State laws which regulate mortgage transactions generally, including restricting prepayment penalties or late charges, but do not prohibit state housing creditors from adjusting or renegotiating rates or finance charges are no longer preempted by AMTPA and are now applicable to all transactions made, purchased and enforced by state housing creditors. The rule also clarifies that the state housing creditors may also change the amount of interest or finance charges included in regular periodic payments as necessary following such adjustment or renegotiation. Under this new standard, state housing creditors may make, purchase, and enforce alternative mortgage transactions notwithstanding any provision of state law that restricts the ability of the housing creditor to adjust or renegotiate an interest rate or finance charge so long as the transaction is made in accordance with the CFPB’s substantive requirements governing alternative mortgage transactions. Therefore, state housing creditors must comply with any state laws applicable to such transactions.Įven for loans which are considered alternative mortgage transactions under the revised definition, state housing creditor obligations have changed as a result of the narrowing of AMTPA preemption standards. However, the new alternative mortgage transaction definition excludes formerly covered transactions such as fixed-rate loans with an interest-only period negative amortization or graduated payment features, and fixed-rate balloon loans where the lender does not make a commitment to renew the loan. HELOCs and subordinate lien mortgages which otherwise meet the revised definition also qualify as alternative mortgage transactions. Transactions such as adjustable rate mortgages, shared equity and shared appreciation mortgages, and fixed-rate balloon loans where the creditor has made a commitment to renew but reserved discretion to adjust the interest rate at renewal continue to be “alternative mortgage transactions” under the revised definition. The following are key points regarding the CFPB’s interim final rule, industry comments may be submitted until September 22, 2011.Īlternative Mortgage Transaction Definitionįor application received by creditors on or after July 22, 2011, a transaction qualifies as an “alternative mortgage transaction” if the loan, credit sale or account is: (1) secured by an interest in a residential structure containing one-four units, if it is used as a residence (2) made primarily for personal, family, or housed purposes and (3) a transaction in which the interest rate or finance charge may be adjusted or renegotiated. For federal housing creditors, there is a one year grace period for compliance with this interim final rule, during which time compliance with previously applicable federal laws governing alternative mortgage transactions is deemed sufficient. These CFPB rules are also applicable to federal housing creditors as authority with respect to alternative mortgage transactions transferred to the CFPB from the OCC (and OTS) and NCUA on July 21, 2011. Consequently, all state housing creditors making such transactions (beginning with applications received on or after July 22, 2011) must comply with any state law applicable to that transaction. In addition, certain transactions such as fixed-rate loans with interest-only payments no longer fall within AMTPA’s definition of “alternative mortgage transactions”. In order to avoid a regulatory gap the provisions of this rule are effective immediately however, compliance with the new provisions governing the origination of alternative mortgage transactions are only effective immediately for those state housing creditors relying on AMTPA’s preemption provisions to make, purchase or enforce alternative mortgage transactions prohibited by state law. These changes include a revised definition of an “alternative mortgage transaction” as well as the narrowing of the scope of AMTPA’s preemption provisions. However, the rule incorporates amendments to the Alternative Mortgage Transaction Parity Act (AMTPA), required by the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) and implemented in Regulation D, which significantly change aspects of the alternative mortgage transaction landscape. Senior Counsel & Vice July 22, 2011, the Consumer Financial Protection Bureau (CFPB) issued an interim final rule which preserved the ability of state housing creditors to make alternative mortgage transactions notwithstanding state law prohibitions.
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