Advertising Regulations

Question: I am looking for information on regulation of advertising for mortgage brokers.  Specifically, what are the regulations regarding brokers advertising rates? My understanding is that since we are not actually lending the money, there is a problem with advertising rates and APR's.

Answer: The PRIMARY regulations in MA are located at 940 CMR 8 and 209 CMR 32.24.  There are also general advertising regulations promulgated by the attorney general's office at 940 CMR 6.  Lastly, the FTC has promulgated regulations.  Compliance with 940 CMR 6 and 8, along with 209 CMR 32.24 however will typically cause a licensee to be in full compliance in the eyes of the Division of Banks

You will find the most common advertising requirements, resulting in violations in 940 CMR 6 and 8, and the provisions in truth in lending 209 CMR 32.24.

Question: Are we REQUIRED by state or Federal law to include anything other than our license numbers (in appropriate type size, etc.) in advertisements which do NOT advertise rate and other triggers?

Answer: You must clearly and conspicuously disclose business name, the word "broker" or "lender" whichever is applicable AND your license number.

"Bad credit no problem" and "avoid foreclosure" type ads also trigger additional requirements - see 8.04(4).

The terms "immediate or instant closing" and  "immediate approval" are also violations 8.04(4).

Question: Am I correct in assuming that we are not required to use the following language in any advertising: "This information is not an advertisement to extend customer credit as defined by paragraph 226.24, regulation Z."

Answer: This question is based on the erroneous assumption that the following language is required by some regulation or law:  "This information is not an advertisement to extend customer credit as defined by paragraph 226.24, regulation Z. Rates and terms subject to change without notice." 

The question seeks an answer as to when the language is required - always vs. sometimes.  Arguably, this language is never required, but here are some thoughts.  The first sentence attempts to state the conclusion that the "information" is not an "advertisement to extend consumer credit".  The definition of "advertisement" is set forth in 209 CMR 32.02 as "a commercial message in any medium that promotes, directly or indirectly, a credit transaction." Under this broad definition, almost any information that is presented by a mortgage company through an advertising medium may be an "advertisement" regardless of the disclaimer language noted in the first sentence above.  Once you have an "advertisement", some or all of the advertising provisions of truth in lending regulations may apply - 209 CMR 32.24 (226.24 referenced above is the federal counterpart).

One of the requirements of 209 CMR 32.24(1) is that a "creditor" states "only those terms that actually are or will be arranged or offered by the creditor."  I find the language noting that ("Rates and terms subject to change without notice") is helpful because it would assist in defending against a claim that advertised terms changed in violation of 209 CMR 32.24(1).

In summary, I do not find the first sentence to be either mandatory or, necessarily, helpful as it constitutes an ineffective disclaimer. Although the second sentence is not mandatory, I find it very helpful for the reasons stated above.

Lastly, questions (or violations noted in audits) relating to the advertising provisions of truth in lending typically go to a different issue that of "trigger terms" used in advertising.  These requirements are set forth in 209 CMR 32.24(3).  I would also note that disclosure requirements
of APR along with the rate is set forth in 209 CMR 32.24(2).

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Attorney General Disclosures

Question: If we are the mortgage lender and are taking a loan application from a mortgage broker, who is required to complete the attorney general disclosure?  It is my understanding that there are two different disclosures, one for brokers and one for lenders.  If the broker completes the broker disclosure do we need to complete the lender version also?

Answer: The provisions of 940 CMR 8.05(1) require that the broker provide the so-called AG Broker disclosure form.  In addition to the requirements of a broker, the provisions of 940 CMR 8.05(2) require the lender to also provide the so-called AG Lender disclosure.  However, it is important to note that the provisions of 940 CMR 8.05(2) allow for a lender to provide the disclosures required under MGL c.184 sec. 17D, IN LIEU OF, the lender disclosure.  Accordingly, most lenders do not provide the lender disclosure and, instead, provide the 17D disclosures (loan cost worksheet, etc.).  The AG regulations do not apply at all to purchase loans or investment properties.

