On December 27, the Massachusetts Division of Banks issued guidance regarding the classification of the modification of a residential mortgage loan as troubled debt restructuring (TDR) when the loan is underwater. The guidance explains that the high loan-to-value ratio alone does not necessarily constitute a TDR, provided that the borrower is (i) performing satisfactorily under his or her mortgage loan, and (ii) is not experiencing financial hardships. In such cases, the Division has determined that a lender may choose to restructure or modify a residential loan per the revision in mortgage terms statute (Massachusetts General Laws chapter 183, section 63A), but the lender must (i) consider all facts and circumstances in determining whether the borrower is experiencing financial difficulty and whether the lender is granting a concession and (ii) perform and document its own analysis in making such a determination.
