MORTGAGES AND LOANS

M.G.L. pt. Part I, tit. Title XXII, ch. c. 167E

in effect

M.G.L. c. 167E, § 1 Definitions

c. 167E, § 1. Definitions Section 1. As used in this chapter, the following words, shall unless the context otherwise requires, have the following meanings:— ''Bank'', a savings bank, co-operative bank, or trust company subject to the supervision of the commissioner of banks. ''Capital'', (1) the sum of the capital stock, surplus account and undivided profits of a savings bank or a co-operative bank which has converted to a stockholder form of corporation, a subsidiary banking institution of a mutual holding company as defined in chapter 167H or a trust company as defined in section 1 of chapter 172; (2) the sum of the surplus account of a mutual form savings bank governed by chapter 168 or a mutual form co-operative bank governed by chapter 170. The commissioner, in his discretion, may further define or permit adjustments to the capital accounts of a bank necessary to effect the purposes of this chapter. ''Commissioner'', the commissioner of banks. ''Real estate'', land or property, without geographic limitation, including improved land with a dwelling, owner occupied or unoccupied dwellings, unimproved land, farmland, a unit of a condominium, shares of stock issued by a co-operative housing corporation, industrial and commercial property, leasehold interests created in air rights over land, and any other interest in land; but a loan secured by real estate shall include a loan on a leasehold under a lease which does not expire for at least 5 years beyond the maturity date of the loan.

M.G.L. c. 167E, § 1A Repealed, 2004, 461, Sec. 15

M.G.L. c. 167E, § 2 Powers

c. 167E, § 2. Powers Section 2. Every bank, subject to limitations imposed by this chapter or other General Laws, shall have the following powers and whatever further incidental or complementary powers that may fairly be implied from those expressly conferred and such as are reasonably necessary to enable it to exercise fully those powers according to common customs and usages: (1) to discount, buy, invest in, hold, assign, transfer, sell and negotiate promissory notes, drafts, bills of exchange, mortgages, trade acceptances, banker's acceptances, bonds, debentures, bonds or notes secured by mortgages, installment obligations, accounts receivable, balances due on conditional sales and other evidences of debt for its own account or for the account of customers; (2) to advance money or credits on real estate, on improvements thereto or on personal security, on terms to be agreed upon; and (3) to buy, sell or make loans as participation loans with another bank or with an insurance company and to service loans sold by it.

M.G.L. c. 167E, § 3 First mortgage real estate loans; classes

c. 167E, § 3. First mortgage real estate loans; classes Section 3. (a) A bank may make or acquire loans and mortgage loans. (b) For purposes of this chapter, the term ''mortgage loan'' shall mean a loan, line of credit, letter of credit or borrowing secured primarily by a lien on an interest in real estate. The following categories of mortgage loans are specifically authorized by this section: (i) residential mortgage loans secured by a first mortgage lien on a dwelling with 4 or less separate households and occupied or to be occupied by the borrower; (ii) residential mortgage loans secured by a subordinate mortgage lien on a dwelling with 4 or less separate households and occupied or to be occupied by the borrower including home improvement loans, home equity lines of credit and second mortgage loans; (iii) mortgage loans secured by a lien on real estate held or used for commercial, investment, governmental, nonprofit or other purposes; (iv) land loans; (v) construction loans to improve real estate with improvements, structures, or projects for residential, commercial, investment, governmental or non-profit use and purposes related or incident thereto including infrastructure and development; (vi) mortgage loans secured by a lien on real estate saleable in the secondary market or underwritten in accordance with mortgage loan programs of public instrumentalities created by the commonwealth of the federal government for the purpose of financing and expanding the supply of residence mortgages or affordable housing. (c) The following categories of loans shall not be considered mortgage loans for purposes of subsection (b) but shall be treated as loans pursuant to subsection (d). (1) Loans for which a lien on or interest in real estate is taken as additional collateral through an abundance of caution, including loans pursuant to which the bank takes a blanket lien on all or substantially all of the assets of the borrower, and the value of the real estate is low relative to the aggregate value of all collateral. (2) Loans made to manufacturing, industrial or commercial borrowers with a lien or interest in real estate taken as all or a portion of the collateral to directly or indirectly secure the loans, when a bank looks for repayment out of the operations of the borrower's business, relying on the borrower's general credit standing and the borrower's forecast of operations. (3) Loans to finance the construction of industrial or commercial buildings and having maturity not exceeding 36 months where there is a valid and binding agreement with a financially responsible lender to advance the full amount of the bank's loan upon completion of construction, but, a bank shall not invest in or be liable on the loans in an aggregate amount in excess of 100 per cent of its capital. (d) The term ''loan'' means any loan, line of credit or letter of credit, whether secured by collateral or security of any nature or unsecured, for consumer, business or other purposes, other than a real estate loan. (e) Extensions of credit under subsections (a) to (d), inclusive, may contain agreed upon terms and conditions including, but not limited to, those governing the payment of principal and interest, collateral, maximum loan to value ratios, maximum debt to income ratios, amortization, prepayment, loan servicing and the apportionment of taxes, betterment assessments and insurance of any kind applicable to the loan, subject to limitations imposed by this chapter or other law. A bank also may subsequently revise or modify the terms or conditions subject to agreement of the parties. (f) Notwithstanding subsections (a) to (e), inclusive, reverse mortgage loans on owner occupied dwellings shall be subject to sections 7 and 7A. (g) The commissioner may by directive, guideline or regulation, carry out the purposes of this section and to further define the terms used in this section to promote safe and sound banking practices.

