44226 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

1 12 U.S.C. 3801 et seq. 

2Public Law 111–203, 124 Stat. 1376 (2010) 

(hereinafter ‘‘Pub. L. 111–203’’). 

3Under 12 U.S.C. 3802(2), the term ‘‘housing 

creditor’’ means: (1) A depository institution as 

defined in 12 U.S.C. 1735f–7 note; (2) a lender 

approved by the Secretary of Housing and Urban 

Development for participation in any mortgage 

insurance program under the National Housing Act; 

(3) a person who regularly makes loans, credit sales, 

or advances secured by an interest in residential 

real property, dwellings, cooperatives or residential 

manufactured homes; and (4) any transferee of a 

person in the other three categories. 

4Available at http://www.consumerfinance.gov/ 

wp-content/uploads/2011/06/Amendments-to-theAlternative-Mortgage-Transaction-Parity-Act.pdf. 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1004 

[Docket No. CFPB–2011–0004] 

RIN 3170–AA04 

Alternative Mortgage Transaction 

Parity (Regulation D) 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Interim final rule with request 

for public comment. 

SUMMARY: The Bureau of Consumer 

Financial Protection (CFPB) is 

publishing for public comment an 

interim final rule establishing 

Regulation D (Alternative Mortgage 

Transaction Parity) pursuant to the 

Alternative Mortgage Transaction Parity 

Act (AMTPA) and the Truth in Lending 

Act. The interim final rule is necessary 

to avoid a regulatory gap created by the 

amendments to AMTPA in the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act). 

Without an interim final rule that takes 

immediate effect, state housing creditors 

would no longer be able to make 

variable rate mortgage loans and other 

alternative mortgage transactions 

pursuant to AMTPA in states that 

prohibit such transactions, thus denying 

consumers access to that form of credit. 

Until July 22, 2012, the interim final 

rule applies only to state housing 

creditors seeking to invoke federal 

preemption of state law under AMTPA. 

The interim final rule will be in place 

as a temporary measure pending the 

CFPB’s completion of a notice-andcomment rulemaking to promulgate 

permanent rules, including rules 

governing alternative mortgage 

transactions made by federally chartered 

housing creditors. The CFPB seeks 

public comment in anticipation of that 

process. 

DATES: This interim final rule is 

effective July 22, 2011. 

Mandatory compliance date: 

Compliance with § 1004.4 of this 

interim final rule is optional until July 

22, 2012 for federal housing creditors 

and for state housing creditors that are 

not relying on preemption of state law 

under § 1004.3. On July 22, 2012, 

compliance with § 1004.4 is mandatory 

for all creditors, except as provided in 

§ 1004.4(d). 

Comments: Comments must be 

received on or before September 22, 

2011. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB–2011– 

0004, by any of the following methods: 

• Electronic: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail or Hand Delivery/Courier in 

Lieu of Mail: Monica Jackson, Office of 

the Executive Secretary, Consumer 

Financial Protection Bureau, 1801 L 

Street, NW., Washington, DC 20036. 

All submissions must include the 

agency name and docket number or 

Regulatory Information Number (RIN) 

for this rulemaking. In general, all 

comments received will be posted 

without change to http:// 

www.regulations.gov. In addition, 

comments will be available for public 

inspection and copying at 1801 L Street, 

NW., Washington, DC 20036, on official 

business days between the hours of 10 

a.m. and 5 p.m. Eastern Time. You can 

make an appointment to inspect the 

documents by telephoning (202) 435– 

7275. 

All comments, including attachments 

and other supporting materials, will 

become part of the public record and 

subject to public disclosure. Sensitive 

personal information, such as account 

numbers or social security numbers, 

should not be included. Comments will 

not be edited to remove any identifying 

or contact information. 

FOR FURTHER INFORMATION CONTACT: 

Monica Jackson, Office of the Executive 

Secretary, Consumer Financial 

Protection Bureau, 1801 L Street, NW., 

Washington, DC 20036, (202) 435–7275. 

SUPPLEMENTARY INFORMATION: 

I. Overview 

The Bureau of Consumer Financial 

Protection (CFPB) is publishing for 

public comment this interim final rule 

implementing amendments to the 

Alternative Mortgage Transaction Parity 

Act (AMTPA) 1 made by the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act).2

AMTPA authorizes state-licensed or 

-chartered housing creditors (state 

housing creditors) 3 to make alternative 

mortgage transactions in compliance 

with federal rather than state law, in 

order to establish parity and competitive 

equality between state and federal 

lenders. Effective July 21, 2011, the 

Dodd-Frank Act amended AMTPA to 

transfer rule-writing authority to the 

CFPB and to narrow the scope of federal 

preemption. After July 21, the DoddFrank Act provides that state housing 

creditors may only make alternative 

mortgage transactions under AMTPA if 

they comply with rules issued by the 

CFPB, even though the Dodd-Frank Act 

does not vest the CFPB with authority 

to issue such rules before that date. 

Accordingly, CFPB interim rules are 

needed immediately in order to avoid a 

suspension in the operation of AMTPA, 

which would prevent state housing 

creditors from making variable rate 

loans and other alternative mortgage 

transactions in states where such loans 

are otherwise prohibited by state law. 

The CFPB does not believe that 

Congress intended its amendments to 

AMTPA to create a regulatory gap that 

would interrupt access to credit. As 

discussed below in Section IV, the CFPB 

finds that there is good cause to issue 

this interim final rule without notice 

and comment and effective immediately 

in order to avoid the risk of disrupting 

mortgage markets, placing state housing 

creditors at an inappropriate 

competitive disadvantage, and reducing 

consumers’ access to credit. In 

particular, the CFPB is concerned that 

failure to issue an interim final rule 

addressing the modification of existing 

AMTPA loans could create uncertainty 

and discourage such modifications. In 

advance of issuing this interim final 

rule, the CFPB issued a public bulletin 

alerting state chartered and licensed 

lenders and other interested parties that: 

(1) the Dodd-Frank Act amendments to 

AMTPA take effect on July 21, 2011; 

and (2) the amendments affect what 

laws apply to mortgage loans issued by 

state chartered or licensed lenders after 

that date by narrowing the statutory 

definition of ‘‘alternative mortgage 

transaction’’ and the scope of 

preemption under AMTPA.4 In 

addition, the CFPB reached out to state 

and federal regulators, trade 

associations, and consumer advocates to 

urge planning for an orderly transition 

process. The CFPB will continue its 

outreach and consultations while it 

engages in a notice-and-comment 

rulemaking to more fully effectuate the 

Dodd-Frank Act amendments. The 

CFPB is committed to beginning the 

notice-and-comment rulemaking 

process as soon as possible after the 

comment period closes on the interim 

final rule. 


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Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44227 

5 15 U.S.C. 1601, et seq. 

6Testimony cited in 67 FR 60542, 60543 (Sept. 

26, 2002). 

7 12 U.S.C. 3801(b). 

8 12 U.S.C. 3804. Six states exercised their opt-out 

authority in whole or in part: Arizona, Maine, 

Massachusetts, New York, South Carolina, and 

Wisconsin. See, e.g., Grant S. Nelson & Dale A. 

Whitman, Real Estate Finance Law § 11.4 (4th ed. 

2001). 

9 12 U.S.C. 3803(c). 

10 12 U.S.C. 3803(a). 

II. Summary of the Interim Final Rule 

The interim final rule applies to an 

alternative mortgage transaction if the 

creditor received an application for that 

transaction on or after July 22, 2011. If 

the creditor received the application 

before July 22, 2011, the alternative 

mortgage transaction is generally 

grandfathered and remains subject to 

the AMTPA provisions and regulations 

in effect at the time of application. 

Thus, a consistent set of requirements 

will apply from application to 

completion of an alternative mortgage 

transaction. The rule also clarifies that 

modifications, renewals, or extensions 

of alternative mortgage transactions do 

not result in a loss of AMTPA 

preemption. This clarification is 

intended to facilitate the modification of 

loans for distressed borrowers. 

However, refinancings are treated as 

new transactions that must 

independently meet the requirements 

for preemption in effect at the time of 

refinancing. 

Consistent with the Dodd-Frank Act 

amendments to AMTPA, the interim 

final rule’s definition of ‘‘alternative 

mortgage transaction’’ is limited to 

transactions in which the interest rate or 

finance charge may be adjusted or 

renegotiated. As a result, previously 

preempted state consumer protection 

laws will apply to fixed-rate mortgage 

loans with interest-only payment 

periods or negative amortization 

features, fixed-rate balloon loans where 

the lender does not make a commitment 

to renew the loan, and certain other 

fixed-rate products that previously 

qualified as alternative mortgage 

transactions but no longer qualify 

because of the Dodd-Frank Act 

amendments. 

The interim final rule also 

implements the Dodd-Frank Act’s 

amendment to the scope of preemption 

under AMTPA. Specifically, the rule 

provides that state laws are preempted 

only to the extent that they restrict the 

ability of a state housing creditor to 

adjust or renegotiate an interest rate or 

finance charge with respect to an 

alternative mortgage transaction or the 

ability of a state housing creditor to 

change the amount of interest or finance 

charges included in a payment as a 

result of the adjustment or renegotiation 

of the rate or charge. In addition, the 

interim final rule provides that general 

state laws regulating loan features or 

charges that are not integral to 

alternative mortgage transactions are no 

longer preempted. Accordingly, state 

law mortgage disclosure requirements 

and restrictions on late fees, rate 

increases as a result of late payment, 

prepayment penalties, interest-only 

payment periods, and negative 

amortization are no longer preempted 

under AMTPA with respect to 

alternative mortgage transactions. 

Furthermore, state laws prohibiting 

unfair or deceptive acts and practices 

generally are not subject to preemption 

under AMTPA. 

The interim final rule also provides 

standards governing alternative 

mortgage transactions made by state 

housing creditors pursuant to AMTPA. 

The rule generally requires that 

adjustable rate mortgages utilize a 

publicly available index that is beyond 

the creditor’s control. In the alternative, 

a closed-end mortgage may use a 

formula or schedule identifying the 

amount and timing of interest rate 

increases. Renegotiable rate mortgages 

(also called renewable balloon-payment 

mortgages) must include a written 

commitment by the lender to renew the 

loan, subject to certain limitations. In 

addition, state housing creditors (like all 

other creditors) must comply with 

certain federal underwriting 

requirements. 

Initially, these standards are 

applicable only to state housing 

creditors seeking to invoke preemption 

of certain state laws under AMTPA. 

However, because AMTPA is designed 

to promote parity between federal and 

state creditors, the Dodd-Frank Act 

amendments effectively require the 

CFPB to engage in a two-part 

rulemaking that: (1) Establishes 

standards for origination of alternative 

mortgage transactions by federally 

chartered housing creditors (federal 

housing creditors) under sources of law 

other than AMTPA; and then (2) 

designates such standards as applicable 

to state housing creditors that make 

alternative mortgage transactions under 

AMTPA. The interim final rule therefore 

relies on the Truth in Lending Act 

(TILA) 5 to establish the minimum 

federal standards for alternative 

mortgage transactions. 

The CFPB has provided a one-year 

extended compliance period (until July 

21, 2012) and a temporary safe harbor 

for federal housing creditors and for 

state housing creditors that do not seek 

to invoke AMTPA preemption so that 

these lenders may continue to originate 

variable rate mortgages and other 

alternative mortgage transactions in 

accordance with other sources of law. 

However, the CFPB expects that its 

notice-and-comment rulemaking 

process to more fully implement the 

Dodd-Frank Act amendments will focus 

on the origination of alternative 

mortgage transactions across the broader 

marketplace, and seeks comment in 

anticipation of that rulemaking. 

III. Background 

A. AMTPA 

AMTPA was enacted by Congress in 

1982 to stimulate consumer access to 

credit and increase parity between state 

and federal creditors during an era of 

unusually high interest rates. In Senate 

hearings held in 1981, mortgage bankers 

testified that laws in 26 states either 

barred state housing creditors from 

originating alternative mortgage loans or 

imposed significantly greater 

restrictions on such loans than those 

that applied to federal housing creditors 

operating under federal regulations.6 As 

the first section of the Act explained: 

It is the purpose of [AMTPA] to eliminate 

the discriminatory impact that [federal 

regulations authorizing federally chartered 

depository institutions to make, purchase, 

and enforce alternative mortgage 

transactions] have upon nonfederally 

chartered housing creditors and provide 

them with parity with federally chartered 

institutions by authorizing all housing 

creditors to make, purchase, and enforce 

alternative mortgage transactions so long as 

the transactions are in conformity with the 

regulations issued by the Federal agencies.7

Accordingly, except in states that 

opted out of the preemption regime 

within three years after enactment,8

AMTPA generally authorized state 

housing creditors to make, purchase, 

and enforce alternative mortgage 

transactions ‘‘notwithstanding any State 

constitution, law, or regulation.’’ 9

However, this statutory preemption 

applied only to the extent that state 

housing creditors made alternative 

mortgage transactions in accordance 

with the regulations governing similar 

federal housing creditors. Specifically, 

AMTPA provided that state-chartered 

banks were to comply with regulations 

issued by the OCC for national banks. 

Similarly, state-chartered credit unions 

were to comply with regulations issued 

by the NCUA for Federal credit unions, 

while all other state housing creditors 

were to comply with regulations issued 

by the Federal Home Loan Bank Board 

(FHLBB) (the predecessor of the OTS).10

Furthermore, rather than creating 

separate authority for the OCC, NCUA, 


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44228 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

11 Id. 

12AMTPA also directed these agencies to 

determine whether any of their existing regulations 

were ‘‘inappropriate’’ to apply to state housing 

creditors or needed to be conformed for use by such 

lenders. Garn-St Germain Depository Institutions 

Act of 1982, Public Law 97–320, § 807(b), 96 Stat. 

1469 (Oct. 15, 1982) (codified at 12 U.S.C. 3801 

note). No guidance was provided as to standards for 

appropriateness. 

13 47 FR 54,424 (Dec. 3, 1982). 

14 47 FR 55,911 (Dec. 14, 1982). 

15 47 FR 51,732 (Nov. 17, 1982); see also 48 FR 

23,032 (May 23, 1983) (explaining that the earlier 

rulemaking was designed to apply federal standards 

regarding adjustments to rate, payment, balance, 

and term, and regarding disclosure, but not general 

safety and soundness requirements such as loan-tovalue ratios). 16 75 FR 57252 (Sept. 20, 2010). 

17Public Law 111–203, § 1083(a)(2)(B) (emphasis 

added). 

18 Id. (emphasis added). 

19Public Law 111–203, § 1061 (transferring, 

among other things, the ‘‘consumer financial 

protection functions’’ of the federal prudential 

regulators to the CFPB as of the designated transfer 

date); see also § 1002(14) (defining ‘‘Federal 

consumer financial law’’ to include the 

‘‘enumerated consumer laws’’); id. § 1002(12) 

(defining ‘‘enumerated consumer laws’’ to include 

AMTPA and TILA); id. § 1083 (amending 12 U.S.C. 

3803). 

20Public Law 111–203, § 1083(a)(2)(A)(iv). 

and FHLBB/OTS to issue regulations 

governing alternative mortgage 

transactions under AMTPA itself, 

AMTPA specifically stated that, in order 

to receive preemption, state housing 

creditors must comply with regulations 

issued by these agencies under other 

statutory authority.11

Thus, AMTPA established a sort of 

‘‘piggybacking’’ regime under which 

state housing creditors could choose to 

comply with federal regulations 

applicable to their federally chartered 

counterparts if state law would 

otherwise prohibit or restrict a 

particular mortgage transaction. The 

OCC, NCUA, and FHLBB/OTS were 

directed to designate which of their 

regulations issued under other statutory 

authority applied in place of state law 

to the state housing creditors within 

their respective jurisdictions.12

The NCUA designated all of its 

regulations concerning mortgage 

lending as applicable to state credit 

unions conducting alternative mortgage 

transactions,13 while the OCC and the 

FHLBB/OTS each designated a narrower 

set of regulations that addressed the 

origination of alternative mortgage loans 

specifically. The OCC regulations 

applied to ‘‘adjustable-rate mortgage 

loans’’ as defined by that agency,14

while the FHLBB/OTS rules applied to 

a broader range of alternative mortgage 

transactions as defined under 

AMTPA.15 Although the OCC and OTS 

rules differed regarding the scope of 

transactions subject to AMTPA and the 

extent of preemption, they overlapped 

significantly with regard to the 

substantive standards applicable to 

alternative mortgage transactions. 

B. The Dodd-Frank Act 

The Dodd-Frank Act was enacted on 

July 21, 2010, in response to widespread 

disruption in mortgage markets and the 

larger economy. A significant focus of 

the statute was the enhancement of 

consumer protections regarding 

mortgage lending practices that 

contributed to the crisis. In addition to 

consolidating in the CFPB certain 

consumer financial protection 

authorities that had previously been 

spread across seven different federal 

agencies, the Dodd-Frank Act amends 

existing federal consumer financial laws 

and establishes new standards that 

phase in over time concerning a wide 

range of mortgage lending practices, 

including compensation for mortgage 

originators, assessments of consumers’ 

ability to repay, and mortgage servicing. 

