Lenders are required to comply with state lending laws and federal lending laws when they make loans. If lenders do not comply with lending and disclosure laws and/or commit predatory loan practices, you have the right to either rescind your loan and/or collect damages. Federal laws are broader than state laws. You should consult with an attorney if you think your lender has violated any lending laws.
Predatory Mortgage Lending
State lending laws vary from state to state. Most state laws cover the following areas of violations sub-prime and predatory mortgage lending:
- Loan flipping. This involves repeatedly refinancing loans and charging high fees every time.
- Excessive fees including points pre-payment penalties or single-premium insurance.
- Determining loans based upon a borrower’s assets and not their debt to income ration and ability to repay.
- Equity stripping
- Bait and switch
- Fraud
- Usury laws
Dodd-Frank Wallstreet Reform and Consumer Protection Act
The new federal Dodd-Frank Wallstreet Reform and Consumer Protection Act signed into law by President Obama on July 21, 2010 is an anti-lending predatory loan bill which includes provisions regarding mortgage lending, underwriting practices and required disclosures with regard to financial institutions with less than $10 billion in assets. Highlights of the bill include the following:
- Lenders are required to provide additional disclosures to consumers on mortgages, including the maximum interest rate on a variable rate mortgage.
- Lenders are required to consider the borrower's ability to repay their mortgage as part of the underwriting process.
- Lenders are not allowed to pay mortgage brokers yield spread premiums or other financial incentives for certain loan products.
- Pre-payment penalty terms are prohibited.
- The bill includes stronger penalties for mortgage lenders and brokers who violate consumer protection laws, including penalties equal to three years of interest payments and damages, plus attorney’s fees.
- Expansion of consumer protections for high cost mortgages beyond requirements of HOEPA.
Other Federal Lending Laws
The following is a list of other federal lending laws that lenders must comply with:
- Real Estate Settlement Procedures Act (RESPA). RESPA laws pertain to the costs and other financial details of a loan such as the annual percentage rate, finance charges, amount charged and total payments a borrower must make. Fees and costs must be itemized on a HUD-1 closing statement and given to the borrower for their review and approval.
- Equal Credit Opportunity ACT (ECOA). Prohibits lenders from discriminating against any borrower on the basis of race, color, religion, national origin, sex or marital status, or age and whether a borrower’s income comes from a public assistance program.
- Truth in Lending Act (TILA). TILA pertains to what lenders can say in advertisements of their loan products and costs of a loan pursuant to Regulation Z of the Act.
- Home Ownership and Equity Protection Act (HOEPA). This law governs against high cost refinance loans and allows the borrower to rescind and obtain money damages if a lender violates this law.
- Racketeering and Corrupt Organizations (RICO). A borrower may assert a RICO claim against their lender if the yield spread and premium were not disclosed, and the premium costs were charged to the borrower as a higher interest rate when they were eligible for a lower rate.
Consult with an Attorney
You should talk to a foreclosure defense attorney who can explain the mortgage lending laws to you. The attorney can conduct a mortgage loan review to determine if your lender violated state and/or federal lending laws. The attorney can help you with foreclosure defenses to save your home from foreclosure.