Attorney/Settlement Fees Included in APR?

Question: Several of our lenders want the Attorney or Settlement Fee included in the APR calculation.  They are having us refund this fee to the customer if not disclosed as a finance fee for inclusion in the APR.  Traditionally this has never been included in the finance charges, even though RESPA rules have not changed.

If we include the Attorney/Settlement fee in the APR for all lenders we sell to, whether they require it or not, are we OK in that we would be over-disclosing on some of our loans?  Is that OK?

Answer: Generally a "lump sum" charge by an attorney or settlement agent "may" be excluded (or vice versa it could be required to be included) all pursuant to commentary to Regulation Z contained in 226.7(c)(4)(2) which reads as follows.

Lump sum charges. If a lump sum charged for several services includes a charge that is not excludable, a portion of the total should be allocated to that service and included in the finance charge. However, a lump sum charged for conducting or attending a closing (for example, by a lawyer or a title company) is excluded from the finance charge if the charge is primarily for services related to items listed in § 226.4(c)(7) (for example, reviewing or completing documents), even if other incidental services such as explaining various documents or disbursing funds for the parties are performed. The entire charge is excluded even if a fee for the incidental services would be a finance charge if it were imposed separately.

In recent years we have found more and more investors requiring inclusion of the attorney or settlement fee to avoid any dispute over factual discrepancies that could arise under the so called "4c7" analysis set forth above.

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"Buying Your Home" and "Consumer's Guide to Obtaining a Home Mortgage" Pamphlets

Question: Are licensed brokers in MA obligated to give all borrowers two pamphlets at the time of application titled: "Buying Your Home" and "Consumer's Guide to Obtaining a Home Mortgage"
Answer: No, you are neither obligated, nor allowed, to give the HUD Booklet or the Consumer Guide as these are all required of lenders only. In general, a broker is generally required to give only; (a) a good faith estimate (b) attorney general mortgage broker disclosure (c) loan origination and compensation agreement (d) privacy policy, and (e) there may be some requirement under the Patriot Act.

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Commercial Lending

Question: Does the Division of Banks have jurisdiction over a licensed mortgage broker, who in addition to his 1-4 family residential brokerage activities provides private money loans on commercial property as a direct lender?  What if any are the regulatory or compliance issues?

Answer: As to licensing requirements in MA, loans made on non-owner occupied, residential property do not trigger licensing requirements such that there would not be any direct, licensing issues in this regard.  In other words, the commercial lending activity would not require a license, or create potential for loss of license for your residential activity.   However, it is certainly possible that the Division of Banks would feel free to take wrongful conduct of a licensed mortgage broker in otherwise, non-regulated commercial lending activity, into account in determining the overall "fitness and character" requirements for licensing under MGL c.255E.  Otherwise, most of the laws that pertain to residential lending activity do not apply to commercial lending.

Conditional Mortgage Commitments

Question: A borrower has a conditional loan approval from a lender subject to eight conditions being satisfied before closing.  The day before the borrower's mortgage commitment is due per the P&S, they receive this conditional commitment and realize that they either will not have these items or cannot produce them at all before the due date for the mortgage contingency.  Is the commitment seen by the state as a full commitment even though there are conditions that have not been met?  They had sent a letter to the sellers explaining that they were not going to be able to secure financing the day before the commitment was due.  The seller is refusing to give back the deposit.  Would the State agree that a commitment is only a commitment if all the pre-closing conditions are satisfied?

Answer: The state would not get into the issue of the definition of a commitment as that is defined contractually in the P&S and, otherwise, requires a lender to document a credit decision pursuant to MGL c.184 Section 17D and ECOA neither of which prevent the lender from including conditions within an approval.

Department of Labor Opinion on Wage & Hour Overtime Issues re: Loan Originators

Question: What guidelines exist regarding the issue of overtime for loan originators?