The Dodd-Frank Act makes three 

significant amendments with regard to 

AMTPA, all of which are effective on 

the designated transfer date (July 21, 

2011).16 First, Section 1083 of the DoddFrank Act narrows the definition of 

‘‘alternative mortgage transactions’’ that 

are eligible for preemption of state law 

under AMTPA. The revised definition 

in 12 U.S.C. 3802(1) continues to 

include loans ‘‘in which the interest rate 

or finance charge may be adjusted or 

renegotiated,’’ but deletes additional 

language that specifically included 

within the prior definition: (1) Fixedrate mortgage loans in which the debt 

matures before the end of the loan’s 

amortization schedule (a type of balloon 

loan); and (2) mortgage loans ‘‘involving 

any similar type of rate, method of 

determining return, term, repayment, or 

other variation not common to 

traditional fixed rate, fixed term 

transactions,’’ including but not limited 

to shared equity and shared 

appreciation transactions. 

The result of this amendment is that 

AMTPA no longer preempts some state 

laws governing these types of loans, 

although they may be preempted by 

other statutes for some creditors. For 

example, prior to the Dodd-Frank Act, a 

fixed-rate mortgage loan with an 

interest-only payment period would 

have met the definition of an 

‘‘alternative mortgage transaction’’ 

because it involved a payment variation 

‘‘not common to traditional fixed rate, 

fixed term transactions.’’ If a state 

housing creditor made such an 

alternative mortgage in compliance with 

the applicable federal regulations, 

AMTPA preempted any conflicting state 

law, thereby permitting the housing 

creditor to offer and complete the 

transaction. Under the Dodd-Frank Act, 

however, only loans ‘‘in which the 

interest rate or finance charge may be 

adjusted or renegotiated’’ are eligible for 

AMTPA preemption. Because a fixedrate mortgage loan with an interest-only 

payment period does not meet this 

definition, AMTPA will not preempt 

state laws governing such products as of 

July 22, 2011. 

Second, Section 1083 narrows the 

types of state laws that are preempted 

under AMTPA. 12 U.S.C. 3803(c) 

originally provided that a state housing 

creditor could make alternative 

mortgage transactions ‘‘notwithstanding 

any State constitution, law, or 

regulation.’’ Section 1083 amended that 

language to provide that, after July 21, 

2011, a state housing creditor may make 

such transactions ‘‘notwithstanding any 

State constitution, law, or regulation 

that prohibits an alternative mortgage 

transaction.’’ 17 Section 1083 further 

amended AMTPA to provide that ‘‘a 

State constitution, law, or regulation 

that prohibits an alternative mortgage 

transaction does not include any State 

constitution, law, or regulation that 

regulates mortgage transactions 

generally, including any restriction on 

prepayment penalties or late 

charges.’’ 18 Thus, if a state law 

prohibited certain conduct with respect 

to both alternative mortgage transactions 

and other mortgage transactions, that 

law generally would not be preempted 

with respect to alternative mortgage 

transactions. 

Third, Sections 1061 and 1083 of the 

Dodd-Frank Act transferred, among 

other things, rule-writing authority 

under AMTPA from the OCC, NCUA, 

and OTS to the CFPB.19 In doing so, 

Congress replicated AMTPA’s original 

‘‘piggybacking’’ scheme. Accordingly, 

after July 21, 2011, alternative mortgage 

transactions made by state housing 

creditors must comply with regulations 

issued by the CFPB for ‘‘federally 

chartered housing creditors under 

provisions of law other than [12 U.S.C. 

3803].’’ 20 The rulemaking required 

under Section 1083 therefore effectively 

requires two components: one 

establishing standards for federal 

housing creditors to follow in 

originating alternative mortgage 

transactions under other federal 

consumer financial laws administered 

by the CFPB; and the other designating 

those standards as applicable to state 

housing creditors that seek to invoke 

federal preemption under AMTPA. 


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Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44229 

21However, as discussed above, federal housing 

creditors and any state housing creditors that do not 

seek AMTPA preemption are not required to 

comply with the CFPB’s regulations until July 22, 

2012. Furthermore, § 1004.4(d) of the interim final 

rule provides that these creditors may continue to 

make variable rate mortgages and other alternative 

mortgage transactions consistent with other 

applicable provisions of law. 

22Public Law 111–203, § 1083(a)(2)(A)(i). As 

discussed below with respect to § 1004.1, an 

alternative mortgage transaction is made for 

purposes of this interim final rule on the date the 

creditor receives the application. Thus, the 

amended AMTPA preemption standards do not 

apply to an alternative mortgage transaction if the 

application was received on or before July 21, 2011, 

even if the transaction is completed after that date. 

23Public Law 111–203, § 1083(a)(2)(A)(iv). 

24Public Law 111–203, § 1061 (transferring, 

among other things, the ‘‘consumer financial 

protection functions’’ of the federal prudential 

regulators to the CFPB as of the designated transfer 

date); § 1083(b) (transferring AMTPA authority to 

the CFPB on the designated transfer date); see also 

id. § 1083(a)(2)(C) (directing the CFPB to issue 

AMTPA regulations ‘‘after the designated transfer 

date’’). 

25Public Law 111–203, § 1061(a)(1). Effective on 

the designated transfer date, the CFPB is also 

granted ‘‘all powers and duties’’ vested in each of 

the federal agencies, relating to the consumer 

financial protection functions, on the day before the 

designated transfer date. 

26Public Law 111–203, § 1002(14) (defining 

‘‘Federal consumer financial law’’ to include the 

‘‘enumerated consumer laws’’); id. § 1002(12) 

(defining ‘‘enumerated consumer laws’’ to include 

AMTPA and TILA). 

27Section 1066 of the Dodd-Frank Act grants the 

Secretary of the Treasury interim authority to 

perform certain functions of the CFPB. Pursuant to 

that authority, Treasury is publishing this interim 

final rule on behalf of the CFPB. 

28Public Law 111–203, § 1083(a)(2)(C) (creating a 

new 12 U.S.C. 3803(d)). 

29As discussed below with respect to § 1004.4, 

the CFPB believes that it is consistent with the 

intent and purpose of Section 1083 to interpret the 

requirement that the CFPB determine whether the 

OCC and NCUA regulations are unfair or deceptive 

as requiring the CFPB to determine whether those 

regulations are effective in preventing unfair or 

deceptive acts or practices. In addition, the CFPB 

believes that it is appropriate to consider the OTS 

regulations governing alternative mortgage 

transactions when making this determination. 

30 Id. 

31Furthermore, 12 U.S.C. 3801 note, which was 

enacted as part of AMTPA in 1982, directs the OCC, 

NCUA, and FHLBB to identify, describe, and 

publish existing regulations that should or should 

not apply to alternative mortgage transactions and 

to make any necessary changes to address 

alternative mortgage transactions. See Public Law 

97–320 (1982). The Dodd-Frank Act does not 

remove this authority, which transfers to the CFPB 

pursuant to Section 1061 of the Dodd-Frank Act. 

32Public Law 111–203, § 1083(a)(2)(A)(iv) 

(emphasis added). 

33 Id. § 1100A(2); 15 U.S.C. 1604(a). 

34 Id. 

35See Regulation Z, 12 CFR Part 226. 

36Public Law 111–203, § 1405(a); see also 15 

U.S.C. 1639b, 1639c. 

37 5 U.S.C. 551 et seq. 

38 5 U.S.C. 553(b), (c). 

Accordingly, the regulations required by 

Section 1083 impact the mortgage 

market as a whole, not just a subset of 

state lenders.21

As a general matter, the amendments 

to AMTPA do not affect transactions 

entered into on or before July 21, 

2011.22 After July 21, however, AMTPA 

will preempt state laws that prohibit 

new alternative mortgage transactions 

only if: (1) Such transactions meet the 

revised definition of ‘‘alternative 

mortgage transaction;’’ (2) the state law 

in questions falls within the narrowed 

scope of AMTPA preemption; and (3) 

the creditor complies with regulations 

issued by the CFPB.23 Thus, in order for 

AMTPA to continue facilitating access 

to credit in states in which alternative 

mortgage transactions are prohibited by 

state law, the CFPB must issue 

regulations governing such transactions. 

Despite this requirement, however, the 

Dodd-Frank Act did not vest the CFPB 

with authority to issue such regulations 

until after July 21, 2011.24 Accordingly, 

absent adoption of this interim final rule 

on July 22, 2011, state housing creditors 

could no longer invoke AMTPA 

preemption because there would be no 

CFPB regulations governing alternative 

mortgage transactions. 

IV. Legal Authority 

A. Rulemaking Authority 

The CFPB is issuing this interim final 

rule pursuant to its authority under 

AMTPA, TILA, and the Dodd-Frank Act. 

Effective July 21, 2011, Section 1061 of 

the Dodd-Frank Act transfers to the 

CFPB the ‘‘consumer financial 

protection functions’’ previously vested 

in certain other federal agencies. The 

term ‘‘consumer financial protection 

function’’ is defined to include ‘‘all 

authority to prescribe rules or issue 

orders or guidelines pursuant to any 

Federal consumer financial law, 

including performing appropriate 

functions to promulgate and review 

such rules, orders, and guidelines.’’ 25

AMTPA and TILA are Federal consumer 

financial laws.26 Accordingly, effective 

July 21, 2011, the authority of the OCC, 

NCUA, and OTS to issue regulations 

pursuant to AMTPA and the authority 

of the Board of Governors of the Federal 

Reserve System (Federal Reserve Board) 

to issue regulations pursuant to TILA 

transfer to the CFPB.27

Section 1083 of the Dodd-Frank Act 

directs the CFPB to issue regulations 

implementing the amended AMTPA 

‘‘after the designated transfer date.’’ 28

Specifically, the CFPB is directed to: (1) 

Review the regulations identified by the 

OCC and NCUA pursuant to AMTPA; 

(2) determine whether those regulations 

are fair, not deceptive, and otherwise 

meet the objectives of title X of the 

Dodd-Frank Act;29 and (3) promulgate 

regulations governing alternative 

mortgage transactions that are eligible 

for AMTPA preemption.30 In addition, 

AMTPA provides that the statutory 

definition of ‘‘alternative mortgage 

transaction’’ in 12 U.S.C. 3802(1) is to 

be further ‘‘described and defined by 

applicable regulation.’’ 31

As amended, AMTPA states that, in 

order to receive preemption, state 

housing creditors must comply with 

regulations issued by the CFPB with 

respect to federally chartered housing 

creditors ‘‘under provisions of law other 

than this section [12 U.S.C. 3803].’’ 32

As noted above, the Federal Reserve 

Board’s rulemaking authority pursuant 

to TILA transferred to the CFPB under 

Section 1061 on the designated transfer 

date. Accordingly, in addition to its 

authority under AMTPA, the CFPB is 

using its rulemaking authority under 

TILA to issue this interim final rule. 

As amended by the Dodd-Frank Act, 

TILA directs the CFPB to ‘‘prescribe 

regulations to carry out the purposes of 

[TILA].’’33 In addition, the CFPB is 

generally authorized to issue regulations 

that contain such classifications, 

differentiations, or other provisions, or 

that provide for such adjustments and 

exceptions for any class of transactions, 

that in the CFPB’s judgment are 

necessary or proper to effectuate the 

purpose of TILA, facilitate compliance 

with TILA, or prevent circumvention or 

evasion of TILA.34 In the past, the 

Federal Reserve Board has used this 

TILA authority to issue extensive rules 

that promote the informed use of credit 

by mandating disclosures and 

substantively regulating certain 

practices regarding mortgages and home 

equity lines of credit.35 The CFPB also 

has the authority under TILA (as 

amended by Section 1405(a) of the 

Dodd-Frank Act) to issue regulations 

that it ‘‘finds to be * * * necessary or 

proper to ensure that responsible, 

affordable mortgage credit remains 

available to consumers in a manner 

consistent with’’ Sections 129B and 

129C of TILA, which are new sections 

added by the Dodd-Frank Act to 

regulate various mortgage originator 

practices and the evaluation of 

borrowers’ ability to repay their 

mortgages.36

B. Authority To Issue an Interim Final 

Rule Without Prior Notice and Comment 

The Administrative Procedure Act 

(APA) 37 generally requires public 

notice and an opportunity to comment 

before promulgation of substantive 

regulations.38 It also generally requires 

that a final regulation be published not 

less than 30 days prior to its effective 


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44230 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

39 5 U.S.C. 553(d). 

40 5 U.S.C. 553(b)(B). 

41 5 U.S.C. 553(d)(3). 

42The CFPB notes that the amendments to 

AMTPA and this interim final rule do not affect 

preemption of state law under other statutes. 

43Federal Reserve Bank of New York, Current 

Issues in Economics and Finance (Dec. 2010); 

Inside Mortgage Finance data; see also Tara Siegel 

Bernard, Borrowers Wade Back Into Adjustable-Rate 

Mortgages, N.Y. Times, June 21, 2011 (available at 

http://bucks.blogs.nytimes.com/2011/06/21/ 

borrowers-wade-back-into-adjustable-ratemortgages/). 

44See, e.g., Cal. Civ. Code § 1916.5 (2004) 

(requiring certain provisions for any variable rate 

loan, including caps on interest rate increases and 

a promise that the rate of interest shall change no 

more than twice a year); § 1916.7 (1981) (requiring 

certain provisions for adjustable-rate mortgages, 

including minimum term and amortization periods, 

limitations on changes in interest and monthly 

payments, limitations on which indices lenders 

may use to determine interest rate changes, and 

requirements relating to extending the loan under 

certain circumstances); § 1916.8 (1980) (defining a 

renegotiable rate mortgage loan as a loan issued for 

a term of three, four, or five years, automatically 

renewable at equal intervals, repayable in equal 

monthly installments of principal and interest, in 

an amount at least sufficient to amortize the loan 

over the remaining term of the mortgage, and setting 

requirements for interest rate changes and 

disclosures); § 1920 (1997) (providing requirements 

for any mortgage instrument, including standards 

for the adjustment of interest rates and monthly 

payments); Cal. Fin. Code § 7504 (1984) (allowing 

an association to adjust the interest rate, payment, 

balance, or term-to-maturity on any loan secured by 

real property as authorized by the loan contract; 

requiring that such adjustments be subject to certain 

limitations including loan term limits, loan-to-value 

ratios, and interest rate indices, and allowing loans 

to be fully amortized, partially amortized, 

nonamortized, a reverse annuity mortgage, or an 

open end line of credit loan); Ga. Code § 7–6A–5 

(2004) (subjecting high-cost home loans to certain 

limitations, including balloon payments and 

interest rate increases, and requiring creditors to 

allow the borrower to modify, renew, extend, or 

amend the loan at no cost); Ind. Code § 28–15–11– 

14 (1997) (setting requirements for adjustable 

mortgage loans, including limitations on 

adjustments to the principal loan balance, interest 

rate adjustments, and fees); Kan. Stat. § 16–207 

(1999) (setting interest rate limitations on any loan, 

including all first mortgage loans and contracts for 

deed to real estate); Ky. Rev. Stat. § 360.150 (1984) 

(subjecting all adjustable rate mortgages to certain 

provisions, including limitations on interest rate 

changes and installment payments and disclosures); 

La. Rev. Stat. § 9:3504 (2004) (authorizing 

adjustable rate mortgages on certain terms relating 

to interest rate indices, the frequency of interest rate 

adjustments, and installment adjustments, and 

exempting certain types of adjustable rate mortgages 

from the applications of laws on usury and interest 

upon interest); N.J. Stat. § 46:10B–40 (2008) 

(providing for a mandatory three-year extension 

period during which the interest rate on an 

introductory rate mortgage shall not increase for 

certain eligible borrowers who do not have 

sufficient monthly income to pay monthly 

payments that will apply after the interest rate 

resets); N.M. Stat. 56–1–16 (1983) (setting 

requirements for mobile home loans, including that 

adjustments in the rate shall be tied to a specific 

index, limitations on frequency and amount of rate 

adjustments, and allowance of changes in 

installment payments due to rate adjustments); 41 

Pa. Stat. § 301 (2008) (setting caps on interest rates 

and limitations on frequency and amount of rate 

adjustments for residential mortgages); Tex. Fin. 

Code § 347.102 (1997) (authorizing interest rate 

adjustments provided that the lender ties the rate 

changes to an approved index according to the 

statute). This footnote is included for illustrative 

purposes and does not constitute a determination 

by the CFPB that specific state laws are or are not 

preempted by the interim final rule. 

