Opinion No. ( 1994 )

The Honorable Jim Keet State Senator Post Office Box 23603 Little Rock, Arkansas 72221-3603

Dear Senator Keet:

This is in response to your request for an opinion concerning Federal Housing Authority (FHA) Title I lending in the State of Arkansas. It is my understanding from the correspondence attached to your letter that your constituent, Arkansas Home Loan Company, is considering offering FHA Title I insured loans to residents in Arkansas and surrounding states. The loans would involve direct loans to borrowers with (1) a mortgage placed on their property in either a first, second, or third position on loan amounts from $7,500 to $25,000 or (2) a UCC filing on loan amounts less than $7,500. Your constituent requests an opinion "with direct reference to Arkansas usury laws and whether or not FHA Title I insured loans are pre-empted from such state laws."

It is my opinion that an FHA Title I insured loan, involving either of the transactions described above, would be exempt from Arkansas usury laws.

State usury laws limiting the rate of interest which may be charged on FHA insured loans are preempted by 12 U.S.C.A. § 1735f-7 which provides that state usury laws shall not apply "to any loan, mortgage, or advance which is insured under subchapter I or II of this chapter." Section 1735f-7(a). Arkansas has specifically endorsed this preemption by passage of Amendment 60 to the Arkansas Constitution (codified at Ark. Const. Art. 19, §13), which governs the maximum lawful rates of interest. SeeIn re Lawson Square, Inc., 816 F.2d 1236 (8th Cir. 1987);Burris v. First Financial Corp, 928 F.2d 797 (8th Cir. 1991). Subsection (d)(ii) provides: "The provisions hereof are not intended and shall not be deemed to supersede or otherwise invalidate any provisions of federal law applicable to loans or interest rates including loans secured by residential real property."

Therefore, as to the narrow issue of whether Arkansas rates of interest will apply with regard to FHA Title I insured loans, such state usury laws are preempted by the above cited federal statute.

The foregoing opinion, which I hereby approve, was prepared by Assistant Attorney General Sarah L. James.

Sincerely,

WINSTON BRYANT Attorney General

WB:SLJ/cyh