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CFPB issues first stopgap mortgage rule

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The Consumer Financial Protection Bureau issued its first substantial rule to the Federal Register Friday filling a regulatory gap for alternative mortgage originations. The bureau opened Thursday without a director as Congress and the White House continue to debate how much power the bureau will yield. Some technical rules were issued then to exact the bureau's opening, but the rule issued Friday has a far more reaching impact. It implements a section under the Dodd-Frank Act amending the Alternative Mortgage Transaction Parity Act of 1982. The amendment allows state-licensed loan originators to make alternative mortgages under federal law, rather than state law. Dodd-Frank will transfer rule-writing authority to the CFPB in order to narrow the scope of this federal preemption, meaning these loans can only be made if they comply with CFPB rules. However, Dodd-Frank did not transfer this authority to the CFPB before Thursday, so the CFPB had to file this interim final rule Friday in order to avoid suspending the AMTPA. "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," the CFPB said. According to the interim final rule, state-licensed lenders can invoke the federal preemption of state law under AMTPA until July 22, 2012. "The CFPB does not believe that Congress intended its amendments to AMTPA to create a regulatory gap that would interrupt access to credit," the bureau said in the Register. "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." The CFPB said it notified lenders, consumer advocates, trade groups and state regulators ahead of time. Outside the bureau, the launch has gotten off to a shaky start politically. Republicans and the White House are locked in a standoff over who will lead the CFPB. Republicans passed a bill Thursday night that would implement structural changes to the agency. Senate Republicans said they want these changes made before approving nominee Richard Cordray. The White House said it would veto the bill should it reach the president's desk. Meanwhile, industry attorneys warn the longer the agency goes without a director the more regulatory gaps would need to be filled – either through the Federal Register or the courts. Write to Jon Prior. Follow him on Twitter @JonAPrior.

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