Court Opinion

ID: 196527
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:08:00+00
Date Added: 2024-06-11T09:43:08.488122
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UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT
                                           
                                                     

No. 94-1479

                  ROBERT AND JENNIFER GRUNBECK,

                     Plaintiffs, Appellants,

                                v.

             THE DIME SAVINGS BANK OF NEW YORK, FSB,

                       Defendant, Appellee.

                                           
                                                     

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF NEW HAMPSHIRE

          [Hon. Paul J. Barbadoro, U.S. District Judge]
                                                                

                                           
                                                     

                     Torruella, Chief Judge,
                                                     

                 Campbell, Senior Circuit Judge,
                                                         

                     and Cyr, Circuit Judge.
                                                     

                                           
                                                     

   Jewel  N.  Klein, with  whom Holstein,  Mack  & Klein,  George P.
                                                                              
Dickson   and  Law  Offices  of  George  Dickson  were  on  brief  for
                                                        
appellants.
   Douglas G.  Verge, with  whom Richard  P.  Hazelton and  Sheehan,
                                                                              
Phinney, Bass & Green were on brief for appellee.
                             

                                           
                                                     

                         January 23, 1996
                                           
                                                     

          CYR,  Circuit Judge.   The  interesting issue  of first
                    CYR,  Circuit Judge
                                       

impression presented in this case is whether section 501(a)(1) of

the Depository Institutions Deregulation and Monetary Control Act

of  1980, 12  U.S.C.    1735f-7a(a)(1) (1988)  ("Monetary Control

Act"), preempts New Hampshire Rev. Stat. Ann.   397-A:14(I) (West

Supp.  1994) ("Simple Interest Statute" or "SIS").  In a thought-

ful and comprehensive opinion, the district  court ruled that the

Simple  Interest Statute,  as applied  to a  residential mortgage

loan permitting  negative amortization,  is preempted  by section

501(a)(1).  

                                I
                                          I

                            BACKGROUND
                                      BACKGROUND
                                                

          On January  15, 1988, Dime  Real Estate Services  - New

Hampshire,  Inc.  ("Dime  Real  Estate NH")  made  a  thirty-year

adjustable rate loan to Timothy Ray and Thomas F. Richards in the

approximate amount  of $111,000, secured  by a first  mortgage on

their  residence in Milford, New Hampshire.  Dime Real Estate NH,

incorporated  in New  York and  licensed to  extend loans  in New

Hampshire, is a wholly-owned  subsidiary of Dime Savings Bank  of

New  York,  FSB ("Dime  Savings"), a  federally-chartered savings

institution  also incorporated in New York.  The Ray and Richards

note, which  contained a provision  permitting negative amortiza-

tion, was assigned to Dime Savings the day it was made.

          The  interest rate was fixed at 7.75% for the first six

months, adjustable monthly thereafter at a margin of 3% above the

"monthly median  cost  of  funds" ratio,  as  determined  by  the

                                2

Federal  Home Loan  Bank  Board  ("FHLBB"),  and rounded  to  the

nearest one-eighth  of one percentage  point.  The  interest rate

was capped, by agreement, at 9.75% for the second six months, and

13.875% thereafter.  The  note afforded protection from unantici-

pated variable interest rate increases by permitting the borrower

to pay either the total principal and interest due for the month,
                       

or a lower "minimum required  payment amount."  In the  event the
                    

borrower elected  to make  the lower "minimum  required payment,"

however, the  interest remaining unpaid  for that month  would be

added onto  the loan principal, resulting  in "negative amortiza-

tion," and the interest  due the following month would  be calcu-

lated on the basis of the higher adjusted loan principal.  

          On October  31, 1990,  Ray and Richards  conveyed their

Milford  residence,  subject to  the  Dime  Savings mortgage,  to

appellants Robert and Jennifer Grunbeck, who occupied it as their

principal residence.  After the Grunbecks  ceased payments on the

mortgage in 1993,  Dime Savings  instituted foreclosure  proceed-

ings.   The  Grunbecks responded  with an  Ex Parte  Petition for

Injunctive Relief  in New Hampshire state  court, claiming, inter
                                                                           

alia,  that  the  negative  amortization  provision  "compounded"
              

interest and, therefore, violated  the Simple Interest  Statute.1
                    
                              

     1The Simple Interest Statute provides:

          Any first mortgage  home loan made  under the
          provisions  of  this chapter  [Chapter 397-A:
          Licensing  of  Nondepository  First  Mortgage
          Bankers and  Brokers  of Title  35 Banks  and
          Banking;  Loan  Associations; Credit  Unions]
          shall provide for the computation of interest
          on a simple interest basis.  

                                3

Dime Savings promptly removed the case to federal district court,

see  28 U.S.C.     1441,  1446; see  also id.     1332 (diversity
                                                       

jurisdiction),  then  moved to  dismiss  on  the ground,  amongst

others,2  that  section 501(a)(1)  of  the  Monetary Control  Act

preempts the Simple Interest Statute.  In due course the district

court  entered judgment  for Dime  Savings, see Grunbeck  v. Dime
                                                                           

Sav. Bank of New York, FSB, 848 F. Supp. 294,  (D.N.H. 1994), and
                                    

the Grunbecks appealed.

                                II
                                          II

                            DISCUSSION
                                      DISCUSSION
                                                

A.   Standard of Review
          A.   Standard of Review
                                 

          We review  Rule 12(b)(6) dismissals de  novo, crediting
                                                                

all well-pleaded  allegations.  Clarke v.  Kentucky Fried Chicken
                                                                           

of Cal., Inc., 57 F.3d 21,  22 n.1 (1st Cir. 1995).   For present
                       

purposes, therefore,  we accept the allegation  that the negative

amortization provision in the loan agreement "compounds" interest

and thus  contravenes the Simple Interest  Statute.  Accordingly,

                    
                              

N.H. Rev. Stat. Ann.   397-A:14(I).  

