[Federal Register Volume 67, Number 239 (Thursday, December 12, 2002)]
[Rules and Regulations]
[Pages 76304-76306]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31228]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 560, 590 and 591

[No. 2002-59]
RIN 1550-AB51


Alternative Mortgage Transaction Parity Act; Preemption Delay of 
Effective Date

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule; delay of effective date.

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SUMMARY: The Alternative Mortgage Transaction Parity Act (AMTPA) 
authorizes state chartered housing creditors to make, purchase, and 
enforce alternative mortgage transactions without regard to any state 
constitution, law, or regulation. To rely on AMTPA, certain state 
chartered housing creditors must comply with regulations issued by the 
Office of Thrift Supervision (OTS). OTS recently revised its rule 
identifying the OTS regulations that apply under AMTPA. This document 
delays the effective date of that revised rule.

EFFECTIVE DATE: This amendment modifies the effective date of the final 
rule published September 26, 2002 at 67 FR 60542. The effective date of 
the revision to 12 CFR 560.220 is delayed until July 1, 2003. The 
effective date of

[[Page 76305]]

amendments to 12 CFR 590.4 and 591.2 remains January 1, 2003.

FOR FURTHER INFORMATION CONTACT: Theresa Stark, Senior Project Manager, 
Compliance Policy, (202) 906-7054; Karen Osterloh, Special Counsel, 
(202) 906-6639, Regulations and Legislation Division, Office of Thrift 
Supervision, 1700 G Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    AMTPA authorizes state chartered housing creditors to make, 
purchase, and enforce alternative mortgage transactions without regard 
to any state constitution, law, or regulation. To rely on AMTPA, 
however, certain state chartered housing creditors must comply with 
designated OTS regulations on alternative mortgage transactions. On 
September 26, 2002, OTS published a final rule revising 12 CFR 560.220, 
which identifies the OTS regulations that apply to state housing 
creditors making alternative mortgage transactions under AMTPA.\1\ 
Under the final rule, OTS will no longer identify its regulations on 
prepayments and late charges as applicable to state housing creditors. 
As a result, alternative mortgage transactions made by state chartered 
housing creditors under AMTPA will become subject to state and local 
laws on these subjects. The rule was to become effective on January 1, 
2003.
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    \1\ 67 FR 60542 (Sept. 26, 2002).
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    In late November and early December 2002, several representatives 
of financial service trade associations (petitioners) filed written 
requests for extensions of the January 1, 2003 effective date. The 
petitioners argued that the three-month delayed effective date did not 
provide a sufficient time for the industry to address implementation 
issues.

II. Discussion

A. Implementation Issues

    Upon reconsideration, OTS believes that an extension is warranted 
to provide state housing creditors with additional time to adapt to 
newly applicable state and local requirements.\2\ Specifically, OTS 
believes that a delay is necessary to permit state housing creditors 
to: (1) Determine applicable legal requirements; (2) reprogram systems 
and rewrite documents; and (3) conduct training.
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    \2\ The September 26, 2002 final rule also made unrelated 
revisions to 12 CFR part 590 (Preemption of State Usury Laws) and 12 
CFR part 591 (Preemption of State Due-on-Sale Laws). OTS is not 
revising the effective date of these other rule changes. Therefore, 
the changes to parts 590 and 591 will be effective on January 1, 
2003.
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    Under the revised OTS rule, state housing creditors that engage in 
alternative mortgage transactions under AMTPA will become subject to 
state laws on prepayment penalties and late charges. During the last 
six years, state housing creditors have been able to rely on AMTPA to 
avoid these state limitations. As a result, many will have little 
recent experience with applicable state laws on prepayment penalties 
and late charges. Because state prepayment penalty and late charge 
restrictions for alternative mortgage transactions frequently differ 
substantially from restrictions on fixed-rate products, any experience 
that a state housing creditor may have with applicable restrictions on 
fixed-rate mortgages may be irrelevant.
    Thus, as a result of the final rule, state housing creditors will 
be required to conduct an in-depth review of applicable state laws to 
ensure that their alternative mortgage transactions will not violate 
these laws--a significant endeavor for state housing creditors that 
operate nationwide or in multiple jurisdictions.
    In addition to ascertaining the scope of applicable restrictions on 
prepayment penalties and late charges, state housing creditors will be 
required to undertake the following significant modifications to 
systems and documents to ensure compliance with state law: (1) Rewrite 
promissory notes and loan agreements; (2) prepare and program newly 
required disclosures, including disclosures to be delivered at or prior 
to origination and disclosures required during loan servicing; (3) 
modify loan origination systems to accurately reflect legal 
requirements and applicable codes; (4) modify servicing systems; and 
(5) develop audit and quality control programs.
    Finally, state housing creditors will have to retrain their 
employees and agents on the new legal requirements for their various 
loan products and on the use of the updated systems and documents. Such 
activities may require the production of appropriate training materials 
and conducting training sessions for employees.

