Homes Mortgage Lenders Regulations

Few businesses are more extensively regulated by our government than home mortgage lending. There are four regulations which together determine the criteria for evaluating home loans and strictly stipulate extensive disclosures in the origination of home loans:

1. The Equal Credit Opportunity Act of 1974
2. The Consumer Credit Protection Act of 1968 (The Truth in Lending Act)
3. The Real Estate Settlement Procedures Act of 1974
4. The Home Ownership and Equity Protection Act of 1994

The Equal Credit Opportunity Act of 1974

This act was made law in 1974 because perceived there was a history of discrimination in the home mortgage industry. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending practices on the grounds of race, color, religion, national origin, sex, marital status, age, or because all or part of an applicant’s income is from a public assistance program. Employers invest money and time training their employees concerning this act because there are a lot of questions which may not be asked such as plans on having children, weather your employed full or part time, weather or not you have a phone number listing,, they may not ask about a spouse who is not part of the loan process.

The Consumer Credit Protection Act of 1968 (The Truth in Lending Act)

This act requires important disclosures concerning the consumer credit. The best known of these requirements may be the APR disclosure. However, this law requires other aspects of the terms of the loan:

• Does the loan contain a demand feature
• Can the loan be assumed
• Does the Loan have a variable rate
• If property hazard insurance is a requirement of the loan
• Are there late charge provisions
• Are their prepayment penalties

The Real Estate Settlement Procedures Act of 1974

This law placing demands on lending institutions which seek to have their loans backed by federal insurance programs such as VA loans, Fanny May or Freddie Mack or the FHA or if the plan to sell them on the secondary market which is about every loan. It’s purpose is to stop the crazy forms that were complicated and to level the playing field. The requirements include:

• A standard format closing a statement for most home mortgage loan closings (the HUD-1Setellment Statement)
• Presentation of a booklet explaining closing fees and the HUD-1Setellment Statement
• A good faith estimates of closing cost, to be provided within three business days of the loan application
• The opportunity to examine the closing statement at lease 24 hours in advance of the loan closing
• Prohibition of kickbacks and referral fees between the lender and providers of services in connection with the loan closing.

The Home Ownership and Equity Protection Act of 1994

This law came about because concern for abusive, predatory practices in subprime lending.

It was to protect borrowers with limited knowledge of the industry.

It was concerned with:

• Extremely high interest rates
• High fees rolled into the loan
• Aggressive selling of optional insurance (under the heading of dept protection)
• Severe prepayment penalties to prevent prepayment of loan
• Short term balloon payments to force more financing
•  Use of undisclosed negative amortization to disguise cost, the general lack of disclosures and the pattern of encouraging distressed borrowers to refinance into another abusive loan.