Affinity - 2. Federal Mortgage Laws pt. 2

FHA discriminatory practices

-blockbusting (panic selling) -steering -redlining

Copy of credit score (under FCRA)

-you have the right to ask for a credit score -Credit scores are numerical summaries of your credit-worthiness based on information from credit bureaus. -You may request a credit score from consumer reporting agencies that create scores or distribute scores used in residential real property loans, but you will have to pay for it. -Credit Score is NOT FREE

Fair Housing Act Exemptions

- The Fair Housing Act covers the majority of residential transactions in the U.S., although there are specific exemptions: -It is NOT a violation to refuse rental of a room or unit in a dwelling with no more than four independent units, provided that the owner occupies one unit as a residence. ---EX: 4 unit residential property (owner occupied), the owner can deny an applicant however they please -Single-family home is sold or rented by a private owner without the use of a broker. -Housing operated by organizations and/or private clubs. ---EX: senior citizen complex may deny a 21year old applicant

Redlining

-1 of 3 of FHA discriminatory practices -committed by lenders -refusal to make loans on property located in a particular neighborhood for discriminatory reasons. Concerns about redlining prompted the passage of the HMDA law.

Blockbusting (panic selling)

-1 of 3 of FHA discriminatory practices -committed by real estate agent - trying to induce owners to sell their homes by suggesting that the ethnic or racial composition of the neighborhood is changing, with the implication that property values will decline due to this change. -EX: telling someone to sell their house because a Latino family is moving in next door and their property value will decrease = RACIST

Steering

-1 of 3 of FHA discriminatory practices -committed by real estate agent --channeling prospective real estate buyers or tenants to particular neighborhoods based on their race, religion or ethnic background. -they can steer themselves, we just can't persuade them to go somewhere based on their race -EX: trying to push a family into a neighborhood because they're Asian and there are other Asian families

ECOA notice of right to receive appraisal report

-A borrower must receive a Notice of "Right to Receive" a copy of the Appraisal within 3 business days of application. -If an application is denied based on the appraisal report - the consumer has the right to request appraisal report used within 90 days of credit decision - lender must provide within 30 days. -If the applications were actually approved - they should receive the appraisal no later than 3 business days prior to the close of a first lien loan. -A copy of all appraisals are due "promptly" after they are completed or at least 3 business days prior to consummation, whichever is earlier. -Borrowers may waive the timing requirement as long as they still receive an appraisal copy at or prior to consummation. -If the creditor denies a loan application or the application is withdrawn by the consumer, the obligation to provide copies of valuations still exists. -However, the deadline is extended to 30 days after the date on which the creditor determines the transaction will not proceed.

ECOA Limitation on Requests for Information Concerning Childbearing or Childrearing

-A creditor shall not inquire about birth control practices, intentions concerning the bearing or rearing of children, or capability to bear children. -A creditor may inquire about the number and ages of an applicant's dependents or about dependent-related financial obligations or expenditures, provided such information is requested without regard to sex, marital status, or any other prohibited basis.

DNC EBR

-DNC Established Business Relations (EBR) -Established Business Relationship (EBR) - the requirements DNC and its provisions do not apply if a consumer has an established relationship with a mortgage professional. This may be established in one of two ways: -Eighteen (18) months after the consumer's last purchase/transaction - The consumer purchased, rented, or leased goods and/or services from the seller or participated in a financial transaction between the consumer and the seller within 18 months preceding a telemarketing call. -Three (3) months after the consumer makes an inquiry or submits an application to the company within three months preceding a telemarketing call. -Regardless of the existence of an established business relationship, if a consumer specifically asks not to be contacted the request must be honored.

DNC registry

-Do Not Call Registry -The Do-Not-Call Implementation Act was signed into law in 2003 as part of earlier legislation - the Telemarketing Consumer Fraud and Abuse Prevention Act and the Telemarketing Sales Rule. -The law is intended to allows consumers to restrict unwanted sales calls from coming into their homes.

Enforcement of ECOA

-ECOA disclosures must be kept for 25 months -Civil action may be filed within two (2) years (24 months) if a consumer believes his rights have been violated under ECOA. -Penalties for Violations of ECOA - $10,000 per violation.

Prescreened offers (under FCRA)

-FCRA limits the circumstances in which consumer reports can be used to make prescreened offers -Prescreened offers of credit or insurance - sometimes called "preapproved" offers - are sent to consumers unsolicited, usually by mail. -They are based on information in consumers' credit reports that indicates that the individuals receiving the offer meet the criteria set by the company making the offer. -All such offers must include a notice of consumers' right to stop receiving future prescreened offers.