45See, e.g., Cal. Bus. & Prof. § 10244.1 (1973) 

(restricting payments greater than twice the amount 

of the smallest installment for loans with a term of 

six years or less); Colo. Rev. Stat. § 5–3.5–102 (2003) 

(restricting payments greater than twice the average 

of earlier regularly scheduled payments unless such 

balloon payment becomes due and payable not less 

than 120 months after the date of execution of the 

loan); DC Code § 26–1152.13 (2002) (restricting 

scheduled payment more than twice as large as the 

average of earlier scheduled monthly payments 

unless the balloon payment becomes due and 

payable not less than 7 years after the date of the 

loan closing); Ga. Code, § 7–6A–5(2) (2002) 

(prohibiting scheduled payments more than twice 

as large as earlier payments in certain high cost 

home loans); Ill. Admin. Code tit. 38, § 1050.1272 

(2005) (restricting certain balloon payments unless 

such balloon payment becomes due and payable at 

least 15 years after the loan’s origination); Ind. Code 

§ 24–9–4–3 (2005) (restricting payments greater 

than twice the average of earlier regularly 

scheduled payments for certain high cost loans 

unless such balloon payment becomes due and 

payable not less than 120 months after the date of 

execution of the loan); Ky. Rev. Stat. Ann. § 360.100 

(2010) (restricting payments greater than twice the 

amount of the smallest installment for certain high 

cost loans); N.C. Gen. Stat. § 24–1.1A (1973) 

(restricting certain affiliates from providing balloon 

payments on home loans in excess of six months); 

7 Pa. Cons. Stat. Ann. § 6020–155 (1995) 

(prohibiting balloon loans for financing the 

purchase of an owner occupied one or two family 

residential property); Tex. Fin. Code Ann. § 343.202 

(2006) (restricting scheduled payments more than 

twice as large as earlier payments in certain high 

cost home loans unless the balloon payment 

becomes due not less than 60 months after the date 

date.39 However, the APA provides an 

exception to notice-and-comment 

procedures where an agency for good 

cause finds that such procedures are 

impracticable, unnecessary, or contrary 

to the public interest.40 The APA also 

provides a good cause exception to the 

effective date requirement.41 The CFPB 

finds that there is good cause to 

conclude that providing notice and 

opportunity for comment would be 

impracticable and contrary to the public 

interest under these circumstances. The 

CFPB also finds that there is good cause 

to issue this rule effective immediately; 

however, the CFPB is making 

compliance with the requirements in 

§ 1004.4 optional for certain creditors 

until July 22, 2012. 

The CFPB’s findings are based on the 

following factors. As discussed above, 

beginning on July 22, 2011, state 

housing creditors may only make new 

alternative mortgage transactions 

pursuant to AMTPA if they comply with 

regulations issued by the CFPB. 

However, the CFPB was unable to issue 

a notice of proposed rulemaking under 

AMTPA or TILA prior to July 21, 2011, 

because rule-writing authority under 

each of those statutes was vested in 

other agencies and did not transfer to 

the CFPB until that date. As a result, the 

CFPB finds that it would have been 

impracticable to engage in notice-andcomment rulemaking prior to July 21, 

2011. 

Furthermore, the CFPB’s failure to 

issue an interim final rule without 

advance notice and comment that is 

effective immediately would be contrary 

to the public interest. Without CFPB 

rules in place by July 22, 2011, a 

regulatory gap would occur, in which 

state housing creditors would not be 

able to continue issuing variable rate 

and other alternative mortgage loans 

pursuant to AMTPA in states that 

prohibit such transactions, thus denying 

consumers access to that form of 

credit.42 In addition, the CFPB is 

concerned that failure to issue an 

interim final rule addressing the 

modification of existing AMTPA loans 

could create uncertainty and discourage 

such modifications. 

Although originations of variable rate 

alternative mortgage loans have slowed 

significantly in recent years, they still 

constitute approximately 12 percent of 

mortgage originations and are 

experiencing modest growth.43 In 

addition, while balloon mortgage loans 

represent a very small percentage of 

total originations, they can be important 

products in certain markets served by 

rural and community banks. Absent this 

interim final rule, state housing 

creditors would no longer be able to 

offer—and consumers would no longer 

be able to obtain—these products to the 

extent they are inconsistent with state 

law. 

Furthermore, as discussed below with 

respect to § 1004.1, this interim final 

rule clarifies that modifying an 

alternative mortgage transaction made 

on or before July 21, 2011 does not 

result in a loss of AMTPA preemption. 

Without this guidance, state lenders 

would likely reduce the availability of 

modifications for fear of losing AMTPA 

preemption. 

No current data sources track the 

amount of lending activity that would 

be impermissible but for AMTPA 

preemption. However, even with regard 

to basic variable rate mortgages, the 

CFPB’s initial research indicates that a 

significant number of states impose 

restrictions on the size, frequency, or 

timing of interest rate and payment 

adjustments and renegotiations.44

Similarly, several states impose 

substantive restrictions on the ability of 

housing creditors to offer mortgage 

loans with a balloon payment feature.45


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Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44231 

of the loan); W. Va. Code § 46A–4–110a (1996) 

(prohibiting balloon payments unless preempted by 

federal law). This footnote is included for 

illustrative purposes and does not constitute a 

determination by the CFPB that specific state laws 

are or are not preempted by the interim final rule. 

46Public Law 111–203 § 1021(a). 

47Available at http://www.consumerfinance.gov/ 

wp-content/uploads/2011/06/Amendments-to-theAlternative-Mortgage-Transaction-Parity-Act.pdf. 

In some cases, these state law 

requirements are stricter than—or 

materially different from—the 

restrictions on federal housing creditors 

that state housing creditors were 

entitled to follow until July 22, 2011. 

A curtailment in variable and 

adjustable rate loans would be harmful 

to consumers for whom these products 

can serve an important purpose. For 

example, they can result in lower 

interest rates for borrowers who plan to 

sell their homes or refinance within a 

few years or are otherwise able and 

willing to assume associated interest 

rate risk. These products may also 

enable some creditworthy consumers 

who otherwise could not qualify for a 

fixed-rate loan to obtain a mortgage 

loan. Furthermore, as noted above, 

balloon-payment mortgage loans can be 

an important product in certain markets. 

For these reasons, the CFPB finds that 

the failure to adopt an interim final rule 

would create a risk of substantially 

disrupting mortgage markets, placing 

state housing creditors at an 

inappropriate competitive disadvantage, 

and reducing access to credit for 

consumers. For many consumers and 

state lenders, the resulting curtailment 

of alternative mortgages would be 

sudden, unexpected, and disruptive. 

This outcome would conflict not only 

with the purpose of AMTPA but also 

with a fundamental purpose of the 

Dodd-Frank Act, which is to ‘‘ensur[e] 

that all consumers have access to 

markets for consumer financial products 

and services and that [such markets] are 

fair, transparent, and competitive.’’ 46

The CFPB does not believe that 

Congress intended such a result and 

finds good cause to issue the interim 

final rule without notice-and-comment 

procedures and effective immediately as 

a temporary measure pending the 

completion of a notice-and-comment 

rulemaking proceeding. 

In order to mitigate disruptions 

resulting from the implementation of 

the amendments to AMTPA, the CFPB 

issued a public bulletin in advance of 

this interim final rule alerting state 

chartered and licensed lenders and 

other interested parties that: (1) The 

Dodd-Frank Act amendments to 

AMTPA take effect on July 21, 2011; 

and (2) the amendments affect what 

laws apply to mortgage loans issued by 

state chartered or licensed lenders after 

that date by narrowing the statutory 

definition of ‘‘alternative mortgage 

transaction’’ and the scope of 

preemption under AMTPA.47 In 

addition, the CFPB reached out to state 

and federal regulators, trade 

associations, and consumer advocates to 

urge planning for an orderly transition. 

The CFPB will continue its outreach 

and consultations while it engages in a 

notice-and-comment rulemaking to 

more fully effectuate the Dodd-Frank 

Act amendments. The CFPB is 

committed to beginning the notice-andcomment rulemaking process as soon as 

possible after the comment period 

closes on the interim final rule. 

V. Request for Comment 

Requests for comment on the interim 

final rule and related matters are listed 

in the section-by-section analysis below. 

In anticipation of its upcoming noticeand-comment rulemaking proceeding, 

the CFPB also seeks comment on a wide 

range of issues relating to AMTPA, state 

regulation of alternative mortgage 

transactions, and regulations that have 

previously been designated by the OCC, 

NCUA, and OTS/FHLBB as applicable 

to state housing creditors when 

conducting alternative mortgage 

transactions. 

State Housing Creditors’ Reliance on 

AMTPA 

1. What categories of mortgage loans 

were being made in reliance on AMTPA 

preemption prior to the Dodd-Frank Act 

(for example, adjustable rate mortgages, 

reverse mortgages, balloon loans)? What 

was the volume of these types of 

mortgage loans? Were these types of 

loans more prevalent in particular 

geographic markets (such as rural 

areas)? If so, which geographic markets? 

What types of entities made these loans? 

2. To what extent did AMTPA 

preemption enable state housing 

creditors to make such loans? Do any 

state laws prohibit state housing 

creditors from making such loans? If so, 

please describe the background and 

purpose of the law and its effect on the 

state housing creditors’ ability to make 

the type of loan. 

3. What categories of mortgage loans 

are currently being made in reliance on 

AMTPA preemption under the interim 

final rule? What is the volume of these 

types of mortgage loans? Are these types 

of loans more prevalent in particular 

geographic locations? If so, which 

geographic markets? What types of 

entities are making these loans? 

4. How many balloon loans are 

community and rural banks originating 

today to hold in portfolio? Please 

describe the terms of the balloon loans, 

including whether a written or oral 

commitment is made to renew the loan 

at expiration. 

5. What role is AMTPA playing with 

respect to loan modifications and 

refinancings? 

State Laws Regulating Alternative 

Mortgage Transactions 

1. How are states currently regulating 

alternative mortgage transactions? 

Which state laws currently prohibit or 

restrict such transactions and how do 

they do so? How burdensome are any 

restrictions? Are these restrictions 

applicable to mortgage transactions 

generally? 

2. How do state laws that regulate 

alternative mortgage transactions help 

protect consumers? 

3. How have state mortgage laws 

changed since AMTPA was enacted, 

and what are the reasons for those 

changes? 

Federal Fegulation of Alternative 

Mortgage Transactions 

1. Should the requirements set forth 

in § 1004.4(a) through (c) of this interim 

final rule be retained? Are any 

modifications or additional 

requirements needed? To what extent 

do the requirements in § 1004.4(a) 

through (c) promote parity between 

federal and state housing creditors? To 

what extent do these requirements affect 

the cost of credit, consumers’ access to 

credit, and consumer protection? To 

what extent do these requirements affect 

the burden on lenders? 

2. In this interim final rule, the CFPB 

has used its authority under TILA to 

establish standards for alternative 

mortgage transactions. The CFPB 

solicits comment on whether it should 

utilize other authorities for establishing 

such standards in a permanent final 

rule. 

VI. Section-by-Section Analysis 

Section 1004.1 Authority, Purpose, 

Scope 

This section addresses the authority, 

purpose, and scope of the new Part 

1004, which the CFPB is issuing to 

implement AMTPA, as amended by 

Section 1083 of the Dodd-Frank Act. 

(a) Authority 

Section 1004.1(a) explains that Part 

1004 implements AMTPA as amended 

by Section 1083 of the Dodd-Frank Act, 

pursuant to the rulemaking authority 

transferred to the CFPB from various 

transferor agencies under Section 1061 


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44232 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

48 12 U.S.C. 3804(a)(2) (providing that ‘‘any 

renewal, extension, refinancing, or other 

modification of an alternative mortgage transaction 

that was entered into during the preemption 

period’’ would also be afforded AMTPA 

preemption). 

of the Dodd-Frank Act. This section also 

explains that § 1004.4 is issued based on 

the CFPB’s authority under TILA. 

(b) Purpose 

Consistent with AMTPA, TILA, and 

the Dodd-Frank Act, § 1004.1(b) states 

that the purpose of Part 1004 is to 

balance: (1) Access to responsible credit 

and enhanced parity between state and 

federal housing creditors regarding the 

making, purchase, and enforcement of 

alternative mortgage transactions, with 

(2) consumer protection and the 

interests of the states in regulating 

mortgage transactions generally. The 

purpose of AMTPA (as defined in 12 

U.S.C. 3801) is to provide parity 

between federal and state housing 

creditors ‘‘by authorizing all housing 

creditors to make, purchase, and enforce 

alternative mortgage transactions so 

long as the transactions are in 

conformity with the regulations issued 

by the Federal agencies.’’ However, as 

described above, the level of parity 

provided by AMTPA has been modified 

by the Dodd-Frank Act’s amendments to 

the definition of ‘‘alternative mortgage 

transaction’’ and the scope of 

preemption under AMTPA, which 

narrow the range of transactions eligible 

for AMTPA preemption and restore the 

effect of certain state mortgage laws. 

Section 1004.1(b) reflects this 

modification as well as the CFPB’s use 

of its consumer protection authority 

under TILA. 

(c) Scope 

Section 1004.1(c) states that Part 1004 

applies to an alternative mortgage 

transaction if the creditor received an 

application for that transaction on or 

after July 22, 2011. This section further 

states that Part 1004 does not apply to 

a transaction if the creditor received the 

application for that transaction before 

July 22, 2011. 

Section 1083(c) of the Dodd-Frank Act 

provides that its amendments to 

AMTPA do not affect ‘‘any transaction 

covered by the Alternative Mortgage 

Transaction Parity Act of 1982 (12 

U.S.C. 3801 et seq.) and entered into on 

or before the designated transfer date.’’ 

Accordingly, the CFPB must determine 

when a transaction is ‘‘entered into’’ for 

purposes of determining which 

preemption standards and rules—preDodd-Frank Act amendments or postDodd-Frank Act amendments—are 

applicable. Rather than a single event, a 

mortgage transaction is a series of steps 

progressing from application to 

consummation to servicing. Each of 

these steps is subject to a variety of state 

and federal consumer protection 

statutes, many of which govern 

activities that occur prior to 

consummation (such as disclosure and 

underwriting). In order to establish a 

workable regulatory regime, there must 

be a readily identifiable date and a 

single set of rules to govern the entire 

transaction. In light of these 

considerations, the CFPB has 

interpreted an ‘‘alternative mortgage 

transaction’’ as being ‘‘entered into’’ on 

the date the application is received by 

the creditor. This interpretation seeks to 

ensure that the entire transaction is 

governed by a consistent set of rules. 

For example, if an application for a 

mortgage transaction is received on July 

21, 2011, but is not completed on 

August 21, 2011, AMTPA preemption is 

determined under the regime in effect 

prior to the Dodd-Frank Act 

amendments. However, if the 

application is received on July 22, 2011, 

AMTPA preemption is determined 

under the regime established by the 

Dodd-Frank Act amendments and this 

interim final rule. 

Comment 1(c)–1 clarifies that, if an 

application for a transaction is received 

by a creditor prior to July 22, 2011, 

whether 12 U.S.C. 3803(c) preempts 

state law with respect to that transaction 

depends on whether: (1) The transaction 

was an alternative mortgage transaction 

as defined by the version of 12 U.S.C. 

3802(1) in effect at the time of 

application; and (2) the state housing 

creditor complied with applicable 

federal regulations issued by the OCC, 

NCUA, or OTS/FHLBB in effect at the 

time of application. 

Comment 1(c)–2 clarifies that, if 12 

U.S.C. 3803(c) or this interim final rule 

(as applicable) preempted state law at 

the time an application was received, 

certain subsequent actions with respect 

to that transaction are entitled to the 

same degree of preemption. This 

comment applies regardless of whether 

the application was received before, on, 

or after July 22, 2011. First, if state law 

was preempted at the time of 

application, state law is also preempted 

with respect to the subsequent 

consummation, completion, purchase, 

or enforcement of the transaction by a 

state housing creditor. This 

interpretation is consistent with 12 

U.S.C. 3801(b) and 3803(a), which 

address state housing creditors’ ability 

to ‘‘make, purchase, or enforce’’ 

alternative mortgage transactions. 

Second, if state law was preempted at 

the time of application, state law is also 

preempted with respect to the 

subsequent modification, renewal, or 

extension of the transaction. The CFPB 

interprets such activity as constituting a 

continuation of the same ‘‘transaction’’ 

for purposes of AMTPA. For instance, if 

a distressed borrower with a variable 

rate mortgage loan that is currently 

subject to preemption under AMTPA 

would be able to avoid foreclosure 

through a modification, the CFPB 

believes that AMTPA should continue 

to preempt state law that would 

otherwise prohibit the modification. 

However, if state law was preempted at 

the time of application and the 

transaction is later satisfied and 

replaced by another transaction (such as 

through a refinancing), the second 

transaction must independently meet 

the requirements for preemption in 

effect at the time the second transaction 

is made under 12 U.S.C. 3803(c) or this 

interim final rule (as applicable). 

This interpretation is generally 

similar to the statutory language that 

governed the transition period with 

regard to states that decided to opt-out 

of the statutory preemption regime 

when AMTPA was first enacted.48

However, the interim final rule treats 

refinancings differently than 

modifications, extensions, and renewals 

because, as provided in 12 CFR 226.20, 

a refinancing constitutes a new 

transaction that satisfies and replaces an 

existing obligation. Under these 

circumstances, the CFPB believes that 

the new transaction should be evaluated 

independently with respect to AMTPA 

preemption. The CFPB seeks comment 

on these interpretations, particularly as 

to what types of modifications might 

otherwise be prohibited under state law 

and whether additional protections are 

needed with respect to modifications. 