     2Dime Savings presented  additional defensive claims  below,
including  that (1)  the SIS  is  preempted by     804(c) of  the
                                                                    
Alternative  Mortgage Transaction Parity Act of 1982, 12 U.S.C.  
3803(c) (1988),  (2) the  negative amortization provision  in the
Dime Savings  note does  not "compound" interest  and, therefore,
does not violate  the SIS, and 3) for  various reasons, the Grun-
becks lack "standing" to  challenge the SIS.  The  district court
bypassed these  claims, and dismissed on the Monetary Control Act
preemption ground.  Grunbeck v. Dime  Sav. Bank of New York, FSB,
                                                                          
848 F. Supp. 294, 296 n.2 (D.N.H. 1994).  We do not address these
claims.   In particular, we  bypass the "standing"  claim because
the undeveloped  record does  not enable its  reliable determina-
tion.  

                                4

we  turn to consider whether  the statute, so  construed, is pre-

empted by section 501(a)(1).3  

B.   Monetary Control Act Preemption
          B.   Monetary Control Act Preemption
                                              

          Congress' power  to preempt state law  derives from the

Supremacy Clause of the United States Constitution.   E.E.O.C. v.
                                                                        

Massachusetts,  987 F.2d  64,  67 (1st  Cir.  1993).   "[I]n  any
                       

preemption analysis,  'the question  of whether federal  law pre-

empts a state statute  is one of congressional intent.'"   Green-
                                                                           

wood  Trust Co.  v. Massachusetts,  971 F.2d  818, 823  (1st Cir.
                                           

1992), cert. denied, 113 S. Ct. 974 (1993) (quoting French v. Pan
                                                                           

Am Express, Inc., 869 F.2d  1, 2 (1st Cir. 1989)).   Although the
                          

preemption  power is  not  liberally exercised  by Congress,  id.
                                                                           

(citing Gregory v. Ashcroft,  111 S. Ct. 2395, 2400 (1991)), if a
                                     

federal  statute  includes  an express  preemption  provision the

court  need only determine its  scope.  Id.  (citing Cipollone v.
                                                                        

Liggett Group, Inc., 112 S. Ct. 2608, 2618 (1992)).  
                             

     1.   Rules of Construction
               1.   Rules of Construction
                                         

          The  scope  of  an  express  preemption   provision  is

gleaned,  first and  foremost, from the  language of  the federal

statute,  employing traditional rules  of statutory construction.

                    
                              

     3The  district court construed the SIS as a ban on "compound
interest," or  "charg[ing] interest on interest."   Grunbeck, 848
                                                                      
F. Supp. at 296 n.2, 298-300, 302-03.  The parties do not dispute
its  construction.   In  addition,  the  State of  New  Hampshire
asserted in  its amicus memorandum below, that "The New Hampshire
Banking Department  has construed the [SIS]  as banning regulated
mortgage companies from using any computational method other than
simple  interest in  loan  products     including,  specifically,
assessments  of  interest  on  deferred interest      unless  the
practice is permitted by overriding federal law."  

                                5

CSX Transp., Inc.  v. Easterwood,  113 S. Ct.  1732, 1737  (1993)
                                          

("If the statute contains an express pre-emption clause, the task

of statutory construction must in the first instance focus on the

plain wording of  the clause, which necessarily contains the best

evidence of Congress' pre-emptive intent.").   Of course, if  the

statutory  language  is  ambiguous,  Burlington N.  R.R.  Co.  v.
                                                                       

Oklahoma Tax Comm'n, 481 U.S.  454, 461 (1987), or would  work an
                             

unreasonable result, we may consult relevant legislative history,

Cabral v.  INS, 15 F.3d 193,  194 (1st Cir. 1994),  to confirm an
                        

interpretation indicated  by the  plain language.   Strickland v.
                                                                        

Commissioner, Maine Dep't. of  Human Servs., 48 F.3d 12,  17 (1st
                                                     

Cir.),  cert. denied,  116  S. Ct.  145  (1995), (citing  INS  v.
                                                           
                                                                       

Cardoza-Fonseca, 480 U.S. 421, 432-43, 446 (1987)).  
                         

          Where  Congress has  spoken directly  to the  issue, an

interpretation rendered by the agency responsible for administer-

ing  the statute is entitled  to no special  deference.  Chevron,
                                                                           

U.S.A.  Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
                                                                 

837, 842 (1984).  In all events, the courts will reject an agency

interpretation which conflicts with congressional intent.  Id. at
                                                                       

843  n.9.   Finally,  we attribute  "ordinary  meaning" to  plain

statutory terms,  see Greenwood Trust,  971 F.2d  at 824  (citing
                                               

Morales  v. Trans  World Airlines,  Inc., 112  S. Ct.  2031, 2036
                                                  

(1992)), but  may  reject an  express preemption  claim absent  a

sufficiently clear license to trespass on state sovereignty.  See
                                                                           

E.E.O.C., 987 F.2d at 68 (citing Gregory, 111 S. Ct. at 2401).  
                                                  

          The  Monetary Control  Act preemption  provision relied

                                6

upon by the district court states in relevant part:

          The provisions of the constitution or laws of
                                                              
          any  State expressly  limiting  the  rate  or
                                                                 
          amount of interest, discount  points, finance
                                      
          charges,  or  other  charges  which   may  be
                                                                 
          charged, taken, received,  or reserved  shall
                                                                 
          not apply to any loan, mortgage, credit sale,
                                                   
          or advance which is     
                                       
               (A)  secured by  a  first  lien  on
                                                            
               residential real property . . .;
                                                  
               (B) made after March 31, 1980; and
               (C) described in section  527(b) of
               the National Housing Act . . . . 

