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Final Foreclosure Modification Regulations Set to Take Effect

The Massachusetts Division of Banks has issued its final rules directing banks on how to implement the state’s new foreclosure law, which was signed by Governor Deval Patrick in August 2012. The law requires lenders to offer certain borrowers a loan modification before proceeding with a foreclosure, unless a lender can prove that offering a modification would result in greater losses for the bank or that the borrower has rejected the offer. The new rules, beginning September 18, require lenders to consider all available loss mitigation options and they must send a notice before proceeding to foreclosure. Foreclosures surged during the recession as unemployed homeowners were unable to keep current with their monthly mortgage payments. Massachusetts foreclosure numbers are down almost 69 percent - from 4,011 foreclosed deeds in the first five months of 2012 to 1,246 for the same period this year.

Massachusetts Undersecretary of Consumer Affairs and Business Regulation Barbara Anthony commented on the regulations stating “These regulations are the strongest on the books so far and are an added tool for homeowners across the Commonwealth. Lenders are now required to do a net present value analysis before foreclosing. The absence of a requirement like this was certainly a factor in the foreclosure crisis, and we in Massachusetts have taken strong action to remedy this.”   

According to the division, these regulations add further protections for homeowners by preventing servicers from initiating foreclosure when an application for a modification is in process. The regulation, the division added, are similar to standards set out in a settlement agreement reached in early 2012 between five big national lenders and the attorney general from nearly all states, including Massachusetts.