B. New Effective Date

    In determining the effective date for new regulations that impose 
additional requirements on insured depository institutions, OTS must 
consider, consistent with the principles of safety and soundness and 
the public interest, any administrative burdens that the regulation 
would place on depository institutions and customers of depository 
institutions, and the benefits of the regulation.\3\
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    \3\ 12 U.S.C. 4802.
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    Based on the administrative burdens described by petitioners, OTS 
believes that the original January 1, 2003 effective date was 
inadequate to permit state housing creditors, including insured 
depository institutions, to perform all of the tasks necessary to 
respond to the new regulatory environment in a coherent manner.\4\ OTS 
is reluctant to place state housing creditors in a position where they 
are unable to comply or are forced to put unready or untested systems 
into operation. Such an action could result in borrowers receiving 
loans that do not meet the requirements under state law. This may harm 
consumers to the extent that they are charged prepayment penalties that 
are prohibited under state law, or are precluded from electing a lower 
rate in return for a prepayment penalty where such penalties are 
permitted. In addition, such an action could result in lawsuits, which 
could undermine consumer confidence in the mortgage industry. 
Accordingly, OTS will extend the effective date of the AMTPA rule.
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    \4\ While commenters on the proposed rule addressed various 
compliance burdens, the effective date of the rule was not 
identified as a significant issue in the comments or discussed at 
any length.
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    Almost three months have passed since the issuance of the September 
26, 2002 final rule. By now, OTS anticipates that most state housing 
creditors have researched and analyzed the applicable law and are 
beginning to update their operating systems and documents and take 
other steps toward compliance with the revised regulatory environment. 
OTS believes that a delay of an additional six months, as requested by 
several petitioners, will be sufficient for state housing creditors, 
including companies with regional or national operations, to complete 
good faith efforts to implement the remaining changes required by the 
revised rule. OTS notes that this extended date is more than nine 
months after the publication of the final rule on September 26, 2002.
    OTS also considered whether to extend the effective date to January 
1, 2004, as requested by some petitioners. However, OTS believes that 
this effective date raises other issues, including new implementation 
issues. As one commenter observed, changes required by the end of a 
calendar year are particularly problematic because so many functions 
must be performed at the year-end that sufficient staff is often

[[Page 76306]]

