Federal Deposit
Insurance Corporation

Clayton

November 15, 2005

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429

RE: Notice of Proposed Rulemaking FIL-109-2005 (the “Rulemaking”)

Dear Mr. Feldman,

Clayton performs due diligence reviews of residential mortgage loans on behalf of many of the large secondary market investors, and also provides a front-end compliance system that identifies state and local high cost laws and laws with fee caps. A continuing source of uncertainty for Clayton and for its clients is the extent of the ability of state-chartered banks that are FDIC-insured to export the laws of their home state (or the state law of a branch if the institution has interstate branches) over various state laws and local ordinances; and whether or not any such exportation rights then extend to a non-bank purchaser of the loan.

We highly anticipate the Rulemaking regarding the reach of exportation rights, as well as how much comfort assignees should have in purchasing loans that were originated under such rights, to the extent that you can. I am citing examples of issues that we believe should be addressed by the Rulemaking.

We have reviewed several opinions that address exportation of “interest,” such as General Counsel Opinions 10 and 11. However, we are unclear regarding the extent of exportation rights over:

• Disclosure laws (for example, the disclosure requirements of Chapter 795 of the Toledo Municipal Code and Mich. Comp. Laws Ann. §445.1366 and §445.1367);

• Late charges and prepayment penalties (although we believe that in prior opinions late charges have been defined as exportable “interest,” we are not as sure about prepayment penalties both in terms of restrictions and disclosures; an example are the prepayment penalty provisions contained in Minn. Stat. Ann. §58.137(2));

• Fee caps (such as the 3% cap on fees and charges under Chapter 50(a)(6), Article XVI of the Texas Constitution);

• State and Local laws that are known as predatory lending or high cost laws; and

• Laws that require a determination of borrower’s interest (such as in Massachusetts 209 CMR 53.00 et. seq.).

Another issue that we have come across are instances where the chartered entity “forum shops” different issues. The easiest example is that they choose to abide by the prepayment penalty provision of a less restrictive state, but then export the more generous late charge provision of their home state. If the FDIC’s position is that several or all of the issues about which I inquired are exportable, then I would appreciate the Rulemaking addressing if exportation is an all or nothing choice, or if the lender can pick and choose.

Further, we have not seen any FDIC or court opinions that specifically address whether or not a non-bank purchaser of a loan may enforce terms that were negotiated by the bank that originated the loan relying upon exportation rights for those terms. We noted that a recent Illinois Appellate court decision held that a federally-chartered purchaser could enforce terms that were violations of law by the originator if the purchaser enjoyed preemption rights (Dannewitz v Equicredit), but for our clients the opposite scenario is of greater applicability, where the originating lender enjoys chartered status but the purchaser does not. We hope that the Rulemaking can address this issue as well.

Thank you in advance for your time and consideration. Should you require any clarification, you may reach me at 203-926-8070 or at jdemaso@clayton.com.

Very truly yours,

Jeffrey A. DeMaso
Regulatory Compliance Counsel

Clayton
2 Corporate Drive
Shelton, CT 06484