M.G.L. c. 167E, § 4 Loan policies

c. 167E, § 4. Loan policies Section 4. (a) Each bank shall adopt and maintain comprehensive written loan policies that establish appropriate limits and standards for extensions of credit under section 3 that are consistent with safe and sound banking practices and are appropriate to the size, nature and scope of the bank's operations. (b) The loan policies shall establish prudent loan underwriting standards that clearly and measurably address, at a minimum: (1) maximum loan to value, loan amount, loan maturities, and debt to income requirements; (2) collateral and appraisal requirements; (3) application and loan approval requirements; and (4) loan administration procedures. The written loan policies shall be reviewed and approved annually by the bank's governing board. (c) The commissioner may by directive, guideline or regulation, establish additional minimum safe and sound lending requirements.

M.G.L. c. 167E, § 5 Inspection and appraisal of real estate securing a loan

c. 167E, § 5. Inspection and appraisal of real estate securing a loan Section 5. (a) A bank shall inspect the real estate securing a loan in the event that a payment of interest or principal upon the loan or on account of real estate taxes upon the parcel mortgaged to secure the same shall be in default. Any such inspection shall be made in a manner consistent with and not later than the time periods specified in the policy of the bank. Periodic inspection of the parcel mortgaged shall continue in accordance with the policy until the loan is no longer in default. (b) The commissioner may cause an appraisal of real estate to be made at the expense of the bank whenever the commissioner considers an excessive loan has been made or is about to be made upon real estate. (c) A bank shall not directly or indirectly, make a loan or discount on the security of the shares of its own capital or on the security of the shares of capital of any company, 50 per cent or more of the assets of which consists of capital of the corporation, unless the security shall be necessary to prevent loss upon a debt previously contracted in good faith. An officer or employee of a bank who knowingly violates this section shall be punished by a fine of not more than $5,000 or by imprisonment for not more than 1 year, or both.

