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Financial Services Law Insights and Observations

Massachusetts Division of Banks Releases Industry Letter on Mortgage Loan Modification

State Issues

On April 27, the Massachusetts Division of Banks (Division) published an industry letter addressing several frequently asked questions regarding mortgage loan modifications in Massachusetts. The Division determined that a broker or any third party cannot charge a modification fee on any loan where the borrower is exercising his right to cure a default, because such fees are prohibited under § 11 of Chapter 206 of the Acts of 2007 and regulation 940 CMR 25.00. In contrast, mortgage lenders can charge a fee to modify a mortgage pursuant to the authority granted them by § 63A of Chapter 183, but only if said lender is also the mortgage holder. In addition to questions concerning fees, the Division addressed whether an unlicensed individual can negotiate or assist in the process of obtaining a loan modification from a mortgage holder on behalf of a borrower. Considering the mortgage broker and/or mortgage loan originator licensing requirements of Chapters 255E and 255F of the General Laws, the Division determined that any person negotiating or assisting in the process of obtaining a loan modification must obtain the applicable broker or originator license if such assistance resulted in a refinancing. Further, the Division warned that such activity may also trigger state law regulatory requirements applicable to financial advisors, credit counseling services and credit services organizations.