12 U.S.C.    1735f-7a(a)(1) (emphasis added).4  Like the district

court,  see Grunbeck, 848 F.  Supp. at 297-98,  the parties focus
                              

their preemption  analyses primarily on the  phrase "limiting the

rate or amount of interest." 

          As  Dime  Savings views  the  matter,  the SIS  plainly

"limits" the "rate or  amount of interest" received in  the sense

that  more interest would be paid by the borrower were "compound-
                    

ing" not banned under  the SIS; and the SIS  effectively "limits"

the "amount" of interest the lender can recover in the sense that

the lender could earn  more interest were it permitted  to charge

interest at the same "rate" calculated on a compound basis.
                                                                    

          These arguments  rest on the implicit  premise that the

"amount"  of interest the lender  may charge is  "limited" by the

SIS.  On  the contrary, the SIS imposes no  restriction on either

the  "rate" or  the  "amount" of  interest  the borrower  may  be

charged,  but merely  requires that any  interest rate  or amount
                                                 

                    
                              

     4The Grunbecks do not dispute that the Dime Savings mortgage
loan  meets the three criteria set out in   s (A)-(C).  Grunbeck,
                                                                          
848 F. Supp. at 297 n.4.  

                                7

agreed  to  by the  parties be  computed  on a  "simple interest"
                                                  

basis.  Thus, nothing in the SIS prevents a lender from contract-

ing  for whatever  simple  interest rate  will exact  an interest
                                   

return  equal  to or  greater than  whatever  rate and  amount of

interest  would  be recoverable  through  compounding.   The  SIS

leaves  entirely to  the parties  the rate  and amount  of simple

interest to be exacted. 

          The  Dime Savings interpretation  blurs the distinction

between the terms  "rate" and  "amount" of interest,  as used  in

section  501(a)(1).   It  assumes  that the  central  question   
                                           

whether  the SIS limits  the "rate" of  interest    is  to be re-
                                                             
                                 

solved through  reference  to  the  effect the  SIS  ban  against
                                                    

charging interest  on interest  might have  upon the "amount"  of

interest  the lender may be  able to command  in the marketplace.
                                                                          

Not only does this assumption implicitly acknowledge that the SIS

itself imposes no statutory  limit on the simple  interest "rate"
                                            

lenders  may charge, but it  alters the fundamental  focus of the

preemption debate by inquiring whether the SIS might make it more

difficult for lenders to command    in a better-informed  market-

place (i.e., wherein a  "simple interest" calculation is mandato-

ry)    either the rate or amount of interest otherwise obtainable

by "compounding."5  
                    
                              

     5As  the district  court  observed, "without  being able  to
charge interest  on interest, many lenders would not allow poten-
tial  borrowers to  defer accrued  interest."   Grunbeck, 848  F.
                                                                  
Supp.  at 299.  In other words,  many lenders might choose not to
                                                                    
compensate by increasing the simple interest rate, and  might not
permit  borrowers to defer interest payments on which no interest
                
could be  charged.  Although unimpeachable,  these considerations

                                8

          No  less  importantly,  the  shift  in  analytic  focus

attending the  Dime Savings'  assumption undermines  the required

"plain  language"  interpretation,  see  Morales v.  Trans  World
                                                                           

Airlines, Inc., 504  U.S. 374, 383-84  (1992), by extirpating    
                        

from the pivotal section 501(a) clause:   "expressly limiting the

rate or amount of  interest"    the important modifier  "express-

ly."   Thus, the preemption  inquiry urged by  Dime Savings would

focus not on whether the "express" language of the SIS "limit[s]"

the rate  or amount of interest which  the lender may charge, but

on broad-gauged assessments concerning  the likely impact the SIS
                                                                   

ban on  compounding would have  on home-mortgage lenders  and the

industry at large. 

          When engaged in  the task of  statutory interpretation,

"[c]ourts . . . should . . . attempt to give meaning to each word

and  phrase."  See United  States v. Flores,  968 F.2d 1366, 1371
                                                     

(1st Cir. 1992).  Thus, in our view the district court mistakenly

inquired  whether the SIS ban against charging interest on inter-

est  could affect the amount of interest lenders might command in
                           
                    
                              

are inapposite to the present discussion.
     First,  were a  lender to  opt not  to permit  deferments of
interest payments, it nonetheless would receive both the rate and
amount of simple interest  for which it contracted on  all monies
loaned.   Second, in any  such transaction  it could not  be said
that  the SIS, either directly  or effectively, limited the legal
                       
rate or amount of interest chargeable by the lender.  To be sure,
lenders who chose not to offset the SIS ban by raising the simple
interest rate,  or chose  not  to permit  deferments of  interest
payments, would realize less total interest income as a result of
their lending  decision.  But  as the  State noted in  its amicus
memorandum  below, "[t]o  the  extent that  this requirement  may
affect the total amount  of interest potentially realizable under
the Dime [Savings]  loan, such  effect is incidental  to the  re-
quirement and cannot be viewed as an 'express' usury ceiling."  

                                9

the marketplace,  thereby not  only eliding the  term "expressly"

but overlooking the term "limiting" however defined.6

          Moreover,  the language  Congress  employed in  section

501(a)(1)    "expressly  limiting the rate or amount of interest"

   contrasts  sharply with  the preemption language  in companion

section 521  of the Monetary  Control Act, whereby  Congress pre-

empted all state legislation "with respect  to interest rates" in
                                                        

order  to protect  federally insured  State-chartered banks  from

State  regulation of credit card  transactions.  See  12 U.S.C.  
                                                              

1831d(a) (emphasis added).  See also Greenwood Trust, 971 F.2d at
                                                              

830  n.10  ("[S]ection  501  addresses  different  categories  of

lenders and  loans and contains  materially different  preemption

terms than does section  521.").  Thus, it is important to recog-

                    
                              

     6In parsing  the   501(a)(1) text, the district court recog-
nized that the parties' differing views as to the significance of
the term  "limiting" accounted for their  widely divergent inter-
pretations.  The court  observed that "Dime [Savings] essentially
construes 'limiting' as an adjective meaning 'serving to restrict
or restrain.' .  . . The Grunbecks and  the State ... essentially
construe  'limiting' as a verb meaning to impose a 'final, utmost
or furthest boundary' on  permissible interest rates or amounts."
Grunbeck, 848 F. Supp. at 298.  
                  
