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Mortgage Lending: 6.12.1 Overview

There is no preemption language in the Federal Credit Union Act (FCUA),785 and the Act is not so comprehensive as to preempt all state regulation of federal credit unions.786 Thus, preemption of state laws with respect to federal credit unions is based on conflict with federal law. The Dodd-Frank Act’s revised standards for preemption of state laws apply only to national banks and federal savings associations.787

Mortgage Lending: 6.11.4.7 Preemption of State Debt Collection Practices Statutes

A number of decisions held that HOLA did not preempt state statutes regulating debt collection practices.760 The Fifth Circuit held that HOLA did not preempt a Texas statute’s prohibitions against threatening to take illegal action, attempting to collect unauthorized fees, mischaracterizing a debt, or using other deceptive means.761 The court held that these prohibitions were intended to limit coercive and abusive behavior by all those seeking to collect debts.

Mortgage Lending: 6.11.4.10.2 Dodd-Frank Act ends preemption for subsidiaries, agents, and affiliates

The Dodd-Frank Act conclusively settled this issue by repudiating the OTS’s position that it had authority to preempt state laws regarding subsidiaries, agents, and affiliates of federal savings associations.778 The Act accomplishes this by making the National Bank Act’s “laws and legal standards” for preempting state laws applicable to federal savings and loan associations as well.779 The NBA’s “laws and legal standards” were amended by the Dodd-Frank Act to clarify that no provision shall

Mortgage Lending: 6.12.3 NCUA’s Preemption Letters

Like the OCC and the former OTS,807 the NCUA has issued numerous preemption letters over the years.808 Some of these letters are more tolerant of state laws than the opinions released by the OCC and the OTS. For example, the NCUA letters state that registration requirements in certain situations and laws relating to the deposits of a decedent are not preempted.809

Mortgage Lending: 6.12.4.1 State Limits on Interest Rates and Fees

A number of decisions hold that state usury statutes setting lower interest rate caps than the Federal Credit Union Act conflict with the Act and are preempted.818 Nevertheless, a claim that a federal credit union violated a state statute by failing to disclose a fee for releasing a deed of trust when the borrower paid off the loan was not a “term of repayment” that was preempted by the regulation, as it did not seek to regulate the amount of the fee.819

Mortgage Lending: 6.12.4.3 State Anti-Predatory Lending Laws

The NCUA originally held that state anti-predatory lending laws patterned on the federal Home Ownership and Equity Protection Act (HOEPA) were not preempted to the extent that they imposed additional restrictions on loans to which HOEPA applies.827 These determinations were based on the NCUA regulation stating that, in areas regulated by other federal laws, the NCUA applies the preemption rules set forth in that other law.828 As HOEPA allows states to impose additional restrictions on loans

Mortgage Lending: 6.12.4.4 State Laws Regarding Creditor Remedies

State laws regarding creditor remedies are not listed as preempted in the NCUA’s preemption regulation. The NCUA preemption regulation specifically exempts state laws relating to collection costs and attorney fees from preemption837 and also explicitly preserves state debt collection laws.838

Mortgage Lending: 6.12.4.5 Claims of Deception and Fraud

The NCUA’s preemption regulation provides that state laws that purport to limit or affect rates of interest and amounts of fees are preempted.843 However, state law claims based on deception regarding those topics are not preempted.844 This conclusion is particularly clear as a NCUA regulation states that credit unions must “accurately represent the terms and conditions of its [services and financial products] in all advertising, disclosures, or agreements.”

Mortgage Lending: 6.12.5 Subsidiaries: Credit Union Service Organizations

In 1977 Congress amended the FCUA to permit federal credit unions to invest in and make loans to service organizations, subject to certain funding limits and other regulatory restrictions.847 These subsidiaries and other organizations in which credit unions have an interest are called credit union service organizations (CUSOs). CUSOs must primarily serve the needs of their member credit union(s) and their business must relate to the daily operations of the credit unions.848

Mortgage Lending: 2.1.4 Conforming Mortgages

A “conforming mortgage” is a conventional mortgage loan for an original loan amount that does not exceed the maximum loan amount that Fannie Mae and Freddie Mac (the government sponsored entities or GSEs) are permitted to purchase.54 The conforming loan limit is the same for both GSEs and varies by property size (ranging from one-to-four residential units) and geographic location.

Mortgage Lending: 4.17.1 Overview

Most borrowers with conventional mortgages are required to pay a fee for private mortgage insurance (PMI) when the loan-to-property-value ratio exceeds eighty percent. Unlike hazard insurance, mortgage insurance protects the owner of the note against the borrower’s default.668 Section 8.5, infra, describes how mortgage insurance works and discusses common problems.

Mortgage Lending: 2.1.6 Home Equity Loans

This term is commonly used but only vaguely definable. It generally refers to any mortgage loan that is not used to finance the purchase of a property. It can refer to a loan used to refinance an existing mortgage, or a loan that enables a homeowner to access the accumulated equity in a property, with the loan proceeds used for some other purpose.

Mortgage Lending: 2.1.8 Consolidation Loans

A “consolidation loan” is a home equity loan used to combine multiple different debts (secured or unsecured) into one, single debt secured by the home. This loan may involve a second mortgage or refinancing an existing first mortgage. Consumers may be lured by consolidation companies that offer to combine all of the consumer’s debts into one single monthly payment. This process often involves transforming a homeowner’s previously unsecured debt, such as credit card and medical bills, into one loan secured by the consumer’s home.

Mortgage Lending: 2.1.2 First, Second, and Junior or Subordinate Mortgages

These and similar categories refer to the order in which mortgage lienholders are repaid in the event of a foreclosure. A first mortgage has the highest priority. The priority of mortgages usually matches the order in which they are recorded, although that is a matter of state law, and mortgagees can agree to accept a lower priority (called subordination, discussed below). Any mortgage recorded after the first mortgage is a junior or subordinate mortgage.

Mortgage Lending: 2.4.1.1 Overview

For many years fixed rate mortgages were the norm. But, with inflation in the 1970s, adjustable rate mortgages became more common. Fixed rate mortgages have a rate of interest that does not change over the term of the loan.

Mortgage Lending: 4.12 Federal Restrictions As to FHA, VA, RHS, and HECM Loans

The Federal Housing Administration (FHA512), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS) all administer programs to promote homeownership. These agencies prohibit or restrict certain risky or abusive terms in mortgage loans made under their auspices, including negative amortization, prepayment penalties, and excessive late charges.513 The RHS direct loan program does allow for some negative amortization under its payment subsidy feature.

Mortgage Lending: 12.7.5 Converting Equity to Cash

Other than a traditional sale, there are a number of ways to convert home equity into immediate cash. The most widely used method is to borrow money secured by the home. Such borrowing can be done with one of several kinds of home equity loans or with a reverse mortgage for seniors.

Mortgage Lending: 10.3.1 Overview

The Home Equity Conversion Mortgage (HECM) program was designed to meet the needs of older homeowners by reducing economic hardship resulting from higher health care, housing, and subsistence costs at a time of reduced income.14 The program is one of many single family mortgage insurance programs administered by the Department of Housing and Urban Development (HUD).15 As with all HUD insurance programs, borrowers pay premiums for the insurance, and HUD guarantees that the lender (or its assi