Answer:  The U.S. Department of Labor (DOL) has issued an opinion letter concerning wage and overtime issues as they apply to loan originators.  The opinion letter states that loan officers can qualify as "outside sales" employees, making them exempt from the minimum wage and overtime requirements of the federal wage and hour law, the Fair Labor Standards Act (FLSA). Click here to view the DOL letter.

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Disclosure on Refinancing

Question:  Are licensed brokers in MA, obligated to issue a specific disclosure regarding the right of recession on refinances? 

Answer: No, you are neither obligated, nor allowed to give a right of rescission notice as this would be required of lenders only.  In general, a broker is required to give only, (a) a good faith estimate (b) attorney general mortgage broker disclosure (c) loan origination and compensation agreement (d) privacy policy, and (e) there may be some requirement under the Patriot Act.

Electronic Record Retention

Question: Do you know if the DOB has a policy re: electronic record retention?  I am considering "Doc Star" but want to make sure it's Ok with DOB first.  I searched the web site and could only find an opinion letter from 1998 that stated that they expected electronic records to be acceptable.  I also think they look for some original docs such as Broker Fee Agreement when they audit which would start to defeat the purpose. 

Answer: Following is a link to the DOB "Record Keeping Plan" which must be submitted and approved prior to engaging in electronic record keeping.  I am aware that the DOB has approved Doc Star as a valid method of imaging your records.  You might also consider Laser Fiche (via Duplitron in Brockton)

This link will provide you with the Division of Banks "Recordkeeping Plan”

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Escrow Accounts

Question: Appraisal and Application fees must be kept in segregated accounts until closing, but can they be in one main account with "sub-accts" for each or do they need to be kept in two totally separate accounts?

Answer: The regulations do not require any sub accounts, such that borrower monies can be commingled with other borrowers' monies so long as no borrower money is commingled with mortgage company funds.  The pertinent regulation is 209 CMR 42.11 that addresses other management aspects of the account's) as well.

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Good Faith Estimate

Question: Could you explain the difference between charging an Origination Fee (Item #801) vs a Broker Fee (Item #808) on the Good Faith Estimate?  Are Mortgage Broker’s allowed to charge an origination fee or is that fee lender specific?

Answer: Line 801 is used to record the fee charged by the lender for processing or originating the loan.  If this fee is computed as a percentage of the loan amount, enter the percentage in the blank indicated.  In other words, although it is common practice for a mortgage broker (that term is also defined differently under RESPA than under Massachusetts licensing law) to use line 801 for “origination” points or income to a broker, technically this practice is not appropriate under RESPA.  This practice, as you may know, will result in a violation in NH where the regulations are literally interpreted, as opposed to the Division of Banks in Massachusetts who still seemingly allows brokers to use line 801 without being cited.  Clearly the best practice for a mortgage broker is to disclose and charge a “mortgage broker fee” versus “origination” income that is disclosed and charged on line 801.  Lastly, if you broker FHA loans, you will also note that there are limitations within government programs that further restrict the ability to “categorize” and charge fees in general, including mortgage broker fees.

Question: While the GFE needs to be provided to the borrower within 3 business days of the application is it a requirement to have a signed copy of the GFE in the loan file?

Answer:  Although Regulation X does not literally require a borrower’s signature, failure to obtain borrower signatures evidencing timely issuance and receipt of disclosures often results in a citation by the Division of Banks for violating record keeping regulations contained in 209 CMR 42 which, generally, require you to maintain your records in a manner which will allow the Division to determine your compliance

Question: During the application interview we have the borrower sign the GFE with all current fees disclosed. If during the processing of the mortgage these charges are due to the borrower changing product type, (origination points) or due to having to have the appraiser re-inspect the property (inspection fee) or having to update the credit report, we always mail out a new and updated GFE.  Is this enough to stay within compliance as a Mortgage Broker or, do we need to meet and have signed all updated fees?

Question: What if the taxes, for instance, are higher on the HUD-1 than we estimated on the GFE?  I had heard the rule of thumb is that as long as the amounts on the GFE either match or are HIGHER than the amounts on the HUD-1 then we are fully compliant on that issue.  Is this true?

