OFFlCE OP THE ATTORNEY GENER*L STATE OF TEXAS 

JOHN CORNYN 

May 11,1999 

Mr. James L. Pledger 

Commissioner 

Texas Savings and Loan Department 

2601 North Lamar, Suite 201 

Austin, Texas 78705 

Opinion No. K-0045 

Re: Whether the notification requirements in 12 

U.S.C. 9 4903(a)(3), (b) will supersede the 

notification requirements in Texas Insurance Code 

article 21.50, section lB(a) when the federal law 

becomes effective in July 1999 (RQ-1185) 

Dear Commissioner Pledger: 

When 12 U.S.C. 9 4903(a)(3), (b) becomes effective in July 1999,’ it will require a loan 

service? annually to notify a mortgagor in writing of the mortgagor’s right to cancel private 

mortgage insurance in certain circumstances and of the servicer’s address and telephone number. 

Texas Insurance Code article 21.50, section lB(a) similarly requires a lender annually to notify the 

mortgagor that the mortgagor may have the right to cancel private mortgage insurance and to provide 

the lender’s address and telephone number as well as theTexas Department ofInsurance’s telephone 

number. TEX. INS. CODE ANN. art. 21.50,s lB(a) (Vernon Supp. 1999). We understand you to ask 

whether the federal notice requirements supersede the state requirements. “Stated another way,” as 

you suggest, “should a mortgage lender provide Texas borrowers required to purchase mortgage 

guaranty insurance with (1) the annual notice provisions of Section 1B of Article 21.50 of the Texas 

Insurance Code or (2) with the annual notification provisions provided by” federal law? Letter from 

Mr. James L. Pledger, Commissioner, Texas Savings & Loan Dept., to Honorable Dan Morales, 

Attorney General (Aug. 20, 1998) (on tile with Opinion Committee). Because we do not find the 

state and federal notice requirements inconsistent, we conclude that the federal law does not 

supersede the state law. Thus, we believe a mortgage lender may satisfy federal and state 

notification requirements by providing the notice required by state law. Indeed, under federal law, 

‘HomeownersProtectionAct ofJuly29,1998,Pub. L.No. 105-216,112 Stat. 902 (tobe codifiedat 12 U.S.C. 

5 4903). 

‘A “servicer,” for purposes ofthe Homeowners Protection Act of 199X,12 USC. ch. 49, is defmed the same as 

in the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. ch. 26. See Homeowners Protection Act of 

July 29, 1998, Pub. L. No. 105-216, 112 Stat. 897 (to be codified at 12 U.S.C. 5 4901(14)). Section 2605(i)(2) of the 

Real Estate Settlement Procedures Act of 1974,12 U.S.C. 9 2605 (i)(2) (1994), defmes the term”servicer” as the person 

responsible for servicing a loan. “Servicing” is defined as “receiving any scheduled periodic payments from a bonower 

pursuant to the term of any loan and making the payments of principal and interest and such other payments with 

respect to the amounts received from the borrower as may be required” under the loan. 12 USC 5 2605(i)(3) (1994). 
Commissioner James L. Pledger - Page 2 (X-0045) 

we believe a mortgage lender must comply with the state law requirements to satisfy the federal law 

notification requirement. 

Our task is to determine whether the state law’s notificationrequirements, found in Insurance 

Code article 21.50, section lB(a), conflict with the notification requirements in federal law, 12 

U.S.C. 5 4903(a)(3), (b). Federal law preempts state law and renders the state law “‘without effect”’ 

ifthe two laws conflict. See HyundaiMotor Co. v. Alvarado, 974 S.W.2d 1,4 (Tex. 1998) (quoting 

Maryland v. Louisiana, 451 U.S. 725, 746 (1981)). State law actually conflicts with federal law 

when a private party cannot possibly comply with both state and federal requirements or when state 

law creates a barrier to accomplishing and executing Congress’ objectives. See id. (quoting 

Freightliner Corp. v. Myrick, 514 U.S. 280,287 (1995) (quoting, respectively, English v. General 

Elec. Co., 496 U.S. 72, 78-79 (1990), and Hines v. Davidowitz, 312 U.S. 52,67 (1941)). We will 

look at each law in turn. 

