In a revision to Regulatory Bulletin 1.3-104, the Massachusetts Division of Banks recently modified the method used to determine if a loan is a Massachusetts Subprime Loan. The revision makes two changes to the determination method: 1) use of the Average Prime Offer Rate rather than Treasury Security, and 2) use of the APOR in effect as of the date the interest rate is set rather than a rate from the 15th of the month preceding the month in which the application was taken.
Under the guidance in the Bulletin, a Massachusetts Subprime Loan is a loan that falls into the following groups. However, any loan with a loan amount that does not exceed the conventional conforming loan limit and which is eligible for sale to Fannie Mae and Freddie Mac is defined to not be a subprime loan.
1st Lien Mortgages:
- Loan amount does not exceed conforming loan limits; and
- The initial interest rate or fully indexed rate, whichever is higher, is greater than three (3.0) percentage points above the Average Prime Offer Rate for a comparable transaction
OR
- Loan amount exceeds the conforming loan limits; and
- The initial interest rate or fully indexed rate, whichever is higher, is greater than four (4.0) percentage points above the Average Prime Offer Rate for a comparable transaction.
ii. Simultaneous 2nd Lien Mortgages:
- The fully indexed rate is greater than five (5.0) percentage points above the Average Prime Offer Rate for a comparable transaction.
The definition of Subprime Loan continues to apply only to loans made to a first-time homebuyer receiving a loan with a variable or adjustable rate. If a loan is identified as a Massachusetts Subprime Loan, the homebuyer must opt into the transaction in writing and receive counseling.
DocMagic will be updating our Massachusetts Subprime Audit and Rule for selecting the Massachusetts Subprime Opt-In and Counseling Notice (MASOIC.MSC) to reflect these revisions to the definition.