M.G.L. c. 167E, § 6 Limitations on obligations

c. 167E, § 6. Limitations on obligations Section 6. (a) The total obligations of 1 borrower to a bank under this chapter and chapter 167F shall not exceed the following limitations. (1) 20 per cent of the total of the bank's capital; (2) 25 per cent of the total of the bank's capital, if the amount of the obligations in excess of the limitations in clause (1) is fully secured by obligations of the United States of like value; (3) 100 per cent of the total of the bank's capital, if the amount of the obligations in excess of the limitations in clause (1) is fully secured by obligations of the United States of like value, due within 3 years of the date of the note of the borrower. (4) Obligations of a foreign government or a political subdivision thereof shall be limited to 10 per cent of capital; but a well capitalized bank engaged in a global custody business that has no less than $5,000,000,000 of foreign currency denominated deposits shall be limited to 40 per cent of capital. (5) Obligations of all foreign governments and political subdivisions thereof shall not exceed a total of 50 per cent of capital; but a well capitalized bank engaged in a global custody business that has no less than $5,000,000,000 of foreign currency denominated deposit shall not be subject to that limitation. (6) The total obligations of 1 borrower for the purposes of this section shall include credit exposures as a counterparty in derivative transactions with a bank. For purposes of this clause, ''derivative transaction'' shall include any transaction that is a contract, agreement, swap, warrant, note or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, 1 or more commodities, securities, currencies, interest or other rates, indices or other assets; and ''credit exposure'' to a counterparty in connection with derivative transactions shall be determined based on an amount that the bank reasonably determines under the terms of the derivative or otherwise would be its loss were the counterparty to default on that date, taking into account any netting and collateral arrangements and any guarantees or other credit enhancements; provided, that the bank may elect to determine credit exposure on the basis of such other method of determining credit exposure as may be permitted by the bank's primary federal regulatory authority. (b) The limitations of subsection (a) shall not apply to: (1) Obligations of the United States. (2) Obligations of the commonwealth and its political subdivisions. (3) Obligations of a state or a political subdivision thereof in the United States. (4) Obligations to the extent that they are secured as to principal and interest by the unconditional guarantee, insurance or other like commitment of the United States, an agency of the United States or a federal reserve bank, whether the commitment provides for payment in cash or in obligations of the United States. (5) Obligations arising out of the discount of: (i) Drafts or bills of exchange drawn in good faith against actually existing values, and (ii) commercial or business paper actually owned by the person negotiating it. (6) Obligations to the extent that they are secured as to principal and interest by the guarantee, insurance or other like commitment of the Massachusetts Development Finance Agency pursuant to chapter 23G. (7) Obligations for funds advanced to facilitate the clearance or settlement of securities transactions in accordance with customary industry practice and applicable rules of a stock exchange or market system; if, (i) the obligations are secured by readily-marketable securities, which may include the securities being purchased, having a market value at the time the advance is made of not less than the principal amount of the advance, and (ii) the obligations so advanced are repaid following the settlement of, and receipt of proceeds from, securities transactions which have been effected for the purpose of repaying the obligations so advanced. (8) Obligations which are secured by a deposit account in the lending bank which is not subject to withdrawal. (9) Obligations secured by a mortgage loan secured by a first lien on real estate improved with a dwelling to be occupied by not more than 4 families and occupied or to be occupied in whole or in part by the borrower shall not be calculated against the total obligations of the borrower for the purposes of the limitations under subsection (a). (10) Obligations to the extent they are secured by securities issued or guaranteed by a United States government-sponsored entity, including the Federal National Mortgage Association and the federal Home Loan Mortgage Corporation. (11) Obligations to provide securities, incurred in connection with securities loans, which obligations are fully secured by securities convertible at the option of the bank acting as principal or agent into securities of the same issue and class as the securities that are the subject matter of the obligation. (12) Obligations to the extent they are initially and thereafter secured by collateral consisting of a combination of cash and readily marketable securities with a value of not less than 100 per cent of the obligations. (c) Notwithstanding subsection (a), liabilities for federal funds and other short-term obligations of any national bank or other bank to a bank may exceed 100 per cent of the capital and no collateral shall be required for the obligations except insofar as the commissioner of banks may by regulation set limits on the obligations and require collateral of any kind. (d) Obligations to 1 borrower will be attributed to another person and each person will be considered a borrower if the obligation was used for the direct benefit of another person or there was a common enterprise considered to exist between the persons. For the purposes of this section the word ''person'' shall include an individual, sole proprietorship, partnership, limited liability company, joint venture, association, trust, estate, business trust, corporation, sovereign government or agency, instrumentality or political subdivision thereof and including the liabilities of the members of a firm or any similar entity or organization. The commissioner shall have the authority to determine whether a loan putatively made to 1 person shall for purposes of this section be attributed to another person. (e) This section shall not apply to mortgages taken in good faith by way of security for debts to the bank previously contracted, or to loans made by the bank to secure the payment of a portion of the purchase price of real estate acquired by the bank by foreclosure, or otherwise. (f) The commissioner may by directive, guideline or regulation, prescribe additional requirements to administer and carry out this section and to further define the terms used in this section.

