Opinion ID: 666003
Heading Depth: 4
Heading Rank: 1

Heading: The Law Before 1983

Text: 34 The banks first direct our attention to the Home Owners' Loan Act (HOLA), 12 U.S.C. Secs. 1461-1468c. HOLA, which was originally passed during the Great Depression as an emergency relief measure, provided for the creation of a system of federal savings and loan associations regulated by a single federal agency, the Federal Home Loan Bank Board (FHLBB). de la Cuesta, 458 U.S. at 159-60, 102 S.Ct. at 3025-26. In 1989, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act, which amended the HOLA by dissolving the FHLBB and creating the OTS in its place. 12 U.S.C. Secs. 1462a-1464; First Gibraltar Bank, 815 F.Supp. at 1013. The HOLA authorizes federal savings associations to make loans on the security of liens upon residential real property to the extent specified in regulations of the Director of the OTS. 12 U.S.C. Sec. 1464(c)(1)(B). The statute also authorizes federal savings associations to make loans on the security of liens upon nonresidential real property, with certain limitations based upon the capital of the particular savings association. 12 U.S.C. Sec. 1464(c)(2)(B). 35 In 1978, the FHLBB first authorized federal savings associations to use three new types of mortgage instruments: the variable rate mortgage, the graduated payment mortgage, and the reverse annuity mortgage. 43 Fed.Reg. 59,336, 59,336 (1978) (The variable rate mortgage will ... be authorized on a state-by-state basis; the graduated payment mortgage and reverse-annuity mortgage are hereby authorized nationwide. (emphasis added)). The purpose of the new regulations was to meet the needs of homeowners during different phases of their financial life cycles. Id. 36 In 1981, the FHLBB promulgated a number of amendments regarding the lending authority of federal savings associations. One primary purpose of the amendments was to authorize those associations to make, purchase, participate or otherwise deal in adjustable mortgage loan instruments, which permit adjustment of the interest rate. 46 Fed.Reg. 24,148, 24,148 (1981). The adjustable mortgage loan regulation, 12 C.F.R. Sec. 545.6-4a, included an express preemption provision, which stated: 37 This exercise of the Board's authority is preemptive of any state law purporting to address the subject of a Federal association's ability or right to make, purchase, participate, or otherwise deal in adjustable mortgage loans, or to directly or indirectly restrict such ability or right. 38 12 C.F.R. Sec. 545.6-4a(a)(2) (1982). The commentary accompanying the new regulations noted, This preemption has the effect of precluding the application of the laws of approximately 30 states prohibiting the charging of interest on interest. 46 Fed.Reg. 24,148, 24,151 (1981). We take note of these changes in the regulation of adjustable rate mortgages because, at the same time, the FHLBB took the opportunity to amend 12 CFR 545.6-4, [authorizing] other alternative mortgage instruments, by inserting a similar preemption of inconsistent state law, id., which provision read as follows: 39 This regulation is promulgated pursuant to the plenary and exclusive authority of the Board to regulate all aspects of the operations of Federal associations.... This exercise of the Board's authority is preemptive of any state law purporting to address the subject of a Federal association's ability or right to make, purchase, or participate in the alternative mortgage instruments set forth in this section [namely graduated payment mortgages and reverse annuity mortgages], or to directly or indirectly restrict such ability. 40 12 C.F.R. Sec. 545.6-4(a)(2) (1982). 41 Another significant development in this area of the law prior to 1983 occurred when the Supreme Court decided the de la Cuesta case on June 28, 1982. At issue was a FHLBB regulation providing that due-on-sale clauses in mortgage instruments entered into by federal savings associations shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the association and borrower shall be fixed and governed by that contract. de la Cuesta, 458 U.S. at 147, 102 S.Ct. at 3019 (quoting 12 C.F.R. Sec. 545.8-3(f) (1982)). The FHLBB stated in the preamble accompanying the final publication of the regulation that it intended to preempt any state laws imposing additional limitations on the enforceability of due-on-sale clauses. Id. (citing 41 Fed.Reg. 18,286, 18,287 (1976)). 42 The Court recognized that Congress may delegate its power to preempt state laws to federal agencies such as the FHLBB. Id. at 153, 154, 102 S.Ct. at 3022, 3022. The Court further stated that a pre-emptive regulation's force does not depend on express congressional authorization to displace state law; moreover, whether the administrator failed to exercise an option to promulgate regulations which did not disturb state law is not dispositive. Id. at 154, 102 S.Ct. at 3023. After stating these general principles, the Court turned aside all of the appellees' arguments against preemption, concluding that any ambiguity in the regulation regarding the FHLBB's preemptive intent was dispelled by the accompanying preamble. Id. at 158 & n. 13, 102 S.Ct. at 3025 & n. 13. Having decided that the FHLBB's regulation did indeed conflict with state law, the Court next considered whether the agency had acted within its statutory authority in issuing the preemptive regulation. Id. at 159, 102 S.Ct. at 3025. The Court had little difficulty concluding that Congress had given the FHLBB this power in the ample authority conferred on the agency in the HOLA to regulate the lending practices of federal savings and loans so as to further the Act's purposes. Id. 43