Magazine article American Banker

Mortgage Lender Asks High Court to Uphold Federal Rules vs. States

Magazine article American Banker

Mortgage Lender Asks High Court to Uphold Federal Rules vs. States

Article excerpt

A mortgage company is asking the Supreme Court to decide whether state judges may reinterpret rules issued by federal regulators.

At issue is an Alabama law that limits fees lenders may charge consumers to 5% of a loan's value.

The Alabama statute exempts any lender authorized by the Department of Housing and Urban Development to provide federally insured mortgages. Several other states have similar laws.

United Companies Lending Corp. assumed it was exempt from the Alabama cap because it is a HUD-authorized guaranteed lender.

United was sued after it charged nearly $3,000 in fees to Michael and Joyce McGehee in 1991 on a $32,000 mortgage.

The Alabama Supreme Court sided with the McGehees in October, ruling tht United had broken the state law. The court declared that HUD had only authorized United's corporate headquarters in Louisiana to offer guaranteed mortgages. The McGehees got their loan from United's Mobile, Ala., field office.

The ruling directly contradicted HUD policy, which bestows a single, corporatewide authorization on a lender.

In its petition to the Supreme Court, United argued that the U.S. Constitution requires states to defer to federal agencies unless their rule interpretations are arbitrary or clearly erroneous. According to United's brief, that exception does not apply to HUD in this case.

The lender also argued that state judges must independently evaluate the propriety of regulations before overturning them. That never was done in the Alabama dispute, it said. …

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