Question: If a lender comes back with a counter-offer of a lower loan amount for a customer, hence lowering the total costs to close, do we need to re-disclose or simply write a letter to send to the customer to have the correspondence documented in the file?  And if we do need to re-disclose how many days prior to closing do we need to do that?

Question: What is the correct way to disclose points charged to the borrower if a portion of the points is going to the Lender?  Is the lender's portion shown as discount or origination fee?  Are the points paid to us as a mortgage broker supposed to be disclosed as a mortgage broker fee, origination fee or discount fee?

Question: How close does the GFE have to come to the actual HUD settlement statement as far as the bottom line on closing costs, pre-paids and escrows?  Are we responsible for disclosing the amount and type of the Lender's fees? They all have different names for their fees, admin, processing, underwriting, funding, etc.

Question: What fees are we allowed to charge?  Can we charge a doc prep fee, application fee, funding fee, admin fee, processing fee or are we supposed to charge it as a broker fee?  Do we have to call the fees charged on the GFE the same thing as they will be called on the HUD or is it just the total amounts that have to match?

High Cost Loan/Predatory Lending Law Compliance

Question:  We have an investor that is currently not purchasing loans in MA that have an APR that exceeds the conventional mortgage rate (as defined in the law under Chapter 183 C) by 2% with a prepayment penalty. It is our investors understanding that the new law prohibits a prepayment penalty when the APR exceeds the conventional rate by 2%. It is our understanding that a mortgage loan that has an APR that exceeds the conventional rate by 2% may close with a prepayment penalty, but the prepayment penalty dollar amount is then included in the point and fee calculation for high cost. Our current prepayment penalty is 3 months interest not to exceed 2% of the loan balance.

Answer: Your understanding is correct.  The fact that your loan has an APR that exceeds the conventional rate by more than 2% simply disqualifies the prepayment penalty on your new loan from being qualified as a "conventional prepayment penalty" which type of penalty is EXCLUDED from the 183C point and fee inclusion formula.  Therefore, as you have stated, the result is simply that the prepayment penalty amount on your new loan must be INCLUDED in the point and fee calculation.  Of course, if the inclusion of the prepay caused the point and fee trigger of 5% to be exceeded then, in that event, the provisions of 183C would prohibit the prepayment penalty altogether. 

Home Equity Line Brokerage

Question:  I am a licensed mortgage broker in the Commonwealth.  I've been told it's illegal for me to broker home equity loans.  Is this true?

Answer:  A licensed mortgage broker is entitled to "broker" home equity lines of credit in Massachusetts without any separate licensing.  I believe the misinformation you were given is based on a historical application (subsequently changed) of our "small loans" law that required a separate "small loan" license to do home equity loans as a lender or broker.  This statute has been revised so that your licensing now allows this activity.

HUMDA Notice Requirement

Question: If I am responsible for Home Mortgage Disclosure Act ("HMDA") reporting, are there any additional notices that I have to provide to borrowers in addition to the notices at the time of gathering data?
Answer: Yes, an institution must post a general notice about the availability of its HMDA data in the lobbies of its home office and any physical branch offices located in a metropolitan area. The Regulation C Commentary contains a sample notice that may be used. The regulatory agencies will furnish sample posters upon request. The sample information is as follows:
"The HMDA data about our residential mortgage lending are available for review. The data show geographic distribution of loans and applications; ethnicity, race, sex, and income of applicants and borrowers; and information about loan approvals and denials. Inquire at this office regarding the locations where HMDA data may be inspected. Note: If your institution makes its disclosure statement available upon request instead of at branch offices, you must post a notice informing the public of the address to which a request should be sent. For example, you could add the following sentence to the above notice: "To receive a copy of these data, please send a written request to [insert appropriate address]."
 

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Licensing of “Financial Professionals”

Question: Why is no license required for "representatives" (financial professionals) of Verticallend?

