Stealing the Empire State Building

The New York Daily News tried to show that it is easy to "steal" property by filing fake deeds. The story is rather foolish, but if you want to read it: It took 90 minutes for Daily News to 'steal' the Empire State Building.

The reporters think that by filing a forged deed, they somehow could control the building and get a mortgage. Sure it is possible to try to steal money by going through this exercise. Of course you are just leaving a paper trail that makes it easy to figure out what happened and get caught. I could also jump into a car and drive off. That is stealing too.

What is wrong with the story? The property manager is unlikely to turn over the bank accounts to some unknown person just because they have a deed. Tenants are unlikely to redirect rent payments without more evidence of a transfer. A mortgage lender is not going to turn over loan proceeds based on mere deed. One reason to insert lawyers into the real estate conveyance process is to prevent scams like this.

Mortgage lenders demand lots of documentation because they try to avoid scams like this. Mortgage lenders get title insurance to protect against fraud and scams.

It was a stunt and created an interesting headline. However, someone is likely to pay a fine or go to jail for it. I am not a New York lawyer but I would guess that there is a law against filing fake documents.

Disclaimers
Image is by David Shankbone from Wikimedia Commons

Rev. Proc. 2008-28 and Foreclosure Relief for Securitizations

The Internal Revenue Service issued Revenue Procedure 2008-28 [.PDF ] which provides for the modification of certain mortgage loans will not jeopardize the favorable tax treatment of the capital structure for certain securitization capital structures.

One issue impacting the downturn in the real estate market is the inability of some lenders to revise the loan terms to avoid foreclosure. The packing of loans into a securitization structure was usually accomplished by using a REMIC or other tax-favorable structure. By adhering to the REMIC rules, the payments to the lender passed through the REMIC structure would not be taxed until received by the investors in the REMIC structure. REMICs are governed by Section 860A - 860G of the Internal Revenue Code.

One of the limitations in the REMIC structure is that the loans cannot be materially modified. If modified, the IRS imposes a hefty tax penalty. Section 860F(a)(1) imposes a tax on a REMIC equal to 100 percent of the net income derived from “prohibited transactions.” The disposition of a qualified mortgage is a prohibited transaction unless the disposition is pursuant to "(i) the substitution of a qualified replacement mortgage for a qualified mortgage; (ii) a disposition incident to the foreclosure, default, or imminent default of the mortgage; (iii) the bankruptcy or insolvency of the REMIC; or (iv) a qualified liquidation."860F(a)(2)

The IRS promulgated Rev. Proc. 2008-28 to give the servicers of residential mortgage loans some more flexibility in providing foreclosure relief, without jeopardizing the capital structure of the mortgage loan securitization. This revenue procedure applies to "a modification of a mortgage loan that is held by a REMIC, or by an investment trust, if all of the following conditions are satisfied:

1. The real property securing the mortgage loan is a residence that contains fewer than five dwelling units.
2. The real property securing the mortgage loan is owner-occupied.
3. (1) If a REMIC holds the mortgage loan, then as of either the startup day or the end of the 3–month period beginning on the startup day, no more than ten percent of the stated principal of the total assets of the REMIC was represented by loans the payments on which were then overdue by 30 days or more; or (2) If an investment trust holds the mortgage loan, then as of all dates when assets were contributed to the trust, no more than ten percent of the stated principal of all the debt instruments then held by the trust was represented by instruments the payments on which were then overdue by 30 days or more.
4. The holder or servicer reasonably believes that there is a significant risk of foreclosure of the original loan. This reasonable belief may be based on guidelines developed as part of a foreclosure prevention program similar to that described in Section 2 of this revenue procedure or may be based on any other credible systematic determination.
5. The terms of the modified loan are less favorable to the holder than were the unmodified terms of the original mortgage loan.
6. The holder or servicer reasonably believes that the modified loan presents a substantially reduced risk of foreclosure, as compared with the original loan."

If the modification meets those requirements, then

• The IRS will not challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications are not among the exceptions listed in § 1.860G–2(b)(3);
• The IRS will not contend that the modifications are prohibited transactions under section 860F(a)(2) on the grounds that the modifications resulted in one more dispositions of qualified mortgages and that the dispositions are not among the exceptions listed in section 860F(a)(2)(A)(i)–(iv);
• The IRS will not challenge a securitization vehicle’s classification as a trust under section 301.7701-4(c) on the grounds that the modifications manifest a power to vary the investment of the certificate holders; and
• The IRS will not challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications resulted in a deemed reissuance of the REMIC regular interests.