M.G.L. c. 167E, § 7 Reverse mortgage loans

c. 167E, § 7. Reverse mortgage loans Section 7. (a) A bank may make or acquire a reverse mortgage loan, pursuant to a program for reverse mortgage loans which has been submitted to and approved by the commissioner, to the owner of real estate improved with a dwelling designed to be occupied by not more than 4 families; provided, however, that each such owner shall be at least 60 years of age and shall occupy the mortgaged real estate in whole or in part; and provided further, that a person shall be considered to be the owner of real estate notwithstanding that legal title thereto is held in the name of a trust if the person is the beneficiary of such trust. (b) For the purposes of this section, a reverse mortgage loan shall not be considered a residential mortgage transaction, as defined in section 1 of chapter 140D or any other transaction specified in subsection (e) of section 10 of said chapter 140D. The notices and rights contained herein shall be in addition to the disclosure and rights provided for in said chapter 140D, including the right of rescission set forth in said section 10 of said chapter 140D. (c) The proceeds from a reverse mortgage loan shall be disbursed to the borrower, pursuant to the program, and together with unpaid interest, if any, shall become due and payable (i) at the end of a fixed term, if any; (ii) upon the death of the borrower; (iii) upon the conveyance of title to the mortgaged real estate; (iv) upon the borrower ceasing to occupy the real estate as a principal dwelling; or (v) upon default by the borrower in the performance of its obligations under the loan agreement. (d) The commissioner shall not approve a program for reverse mortgage loans which does not include the following:— (1) the type of loan, whether open-end or closed and whether a recourse or non-recourse loan; (2) an applicant for the loan shall not be bound for 7 days after his acceptance, in writing, of the lender's written commitment to make the loan; (3) the bank shall obtain a written statement signed by the borrower acknowledging receipt of disclosure of all contractual contingencies which could force a sale of the mortgaged real estate; (4) a provision permitting prepayment of the loan without penalty at any time before the loan becomes due and payable; (5) the interest rate, which may be fixed or variable, and the method of calculation thereof shall be established at loan origination; quote and, at the option of the borrower, may be contingent on the value of the mortgaged real estate at closing or at maturity or on changes in the value during the period between closing and maturity; (6) the method of disbursement of the proceeds of the loan to the borrower; but, at the request of the borrower, disbursement may be made to a third party pursuant to the terms of the loan agreement; (7) a copy of the form of the note and mortgage deed that will be utilized for the loans; (8) a detailed description of how the plan will function; and (9) other information the commissioner may require. Before making the loan, a bank shall provide a prospective borrower with written materials explaining in plain language, the type of mortgage being offered and its specific terms, including but not limited to: (i) a schedule, if applicable, and explanation of payments to the borrower pursuant to the terms of the mortgage agreement and whether or not property taxes and insurance premiums are to be deducted: (ii) a schedule of outstanding debt over time, if applicable; (iii) repayment date, if a fixed term loan, and other provisions which cause the loan to become due and payable; (iv) method of repayment and schedule, if any; (v) all contractual contingencies, including lack of home maintenance and other default provisions which may result in a forced sale of the mortgaged property; (vi) interest rate and annual percentage rate, and for a reverse mortgage loan for a specified term, total interest payable thereon; (vii) loan fees and charges; (viii) description of prepayment and, if applicable, refinancing features; and (ix) inclusion of a statement that the mortgage has tax and estate planning consequences and may affect levels of, or eligibility for, certain government benefits, grants or pensions, and that applicants are advised to explore those matters with appropriate authorities. (e) A bank shall not make a reverse mortgage loan as provided in this section until it has received a notice, in writing, that the prospective borrower has completed a reverse mortgage counseling program which has been approved by the executive office of aging and independence and which shall include instruction on reverse mortgage loans. The counseling program shall include, but is not limited to, the subject matter of paragraphs (1) to (9), inclusive, of subsection (d) with respect to all reverse mortgage loan programs approved by the commissioner pursuant to this section. For the purpose of providing the counseling, the executive office of aging and independence shall establish and maintain a list of counseling programs approved by it and shall make such list available to all banks and to the public. (f) A reverse mortgage loan shall constitute a lien against the property securing the loan to the extent of all advances made pursuant to the reverse mortgage and all interest accrued on the advances, and the lien shall have priority over any lien filed or recorded after recordation of a reverse mortgage loan. (g) The commissioner may promulgate regulations necessary to carry out this section. (h) For the purposes of this section, the term ''non-recourse reverse mortgage loan'' shall mean a reverse mortgage loan which limits the lender's recovery solely to the value of the property at the time the loan becomes due and payable. (i) Sections 96 to 114A, inclusive, of chapter 140 shall not apply to a reverse mortgage loan.