Answer: This arrangement is absolutely prohibited by the DOB unless the people they are marketing do not have other "primary" employment that, obviously, they do.  Historically, the DOB has asked us to "drop a dime" on this type of situation.  A similar one is http://www.mortgagebyagent.com directed to real estate brokers.

MARI Reports

Question: What is a MARI Report?

Answer: MARI is the Mortgage Asset Research Institute.  MARI is a resource that has gained incredible significance in the last two to three years in that both regulators and investors are checking with MARI to get information on mortgage companies relevant to regulatory decisions on licensing and investor decisions on approving brokers and lenders.  If anyone has a MOU/Consent order or low audit scoring with the MA DOB, MARI is picking this up and circulating it to investors.

National Credit Score Disclosure Requirement

Question:   I am a licensed broker.  Under the FACT Act, do I as a broker have to provide the borrower with the “Notice to Home Applicant” along with the FICO information?

Answer:     Section 212 of the Act does require that both parties who “arrange” as well as parties that “make” loans must report.  However, the legislated form language as well as many of the statutory section headings then go on to refer only to the “lender”.  Meanwhile, the Division of Banks in Massachusetts has informally commented that it has yet to take a position as to whether this disclosure is; (a) mandatory, or (b) prohibited for use by a broker.  Unfortunately, the answer to your question is a resounding – “it’s not clear”.  Notwithstanding the foregoing, it would seem that the federal statute mandates that you must provide the disclosure if you “arrange” the loan.  Accordingly, and in absence of a definitive state regulatory opinion, it would appear mandatory under the federal law that the form should be provided by the broker who “arranges” the loan.

Originator Compensation 1099 vs. Salaried Employee

Question: How can I determine whether to pay my originators as salaried employees versus paying them under 1099 status?

Answer:  Essentially, there are a number of tests for different labor law and tax related purposes – primarily the so called ABC Test and the IRS twenty factor test.  Labor law experts point out that traditional relationships with a mortgage company and a loan officer are probably rarely going to be valid 1099 relationships under either test.  Further in 2004 the ABC Test was revised in Massachusetts making it virtually/literally impossible to claim 1099 status for those areas of the law the test applies to – unemployment, etc.  The issues get more troubling with the realization that loan officers have standing as employees whether you call them that or not, one must also determine whether the individual is exempt from minimum wage and overtime laws.

Question:  Has there been any softening or conversion on the part of the DOB regarding salary (commission) vs. 1099 income for originators?  My accountant continually asks me why I have been paying W-2 income, when another client with a much larger operation pays on 1099.

Answer:  Compensation under 1099 vs.W-2 continues to cause confusion.  The Division confirmed that the tax issues are IRS and DOR based and therefore not controlled or regulated at the Division with the exception that loan officers with “secondary occupations” and/or 1099 loan officers must execute the Exemption Affidavit and the licensee must execute the Statement of Accountability forms which have been required by the Division.  These forms must be kept on file with the Licensee.

These forms should be executed and maintained in your files (not filed with the DOB) under certain circumstances.

It is the Association's understanding that the Division of Banks requires the Exemption Affidavit and Statement of Accountability whenever the loan originator is a 1099 and not an employee. Likewise, it is our understanding that the forms are not required when the loan originator is a W2 employee with no secondary employment. Lastly, it is the Association's understanding that you may wish to consider completing when the loan originator is a W2 employee with a secondary occupation."

You should note that this deals only with licensing issues without going into the various RESPA issues relating to disclosure and payments.

Originators "Primary Employment"

Question:  We are in the process of hiring a new loan officer. She is presently a Realtor.  Can she still sell/list real estate and be a loan officer?

Answer:  The Division of Banks generally answers this question "no".  They disallow employment or contracting with an individual as a loan officer/originator if that individual has another "primary" occupation or works for more than one mortgage company.  The Division has not given guidance on analysis of determining which occupation is primary (i.e. income calculation vs. time calculation).