This revenue procedure governs determinations made by the Service on or after May 16, 2008, with respect to loan modifications that are effected on or before December 31, 2010.

Banks Are Keeping More Loans on Their Books

Mark Gongloff reports in WSJ.com that U.S. commercial banks are keeping more of the loans they make on their balance sheets.

Total assets at U.S. commercial banks swelled to $11.12 trillion in early April, up from $9.94 trillion a year ago, according to Federal Reserve data that are updated every Friday. Last month, the growth rate of bank assets hit its fastest growth pace in 28 years.

As Mark states, one of the problems that occurred in the CMBS market was that lenders were not keeping an interest in the loans they originated. They were just producing the paper to package into a stream of CMBS offerings. Banks forgot that they were making loans and that the loans would have to be managed.

Prior to the CMBS, when negotiating documents, the "no" response was that the change would reduce the value of the paper. I was not hearing that it would affect the lender's ability to manage the loan.

The Case for Exotic Notes in Commercial Real Estate Transactions

Fran Mastroianni of Goodwin Procter LLP, published a story in Real Estate Investment & Finance: The Case for Exotic Notes in Commercial Real Estate Transactions.

"PIK (payment-in-kind) Notes and Toggle Notes, which began as alternative debt instruments with safety valve features attractive to the real estate industry, became a life jacket keeping overly aggressive financially engineered deals afloat. Their use has temporarily retreated but their intrinsic value as sophisticated real estate finance tools almost guarantees that they will reemerge as the debt crisis subsides."

Securitization and Lax Mortgage Lending

The Chain of Fools is the title of The Economist's Economics Focus column. The article points to the increasing evidence that securitization lead to lax mortgage lending in the United States.

The column is based largely on the study by Atif R. Mian and Amir Sufi of the University of Chicago's Business School: The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis.

In the end the problem was severing the origination of mortgage loans from their ongoing management and servicing. The originators were motivated to increase the flow of mortgage paper, not necessarily to increase the quality of that mortgage paper. As evidence, you can look at the increase of NINJA loans (No Income, No Job or Assets) on the residential side of mortgage lending and the light covenant loans on the commercial side of mortgage lending.

Mortgage lenders farmed out the mortgage origination to brokers. The mortgage lenders in turn packaged the mortgage loans and securitized them. As a result, the broker and the lender were focused on the short term origination and not on the long term value of the mortgage debt.

In representing the borrowers of loans to be securitized, I often heard that the statement: "I can't sell that in the market." I never heard, "that will be affect my ability to manage or service the mortgage loan."

The underlying economic problem is that the originating lenders did not keep any "skin in the game." Nearly all of their economic return was in the origination, not the long term success.

Closing Protection Letters - New Forms

The American Land Title Association (ALTA), recently approved three new form closing protection letters. These new forms took effect on January 1, 2008.

• Closing Protection Letter
• Closing Protection Letter - Limitations
  
• Closing Protection Letter - Single Transaction Liability

Jon Anderson, Senior Title Counsel for CATIC wrote an article on these new forms and how they clarify the underwriter's liability.

The Closing Protection Letter is the broadest form. The Closing Protection Letter - Limitations imposes a specified dollar limit on the liability, although this limitation is not applicable to mortgage loan transactions for individual one-to-four family residential properties. The Closing Protection Letter - Single Transaction Liability is limited to a single transaction with funds not in excess of a specified dollar amount.

I always ask for a closing protection letter when using an agent to issue the title policy and handle funds (as opposed to using an officer of the the title company.)

The trouble with these new forms is that they limit the protection to damages relating to the status of title to an interest in the land or the validity, enforceability or priority of the lien of the mortgage. You are protected if the deed or mortgage is not recorded.

With these new forms, you are not protected for the closing or settlement services being provided by the title agent. Clearly, an over-funding of the purchase price will not fall under the protection of these new closing protection letters.

Financing the Construction and Acquisition of Your Real Estate Development Project

Below is my material from Real Estate Development From Beginning to End in Massachusetts.

The document is hosted on a site called Docstoc.

Terror Risk Insurance Act Extended

With a week left before expiration of the Terrorism Risk Insurance Act, President Bush Signs 7 Year Terror Insurance Extension, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). The Act extends the insurance program through the end of 2014.

The availability of terrorism insurance has been crucial for financing of buildings in New York City and other high profile buildings across the country.

Usury in Massachusetts

I ran across two articles on usury and expect we will see more as the debt markets and foreclosures continue to sort themselves out and more borrowers are faced with foreclosure.

