How Are Mortgage Companies Regulated?
Banks and mortgage companies are heavily regulated by the federal government. The regulations that govern the mortgage industry are intended to force banks to fully inform consumers about the terms of the loan they are receiving, prevent discriminatory lending practices and give overall protection to the consumer during the lending process.
Other People Are Reading
-
Regulation Z
-
Also referred to as the Truth in Lending Act (TILA), Regulation Z is primarily a disclosure regulation. This is the legislation that is responsible for the disclosures you receive at application and closing of your mortgage that show you the annual percentage rate (APR) you will be paying. The APR is made up of both the annual interest and certain applicable closing costs. Additionally, Regulation Z requires banks wait at least seven business days from the time that they give you the initial disclosures before they let your loan go to signing. This time is intended for you to review the disclosures carefully and make an informed decision about your mortgage.
Home Mortgage Disclosure Act
-
The Home Mortgage Disclosure Act (HMDA) requires banks to report information about each of the mortgage loan applications they receive to the government for monitoring purposes. Banks must report the date of application, loan purpose, type of property, borrower demographic information and borrower income. It is for this reason that when you put in a loan application, the loan officer will ask you to provide them with information about your race, ethnicity and sex. It is not a requirement that you give them this information, but if you do not, the officer is required to report it based on physical observation if your application was given face-to-face. This information has no bearing on your application.
-
Regulation B
-
Regulation B is the legislation that enforces the Equal Credit Opportunity Act (ECOA). This law prohibits mortgage companies from discriminating against consumers who apply for mortgages based on marital status, age, race, color, religion, national origin, sex or the source of their income. The data gathered for government reporting under HMDA helps the government check that banks are not discriminating on any prohibited basis.
Real Estate Settlement Procedures Act
-
The Real Estate Settlement Procedures Act (RESPA) has two main purposes. The first is to disclose to the consumer all fees being charged, and the second is to prevent what are known as "kickbacks." The disclosures associated with RESPA are the Good Faith Estimate and the HUD-1. The first disclosure is given at application and shows what the bank intends to charge you for the loan, and the second is given at closing and itemizes the fees you were actually charged. RESPA also outlaws the establishment of a relationship between two companies in which one company pays another for referring business related to mortgages--payments known as "kickbacks." For instance, a title company may not pay a bank for having its customers use that specific title company.
Regulatory Process
-
The process of regulating banks and mortgage companies can sometimes be a lengthy one. For a new regulation to be put in place, several things must first occur. Congress must pass a law that is signed by the president stating the need for a regulation and the type of mortgage activity that should fall under the requirements. From here, the law goes to the regulators, who propose a regulation to enact the requirements of the law. The proposal is published and the public and banking industry employees are allowed to comment and make suggestions. After the comment period ends and any changes have been made, the regulators will finalize and publish the finished regulation. Banks are usually given a period of time to create processes to implement the new regulation.
-