     In our view, however, the plain statutory language cannot be
read as  Dime Savings  suggests, without  ignoring the  term "ex-
                                                            
pressly," see Flores, 968 F.2d at  1371, and without disregarding
                                                                           
the  "ordinary meaning"  of  the term  "limiting," see  Greenwood
                                                                           
Trust, 971  F.2d at 824.   The SIS itself, as  distinguished from
                                                                           
market forces, does not "serve to . . . restrain" either the rate
                       
or amount of  simple interest  which may be  obtained, since  the
lender  remains  free  to  compensate by  increasing  the  simple
interest rate.   Thus, the  SIS does not  "expressly" limit  "the
rate  or amount of interest."  Nor,  in the alternative, does the
SIS    as distinguished from market forces    "limit" the rate or
                                                    
amount  of interest if "limit" means a "final, utmost or furthest
boundary"  on the  rate  or amount  of  interest, since  the  SIS
imposes no ceiling  whatsoever on  either the rate  or amount  of
                            
simple interest that may be exacted. 

                                10

nize that the Congress which enacted the Monetary Control Act was

acutely aware that  its choice of the  distinctive terminology   

"expressly limiting"     would serve as  the primary interpretive

tool through which its preemptive intent would be revealed to the

courts.  See BFP v. Resolution Trust Corp., 114 S. Ct. 1757, 1761
                                                    

(1994)  (Congress is presumed to act with intent and purpose when

it uses particular language in  one section of a statute  and not

in another.).7  
                    
                              

     7The  district court  drew encouragement for  its preemption
ruling from "[p]revious  interpretations of  similar language  in
similar legislation," with particular  reference to the  National
Bank Act  of 1864, ch. 106,  13 Stat. 99 (codified  as amended in
various sections of Title 12, United States Code).  Grunbeck, 848
                                                                      
F. Supp.  at 300.  Section  85 of the National  Bank Act provided
that "a bank may charge 'interest at the rate allowed by the laws
of the  State, .  . . where  the bank is  located and  no more.'"
Citizens' Nat'l Bank of Kansas City v. Donnell, 195 U.S. 369, 373
                                                        
(1904).  Section 86 stated  that "taking, receiving, or  charging
'a  rate of  interest greater  than is  allowed by  the preceding
section, when knowingly done, shall be deemed a forfeiture of the
entire interest which the  note, bill, or other evidence  of debt
carries with it,  or which has been agreed to  be paid thereon.'"
Id.  
             
     The district court expressed  the view that Donnell supports
                                                                  
a broad reading of   501(a)(1), in two respects.

          First, it offers persuasive support  for con-
          struing "laws limiting the rate or amount  of
          interest"  to  include laws  prohibiting com-
          pound  interest. .  . . Second,  it indicates
          that such laws  also qualify as state  "usury
          laws" which  the title  to   501(a)(1)  indi-
          cates Congress intended to preempt.

Grunbeck,  848 F.  Supp.  at 301.   We  think the  district court
                  
misapprehended  the purport of  Donnell, as  well as  its bearing
                                                 
upon the question before us.  
     First,  the National Bank Act is largely inapposite to   501
                                                                        501
of the Monetary Control Act.  In drafting   501, Congress did not
borrow language from the National  Bank Act.  On the other  hand,
Congress did  borrow  language  from  the National  Bank  Act  in
drafting   521 of the Monetary Control Act.  Greenwood Trust, 971
                     521                                              
F.2d at  827.   "[S]ection 521 was  conceived as an  offspring of

                                11

     2.   Legislative History  
               2.   Legislative History  
                                       

          Even  assuming  ambiguity  in  the   phrase  "expressly

limiting the rate or amount of interest," see  Cabral, 15 F.3d at
                                                               

194, relevant  legislative  history clearly  reflects a  congres-

sional  intention  to  confine  the scope  of  section  501(a)(1)

preemption  to state  laws which  impose express ceilings  on the
                                                                   

rate or amount of interest which may be charged, as distinguished

from bans  against charging interest on  interest or compounding.
                   

The legislative  aim in  enacting section  501 focused  on "state

usury ceilings," S.  Rep. No.  368, 96th Cong.,  2d Sess.  18-19,
                        

reprinted in 1980 U.S.C.C.A.N. 236, 254-55 (emphasis added), with
                      

particular emphasis  on state usury laws  which restrict interest

rates to below-market levels and result in artificial disruptions
                                                                           

in the supply of home-loan mortgage funds.

          The  Committee finds  that where  state usury
          laws  require  mortgage  rates  below  market
          levels of interest,  mortgage funds in  those
          states  will  not  be readily  available  and
          those funds will  flow to other states  where
                    
                              

section 85 of the Bank Act . . . ."  Id. at 830 n.10.   Thus, the
                                                  
Monetary  Control  Act  includes  two  separate  and dramatically
different preemption provisions.  Id.  Consequently, an interpre-
                                              
tation of  the progenitor of   521,  i.e., the National Bank Act,
                                         521
affords  little, if any, insight into the   501 preemption provi-
                                                      501
sion at issue in the present case.      Second,     Donnell    is
                                                                     
inapposite to the  present inquiry not only because  it construed
an  unrelated statute       85  of the  National Bank  Act    but
because the SIS does not "expressly limit[] the rate or amount of
                                             
interest"  even assuming that  a ban  against compounding  can be
                                              
considered a limitation on  the rate of interest "allowed  by the
                                 
laws of the State . . . ."  Donnell, 195 U.S. at 373.  Indeed, it
                                             
is surpassingly awkward to ascribe  meaning to the term "express-
ly"  if the  SIS ban  against compounding  is considered  an "ex-
                                                                           
press[] limit[ation on] the rate or amount of interest" which may
                                                    
be charged, since no rate or amount of "interest on interest" may
                              
be charged under the SIS.