M.G.L. c. 167E, § 7A Reverse mortgage loan requirements

c. 167E, § 7A. Reverse mortgage loan requirements Section 7A. (a) As used in this section the following word shall, unless the context clearly requires otherwise, have the following meaning:— ''Mortgagor'', an applicant for a reverse mortgage who: (1) has a gross income of less than 50 percent of the area median income, as periodically determined by the United States Department of Housing and Urban Development; and (2) possesses assets, excluding a primary residence, valued at less than $120,000. (b) No mortgagee shall make a reverse mortgage loan pursuant to section 7 to a mortgagor unless: (i) the mortgagor affirmatively opts in writing for the reverse mortgage; and (ii) at or before the closing of any reverse mortgage loan the mortgagee has received written certification from a counselor with a third-party organization that the mortgagor has received counseling in person, by synchronous real-time video conference or by telephone relative to the appropriateness of the loan transaction from the third party organization and has completed an approved counseling program offered by the third party organization; provided, however, that the third party organization shall have been approved by the executive office of aging and independence for purposes of such counseling. (c) A reverse mortgage executed with a borrower that has not received counseling by a third party approved by the executive office of aging and independence shall render the terms of the reverse mortgage unenforceable. The commissioner shall adopt regulations to administer and implement this section.

M.G.L. c. 167E, § 8 Acquisition of mortgage loans; restrictions

c. 167E, § 8. Acquisition of mortgage loans; restrictions Section 8. (a) A bank may make or acquire mortgage loans evidenced by a note which provides for variation in the rate of interest over the term of the note; but a loan made to finance or refinance the purchase of and secured by a first lien on a dwelling house of 4 or fewer separate households occupied in whole or in part by the mortgagor shall be subject to but not limited to the following conditions and restrictions imposed by the commissioner: (1) the method by which the rate of interest may be adjusted; (2) the frequency with which the rate of interest may be adjusted, but successive rate adjustments shall be no less than 6 months apart; (3) the maximum increase in the rate of interest allowed for the adjustment; (4) provisions for decreases in the rate of interest as may be warranted by market conditions; (5) requirements for advance notification and explanation of adjustments in the rate of interest, but the notification and explanation shall occur no less than 30 days before the adjustment; and (6) methods of disclosure to the mortgagor of the terms and conditions of the loan as required under chapter 140D. Notwithstanding any law to the contrary, the commissioner may by further conditions and restrictions provide that the rate of amortization may be varied, including utilizing a period of negative amortization, in order to adjust the rate of interest.

M.G.L. c. 167E, § 9 to 12 Repealed, 2004, 461, Sec. 15

M.G.L. c. 167E, § 12A Repealed, 1992, 268, Sec. 12

M.G.L. c. 167E, § 13 to 16 Repealed, 2004, 461, Sec. 15

Source: Massachusetts General Court (malegislature.gov)URL: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter167EFetched: 10/20/2026