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Chapter 14

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  1. Chapter 14 Federal Regulation of Mortgage Lending

  2. 14-1 Learning Objectives • Describe how the federal government regulates the practice of residential mortgage lending • Identify the various laws regulating residential mortgage lending • Explain the purpose of laws and what motivated them • Describe the consequences that may apply for failure to follow the various regulations

  3. 14-2 Anti-Discrimination Legislation • Equal Credit Opportunity Act (ECOA) • Prohibits lenders from discrimination on the basis of race, national origin, gender, age, or marital status • Home Mortgage Disclosure Act • Requires lenders to report on areas where they make loans • Community Reinvestment Act • Requires lenders to take an assertive role in lending to all citizens in their market areas

  4. 14-3 Equal Credit Opportunity Act (ECOA) • Passed in 1974 • Effects measure is whether minority groups are under-represented within credit recipients • Intent measure is whether the lender intends to treat minority groups less favorably • Practices measure is when a lender fails to adhere to guidelines

  5. 14-4 Home Mortgage Disclosure Act (HMDA) & Community Reinvestment Act (CRA) • HMDA passed in 1975 and CRA passed in 1978 • Act to insure that all citizens have access to credit markets • HMDA requires lenders to compile reports on loan distributions • CRA requires lenders to publicize their lending activities • Designed to prevent redlining

  6. 14-5 Real Estate Settlement Procedures Act (RESPA) • Enacted in 1974 • Requires disclosure of settlement costs prior to settlement • Disclosure Requirements • Borrower receives booklet on RESPA at loan application • Good faith estimate before closing • Uniform Settlement Statement contains all charges and disbursement of funds • Lender must disclose intentions to sell the mortgage

  7. 14-6 RESPA Con’t • Abusive practices (e.g. kickbacks) are monitored closely • Limits amount of funds required in escrow accounts • Does not affect enforceability of sale or loan agreements • Computer Loan Organization Systems (CLOS) • loan information network • integrated origination and processing system

  8. 14-7 Consumer Credit Protection • Enacted in 1968 • Contains Truth-in-Lending and Fair Credit Billing Acts • Regulation Z requires disclosure of total finance charges and the annual percentage rate (APR) • Total finance charges include interest, origination fees, discount points, appraisal and credit report fees, credit life premiums, and mortgage insurance premiums

  9. 14-8 Credit Protection Con’t • APR is the effective cost of the loan assuming that it is held for its full term • APR is affected by finance charges

  10. 14-8 Regulation Z and Alternative Mortgage Instruments • Lender must advise the borrower that any negative amortization in a graduated payment mortgage is a finance charge • Lenders must disclose index, margin, caps, frequency of rate change, and negative amortization on adjustable rate loans • Because appreciation is not known in a shared appreciation mortgage, all disclosures are based on the original, fixed interest rate

  11. 14-9 Instruments Con’t • The effect of all buy-downs must be disclosed • Disclosures required in home equity loans