Federal regulation of residential lending is extensive. Federal laws relating to the purchase and financing of residential real estate apply at each stage of the process: (i) marketing (ii) negotiation of a contract (iii) pre-closing/financing (iv) closing and (v) post closing. The Bank should be familiar with the federal regulatory scheme.
•Marketing. Compliance with three federal laws is required during the marketing period. The Interstate Land Sales Full Disclosure Act (ILSFDA) requires developers to make extensive disclosures on the sale of unimproved, subdivided land and prohibits misleading sales practices. The Federal Trade Commission Act (FTCA) also prohibits unfair and deceptive acts and practices in connection with the sale of residential real estate, while the Fair Housing Act (FHA) prohibits discriminatory practices. Dodd-Frank through the TILA defines a mortgage originator, sets forth the duty of cure imposed upon mortgage originators and sets minimum standards for residential mortgage loans.
•Negotiation of Contract. Four federal laws apply to the contract for the purchase of residential real estate. The Real Estate Settlement Procedures Act (RESPA) prohibits the seller (or Bank) from requiring the buyer/borrower to use a specific title company. ILSFDA requires certain contracts to contain representations about utilities, roads and amenities or, alternatively to recite the basis for exemption from ILSFDA. The FTCA and FHA also apply at this stage of the process.
•Pre Closing/Financing. The Truth-in-Lending Act (TILA or Reg Z) regulates the Bank’s solicitation of the residential real estate buyer including the content of advertisement and information on adjustable rate mortgages (described below). The Equal Credit Opportunity Act (ECDA) prohibits discriminatory lending practices as does the FHA. The Fair Credit Reporting Act (FCRA) limits access to information about the borrower and protects privacy. The ECOA and FCRA also require notice if adverse action is taken in an effort to avoid redlining. The Home Mortgage Disclosure Act (HMDA) requires Banks to record and disclose action taken on residential mortgage loan applications. Finally, RESPA prohibits certain fees.
•Pre-Closing/Closing Disclosures. For more than 30 years, federal law required lenders to provide two different disclosure forms to consumers applying for a mortgage and two different forms at or shortly before closing on the loan. Two different federal agencies developed these forms separately, under two federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms was overlapping and the language inconsistent. Not surprisingly, consumers often found the forms confusing. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) directed the Consumer Financial Protection Bureau (the Bureau) to integrate the mortgage loan disclosures under TILA and RESPA. Effective October 15, 2015, new integrated disclosures (TILA-RESPA rules) went into effect. The pre-closing disclosure is done on the Loan Estimate form and the Closing Disclosures are delivered in connection with the loan closing. Samples of these forms (with fixed rate loan disclosures) appear at the end of this Chapter. The TILA-RESPA Disclosure Guide to Loan Estimate and Closing Disclosure Forms is available online at the Consumer Financial Protection Bureau website.
•Post Closing. Both TILA and ILSFDA contain rights of rescission for applicable transactions. RESPA requires disclosures with respect to escrows, transfer of servicing rights and subordinate mortgage transactions. Dodd-Frank requires the Bank to provide borrowers with monthly statements containing specific disclosures, including servicer’s contact information and counseling agency contact information.