A key to making smart decisions on homebuying is having a clear understanding of the Federal mandates designed to protect consumers from discrimination, predatory lending, redlining, and unfair loan practices. Below is a lost of terms that consumers should become familiar with to protect against these practices. Each rule, act, or law is considered protected under the federal government and are admissible in court. The Chatham County Housing Authority does not give legal advice in matters of bankruptcy and/or litigation.
Equal Credit Opportunity Act, or ECOA
Federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Real Estate Settlement Procedures Act, or RESPA
Federal law prohibiting certain abusive practices that increase the cost of settlement services. Home sellers cannot require homebuyers to purchase title insurance from a particular company. In addition, a person cannot give or receive anything for settlement business referrals or for services that are not performed. RESPA governs required mortgage transaction disclosures that describe closing costs, lender servicing and escrow account practices, and business relationships.
Truth in Lending Act, or TILA
Federal law requiring that lenders disclose important information to borrowers in a variety of consumer finance transactions, including mortgage finance. To protect consumers against inaccurate and unfair loan billing and credit card practices, it requires lenders to provide consumers with loan cost information so that they can comparison shop. Last Update: 9/2021 Module 4.1 Page 29 of 57 Some entities that do business in rural or underserved counties are exempt from certain TILA regulatory requirements. Refer to the CFPB Rural and Underserved Counties List for more information. A key change of the CFPB amendment to TILA, called the Ability to Repay/Qualified Mortgage, or ATR/QM, rule, requires that lenders make a reasonable, good-faith determination that the consumer has a reasonable ability to repay the loan, considering such factors as the consumer’s income or assets and employment status, as well debt obligations and credit history. Certain creditors, such as nonprofits serving low-to-moderate income consumers, are exempt from ATR requirements. A loan is considered a Qualified Mortgage, or QM, if certain criteria apply. A loan is considered a QM if: • It does not contain certain risky features, such as interest-only payments or negative amortization; • The total points and fees do not exceed three percent of the total loan amount; and • The term of the loan does not exceed 30 years. There are different types of QMs, and some impose greater restrictions, such as prohibiting balloon payments or prepayment penalties, though all loans must meet the requirements outlined and follow certain underwriting criteria. TILA governs the required mortgage transaction disclosures that describe important conditions and terms of credit
TILA-RESPA Integrated Disclosure Rule, or TRID
Federal law amending regulations under the Real Estate Settlement Procedures Act, or RESPA (Regulation X) and the Truth In Lending Act, or TILA (Regulation Z), effective as of October 3, 2015. TRID, also called the Know Before You Owe rule, requires easier-to-use mortgage disclosure forms that clearly outline the terms of a mortgage to the borrower and provide detailed explanations about how the forms should be completed and used.
The rule combined certain lender disclosures: • The Good Faith Estimate (GFE) and the Truth-in-Lending disclosure (initial TIL) became the Loan Estimate. • The HUD-1 Settlement Statement and the final TIL disclosure became the Closing Disclosure.
Home Ownership and Equity Protections Act, or HOEPA
Federal law enforcing special disclosure requirements and restrictions on terms for loans that meet high-cost mortgage tests. HOEPA was enacted as an amendment to TILA to address abusive practices in refinances and closed-end home equity loans with high interest rates or high fees. Regulations issued to implement the Dodd-Frank Act further amended TILA, effective January 10, 2014, expanding the scope of HOEPA to home equity lines of credit, or HELOCs. The Dodd-Frank Act also added new protections for high-cost mortgages, including a requirement that consumers receive homeownership counseling before obtaining a high-cost mortgage.