   OFFlCE     OP THE   ATTORNEY   GENER*L      STATE   OF TEXAS

   JOHN        CORNYN




                                                        May 11,1999




Mr. James L. Pledger                                             Opinion No. K-0045
Commissioner
Texas Savings and Loan Department                                Re: Whether the notification requirements in 12
2601 North Lamar, Suite 201                                      U.S.C. 9 4903(a)(3), (b) will supersede the
Austin, Texas 78705                                              notification requirements in Texas Insurance Code
                                                                 article 21.50, section lB(a) when the federal law
                                                                 becomes effective in July 1999 (RQ-1185)

Dear Commissioner Pledger:

         When 12 U.S.C. 9 4903(a)(3), (b) becomes effective in July 1999,’ it will require a loan
service? annually to notify a mortgagor in writing of the mortgagor’s right to cancel private
mortgage insurance in certain circumstances and of the servicer’s address and telephone number.
Texas Insurance Code article 21.50, section lB(a) similarly requires a lender annually to notify the
mortgagor that the mortgagor may have the right to cancel private mortgage insurance and to provide
the lender’s address and telephone number as well as theTexas Department ofInsurance’s telephone
number. TEX. INS. CODE ANN.art. 21.50,s lB(a) (Vernon Supp. 1999). We understand you to ask
whether the federal notice requirements supersede the state requirements. “Stated another way,” as
you suggest, “should a mortgage lender provide Texas borrowers required to purchase mortgage
guaranty insurance with (1) the annual notice provisions of Section 1B of Article 21.50 of the Texas
Insurance Code or (2) with the annual notification provisions provided by” federal law? Letter from
Mr. James L. Pledger, Commissioner, Texas Savings & Loan Dept., to Honorable Dan Morales,
Attorney General (Aug. 20, 1998) (on tile with Opinion Committee). Because we do not find the
state and federal notice requirements inconsistent, we conclude that the federal law does not
supersede the state law. Thus, we believe a mortgage lender may satisfy federal and state
notification requirements by providing the notice required by state law. Indeed, under federal law,


            ‘HomeownersProtectionAct        ofJuly29,1998,Pub.      L.No. 105-216,112   Stat. 902 (tobe codifiedat   12 U.S.C.
5 4903).

          ‘A “servicer,” for purposes ofthe Homeowners Protection Act of 199X,12 USC. ch. 49, is defmed the same as
in the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. ch. 26. See Homeowners                Protection Act of
July 29, 1998, Pub. L. No. 105-216, 112 Stat. 897 (to be codified at 12 U.S.C. 5 4901(14)). Section 2605(i)(2) of the
Real Estate Settlement Procedures Act of 1974,12 U.S.C. 9 2605 (i)(2) (1994), defmes the term”servicer” as the person
responsible for servicing a loan. “Servicing” is defined as “receiving any scheduled periodic payments from a bonower
pursuant to the term of any loan       and making the payments of principal and interest and such other payments with
respect to the amounts received from the borrower as may be required” under the loan. 12 USC        5 2605(i)(3) (1994).
Commissioner James L. Pledger - Page 2                       (X-0045)




we believe a mortgage lender must comply with the state law requirements to satisfy the federal law
notification requirement.

        Our task is to determine whether the state law’s notificationrequirements, found in Insurance
Code article 21.50, section lB(a), conflict with the notification requirements in federal law, 12
U.S.C. 5 4903(a)(3), (b). Federal law preempts state law and renders the state law “‘without effect”’
ifthe two laws conflict. See HyundaiMotor Co. v. Alvarado, 974 S.W.2d 1,4 (Tex. 1998) (quoting
Maryland v. Louisiana, 451 U.S. 725, 746 (1981)). State law actually conflicts with federal law
when a private party cannot possibly comply with both state and federal requirements or when state
law creates a barrier to accomplishing and executing Congress’ objectives. See id. (quoting
Freightliner Corp. v. Myrick, 514 U.S. 280,287 (1995) (quoting, respectively, English v. General
Elec. Co., 496 U.S. 72, 78-79 (1990), and Hines v. Davidowitz, 312 U.S. 52,67 (1941)). We will
look at each law in turn.