Usury is the charging of excessive interest on a loan. Most states have a law prohibiting usury and defining what is meant by usury. Usury laws were originally targeted at loan sharks. As a result, most usury statutes make the charging of usurious interest a criminal act. They also generally allow the borrower to escape from making the excessive interest payments.

Massachusetts defines interest in excess of 20% to be the interest rate that triggers usury. M.G.L. Chapter 271, Section 49. The 20% threshold also includes any brokerage fees, recording fees, commissions, forbearance or any other amounts the borrower has to pay to the lender.

The 20% rate is prorated for shorter periods of time. Upfront fees can push an otherwise legal loan into a usury loan if it is maid off early. For example, if you have ten year loan at 18%, plus a 3% commission payable at closing, that loan is usurious if the borrower pays it off at the end of the first year.

M.G.L. Chapter 271, Section 49(a) provides for a criminal sentence of up to ten years and a fine of up to $10,000. Also, M.G.L. Chapter 271, Section 4(c) allows the court to void a usurious loan.

Massachusetts has two exceptions to usury. The first is the regulated lender exception in M.G.L. Chapter 271, Section 49(e). Under this exception, the usury statute does not apply to "any lender subject to control, regulation or examination by any state or federal regulatory agency" or to "any loan the rate of interest for which is regulated under any other provision of general or special law or regulations." This means that banks, credit unions and most conventional lenders are not subject to usury in Massachusetts. However, CMBS originators and investment funds may not fall under this exception.

The second exception is by use of a "leg-breaker letter." Under M.G.L. Chapter 271, Section 49(d), you can charge usurious interest as long as you send a letter to the Attorney General with the lender's and borrower's name and accurate address. This notification is good for two years.

The leg-breaker exception is very easy to comply with. I was surprised to see stories about usury in Massachusetts.

Both stories are about a loan for the development of a 186 home community and godf course in Dracut. Massachusetts Lawyers weekly reported the story: Release Won't Shield Lender from Usury Claim of Borrower subscription). It reports a story about LR5-A Limited Partnership v. Meadow Creek, LLC, et al. (Massachusetts Lawyers Weekly subscription), with a decision coming out of the Business Litigation Session of the Superior Court. The decision found that a release or waiver of claims for usury is not effective. Usury is a public policy law and cannot be waived by the parties. The case was also reported in the Boston Globe: Usury lawsuit names Harvard, Princeton, and Yale Endowments.

The borrower made notes with an interest rate in excess of 20%. The decision from the Superior Court says it was a 21% interest rate. The Boston Globe story says one of the loans was 42%. The lender was an investment fund set up by Realty Financial Partners. The lender was a non-conventional lender and therefore could not benefit from the regulated lender exception to the usury law. They should have filed a leg-breaker letter. The decision was silent on whether the filed a letter. The Boston Globe story reports that two notices were filed, but that one was filed too early (before the lending partnership was formed) and the second filed too late (after the loan was made).

The borrower goes on to charge the limited partners of the lender violated usury and is trying to bring a claim against them directly. This seems foolhardy from a legal perspective. But it apparently worked from a public relations perspective because he got his name in the paper

The problem I have with the application of the usury laws in commercial financing is that they merely give the borrower an opportunity to wiggle out from their bargain. According to the story, the borrower thought they could quickly obtain development rights and then refinance the loan with a conventional lender at a lesser interest rate. He failed and the lender had to foreclose on the property. The borrower must have thought the interest rate was acceptable at closing. Now that the deal went south, he is trying to apply the law retroactively to get himself out of his bargain.

Disclosure: Realty Financial Partners is a client of my firm.

Delay in Implementing New Mortgage Regulations

As Jay Fitzgerald of the Boston Herald reports: Companies may drop home loans

The mortgage industry does not like the new mortgage regulations proposed by the Attorney General. As I posted on this summer, these new predatory lending regulations under 93A are well intentioned but vaguely drafted: (15) Lender Must Believe the Borrower Can Repay, (16) No Documentation Loans, (17) Loans Not in the Borrower's Interest, (18) Prohibiting Discrimination.

As a result, the Attorney General announced that the regulations will not implemented this week. The new date is January 2.

A CMBS and CDO Primer

Parke Chapman wrote a primer in the National Real Estate Investor on CMBS, CDO and the commercial debt markets.

Some highlights:

Q: What led to the formation of the first commercial real estate CDO in 1999?

