Mortgage Compliance Laws and Regulations Your Institution Must Follow

When selling financial products to the public, financial institutions (and non-financial companies) need to understand various consumer protection laws and regulations. As a result of the great recession and its aftermath, this is especially true of institutions and companies that provide mortgages to consumers. The Federal Reserve Board reports annually on compliance with consumer protection laws of institutions that federal agencies supervise.

Some of the regulations that institutions must adhere to are:

  • Regulation B (Equal Credit Opportunity)
  • Regulation E (Electronic Fund Transfers)
  • Regulation M (Consumer Leasing)
  • Regulation P (Privacy of Consumer Financial Information)
  • Regulation Z (Truth in Lending)
  • Regulation AA (Unfair or Deceptive Acts or Practices)
  • Regulation CC (Availability of Funds and Collection of Checks); an
  • Regulation DD (Truth in Savings).

Various federal laws that financial institutions also must adhere to are:

  • Fair Credit Reporting Act
  • Fair Debt Collection Practices Act
  • Fair Housing Act
  • Home Ownership Counseling
  • Homeowners Protection Act (HOPA)
  • Real Estate Settlement Procedures Act
  • Right to Financial Privacy Act
  • Protecting Tenants at Foreclosure Act; and
  • Servicemembers Civil Relief Act.

Of the various consumer complaints lodged against financial institutions, real estate loans complaints made up about 23 percent of the complaints according to the Federal Reserve (for the 2011 year). The most common real estate loan complaints related to:

  • Credit denied (11 percent)
  • Disputed rates, terms and fees (10 percent)
  • Payment errors or delays (9 percent)
  • Flood insurance (9 percent); an
  • Escrow account problems (9 percent).

Particularly for mortgages lenders is the need to comply with the Dodd-Frank Mortgage Reform and Consumer Protection Act and to become fully aware of the jurisdiction and creation of the Consumer Finance Production Bureau (CFPB). The Dodd-Frank Act requires the CFPB to combine and improve the Truth in Lending Act and the Real Estate Settlement Procedures Act disclosures, which mortgage applicants receive after applying and before closing. It is called the “Know Before You Owe” project.

The CFPB, which was created by the Dodd-Frank law, has set forth examination procedures consisting of modules covering the various elements of the mortgage origination process. Each module identifies specific matters for review. Examiners use the procedures in examinations of mortgage brokers and mortgage lenders (generally called “mortgage originators”).

The Modules are as follows:

  • Module 1 Company Business Model
  • Module 2 Advertising and Marketing
  • Module 3 Loan Disclosures and Terms
  • Module 4 Underwriting, Appraisals and Originator Compensation
  • Module 5 Closing
  • Module 6 Fair Lending; and
  • Module 7 Privacy

Further, institutions must be aware of Bureau of Consumer Protection Division of Financial Practices, which is part of the Federal Trade Commission. The Division protects consumers from deceptive, unfair or fraudulent practices by financial services companies through law enforcement in both federal and administrative courts, education and policy leadership. The Division’s authority includes the following areas:

  • Mortgage lending, including subprime and fair lending practices. The Division investigates claims of deceptive mortgage lending practices, particularly those in the subprime market. The Division also ensures that lenders comply with the Equal Credit Opportunity Act, which prohibits discrimination in lending. For example, charging higher prices or denying credit to applicants based on reasons that are not related to creditworthiness, such as race or national origin
  • Mortgage servicing practices. The Division enforces consumer protection laws in this industry to ensure that these companies do not use deceptive or unfair practices when servicing mortgage loans.

This complex world of mortgage lending requires a strong understanding of its terms, regulations and laws. Consult with your attorney about the various regulations and laws you must follow.

For more information on how we can help your community bank, please contact Sonny MacArthur at smacarthur@pkm.com or 404-420-5631.