On July 22, 2011, the CFPB published an interim final rule implementing amendments to the Alternative Mortgage Transaction Parity Act (12 U.S.C. 3801 et seq.), as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  The Alternative Mortgage Transaction Parity Act (AMTPA) authorizes state housing creditors to make alternative mortgage transactions in compliance with federal rather than state law.  Effective July 21, 2011, the Dodd-Frank Act amended AMTPA to narrow the scope of the federal preemption.

The interim final rule applies to an “alternative mortgage transaction” if the creditor received the application on or after July 22, 2011. The rule defines an “alternative mortgage transaction” to mean a

“loan, credit sale, or account: (1) that is secured by an interest in a residential structure that contains one to four units, whether or not that structure is attached to real property, including an individual condominium unit, mobile home, or trailer if that is used as a residence; (2) that is made primarily for personal, family, or household purposes; and (3) in which the interest rate or finance charge may be adjusted or renegotiated.”

Previously, AMTPA preempted state consumer protection laws for fixed rate mortgage loans with interest only payment or negative amortization features, fixed rate balloon loans where the creditor does not make a commitment to renew the loan through the amortization term, and other products that previously qualified as alternative mortgages but no longer meet the definition.

The interim final rule also implements amendments to the scope of preemption under AMTPA.  The rule provides that state laws are preempted only to the extent that they restrict the ability of a state housing creditor to adjust or renegotiate an interest rate or finance charge with respect to an alternative mortgage transaction or the ability to change the amount of interest or finance charges included in a payment as the result of such adjustment or renegotiation.  Generally, state laws that are not integral to alternative mortgages transactions, such as laws restricting late fees, prepayment penalties, interest only features and negative amortization are no longer preempted under AMTPA.

Finally, the interim final rule establishes standards governing alternative mortgage transactions. Initially, compliance with these standards is mandatory only for those state housing creditors relying on preemption under AMTPA.  Compliance with these standards is optional for federal housing creditors and for state housing creditors that are not relying on AMTPA preemption of state law until July 22, 2012.  Until that date, federal housing creditors and state housing creditors that are not relying on AMTPA preemption may continue to originate variable rate mortgages and other alternative mortgage transactions in accordance with other sources of law.

If you should have questions about the information presented in this article, please contact DocMagic’s Compliance Department.