A: Commercial real estate CDOs were a major innovation in part driven by the need to diversify risk after the 1998 Russian financial crisis sparked a global liquidity crunch. Unlike CMBS, which adhere to strict rules on the type and quality of collateral, the commercial real estate CDO market allowed lenders and investors to introduce a debt vehicle with more flexibility. What this means is that commercial real estate CDO managers can swap collateral out of the pool, making these highly managed pools of debt.

Q: What types of loans back CMBS and commercial real estate CDOs?

A: Two key differences center on the fixed- and floating-rate nature of the collateral. Commercial real estate CDOs are typically backed by floating-rate loans whereas CMBS collateral is backed by first-mortgage loans. A commercial real estate CDO can be backed by all sorts of collateral. CMBS, preferred equity and construction loans are commonly held by commercial real estate CDOs. REIT bonds and various other types of exotic debt such as second-lien loans and unsecured debt can get lumped into these pools.

mortgage
CMBS
CDO

Guarantee Liability with Mezzanine Loans and Mortgages

With mezzanine financing, there is a potential guarantee liability to the principals of the developer that they may not foresee. The issue arises in a financing that has a mortgage loan with springing guarantees combined with a mezzanine loan secured by a pledge of interests in the mortgage borrower.

Generally, the principals of a mortgage borrower give a bad boy springing guarantee to the mortgage lender. The principals agree to be personally liable for the mortgage loan if the borrower declares bankruptcy or does other "bad" things. Principals of the borrower give these guarantees because they control the borrower and have an economic interest in the borrower. They are essentially agreeing that in exchange for a non-recourse loan, they will not fight the lender's efforts to take the collateral if the loan defaults.

The problem arises when the mezzanine lender forecloses on the pledge of interests in the mortgage borrower. After foreclosure, the mezzanine lender controls the mortgage borrower. Meanwhile, the springing guarantor has lost its economic interest in and management control of the mortgage borrower, but still has the liability under the guarantee for "bad acts" of the mortgage borrower.

If there is a mezzanine loan that goes into default, followed by a foreclosure by the mezzanine lender, the mezzanine lender controls the borrower, not the guarantor. The mezzanine lender can then threaten to bankrupt the mortgage borrower and trigger the personal liability for the mortgage debt. In the end, the guarantor may be forced to repay the mezzanine lender on its loan; in effect, the mezzanine loan had become a recourse obligation.

Mezzanine borrowers/bad boy guarantors should require the mezzanine lenders to obtain either (i) a release of the bad boy guarantor from the mortgage lender (usually by replacing the bad boy guarantee with one from the mezzanine lender) or (ii) an appropriate indemnity from the mezzanine lender for liability under the bad boy guarantee that the mezzanine lender creates post foreclosure. In each case, this should be a condition to permitting the foreclosure of the mezzanine position.

mezzanine loans
mortgage

Discharging Old Mortgages

When browsing through Massachusetts Lawyers Weekly, I came across Kowalczyk, et al. v. Estate of Smiarowski (Lawyers Weekly No. 14-087-07) (6 pages) (Sands, J.) (Land Court) (Misc. Case No. 245456) (July 31, 2007) (subscription required).

It cited M.G.L.c.240, section 15, which provides for a discharge of a mortgage that is 20 years past its expiration date. I had not run across this statute before, but it looks like a useful method to discharge old mortgages. The 20 years is a long time frame. With a typical 10 year commercial mortgage or 30 year residential mortgage, the old, undischarged mortgage would have to be very old to fall under the statute.

M.G.L.c.240, section 15 states:
(b) If the record title of land or of easements or rights in land is encumbered by an undischarged mortgage or a mortgage not properly or legally discharged of record, and the mortgagor or the mortgagor’s heirs, successors or assigns do not have actual or direct evidence of full payment or satisfaction of the mortgage but the mortgagor, or the mortgagor’s heirs, successors or assigns have been in uninterrupted possession of the land or exercising the rights in easements or other rights in the land, either: (1) in the case of a successor or assign who is a bona fide purchaser for value or who is an heir, successor or assign of the bona fide purchaser for value, for any period of 20 years after the recording of a deed from the mortgagor or his heirs or devisees to the bona fide purchaser, which deed did not evidence that title was taken subject to the mortgage or that the purchaser assumed or agreed to pay the mortgage; or (2) in the case of the mortgagor, or the mortgagor’s heirs, devisees or successors by operation of law, for any period of 1 year after the expiration of the time limited in the mortgage for the full performance of the condition thereof, or for any period of 20 years after the date of a mortgage not given to secure the payment of money or a debt but to secure the mortgagee against a contingent liability which has so ceased to exist that no person will be prejudiced by the discharge thereof, the mortgagor, or the mortgagor’s heirs, successors or assigns, or any person exercising the rights in easements or any person described in section 11, may file a petition in the land court or, except in the case of registered land, in the superior court for the county in which the land is located; and if, after such notice by publication or otherwise as the court orders, no evidence is offered of a payment on account of the debt secured by the mortgage within the relevant period of uninterrupted possession or of any other act within the time in recognition of its existence as a valid mortgage, or if the court finds that the contingent liability has ceased to exist and that the mortgage ought to be discharged, it may enter a decree discharging the mortgage, which decree, when duly recorded in the registry of deeds for the county or district where the land lies or, in the case of registered land, when duly noted on the memorandum of encumbrances of the relevant certificate of title, shall operate as a discharge of the mortgage and no action to enforce a title under the mortgage shall thereafter be maintained.