Section 1004.2 Definitions 

(a) Alternative Mortgage Transaction 

The interim final rule defines 

‘‘alternative mortgage transaction’’ to 

include a loan, credit sale, or account: 

(1) That is secured by an interest in a 

residential structure that contains one to 

four units, whether or not the structure 

is attached to real property, including 

an individual condominium unit, 

cooperative unit, mobile home, and 

trailer, if it is used as a residence; (2) 

that is made primarily for personal, 

family, or household purposes; and (3) 

in which the interest rate or finance 

charge may be adjusted or renegotiated. 

Comment 2(a)–1 clarifies that home 

equity lines of credit and subordinate 

lien mortgages are alternative mortgage 

transactions as long as they meet the 

definition in § 1004.2(a). Comment 2(a)– 


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49See 12 U.S.C. 3801(a)(1) (finding that 

‘‘increasingly volatile and dynamic changes in 

interest rates have seriously impaired the ability of 

housing creditors to provide consumers with fixedterm, fixed-rate credit secured by interests in real 

property, cooperative housing, manufactured 

homes, and other dwellings’’ (emphasis added)). 50See OTS Letter P–2003–9 (Dec. 2, 2003). 

51These examples are consistent with the 

definition of an ‘‘adjustable rate mortgage loan’’ in 

AMTPA, 12 U.S.C. 3806(d)(2), as one in which the 

loan agreement permits the creditor to adjust the 

rate of interest from time to time. While the 

definition of ‘‘adjustable rate mortgage loan’’ 

applies to a section of AMTPA that requires 

adjustable rate mortgages to have maximum interest 

rates (rather than to the preemption provisions), it 

sheds light on the types of loans contemplated by 

AMTPA as having adjustable rates. 

52See OTS Letter P–2003–9 (Dec. 2, 2003); OTS 

Letter P–96–13 (Nov. 27, 1996). 

2, discussed in more detail below, 

provides specific examples of 

transactions that are alternative 

mortgage transactions, while comment 

2(a)–3 provides examples of 

transactions that are not alternative 

mortgage transactions. 

The first element of the definition of 

alternative mortgage transaction is 

derived from AMTPA as well as the 

definition of a ‘‘dwelling’’ in 12 CFR 

226.2(a)(19). The second element of the 

definition requires that an alternative 

mortgage transaction involve an 

extension of consumer credit. AMTPA’s 

findings indicate that Congress was 

concerned with the availability of 

housing credit to consumers.49 In 

addition, AMTPA applies to 

transactions secured by residential real 

property or a dwelling (including stock 

allocated to a dwelling in a residential 

cooperative housing corporation or a 

residential manufactured home). While 

some consumers may use their 

residence as security for credit for nonconsumer purposes (such as to finance 

a business), AMTPA’s use of the terms 

‘‘residential’’ property and ‘‘dwelling’’ 

indicate that it is intended to apply to 

alternative mortgage transactions 

involving consumer credit. In addition, 

requiring alternative mortgage 

transactions to be consumer credit 

aligns the AMTPA regulations with the 

CFPB’s general scope of authority under 

TILA, which also serves as authority for 

this interim final rule. However, the 

CFPB seeks comment on this issue. 

The third element of the definition 

requires that the interest rate or finance 

charge for the transaction may be 

adjusted or renegotiated. As described 

above, Section 1083 narrows AMTPA’s 

definition of an ‘‘alternative mortgage 

transaction’’ so that it refers only to 

loans and credit sales ‘‘in which the 

interest rate or finance charge may be 

adjusted or renegotiated, [as] described 

and defined by applicable regulation.’’ 

As noted above, Section 1083 deletes 

language that specifically included 

within the definition of alternative 

mortgage transaction: (1) Fixed-rate 

balloon loans ‘‘which implicitly 

permit[] rate adjustments’’ because the 

debt matures before the end of the loan’s 

amortization schedule; and (2) mortgage 

loans ‘‘involving any similar type of 

rate, method of determining return, 

term, repayment, or other variation not 

common to traditional fixed rate, fixed 

term transactions,’’ including but not 

limited to shared equity and shared 

appreciation transactions. 

The interim final rule construes the 

amendment to exclude only those 

mortgages that do not involve an 

adjustable or renegotiable rate or finance 

charge. For example, a fixed-rate loan 

that permits the consumer to make 

interest-only payments for a period of 

time does not involve an adjustment to 

or renegotiation of the interest rate or 

finance charge. Previously, such 

transactions were considered alternative 

mortgage transactions under the third 

prong of the original AMTPA definition 

since an interest-only feature was ‘‘not 

common to traditional fixed rate, fixed 

term transactions.’’ 50 Under the interim 

final rule, however, such transactions 

are no longer alternative mortgage 

transactions. Yet transactions that are 

specifically mentioned in the second 

and third prongs of the original AMTPA 

definition, such as shared-equity/ 

shared-appreciation transactions and 

renewable balloon-payment transactions 

(which involve renegotiation of or 

adjustments to the rate or finance 

charge), do continue to be alternative 

mortgage transactions under the interim 

final rule. Furthermore, under the 

interim final rule, a mortgage with both 

an adjustable or renegotiable rate or 

finance charge and one or more other 

‘‘nontraditional’’ features continues to 

be an ‘‘alternative mortgage 

transaction.’’ (However, as discussed 

below with respect to § 1004.3, the 

scope of AMTPA preemption has also 

been narrowed such that alternative 

mortgage transactions with certain 

nontraditional features like interest-only 

payments or negative amortization are 

subject to greater state regulation under 

the amended statute.) 

The CFPB recognizes that the 

amendments to AMTPA’s definition 

could be interpreted differently. 

Specifically, by eliminating references 

to balloon payment loans and sharedequity/shared-appreciation mortgages, 

the amendment could be interpreted as 

excluding all such transactions from the 

definition of an alternative mortgage 

transaction. In addition, the amendment 

removed a provision that defined 

alternative mortgage transactions as 

loans with variations to the rate, method 

of determining return, term, repayment, 

or other variations not common to 

traditional fixed-rate, fixed-term 

transactions. However, rather than 

attempting to identify each and every 

type of loan that could potentially fall 

under the deleted portions of the 

definition, the CFPB believes that, for 

purposes of this interim final rule, the 

best approach is to focus on whether 

particular types of transactions fit 

within the remaining statutory 

definition. 

As discussed further below, the DoddFrank Act’s amendments to both the 

definition of ‘‘alternative mortgage 

transaction’’ and to the scope of 

preemption under AMTPA are subject 

to different interpretations and are 

interrelated. The CFPB seeks public 

comment about how best to effectuate 

congressional intent through 

implementing regulations that will 

protect consumers, promote parity, and 

be readily understandable and 

applicable by creditors, supervising 

agencies, and others. The CFPB also 

requests comment on whether any 

specific types of mortgages should be 

excluded from the definition of an 

alternative mortgage transaction. 

Mortgages with adjustable rates or 

finance charges. Comment 2(a)–2 

provides specific examples of 

transactions that are alternative 

mortgage transactions.51 Examples of 

alternative mortgage transactions 

include transactions in which the 

interest rate changes in accordance with 

changes to an index and transactions in 

which the interest rate may be increased 

or decreased after a specified period of 

time or under specified circumstances. 

For example, the definition includes 

loans in which the interest rate or 

finance charge may be adjusted after a 

period of time as specified and defined 

by the contract, for instance to provide 

a ‘‘timely payment discount rate’’ upon 

an anniversary of loan origination to 

borrowers who have made timely 

payments for a specified period of 

time.52 (However, as discussed below 

with respect to § 1004.3, generally 

applicable state laws governing late 

charges, including increases in the 

interest rate due to default, are no longer 

preempted by AMTPA.) 

The definition of ‘‘alternative 

mortgage transaction’’ in § 1004.2(a) 

includes ‘‘variable rate transactions’’ as 

defined under Regulation Z for purposes 

of providing disclosures under 12 CFR 


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53As discussed below, Regulation Z also treats 

renewable balloon payment loans as variable rate 

transactions. See 12 CFR 226.17 comment 17(b)–11. 

54See 12 CFR 34.20, 34.24 (authorizing state 

chartered banks to make ‘‘adjustable rate 

mortgages,’’ defined generally to include secured 

extensions of credit ‘‘where the lender, pursuant to 

an agreement with the borrower, may adjust the rate 

of interest from time to time’’). 

55See 12 CFR 226 comment 17(c)(1)–11. 

56See, e.g., 45 FR 24,108 (Apr. 9, 1980). The 

FHLBB initially provided very detailed rules 

regarding renegotiable rate mortgages, which were 

subsumed into regulations on adjustable rate 

mortgages at 46 FR 24,148 (Apr. 30, 1981). The 

Federal Reserve also has moved from a narrower 

definition of ‘‘renegotiable rate mortgages’’ to a 

broader category of ‘‘renewable’’ balloon loans. 

Compare 66 Fed.Res.Bull. 830 (Oct. 1980) (defining 

‘‘renegotiable rate mortgages’’ to include fixed-rate 

balloon loan mortgages for which the lender was 

obliged to renew the loan upon expiration of the 

loan on the same credit terms except for a change 

in the interest rate, and interpreting Regulation Z 

to permit lenders to disclose such mortgages either 

as a variable-rate obligation under 12 CFR 

226.8(b)(8) or as a balloon-payment obligation 

under 12 CFR 226.8(b)(3)), with 56 FR 13751, 13754 

(Apr. 4, 1991) (dropping the term ‘‘renegotiable rate 

mortgage’’ in favor of a more generic category of 

renewable loans with balloon payments, where the 

creditor is either unconditionally obligated to 

renew the loan or obligated to renew subject only 

to conditions within the consumer’s control, and 

requiring that such loans be disclosed as long-term 

variable rate loans rather than as short-term balloon 

loans). 

57 12 U.S.C. 3802(1)(B). 

58This approach is also consistent with the OCC’s 

regulations applicable to AMTPA loans, which 

define ‘‘adjustable rate mortgages’’ to exclude 

‘‘fixed-rate extensions of credit that are payable at 

the end of a term that, when added to any terms 

for which the bank has promised to renew the loan, 

is shorter than the term of the amortization 

schedule.’’ 12 CFR 34.20. Thus, if the bank 

promises to renew the loan for the term of the 

amortization schedule, the loan fell within the 

OCC’s definition of ‘‘adjustable rate mortgage.’’ 

59See, e.g., Roberto G. Quercia, Michael A. 

Stegman & Walter Davis, The impact of predatory 

loan terms on subprime foreclosures: The special 

case of prepayment penalties and balloon 

payments, 18 Housing Pol’y Debate 311 (2007) 

(finding that first-lien subprime refinance mortgage 

loans with balloon payments in general were 50% 

more likely to go into foreclosure than other loans, 

holding other factors constant). 

226.19(b).53 The definition is also 

similar to the OCC’s definition of 

‘‘adjustable rate mortgage’’ under its 

AMTPA regulations.54

With regard to shared appreciation 

and shared equity features in particular, 

although the Dodd-Frank Act 

amendments to AMTPA deleted the 

specific language referencing shared 

appreciation and shared equity 

mortgages, loans with these features 

continue to fall within the remaining 

definition of ‘‘alternative mortgage 

transaction’’ because they are mortgage 

transactions in which a finance charge 

is adjustable. Indeed, the CFPB notes 

that Regulation Z currently categorizes 

shared-equity/shared appreciation 

mortgages as variable-rate 

transactions.55 Accordingly, consistent 

with that interpretation, the interim 

final rule includes such mortgages 

within the definition of alternative 

mortgage transaction. 

The CFPB seeks comment on whether 

the products discussed above should be 

considered alternative mortgage 

transactions and what other products in 

the current market have adjustable rates 

or finance charges. The CFPB in 

particular seeks comment on whether 

treating a mortgage that permits a rate 

adjustment upon default as an 

alternative mortgage transaction is an 

appropriate approach in light of the 

Dodd-Frank Act amendments that 

specifically preserve states’ authority to 

regulate late charges. 

Mortgages with renegotiable rates or 

finance charges. The statute does not 

define what types of loans provide for 

the ‘‘renegotiat[ion]’’ of the interest rate 

or finance charge. The CFPB does not 

believe that Congress intended this 

language to apply to every transaction in 

which the interest rate or finance charge 

might theoretically be renegotiated. 

Such an interpretation could encompass 

almost any mortgage transaction. 

Instead, the CFPB believes it is 

appropriate to consider historical 

regulations and interpretations issued 

by the FHLBB and by the Federal 

Reserve Board under Regulation Z, both 

of which suggest that ‘‘renegotiable rate 

mortgages’’ were commonly understood 

at the time that AMTPA was enacted to 

include a subset of fixed-rate balloon 

loans involving renewable short-term 

notes secured by long-term mortgages, 

where the creditor made a commitment 

to renew the notes but reserved 

discretion to adjust the interest rate at 

renewal.56

This commitment to renew 

distinguishes renegotiable/renewable 

loans from a broader and more generic 

category of balloon loans that was 

included in AMTPA’s original 

definition of ‘‘alternative mortgage 

transaction,’’ but was then removed 

from the definition by the Dodd-Frank 

Act amendments. That language referred 

to loans ‘‘involving a fixed rate, but 

which implicitly permit[] rate 

adjustments by having the debt mature 

at the end of an interval shorter than the 

term of the amortization schedule,’’ 

without reference or regard to renewal 

commitments.57

As discussed above, the fact that 

Section 1083 deleted the reference to 

balloon loans while retaining the 

reference to loans for which the interest 

rate or finance charge may be 

renegotiated creates significant 

ambiguity as to how balloon loans 

should be treated under AMTPA as 

amended. However, based on available 

information, it is unclear to what the 

phrase ‘‘renegotiable rate’’ in the 

amended AMTPA definition refers, if 

not to balloon loans where there is a 

commitment to renew the loan but the 

rate is subject to renegotiation. 

For these reasons, the CFPB believes 

that, for purposes of this interim final 

rule, it is appropriate to construe the 

category of renegotiable rate loans to 

include fixed-rate balloon loans in 

which the lender has committed to 

renew the loan. For example, the 

interim final rule provides that, if a loan 

has, for instance, a 30-year amortization 

period but a balloon payment is due at 

the end of five years, the product is an 

‘‘alternative mortgage transaction’’ for 

purposes of AMTPA if the creditor 

commits to renew the mortgage.58 The 

CFPB notes that the requirement of a 

lender commitment to renew can help 

protect borrowers from the heightened 

default risk associated with balloon 

payments.59 Furthermore, as discussed 

below with respect to § 1004.4(b), this 

commitment must be made in writing in 

order for the transaction to receive 

AMTPA preemption. 

The CFPB seeks comment on all 

aspects of this issue, including comment 

on what products, if any, should be 

considered renegotiable rate loans, how 

commitments to renew are typically 

structured, and whether further clarity 

or protections may be appropriate for 

these mortgage products. 

Adjustable or renegotiable rate loans 

with additional nontraditional features. 

As noted above, the interim final rule 

defines ‘‘alternative mortgage 

transaction’’ by focusing on the 

language of the amended statutory 

definition—in other words, whether the 

loan has an adjustable or renegotiable 

rate or finance charge. It is unclear 

whether the deletion of AMTPA’s 

language recognizing other 

nontraditional loan features such as 

negative amortization or interest-only 

payment periods was intended to 

exclude adjustable rate or renegotiable 

rate loans that also contain such features 

from AMTPA preemption. For purposes 

of the interim final rule, the CFPB has 

concluded that such loans should not be 

excluded, for several reasons. 

First, a broader exclusion based on 

the absence of statutory text would 

create a number of practical difficulties. 

The definitions removed from AMTPA 

mention two specific loan types— 

balloon loans and shared-equity/sharedappreciation loans—which can, in 

certain circumstances, be loans with 

adjustable or renegotiable rates or 


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60See 12 U.S.C. 3802(1)(C) (referring to loans 

‘‘involving any similar type of rate, method of 

determining return, term, repayment, or other 

variation not common to traditional fixed rate, fixed 

term transactions, including without limitation, 

transactions that involve the sharing of equity or 

appreciation’’) (emphasis added). 

61See, e.g., 12 CFR 561.50; 12 CFR 563f.2; 12 CFR 

700.2. 

62Public Law 111–203, § 1083(a)(2)(B) (emphasis 

added). 

63 Id. 

64See, e.g., Webster’s New World Dictionary 1075 

(3d College ed. 1991) (‘‘1 to refuse to permit; forbid 

by law or by an order 2 to prevent; hinder’’); Black’s 

Law Dictionary 1331 (9th ed. 2009) (‘‘Prohibit, vb. 

1. To forbid by law. 2. To prevent or hinder.’’). 

finance charges, as discussed above. 

