Section 5, Unit 4: Finance and Credit Laws

The consumer's lender

In a residential real estate sale involving a federally related loan, what entity is required to provide Real Estate Settlement Procedures Act disclosures to the consumer?

Eliminating illegal kickbacks and referral fees among settlement service providers and requiring lender disclosures as part of a residential real estate transaction involving credit

The Real Estate Settlement Procedures Act protects consumers by _______.

Get a low interest rate of 4.75% (4.925% APR) with as little as 10% down payment and a 30-year fixed rate with no points.

Which of the following is an acceptable ad based on Regulation Z?

1, 2

While there are many regulations in place to curb predatory practices, you or your clients may still encounter them from time to time. Which of these lender actions are considered predatory? 1. Refusing to give a loan to a consumer whose debt-to-income ratio is 50% 2. Giving a consumer a loan that is too expensive for her to pay off 3. Encouraging a borrower to keep refinancing to earn money from the fees

Truth in Lending Act

Regulation Z codifies the rules of the ______.

CRA (Ex)

A bank makes public the results of a federal agency review.

HMDA (Ex)

A bank publicly discloses information about the mortgages it granted.

ECOA (Ex)

A lender extends credit to a Muslim applicant and to an equally creditworthy Protestant applicant. A lender sends a mortgage applicant a copy of the appraisal for the property being purchased.

Home Mortgage Disclosure Act

About 50% of the borrowers in Neighborhood One are Hispanic, while only 4% in Neighborhood Two are Hispanic. The median home price in both neighborhoods is the same. However, statistics show that there is a significantly greater percentage of minority and low-income borrows who were denied financing for loans on properties in Neighborhood Two and were offered lower rates to live in Neighborhood One. What act is intended to prevent this type of potentially discriminatory lending pattern?

HMDA

Allows review of lending data to evaluate where mortgages are given and where they are not

Inflated appraisals

An appraiser secretly works with a borrower and provides a misleading appraisal report to the lender.

Equal Credit Opportunity Act

Gregory and Dianne are American citizens of Cuban origin, and when their home loan is denied, they suspect discrimination. Which of the following acts prohibits lender discrimination on the basis of the protected class of national origin?

Yes, because RESPA applies to any residential loan transaction from a federally insured financial institution, including equity lines of credit.

Gus has applied for a home equity line of credit from his federally insured bank so that he can make some renovations to his kitchen. The same bank is his lender for his home mortgage. Will this loan be subject to Real Estate Settlement Procedures Act requirements?

Requiring lenders to make full disclosure of the terms and conditions in any offers of credit

How TILA Helps Borrowers Tilly is applying for a loan so she can buy the home of her dreams. She protects herself by making sure she understands the facts and her responsibilities regarding a mortgage. Meanwhile, TILA protects Tilly by ___________.

Yes

Is This a Violation? Brad is poised to make it big in the music world. He's got talent, he's got drive, and he's got a garage band. The only thing he hasn't got is money to buy the new guitar he needs. No one he knows will lend him the money, so he ends up striking a deal with a fellow one of his bandmates knows. Brad gets the money, buys his guitar, and figures he'll worry about that 18% interest rate next month, when his first payment is due. Does this deal violate the usury law in Brad's state, which caps personal and consumer loan interest rates at 15% monthly?

To detail the estimated closing costs for Lawrence's loan

Lawrence is a buyer closing on a home purchase for which he's obtaining financing. He receives a Loan Estimate from his lender. What's the purpose of this document?

Regulation Z

Lender Rules from TILA Tilly's lender explains to her that ____________ requires that she be provided with a disclosure statement within three days of receiving her loan application.

1, 4

Recognizing Discriminatory Practices Although laws are in place that protect equal access to credit for all, there are still occasions when discrimination takes place. Which of the following situations reflect the same unfair practices that led to the passage of ECOA, HMDA, and CRA? 1. Marketing more expensive loan products to a minority community, and more affordable products to a majority community 2. Within a minority community, providing credit only to creditworthy individuals 3. Refusing credit to members of a minority community who can't prove creditworthiness 4. Denying a minority applicant a loan for a home in a white community, but approving a similar loan to the same applicant for a home in a minority community

CRA

Requires lenders to invest in development and rehabilitation of the communities they serve

Straw buyer

Samuel and Yoshi have worked at the same firm for a few months and get along well. Samuel mentions he has a credit score in the low 800s. Yoshi, who's just starting out, persuades Samuel to sign for a loan to help Yoshi buy a property, since his credit isn't good enough. Yoshi promises to make the mortgage payments, but two months after the deal closes, Yoshi moves across the country. Samuel's now stuck with a $400,000 mortgage. What type of scheme is this?

No (TILA)

TILA's Truth in Advertising Requirements Tilly is a high school teacher who's decided to purchase a home nearer to the school where she works. She looks through a "Homes for Sale" magazine to see if there are any homes she can afford, and she sees a listing for a cute two-bedroom with a fenced yard big enough for both of her dogs! The price is a little high, but the ad excitedly proclaims, "Financing available!" Does TILA require that Tilly see additional terms of credit with this ad?