Real Estate Development From Beginning to End in Massachusetts

I will speaking as part of the seminar: Real Estate Development From Beginning to End in Massachusetts in Dedham on November 16, 2007.

Agenda

8:30 am – 9:30 am	Site Selection and General Due Diligence
	Matthew J. Lawlor, Esq.
9:30 am – 10:30 am	Due Diligence – Land Use and Environmental Matters
	Patrick M. Butler, Esq.
10:30 am – 10:40 am	Break
10:40 am – 12:00 pm	Site Acquisition: Negotiating and Drafting the Purchase Agreement
	Matthew J. Lawlor, Esq.
12:00 pm – 1:00 pm	Lunch (On Your Own)
1:00 pm – 2:30 pm	Financing Your Acquisition and Construction
	Douglas E. Cornelius, Esq.
	Structuring the Capital Choice of Entities Mortgage Loans Loan Application, Negotiating the Term Sheet and Mortgage Loan Documents Converting to a Permanent Loan Mezzanine Loans Joint Ventures
2:30 pm – 2:40 pm	Break
2:40 pm – 3:30 pm	Comprehensive Regulatory Strategy: Expediting the Permitting Process
	Patrick M. Butler, Esq.
3:30 pm – 4:10 pm	Project Planning and Permitting Process
	Patrick M. Butler, Esq.
4:10 pm – 4:30 pm	Questions and Answers
	Patrick M. Butler, Esq., Douglas E. Cornelius, Esq., and Matthew J. Lawlor, Esq.

construction mortgage

New Predatory Lending Regulations - (18) Prohibiting Discrimination

The Attorney General is proposing new regulations under the Consumer Protection Act (M.G.L. 93A). The new regulations add new prohibited activities as provisions (15), (16), (17) and (18) under 940 C.M.R 8.06.


The new prohibited activity in item (18) of the proposed regulations prohibits a lender from discriminating among similar borrowers. "It is an unfair or deceptive act or practice for a lender (a) to 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."


Although this regulation has a good purpose in preventing lenders from discriminating among borrowers, no two borrowers or properties are the same. The regulation gives no safe harbor for a lender to show that it is not discriminating.

New Predatory Lending Regulations - (17) Loans Not in the Borrower's Interest

The Attorney General is proposing new regulations under the Consumer Protection Act (M.G.L. 93A). The new regulations add new prohibited activities as provisions (15), (16), (17) and (18) under 940 C.M.R 8.06.


The new prohibited activity under item (17) makes it a "deceptive act or practice for a mortgage broker to process, make or arrange a loan that is not in the borrower's interest." It goes on to require the broker to disclose when the financial interest of the broker conflicts with the financial interest of the borrower. If the broker is going to get paid more if the borrower gets a loan with a higher interest rate, the broker needs to disclose the conflict and not help with the loan. The regulation further provides that the broker cannot disclaim a fiduciary duty to the borrower.


I surprised that the regulation requires the mortgage broker to have a fiduciary for the borrower. I think the mortgage broker is acting as an agent for their lenders, not as an agent of the borrower.


I think this regulation, if enacted, will leave mortgage brokers scratching their head as to how to operate. How can they determine if a loan is in a borrower's interest?

New Predatory Lending Regulations - (16) No Documentation Loans

The Attorney General is proposing new regulations under the Consumer Protection Act (M.G.L. 93A). The new regulations add new prohibited activities as provisions (15), (16), (17) and (18) under 940 C.M.R 8.06.


