The Compliance Connection
State Corporation Commission - Bureau of Financial Institutions
Regulatory News for Virginia Mortgage and Consumer Finance Licensees October 1999
INSIDE THIS ISSUE:
Prepayment Penalties and
Alternative Mortgages….……1
Y2K Update.…..………..…...2
Website Information…...……2
November Mortgage
Orientation…………………...3
Licensee Update……….…3 - 4
CF Memorandum
Reprint………………………..5
Mailing Address:
1300 East Main Street
Suite 800
P. O. Box 640
Richmond, VA 23218 - 0640
Suggestions and comments
concerning the newsletter or its
contents should be addressed to
the Bureau at the above address
or via e-mail at:
nwalker@scc.state.va.us
Bureau Enjoined from Enforcing
Prepayment Penalty Limits on Alternative
Mortgages:
The United States District Court for the Eastern District of Virginia
ruled September 10, 1999, that the Bureau of Financial Institutions
may not require mortgage lenders to comply with Virginia laws
limiting prepayment penalties when the lenders make alternative
mortgages. The court found – in a case brought by The National
Home Equity Mortgage Associations (“NHEMA”) – that federal
law, the “Alternative Mortgage Transaction Parity Act”, and
regulations preempt state laws restricting prepayment penalties.
This preemption operates in favor of “housing creditors” (as
defined in the Parity Act) that make “alternative mortgage
transactions” in compliance with certain regulations of the Office of
Thrift Supervision (“OTS”). The Court’s September 10th decision
made permanent an injunction it had granted earlier, on a temporary
basis, against the Bureau’s enforcement of state law.
The Bureau defendants and the Attorney General of Virginia have
noted an appeal from the District Court’s decision to the United
States Court of Appeals for the Fourth Circuit.
NOTE: This federal preemption applies only in cases where
(1) the mortgage loan is an alternative mortgage transaction,
within the meaning of the Parity Act, and (2) the housing
creditor making the loan does so in accordance