Article 2 1.50, section lB(a) of the Insurance Code mandates that a borrower annually must 

be notified that he or she may have a right to cancel required private mortgage insurance and that 

he or she may contact the lender or the Texas Department of Insurance at specified telephone 

numbers for further information: 

A lender that requires a borrower to purchase mortgage guaranty 

insurance3 shall provide annually to the borrower a copy of the following 

written notice printed in at least lo-point bold-faced type: 

“NOTICE OF RIGHT TO CANCEL PRIVATE MORTGAGE INSURANCE: If you currently pay private mortgage insurance 

premiums, you may have the right to cancel the insurance and cease 

paying premiums. This would permit you to make a lower total 

monthly mortgage payment and to possibly receive a refund of any 

unearned premiums on the policy. In most cases, you have the right 

to cancel private mortgage insurance if the principal balance of your 

loan is 80 percent or less of the current fair market appraised value of 

your home. If you want to learn whether you are eligible to cancel 

this insurance, please contact us at (address and telephone number of 

lender) or the Texas Department of Insurance consumer help line at 

(the appropriate toll-free telephone number).” 

TEX. INS. CODE ANN. art. 21.50,§ lB(a) (V emon Supp. 1999) (footnote added). 

“‘Mortgage guaranty insurance” and “private mortgage insurance” appear to be used synonymously in 

Insurance Code article 21.50. Section l(a) of that article defmes “mortgage guaranty insurance” to mean insurance 

against financial loss by reawn of nonpayment of amounts due under a note OI lease. TEX. INS. CODE ANN. art. 21.50, 

4 l(a) (Vernon Supp. 1999). 
Commissioner James L. Pledger - Page 3 (X-0045) 

Federal law similarly requires that a mortgagor annually be notified in writing that he or she 

may have a right to cancel private mortgage insurance and that the mortgagor may contact the 

servicer to determine whether the mortgagor is eligible to cancel the private mortgage insurance: 

If private mortgage insurance is required in connection with 

a residential mortgage transaction, the servicer shall disclose to the 

mortgagor in each such transaction in an annual written statement- 

(A) the rights of the mortgagor under this chapter to 

cancellation or termination of the private mortgage insurance 

requirement; and 

(B) an address and telephone number that the mortgagor 

may use to contact the servicer to determine whether the mortgagor 

may cancel the private mortgage insurance. 

See S.REP.NO. 105-129,at 6 (1997). Thisprovision, to be codifiedat subsection(s)(3) of 12 U.S.C. 

5 4903, pertains to residential mortgages transacted after July 29,1999. See Homeowners Protection 

Act of July 29,1998, Pub. L. No. 105-216, 112 Stat. 902 (to be codified at 12 U.S.C. 5 4903(a)(4)) 

(concerning applicability of 9 4903(a)(3)). Subsection (b) requires that the same annual written 

notice be given to mortgagors who, before the federal law’s effective date, entered a residential 

mortgage. 

Your question turns upon 12 U.S.C. $4908(a)(l), which specifies the effect the federal law 

has on state law generally: 

With respect to any residential mortgage or residential 

mortgage transaction consummated after the effective date of this 

chapter [July 29,1999], and except asprovided in paragraph (2), the 

provisions of this chapter shall supersede any provisions of the law 

of any State relating to . . any disclosure of information addressed 

by this chapter . 

Pub. L. No. 105-216, 112 Stat. 906 (emphasis added). Paragraph (2) states that the federal law 

supersedes state law relating to the disclosure of a mortgagor’s right to cancel private mortgage 

insurance only to the extent federal and state law are inconsistent. See id. (to be codified at 12 

U.S.C. 5 4908(a)(2)(A)). However, a “protected State law” is not “inconsistent with” the federal law 

found in 12 U.S.C. chapter 49 ifthe protected state law requires disclosure ofmore information than 

the information required by the federal law. Id. (to be codified at 12 U.S.C. 5 4908(a)(2)(B)(ii)(I)). 

For purposes of the federal law, a “protected State law” is a state law: 

(9 regarding any requirements relating to private 

mortgage insurance in connection with residential mortgage 

transactions; 
Commissioner James L. Pledger - Page 4 (JC-0045) 

(ii) that was enacted not later than 2 years after the date 

of the enactment of this chapter [July 29, 19981; and 

(iii) that is the law of a State that had in effect, on or 

before January 2, 1998, any State law described in clause (i). 

