Under applicable Massachusetts law (M.G.L. c. 183, Section 28C; 209 CMR 53.00; links are here and here, respectively), a lender may not make a home loan if that home loan pays off all or part of an existing home loan that was consummated within the prior sixty (60) -- month period; unless, the new home loan is in the "borrower's interest." A "home loan" is defined as essentially any consumer purpose loan repayment of which is secured by a 1- to 4-family owner-occupied dwelling.

A determination as to whether or not the new home loan is in the borrower's interest is required unless excluded from coverage. In addition to FHA and VA loans, the following home loans are excluded:

• The APR does not exceed by more than 2.5% (for first lien, closed end loans) the yield on United States Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the lender (Note: the treasury yield is the same used for the Section 32 analysis).
• The APR does not exceed by more than 3.5% (for subordinate lien, closed end loans) the yield on United States Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the lender (Note: the treasury yield is the same used for the Section 32 analysis).
• The APR will not exceed at any time by more than 1% (for any open-end (HELOC) loan) the Prime Rate as published in the Wall Street Journal (Note: we assume that the APR on all HELOCs will at some time exceed this threshold).

Unless otherwise excluded from coverage, the new Massachusetts audit runs the APR analysis outlined above to determine whether or not the home loan APR exceeds the thresholds outlined above. If the loan APR exceeds the applicable threshold, then the following audit is triggered:

WARNING: If existing loan was consummated within prior 60 months, new loan must be in borrower's interest. M.G.L. c. 183 Section 28C; 209 CMR 53.00.

The lender must perform an analysis to determine whether the new home loan is in the borrower's interest. Currently, the DocMagic software does not capture information regarding the terms of the prior lien so this analysis cannot be performed on an automated basis. However, a Massachusetts Borrower Interest Worksheet (MABIW.MSC) has been developed that any DocMagic user can use to assist in making this determination; the worksheet is automatically pulled into the loan package when the audit is triggered.

Please feel free to contact the DocMagic Compliance Department if you have any questions or comments regarding this audit.

Bill Lambropoulos is the General Counsel and Director of Compliance and Legal Services at Document Systems, Inc.