OCC to States: Know Your Place

by Peter G. Miller
May 30th, 2008

With some frequency we discuss the matter of lenders, FHA mortgages and agency; that is, the idea that lenders and loan officers should have an obligation to get borrowers the best possible rates and terms.

Some blog visitors have pointed out that, in fact, several states do require loan officers and lenders to put borrower interests first.

The catch is that most loans are made through federally-regulated lenders. State rules do not apply to these lenders, their mortgage subsidiaries or the loans they make.

___In 2004 the Office of the Comptroller of the Currency (OCC) said state regulations did not apply to loans made by national lenders.

___In 2006, when Montgomery County, MD tried to raise the penalties for mortgage discrimination, the Office of Thrift Supervision said such a local law could not apply to federally-regulated lenders. The letter discusses just how many ways state efforts to regulate loans have been thwarted,

___In 2007 the Supreme Court said in the Watters decision that state laws do not apply to national lenders OR their mortgage subsidiaries.

Now, we have still another example, this time something written last week from the OCC. The OCC is upset that the New York state attorney general (NYAG), Andrew Cuomo, has crafted an agreement with Fannie Mae and Freddie Mac that would prevent appraisers from being pressured into making inflated valuations. You might think this is a good idea, but the OCC is vastly more concerned about protecting its turf.

In a letter to the Office of Federal Housing Enterprise Oversight, the federal agency that regulates Fannie Mae and Freddie Mac, the OCC complains bitterly about the idea that the new “agreement and code” adopted with New York was done without the blessing of the OCC. The OCC writes that:

Federal law expressly and specifically reserves to the 0CC the authority to regulate and supervise national banks’ real estate lending activities. That exclusive 0CC authority encompasses national banks’ arrangements and procedures for assessing the value of the collateral securing their loans, which is the subject of existing 0CC regulations with which the Code conflicts. Moreover, the NYAG cannot regulate national bank activities through requirements imposed on third parties.”

Thus, while many state regulators have great ideas and strong consumer protection rules on the books, the federal government does not — and it aims to keep it that way.

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