Nat'l Home Equity Mortgage Assoc. v. Face

• Decision Date: 30 October 2000
• Docket Number: No. 99-2331,No. 99-2386,99-2331,99-2386
• Citation: 239 F.3d 633
• Parties: (4th Cir. 2001) NATIONAL HOME EQUITY MORTGAGE ASSOCIATION, Plaintiff-Appellee, v. E. JOSEPH FACE, JR., Commissioner of Financial Institutions, Bureau of Financial Institutions, Virginia State Corporation Commission; SUSAN E. HANCOCK, Deputy Commissioner, Consumer Finance, Bureau of Financial Institutions, Virginia State Corporation Commission, Defendants-Appellants, and MARK L. EARLEY, Defendant. NATIONAL HOME EQUITY MORTGAGE ASSOCIATION, Plaintiff-Appellee, v. MARK L. EARLEY, Defendant-Appellant, and E. JOSEPH FACE, JR., Commissioner of Financial Institutions, Bureau of Financial Institutions, Virginia State Corporation Commission; SUSAN E. HANCOCK, Deputy Commissioner, Consumer Finance, Bureau of Financial Institutions, Virginia State Corporation Commission, Defendants. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 633

239 F.3d 633 (4th Cir. 2001)

NATIONAL HOME EQUITY MORTGAGE ASSOCIATION, Plaintiff-Appellee, v. E. JOSEPH FACE, JR., Commissioner of Financial Institutions, Bureau of Financial Institutions, Virginia State Corporation Commission; SUSAN E. HANCOCK, Deputy Commissioner, Consumer Finance, Bureau of Financial Institutions, Virginia State Corporation Commission, Defendants-Appellants and MARK L. EARLEY, Defendant.

NATIONAL HOME EQUITY MORTGAGE ASSOCIATION, Plaintiff-Appellee, v. MARK L. EARLEY, Defendant-Appellant and E. JOSEPH FACE, JR., Commissioner of Financial Institutions, Bureau of Financial Institutions, Virginia State Corporation Commission; SUSAN E. HANCOCK, Deputy Commissioner, Consumer Finance, Bureau of Financial Institutions, Virginia State Corporation Commission, Defendants.

No. 99-2331 No. 99-2386.

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: October 30, 2000.

Decided: February 7, 2001.

Appeals from the United States District Court for the Eastern District of Virginia, at Richmond.

Richard L. Williams, Senior District Judge. (CA-99-398-3) [Copyrighted Material Omitted] COUNSEL: ARGUED: Robert A. Dybing, SHUFORD, RUBIN & GIBNEY, Richmond, Virginia, for Appellants. Earle Duncan Getchell, Jr.,

MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P., Richmond, Virginia, for Appellee. ON BRIEF: James C. Dimitri, William F. Schutt, STATE CORPORATION COMMISSION OF VIRGINIA, Richmond, Virginia; Martha B. Brissette, OFFICE OF THE ATTOR-NEY GENERAL OF VIRGINIA, Richmond, Virginia, for Appel-lants. Robert L. Hodges, William H. Baxter, II, MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P., Richmond, Virginia, for Appellee.

Before NIEMEYER and LUTTIG, Circuit Judges, and Alexander WILLIAMS, Jr., United States District Judge for the District of Maryland, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge LUTTIG and Judge WILLIAMS joined.

OPINION

NIEMEYER, Circuit Judge:

We must decide whether a non-federally chartered housing creditor in Virginia may, by complying with the Alternative Mortgage Transaction Parity Act of 1982, include in a home loan agreement an obligation to pay a prepayment fee that exceeds the limits imposed by Virginia Code SS 6.1-330.83 and 6.1-380.85. For the reasons that follow, we hold that, subject to the non-federally chartered lender's compliance with federal law, it may charge a prepayment fee, despite any limitation imposed by the Virginia Code, because in that circumstance the federal law preempts state law by virtue ofS 804(c) of the Parity Act, 12 U.S.C. S 3803(c). Accordingly, we affirm the district court's judgment reaching the same conclusion.

I

The late 1970s and early 1980s witnessed an alarming deterioration in the number of home mortgage lending institutions-"housing creditors" -in part because of their inability to adjust their long-term mortgage portfolios to the high and widely fluctuating short-term deposit interest rates. In response, Congress enacted the Garn-St. Germain Depository Institutions Act of 1982 "to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans." Pub. L. No. 97-320, 96 Stat. 1469 (1982). Title VIII of that act, titled the "Alternative Mortgage Transaction Parity Act of 1982" (the "Parity Act"), was included to "authorize[ ] non-federally chartered housing creditors to offer alternative mortgages in accordance with the Federal regulations issued by the appropriate Federal regulatory agencies. Thus, those creditors will have parity with federally chartered institutions." Sen. Conf. Rep. No. 97-641, at 94 (1982), reprinted in 1982 U.S.C.C.A.A.N. 3128, 3137; see also 12 U.S.C. S 3801(b). "Alternative mortgages" were understood to refer to those mortgages in which interest rates could be adjusted or renegotiated, in which the maturity date could be shortened, or which included other variations "not common to traditional fixed-rate, fixed-term transactions." Parity Act, S 803(1), 12 U.S.C. S 3802(1).

