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Fed gets oversight of mortgage lenders

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By Aaron Siegel

April 17, 2007 1:29 pm ET

The Supreme Court ruled today that Wachovia Corp.'s mortgage subsidiary is not subject to oversight by state regulators.

In a 5-3 decision, the justices upheld a U.S. appeals court ruling that sided with Charlotte, N.C.-based Wachovia and held that federal regulation gets a higher priority than state regulation.

The appeals court, based in Cincinnati, ruled that the National Bank Act and regulations written by the Office of the Comptroller of the Currency in Washington preempt conflicting state laws on the activities of operating subsidiaries.

Linda Watters, commissioner of the Michigan Office of Financial and Insurance Services in Lansing, appealed the case.

Wachovia Mortgage originally registered in Michigan to make mortgage loans, but deregistered with the state after it became a wholly-owned subsidiary of nationally-chartered Wachovia Bank in 2003.

Washington-based financial services organizations, including the American Bankers Association, Consumer Bankers Association, Consumer Mortgage Coalition, the Financial Services Roundtable, as well as 40 state banking associations, took the position that the National Bank Act preempts state banking organization laws.

"[The decision] reaffirms a long line of cases that support federal preemption for national banks and their operating subsidiaries," said Patricia A. Milon, chief legal officer, American Community Bankers, according to a statement.

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