While this amendment could be 

interpreted as having been intended to 

exclude these products from AMTPA 

coverage entirely, there is no specific 

language in the amended statute that 

provides guidance as to why such 

products would no longer be considered 

loans with adjustable or renegotiable 

rates or finance charges, regardless of 

the other aspects of the loan. In 

addition, the definitions removed by the 

Dodd-Frank Act amendments were quite 

broad and vague and overlap 

substantially with the other 

definitions.60 Accordingly, interpreting 

the amendments to exclude from 

AMTPA coverage any transactions 

described in the removed definitions 

could undermine the remaining 

definition. 

Second, where unusual circumstances 

require publication of an interim rule to 

take immediate effect without advance 

notice and opportunity for comment, 

the CFPB believes that it is appropriate 

to minimize market disruption while 

the CFPB’s notice-and-comment 

rulemaking is under way. Thus, it is 

appropriate to interpret the remaining 

definition of ‘‘alternative mortgage 

transaction’’ broadly. 

The CFPB also believes it is 

particularly important to consider the 

interaction between the Dodd-Frank 

Act’s definitional changes (implemented 

in § 1004.2) and changes to the scope of 

preemption (implemented in § 1004.3). 

Under the definition adopted in the 

interim final rule, fixed-rate products 

involving negative amortization, 

interest-only periods, or graduated 

payment features do not meet the 

definition of ‘‘alternative mortgage 

transaction’’ because they are not loans 

with adjustable or renegotiable rates or 

finance charges. Therefore, these types 

of loans are not eligible for federal 

preemption under AMTPA and instead 

are subject to applicable state law. 

In contrast, loans containing the same 

features that also have adjustable or 

renegotiable rates or finance charges 

would continue to qualify as 

‘‘alternative mortgage transactions’’ 

under the definition in § 1004.2(a). 

However, state law is preempted with 

respect to such loans only to the extent 

provided in § 1004.3 (and only if the 

transaction also complies with the 

requirements in § 1004.4(a) through (c), 

as applicable). Thus, to the extent that 

a state has enacted a law regulating, for 

example, negative amortization or 

interest-only features, AMTPA would 

not preempt application of that law to 

an alternative mortgage transaction. 

In addition, although the alternative 

mortgage transaction definition includes 

loans in which the contract permits the 

creditor to adjust the interest rate or 

finance charge upon default, applicable 

state laws governing late charges are not 

preempted under § 1004.3. Accordingly, 

like the statute, the two parts of the 

interim final rule work in conjunction 

with each other to provide for more 

consistent application of state law 

across similar mortgage products. 

The CFPB seeks comment not just 

about the specific definitional changes 

but also how those changes relate to the 

new scope of preemption as further 

discussed below. 

(b) Creditor 

The term ‘‘creditor’’ is defined to have 

the same meaning as under Regulation 

Z, 12 CFR 226.2. This reflects the fact 

that § 1004.4 of the interim final rule 

applies broadly to all ‘‘creditors’’ as 

defined under and pursuant to TILA 

and Regulation Z when such creditors 

are engaged in the making of alternative 

mortgage transactions. Comment 2(b)–1 

clarifies that, under Regulation Z, the 

term ‘‘creditor’’ includes federally and 

state-chartered banks, thrifts, and credit 

unions, as well as non-depository 

institutions (such as state-licensed 

lenders). The comment also references 

the Official Staff Commentary to 

Regulation Z for additional guidance on 

the definition of the term ‘‘creditor.’’ 

(c) Housing Creditor 

The definition of ‘‘housing creditor’’ 

generally mirrors the statutory language 

to include a depository institution as 

defined in 12 U.S.C. 1735f–7 note; a 

lender approved by the Secretary of 

Housing and Urban Development for 

participation in any mortgage insurance 

program under the National Housing 

Act; other persons who regularly make 

loans, credit sales, or advances secured 

by an interest in a residential structure 

that contains one to four units, whether 

or not that structure is attached to real 

property, including an individual 

condominium unit, cooperative unit, 

mobile home, and trailer, if it is used as 

a residence; and any transferee of a 

person in the other three categories. 

(d) State 

The term ‘‘State’’ is defined as a state 

of the United States, the District of 

Columbia, and U.S. territories and 

possessions, including Puerto Rico, the 

Virgin Islands, the Northern Mariana 

Islands, American Samoa, and Guam. 

This is generally consistent with the 

federal prudential agencies’ regulations 

as well as the definition of ‘‘State’’ in 

various other federal consumer financial 

regulations.61

(e) State Law 

Consistent with 12 U.S.C. 3803, the 

term ‘‘State law’’ is defined as a State 

constitution, statute, or regulation or 

any provision thereof. 

Section 1004.3 Preemption of State 

law. 

Section 1004.3 provides that a state 

housing creditor may make, purchase, 

and enforce alternative mortgage 

transactions in accordance with the 

requirements of § 1004.4(a) through (c) 

(as applicable), notwithstanding any 

provision of State law that restricts the 

ability of the housing creditor to adjust 

or renegotiate an interest rate or finance 

charge with respect to the transaction or 

to change the amount of interest or 

finance charges included in a regular 

periodic payment as a result of such an 

adjustment or renegotiation. This 

regulation generally tracks the language 

and structure of 12 U.S.C. 3803, as 

amended by the Dodd-Frank Act. 

However, in order to implement the 

purposes of the Dodd-Frank Act’s 

amendments to AMTPA, § 1004.3 

interprets and clarifies the amended 

preemption standard in 12 U.S.C. 

3803(c) in several respects. 

As an initial matter, the amendments 

to 12 U.S.C. 3803(c) narrowed the scope 

of preemption to apply only to state 

laws that ‘‘prohibit[] an alternative 

mortgage transaction.’’ 62 Although it is 

unclear from the statutory text what 

types of state laws prohibit alternative 

mortgage transactions for purposes of 

AMTPA, the amendments to 12 U.S.C. 

3803(c) clarify that an alternative 

mortgage transaction is not prohibited 

by a state law that ‘‘regulates mortgage 

transactions generally, including any 

restriction on prepayment penalties or 

late charges.’’ 63

Neither AMTPA nor the Dodd-Frank 

Act specifically define the term 

‘‘prohibit.’’ However, that term is 

generally understood to mean forbid by 

law or to otherwise prevent or hinder an 

activity.64 Furthermore, the purpose of 


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44236 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

65 12 U.S.C. 3801(b). 

66However, as explained in comment 2, other 

state law restrictions on changes to payments are 

not preempted by § 1004.3. 

AMTPA remains providing state 

housing creditors ‘‘with parity with 

federally chartered institutions by 

authorizing all housing creditors to 

make, purchase, and enforce alternative 

mortgage transactions so long as the 

transactions are in conformity with 

[federal] regulations. * * * ’’ 65 This 

purpose would be thwarted if AMTPA 

were interpreted not to preempt state 

laws imposing restrictions on state 

housing creditors’ ability to adjust 

interest rates and finance charges where 

such restrictions do not apply to federal 

housing creditors, as the ability to make 

such adjustments is integral to 

alternative mortgage transactions. 

Accordingly, because 12 U.S.C. 3802(1) 

defines an alternative mortgage 

transaction as a transaction ‘‘in which 

the interest rate or finance charge may 

be adjusted or renegotiated,’’ the interim 

final rule construes ‘‘prohibit’’ to 

include not only state laws banning the 

making, purchase, or enforcement of 

alternative mortgage transactions, but 

also state laws that restrict or hinder the 

adjustment or renegotiation of an 

interest rate or finance charge. For 

example, as explained in comment 2, 

state laws are preempted to the extent 

that they restrict the circumstances 

under which a rate may be adjusted, the 

method by which a rate may be 

adjusted, or the amount of a rate 

adjustment. 

Similarly, § 1004.3 provides that state 

laws are preempted with respect to 

alternative mortgage transactions to the 

extent that they restrict the ability of a 

state housing creditor to change the 

amount of a payment to include 

increased interest or finance charges as 

a result of the adjustment or 

renegotiation of an interest rate or 

finance charge. The CFPB believes that 

such changes to payment amounts are 

also integral to alternative mortgage 

transactions. Indeed, if housing 

creditors were not permitted to increase 

the payment amount to account for an 

increase in the interest rate, the 

transaction could negatively amortize, 

which would be harmful to some 

consumers.66

Comment 1 clarifies that, regardless of 

whether a state law applies solely to 

alternative mortgage transactions or 

applies to both alternative mortgage 

transactions and other mortgage or 

consumer credit transactions, that law is 

preempted by § 1004.3 to the extent that 

it restricts the ability of a state housing 

creditor to adjust or renegotiate an 

interest rate or finance charge with 

respect to an alternative mortgage 

transaction or to adjust payments as a 

result of such an adjustment or 

renegotiation. Thus, the preemption 

regime under § 1004.3 is not tied to 

whether a state law by its terms applies 

solely to alternative mortgage 

transactions. 

Although the amendments to 12 

U.S.C. 3803(c) indicate that state laws 

that regulate mortgage transactions 

generally are not preempted, the CFPB 

believes that narrowly focusing on 

whether a state law is by its terms 

general or specific would undermine the 

key determination of whether a state 

law prohibits an alternative mortgage 

transaction’s adjustment or 

renegotiation of an interest rate or 

finance charge or changes to payments 

as a result of the adjustment or 

renegotiation. For example, applying 

preemption to any state law that 

specifically addresses alternative 

mortgage transactions would preempt 

state laws that do not prohibit 

alternative mortgage transactions 

because they do not forbid, prevent, or 

hinder the ability of the state housing 

creditor to make such transactions (such 

as a state law requiring that certain 

disclosures be provided regarding 

alternative mortgage transactions). 

Furthermore, this approach would 

shield from preemption state laws that 

might be couched in general terms but 

effectively prohibit an alternative 

mortgage transaction (for example, a law 

prohibiting increases in an interest rate 

based on increases in an index). Finally, 

focusing solely on whether a state law 

is specific to alternative mortgage 

transactions or more general in its terms 

could lead to anomalous results if, for 

example, one state prohibited certain 

conduct in a statute that specifically 

applied to alternative mortgage 

transactions while another state 

prohibited the same conduct in a statute 

that applied generally to all mortgage 

transactions. For these reasons, the 

CFPB believes that it would be 

inconsistent with the goals of the DoddFrank Act amendments to make AMTPA 

preemption determinations based solely 

on whether a state law was specific or 

general by its terms. 

Comment 2 also clarifies that state 

law restrictions on shared equity or 

shared appreciation transactions in 

which the creditor and the consumer 

share some or all of the appreciation in 

the value of the property are preempted 

by § 1004.3. As discussed above, such 

transactions are alternative mortgage 

transactions under § 1004.2(a). 

However, the CFPB solicits comment on 

whether additional protections are 

needed with respect to these types of 

transactions. The CFPB also solicits 

comment on the volume of these 

transactions. 

In addition, comment 2 clarifies that 

state law underwriting requirements are 

preempted by § 1004.3 to the extent that 

they effectively restrict the adjustment 

or renegotiation of interest rates or 

finance charges or changes in payments 

as a result of such adjustments or 

renegotiations. For example, if a state 

law requires housing creditors to 

underwrite based on the maximum 

contractual rate, that particular 

provision of the law is preempted by 

§ 1004.3 with respect to alternative 

mortgage transactions, regardless of 

whether the provision applies solely to 

alternative mortgage transactions or to 

both alternative mortgage transactions 

and other mortgage or consumer credit 

transactions. In contrast, state 

underwriting requirements of general 

applicability that do not impact the 

adjustment or renegotiation of interest 

rates or finance charges or changes in 

payments as a result of such 

adjustments or renegotiations are not 

preempted. (However, as discussed 

below, § 1004.4(c) requires state housing 

creditors that invoke AMTPA 

preemption to comply Regulation Z’s 

underwriting requirements for high-cost 

and higher-cost mortgages.) 

In contrast, comment 3 provides 

examples of state laws that are not 

preempted by § 1004.3 because they do 

not restrict the ability of the housing 

creditor to adjust or renegotiate an 

interest rate or finance charge or to 

change the amount of a payment as a 

result of such an adjustment or 

renegotiation. In particular, the 

comment states that, consistent with the 

amended 12 U.S.C. 3803(c), state law 

restrictions on prepayment penalties 

and late charges are not preempted by 

§ 1004.3 regardless of whether the 

restriction applies solely to alternative 

mortgage transactions or to both 

alternative mortgage transactions and 

other mortgage or consumer credit 

transactions. Such a restriction does not 

prohibit or hinder a feature integral to 

an alternative mortgage transaction. The 

comment further clarifies that an 

increase in an interest rate or finance 

charge as a result of a late payment is 

a late charge for purposes of § 1004.3. 

Therefore, a state law that prohibits 

state housing creditors from increasing 

a consumer’s interest rate as a result of 

a late payment is not preempted by 

§ 1004.3. 

In addition, comment 3 clarifies that 

state law restrictions on transactions in 

which one or more of the regular 

periodic payments may result in an 


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Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44237 

67Public Law 111–203, § 1083(b). 

68As discussed below, however, nothing in Part 

1004 alters the obligation of all creditors to 

continue to comply with the requirements of 

Regulation Z that are incorporated by reference in 

§ 1004.4 (specifically, 12 CFR 226.5b, 12 CFR 

226.32, 12 CFR 226.34, and 12 CFR 226.35, as 

applicable). 

increase in the principal balance (a 

negative amortization feature) or may be 

applied solely to accrued interest and 

not to loan principal (an interest-only 

feature) are not preempted by § 1004.3. 

The comment also clarifies that state 

law disclosure requirements are not 

preempted by § 1004.3 regardless of 

whether the law applies specifically to 

alternative mortgage transactions 

because disclosure requirements do not 

prohibit a state housing creditor from 

adjusting or renegotiating an interest 

rate or finance charge or making a 

corresponding change to a payment. 

Finally, the CFPB notes that, as a 

general matter, state laws prohibiting 

unfair or deceptive acts or practices are 

not preempted under 12 U.S.C. 3803(c) 

or this interim final rule. 

The CFPB seeks comment on all 

aspects of § 1004.3(b) and on whether 

particular state laws should or should 

not be subject to AMTPA preemption. 

The CFPB notes, however, that nothing 

in this interim final rule affects the 

preemption of state law under 

provisions of federal law other than 

AMTPA. 

Section 1004.4 Requirements for 

Alternative Mortgage Transactions 

Section 1083 of the Dodd-Frank Act 

requires the CFPB to promulgate its own 

regulations governing alternative 

mortgage transactions after the 

designated transfer date. The CFPB is 

also required to review and determine 

whether the regulations governing 

alternative mortgage transactions 

designated by the OCC and NCUA 

pursuant to AMTPA are ‘‘fair, not 

deceptive, and consistent with the 

purposes of [title X of the Dodd-Frank 

Act].’’ 67 The CFPB believes that it is 

consistent with the intent and purpose 

of Section 1083 to interpret this 

provision as requiring the CFPB to 

determine whether the OCC and NCUA 

regulations are effective in preventing 

unfair or deceptive practices. In 

addition, although this provision does 

not require the CFPB to review OTS 

AMTPA regulations, the CFPB believes 

that it is appropriate to do so in order 

to predict potential impacts on the 

marketplace. 

Accordingly, the CFPB has completed 

an initial review of the regulations 

designated by the OCC, NCUA, and OTS 

as well as agency interpretive guidance, 

available court decisions, and secondary 

sources. Based on this review, the CFPB 

has made a preliminary determination 

that certain of those regulations are 

necessary to prevent unfairness and 

deception and are consistent with the 

purposes of title X of the Dodd-Frank 

Act. The CFPB has adopted those 

regulations in modified form in 

§ 1004.4(a) and (b) of the interim final 

rule. However, the CFPB believes that 

additional research, consultation, and 

comment are needed before adoption of 

a permanent final rule. The CFPB 

therefore seeks comment on whether the 

requirements in § 1004.4 are sufficient 

to prevent unfair or deceptive acts or 

practices, whether modifications to 

those requirements are appropriate, and 

whether additional protections are 

needed. 

As discussed above, the CFPB is 

issuing § 1004.4 pursuant to its 

authority under TILA, which applies to 

all ‘‘creditors’’ as defined by Regulation 

Z. Thus, § 1004.4 applies to all federal 

and state housing creditors that make 

alternative mortgage transactions. 

However, because there has not yet been 

an opportunity for notice and comment 

on the requirements in § 1004.4(a) 

through (c), the CFPB has delayed 

mandatory compliance with § 1004.4 

until July 21, 2012 for federal housing 

creditors and for state housing creditors 

that are not relying on preemption of 

state law under § 1004.3. Accordingly, 

only state housing creditors that choose 

to seek AMTPA preemption under 

§ 1004.3 are required to comply with 

§ 1004.4 before July 22, 2012.68

The CFPB’s interim final rule is 

designed to protect consumers and 

preserve access to credit and federalstate parity while also providing an 

orderly transition period while the 

notice-and-comment rulemaking 

process occurs. Because the OCC, 

NCUA, and OTS AMTPA rules vary 

significantly in substance and scope and 

because the CFPB’s rules must account 

for the Dodd-Frank Act amendments to 

AMTPA, the CFPB has concluded that 

it would not be practicable or 

appropriate to simply replicate the three 

pre-existing sets of regulations in the 

CFPB’s interim final rule. However, the 

CFPB has adopted standards and 

language that are comparable to central 

elements of those regulations where it 

was consistent with the Dodd-Frank Act 

and otherwise appropriate to do so. 