The practical effect of the statutory scheme is to permit a nonfederally chartered housing creditor to make a loan either under state law, in which case the loan transaction remains subject to the full range of state regulations, or under federal law, in which case the loan transaction becomes subject to federal regulations governing similar loans by federally chartered lending institutions. Non-federally chartered housing creditors exercise this regulatory"option" by affirmatively complying with substantive federal regulations identified by the Office of Thrift Supervision. In return for exercising this option, the non-federally chartered housing creditor is promised parity with federally chartered lenders. See 12 U.S.C.S 3803. As the Senate Report relevant to the Act observes, the Parity Act "does not place nonfederally chartered housing creditors under the supervision of the federal agencies, but instead merely enables them to follow a federal program as an alternative to state law." S. Rep. No. 97-463, at 55 (1982).

In April 1999, The Compliance Connection, the official newsletter of Virginia's State Corporation Commission, announced its position that the Parity Act did not preempt Virginia statutory law limiting prepayment penalties. The newsletter explained that"Congress explicitly restricted the [Office of Thrift Supervision's] authority to preemption of only such state laws as related to features `. . . not common to traditional fixed-rate, fixed-term transactions . . . .' The Virginia statutes applicable to prepayment penalties . . . govern a longstanding feature of conventional mortgage lending which Congress left to state law . . . ." The newsletter announced that the Bureau of Financial Institutions "will continue to cite violations of Virginia statutes relating to prepayment penalties." It noted that licensees would have to notify borrowers of Virginia's prepayment penalty limits and to refund prepayment penalties. The letter also stated, "In addition to possible revocation of license, such violations can be referred to the Attorney General's office for investigation pursuant to Virginia Code S 6.1-430."

In response to this announcement from Virginia officials, the National Home Equity Mortgage Association, a trade association that includes as members non-federally chartered housing creditors, commenced this action seeking a declaratory judgment and an injunction prohibiting Virginia officials from enforcing Virginia's prepayment penalty provisions for loans made under the Parity Act. After the Attorney General for the Commonwealth of Virginia intervened, the district court, on cross-motions for summary judgment, entered judgment in favor of the Mortgage Association and permanently enjoined Virginia officials "from enforcing their announced position that the Parity Act does not preempt Virginia state law limiting prepayment penalties on alternative mortgage transactions." This appeal followed.

II

Virginia argues principally that the scope of preemption effected by the Parity Act does not preclude it from regulating prepayment penalties in alternative mortgage transactions. It argues,

[S]tate laws that do not prevent or interfere with [alternative mortgage transactions] are not preempted. Congress defined [alternative mortgage transactions] in S 3802(1) to be loans involving terms "not common to traditional fixed-rate, fixed-term transactions." Prepayment penalties were obviously not included in this definition, because they were and are common to traditional real estate financing. Hence, because the Virginia Statutes do not interfere with the making of [alternative mortgage transactions], they are not preempted.

To decide whether the Parity Act preempts Virginia's statutes regulating prepayment penalties, we must first identify the basic principles of preemption that are applicable.

The Supremacy Clause of the United States Constitution mandates that "the Laws of the United States . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const. art. VI, cl. 2. Thus, "federal legislation, if enacted pursuant to Congress' constitutionally delegated authority, can nullify conflicting state or local actions." Worm v. American Cyanamid Co., 970 F.2d 1301, 1304-05 (4th Cir. 1992). "Consideration of issues arising under the Supremacy Clause `start[s] with the assumption that the historic police powers of the States [are] not to be superseded by . . . Federal Act unless that [is] the clear and manifest purpose of Congress.'" Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947) (alterations in original)). The"ultimate touchstone" of preemption analysis is the intent of Congress. Malone v. White Motor Corp., 435 U.S. 497, 504 (1978). Even when Congress' intent is unclear, state law must nevertheless yield when it conflicts with federal law. In making the determination of whether state law conflicts with federal law, the test to apply is whether "it is impossible to comply with both state and federal law" or whether "the state law stands as an obstacle to the accomplishment of the full purposes and objectives" of the relevant federal law. Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248 (1984); see also Feikema v. Texaco, Inc., 16 F.3d 1408, 1413 (4th Cir. 1994).

In enacting the Parity Act, Congress clearly intended to preempt state law to the extent it authorized non-federally chartered housing creditors to take advantage of the federal regulations for alternative mortgage transactions that govern federally chartered lending institutions.^* Section 802(a)(3) of the Parity Act states that the Office of Thrift Supervision ("OTS"), formerly known as the Federal Home Loan Bank...