Home Mortgage Disclosure Act ()

The Morgans are about to close on their home. They're meeting with the lender to complete all the necessary paperwork. They've requested that none of their demographic information be shared with anyone. Which act would they need to be made aware of? ()

Community Reinvestment Act

The neighbors in South Mountain Village got tired of all the drug dealing and criminal activity surrounding a shop, the Mystery Market. The community boycotted the store, which eventually closed, and with the help of local financial institutions, a social services center was added to the area. What act is this an example of?

Illegal property flipping

The property is purchased, falsely appraised at a higher value, and then quickly sold.

The rebate is not required for referral of business.

Under RESPA, a rebate of a licensee's commission may be offered to a transaction party, provided which of the following is true?

Falsely inflated appraisal

What's the most common indicator of illegal property flipping?

It requires lenders to make credit equally available to all creditworthy applicants, regardless of the applicant's protected class status.

What's the purpose of the Equal Credit Opportunity Act?

2, 4

When RESPA Applies RESPA regulations apply to most transactions that involve loans for one- to four-family residential properties. But in what other circumstances might RESPA apply? Mark each situation according to its relationship to RESPA. 1. Donna is purchasing a home using all cash from her lottery winnings. 2. Craig is applying for a federally related loan from his bank to buy a large ranch house on five acres. 3. Smitty and Kate are financing a 40-acre lot upon which they hope one day to build their dream home. 4. Letitia and Marla have purchased a fixer-upper. They borrowed enough on an FHA loan to pay for the property and the renovation costs. 5. Kendra is buying an auto repair business, including the building and land. 6. Chance and Maury are purchasing a farm house on 100 acres.

All of the above

Which of these statements are red flags or warning signs that a real estate professional should investigate further to avoid becoming unwittingly involved in mortgage fraud? 1. Significant sales price adjustments that are not supported by comparable market data 2. Missing or inconsistent information in the purchase and sales agreement 3. Buyer has a very limited credit history 4. Unrealistic income for the borrower's occupation 5. A recent drastic increase in income due to a raise or a new job.

Nothing

Bo's real estate ad states: "Custom homes for sale with scenic mountain views. Easy financing and low down payments." What else must be included in the ad in order for it to comply with TILA?

No

Brad's Dad Gets a Loan Meanwhile, Brad's dad has decided it's time to buy a boat. He's found a personal loan with a rate of 10%. Brad's dad jumps on it, thinking it sounds like a good deal. The law in the state Brad's dad lives in caps interest rates on personal and consumer loans at 12%. Therefore, does it violate usury law?

Lending for You

Let's look at an example of lending practices. Lending for You was really friendly. When Bob told the representative that he only had about 10% saved up for a down payment on a new home, the representative didn't discourage him at all. In fact, he suggested taking out a personal loan and using that money toward the down payment. Bob could even obtain that loan through Lending for You. The rep also said that if Bob waits until a few days before closing on the new home, it wouldn't even factor the personal loan into Bob's debt-to-income ratio. Bob can almost feel the keys to his new home in his pocket. Lend-Right came highly recommended to Bob, but so far he doesn't feel any closer to home ownership. He's provided it with tax returns, W-2 forms, bank statements, and information about his car loan. When he told his representative he only had about 10% saved for a down payment on a new home, she said he'd have to purchase something called PMI. Bob feels like they're just trying to drive up costs on him. Which lender would you consider predatory?

ECOA

Lists protected classes against whom lenders may not discriminate when making credit unavailable

Equal Credit Opportunity Act ()

Natalie is a single mother of twins and receives government assistance to help make ends meet. She's been living with her mother for the last few years but really wants to buy her own home to gain some independence. She's got a little in savings and has good credit, but when a lender turns her away because she receives public assistance she worries that she'll never be able to get a loan. What act prevents automatic discriminatory practices by lenders and protects individuals like Natalie? ()

Loan Estimate, Closing Disclosure

RESPA Disclosures In addition to reducing settlement costs, RESPA helps protect the consumer by requiring clarity around settlement fees. The borrower in a real estate transaction must receive certain disclosures. Which two of these are the names of the disclosure forms related to RESPA?

2, 3

RESPA Prohibitions Ron is a licensee working on the completion of a residential transaction. He's a helpful guy and wants his client to get the best service possible, so he gives his client a referral to a great mortgage broker. Determine what isn't allowed under RESPA. 1. Ron can give his client the name and contact number for at least three mortgage brokers. 2. Ron can give his client the name of the best mortgage broker and accept a fee from that mortgage broker for doing so. 3. Ron can offer cash back to his client if his client goes with the mortgage broker he recommends. 4. Ron can explain that the choice of mortgage broker is completely up to the client.

The original sales agreement and any addenda

Real estate professionals handle many documents related to real estate transactions. Which one of the items listed below is one of the most important in detecting mortgage fraud?

Disclosures

The Truth in Lending Act requires lenders to make certain ______ to consumers.

Straw buyers

The borrower's identity is concealed behind someone else's name and credit history.

Requiring full disclosure of the terms and conditions in any offers of credit

The intent of the Consumer Credit Protection Act, which includes the Truth in Lending Act, is to safeguard the consumer by ______.