                                12

          market yields are available.  This artificial
          disruption of funds  availability not only is
          harmful  to  potential  homebuyers in  states
          with  usury laws, it also frustrates national
          housing policies and programs. 

Id.  at 254.  Congress thus  sought to  facilitate first-mortgage
             

home loans at market rates, in order to enable an adequate credit

supply and strengthen the financial system. 

               In  addition to  the adverse  effects of
          usury ceilings on credit  availability, mort-
                                  
          gage rate ceilings must be removed if savings
                                      
          and  loan institutions . .  . are to begin to
          pay market  rates of interest on  savings de-
          posits.   Without  enhancing the  ability  of
          institutions  to achieve market rates on both
          sides of their  balance sheets, the stability
          and  continued viability of  our nation's fi-
          nancial system would not be assured.   

Id. at 255 (emphasis added).  
             

          The  district  court   correctly  noted  that  Congress

intended to preempt state laws imposing usury ceilings, Grunbeck,
                                                                          

848 F. Supp.  at 299, but nonetheless concluded that "the [SIS] .

.  .  would limit  the availability  of mortgage  funds in  a way
                                                                           

comparable  to a numerical cap on interest rates."  Id. (emphasis
                                                                 

added).  True, demand  for home mortgage credit could  be reduced

were lenders to decline  to defer interest payments, even  though

the  SIS does not place a ceiling  on simple interest rates.  But

though potential  homebuyers might  borrow less (or  not at  all)

were  lenders to decline to defer interest payments or demand too

high a  rate or  amount  of simple  interest  for doing  so,  the

potential  homebuyer's decision  would  be the  result of  market

forces,  the phenomenon  Congress  set out  to facilitate  in its
                                                                           

enactment  of section  501(a)(1).   That is  to say, the  SIS ban
                                          

                                13

against  charging interest  on  interest  would neither  "require
                                                                           

mortgage  rates  below  market  levels of  interest,"  nor  cause
                                                                           

"artificial disruption in funds  availability."  See 1980 U.S.C.-
                                                              

C.A.N. at 254 (emphasis added).
                        

          Moreover, market adjustments in simple  interest rates,

which New Hampshire home mortgage lenders are free to adopt under

the SIS, tend  to promote equilibrium  between credit supply  and

credit demand.  In contrast, lenders  may be forced from a credit
                                                             

marketplace  governed by  interest rate  ceilings where  the only
                                                           

alternative is to make  loans at interest rates below  the levels

obtainable in competing  loan markets.  Credit  supply is artifi-
                                                                           

cially  disrupted in  such a  lending environment  because credit
                           

demand  tends to go unmet where borrowers are attracted by below-
                

market interest rates but lenders  are not.  As a result,  credit
                                                    

demand and credit supply are less likely to attain equilibrium at

the usury-ceiling  level.  In these  respects at least, a  ban on

compounding is in no sense comparable to a mortgage interest rate

ceiling.8   Thus, an  outright ban  against charging  interest on
                    
                              

     8As  a "[p]revious  interpretation  of  similar language  in
similar legislation," the district court cited to "Fourchon, Inc.
                                                                           
v.  Louisiana Nat'l Leasing Corp., 723 F.2d 376, 381-83 (5th Cir.
                                           
1984)  (construing phrase 'rate of interest' in [  926(d) of the]
Preferred Ship Mortgage Act in accordance with previous construc-
tion of similar phrase in National Bank  Act to preempt state law
prohibiting charging of interest on interest)."  Grunbeck, 848 F.
                                                                   
Supp. at  300.  But  the policies  subserved by    926(d) of  the
Preferred Ship Mortgage Act are much broader than those  underly-
ing    501  of the  Monetary Control  Act.   "The  Preferred Ship
Mortgage Act was  designed to avoid parochial  limitations on the
ready availability of credit  to the shipping industry  by wholly
                                                                           
and  completely  superseding  state  law and  practice  in  every
                                      
respect."   Fourchon,  723 F.2d  at  387 (Shaw,  J.,  dissenting)
                              
(emphasis  added).   "[T]he  policies behind  the Preferred  Ship

                                14

interest  does not work the adverse effects on the credit market-

place  which  concerned  Congress  in  section  501(a)(1),  viz.,

artificial  disruptions  in credit  availability caused  by State
                    

ceilings  on  interest  rates  resulting  in below-market  rates.
                                                                   

Accordingly, we believe the relevant legislative history provides

sturdy support for the view that the important modifier "express-

ly" may not be read out of section 501(a)(1) and the term "limit-

ing" is not to be equated with "banning." 

          Congress  also signaled  its  narrow preemptive  intent

under section  501(a)(1) by insulating these  mortgage loans from

state  usury  limitations  only,  and not  from  other  state-law
                                         

limitations encompassed  within the "annual  percentage rate" nor

other state-law limitations designed to protect borrowers:

          In exempting mortgage loans from  state usury
          limitations, the Committee intends  to exempt
          only those  limitations that are  included in
          the  annual percentage  rate.   The Committee
          does  not intend  to  exempt  limitations  on
          prepayment charges, attorney fees, late char-
          ges  or similar limitations  designed to pro-
                                                                 
          tect borrowers.  
                                  

