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 12U.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 ofthe servicer’s address and telephone number. Texas Insurance Code article 21.50, section lB(a) similarly requires alender annually to notify the mortgagor that themortgagor may have theright to cancel private mortgage insurance andtoprovide the lender’s address andtelephone number aswell astheTexas Department ofInsurance’s telephone number. TEX. INS. CODE ANN.art. 21.50,s lB(a) (Vernon Supp. 1999). Weunderstand you to ask whether the federal notice requirements supersede the staterequirements. “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 ofSection 1BofArticle 21.50 ofthe 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. 92605 (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 abonower 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)

webelieve amortgage lender must comply with the state law requirements to satisfy the federal law notification requirement.

Ourtask istodetermine whether the statelaw’s notificationrequirements, found inInsurance Code article 21.50, section lB(a), conflict with the notification requirements in federal law, 12 U.S.C. 54903(a)(3), (b). Federal lawpreempts state law andrenders the state law “‘without effect”’ ifthe two laws conflict. SeeHyundaiMotor 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 aprivate party cannot possibly comply with both state and federal requirements orwhen state law creates a barrier to accomplishing and executing Congress’ objectives. See id. (quoting Freightliner Corp. v.Myrick, 514U.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 21.50, section lB(a) ofthe Insurance Code mandates that aborrower annually must be notified that he or she may have aright 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 arefund of any unearned premiums on the policy. In most cases, you have the right to cancel private mortgage insurance ifthe principal balance ofyour loan is 80percent orless ofthe current fair market appraised value of your home. Ifyou want to learn whether you are eligible to cancel this insurance, please contact us at (address andtelephone 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) (Vemon Supp. 1999) (footnote added).

“‘Mortgage

guarantyinsurance”and “privatemortgageinsurance” appearto beusedsynonymously in Insurance Codearticle21.50.Sectionl(a)ofthatarticledefmes “mortgage guarantyinsurance”

tomeaninsurance against financial loss by reawn of nonpayment of amounts due under a note OIlease. TEX. INS. CODEANN. art. 21.50, 4 l(a) (Vernon Supp. 1999).Commissioner James L. Pledger - Page 3 (X-0045)

Federal law similarly requires that amortgagor annually benotified inwriting 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, tobe codifiedat subsection(s)(3) of 12U.S.C. 54903,pertains toresidential mortgages transacted afterJuly 29,1999. SeeHomeowners Protection Act ofJuly 29,1998, Pub. L.No. 105-216, 112 Stat. 902 (to be codified at 12U.S.C. 54903(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 12U.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], andexcept asprovided inparagraph (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. 54908(a)(2)(A)). However, a“protected State law” isnot “inconsistent with” the federal law found in 12U.S.C. chapter 49 ifthe protected state lawrequires disclosure ofmore information than the information required by the federal law. Id. (tobe codified at 12U.S.C. 54908(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 2years after the date of the enactment ofthis 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 12U.S.C. 54908 does not create an inconsistency between the state and federal laws, but merely articulates the intent ofCongress with respect to superseding state law. In particular, subsection (a)(1)statesthatthefederal 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 oftwo things:

1. The residential mortgagor must benotified that he or shemay have a right to cancel his or her private mortgage insurance.

2. The notice must list the address and telephone number ofthe 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 ofInsurance’s consumer help line aswell asthe 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 12U.S.C. 54908(a)(2)(B)(ii)(I)).

You also ask whether a mortgage lender should comply with the notification requirements of the federal law or ofthe 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 ofInsurance’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 toreceive arefundCommissioner James L. Pledger - Page 5 (X-0045)

ofunearned 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 aborrower with awritten 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 anotification, made in accordance with state law,that isnot inconsistent with the federal notification requirement, even if such notification includes more information than is specified by federal law. SeePub. L.No. 105-216, 112 Stat. 906 (to be codified at 12.U.S.C. 54908(a)(2)(A), (B)(ii)(I)). We consequently conclude that alender 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 staterequirements inInsurance Code article 21.50, section lB(a), and in doing so, satisfies the federal requisites.

Attorney General ofTexas

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