Mortgage Laws And Regulations To Protect The Consumer

Mortgage Laws And Regulations To Protect The Consumer

Following is a brief description of the major laws and regulations meant to govern the mortgage lending process, protect mortgage borrowers, and govern the practices of financial institutions with regard to mortgage lending and protection of borrower financial information. All of the following are federal laws and regulations. Many states may have additional laws governing the mortgage process and protecting consumers.

Truth in Lending Act

Enacted in 1968, the Truth in Lending Act (TILA), which is part of the Consumer Credit Protection Act, is a federal law that sets forth certain written disclosure requirements. Disclosures required by the act include:

  • Finance Charge - this is the amount charged to the borrower for a loan
  • Annual Percentage Rate (APR) - this is the actual realized interest rate taking into account other items such as pre-paid interest (points) and certain other charges
  • Amount Financed - this is the amount that the consumer is actually borrowing
  • Total of Payments - This is the total amount of payments made over the life of a loan
  • Total Sales Price - This is the total amount of a real estate purchase including the down payment and mortgage amount

The Truth in Lending Act also sets forth advertising requirements for lenders as well as rescission rights for consumers. The rescission rights in TILA allow consumers 3 business days to back out of a loan transaction.

For additional information on the Truth in Lending Act see: FDIC Consumer Protection.

Fair Housing Act

Also adopted in 1968, the Fair Housing Act prohibits discrimination in housing related transactions (purchase and rental) based upon race, color, sex, religion, national origin, familial status (with or without children), or handicap.

Fair Housing Logo
Lenders advertising their compliance with the act will display the Fair Housing Logo as well as the "Equal Housing Lender" slogan.

For more information see: Fair Housing--it's Your Right

Real Estate Settlement Procedures Act

Adopted in 1974, the Real Estate Settlement Procedures Act (RESPA) is another consumer protection law. It covers purchase loans, assumptions, refinance loans, property improvement loans, and equity lines of credit for one to four unit residential properties.

RESPA serves two functions:

  1. It requires certain disclosures to borrowers
  2. It prohibits certain practices that can drive up the closing costs of a loan

The required disclosures spelled out by RESPA include:

  • Required at the Time of the Loan Application
    • The Good Faith Estimate (GFE) of settlement costs
    • A special consumer information booklet (for purchase transactions only)
  • Disclosures Before Closing
    • An Affiliated Business Arrangement (AfBA) Disclosure if there is a relationship between the lender and any other party providing services in relation to the loan
    • A HUD-1 Settlement Statement
  • Disclosures At Closing
    • A HUD-1 Settlement Statement
    • An Initial Escrow Statement
  • Disclosures After Closing
    • An Annual Escrow Statement
    • A Servicing Transfer Statement in the event of transferring servicing for the mortgage

RESPA also provides further consumer protection by prohibiting kickbacks, fee-splitting, unearned fees in return for referrals for settlement services; prohibiting the seller from requiring the use of a certain title insurance company; and places limits on escrow accounts.

For more information see: Your Rights and the Responsibilities of the Mortgage Servicer or RESPA StatuteReal Estate Settlement Procedures Act

Equal Credit Opportunity Act

Adopted in 1975, the Equal Credit Opportunity Act (ECOA) prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. ECOA regulates application content, acceptable and unacceptable questions, and verbal or written discouragement of an application.

Home Mortgage Disclosure Act

Adopted in 1975, the Home Mortgage Disclosure Act (HMDA) requires that lenders report public loan data on both approved and denied loans.

For more information see: the Home Mortgage Disclosure Act (HMDA) web site

Community Reinvestment Act

Enacted in 1977, the purpose of the Community Reinvestment Act (CRA) is to encourage financial institutions (insured depository institution's) to help meet the credit needs of the communities in which they serve, including low- and moderate-income neighborhoods. The act requires that insured depository institution's be periodically evaluated.

For more information see: the Community Reinvestment Act (CRA) web site

Fair Credit Reporting Act

Adopted in 1978, the Fair Credit Reporting Act (FCRA) is designed to promote accuracy and ensure the privacy of the consumer credit information from consumer reporting agencies such as credit bureaus. The act has been amended numerous times since enactment.

For more information see: Fair Credit Reporting

New Homeowner's Protection Act

Adopted in 1998, the Homeowner's Protection Act (HPA), also known as the PMI Act, establishes rights for homeowners and rules for lenders regarding private mortgage insurance (PMI) cancellation. The act applies to mortgages obtained on or after July 29, 1999.

For more information see: Private Mortgage Insurance (PMI) New Law Requires Lenders to Cancel PMI

Fair Debt Collection Practices Act

Adopted in 1977, the Fair Debt Collection Practices Act requires that debt collectors treat borrowers fairly by prohibiting certain methods of debt collection. It prohibits unfair, deceptive, or abusive practices, including over-charging, harassment. It also prohibits disclosing consumers' debt information to third parties.

For more information see: Fair Debt Collection

Gramm-Leach-Bliley Act

Adopted in 1999, the Gramm-Leach-Bliley Act includes provisions to protect consumers' personal financial information. It has three parts pertaining to privacy requirements:

  1. The Financial Privacy Rule - The financial privacy rule requires financial institutions to give their customers privacy notices that explain their information collection and sharing practices. The act also gives customers the right to limit some sharing of their information.
  2. The Safeguards Rule - The safeguards rule requires financial institutions to have a security plan to protect the confidentiality and integrity of personal consumer information.
  3. Pretexting - The Gramm-Leach-Bliley Act prohibits the use of false pretenses, including fraudulent statements and impersonation, to obtain a consumers' personal financial information.

For more information see: The Gramm-Leach Bliley Act