1980  U.S.C.C.A.N. at 255  (emphasis added).   The district court

concluded,  without  elaboration,   that  "interest  on  interest

prohibitions . . .  are 'included' in the interest  rate."  Grun-
                                                                           

beck, 848 F. Supp. at  300.  Dime Savings so contends  on appeal,
              
                    
                              

Mortgage  Act support  an  expansive interpretation  of the  term
'rate of interest'  in section  926(d)."  Fourchon,  723 F.2d  at
                                                            
382.   As discussed above, however, see Section B.2, the policies
                                                 
underlying    501  of the  Monetary Control Act do  not support a
broad interpretation of  the term "rate  or amount of  interest."
Consequently, the Fourchon  interpretation affords little insight
                                    
into the  preemptive  intent underlying     501 of  the  Monetary
Control Act. 

                                15

maintaining that the SIS ban against charging interest on  inter-

est is included in the "annual interest rate."  We cannot agree. 

          In the first place,  a ban against compounding interest

affords significant consumer protections to homebuyers.  Charging

interest on  deferred interest  under a residential  mortgage not

only increases  the "unseen" costs  of home ownership  but erodes
                                            

home equity.  Moreover, the relevant legislative history address-

es "state usury  limitations" only.  The SIS, on  the other hand,
                                      

is no mere  "limitation" but an outright  ban against calculating

interest on interest.   The ordinary meaning of the  term "limit-

ing" is  either    as the district court and Dime Savings view it

   "serving to restrict or restrain" or    as the Grunbecks  urge

   to enforce  a "final,  utmost or furthest  boundary."  Id.  at
                                                                       

298.   But the  SIS does not  merely "limit," nor  does it simply
                                                           

"restrain,"  compounding;  it prohibits  it.    Thus, the  "plain
                                                 

language"  interpretation advocated  by  Dime  Savings cannot  be

endorsed  without  disregarding  the  ordinary  meanings  of  the

distinctive terms "ban" or  "prohibit" and "limit" or "restrain."

See Greenwood Trust, 971 F.2d at 824. 
                                                
                             

     3.   Administrative Regulations and Opinions  
               3.   Administrative Regulations and Opinions  
                                                           

          Congress authorized  the FHLBB  and its successor,  the

Office of Thrift Supervision ("OTS"), "to issue rules and regula-

tions and to publish interpretations governing the implementation

of [section 501]."   12 U.S.C.   1735f-7a(f).  Judicial review of

an agency's  interpretation of the statute  it administers impli-

cates two  preliminary  inquiries.   Strickland,  48 F.3d  at  16
                                                         

                                16

(citing  Chevron, 467  U.S.  at  842-43).  The first  is  whether
                          

Congress has "directly spoken to  the precise question at issue."

Id.  (quoting Chevron, 467 U.S. at 842) (internal quotation marks
                               

omitted).  If  not, we  inquire "whether the  agency's answer  is

based  on a permissible construction of the statute."  Id. (quot-
                                                                    

ing Chevron, 467 U.S. at 843) (internal quotation marks omitted).
                     

Although we accord deference  to the agency's interpretation, the

final  word  on  statutory  interpretation  is  for  the  courts.

Chevron, 467 U.S. at 843 n.9 ("The judiciary is the final author-
                 

ity on issues of statutory construction and must reject  adminis-

trative  constructions which are  contrary to clear congressional

intent.").   Furthermore,  "[i]f  a court,  employing traditional

tools of statutory construction,  ascertains that Congress had an

intention on the precise question at issue, that intention is the

law and must be given effect."   Id.  Where an agency interpreta-
                                              

tion  is based exclusively on  its reading of  the bare statutory

language, no special deference  is due.  See Strickland,  48 F.3d
                                                                 

at 16.  Furthermore, if "the statute itself, viewed in connection

with the statutory design and the legislative history, reveals an

unequivocal  answer  to the  interpretive  question, the  court's

inquiry ends."  Id. at 17.
                            

          a. FHLBB Regulations
                    a. FHLBB Regulations
                                        

          The FHLBB has issued administrative regulations for the

implementation  of section  501, see  12 C.F.R. Part  590 (1988),
                                              

which  focus upon the effect  of interest ceilings  on the avail-
                                                            

ability of  mortgage  credit.   "The  purpose of  this  permanent

                                17

preemption of state interest-rate ceilings applicable to Federal-
                                                    

ly-related  residential  mortgage loans  is  to  ensure that  the

availability of  such  loans  is  not impeded  in  states  having

restrictive  interest limitations. . .  ."  12  C.F.R.   590.1(b)

(emphasis  added).  The  FHLBB has reaffirmed  that "[n]othing in

this  section preempts  limitations in  state laws  on prepayment

charges,  attorneys'  fees,  late  charges  or  other  provisions

designed to protect borrowers."  Id.   590.3(c).  
                                              

          A  statute that  imposes an  outright ban  against com-

pounding does not place a "ceiling" on interest rates or amounts.

See  supra pps.  12-14.   Moreover, assuming  it may  affect loan
                    

demand,  a ban  against  charging interest  on interest  does not

artificially  disrupt the  availability of home  mortgage credit.
                               

See  supra at pps. 12-15.   Finally, given  the commercial reali-
                    

ties,  it is reasonably clear  that the SIS  ban against charging

interest on  interest not  only affords important  protections to

homebuyers  but  does so  without  "expressly  limiting" interest

rates.

          b. The FHLBB and OTS Opinions  
                    b. The FHLBB and OTS Opinions
                                                 

          In response to an inquiry in 1984 as to whether "Michi-

gan laws regarding the charging of interest on deferred interest"

were  preempted by section 501, the FHLBB opined that "state laws

which would prohibit the charging of [interest on] interest would

constitute provisions  'limiting the rate or amount of interest .

