The New Jersey Supreme Court has ruled that the Office of Thrift Supervision acted within its authority in deciding that non-federally-supervised mortgage lenders could no longer ignore state restrictions on prepayment penalties.The Supreme Court ruled that the OTS is the agency responsible for enforcing the Alternative Mortgage Transaction Parity Act and "its interpretation of that Act is entitled to substantial deference." Plaintiffs sued a New Jersey lender to require the reimbursement of all prepayment penalties collected by state-licensed lenders that relied on an OTS ruling in 1996 that said state restrictions on prepayment penalties were pre-empted under the Parity Act. In 2003, the OTS reversed the 1996 ruling, and the plaintiffs contended that the 1996 OTS ruling must have been illegal. But the Supreme Court rejected that argument and reversed a lower court decision. "By overturning the [lower court] decision, the New Jersey Supreme Court eliminated the concern that servicers or mortgage investors would have to refund previously collected prepayment fees," said Larry Platt, a mortgage banking attorney with Kirkpatrick & Lockhart.

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