Bureau of Consumer Financial Protection Narrows Federal Preemption of Mortgage Lending Laws


Among the many changes made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) were changes to the Alternative Mortgage Transaction Parity Act (“AMTPA”). AMTPA, a federal law that has been in place for many years, had previously preempted a number of state laws that placed restrictions on certain residential mortgage loans. Without AMTPA, those state laws would have put state-chartered residential lenders at an unfair disadvantage against federally-chartered lenders in those states that limited loan terms in areas such as interest rate changes, negative amortization, and balloon payments. AMTPA refers to these types of loans as alternative mortgage transactions (“AMTs). Dodd-Frank amended AMTPA effective July 21, 2011 to narrow the scope of the federal preemption on AMTs as outlined below.

Dodd-Frank also required that once the AMTPA amendments became effective, state-chartered lenders could only take advantage of the new federal preemption rules for AMTs if those loans were made in compliance with rules issued by the Bureau of Consumer Financial Protection (the “Bureau”). This created a problem, because while Dodd-Frank amended AMTPA effective July 21, 2011, it did not give the Bureau the authority to issue regulations interpreting the changes until that same day. The Bureau concluded that it was not the intent of Congress to place state-chartered lenders at a disadvantage to federally-chartered lenders as to existing AMTs, and as a result on July 22, 2011 the Bureau issued an interim final rule that became immediately effective rather than going through the typical proposal and comment period.

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