Federal Laws Governing Mortgage Lending
The United States federal government has 4 core laws that make the guidelines uniform and administered fairly and equally for all individuals. In fact, all lenders are required to operate under certain rules, regulations and procedures when taking loan applications.
Those rules, regulations and procedures are spelled out in the Real Estate Settlement Procedures Act (RESPA), the Truth In Lending Act (TILA), Equal Credit Opportunity Act (ECOA) and Fair Credit Reporting Act (FCRA).
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) requires lenders to give a “good faith estimate” of all closing costs you are likely to pay. The idea is to keep the borrower from being forced to pay “hidden” fees at closing.
RESPA also requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.
Truth In Lending Act (TILA)
The Truth In Lending Act (TILA) also known as Regulation Z, requires that annual percentage rate (APR), term of the loan and total costs must be disclosed to a borrower prior to extending credit to the borrower. This information must be conspicuous on documents presented to the consumer before signing, and also possibly on periodic billing statements.
Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending based on race, creed, religion, national origin, sex, marital status or age. It also ensures that all consumers are given an equal chance to obtain credit. This doesn’t mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.
The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law.
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies. When you apply for a mortgage, the lender pulls a credit report. The FCRA guarantees you will have access to that report.