establishes a safe harbor (without the creditor issuing the required notice and assessment) if (a) either (i) the borrower has accepted a permanent loan modification under one of the specified modification programs (HAMP, the FDIC Loan Modification Program, the FHA, a program based on safety and soundness principles and recognized by the NCUA, the Division of Banks or another agency of the Commonwealth or another similar federal refinance program) based on verified documents that provides for an affordable monthly payment or (ii) the creditor has notified the borrower that s/he is not eligible for a modification, each within three years of providing the Right to Cure Notice or (b) the creditor is eligible to send a 90 (instead of 150) day Right to Cure Notice. (209 C.M.R. §§ 56.02 and 56,08)

The general timing requirements – which tie the provision of the Right to Modify Notice to the Right to Cure Notice – remain unchanged from the proposed version of the regulation and the statute.

With the regulations now finalized, mortgage lenders and servicers would be wise to review their existing policies and procedures against what it requires. Lenders and servicers should also move forward with implementation plans to ensure that the model form of Right to Modify Notice is installed and in use no later than September 18, 2013.

The regulation, which includes the model Right to Modify Notice, may be found on the Massachusetts Division of Banks web site at

Thomas P. Quinn, Jr. is a partner in the Fall River, MA office of Hudson Cook, LLP. Tom can be reached at 774-365-4758 or by email at

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