Out of State Broker/Lender Referrals

Question:  I have been approached on occasion by out of state brokers and lenders who have a borrower in Massachusetts that they would like to refer to my company for a fee (they are not licensed in Massachusetts).  I have always understood that this would be a violation of RESPA, a violation of the State Licensing Statutes, a violation of my contracts with my wholesale lenders or all of the preceding.  I have always politely passed on the opportunity.  Recently, the solicitation came directly from one of my wholesalers who had a broker in another state that they wanted to put in touch with me for a Massachusetts loan and commission split.  Is this interpretation correct?

Answer: You are absolutely correct that payment for the mere referral would be RESPA violation.  On the other hand, if you co-brokered the loan in a manner with both (broker) companies providing a sufficient services as outlined in HUD Policy Statement 1999-1 such that the payment was for fair market value of services, not a referral, those circumstances may negate the RESPA issue.  As for state licensing, you are of course correct that there are licensing issues unless the company is "exempt" by either the 1-4 loan per 12 month exemption or some other basis.  As for your investor agreements, you are also correct that third party originations and co-broker arrangements would both need approval typically from your investor although we have found most investors willing to review and approve these arrangements.  You should also note that 940 CMR 8 requires a specific disclosure when two mortgage brokers are involved.

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Rate Locks

Question: What is the Division of Banks position on Rate Locks

Answer: The Division received approximately 200 complaints last summer/fall, almost all of which involved mortgage brokers and lenders not banks.  Brokers should be very careful if and when they choose to document rate locks.  By “document rate locks” the DOB means a broker should use NO forms on rate lock – but instead have the borrower submit their request for rate lock in writing and pass on any rate lock confirmation from the lender. 

Regulation prohibits licensed mortgage brokers from issuing mortgage rate-lock commitments.  Such activity is the exclusive domain of authorized mortgage lending institutions.  Mortgage brokers are cautioned that if they engage in any form of unauthorized mortgage rate lock commitment activity, they may face claims for restitution and enforcement action.  Mortgage brokers are advised not to unreasonably raise consumer expectations regarding rates.  Express or implied verbal assurances or “guarantees” to obtain a desired rate for a consumer are neither prudent nor with the authority of mortgage brokers.”

Referral Fees

Question:  If a broker firm has a relationship with an accounting firm and will be receiving referrals of loan applicants can they pay the accounting firm a fee?

Answer:  Generally, Massachusetts licensing policy prohibits payment to a CPA as an originator, assuming that origination activities were provided and the CPA was engaging in the origination as a "secondary" occupation.  On the other hand, if the CPA were being paid simply for the referral of the lead and was not providing services requiring a license, this referral fee would violate the kickback provisions of RESPA.  Desk rentals, joint advertising and marketing and other similar programs may be available for employment by a mortgage company and an accounting firm.

Re-disclosure Requirements

Question: I am a mortgage broker.  If charges paid by the borrower increase after I have provided the initial good faith estimate, attorney general’s disclosure form and fee agreement, am I required to re-issue any or all of the disclosures?

Answer: Yes.  Re-disclosure is required under MGL c.183, section 63 (historically known as the “points statute”) and MGL c.93A..  

The points statute, MGL c.183, section 63,  prohibits charging a fee which has not been “previously disclosed”.   Accordingly, any charges paid to you by the borrower, pursuant to the HUD settlement statement will be ordered refunded by the Division of Banks in an audit context, unless you can prove they were “previously disclosed”.

The attorney general’s regulations, 940 CMR 8.06, and MGL c.93A generally require disclosure of facts and terms required to allow the borrower to make an informed decision.  Specifically, 940 CMR 8.06(12) prohibits charging fees that are not disclosed “in accordance with applicable law”.  This law and correlating regulations mandate re-disclosure, including re-issuance of the attorney general’s broker disclosure required pursuant to 940 CMR 8.05.  The attorney general’s regulations, however, do not apply to purchase loans.

