Mortgage and Real Estate Regulations

THE EQUAL CREDIT OPPORTUNITY ACT

The Equal Credit Opportunity Act (ECOA) is a federal law that was enacted in 1974, and is one of the “fair lending laws” created to protect consumers. It is commonly referred to as Regulation B. 

The ECOA and Regulation B prohibit discrimination against any applicants including home loan applicants on the bases of race, color, religion, national origin, sex, marital status, age, whether the applicant derives income from a public assistance program, or whether the applicant has exercised in good faith any right under the Consumer Credit Protection Act. 

It should be noted the creditor may consider the applicant’s age to determine if the applicant may enter into a legal contract. 

The Regulation B and ECOA provide guidance and requirements surrounding:

1. Requesting for information from applicants and evaluating applications;
2. Extending credit (individual or joint) and administering special purpose credit programs;
3. Notifying applicants of Action Taken;
4. Furnishing credit information on credit accounts;
5. Collecting government monitoring information (race, ethnicity, and sex); and
6. Providing appraisal reports.

FAIR AND ACCURATE CREDIT TRANSACTIONS ACT Under the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which amended the FCRA, consumers may obtain a free credit report once every 12 months. Consumers must request the reports, and they may be obtained from three national consumer credit reporting agencies  TransUnion, Experian, and Equifax.  A creditor mortgage lender  is covered by the FCRA because it provides information to consumer reporting agencies. Under FCRA, if a creditor provides information to consumer reporting agencies, it must:  

• Provide complete and accurate information;
• Investigate information disputed by the consumer and correct the error or provide an explanation about its accuracy within required timeframes; and
• Inform consumers about negative information reported or about to be reported to a consumer reporting agency within 30 days.

The Fair Credit Reporting Act (FCRA) was enacted in 1970 and is administered by  the Consumer Financial Protection Bureau (CFPB). Its primary purpose is to provide guidance to consumer reporting agencies about collecting and disseminating information about consumers to be used in credit evaluations and for other purposes, including insurance applications and employment. The FCRA also has rules for users of consumer reports and consumer information.Under FCRA, credit reporting agencies must verify the accuracy of credit records they maintain and report when consumers dispute the accuracy.

The Gramm Leach Bliley Act (GLBA) is nick named after the members who created and promoted this Act. The actual Act is The Financial Services Modernization Act of 1999.

GLBA included requirements for privacy of consumer financial information, including disclosures about collecting, maintaining, sharing, and their sharing practices and to ensure the security of the information used in connection with a mortgage application or other consumer credit, not just for a mortgage.  

This law also allowed banks, insurance and security companies to act in combination and offer combined services, like home loans and insurance.  It repealed the Glass–Steagall Act of 1933.

The Home Mortgage Disclosure Act is codified as the Federal Reserve’s Regulation C – Home Mortgage Disclosure Act (HMDA) and is enforced by the Consumer Financial Protection Bureau (CFPB).

The HMDA requirements are intended to provide the public with data about certain applications for loans and their ultimate dispositions. The data can be used to help determine if financial institutions are serving the housing needs of their communities and to assist in identifying potential discriminatory lending patterns and enforcing antidiscrimination. 

Regulation C requires a mortgage companies, defined as a covered institution, to report HMDA data to the appropriate Federal agency about home loans.

Mortgage lenders must report the reason for the home loan and disclose if the mortgage was for a home purchase loans, home improvement loan, or a refinance. 

In fact there is a lot of data points collected including income, loan amount, location of the property, why a loan was declined and most notably ethnicity, race and gender.  

Mortgage lenders are instructed to collect ethnicity on the basis of visual observation or surname in the case of a face to face application even if the borrower did not provide the information. 

The Privacy Act,’ as it is commonly called, is codified in Regulation P – Privacy of Consumer Financial Information. Regulation P requires financial institutions to provide notice to customers about its privacy policies and practices; describe the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties; and, provide a method for consumers to prevent a financial institution from disclosing the information to most non-affiliated third parties by exercising the right to “opt out” of the disclosure.

Nonpublic personal information (NPPI) means personally identifiable financial information is any personally identifiable financial information that is not publicly available. 

A qualified mortgage(QM)  is a 30 year fixed rate mortgage that has contains no risky features such as negative amortization, balloon loans or loan terms longer than 30 years. In addition, points and fees generally may not exceed 3 percent of the total loan amount, but higher thresholds are provided for loans below $100,000 (adjusted yearly).

The Real Estate Settlement Procedures Act of 1974m which became effective in 1975 (also known as Regulation X) requires mortgage companies, mortgage brokers, other lenders and servicers of home loans to provide borrowers with important disclosures regarding the costs of associated with mortgage. One of the most notable provisions is known as prohibits kickbacks for referring customers to settlement providers. This act also protects consumers by placing limitations upon the number of months a servicer can have as a cushion or reserve in escrow accounts. 

This law, known as the SAFE Act requires states to establish minimum standards for licensing and register mortgage loan originators. Loan Originators that are state licensed are required to take pre-education and pass a test before becoming licensed and complete continuing education annually thereafter. Loan Originators that work for federal depository institutions are trained through their employing institution.  However all mortgage originators will be assigned a  NMLS number (a number assigned by the Nationwide Multi-state Licensing System,.

This federal law is designed to ease financial burdens on service members during military service. It regulates such items as rental agreements,  evictions, installment contracts, credit card and mortgage interest rates.

The Truth in Lending Act (TILA) passed by congress in 1968 is the number consumer protection law as it relates to mortgage lending.  

The law specifies what information lenders must provide to consumers opening a mortgage loan. The information includes the annual percentage rate, loan terms, total loan costs, late fees, and prepayment information. 

As of October 2015, the “Truth-in-Lending Disclosure was replaced with the “Loan
Estimate” a three-page disclosure which is easy to read and contains similar information about the mortgage loan.

This is a very comprehensive law and also covers the regulations regarding borrowers Right of Rescission. This provides the borrower the right to turn down a loan up to three days after signing documents to accept the mortgage and its terms. It protects consumers from high pressure loan originators.

This law also regulates compensation for loan originators prohibiting them from being paid on the terms of the loan. It also prohibits e dual compensation (getting paid both the consumer and a lender).