The CFPB did consider simply 

requiring state housing creditors to 

comply with all requirements of federal 

law in order to receive AMTPA 

preemption. However, because state 

housing creditors are already required to 

comply with TILA and other applicable 

provisions of federal law that fall within 

the CFPB’s authority, such an approach 

would be redundant and unnecessary 

and could cause confusion regarding the 

scope of preemption under § 1004.3. 

Instead, as discussed below, that CFPB 

has designated specific provisions of 

Regulation Z in § 1004.4. 

The CFPB notes that AMTPA 

provides an opportunity to cure 

violations of federal alternative 

mortgage transaction regulations that 

may be helpful to state housing 

creditors as they make adjustments 

necessary to comply with the interim 

final rule. Specifically, 12 U.S.C. 

3803(b) provides that, where a state 

housing creditor has failed to comply 

with the alternative mortgage 

transaction regulations for federally 

chartered housing creditors, an 

alternative mortgage transaction will 

nonetheless be deemed to be made in 

accordance with the applicable 

regulation if: ‘‘(1) The transaction is in 

substantial compliance with the 

regulation; and (2) within sixty days of 

discovering any error the housing 

creditor corrects such error, including 

making appropriate adjustments, if any, 

to the account.’’ 

(a) Adjustable rate mortgages. 

Section 1004.4(a) of the interim final 

rule provides standards by which 

creditors making alternative mortgage 

transactions with adjustable rates or 

finance charges may increase the 

interest rate or finance charge. To rely 

on AMTPA’s preemption provision, 

creditors making alternative mortgage 

transactions that are open-end home 

equity lines of credit subject to the 

Regulation Z requirements in 12 CFR 

226.5b must comply with § 226.5b’s 

requirement that changes in the annual 

percentage rate be made according to a 

publicly available index that is not 

subject to the creditor’s control. 

For closed-end alternative mortgage 

transactions involving an adjustable rate 

or finance charge, the interim final rule 

provides that adjustments must be made 

based on either: (1) an index outside the 

creditor’s control to which changes in 

the interest rate are tied; or (2) a formula 

or schedule identifying the amount by 

which the interest rate or finance charge 

may increase and the times at which, or 

circumstances under which, a change 

may be made. The content of these rules 

is similar to the OCC and OTS 

regulations for national banks and 

federal thrifts, respectively, that were 

previously designated as applicable to 


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44238 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

69 12 CFR 34.20–25; 12 CFR 560.220. 

70See 12 CFR 226.5b comment 5b(f)(1)–1. 

71See 12 CFR 226.55(b)(2) comment 55(b)(2)–2. 

72See 12 CFR 226.5b comment 5b(f)(1)–2 73See 12 CFR 226.17 comment 17(b)–11. 

74Because 12 CFR 226.32, 12 CFR 226.34, and 12 

CFR 226.35 already apply to all creditors, all 

creditors must continue to comply with those 

provisions, regardless of whether they seek AMTPA 

preemption. 

75See 12 CFR 226.28. 

76 12 CFR 226.35(b)(2)(ii)(A). 

state housing creditors under AMTPA.69

Pursuant to its authority under Section 

1405(a) of the Dodd-Frank Act (15 

U.S.C. 1639b(e)(1)), the CFPB finds that 

the adoption of the standards in 

§ 1004.4(a) as part of this interim final 

rule is necessary and proper to ensure 

that responsible, affordable mortgage 

credit remains available to consumers. 

Nevertheless, the CFPB seeks comment 

on whether additional or different 

requirements are more appropriate to 

protect consumers and promote parity 

between federal and state housing 

creditors. 

Comment 4(a)–1 clarifies that a 

creditor may use any measure of index 

values that meets the requirements in 

§ 1004.4(a)(2)(i). For example, the index 

may be either single values as of a 

specific date or an average of values 

calculated over a specified period. 

Comment 4(a)–2 clarifies that an 

index is not beyond the creditor’s 

control if the index is the creditor’s own 

prime rate or cost of funds. A creditor 

is permitted to use a published prime 

rate, such as the prime rate published in 

the Wall Street Journal.70 The CFPB 

notes that, in other contexts, the Federal 

Reserve Board has concluded that a 

creditor’s use of ‘‘rate floors’’ (in other 

words, minimum values below which 

the interest rate will not fall regardless 

of the index value) constituted control 

over the operation of an index.71

Although the CFPB has not adopted that 

interpretation in this interim final rule, 

it seeks comment on whether it is 

appropriate to do so in a permanent 

final regulation implementing the 

amendments to AMTPA. 

Comment 4(a)–3 clarifies that a 

publicly available index need not be 

published in a newspaper, but it must 

be one the consumer can independently 

obtain (by telephone, for example) and 

use to verify the annual percentage rate 

applied to the alternative mortgage 

transaction.72

(b) Renegotiable rates for balloonpayment mortgages. 

Renegotiable rates and renewable 

balloon-payment mortgages were not 

specifically discussed in the mortgage 

rules previously designated as 

applicable to state housing creditors 

under AMTPA by the OCC, NCUA, and 

OTS. However, pursuant to its authority 

under Section 1405(a) of the DoddFrank Act (15 U.S.C. 1639b(e)(1)), the 

CFPB finds that adoption of the 

standards in § 1004.4(b) as part of this 

interim final rule is necessary and 

proper to ensure that responsible, 

affordable mortgage credit remains 

available to consumers. 

As discussed above, a renewable 

balloon-payment mortgage is generally a 

transaction in which payments are 

based on an amortization period and a 

large final payment is due after a shorter 

term, but the borrower has the option to 

renew the transaction at specified 

intervals throughout the amortization 

period at the interest rate offered by the 

creditor at the time of renewal.73 To rely 

on AMTPA’s preemption provision, 

creditors making such transactions must 

provide a written commitment to renew 

the transaction at specified intervals 

throughout the amortization period. 

Under the terms of the written 

commitment, the creditor may negotiate 

an increase or decrease in the interest 

rate at renewal. 

The CFPB believes that a written 

commitment is necessary to ensure that 

balloon-payment mortgages made under 

AMTPA are provided responsibly. 

However, the CFPB also believes that, 

based on safety and soundness and 

other considerations, creditors should 

not be required to renew the loan in 

certain limited circumstances. 

Accordingly, the CFPB has adopted 

exceptions to the renewal requirement 

based on the exceptions in 12 CFR 

226.5b(f)(2), which permit a creditor to 

terminate a home-equity line of credit 

and demand payment of the outstanding 

balance. The CFPB has modified the 

§ 226.5b(f)(2) exceptions to ensure that a 

creditor generally cannot decline to 

renew a balloon-payment loan under 

§ 1004.4(b) unless there has been a 

material change in circumstance. 

Therefore, § 1004.4(b) provides that 

the creditor is not required to renew the 

transaction if: (1) Any action or inaction 

by the consumer materially and 

adversely affects the creditor’s security 

for the transaction or any right of the 

creditor in such security; (2) there is a 

material failure by the consumer to meet 

the repayment terms of the transaction; 

(3) there is fraud or a willful or knowing 

material misrepresentation by the 

consumer in connection with the 

transaction; or (4) Federal law dealing 

with credit extended by a depository 

institution to its executive officers 

specifically requires that as a condition 

of the extension the credit shall become 

due and payable on demand, provided 

that the creditor includes such a 

provision in the initial agreement. 

The CFPB seeks comment on whether 

the written commitment requirement 

and the exceptions in § 1004.4(b) are 

appropriate to protect consumers, 

promote access to responsible credit, 

and enhance parity between federal and 

state housing creditors. 

(c) Requirements for High-Cost and 

Higher-Priced Mortgage Loans 

Section 1004.4(c) provides that, if an 

alternative mortgage transaction is a 

‘‘high-cost’’ loan subject to 12 CFR 

226.32, the creditor must comply with 

12 CFR 226.32 and 12 CFR 226.34. In 

addition, if an alternative mortgage 

transaction is a ‘‘higher-priced mortgage 

loan’’ subject to 12 CFR 226.35, the 

creditor must comply with 12 CFR 

226.35. These provisions of Regulation 

Z contain underwriting requirements 

and restrictions on loan terms for 

certain types of loans with higher costs. 

Because the interim final rule preempts 

some state underwriting requirements, 

the CFPB believes it is appropriate to 

require creditors to comply with these 

provisions in order to obtain that 

preemption.74 Pursuant to its authority 

under Section 1405(a) of the DoddFrank Act (15 U.S.C. 1639b(e)(1)), the 

CFPB finds that the adoption of 

§ 1004.4(c) as part of this interim final 

rule is necessary and proper to ensure 

that responsible, affordable mortgage 

credit remains available to consumers. 

Comment 1004.3(c)–1 clarifies that 

creditors must comply with the 

restrictions on prepayment penalties in 

Regulation Z, if applicable. However, as 

discussed above, creditors are not 

exempt under AMTPA and § 1004.3 

from state laws regarding prepayment 

penalties. Thus, with respect to 

prepayment penalties, creditors must 

comply with both Regulation Z and 

with state law unless another basis for 

preemption exists (such as because the 

state law is inconsistent with Regulation 

Z).75 For example, if a loan is a higherpriced mortgage loan under 12 CFR 

226.35, it may not have a prepayment 

penalty unless the penalty expires 

within two years after consummation.76

However, if a state law prohibited 

prepayment penalties unless the penalty 

expires within one year, that state law 

would not be preempted by AMTPA (or 

by Regulation Z). 

The CFPB seeks comment on the 

inclusion of these requirements in 

§ 1004.4(c) and on whether additional 

underwriting requirements are 

warranted. In particular, the CFPB 

requests comment on whether, once the 


srobinson on DSK4SPTVN1PROD with RULES2
Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44239 

77 5 U.S.C. 601 et seq. 

78 5 U.S.C. 553(b)(B); 5 U.S.C. 605(b); 62 FR 

23,538 (April 30, 1997); 66 FR 37,752 (July 19, 

2001); 64 FR 3,865 (Jan. 26, 1999). 

79Available at http://www.consumerfinance.gov/ 

wp-content/uploads/2011/06/Amendments-to-theAlternative-Mortgage-Transaction-Parity-Act.pdf. 

regulations implementing the ability-topay requirements in TILA Section 129C 

(15 U.S.C. 1639c) are finalized, all or 

part of those regulations should be 

incorporated into § 1004.4(c). 

(d) Other Applicable Law 

Because § 1004.4 applies to all 

creditors on July 22, 2012, the interim 

final rule provides § 1004.4(d) as an 

alternative to compliance with 

§ 1004.4(a) through (c) for creditors that 

do not seek preemption under § 1004.3. 

Specifically, § 1004.4(d) permits a 

housing creditor that is not making an 

alternative mortgage transaction 

pursuant to § 1004.3 to make that 

transaction consistent with applicable 

state or federal law other than § 1004.4. 

Thus, for example, a state housing 

creditor that does not invoke AMTPA 

preemption can make an alternative 

mortgage transaction consistent with 

applicable state law as well as 

applicable federal law other than 

§ 1004.4. Similarly, a federally chartered 

housing creditor can make an 

alternative mortgage transaction 

consistent with federal law other than 

§ 1004.4 (including any requirements 

imposed by the chartering agency and 

the requirements for high-cost and 

higher-priced mortgage loans found in 

12 CFR 226.32, 12 CFR 226.34, and 12 

CFR 226.35) as well as any applicable 

state law. 

Particularly in view of the fact that 

this interim final rule is being published 

without notice and comment, the CFPB 

believes that this provision is necessary 

and appropriate to enable housing 

creditors that are not using AMTPA 

preemption to make alternative 

mortgage transactions to continue 

making such transactions in accordance 

with applicable federal or state 

standards. The CFPB believes that this 

interim final rule strikes an appropriate 

short-term balance that will promote 

greater parity between federal and state 

housing creditors, continued access to 

credit on currently-available terms, and 

consumer protection while reflecting 

the narrowed scope of AMTPA 

preemption under the Dodd-Frank Act. 

The CFPB seeks comment on both the 

short-term impacts of this provision and 

on potential long-term standards under 

§ 1004.4 that would apply to all 

creditors or a defined subset of 

creditors. In addition, the CFPB seeks 

comment on whether it should utilize 

sources of statutory authority other than 

TILA to issue regulations governing 

alternative mortgage transactions. 

Comment 4(d)–1 clarifies that 

§ 1004.4(d) does not exempt housing 

creditors that do not seek preemption 

under § 1004.3 from complying with 

provisions of federal law that are 

incorporated by reference in § 1004.4. 

Specifically, nothing in § 1004.4(d) 

exempts a housing creditor from 

complying with 12 CFR 226.5b, 226.32, 

226.34, or 226.35. 

(e) Reductions in interest rate or finance 

charge. 

Section 1004.4(e) of the interim final 

rule provides that a creditor may always 

decrease the interest rate or finance 

charge on an alternative mortgage 

transaction without violating § 1004.4. 

The OCC regulations that are designated 

as applicable to state housing creditors 

contain a similar provision, and the 

CFPB believes it is appropriate to 

replicate that provision here because 

interest rate and finance charge 

reductions are beneficial to consumers. 

VII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), 

as amended by the Small Business 

Regulatory Enforcement Fairness Act of 

1996, requires each agency to consider 

the potential impact of its regulations on 

small entities including small 

businesses, small governmental units, 

and small not-for-profit organizations.77

The RFA generally requires an agency to 

conduct an initial regulatory flexibility 

analysis (IRFA) and a final regulatory 

flexibility analysis (FRFA) of any rule 

subject to notice-and-comment 

rulemaking requirements, unless the 

agency certifies that the rule will not 

have a significant economic impact on 

a substantial number of small entities. 

The CFPB is subject to certain 

additional procedures under the RFA 

involving the convening of a panel to 

consult with small business 

representatives regarding any rule for 

which an IRFA is required. 

The RFA requirements do not apply 

in cases in which an agency finds good 

cause to issue an interim final rule 

without a notice of proposed 

rulemaking.78 As discussed above in 

Section IV, the CFPB has made such a 

finding. Moreover, the CFPB believes 

that any delay in the issuance of the 

interim final rule would be contrary to 

the interests of small businesses, since 

the ability of small state housing 

creditors to make alternative mortgage 

transactions under AMTPA would be 

suspended while the CFPB assessed 

impacts and completed any other 

applicable requirements. The CFPB 

notes that the interim final rule is 

specifically designed to reduce the 

amount of disruption from 

implementation of the statutory 

amendments by adopting requirements 

that are generally consistent with the 

existing regulations issued by the 

federal prudential agencies to the extent 

permitted under the Dodd-Frank Act 

amendments to AMTPA and by 

providing a delayed mandatory 

compliance date and safe harbor for 

small federally chartered and state 

chartered lenders that are not making 

loans under AMTPA but may be 

affected by the broader long-term 

rulemaking. 

The CFPB takes its responsibilities 

under the Regulatory Flexibility Act 

seriously and is in the process of 

refining its long-term policies, 

procedures, and methodologies for 

conducting impact analyses as required 

by the statute. The CFPB expects to 

apply these enhanced processes when 

complying with all applicable 

requirements as part of its future noticeand-comment rulemaking under 

AMTPA. In advance of issuing this 

interim final rule, the CFPB issued a 

public bulletin alerting state chartered 

and licensed lenders and other 

interested parties that: (1) the DoddFrank Act amendments to AMTPA take 

effect on July 21, 2011; and (2) the 

amendments affect what laws apply to 

mortgage loans issued by state chartered 

or licensed lenders after that date by 

narrowing the statutory definition of 

‘‘alternative mortgage transaction’’ and 

the scope of preemption under 

AMTPA.79 The CFPB has also 

conducted outreach with trade 

associations, state and federal 

regulators, and consumer advocates to 

call attention to the Dodd-Frank Act’s 

amendments to AMTPA and to urge 

planning for an orderly transition 

period. 

Because limited information exists 

concerning AMTPA activity, the CFPB 

requests comment and data regarding 

the amount of activity under the statute 

prior to the Dodd-Frank Act 

amendments, the impact of the OCC, 

NCUA, and OTS regulations, and the 

impact of the statutory amendments and 

the interim final rule. All of these topics 

will help the CFPB in assessing the 

potential economic impacts on small 

lenders as it prepares to propose a 

permanent final rule. 