        Article 2 1.50, section lB(a) of the Insurance Code mandates that a borrower annually must
be notified that he or she may have a right to cancel required private mortgage insurance and that
he or she may contact the lender or the Texas Department of Insurance at specified telephone
numbers for further information:

                 A lender that requires a borrower to purchase mortgage guaranty
             insurance3 shall provide annually to the borrower a copy of the following
             written notice printed in at least lo-point bold-faced type:

                  “NOTICE OF RIGHT TO CANCEL PRIVATE MORTGAGE IN-
                  SURANCE:        If you currently pay private mortgage insurance
                  premiums, you may have the right to cancel the insurance and cease
                  paying premiums. This would permit you to make a lower total
                  monthly mortgage payment and to possibly receive a refund of any
                  unearned premiums on the policy. In most cases, you have the right
                  to cancel private mortgage insurance if the principal balance of your
                  loan is 80 percent or less of the current fair market appraised value of
                  your home. If you want to learn whether you are eligible to cancel
                  this insurance, please contact us at (address and telephone number of
                  lender) or the Texas Department of Insurance consumer help line at
                  (the appropriate toll-free telephone number).”

TEX. INS. CODE      ANN. art. 21.50,§ lB(a) (V emon Supp. 1999) (footnote added).




         “‘Mortgageguaranty insurance”and “private mortgageinsurance”appear to be used synonymouslyin
InsuranceCode article 21.50. Section l(a) of that articledefmes“mortgageguarantyinsurance”to mean insurance
againstfinancial loss by reawn of nonpayment of amounts due under a note OI lease. TEX. INS. CODE ANN. art. 21.50,
4 l(a) (Vernon   Supp. 1999).
Commissioner James L. Pledger - Page 3                 (X-0045)




        Federal law similarly requires that a mortgagor annually be notified in writing that he or she
may have a right to cancel private mortgage insurance and that the mortgagor may contact the
servicer to determine whether the mortgagor is eligible to cancel the private mortgage insurance:

                       If private mortgage insurance is required in connection with
               a residential mortgage transaction, the servicer shall disclose to the
               mortgagor in each such transaction in an annual written statement-

                        (A) the rights of the mortgagor under this chapter to
                cancellation or termination of the private mortgage insurance
                requirement; and

                      (B) an address and telephone number that the mortgagor
                may use to contact the servicer to determine whether the mortgagor
                may cancel the private mortgage insurance.

See S.REP.NO. 105-129,at 6 (1997). Thisprovision, to be codifiedat subsection(s)(3) of 12 U.S.C.
5 4903, pertains to residential mortgages transacted after July 29,1999. See Homeowners Protection
Act of July 29,1998, Pub. L. No. 105-216, 112 Stat. 902 (to be codified at 12 U.S.C. 5 4903(a)(4))
(concerning applicability of 9 4903(a)(3)). Subsection (b) requires that the same annual written
notice be given to mortgagors who, before the federal law’s effective date, entered a residential
mortgage.

       Your question turns upon 12 U.S.C. $4908(a)(l), which specifies the effect the federal law
has on state law generally:

                        With respect to any residential mortgage or residential
                mortgage transaction consummated after the effective date of this
                chapter [July 29,1999], and except asprovided in paragraph (2), the
                provisions of this chapter shall supersede any provisions of the law
                of any State relating to . . any disclosure of information addressed
                by this chapter      .

Pub. L. No. 105-216, 112 Stat. 906 (emphasis added). Paragraph (2) states that the federal law
supersedes state law relating to the disclosure of a mortgagor’s right to cancel private mortgage
insurance only to the extent federal and state law are inconsistent. See id. (to be codified at 12
U.S.C. 5 4908(a)(2)(A)). However, a “protected State law” is not “inconsistent with” the federal law
found in 12 U.S.C. chapter 49 ifthe protected state law requires disclosure ofmore information than
the information required by the federal law. Id. (to be codified at 12 U.S.C. 5 4908(a)(2)(B)(ii)(I)).
For purposes of the federal law, a “protected State law” is a state law:

                             (9 regarding any requirements relating to private
                 mortgage insurance in connection with residential mortgage
                 transactions;
Commissioner James L. Pledger - Page 4                    (JC-0045)




                            (ii) that was enacted not later than 2 years after the date
                of the enactment of this chapter [July 29, 19981; and

                           (iii) that is the law of a State that had in effect, on or
                before January 2, 1998, any State law described in clause (i).

