California Federal Mortgage Regulations To Assist Home Owners
The federal government has put in place some consumer protection laws pertaining to residential mortgage lending in California. We have reviewed the most relevant points of those laws and discuss areas that are important when consumers are shopping for a mortgage loan in California today.
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EQUAL CREDIT OPPORTUNITY ACT REGULATION B
Regulation B was issued by the Board of Governors of the Federal Reserve System to implement the provisions of the Equal Credit Opportunity Act (ECOA). The law was enacted in 1974 to make if unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex or marital status. In 1976, through amendments to the Act, it became unlawful to also discriminate on the basis of race, color, religion, national origin, age, receipt of public assistance and the good faith exercise of rights under the Consumer Credit Protection Act.
The primary purpose of the ECOA is to prevent discrimination in the granting of credit by requiring banks and other creditors to make extensions of credit equally available to all credit worthy applicants with fairness, impartially and without discrimination on may prohibited basis. The regulation applies to consumer and other types of credit
transactions.
Consumer Information for Monitoring Purposes
laws Concerning Taking of Applications:
- Oral or Written Statements: The regulation specifically prohibits a lender from making any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis aresponsible person from making or pursuing an application.
- Collection of Information: With regards to collection of information, a lender may request any information in connection with an application, with certain exceptions discussed below:
- Required collection of information: The lender is required to request information for monitoring purposed for credit transactions secured by the applicant’s dwelling.
- Information about a former spouse: The lender is permitted under the regulation to request any information concerning an applicant’s spouse that is requested about the applicant, if the applicant resides in a community property state, like California, or property on which the applicant is relying as a basisfor repayment of the credit requested is located in a community property state. Information regarding a former spouse may be requested if the request can also be made to the applicant, if the applicant is relying upon alimony, child support or separate maintenance payments from a spouse (no longer residing with the applicant) or former spouse as a basis for repayment of the credit requested.
- Other accounts of the applicant: A lender may request an applicant to list any account upon which the applicant is liable and to provide the name and address in which the account is carried. A lender may also ask the names in which an applicant has previously received credit.
- Marital Status: In California, a lender may inquire about an applicant’s marital status, due to the fact that California is a community property state.
- Sex: The lender is prohibited from inquiring about the sex of an applicant.An applicant may be requested to designate a title in an application form (such a Ms., Mr.,. Mrs., or Miss) if the form discloses that the title designation is optional. Otherwise, the application form must use terms that are neutral to sex.
- Race, color, religion, national origin: A lender may not inquire about the race, color, religion or national origin or any applicant or any other person in connection with a credit transaction. A lender may inquire about an applicant’s permanent residence and immigration status.
Evaluation of Applicants
Evaluation Information
The regulation allows a lender to consider any information properly obtained, the information is not used to discriminate against an applicant on a prohibited basis.
- A lender may not take a prohibited basis into account in any system of evaluating the credit worthiness of applicants.
- Age and/or receipt of public assistance may only be used for the purpose of determining a pertinent element of credit worthiness. Furthermore, age may be considered when such age is used to favor the elderly applicant in extending credit.
- A lender may not discount or exclude from consideration the income of an applicant or the spouse of an applicant on a prohibited basis or because the income is derived from part-time employment or is an annuity, pension or other retirement benefit. A lender may consider that amount and the probable continuance of any such income in evaluating an applicant’s credit worthiness.
- To the extent that a lender considers credit history in evaluating the credit worthiness of similarly qualified applicants for a similar type and amount of credit in evaluating an applicant’s credit worthiness, a lender may consider The credit history, when available, of accounts designated as accounts that the applicant and that applicant’s spouse are permitted to use or for which both are contractually liable.
A lender must notify an applicant of action taken generally within 30 days after receiving a completed application. A notification given to an applicant when adverse action is taken is required to be in writing and must contain: a statement of action taken; the name and address of the lender; a statement of the provisions known commonly as the ECON Notice; the name and address of the federal agency that administers compliance with respect to the lender; and either a statement of specific reasons for the action taken or a disclosure of the applicant’s right to a statement of specific reasons within a specified period of time.
HOME MORTGAGE DISCLOSURE ACT REGULATION C
The Home Mortgage Disclosure Act (HMDA) was enacted by Congress in 1974 and implemented by the Federal Reserve Board as Regulation C. This regulation provides the public with information regarding financial institutions’ record of assisting in the credit need of the neighborhoods and communities in which they are located.
Another purpose to HMDA is to aid public officials in targeting public investments to attract investments from the private sector. The regulation through the various amendments requires lending institutions to collect and disclose data regarding the applicants and their characteristics. The HMDA regulation thereby allows for the public to determine possible discriminatory lending patterns and assists in enforcing anti-discriminatory statues.
Through this regulation the regulatory agencies have the authority to review a lender’s mortgage loan record to determine any discriminatory practices against classes of individuals and/or within particular area within the communities served by the lender.
The following types of mortgage loans are subject to coverage under HMDA:
- home purchase loans for any residential dwelling, including a condominium unit, mobile home, manufactured home, or multi-family dwelling,
- home improvement loans made for the purpose of repairing, rehabilitating or remodeling a dwelling and,
- the refinancing of a home previously covered by HMDA.
In order to evaluate lending practices, financial depository institutions are required to collect certain data from applicants. All required HMDA data is found on the Real Estate Loan Application Form 1003 in the government monitoring information section, which specifically request the applicant to provide information regarding national origin, race and sex.
The regulation allows the option to the loan applicant to furnish the data concerning national origin, race and sex. However, the regulation does require the applicant to document his/her choice when information will not be voluntarily provided.
TRUTH IN LENDING ACT REGULATION Z
The truth in Lending Act (TILA) is intended to enable the customer to compare the cost of a cash versus credit transaction and the difference in the cost of credit among different lenders.
TILA also establishes disclosure standards for advertisements that refer to certain credit terms. In addition to financial disclosure, TILA provide consumers with
substantive rights in connection with certain types of credit transactions to which it relates. These include a right of rescission in certain real estate lending transactions, regulation of certain credit card practices and a means for fair and timely resolution of
credit billing disputes.
TILA requires lender to make specific disclosures on loans subject to the Real Estate Settlement Procedures Act (RESPA) within three business days after their receipt of a written application. This disclosure statement is partially based on the initial information provided by the consumer. A final disclosure statement is provided at the time of loan closing. The disclosure is required to be in a specific format with the
following information:
- Name and address of creditor
- Amount financed
- Itemization of amount financed (optional, if Good Faith Estimate is provided)
- Finance charge
- Annual percentage rate (APR)
- Payment schedule
- Prepayment policy
- Total sales price
- Demand feature
- Variable rate information
- Total of payments
- Security Interest
- Insurance requirement
- Late payment policy
- Security interest charges
- Contract references
- Assumption policy
- Required deposit information
Disclosure Requirements for Adjustable Rate Mortgage Loans: If the annual percentage rate on a loan secured by the consumer’s principal dwelling may increase after consummation and the term of the loan exceeds one year, TILA requires additional adjustable rate mortgage disclosure to be provided, including:
- The booklet titled Consumer Handbook on Adjustable Rate Mortgages, published by the Board and the Federal Home Loan Bank Board or a suitable substitute.
- A loan program disclosure for each variable-rate program in which the consumer expresses and interest. The loan program disclosure shall contain the necessary information as prescribed by Regulation Z.
We hope this helps shed a little light on the California federal mortgage regulations put in place to protect home owners.
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