Mortgage Ethics
Ethics is a major issue in mortgage lending, from the way real estate transaction documents are worded to the way foreclosures and bankruptcies are handled. The federal overseer of real estate lending transactions and procedures is the Department of Housing and Urban Development.
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History
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HUD was developed under the U.S. Housing Act of 1937. Its mission is to create quality affordable housing and to use housing as a platform for improving quality of life. Acts that affect mortgage ethics include RESPA, Regulation Z (Truth in Lending), the Fair Credit Act and the Equal Opportunity Act. Many of HUD's responsibilities overlap with the Federal Trade Commission, the Federal Housing Administration, Veterans Administration and the Federal Deposit Insurance Corporation.
Significance
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RESPA (the Real Estate Settlement and Procedures Act) covers procedures and transactions such as how to fill out Settlement Statements and Good Faith Estimates in compliance with the law, and how to handle escrow trust accounts, property taxes and title insurance. Regulation Z (the Truth in Lending Act) covers disclosures, such as what information a lender must give a borrower and their right to cancel a refinance transaction. The Fair Credit Reporting Act covers accuracy and fairness in credit reporting and reasonable collection procedures. The Equal Opportunity Act, through the FHA, covers ethics in lending with regard to housing and mortgage discrimination.
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Misconceptions
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A common misconception is that HUD protects borrowers from a bad mortgage deal. HUD only protects a consumer in the way the deal is handled, it cannot prevent a bad loan deal. Do your research before signing loan documents.
Considerations
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The main consideration in mortgage loan transactions is disclosure. Sellers and lenders are required to disclose certain information about a property to a potential buyer, including ownership history and the property's condition at the time of contract and purchase. There are some state-mandated lemon laws for property defects for homebuyers, but they are not comprehensive and do not apply to all buyers at all times.
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