Id. (to be codified at 12 U.S.C. 5 4908(a)(2)(C)). Insurance Code article 21.50, section 1B is a
protected state law because (1) it establishes requirements related to private mortgage insurance
for residential mortgages; (2) it was enacted May 24, 1997, and approved June 18, 1997, which is
“not later than” two years after the enactment of the federal law; and (3) it became effective
September 1, 1997, which is “before January 2, 1998.” See id.

         Subsection (a)( 1) of 12 U.S.C. 5 4908 does not create an inconsistency between the state and
federal laws, but merely articulates the intent of Congress with respect to superseding state law. In
particular, subsection (a)( 1) states that the federal disclosure requirements supersede any inconsistent
state-law requirements to the extent of the inconsistency. Thus, if the federal notification
requirements and the state-law notification requirements are consistent, the federal law does not
supersede state law.

        In our view, Insurance Code article 21.50, section lB(a) is consistent with the federal statute
with respect to the content of the required annual notice and therefore is not superseded by the
federal law. Both the state and the federal law mandate that a residential mortgagor annually be
notified of two things:

                1.      The residential mortgagor must be notified that he or she may
                        have a right to cancel his or her private mortgage insurance.

                2.      The notice must list the address and telephone number of the
                        servicer that the mortgagor may use to determine whether he
                        or she is eligible to cancel the private mortgage insurance.

Although the state law further requires the notice to list the telephone number of the Texas
Department of Insurance’s consumer help line as well as the servicer’s telephone number or address
and requires the notice to be printed in at least ten-point type, that does not make the state law
inconsistent with the federal law. Article 21.50, section 1B of the Texas Insurance Code is a
protected state law, and therefore it is not inconsistent with the federal law simply because the state
law requires a servicer to disclose more information than the federal law requires. See id. (to be
codified at 12 U.S.C. 5 4908(a)(2)(B)(ii)(I)).

        You also ask whether a mortgage lender should comply with the notification requirements
of the federal law or of the state law. As noted above, state law requires the written notice to list,
in addition to the items required by both state and federal law, the telephone number of the Texas
Department of Insurance’s consumer help line; state law also requires the notice to indicate that the
mortgagor may be eligible not only to cancel private mortgage insurance but also to receive a refund
Commissioner James L. Pledger - Page 5                  (X-0045)




of unearned premiums on the policy. See TEX. INS. CODEANN. art. 21.50,§ lB(a) (Vernon Supp.
1999). Although article 21.50, section lB(c) permits a lender to satisfy the state-law notification
requirements by providing the notice required by federal law, federal law “requires a lender to
provide a borrower with a written notice containing substantially the same information required” by
article 21.50, section lB(a) of the Insurance Code. See id. 5 lB(c). Accordingly, federal law
recognizes a notification, made in accordance with state law, that is not inconsistent with the federal
notification requirement, even if such notification includes more information than is specified by
federal law. See Pub. L. No. 105-216, 112 Stat. 906 (to be codified at 12. U.S.C. 5 4908(a)(2)(A),
(B)(ii)(I)). We consequently conclude that a lender must comply with article 21.50, section lB(a)
of the Insurance Code, and, in so doing, the lender will comply with federal law notification
requirements.
Commissioner James L. Pledger - Page 6               (JC-0045)




                                     SUMMARY

                       The private-mortgage-insurance notification requirements
              of federal law found in the Homeowners Protection Act of
              July 29, 1998, Pub. L. No. 105-216, 112 Stat. 902 (to be codified at
              12 U.S.C. 5 4903(a)(3), (b)) are consistent with those in state law
              found in Texas Insurance Code article 21.50, section lB(a). A loan
              servicer should comply with the state requirements in Insurance Code
              article 21.50, section lB(a), and in doing so, satisfies the federal
              requisites.




                                            Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General
