Alert June 25, 2013

Massachusetts Division of Banks Approves Net Present Value Model for Foreclosure Assessments

The Massachusetts Division of Banks approved a net present value model designed by the Massachusetts Bankers Association for community banks to comply with Massachusetts’ foreclosure law. In August 2012, the Massachusetts legislature passed, and Governor Deval Patrick signed into law, An Act Preventing Unlawful and Unnecessary Foreclosures (see August 7, 2012 Alert). The Massachusetts law requires creditors to, among other things, take reasonable steps and make a good faith effort to avoid foreclosure of certain mortgage loans by considering foreclosures alternatives, including modifying the loan. A creditor is presumed to have acted reasonably and in good faith if it identifies a modified mortgage loan that achieves the borrower’s affordable monthly payment and conducts a compliant NPV analysis comparing the net present value of the modified mortgage loan and the creditor’s anticipated net recovery that would result from foreclosure. The law requires the creditor to agree to modify the loan where the net present value of the modified mortgage loan exceeds the anticipated net recovery at foreclosure. Both the law and its implementing regulations provide that the NPV analysis must be based on models used by the federal Home Affordable Modification Program, FDIC Loan Modification Program, Massachusetts Housing Finance Agency loan program, or any model approved by the Division of Banks. The NPV model developed by the Massachusetts Bankers Association is primarily for use by community banks.