Id. (to be codified at 12 U.S.C. 5 4908(a)(2)(C)). Insurance Code article 21.50, section 1B is a 

protected state law because (1) it establishes requirements related to private mortgage insurance 

for residential mortgages; (2) it was enacted May 24, 1997, and approved June 18, 1997, which is 

“not later than” two years after the enactment of the federal law; and (3) it became effective 

September 1, 1997, which is “before January 2, 1998.” See id. 

Subsection (a)( 1) of 12 U.S.C. 5 4908 does not create an inconsistency between the state and 

federal laws, but merely articulates the intent of Congress with respect to superseding state law. In 

particular, subsection (a)( 1) states that the federal disclosure requirements supersede any inconsistent 

state-law requirements to the extent of the inconsistency. Thus, if the federal notification 

requirements and the state-law notification requirements are consistent, the federal law does not 

supersede state law. 

In our view, Insurance Code article 21.50, section lB(a) is consistent with the federal statute 

with respect to the content of the required annual notice and therefore is not superseded by the 

federal law. Both the state and the federal law mandate that a residential mortgagor annually be 

notified of two things: 

1. The residential mortgagor must be notified that he or she may 

have a right to cancel his or her private mortgage insurance. 

2. The notice must list the address and telephone number of the 

servicer that the mortgagor may use to determine whether he 

or she is eligible to cancel the private mortgage insurance. 

Although the state law further requires the notice to list the telephone number of the Texas 

Department of Insurance’s consumer help line as well as the servicer’s telephone number or address 

and requires the notice to be printed in at least ten-point type, that does not make the state law 

inconsistent with the federal law. Article 21.50, section 1B of the Texas Insurance Code is a 

protected state law, and therefore it is not inconsistent with the federal law simply because the state 

law requires a servicer to disclose more information than the federal law requires. See id. (to be 

codified at 12 U.S.C. 5 4908(a)(2)(B)(ii)(I)). 

You also ask whether a mortgage lender should comply with the notification requirements 

of the federal law or of the state law. As noted above, state law requires the written notice to list, 

in addition to the items required by both state and federal law, the telephone number of the Texas 

Department of Insurance’s consumer help line; state law also requires the notice to indicate that the 

mortgagor may be eligible not only to cancel private mortgage insurance but also to receive a refund 
Commissioner James L. Pledger - Page 5 (X-0045) 

of unearned premiums on the policy. See TEX. INS. CODE ANN. art. 21.50,§ lB(a) (Vernon Supp. 

1999). Although article 21.50, section lB(c) permits a lender to satisfy the state-law notification 

requirements by providing the notice required by federal law, federal law “requires a lender to 

provide a borrower with a written notice containing substantially the same information required” by 

article 21.50, section lB(a) of the Insurance Code. See id. 5 lB(c). Accordingly, federal law 

recognizes a notification, made in accordance with state law, that is not inconsistent with the federal 

notification requirement, even if such notification includes more information than is specified by 

federal law. See Pub. L. No. 105-216, 112 Stat. 906 (to be codified at 12. U.S.C. 5 4908(a)(2)(A), 

(B)(ii)(I)). We consequently conclude that a lender must comply with article 21.50, section lB(a) 

of the Insurance Code, and, in so doing, the lender will comply with federal law notification 

requirements. 
Commissioner James L. Pledger - Page 6 (JC-0045) 

SUMMARY 

The private-mortgage-insurance notification requirements 

of federal law found in the Homeowners Protection Act of 

July 29, 1998, Pub. L. No. 105-216, 112 Stat. 902 (to be codified at 

12 U.S.C. 5 4903(a)(3), (b)) are consistent with those in state law 

found in Texas Insurance Code article 21.50, section lB(a). A loan 

servicer should comply with the state requirements in Insurance Code 

article 21.50, section lB(a), and in doing so, satisfies the federal 

requisites. 

Attorney General of Texas 

ANDY TAYLOR 

First Assistant Attorney General 

CLARK KENT ERVIN 

Deputy Attorney General - General Counsel 

ELIZABETH ROBINSON 

Chair, Opinion Committee 

Prepared by Kymberly K. Oltrogge 

Assistant Attorney General