The lender and broker licensing regulations, 209 CMR 42.09 require the broker to maintain a copy of the contract for broker’s compensation.  This record-keeping requirement has been construed as the requirement that such a contract exists to begin with, so that a record can be maintained.  This requirement could be construed to require re-execution of the contract, if the direct borrower paid broker fees increased after the initial contract, as the initial contract would no longer accurately reflect the “broker’s compensation.”

Due to these statutory and regulatory requirements, it is essential that a mortgage broker re-disclose the good faith estimate and attorney general’s disclosure and re-execute a broker’s fee agreement when payments coming directly from the borrower are increased after these disclosures and contract have already been issued and executed.

Reimbursement of third party fees

Question:  When a borrower exercises their right to rescind on a refinance transaction and/or if a borrower opts not to close on a transaction after the loan is cleared, do third party fees that were paid (like the appraisal fee) need to be refunded to the borrower and if these fees were already paid to the third party by the mortgage broker on behalf of the borrower does the mortgage broker have the right to bill and collect the funds from the borrower?  Our current practice is to pay all appraisers and third party fees directly upon billing and we then collect the fees at closing from the borrower.  If the borrower chooses not to close on the loan we have language in our application disclosures that inform them that they will still be responsible for payment of the appraisal fee.

Answer:  Truth in lending law requires that these fees be reimbursed by the "creditor" to the borrower whether or not they have been paid to the third party vendor and notwithstanding any contract provision that may state the fee is "non-refundable".  On the other hand, if a borrower simply withdraws and is not exercising a right to rescind, the issue is controlled by your fee agreement with the borrower as to whether the fees are refundable.  It may also be helpful to point out that if the actual third party fee paid was less than the amount you collected, there is most likely a responsibility to refund the difference absent a contract provision entitling the mortgage broker to retain the difference as some sort of fee.

Scanned Loan Files

Question: Can files (both closed and in process) be scanned as the record of the loan transaction?

Answer:  If the scanned record is to be the only record, such a plan would need approval by the Division of Banks.  An application to seek approval can be found online at the DOB website.

Second Mortgage Disclosures

Question: Do we need a second set of disclosures forms for a 2nd mortgage?

Answer: Yes, you must treat a second loan as a separate transaction for disclosure purposes, even if the loan is part of a blended or combination program with a first. 

Second Mortgage Licenses

Question: Does Massachusetts require a separate license for second mortgages?

Answer: There is no "second mortgage license" requirement in MA, separate from the licensing required under MGL c.255E, broker and lender licensing.  Historically, separate "small loan licensing" was required for loans of $6,000 or less with an interest rate of 12% or more.

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Yield Spread Premium Disclosure

Question: On the GFE estimate, how should a mortgage broker or table funding mortgage lender disclose the Yield Spread Premium?

Answer: If changes being proposed by HUD not yet implemented as of this writing (September, 2002) are implemented the YSP would need to be disclosed as a charge in the “800” block of the GFE and HUD and as a correlating credit in the “200” block.

However, as of now, the current provisions of the requirements of disclosure for a yield spread premium or similar lender paid fee is as follows, according to the provisions of 24 CFR 3500.7 (Regulation X):

1. The fee should be disclosed as “POC” (Paid Outside of Closing);

2. The fee should be disclosed as a “dollar amount or range” – not a “percentage amount or range”;

3. Abbreviations such as “YSP to ABC by XYZ  - POC” should be avoided and instead a more clearly understood explanation is required or at least recommended by HUD (i.e. Yield spread premium paid by Investor to Broker – POC)

4. The fee should be disclosed on the GFE in the same location as it will appear on the HUD-1 or HUD-1A.  A line not previously determined for a different purpose by HUD in the 800 block is recommended.

5. The dollar amount or range should be estimated “in good faith” and “bear a reasonable relationship to the charge a borrower is likely to be required to pay at settlement, and must be based upon experience in the locality of the mortgaged property.”  The Division of Banks has cited licensees for violation of this requirement if a “blanket” type approach ($0 to $5,000) is taken.

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