The proposed prohibited activity in (16) limits the mortgage lender's ability to make no-documentation or limited documentation loans. These types of loans were targeted at borrowers who had trouble documenting all of their income. Typically this type of borrower would be an independent contractor or small business owner. [CNN.Money background article]


On the dark side, I believe these borrowers were typically a contractor or business owner who did not do a good job tracking all of the cash they received and was hiding income from the taxman. I also think these loans were used for a borrower trying to get more of a mortgage than they would ordinarily be able to get using typical underwriting standards. The borrower would state that they had more income than they actually did. I never saw a good reason for this type of loan to exist other than to cheat the lender or the taxman.


The Washington Post does not paint a pretty picture on the use of these loans: The Lowdown on Low-Doc Loans.


Although the new regulation does not prohibit this type of loan, the regulation makes them very unappealing to lenders. The lender must deliver a statement with the borrower's income and a disclosure that the loan will be at a higher interest rate because of the "no-doc" option. Also, the lender needs to verify the employment and income when the stated income is "not reasonable for the occupation or experience of the borrower.. . ."


I do not know how a lender is supposed to determine what a reasonable income is for a person in a particular occupation with a particular level of experience. Effectively, a lender is leaving itself wide open for a claim under 93A if makes no-doc or limited doc loans in Massachusetts.

New Predatory Lending Regulations - (15) Lender Must Believe the Borrower Can Repay

The Attorney General is proposing new regulations under the Consumer Protection Act (M.G.L. 93A). The new regulations add new prohibited activities as provisions (15), (16), (17) and (18) under 940 C.M.R 8.06.


The new (15) provides in part: "It is an unfair or deceptive act or practice for a . . . lender to . . . make a mortgage loan unless the . . . lender . . . 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 problem with this new prohibited activity is the lack of a benchmark for a lender to rely on. The challenge from the borrower under (15) will almost always come after the person has gone into default and is scrambling to prevent foreclosure. How can the lender prove that they reasonably believed the borrower could repay the loan when it turns out that the borrower could not.


How much of their income should a borrower reasonably be expected to expend on their mortgage and still be expected to be able to repay the loan? Certainly a loan with monthly payments in excess of 100% of a borrowers net monthly income would be a violation of this new provision. But I am not sure where the percentage hits the tipping point to become reasonably expected to be able to repay. 90%? 75%? 50%? 25%?

I think the borrower should be the party that determines if they will be able to repay the loan.

Summary of Proposed Predatory Lending Regulations

The Attorney General is proposing new regulations under the Consumer Protection Act (M.G.L. 93A).

The Attorney General summarized wants to enact the new regulations to:

· Prohibit mortgage brokers or lenders from making a loan if they do not have a
reasonable belief that the borrower is able to repay the loan.
· Restrict the abuse of no-documentation or “stated income” loans by requiring that the mortgage broker or lender disclose how the interest rates or other charges will increase under a “no-doc” loan, and obtain the borrower’s signed statement of income in order to process those types of loans.
· Prohibit mortgage brokers from arranging or processing loans that are not in the borrower’s interest, and prohibit brokers from brokering loans if their financial interests conflict with the borrower’s.
· Prohibit mortgage lenders from steering borrowers to loan products that are more costly than those that the borrower qualifies for, and prohibits lenders from discriminating between similarly qualified borrowers.

These new regulations are an update of regulations from 1992 when the last big mortgage crisis affected the Commonwealth. The regulations apply to all residential mortgages, except open end home equity lines of credit.


The update adds new prohibited activities as provisions (15), (16), (17) and (18) under 940 C.M.R 8.06.

I have a lot of concern about knee-jerk reactions to mortgage crisis. One person's predatory lending is another person's provider of an opportunity to invest in real estate.

Predatory Lending Regulations and Hearing Schedule

The Massachusetts Attorney General is reacting to the current sub-prime mortgage lending situation by proposing several new regulations under M.G.L. 93A

A copy of the proposed regulations can be found here.

The hearing schedule for the proposed regulations is as follows:

Monday, September, 17, 2007, 11:00 a.m.
Worcester Regional Chamber of Commerce
339 Main Street
Worcester, MA 01608

Tuesday, September 18, 2007, 11:00 a.m.
Brockton District Court, Rotunda Hearing Room
215 Main Street
Brockton, MA 02301


Wednesday, September 19, 2007, 10:00 a.m.
Office of the Attorney General
1350 Main Street, 3rd Floor Conference Room
Springfield, MA 01103


Thursday, September 20, 2007, 10:00 a.m.
The State House - Gardner Auditorium
Boston, MA 02108