FHA

-Fair Housing Act (Title VII of Civil Rights Act of 1968) -illegal to discriminate in the sale or lease of residential property based on: --sex --race --color --national origin --religion --------all bolds above also protected by ECOA --physical or mental disability --familial status (includes: families with children under the age of 18, pregnant women, people securing custody of children under age of 18) Q?: What law did the company violate when they refused to lease her a property because she was 6 months pregnant? -ANS: FHA due to familial status

GLBA

-Gramm-Leach-Bliley Act (GLBA) -AKA: Financial Modernization Act of 1999 -provisions to protect personal financial information -GLBA compliance deals with Safeguards rule, Pretexting rules, and Financial privacy rules (SPF)

ECOA notifications

-Regulation B provides specific requirements for creditors regarding notification of action taken, ECOA notices, and statement of specific reasons to applicants. •A creditor shall notify an applicant of action taken within 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, incomplete application, or adverse action (denial letter) on the application.

Section 114 under FACTA

-Section 114 of the FACT Act is known as the Red Flags Rules, which, among other things, requires financial institutions and creditors to implement a written identity theft prevention program.

Financial privacy rule

-compliance under GLBA -governs the collection of non-public information and how it can/cannot be shared with affiliates -GLBA requires financial institutions to give their customers privacy policies that explain the financial institution's info collection and sharing practices -opt-out right - customers have the right to limit some sharing of their info -according to GLBA, a "consumer" is someone who obtains a specific product or service for personal use while a "customer" has an ongoing significant relationship --Customers must receive a financial institution's privacy notice every year for as long as the customer relationship last.

Pretexting provisions

-compliance under GLBA -prohibits use of false pretenses including fraud statements and impersonation to obtain consumers' personal financial information -The reason we must put in "security questions" i.e. mother's maiden name, etc. -To prevent others from "pretending" to be you and gaining access to your information.

Safeguards rule

-compliance under GLBA -written security plan to protect the confidentiality and integrity of personal consumer info ---EX: should feel safe to swipe your credit card when going shopping -This security plan must describe the measures that the firm is taking to protect data, and employees should be trained on the requirements of the plan. Written Safeguards Policy must: -Ensure security and confidentiality -Protect against anticipated threats or hazards -Protect against unauthorized access that could harm or inconvenience consumers.

ECOA age

-creditors can consider the age of an applicant for credit under these circumstances: -the applicant is too young to sign contracts (usually under 18) or the applicant is applying for a reverse mortgage and must be older than 62

ECOA marital status

-due to ECOA, originators CANNOT ask an applicant if they are single, divorced, or widowed -only choices on the application are: married, unmarried, separated -unmarried refers to a person who is single, divorced, or widowed -a creditor shall evaluate married and unmarried applicants by the same standards; -and in evaluating joint applicants, a creditor shall not treat applicants differently based on the existence, absence, or likelihood of a marital relationship between the parties.

USA Patriot Act

-intended to help the federal government respond to potential terrorist threats and monitor suspicious activity (enacted due to 911) -It sets minimum standards for verifying customers' identities. Required lenders to verify name, address and social security numbers of all applicant. -It requires the establishment of anti-money laundering programs, which are meant to identify and address financial crimes.

Other provisions under FCRA

-only people with legitimate business needs can have access to a credit file -May not give out consumer credit information to an employer, or a potential employer, without written consent. (cannot pull your own employee's credit files without their consent) Credit Reporting Agencies may not report outdated negative credit information: --Negative credit information more than 7 years --Bankruptcies more than 10 years --Criminal conviction - does not expire --unpaid tax liens will stay on credit report FOREVER -------PAID tax liens will stay on credit report for 7 years Must limit access to a credit file to ONLY those with legitimate business need.

ECOA protected classes

-prohibits discrimination in the granting of all types of credit based on: -sex -race -color -national origin -religion -age (as long as they're over 18) -marital status -receipt of income from public assistance (welfare, social security, disability, child support, alimony, pensions, etc.) Family size may not be considered in qualifying income under ECOA.

Section 112 under FACTA

-section 112 deals with credit freezes -FACTA allows consumers who believe they have been the victim of identity theft to contact the Credit Bureau and place a fraud alerts. -In addition, allows the consumer to place a credit freezes on a credit file in order to prevent fraudulent information from showing on the credit report. Then consumers can "thaw" the credit report when they apply for a loan. -As of May 24, 2018, nationwide consumer reporting agencies are required to provide national security freezes free of charge to consumers. -CRAs must keep the fraud alert in the file for 90 days.