VIII. Paperwork Reduction Act 

The CFPB has determined that this 

interim final rule does not impose any 

new recordkeeping or reporting 


srobinson on DSK4SPTVN1PROD with RULES2
44240 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

80The President’s July 11, 2011, Executive Order 

13579 entitled ‘‘Regulation and Independent 

Regulatory Agencies,’’ asks the independent 

agencies to follow the cost-saving, burden-reducing 

principles in Executive Order 13563; harmonization 

and simplification of rules; flexible approaches that 

reduce costs; and scientific integrity. In the spirit 

of Executive Order 13563, the CFPB has consulted 

with the Office of Management and Budget 

regarding this interim final rule, including with 

respect to the CFPB’s methodologies and analysis 

regarding the potential benefits, costs, and impacts 

of the rule. 

81Section 1022(b)(2)(A) calls for consideration of 

the potential benefits and costs of regulation to 

consumers and industry, including the potential 

reduction of access by consumers to consumer 

financial products or services; the impact of 

proposed rules on depository institutions and credit 

unions with $10 billion or less in total assets as 

described in Section 1026 of the Dodd-Frank Act; 

and the impact on consumers in rural areas. The 

CFPB is in the process of further developing its 

long-term policies and procedures in this area and 

evaluating potential methodologies for conducting 

impact analyses as required by the statute. 

82The sudden change in the nature of the 

regulatory environment and the short term market 

disruptions that would ensue in the absence of the 

interim final rule would lead to additional costs as 

well. 

83 Intangible effects, such as the increase in state 

autonomy inherent in reducing the scope of 

preemption, are beyond the scope of the current 

discussion. 

requirements on state housing creditors, 

states, or members of the public that 

would be collections of information 

requiring approval under 44 U.S.C. 

3501, et seq. 

IX. Dodd-Frank Act Section 1022(b)(2) 

The CFPB has conducted an analysis 

of benefits, costs, and impacts of this 

interim final rule and consulted with 

the prudential regulators, the Federal 

Trade Commission, and the Department 

of Housing and Urban Development.80

In preparing a notice of proposed 

rulemaking following the issuance of 

this interim final rule, the CFPB plans 

to perform additional analysis and 

engage in further consultations 

consistent with Section 1022(b)(2).81

In the absence of the interim final 

rule, the provisions of the Dodd-Frank 

Act would, by themselves, impact 

portions of the mortgage market. As 

discussed previously, the Dodd-Frank 

Act requires state housing creditors to 

comply with CFPB regulations in order 

to invoke AMTPA preemption for 

alternative mortgage transactions 

entered into after July 21, 2011. 

Accordingly, if the CFPB did not adopt 

regulations that took immediate effect 

on July 22, AMTPA preemption would 

cease to apply and the affected state 

housing creditors would be subject to 

applicable state law. In states where 

alternative mortgage transactions are 

prohibited, state housing creditors who 

were affected would no longer be able 

to make—and consumers would no 

longer be able to obtain—those forms of 

credit. Furthermore, in states where 

alternative mortgage transactions are 

regulated but not prohibited, affected 

state housing creditors would either 

choose to cease making such 

transactions in order to avoid the cost of 

compliance or have to incur those costs. 

In the absence of an interim final rule, 

consumers would receive the benefits of 

the application of state consumer 

protection laws while losing the benefits 

of a countervailing federal consumer 

protection rule under AMTPA and most 

likely experiencing an increase in the 

cost and/or a reduction in the 

availability of credit.82

The benefits, costs, and impacts of the 

interim final rule can be measured 

against this baseline scenario which 

assumes that the Dodd-Frank Act 

amendments have taken effect and 

preemption is not in force since no 

interim rule exists. Relative to this 

scenario, the interim final rule allows 

preemption of certain state laws and 

provides federal consumer protection 

standards governing certain terms in 

alternative mortgage transactions as a 

condition required before federal 

preemption is triggered. Importantly, 

the interim final rule also allows 

creditors not seeking to invoke federal 

preemption under AMTPA to continue 

making alternative mortgage 

transactions under other sources of 

federal law or relevant state laws, as 

applicable. Furthermore, while 

compliance with this interim final rule 

is mandatory for state housing creditors 

that choose to invoke federal 

preemption under AMTPA, compliance 

with the requirements for alternative 

mortgage transactions in § 1004.4 of this 

rule is optional for other creditors until 

July 22, 2012. In addition, after July 22, 

2012, creditors who are not seeking 

AMTPA preemption may comply with 

other applicable law rather than the 

requirements of this interim final rule. 

As a result, any potential benefits and 

costs from the interim final rule are 

limited to alternative mortgage 

transactions, issued by state housing 

creditors, that would not be permissible 

under applicable state law but for 

AMTPA’s preemption of state 

restrictions or requirements or where 

the lender chooses to issue the mortgage 

under AMTPA preemption. Lenders 

choosing to make such mortgages using 

AMTPA preemption will incur the cost 

of complying with the requirements of 

the interim final rule. On the other 

hand, to the extent that making 

alternative mortgage transactions that 

would otherwise be prohibited or 

regulated by state law is profitable to 

lenders, they will benefit from the 

ability to make these loans under the 

interim final rule and from any cost 

savings from avoiding the preempted 

state requirements. Consumers will 

benefit from the provisions of the 

interim final rule and any increased 

availability or lowered price for credit at 

the cost of decreased consumer 

protections from state regulation.83

The CFPB notes that the interim final 

rule does not apply to mortgage 

transactions that the Dodd-Frank Act 

has excluded from the statutory 

definition of ‘‘alternative mortgage 

transaction,’’ as discussed above. For 

these loans, state housing creditors can 

no longer invoke AMTPA preemption 

and therefore the costs and benefits just 

described are not relevant. Such 

mortgages include fixed-rate mortgage 

loans with interest-only payment 

periods or negative amortization 

features, fixed-rate balloon loans where 

the lender does not make a commitment 

to renew the loan, and certain other 

products that previously fit within the 

statutory definition. 

In order to estimate the potential costs 

and benefits of the interim final rule, the 

CFPB has examined various data 

sources and consulted with industry 

and consumer representatives, market 

participants, and other regulators. To 

date, the CFPB has found no 

comprehensive data from either 

regulatory or private sources to 

determine the number, value, location, 

or type of originator of mortgages 

originated specifically using AMTPA 

preemption. Available data indicate that 

variable rate mortgages comprised 

approximately 12 percent of mortgage 

originations in the first quarter of 2011. 

However, this figure overstates the 

percentage of transactions made by state 

housing creditors under AMTPA 

preemption because it includes 

transactions made by federally chartered 

housing creditors, transactions made by 

state housing creditors under some 

other form of preemption or state parity 

law, and transactions made by state 

housing creditors under state law. Still, 

with a significant number of states 

imposing restrictions on the size, 

frequency, or timing of interest rate and 

payment adjustments and 

renegotiations, the CFPB expects there 

are some markets where the volume of 

mortgages made using AMTPA 

preemption may be significant. The 

CFPB seeks comment on available 

sources of information to better evaluate 

the potential benefits and costs of 

AMTPA implementing rules. 


srobinson on DSK4SPTVN1PROD with RULES2
Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44241 

84The interim final rule does not require these 

creditors to report to the CFPB the number of loans 

made under AMTPA. 

A. Potential Benefits and Costs to 

Consumers and Covered Persons, 

Including any Potential Reduction of 

Access by Consumers to Consumer 

Financial Products or Services 

As described above, the interim final 

rule specifies requirements for 

mortgages made using AMTPA 

preemption, including loans with 

variable or adjustable rates, shared 

equity or shared appreciation loans, and 

fixed-rate balloon loans where the 

creditor commits to renewing the loan. 

These include requirements for the 

index used for adjustable rate 

mortgages, certain loan terms regarding 

renewal commitments for balloon 

mortgages, and underwriting 

requirements for high-cost and higherpriced mortgage loans.84 The potential 

benefits and costs from these provisions 

to consumers and covered entities are 

discussed below. 

For home equity lines of credit 

opened by state housing creditors using 

AMTPA preemption, the interim final 

rule mandates that an adjustable rate be 

based on a publicly available index that 

is beyond the creditor’s control. For 

closed-end mortgages, a state housing 

creditor must either comply with this 

requirement or use a formula or 

schedule identifying the amount and 

timing of interest rate increases. The 

CFPB does not have specific 

information suggesting that creditors are 

originating mortgages where the interest 

rate is tied to an internal index. Based 

on discussions with the other regulators 

and industry groups, the CFPB 

understands that at most a few creditors 

use internal indices and that precluding 

their use in AMTPA loans would have 

a negligible impact on the mortgage 

markets. 

To the limited extent some creditors 

might seek to offer ARMs based on an 

index within the creditors’ control, the 

interim final rule benefits consumers by 

shielding them from rate increases 

within the unilateral control of the 

creditor that are not market-based. At 

the same time, the index requirements 

could increase the costs for creditors 

who wish to offer loans based on a 

prohibited internal index: These 

creditors may incur increased 

operational costs in tracking such an 

external index and increased costs of 

funding relative to using an internal 

index. They therefore may raise the 

price of certain loans or be unwilling to 

offer loans to some borrowers. However, 

the aggregate costs from these 

provisions are likely to be minimal 

since the costs of compliance for any 

affected individual lender are likely to 

be small, and these rules likely apply to 

only a limited number of mortgages. On 

the other hand, creditors making loans 

using AMTPA preemption will benefit 

to the extent that they are able to 

originate loans that would otherwise be 

preempted by state law and do not have 

to incur certain costs related to 

complying with the preempted state 

law. The specific cost reductions would 

depend on the regulations in the 

particular state. For creditors choosing 

to issue loans using AMTPA 

preemption, these benefits are assumed 

to exceed the costs. 

The interim final rule also specifies 

that, in order to qualify for preemption, 

balloon payment mortgages with 

renegotiable rates must include a 

written commitment by the lender to 

renew the loan, subject to certain 

limitations. As discussed in Section III 

of this Federal Register notice, this 

requirement of a written commitment 

stems primarily from changes to the 

definition of ‘‘alternative mortgage 

transaction’’ made by Congress under 

the Dodd-Frank Act. The requirement 

for a written commitment will benefit 

some consumers by reducing the risk of 

default arising from a borrower’s 

inability to satisfy the balloon payment 

or to refinance the loan at the end of the 

loan term. Conversely, for state housing 

creditors that, by virtue of AMTPA 

preemption, offer or wish to offer fixedrate balloon mortgages with only 

unwritten (oral or implied) 

commitments to renew or with no such 

commitments, the implementation of 

this standard is likely to increase 

operational costs, such as revising 

administrative systems and procedures, 

including contract forms, in order to 

conform to the interim final rule. The 

commitment to renew will also impose 

costs on creditors as they assume 

additional risk. On the other hand, 

creditors making loans using AMTPA 

preemption will benefit to the extent 

that they are able to originate loans that 

would otherwise be prohibited by state 

law and by not having to incur certain 

costs related to complying with the 

preempted state law. The specific cost 

reductions would depend on the 

regulations in the particular state. For 

creditors choosing to issue such balloon 

loans using AMTPA preemption, these 

benefits are assumed to exceed the 

costs, and on net consumers should see 

greater credit availability at the cost of 

any decreased consumer protections 

provided by the preempted state 

regulations. Any effects of these 

provisions are likely to be greatest in 

markets, if any, where such balloon 

products are prevalent and where 

consumers have few alternatives to such 

products. The CFPB seeks comment 

regarding the size of, and current 

practices within, this market segment. 

The interim final rule also requires 

that ‘‘high-cost’’ or ‘‘higher-priced’’ 

alternative mortgage transactions made 

using AMTPA preemption comply with 

the corresponding underwriting 

requirements and restrictions on loan 

terms contained in Regulation Z. For 

loan terms in these mortgages that are 

not preempted under AMTPA, such as 

terms related to prepayment penalties, 

the interim final rule imposes no 

additional costs or benefits since 

creditors are required to meet the 

federal standards even in the absence of 

the interim final rule and the state 

requirements remain in place. For loan 

terms that are preempted under 

AMTPA, creditors may save from not 

having to comply with the preempted 

state requirements. The potential costs 

and benefits for consumers depend on 

the specific provisions that are 

preempted. 

B. The Impact of the Interim Final Rule 

on Depository Institutions and Credit 

Unions With $10 Billion or Less in Total 

Assets as Described in Section 1026 and 

the Impact on Consumers in Rural 

Areas 

During 2010, roughly 1,500 state 

chartered credit unions with $10 billion 

or less in assets as described in Section 

1026 of the Dodd-Frank Act made 

adjustable rate or balloon mortgages. In 

aggregate that year, these credit unions 

issued roughly 240,000 adjustable rate 

mortgages and another 30,000 balloon/ 

hybrid loans. Together, these amount to 

just under 50 percent of the mortgages 

(by number) originated by these credit 

unions in 2010. To the extent that all or 

some of these loans were originated 

using AMTPA preemption, the benefits 

and costs described above would apply 

to these types of loans as issued by state 

chartered credit unions. The CFPB seeks 

additional information to specify more 

precisely the benefits or costs for these 

credit unions. 

Similar issuance figures are not 

available for other depository 

institutions with $10 billion or less in 

assets as described in Section 1026. The 

closest available data for banks only 

detail the value of outstanding fixed rate 

and adjustable rate mortgages but not 

the value of originations broken out into 

these categories. As of the end of 2010, 

approximately 25 percent of the 

outstanding amount of mortgages held 

by state chartered banks with total 

assets under $10 billion, and secured by 


srobinson on DSK4SPTVN1PROD with RULES2
44242 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

85 12 U.S.C. 3804. Six states exercised their optout authority in whole or in part: Arizona, Maine, 

Massachusetts, New York, South Carolina, and 

Wisconsin. See, e.g., Grant S. Nelson & Dale A. 

Whitman, Real Estate Finance Law § 11.4 (4th ed. 

2001). 

1–4 family dwellings, was in adjustable 

rate loans. Applying that percentage to 

preliminary data from the most recently 

available data collected under the Home 

Mortgage Disclosure Act results in an 

estimated 340,000 adjustable rate 

mortgages made in 2009. As the 25 

percent figure is likely an overestimate, 

the result should be viewed as an upper 

bound. Were all of these loans made 

using AMTPA preemption, they would 

incur the costs and benefits described 

for these products. The CFPB seeks 

additional information to specify more 

precisely the monetary costs or benefits 

for these institutions. 

Further, only a fraction of the loans 

just described were likely made using 

AMTPA preemption. Many states have 

parity or wild card laws that allow 

designated lenders (most often 

depository institutions and/or credit 

unions chartered in those states) the 

option to follow mortgage regulations 

applicable to federally chartered lenders 

or other types of institutions operating 

in the same jurisdiction. Firms that 

operate under wild card laws face no 

added costs under the interim final rule 

because they do not need to rely on 

AMTPA preemption. In addition, in 

states that opted out of AMTPA in 

whole or in part,85 the interim final rule 

will impose no additional costs or 

benefits to the extent of the opt out. 

Still, it is possible that for particular 

lenders or markets, AMTPA preemption 

is an important driver of market 

outcomes. As discussed above, balloon 

mortgage loans without a written 

commitment to renew may represent a 

significant product in certain rural 

markets served by credit unions and 

community banks or by non-depository 

issuers who may not be able to avail 

themselves of wild card laws. The 

specific provisions of the interim final 

rule offering preemption for only those 

loans with written commitments, while 

imposing some costs, should benefit 

lenders and consumers in those specific 

markets by allowing such mortgages 

under AMTPA preemption. The CFPB is 

continuing to research this question and 

seeks comment on these issues. 

C. Consultation 

The CFPB has consulted with the 

prudential regulators, the Federal Trade 

Commission, and the Department of 

Housing and Urban Development 

regarding the substance of the interim 

final rule, including whether the rule 

was consistent with prudential, market, 

or systemic objectives administered by 

those agencies. The CFPB will engage in 

further consultations during the noticeand-comment rulemaking process. 

List of Subjects in 12 CFR Chapter X 

Banks, banking, consumer protection, 

credit unions, mortgages, national 

banks, truth in lending. 

Authority and Issuance 

For the reasons set forth in the 

preamble and under the authority of 

Public Law 111–203, the CFPB 

establishes Chapter X in Title 12 of the 

Code of Federal Regulations, consisting 

of parts 1000 through 1099, to read as 

follows: 

CHAPTER X—BUREAU OF CONSUMER 

FINANCIAL PROTECTION 

■ 1. Add part 1004 to read as follows: 

PART 1004—ALTERNATIVE 

MORTGAGE TRANSACTION PARITY 

(REGULATION D) 

Sec. 

1004.1 Authority, purpose, and scope 

1004.2 Definitions 

1004.3 Preemption of State law 

1004.4 Requirements for alternative 

mortgage transactions 

Appendix A to Part 1004—Official 

Commentary on Regulation D 

Authority: 12 U.S.C. 3802, 3803; 15 U.S.C. 

1604, 1639b; Pub. L. No. 111–203, 124 Stat. 

1376. 

§ 1004.1—Authority, purpose, and scope. 

