Federal Laws and Regulations
The Federal Laws and Regulation topic of this study tool is broken down into nine sections:
  1. Introduction to Federal Laws
  2. The Real Estate Settlement Procedures Act (RESPA)
  3. The Homeowner Protection Act (HPA)
  4. The Truth in Lending Act (TILA)
  5. The Home Ownership and Equity Protection Act (HOEPA)
  6. The Fair Lending Laws
  7. The Fair Credit Reporting Act (FCRA)
  8. The National Flood Insurance Act (NFIA)

Introduction, Section 1
Laws and Regulations - Introduction

Mortgage lending has become an increasingly more regulated industry. Together, various federal and state agencies create an often-overlapping blanket of regulations that serve to restrict and control the activities of mortgage loan providers on all levels. The Federal laws we will be covering in this section are the laws most closely associated with retail lending done by mortgage brokers and mortgage bankers.

As a loan originator, you have certain responsibilities and are held liable for compliance with these and other laws. You will need to keep yourself informed of these changing laws and your company’s policies and practices to insure proper compliance.
    These laws are commonly identified by the acronyms associated with them:
  • (RESPA) Real Estate Settlement Procedures Act; Regulation X
  • (TILA) Truth in Lending Act; Regulation Z
  • (HOEPA) Home Ownership and Equity Protection Act; Section 32
  • (FCRA) Fair Credit Reporting Act
    • (FACTA) Fair and Accurate Credit Transactions Act
  • Fair Lending Laws
    • (ECOA) Equal Credit Opportunity Act, Reg. B
    • (HMDA) Home Mortgage Disclosure Act, Reg. C
    • (FHA) Fair Housing Act
    • (CRA) Community Reinvestment Act, Reg. BB
  • Privacy Protection Laws
    • (GLBA) Gramm-Leach-Bliley Act
    • (TSR) Telemarketing Sales Rule
    • (USAPA) USA PATRIOT Act
  • (NFIA) National Flood Insurance Act
  • (HPA) Homeowner Protection Act
    • PMI Calculation

Purpose of Disclosure

Proper Disclosure is one of the many functions and responsibilities of the loan originator. There is a dual purpose for proper disclosure.

  1. To fully inform the borrowers of their rights and protections under the law and to insure their full understanding of the process, fees, costs, terms and risks of their particular loan application.
  2. To meet the legal requirements and ensure that you and your company are in full compliance with all state and federal laws and to protect you and your company from legal liability.

To disclose properly, you as a loan originator need to have a working knowledge of disclosure laws and the disclosure policies of the mortgage company you represent.

Ultimately, the intent of proper disclosure is not only meeting your legal obligation, but also ensuring, to the greatest extent possible, that your borrowers are fully informed of the details and processes of the loan for which they are applying. You have a legal and moral obligation to fully disclose and to strive for complete understanding by your borrower.


The Department of Housing and Urban Development

The Department of Housing and Urban Development (HUD) is a cabinet level agency of the federal government established in 1965. HUD was originally organized to create policy for housing and city development. Since the 1970’s, its focus has shifted away from urban planning and now primarily concentrates on housing issues. HUD is responsible for:
• Enforcing the Fair Housing Act (FHA)
• Amending and enforcing the Real Estate Settlement Procedures Act (RESPA)
• Supporting community development
• Increasing home ownership
• Providing low income housing for people in need
• Fighting housing discrimination

The Federal Housing Administration also falls under HUD, helping to ensure mortgages to low and moderate income borrowers. HUD’s assistance offers extensive educational and home ownership counseling services, senior housing, and safety issues through a nationwide network of organizations.

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RESPA, Section 2
Real Estate Settlement Procedures Act (RESPA) of 1974 - Regulation X

Purpose: Congress enacted RESPA in order to further the goal of encouraging home ownership. Congress sought to achieve this goal by regulating certain mortgage lending, closing, and settlement procedures involved in transactions of residential real estate. Congress elected to “regulate the underlying business relationships and procedures of which costs are a function,” rather than regulating settlement costs directly. RESPA prohibits or regulates “abusive” practices such as unearned fees, excessive escrow accounts and kickbacks.

The other primary purpose of the original law of 1974 was to enable homebuyers to comparison shop and thereby exert “free market” pressure on private providers of mortgage loans to control settlement costs. RESPA aimed to achieve this by requiring that homebuyers are provided in advance of settlement (within three days of application) with both greater information on the nature of the settlement process and an itemized statement of all settlement costs, known as the Good Faith Estimate (GFE).

Three decades and several amendments later, RESPA remains our industry’s most controversial law. Its’ scope has been broadened considerably by congressional and administrative actions that have dramatically affected the way in which we provide and disclose our service to the customer.

Generally, RESPA refers to any purchase, refinance, first or subordinate lien of any federally related mortgage on residential real property designed principally for occupation by one to four families. Because the criteria relating to lenders and loan types are broad, nearly all permanent residential loans will fall under RESPA rules and regulations.


The three most important objectives of RESPA are:
  1. To eliminate referral fees and kickbacks, by making them illegal;
  2. To help borrowers become better mortgage loan shoppers by requiring better disclosure;
  3. To encourage home ownership by keeping closing costs low, through early disclosure and competitive shopping.


Definitions

  1. Federally Related Mortgage Loan is any residential mortgage loan or any commercial loan secured by residential real property. Commercial loans and construction loans (temporary loans) are not included in the definition of a federally related mortgage loan.
    They include:
    “… any loan other than temporary financing, which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives), designed principally for the occupation of from one to four families, including any such secured loan, the proceeds of which are used to pre-pay or pay off an existing loan secured by the same property.”
    • Lenders insured by any federal agency
    • Loans sold to Fannie Mae and Freddie Mac
    • Any “creditor” under CCPA; $1,000,000 per year



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