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December 21, 2014

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Loan

There are a plethora of laws that affect various aspects of mortgage lending, from lender compensation to consumer privacy.

TransactionPost-TransactionPre-Transaction Return to Index Page Earnest Money Appraisal Insurance Loan

 

  Mortgage Reform and Anti-Predatory Lending Act (MRAPL)

The law restricts yield-spread premiums as a method of compensation to mortgage brokers and limits the ways mortgage originators’ compensation can be varied. For example, their compensation can be based on the principle amount but not on other terms of the mortgage. The goal of these compensation restrictions is to curb abusive loans by restricting the way mortgage professionals are paid. Other restrictions apply as well, including one requiring lenders to take into account as part of their underwriting borrowers’ ability to repay.

Regulators:
Bureau of Consumer Financial Protection
U.S. Department of Treasury

Original statutory authority:
“The Dodd-Frank Wall Street Reform and Consumer Protection Act,” Public Law No. 111-203

Penalties:
Imposes civil money penalties

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

  Secure and Fair Enforcement for Mortgage Licensing Act (SAFE)

Summary:
Requires state licensing of mortgage originators. States that don’t have their own loan originator licensing and registration system can participate in the Nationwide Mortgage Licensing System, a registry operated jointly by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. Loan originators include those who take residential mortgage loan applications, assist borrowers to obtain or apply for mortgage loans, and those who negotiate residential mortgage loan terms. Persons who perform merely clerical or administrative tasks in connection with loan origination are not considered loan originators.

Regulator:
U.S. Department of Housing and Urban Development

Original statutory authority:
S.A.F.E. Mortgage Licensing Act of 2008,” Public Law No. 110—289

Penalties:
Varies by state for mortgage originators not in compliance. For states whose programs aren’t in compliance, the U.S. Department of Housing and Urban Development has the authority to implement a licensing program.

More information:
HUD risk management page

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

  Community Reinvestment Act (CRA)

Summary:
Prohibits redlining and other practices in which the availability of credit is subject to discriminatory policies, and requires banks and other federally regulated depository institutions to meet the credit needs of borrowers in all segments of the communities in which they collect deposits, including low- and moderate-income neighborhoods.

Regulators:
Federal Reserve
U.S. Office of the Comptroller of the Currency
Federal Deposit Insurance Corporation
U.S. Office of Thrift Supervision
Federal Financial Institutions Examination Council (acts as coordinator)

Original statutory authority:
The Housing and Community Development Act of 1977,” Public Law No. 95-128

Penalties:
Restrictions on acquisitions and mergers of banks whose lending policies show patterns of discriminatory lending

More information:
http://en.wikisource.org/wiki/Community_Reinvestment_Act_of_1977#Title_VIII
http://www.ffiec.gov/CRA/

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

  Real Estate Settlement Procedures Act/Truth In Lending Act

Summary:
RESPA was enacted in 1974 to provide consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks. In 2010, the U.S. Department of Housing and Urban Development issued a revamped HUD-1 settlement statement and Good Faith Estimate.

Section 8 of RESPA prohibits the exchange of things of value among settlement service providers (lenders, practitioners, title agents, among others) in exchange for a referral of business. Also, service providers must disclose to consumers any affiliated business arrangements such as a brokerage-owned mortgage or title company. 

TILA requires lenders to disclose the terms and costs of loans in language consumers can understand and also gives consumers the right to cancel, and resolve disputes over, mortgage and other credit transactions within a certain amount of time.

RESPA and TILA are frequently referenced together because of the overlap in disclosures requirements of TILA and the HUD-1 and GFE forms under RESPA.

Regulators:
RESPA: CFPB
TILA: Federal Reserve
Consumer Financial Protection Board (CFPB)

Original statutory authority:
RESPA: “Real Estate Settlement Procedures Act of 1974,” Public Law No. 93-533
TILA: “Consumer Credit Protection Act of 1968,” Public Law No. 90-321

Penalties:
Section 8 (kickbacks, unearned fees): Fines of up to $10,000, imprisonment for up to one year, or both

More information:
NAR RESPA page on REALTOR.org
NAR TILA page on REALTOR.org

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

  Equal Credit Opportunity Act (ECOA)

Summary:
Prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because you receive public assistance. Lenders may generally ask loan applicants for this information but they can’t make credit decisions based on it.

Regulator:
Federal Trade Commission

Original statutory authority:
The Equal Credit Opportunity Act of 1974,” Public Law No. 93-495

Penalties:
Civil penalties can be imposed for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.

More information:
FTC equal credit opportunity page

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

  Fair Credit Reporting Act (FCRA)

Summary:
Regulates the collection, dissemination, and use of consumer information, including consumer credit information. As amended, it permits consumers to receive from a credit reporting agency, upon their request, one free copy of their credit report a year. If negative information is removed from their credit report as a result of a consumer dispute, it may not be reinserted without notifying the consumer.

As amended by “The Fair and Accurate Credit Transactions (FACT) Act of 2003” (Public Law No. 108-159) the rules include privacy requirements that govern the disposal of copies of credit reports of customers or clients to protect against privacy violations or identity theft.

Regulator:
Federal Trade Commission

Original statutory authority:
The Fair Credit Reporting Act of 1970,” Public Law No. 91-508

Penalties:
Private right of action: Consumers who feel their FCRA rights have been violated can sue in state or federal court.

More information:
FTC FCRA summary
NAR FACT Act page on REALTOR.org

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

  Home Ownership and Equity Protection Act (HOEPA)

Summary:
Requires lenders providing home-equity loans on owner-occupied primary residences to disclose and comply with limitations on loan rates and fees.

Regulator:
Federal Trade Commission

Original statutory authority:
“Home Ownership and Equity Protection Act of 1994,” Public Law No. 103-325

Penalties:
Creditors who violate HOEPA may be liable for all the finance charges and fees paid by the borrower. In class action suits, damages are limited to $500,000 or 1 percent of the creditor’s net worth. The frequency and persistence of compliance violations and whether violations were intentional are factors a court can consider in imposing penalties in class action suits.

More information:
HOEPA provisions at Cornell Law School

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

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