How mortgage laws help consumers get a fair deal
Mortgage basics are similar all over USA and the mortgage industry runs as per the laws set up by the US government. However, the mortgage laws may vary from one state to another. Each of the state has certain laws that the lenders have to follow while offering home loans to consumers. Read on to know about 3 such laws that protect the consumers as well as govern the mortgage lending process.
- Home Mortgage Disclosure Act
HMDA (Home Mortgage Disclosure Act) was enacted by the Congress in the year 1975 and was implemented by the Federal Reserve Board’s Regulation C. This law applies to several financial institutions including credit unions, banks, savings associations along with other mortgage lending institutions. As per the law, the financial institutions need to disclose certain information about the mortgage loan to the public as well as to the government.
2. Truth in Lending Act
The ‘Truth in Lending Act’ (TILA) is a federal law and a part of Consumer Credit Protection Act that was enacted in the year 1968. According to this mortgage law, the lender has to fulfill certain disclosure requirements that help a consumer to make a choice.
The required disclosures are:
- Annual Percentage Rate – The monthly interest rate along with points (pre-paid interest) and other charges.
- Finance charge – The amount charged by a lender for offering the mortgage loan.
- Total payment amount – The total amount that you need to pay over the term of the loan.
- Financed amount – The amount actually borrowed by a consumer.
- The sale price – The total purchase amount including the mortgage amount and the down payment.
This law allows the consumers to back out of a mortgage loan transaction within 3 working days.
3. Real Estate Settlement Procedures Act
The ‘Real Estate Settlement Procedures Act’ (RESPA) was enacted in the year 1974 and it is a part of the consumer protection law. This mortgage law provides the consumers with improved disclosures and also prohibits certain practices (of the lender) that can increase the closing costs of a mortgage loan.
As per the new RESPA regulations, the lenders are required to provide the consumers with a standardized Good Faith Estimate that discloses the settlement costs along with the key terms and conditions of the mortgage loan. The new regulations have come into effect from January 1, 2010. The lenders have to complete a 3-page Good Faith Estimate form with the details of estimates charges of settlement depending on the initial interest rate, the loan term and the monthly amount owed.
There are some other mortgage laws that protect consumers against discrimination. ECOA (Equal Credit Opportunity Laws) prohibits the lenders to discriminate the consumers on the basis of race, sex, color, religion, marital status, etc. As per Fair Housing Act, lenders cannot discriminate consumers on the basis of race, sex, religion etc, regardless of whether the borrower is purchasing or taking a property on rent. If a lender violates mortgage laws, the consumer has every right to file a lawsuit against the lender in the federal district court.
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