not available to make the changes, test the changes, and train other 
employees. OTS believes that this factor weighs against an effective 
date of January 1, 2004. Moreover, a January 1, 2004 effective date 
will unreasonably delay, and thus deny, consumers the protections 
accorded under state law with regard to prepayment penalties and late 
charges on loans made by state housing creditors. In the final rule, 
OTS examined the AMTPA rule's impact on predatory lending and concluded 
that the widespread use of prepayment penalties may deter consumers 
from seeking to refinance high cost loans with burdensome provisions 
and may have other adverse consequences for sub-prime borrowers. OTS 
further concluded that state laws on prepayment penalties and late 
charges are a key component in states' regulation of predatory lending, 
and that its current AMTPA rules may frustrate these state efforts. OTS 
is disinclined to thwart these efforts to combat predatory lending by 
unnecessarily extending the implementation period.
    In light of these factors, OTS will extend the effective date of 
the revised AMTPA rule for six additional months until July 1, 2003.\5\
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    \5\ Thus, loans consummated on or after July 1, 2003 will be 
governed by revised Sec.  560.220. However, if a loan is made 
pursuant to a legally binding loan commitment made before July 1, 
2003, the loan will be governed by the prior OTS rule. Where a 
prospective borrower pays no fee for a commitment, state housing 
creditors should closely review the loan commitment to determine if 
a legally binding commitment exists. These agreements typically 
contain broad provisions permitting the lenders to decline to fund 
the loan on subjective grounds that effectively render the 
commitment unenforceable and therefore not legally binding.
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III. Regulatory Analyses

    To the extent that this extension of the effective date is deemed 
to be a rule under the Administrative Procedure Act (APA), OTS makes 
the following regulatory findings.

A. Administrative Procedure Act

    Under the APA, an agency may suspend general notice-and-comment 
rulemaking procedures if the agency ``for good cause finds (and 
incorporates the finding and a brief statement of reasons therefore in 
the rules issued) that notice and public procedure thereon are 
impracticable, unnecessary, or contrary to the public interest.'' 5 
U.S.C. 553(b)(3)(B). OTS finds that it has good cause to delay the 
effective date without first soliciting comment concerning this action. 
Because the effective date of the final rule (January 1, 2003) is fast 
approaching, it is impracticable to seek further public comment before 
issuing this amendment delaying the effective date of those rules. In 
addition, such a delay is in the public interest for the reasons 
explained above. For similar reasons, OTS also finds that this action 
delaying the effective date of the final rule must take effect on 
January 1, 2003, which is less than 30 days after publication of this 
amendment to the final rules.

B. Regulatory Flexibility Act

    Under section 604 of the Regulatory Flexibility Act (RFA) (5 U.S.C. 
604), a final regulatory flexibility analysis is required only for 
notice-and-comment rulemakings conducted under section 553 of the APA. 
Since OTS has found that there is ``good cause'' under the APA for not 
proceeding with notice-and-comment rulemaking for this amendment to the 
effective date for the final rules, the RFA does not require that a 
final regulatory flexibility analysis be provided for this amendment. 
Moreover, OTS provided a regulatory flexibility analysis in the 
preamble to the final rule published on September 26, 2002 (67 FR 
60551-60554). In that regulatory flexibility analysis, OTS considered 
the likely impact of the final rule on small entities.

C. Executive Order 12866

    The OTS determination that the final rule does not constitute a 
``significant regulatory action'' (67 FR 60551) applies to the rule, as 
amended by this effective date revision.

D. Unfunded Mandates Act of 1995

    The Unfunded Mandates Reform Act of 1995 (UMA) applies only when an 
agency is required to issue a general notice of proposed rulemaking or 
a final rule for which a general notice of proposed rulemaking was 
published. 2 U.S.C. 1532. As noted above, OTS has determined, for good 
cause, that this amendment to the final rule may be issued without 
prior notice and comment. Accordingly, OTS has concluded that the UMA 
does not require an unfunded mandates analysis of this amendment to the 
final rules. Moreover, OTS provided an UMA analysis in connection with 
the final rule. 67 FR 60551.

E. Executive Order 13132--Federalism

    As described in the preamble to the final rule (67 FR 60554), 
Executive Order 13132 imposes certain requirements on an agency when it 
formulates and implements policies that have federalism 
implementations. In accordance with those requirements, OTS consulted 
with the Conference of Bank Supervisors and the National Association of 
Attorneys General concerning this amendment to delay the effective date 
of the rule.

    Dated: December 6, 2002.

    By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-31228 Filed 12-11-02; 8:45 am]
BILLING CODE 6720-01-P