Section 216 under FACTA

-section 216 deals with security and disposal -businesses must burn or shred papers that contain consumer information -destroying or erasing electronic files or media and locking up all pending loan docs at the end of the day

Home Loan Application Credit Score Information Disclosure

-the FACTA requires that when a consumer applies for a home loan, he or she must receive the Home Loan Application Credit Score Information Disclosure, which explains their rights under this law. Creating an active duty alert - at the request of an active duty consumer, CRAs must create a statement that the consumer is on active duty for the military. •CRAs must keep the active duty alert in the file for not less than 12 months.

Equal Housing Opportunity

-the logo attached is the Fair Housing logo and it must be on all advertising to prove the property is under equal opportunity Advertising - The Fair Housing Act also prohibits discrimination in advertising, real estate brokerage, lending, and some other services associated with residential transactions. To comply with this Act, lenders are required to: -Include the "equal housing lender" slogan in any broadcast advertisement. -Display the Equal Housing Opportunity logo on all printed promotional material. -Fair Housing Complaint - A written complaint may be filed with HUD office within one (1) year of violation.

ECOA limitation on disclosure of income from alimony, child support, or separate maintenance

-under ECOA (Reg B), a creditor cannot require the borrower to disclose if income on application is coming from child support, alimony, or separate maintenance -some applicants may choose not to use their alimony, some applicants will definitely use it to qualify for a loan -under ECOA, we cannot ask if any income is from these sources of income

ECOA notice of incomplete application

-within 30 days of receipt of an application that lacks info, the creditor must provide a notice of incompleteness which must state: ---the info needed ---a reasonable time for submission of the info ---advise the applicant that failure to provide the info will result in no further consideration of application

Disputes (under FCRA)

-you have the right to dispute incomplete or inaccurate information -If you identify information in your file that is incomplete or inaccurate, and report it to the consumer reporting agency, the agency must investigate unless your dispute is frivolous. -Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information. -Inaccurate, incomplete or unverifiable information must be removed or corrected, usually within 30 days. However, a consumer reporting agency may continue to report information it has verified as accurate.

Copy of credit file/report (under FCRA)

-you have the right to know what is in your file -according to FCRA, you are entitled to a free credit file disclosure if: 1.a person has taken adverse action against you because of information in your credit report; 2.you are the victim of identify theft and place a fraud alert in your file; 3.your file contains inaccurate information as a result of fraud; 4.you are on public assistance; 5.you are unemployed but expect to apply for employment within 60 days Q?: According to the FCRA, when must a credit agency give a consumer a free copy of his credit report? - ANS: FCRA provisions entitle consumers to a free copy of their credit report if credit is denied BASED ON what's in the report.

Residential property

1-4 unit properties, OWNER OCCUPIED

FCRA 5 rights

1.Adverse Action Notice ---denial letter must be in writing 2.Copy of Credit File/Report 3.Right to Request his/her credit Score 4.Right to Dispute Negative or inaccurate information 5.Right to limit prescreened offers

FACTA penalty fee

Any person who obtains a credit report without prior authorization, or a credit reporting agency employee who gives a credit report to an unauthorized person, maybe be fined up to $5,000 or imprisonment for 1 year, or both.

BSA/AML

Bank Secrecy Act / Anti-Money Laundering -requires financial institutions to have a compliance program to detect money laundering and suspicious activity -The act requires financial institutions to keep detailed records of cash transactions exceeding $10,000 (withdrawing, depositing or transporting). -The act also requires that loan originators report suspicious activity that might be a sign of tax evasion, money laundering, or other possible criminal activity. MLOs are required to report any suspicious activity exceeding $5,000. -The required SAR must be filed no later than 30 calendar days after the date of the initial detection of the issue. -A bank must maintain a copy of any SAR filed and all supporting documentation for 5 years from the date of the filing.

CRA

Community Reinvestment Act Congress enacted the Community Reinvestment Act to encourage financial institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices. -community reinvestment act was made for financial institutions to meet the CREDIT needs of the community while HMDA was made for the banks to meet the HOUSING needs of the community

ECOA vs HMDA

ECOA = Equal Credit Opportunity Act (Reg B) HMDA = Home Mortgage Disclosure Act (Reg C) The Home Mortgage Disclosure Act (HMDA) is a federal fair lending law that was enacted with the goal of discouraging redlining (refusing to give loans in certain neighborhoods for discriminatory reasons) -HMDA accomplishes this by monitoring the mortgage lending practices of depository and non-depository institutions (banks) -Data about loan applicants is collected, and that data is used to determine whether banks are sufficiently meeting the borrowing and depositing needs of the communities in which they are located. -The first step in this process involves inquiries by loan originators regarding the personal characteristics of credit applicants. ----HMDA: The Home Mortgage Disclosure Act requires that all data collected the prior year be forwarded to the regulator by March 1.