(a) Authority. This regulation, known 

as Regulation D, is issued by the Bureau 

of Consumer Financial Protection to 

implement the Alternative Mortgage 

Transaction Parity Act, 12 U.S.C. 3801 

et seq., as amended by title X, Section 

1083 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(Pub. L. 111–203, 124 Stat. 1376). 

Section 1004.4 is issued pursuant to the 

Alternative Mortgage Transaction Parity 

Act (as amended) and the Truth in 

Lending Act, 15 U.S.C. 1601 et seq. 

(b) Purpose. Consistent with the 

Alternative Mortgage Transaction Parity 

Act, the Truth in Lending Act, and the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, the purpose 

of this regulation is to balance access to 

responsible credit and enhanced parity 

between State and federal housing 

creditors regarding the making, 

purchase, and enforcement of 

alternative mortgage transactions with 

consumer protection and the interests of 

the States in regulating mortgage 

transactions generally. 

(c) Scope. This regulation applies to 

an alternative mortgage transaction if 

the creditor received an application for 

that transaction on or after July 22, 

2011. This regulation does not apply to 

a transaction if the creditor received the 

application for that transaction before 

July 22, 2011. 

§ 1004.2 Definitions. 

For purposes of this part: 

Alternative mortgage transaction 

means a loan, credit sale, or account: 

(1) That is secured by an interest in 

a residential structure that contains one 

to four units, whether or not that 

structure is attached to real property, 

including an individual condominium 

unit, cooperative unit, mobile home, or 

trailer, if it is used as a residence; 

(2) That is made primarily for 

personal, family, or household 

purposes; and 

(3) In which the interest rate or 

finance charge may be adjusted or 

renegotiated. 

Creditor shall have the same meaning 

as in 12 CFR 226.2. 

Housing creditor means: 

(1) A depository institution, as 

defined in section 501(a)(2) of the 

Depository Institutions Deregulation 

and Monetary Control Act of 1980; 

(2) A lender approved by the 

Secretary of Housing and Urban 

Development for participation in any 

mortgage insurance program under the 

National Housing Act; 

(3) Any person who regularly makes 

loans, credit sales, or advances on an 

account secured by an interest in a 

residential structure that contains one to 

four units, whether or not the structure 

is attached to real property, including 

an individual condominium unit, 

cooperative unit, mobile home, or 

trailer, if it is used as a residence; and 

(4) Any transferee of a party listed in 

paragraph (c)(1), (2), or (3) of this 

section. 

State means any State of the United 

States of America, the District of 

Columbia, Puerto Rico, the Virgin 

Islands, the Northern Mariana Islands, 

American Samoa, Guam, and any other 

territory or possession of the United 

States. 

State law means a State constitution, 

statute, or regulation or any provision 

thereof. 

§ 1004.3 Preemption of State law. 

Pursuant to 12 U.S.C. 3803, a Statechartered or -licensed housing creditor 

may make, purchase, and enforce 

alternative mortgage transactions in 

accordance with § 1004.4(a) through (c) 

of this part (as applicable), 

notwithstanding any provision of State 

law that restricts the ability of the 

housing creditor to adjust or renegotiate 

an interest rate or finance charge with 


srobinson on DSK4SPTVN1PROD with RULES2
Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 44243 

respect to the transaction or to change 

the amount of interest or finance 

charges included in a regular periodic 

payment as a result of such an 

adjustment or renegotiation. 

§ 1004.4 Requirements for alternative 

mortgage transactions. 

(a) Mortgages with adjustable rates or 

finance charges and home equity lines 

of credit. A creditor that makes an 

alternative mortgage transaction with an 

adjustable rate or finance charge may 

only increase the interest rate or finance 

charge as follows: 

(1) If the transaction is subject to 12 

CFR 226.5b, the creditor must comply 

with 12 CFR 226.5b(f)(1). 

(2) For all other transactions, the 

creditor must use either: 

(i) An index to which changes in the 

interest rate are tied that is readily 

available to and verifiable by the 

borrower and beyond the control of the 

creditor; or 

(ii) A formula or schedule identifying 

the amount that the interest rate or 

finance charge may increase and the 

times at which, or circumstances under 

which, a change may be made. 

(b) Renegotiable rates for renewable 

balloon-payment mortgages. A creditor 

that makes an alternative mortgage 

transaction with payments based on an 

amortization period and a large final 

payment due after a shorter term may 

negotiate an increase or decrease in the 

interest rate when the transaction is 

renewed only if the creditor makes a 

written commitment to renew the 

transaction at specified intervals 

throughout the amortization period. 

However, the creditor is not required to 

renew the transaction if: 

(1) Any action or inaction by the 

consumer materially and adversely 

affects the creditor’s security for the 

transaction or any right of the creditor 

in such security; 

(2) There is a material failure by the 

consumer to meet the repayment terms 

of the transaction; 

(3) There is fraud or a willful or 

knowing material misrepresentation by 

the consumer in connection with the 

transaction; or 

(4) Federal law dealing with credit 

extended by a depository institution to 

its executive officers specifically 

requires that as a condition of the 

extension the credit shall become due 

and payable on demand, provided that 

the creditor includes such a provision in 

the initial agreement. 

(c) Requirements for high-cost and 

higher-priced mortgage loans. (1) If an 

alternative mortgage transaction is 

subject to 12 CFR 226.32, the creditor 

must comply with 12 CFR 226.32 and 

12 CFR 226.34. 

(2) If an alternative mortgage 

transaction is subject to 12 CFR 226.35, 

the creditor must comply with 12 CFR 

226.35. 

(d) Other applicable law. 

Notwithstanding paragraphs (a) through 

(c) of this section, a housing creditor 

that is not making an alternative 

mortgage transaction pursuant to 

§ 1004.3 of this part may make that 

transaction consistent with applicable 

State or Federal law other than this 

section. 

(e) Reductions in interest rate or 

finance charge. Nothing in this section 

prohibits a creditor from decreasing the 

interest rate or finance charge on an 

alternative mortgage transaction. 

Appendix A to Part 1004—Official 

Commentary on Regulation D 

§ 1004.1 Authority, Purpose, and Scope 

1(c) Scope. 

1. Application received before July 22, 

2011. This Part does not apply to a 

transaction if the creditor received the 

application for that transaction before July 

22, 2011, even if the transaction was 

consummated or completed on or after July 

22, 2011. Whether 12 U.S.C. 3803(c) 

preempts State law with respect to such a 

transaction depends on whether: (1) The 

transaction was an alternative mortgage 

transaction as defined by the version of 12 

U.S.C. 3802(1) in effect at the time of 

application; and (2) the State housing 

creditor complied with applicable federal 

regulations issued by the Office of the 

Comptroller of the Currency, the National 

Credit Union Administration, the Office of 

Thrift Supervision, or the Federal Home Loan 

Bank Board in effect at the time of 

application. 

2. Subsequent modifications and other 

actions. If applicable regulations under 12 

U.S.C. 3803(c) (including this Part) 

preempted State law with respect to an 

alternative mortgage transaction at the time 

the application was received, the following 

actions with respect to that transaction are 

entitled to the same degree of preemption 

under such regulations: 

i. The subsequent consummation, 

completion, purchase, or enforcement of the 

transaction by a housing creditor. 

ii. The subsequent modification, renewal, 

or extension of the transaction. However, if 

such a transaction is satisfied and replaced 

by another transaction, the second 

transaction must independently meet the 

requirements for preemption in effect at the 

time the application for the second 

transaction was received. 

§ 1004.2 Definitions 

2(a) Alternative Mortgage Transaction 

1. Alternative mortgage transaction. For 

purposes of this Part, an alternative mortgage 

transaction that meets the definition in 

§ 1004.2(a) includes any consumer credit 

transaction that is secured by a mortgage, 

deed of trust, or other equivalent consensual 

security interest in a dwelling or in 

residential real property that includes a 

dwelling. The dwelling need not be the 

primary dwelling of the consumer. Home 

equity lines of credit and subordinate lien 

mortgages are alternative mortgage 

transactions for purposes of this Part to the 

extent they meet the definition in § 1004.2(a). 

2. Examples of alternative mortgage 

transactions. Examples of alternative 

mortgage transactions include: 

i. Transactions in which the interest rate 

changes in accordance with fluctuations in 

an index. 

ii. Transactions in which the interest rate 

or finance charge may be increased or 

decreased after a specified period of time or 

under specified circumstances. 

iii. Balloon transactions in which 

payments are based on an amortization 

schedule and a large final payment is due 

after a shorter term, where the creditor makes 

a commitment to renew the transaction at 

specified intervals throughout the 

amortization period, but the interest rate may 

be renegotiated at renewal. For example, a 

fixed-rate mortgage loan with a 30-year 

amortization period but a balloon payment 

due five years after consummation is an 

alternative mortgage transaction under 

§ 1004.2(a) if the creditor commits to renew 

the mortgage at five-year intervals for the 

entire 30-year amortization period. 

iv. Transactions in which the creditor and 

the consumer agree to share some or all of 

the appreciation in the value of the property 

(shared equity/shared appreciation). 

However, this Part preempts State law only 

to the extent provided in § 1004.3 and only 

to the extent that the requirements of 

§ 1004.4(a) through (c) (as applicable) are 

met. 

3. Examples of transactions that are not 

alternative mortgage transactions. The 

following are examples of transactions that 

are not alternative mortgage transactions: 

i. Transactions with a fixed interest rate 

where one or more of the regular periodic 

payments may be applied solely to accrued 

interest and not to loan principal (an interestonly feature). 

ii. Balloon transactions with a fixed 

interest rate where payments are based on an 

amortization schedule and a large final 

payment is due after a shorter term, where 

the creditor does not make a commitment to 

renew the transaction at specified intervals 

throughout the amortization period. 

iii. Transactions with a fixed interest rate 

where one or more of the regular periodic 

payments may result in an increase in the 

principal balance (a negative amortization 

feature). 

2(b) Creditor 

1. Creditor. As defined in 12 CFR 226.2, 

‘‘creditor’’ includes federally and Statechartered banks, thrifts, and credit unions, as 

well as non-depository institutions, such as 

State-licensed lenders. The Official Staff 

Commentary to 12 CFR 226.2 contains 

additional guidance on the definition of the 

term ‘‘creditor.’’ See 12 CFR 226.2, Supp. I. 


srobinson on DSK4SPTVN1PROD with RULES2
44244 Federal Register / Vol. 76, No. 141 / Friday, July 22, 2011 / Rules and Regulations 

§ 1004.3 Preemption of State Law 

1. Scope of State laws. Regardless of 

whether a State law applies solely to 

alternative mortgage transactions or applies 

to both alternative mortgage transactions and 

other mortgage or consumer credit 

transactions, that law is preempted by 

§ 1004.3 only to the extent that it restricts the 

ability of a State-chartered or -licensed 

housing creditor to adjust or renegotiate an 

interest rate or finance charge with respect to 

an alternative mortgage transaction or to 

change the amount of interest or finance 

charges included in a regular periodic 

payment as a result of such an adjustment or 

renegotiation. 

2. Examples of State laws that are 

preempted. The following are examples of 

State laws that are preempted by § 1004.3: 

i. Restrictions on the adjustment or 

renegotiation of an interest rate or finance 

charge, including restrictions on the 

circumstances under which a rate or charge 

may be adjusted, the method by which a rate 

or charge may be adjusted, and the amount 

of the adjustment to the rate or charge. For 

example, if a provision of State law prohibits 

creditors from increasing an adjustable rate 

more than two percentage points or from 

increasing an adjustable rate more than once 

during a year, that provision is preempted by 

§ 1004.3 with respect to alternative mortgage 

transactions that comply with § 1004.4(a) 

through (c), as applicable. Similarly, if a 

provision of State law prohibits housing 

creditors from renewing balloon transactions 

that meet the definition of an alternative 

mortgage transaction in § 1004.2(a) on 

different terms, that provision is preempted 

by § 1004.3 only to the extent that it restricts 

a state housing creditor’s ability to adjust or 

renegotiate the interest rate or finance charge 

at renewal. See also comment 1004.3–3.i. 

ii. Restrictions on the ability of a housing 

creditor to change the amount of interest or 

finance charges included in regular periodic 

payments as a result of the adjustment or 

renegotiation of an interest rate or finance 

charge. For example, if a provision of State 

law prohibits housing creditors from 

increasing payments or limits the amount of 

such increases with respect to both 

alternative mortgage transactions and other 

mortgage or consumer credit transactions, 

that provision is preempted by § 1004.3 to 

the extent that it restricts a housing creditor’s 

ability to adjust payments as a result of the 

adjustment or renegotiation of an interest rate 

on an alternative mortgage transaction. Other 

restrictions on changes to payments are not 

preempted, including restrictions on 

transactions in which one or more of the 

regular periodic payments may result in an 

increase in the principal balance (a negative 

amortization feature) or may be applied 

solely to accrued interest and not to loan 

principal (an interest-only feature). 

iii. Restrictions on the creditor and the 

consumer sharing some or all of the 

appreciation in the value of the property 

(shared equity/shared appreciation). 

iv. Underwriting requirements that address 

the adjustment or renegotiation of interest 

rates or finance charges. For example, if a 

provision of State law requires housing 

creditors to underwrite based on the 

maximum contractual rate, that provision is 

preempted by § 1004.3 with respect to 

alternative mortgage transactions, regardless 

of whether the provision applies solely to 

alternative mortgage transactions or to both 

alternative mortgage transactions and other 

mortgage or consumer credit transactions. 

3. Examples of State laws that are not 

preempted. The following are examples of 

State laws that are not preempted by § 1004.3 

regardless of whether the provision applies 

solely to alternative mortgage transactions or 

to both alternative mortgage transactions and 

other mortgage or consumer credit 

transactions: 

i. Restrictions on prepayment penalties or 

late charges (including an increase in an 

interest rate or finance charge as a result of 

a late payment). 

ii. Restrictions on transactions in which 

one or more of the regular periodic payments 

may result in an increase in the principal 

balance (a negative amortization feature) or 

may be applied solely to accrued interest and 

not to loan principal (an interest-only 

feature). 

iii. Requirements that disclosures be 

provided. 

§ 1004.4 Requirements for Alternative 

Mortgage Transactions 

4(a) Mortgages With Adjustable or 

Renegotiable Rates or Finance Charges and 

Home Equity Lines of Credit 

1. Index values. A creditor may use any 

measure of index values that meets the 

requirements in § 1004.4(a)(2)(i). For 

example, the index may be either single 

values as of a specific date or an average of 

values calculated over a specified period. 

2. Index beyond creditor’s control. A 

creditor may increase an adjustable interest 

rate pursuant to § 1004.4(a)(2)(i) only if the 

increase is based on an index that is beyond 

the creditor’s control. For purposes of 

§ 1004.4(a)(2)(i), an index is not beyond the 

creditor’s control if the index is the creditor’s 

own prime rate or cost of funds. A creditor 

is permitted, however, to use a published 

prime rate, such as the prime rate published 

in the Wall Street Journal, even if the 

creditor’s own prime rate is one of several 

rates used to establish the published rate. 

3. Publicly available. For purposes of 

§ 1004.4(a)(2)(i), the index must be available 

to the public. A publicly available index 

need not be published in a newspaper, but 

it must be one the consumer can 

independently obtain (by telephone, for 

example) and use to verify the annual 

percentage rate applied to the alternative 

mortgage transaction. 

4(c) Requirements for High-Cost and 

Higher-Priced Mortgage Loans 

1. Prepayment penalties. If applicable, 

creditors must comply with 12 CFR 226.32, 

including 12 CFR 226.32(d)(6) and (d)(7) 

which provide limitations on prepayment 

penalties. Similarly, if applicable, creditors 

must comply with 12 CFR 226.35, including 

12 CFR 226.35(b)(2), which also provides 

limitations on prepayment penalties. 

However, under § 1004.3, State laws 

regarding prepayment penalties are not 

preempted. See comment 1004.3–3.i. 

Accordingly, creditors must also comply 

with any State laws regarding prepayment 

penalties unless an independent basis for 

preemption exists, such as because the State 

law is inconsistent with the requirements of 

Regulation Z, 12 CFR Part 226. See 12 CFR 

226.28. 

4(d) Other Applicable Law 

1. Other applicable law. Section 1004.4(d) 

permits state housing creditors that do not 

seek preemption under § 1004.3 and federal 

housing creditors to make alternative 

mortgage transactions consistent with 

applicable State or federal law other than 

§ 1004.4(a) through (c). However, § 1004.4(d) 

does not exempt those housing creditors from 

complying with the provisions of federal law 

that are incorporated by reference in § 1004.4 

and are otherwise applicable to the creditor. 

Specifically, nothing in § 1004.4(d) exempts 

a housing creditor from complying with 12 

CFR 226.5b, 226.32, 226.34, or 226.35. 

Dated: July 19, 2011. 

Alastair M. Fitzpayne, 

Deputy Chief of Staff and Executive Secretary, 

Department of the Treasury. 

[FR Doc. 2011–18676 Filed 7–21–11; 8:45 am] 

BILLING CODE 4810–25–P 


srobinson on DSK4SPTVN1PROD with RULES2