the Dodd-Frank Act amendments to the Parity Act to allow state housing
creditors to continue to rely on Parity Act preemption for the next year
(until July 22, 2012) in making newly defined "alternative mortgage
transactions" in states where such loans are otherwise prohibited by state
law.
The interim final rule is available at:
http://www.gpo.gov/fdsys/pkg/FR-2011-07-22/pdf/2011-18676.pdf
As you may recall, the Dodd-Frank Act provides that state housing
creditors may only make newly defined "alternative mortgage transactions"
under Alternative Mortgage Transaction Parity Act (Parity Act, or AMTPA)
if they comply with rules issued by the CFPB.
The interim final rule provides a one-year extended compliance period and
a temporary safe harbor in order that lenders may continue to originate
newly defined alternative mortgage transactions (AMTs). Until but not
including July 22, 2012, the interim final rule applies only to state
housing creditors seeking to invoke federal preemption of state law under
the Parity Act.
Compliance with the interim final rule is optional until July 22, 2012 for
federal housing creditors and for state housing creditors that are not
relying on preemption of state law under § 1004.3 (preemption as to newly
defined AMTs).
On July 22, 2012, compliance with § 1004.4 (requirements for newly defined
AMTs) will become mandatory for all creditors, except as provided in §
1004.4(d) (reliance on law other than Parity Act preemption).
The interim final rule applies to an alternative mortgage transaction if
the creditor received an application for that transaction on or after July
22, 2011. If the creditor received the application before July 22, 2011,
the alternative mortgage transaction is generally "grandfathered" and
remains subject to the Parity Act provisions and regulations in effect at
the time of application.
The rule also clarifies that modifications, renewals, or extensions of
alternative mortgage transactions do not result in a loss of Parity Act
preemption. Refinancings are treated as new transactions that must
independently meet the requirements for preemption in effect at the time
of refinancing.
However, due to the Dodd-Frank Act amendments to the Parity Act, the
interim final rule's definition of "alternative mortgage transaction" is
limited to transactions in which the interest rate or finance charge may
be adjusted or renegotiated. As a result, previously preempted state
consumer protection laws will apply to fixed-rate mortgage loans with
interest-only payment periods or negative amortization features,
fixed-rate balloon loans where the lender does not make a commitment to
renew the loan, and certain other fixed-rate products that previously
qualified as alternative mortgage transactions but no longer qualify
because of the Dodd-Frank Act amendments.
The CFPB noted that "interim rules are needed immediately in order to
avoid a suspension in the operation of AMTPA, which would prevent state
housing creditors from making variable rate loans and other alternative
mortgage transactions in states where such loans are otherwise prohibited
by state law."
Accordingly, the CFPB "finds that there is good cause to issue this
interim final rule without notice and comment and effective immediately in
order to avoid the risk of disrupting mortgage markets, placing state
housing creditors at an inappropriate competitive disadvantage, and
reducing consumers' access to credit. In particular, the CFPB is concerned
that failure to issue an interim final rule addressing the modification of
existing AMTPA loans could create uncertainty and discourage such
modifications."
The CFPB also notes that its "interim final rule will be in place as a
temporary measure pending the CFPB's completion of a notice-and-comment
rulemaking to promulgate permanent rules, including rules governing
alternative mortgage transactions made by federally chartered housing
creditors." The CFPB requests public comment in anticipation of that
process. Comments are due on or before September 22, 2011.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
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