. . which  may be charged. .  . .'  It  is our opinion that  such

charges  are  not  consumer  protection provisions  of  the  type

                                18

contemplated by  12 C.F.R.   590.2(c) (1984)  such as limitations

on prepayment  charges, attorney's fees  and late charges."   Op.

Off. Gen. Counsel, FHLBB 1097 (November 15, 1984).   In 1991, the

OTS  followed suit  with an  opinion reaffirming  the  1984 FHLBB

opinion that a state statute regulating "compounding" is preempt-

ed by  section 501.   Op. Off. Chief Counsel,  OTS 91/CC-37 (Aug.

16, 1991).

          We agree  with the  district court that  these opinions

are not controlling.   See Grunbeck,  848 F. Supp.  at 298  ("Al-
                                             

though these two  opinions unequivocally support [Dime  Savings']

reading of   501(a)(1), the regulators have failed to provide any

analytical support for [their conclusion].  In this circumstance,

absolute  deference   would  be  nothing  more   than  blind  al-

legiance.").   The  district  court's  observations  are  plainly

correct.   Neither regulatory body  tendered a rationale  for its
                                                                  

opinion.   The  FHLBB     the first  to address  the question    

neither described, nor cited, the Michigan provision to which its

opinion related.9  And neither  agency parsed the section 501(a)-

(1) preemption clause language.  

          As deference ultimately "depends on  the persuasiveness

of  the agency's position," Strickland,  48 F.3d at  18, we agree
                                                

that none is due in this instance.  The interpretation adopted by

                    
                              

     9The OTS indicated that the party requesting its opinion had
represented  that Michigan has no statute on the subject and that
the Michigan provision relating  to "interest on interest" origi-
nated  in uncited caselaw announced around the turn of the centu-
ry. 

                                19

these agencies disregarded entirely the term "expressly"    which

plainly constrains the scope  of the section 501(a)(1) preemption

clause    and overlooked the relevant legislative history explic-

itly declaring a congressional  intention to preempt state usury-

law ceilings      as distinguished  from bans  on compounding    
                      

which  result  in artificial  disruptions  in home-mortgage  loan

credit by  mandating below-market interest rates.   Finally, even
                                           

assuming the  FHLBB interpretation  were apposite to  the present

discussion, in the respect that the Michigan provision with which

it  dealt  imposed a  ban on  compounding,  there is  no explicit

indication that either agency considered the significant consumer

protections, see supra  at 15, afforded by state  bans    such as
                                

the SIS    against  charging interest on interest.  For these and

other  reasons discussed at  length in this  opinion, we conclude

that  the agency  interpretation  relied on  by  Dime Savings  is

unpersuasive and entitled to no deference in the present context.

          c.  The Parity Act
                    c.  The Parity Act
                                      

          The district  court rejected the  State's argument that

passage  of the  Alternative Mortgage  Transaction Parity  Act of

1982 ("Parity Act"), 12 U.S.C.     3801 et seq., two years  after
                                                        

passage of the  Monetary Control Act, supports a narrow construc-

tion of the preemptive scope of section 501(a)(1).  Grunbeck, 848
                                                                      

F. Supp.  at 301-02.   We  nonetheless  believe that  significant

insight can be gleaned from the Parity Act.  

          The Parity Act preempts State bans on certain "alterna-

                                20

tive mortgage  transactions,"10 by which is meant  "all manner of

mortgage  instruments  that do  not  conform  to the  traditional

fully-amortized,  fixed-interest-rate  mortgage  loan."     First
                                                                           

Gibraltar  Bank, FSB  v. Morales,  19 F.3d  1032, 1037  (5th Cir.
                                          

1994), cert. denied, 115 S. Ct. 204, vacated on other grounds, 42
                                                                       

F.3d 895 (5th Cir. 1995) (per curiam).  Common forms of "alterna-

tive  mortgage transactions"  include  adjustable  interest  rate

mortgages, which may permit  negative amortization, and graduated

payment  mortgages,  which  may temporarily  lower  the  mortgage

payment  to  less than  the  monthly interest  due,  resulting in

planned negative amortization whereby  interest is charged on the

deferred  interest.  Id. (citing  generally to Grant  S. Nelson &
                                  

Dale A.  Whitman, Real Estate Transfer,  Finance, and Development
                                                                           

1000-13  (4th ed.  1992)).   Other planned  negative amortization
                    
                              

     10The  term  "alternative  mortgage  transaction"   means  a
residential mortgage loan  
               (A) in  which the interest  rate or
               finance charge may  be adjusted  or
               renegotiated;
               (B)  involving  a  fixed-rate,  but
               which  implicitly permits  rate ad-
               justments by having the debt mature
               at the  end of an  interval shorter
               than the term  of the  amortization
               schedule; or
               (C) involving any  similar type  of
               rate, method of determining return,
               term, repayment, or other variation
               not  common  to traditional  fixed-
               rate, fixed-term  transactions, in-
               cluding without limitation,  trans-
               actions that involve the sharing of
               equity or appreciation;
          described and defined  by applicable  regula-
          tion. 

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

                                21

provisions include  the reverse annuity mortgage  ("RAM") and the

credit  conversion mortgage,  both  of which  charge interest  on

deferred interest.  Id.  "An alternative mortgage transaction may
                                 

be  made by a housing creditor in accordance with [section 3803],

notwithstanding any  State constitution, law or  regulation."  12

U.S.C.   3803(c).   It is a requirement of  section 3803 that for

"housing creditors [other  than banks  and credit unions]  . .  .

transactions  [must  be]  made  in  accordance  with  regulations

governing  alternative mortgage  transactions  as  issued by  the

[OTS]  . . . ."  Id.   3803(a)(3).  These OTS regulations, see 12
                               
                                                                        

C.F.R.    545.33(f)(4)-(11) (1988),  impose, inter alia, substan-
                                                                 

tial lender  disclosure requirements relating  to features unique

to alternative mortgage transactions.  

