Massachusetts AG Proposes New Consumer Protection Regulations Regarding Mortgages

August 7, 2007 -- BOSTON – Today, Massachusetts Attorney General Martha Coakley proposed amendments to current mortgage broker and mortgage lender regulations to address recent unfair and deceptive tactics used in the mortgage industry. These proposed new amendments to the regulations under the Consumer Protection Act (Massachusetts General Laws Chapter 93A) are aimed at curbing practices in the mortgage industry which have contributed to the current foreclosure crisis in Massachusetts.

"During the course of investigations and litigation, we have identified several unfair and deceptive practices used by some mortgage brokers and lenders to process or make mortgage loans to Massachusetts borrowers," said Attorney General Coakley. "These troubling practices often result in consumers with mortgage loans they cannot afford, and thus contribute to the rise in foreclosures in the Commonwealth. We are hopeful that the regulations we are proposing today will curb such predatory practices, and curtail the chances of this type of foreclosure crisis occurring in the future."

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Attorney General Coakley noted that similar federal regulations are necessary to address financial institutions regulated at the federal level, and recently joined other state Attorneys General in calling for additional consumer protection measures by the Federal Reserve Bank.

At this time, the Attorney General's Office is proposing four amendments to the current mortgage broker and lender regulations. The new regulations prohibit certain unfair and deceptive conduct. Specifically, the regulations:

* 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.

The new regulations also expand the scope of the existing mortgage lender and broker regulations prohibiting certain unfair and deceptive advertising practices. The regulations previously applied only to home improvement loans. As amended the regulations apply to all mortgage loans, including refinancing or purchase money mortgage loans.

On June 1, the Attorney General's Office announced an emergency regulation banning foreclosure rescue schemes, and also opened a public comment period on possible additional regulations. The public comment period closed on June 28. After carefully reviewing the more than 50 public comments submitted, the Attorney General's Office has proposed to amend the mortgage lender and broker regulations. The proposed amendments were submitted to the Secretary of State today.

The Attorney General's Office had also sought public comment on a fifth topic, as to whether there should be assignee liability for all loans, or for certain types of loans, beyond the current standard applying only to "high cost" loans. Such assignee liability would allow a victim of fraud or other violations to sue not only the entity that originated the loan in the first place, but also a company that has purchased and holds the loan. At this time, the Attorney General's Office is not proposing a regulation pertaining to assignee liability, but will continue to review the issue.

"The question of appropriate assignee liability for some loans remains of great concern to our office," said Attorney General Coakley. "While we are not proposing a regulation at this time, we have not ruled out proposing additional regulation pertaining to assignee liability in the future. We will also closely monitor any action on this subject by the federal government."

The Attorney General will hold a series of four regional public hearings on the proposed regulations during September:

Worcester Monday, September, 17, 2007, 11:00 a.m.
Office of the Attorney General
One Exchange Place,
Worcester, MA

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

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

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

Former Chief Judge for the U.S. Bankruptcy Appellate Panel for the First Circuit Court of Appeals Carol Kenner, currently serving Of Counsel to the Attorney General's Public Protection and Advocacy Bureau, will serve as the hearing officer.

Interested parties may submit testimony either in person at one of the hearings or in writing. Written testimony may be submitted via mail, email, or fax:

By Mail or Hand Delivery
Office of the Attorney General
Consumer Protection Division
Christopher K. Barry-Smith, Chief
c/o: Lois Martin, paralegal
One Ashburton Place
Boston, MA 02108

By Facsimile: (617) 727-5765
Attention: Lois Martin, paralegal

By e-mail: lois.martin@ago.state.ma

Upon completion of these hearings, the Attorney General's Office will have the opportunity to make any appropriate revisions to the proposed regulations before final promulgation. The office anticipates that final promulgation of these regulations will occur by the end of September 2007.

The regulations proposed today are part of Attorney General Coakley's multi-faceted plan to address the current foreclosure crisis in Massachusetts. In early June, the Attorney General's Office announced an emergency regulation banning foreclosure rescue schemes, which were put into effect for 90 days. On August 30, 2007, the Attorney General's Office will hold a public hearing to make the emergency regulation permanent. The hearing will take place at 10:00 a.m. at One Ashburton Place, 21st Floor.

The Attorney General, in partnership with several bar associations, legal services organizations and advocacy groups, also established a Pro Bono Foreclosure Assistance Hotline. Low-income Massachusetts residents who are facing foreclosure on their homes may call (800) 342-5297 or (617) 603-1700. The Attorney General's Office continues to seek additional qualified attorneys who are willing to represent indigent homeowners, particularly in the areas outside Greater Boston. Interested lawyers may call Yolanda Kruczkowski, of the Attorney General’s Public Protection and Advocacy Bureau. Yolanda can be reached at 617 727 2200 x2973 or by email Yolanda.kruczkowski@state.ma.us. Over 100 attorneys, housing advocates and law students have already generously volunteered their time to the hotline.

In addition, the Attorney General has called for legislation to criminalize certain types of mortgage fraud and to provide additional consumer protections. In July, the Senate passed a bill that contains several of those provisions.

Source: Massachusetts Attorney General