E-SIGN Act

Electronic Signatures in Global & National Commerce Act -PURPOSE: addresses validity of electronic signatures and says that electronic signatures are valid -however, we cannot force them to sign them electronically (wet paper signatures are allowed if requested) -In general, the law clarifies that a contract or signature cannot be considered invalid or unenforceable simply because it is in an electronic format. -In order for required documents to be sent to a consumer solely in an electronic format, the entity must first obtain the consumer's consent.

ECOA

Equal Credit Opportunities Act (Reg B) (1974) -the creditors must "B" equal when dealing with credit APPLICATIONS -The CFPB monitors compliance with ECOA, since this law applies to anyone who grants credit to consumers. -ECOA is a federal law that ensures all consumers have an equal chance of obtaining credit -ECOA is intended to promote the availability of credit to all creditworthy applicants regardless of race, sex, color, etc. ECOA applies to transactions for the extension of credit by any person who regularly extends, renews or continues credit. -The law also applies to a person who "...regularly refers applicants to creditors, or selects or offers to select creditors to whom requests for credit can be made." -Mortgage brokers serve primarily as a liaison between borrowers and lenders by referring applicants to select lenders or by offering borrowers a variety of loan products. -Therefore, the definition of creditor applies to mortgage brokers, and is not limited to lenders or mortgage bankers who actually extend credit.

Section 113 under FACTA

FACTA requires truncation of credit and debit card numbers (Section 113). - FACTA Prohibiting businesses from printing more than five digits of any customer's credit/debit card number or expiration date on any receipt

FCRA

Fair Credit Reporting Act (Reg V) -you want a Very good credit report (ECOA = credit application) -FCRA provisions entitle consumers to one free disclosure every 12 months, upon request, from each of the three nationwide credit bureaus. -every consumer is entitled to a copy of their credit report when DENIED Was enacted by the FTC to ensure the accuracy, fairness and privacy of consumers' personal information used by consumer reporting agencies (CRA). -The three CRAs (credit reporting agencies) are: Equifax, Transunion and Experian. -Requires credit reporting agencies to verify information that is under dispute and limits how long negative information can remain on a credit report.

FACT Act/FACTA

Fair and Accurate Credit Transactions Act -biggest takeaway: it talks about IDENTITY THEFT -added to FCRA in 2003 to address the problem of identity theft and make it easier for consumers to access his/her credit report put in place to: -Identity Theft Prevention and Credit History Restoration, -Improvements in Use of and Consumer Access to Credit Information, -Enhancing the Accuracy of Consumer Report Information, and -Limiting the Use and Sharing of Medical Information in the Financial System.

Section X/10 of 1003

Government monitoring section -Purpose: Identifying possible discriminatory lending patterns through the collection and disclosure of data about applicant and borrower characteristics. -asks for: ethnicity, race, sex

HMDA

Home Mortgage Disclosure Act •Congress enacted Home Mortgage Disclosure Act (HMDA) encourage financial institutions to help meet the housing needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices. -community reinvestment act was made for financial institutions to meet the CREDIT needs of the community while HMDA was made for the banks to meet the HOUSING needs of the community

HPA

Homeowners Protection Act -deals with PMI (private mortgage insurance) and when it can be counseled -PMI required on conventional loans (NOT govt loans) when the borrower puts less than 20% down Borrower may request cancellation of PMI when the loan balance reaches 80% LTV of the original purchase price or appraised value of the home at the time the loans was obtained, whichever is less. Only applies if the loan is current and the payment history is acceptable. - This mean no payment was 30 days or more past due in the past 12 months and now payment was 60 days or more past due in the previous 24 months. -Lender may require an appraisal to prove the LTV. PMI must automatically be cancelled when the loan-to- value (LTV) reaches 78% or less of the original purchase price or appraised value of the home a the time the loans was obtain, whichever is less. •The lender must provide a disclosure to the homeowner at the settlement (closing) describing these cancellation rights. •In addition, the lender or servicer must disclose this information annually to the homeowner. •If the PMI has not been canceled or otherwise terminated, it will end when the loan reaches the midpoint. For example, on a 30-year loan the midpoint is after 180 payments.