          The State argued below that it would be "'illogical and

contrary  to  public policy'"  for Congress  to  require     as a

precondition to preemption under the Parity  Act    that negative

amortization loans conform  with OTS  disclosure regulations  "if

lenders could  claim preemption  for the same  transactions under

[the Monetary  Control Act]  without making the  required disclo-

sures."   Grunbeck, 848 F. Supp.  at 302.  Although,  as the dis-
                            

trict  court  correctly   observed,  "[c]onstruing  the  Monetary

Control Act to  preempt simple interest  laws does not  eliminate
                                                                           

the incentive for lenders to comply with the Parity Act's disclo-

sure  requirements,"  id. (emphasis  added),11  it  must also  be
                                  
                    
                              

     11The court explained that "negative amortization provisions
are  not the  only  characteristics that  qualify  a loan  as  an
alternative mortgage transaction,"  and, further, that  "[s]imple

                                22

noted that  negative amortization provisions whereby  interest is

assessed  on deferred  interest  are common  features in  various
                                                                           

forms  of  alternative  mortgage  transactions;  e.g.,  graduated
               

payment  mortgages,  RAMs,   and  credit  conversion   mortgages.

Because  a ban against  charging interest on  interest would pre-

clude  a central  feature  common to  many  forms of  alternative

mortgage  transactions,  simple interest  statutes unquestionably

infringe upon alternative mortgage loans, even though they do not

impose  an outright ban.  Thus, as the State contends, construing

the Monetary Control Act  so as to preempt simple  interest laws,

such  as the  SIS, would  significantly reduce  these alternative
                                                        

mortgage lenders' incentive to comply with the Parity Act disclo-

sure requirements.  Whether or not illogical, there can be little

question that this result would conflict with the policy underly-

ing the Parity Act and, thus, with the intent of Congress.  

          As the district  court noted, "the  Parity Act and  the

Monetary  Control  Act  serve  related but  distinctly  different

functions."     Id.   The Parity  Act represents  a congressional
                             

response to a concern,  amongst others, that State bans  on mort-

gages  other than  traditional fixed-rate mortgages  would reduce

the  overall availability  of mortgage  credit,  since fixed-rate

mortgages  had become relatively more  expensive as the result of

increased interest-rate volatility. 

          The Congress hereby finds that    
                    
                              

interest laws are merely one of several categories of" state laws
"inconsistent with a qualifying  lender's right to issue alterna-
tive mortgage loans."  Id.  
                                    

                                23

               (1)  increasingly volatile  and dy-
               namic  changes  in  interest  rates
               have seriously impaired the ability
               of  housing  creditors  to  provide
               consumers  with fixed-term,  fixed-
               rate credit secured by interests in
               real property, cooperative housing,
               manufactured homes, and other dwel-
               lings;
               (2)  alternative  mortgage transac-
               tions are essential  to the  provi-
               sion of an adequate supply of cred-
               it secured  by residential property
               necessary  to  meet the  demand ex-
               pected in the 1980's; . . . .

12  U.S.C.   3801(a).  These concerns prompted Congress to autho-

rize State-chartered  housing lenders,  such as Dime  Real Estate
                    

NH, to enter into alternative mortgage transactions.  

          It is the purpose of [the Parity Act]  to ...
          provide [nonfederally chartered housing cred-
                                         
          itors]  . . . parity with federally chartered
          institutions by authorizing all housing cred-
          itors to make, purchase, and enforce alterna-
          tive  mortgage  transactions so  long  as the
          transactions are in conformity with the regu-
          lations issued by the Federal agencies.

Id. at   3801(b).  See also First Gibraltar Bank, FSB, 19 F.3d at
                                                               

1043.   Thus, the purpose of the  Parity Act was to preempt State

bans  on alternative mortgage  transactions, including adjustable
              

rate mortgages permitting  negative amortization whereby interest

may be charged on deferred interest payments.12

          In  the Monetary Control  Act, on the  other hand, Con-

gress was  responding to  the very  different concern  that State
                    
                              

     12The parties do not  dispute that the Dime Savings  loan is
an  "alternative  mortgage  transaction,"  though  they  disagree
whether the loan was made in accordance with OTS regulations.  We
do not resolve the  Dime Savings' Parity Act preemption  claim as
applied to the present  loan, however, since it has  not yet been
considered by the district court. 

                                24

interest-rate  ceilings  were  depressing home-mortgage  interest
                                 

rates to below-market levels, thereby artificially disrupting the
                               

availability of funds  for both traditional fixed-rate  mortgages

and "alternative  mortgage  transactions."   The  latter  concern

prompted Congress to preempt  only state laws "expressly limiting

the rate or amount of interest."  Thus, section  501(a)(1) of the

Monetary Control Act was not aimed at preempting State laws, such

as the  SIS, which  prohibit "alternative  mortgage transactions"

permitting negative amortization whereby  interest may be charged

on deferred interest. 

                               III
                                         III

                            CONCLUSION
                                      CONCLUSION
                                                

          We hold that the New Hampshire Simple Interest Statute,

as applied to the Dime Savings loan, is not preempted  by section

501(a)(1) of the  Monetary Control Act.   Consequently, we remand

to permit  the district court  to consider  the remaining  issues

relating to the  petition to enjoin  foreclosure on the  Grunbeck

residence. 

          The judgment  is vacated and  the case is  remanded for
                    The judgment  is vacated and  the case is  remanded for
                                                                           

further  proceedings consistent  with  this opinion.   Costs  are
          further  proceedings consistent  with  this opinion.   Costs  are
                                                                           

awarded to appellants.
          awarded to appellants.
                               

                                25