Consumer rights under FACTA

Issuing free credit reports - before the passing of the FACTA, consumers had to pay to receive a copy of their credit report. -In order to encourage consumers to self-monitor their credit reports as a means of detecting identity theft, Congress requires each of the three national credit bureaus to provide a free credit report annually, when requested by the consumer. Disclosing credit scores - consumers have a right to purchase a copy of their credit scores (scores are not free). -The FTC recommends using www.annualcreditreport.com for the purposes of obtaining a free copy of the credit report. credit report = free; credit score = paid for

MAP

Mortgage Acts and Practices (Reg N) - Adam da MA"n"P -about COMMERCIAL ADVERTISING Regulation N was issued to prohibit false or misleading Commercial advertising of mortgage products. -Advertisements for mortgage products and services cannot contain any material misrepresentations, whether they are stated (expressed) or implied. -A fact is "material" if knowledge of the truth would lead reasonable consumers to consider an alternative option in accomplishing their goals. -For example, advertising that you have a "five-year fixed rate loan" when in fact you are offering an adjustable-rate loan with an initial rate period of five (5) years might be considered deceptive. Copies of all advertisements must be kept for at least two (2) years.

MARS Rule

Mortgage Assistance Relief Services (Reg O) -O-MARS -PURPOSE: helps protect distressed homeowners from foreclosure-prevention scams (mainly loan-modification scams) -Prevents upfront/advance fees as they relate to foreclosure scams (=Advance Fee Ban) -Fees may not be collected until a written agreement from the lender that the loan terms may be modified, has been delivered, and accepted by the customer. -The negotiator cannot advise borrowers to stop making mortgage payments. -The negotiator cannot interfere with the communication between the borrower and lender.

PMI

Private mortgage insurance -PMI required on conventional loans (NOT govt loans) when the borrower puts less than 20% down -protects the lender

Disclosures regarding monitoring programs (HMDA)

Section 10/X of the 1003 is where ethnicity, sex, race etc. is filled out (government monitoring section) -Therefore, in every credit creditors are obligated to request information on the applicant's ethnicity, race, sex, marital status, and age. -ECOA requires creditors to explain to consumers that this is a request from the federal government in order to monitor compliance with anti-discrimination laws. -Creditors must also inform applicants that they are required to provide this information based on visual observation and surname if the applicants do not wish to provide it themselves. -If an application is being made over the phone, the creditor must request this information, prefaced by an explanation of its purpose.

DNC registry enforcements

Today, the Federal Trade Commission, Federal Communications Commission and the states enforce the National Do Not Call (DNC) Registry. Many mortgage professionals have successfully forged new business relationships by "cold-calling" prospects. -Loan originators must exercise particular care in order to avoid violating restrictions on telemarketing. -To keep from violating DNC regulations, a company must maintain BOTH national and internal (company) lists of customers and prospects and keep them updated regularly. -Both the national DNC list and the company's internal DNC list must be updated every 31 days, and records to document this must be maintained for 24 months.

DNC violations

Violators could be fined up to $42,530 per call, as each call, not each day, is considered a separate incident. -Telemarketing calls may only be placed between 8am and 9pm in the time zone of the consumer being called. -The National Do Not Call Registry does not limit calls by political organizations, charities, or telephone surveyors. DNC Safe Harbor Rule - Everybody makes mistakes, and companies won't be held liable if they: -have a written do-not-call policy, -train employees on a regular basis regarding the policy, -maintain an internal list of customers who requested not to be called, -access the register every 31 days (documentation required), and -must also be able to prove that the call was made in error.

Adverse action notice (under FCRA)

adverse action = denial -you must be told if info in your file has been used against you -anyone who uses a credit report or other type of consumer report to deny your application for credit, insurance, or employment MUST provide the name/address/phone number of the credit report agency --EX: "We denied you, we used Equifax - here is their name, address and telephone number."

HMDA features

•HMDA was written in response to the public concerns regarding "redlining". •This information is collected in Section X of the 1003 (Uniform Residential Loan Application). •If refused, and the application is being taken face-to- face, interviewer is required to make a visual observation (ECOA) or otherwise, HMDA requires the lender to complete the report based on based on surname. •Requires lender to file Loan Application Register (LAR) Reports due in March of each year. •LAR reports contain information regarding the the ethnicity, race and sex of individuals that apply for loans.

ECOA notice of adverse action

•If the creditor takes adverse action (denial) on the application, the notice must provide a statement of the reasons for the unfavorable decision, and must include a statement that ECOA prohibits discrimination against credit applicants. - Notification must be in writing and contain certain information, including the name and address of the creditor and nature of the action taken. - Where there is more than one applicant for a mortgage loan, notice is only required to be given to one individual; where there is an apparent primary applicant, that is the person to whom the notice must be provided.