Other financing and Credit Laws Flashcards
The next set of consumer protection laws we will learn about is a direct reaction to the subprime mortgage crisis and resulting recession in 2007-2010. The effects of this meltdown are still being felt today, and we would be wise to learn lessons from what happened.
We’re going to take a little historical detour so that we understand where Dodd-Frank and its resulting regulations, TRID, came from.
Credit Expands and the Market Bubbles Up
(Of course, any global economic movement is going to be incredibly complicated, so a quick caveat that what follows is the simplified version.)
In the early 2000s, lenders started loosening credit requirements for borrowers. This lead to more subprime lending with less stringent borrower requirements.
More people accessing credit meant an increase in the number of potential buyers (an increase in demand), and housing prices across the country began a historic rise.
Subprime Lending Increases
From 2004-2006, the percentage of subprime mortgages created went from 8% to around 20%, with some areas at much higher rates, as some shady subprime lenders targeted low-income and minority-majority areas that historically have had difficulty accessing credit.
To be clear, subprime loans are not inherently bad. “Subprime” just means lending money to a borrower that has a lower credit score than optimal. People with low credit scores are not bad or irresponsible borrowers!
But subprime loans are higher-risk loans because often the same factors that cause a person to have a lower credit score (job loss, no inherited wealth to fall back on) can cause them to default on a loan. Statistically, subprime loans have higher default rates.
Making Bad Loans
Lenders were charging high fees and high-interest rates, and making adjustable-rate and balloon loans that borrowers would not be able to pay if the market softened. Some lenders were obscuring the true cost or terms of the loans they were offering, or switching more expensive loans for rates they advertised without making the borrowers aware.
Zero-down or very-low-down-payment mortgages were being offered for homes whose value had recently skyrocketed.
Borrowers were assured they could just refinance their loans when the balloon hit (or the rate was adjusted upward), which was true, as long as the market kept going up. (You should already be hearing the ominous music in the background, Anthony).
Even Making Predatory Loans
Some of these products were not just subprime mortgages, but bad loans products with predatory terms. Predatory lenders were offering loans that were not in the consumers’ best interest.
These Bad Loans Were Often Targeted to People of Color
In an article for Contexts entitled Black Debt, White Debt, Louise Seamster writes:
Partially in response to calls to rectify prior generations of redlining and loan discrimination, predatory mortgages with high, often variable interest and overwhelming final “balloon” payments, targeted Black and Latinx neighborhoods (as did foreclosures). The rules of Black debt are different: segregation scholar Jacob Faber found that high-income Black borrowers were more likely than low-income White borrowers to get these subprime loans.
Seamster terms this “predatory inclusion.” Lawsuits against Wells Fargo include whistleblower testimony alleging the lender targeted minority borrowers for their subprime products while referring to their customers using derogatory language and racial slurs.
Because of predatory inclusion, the effects of the recession were felt much harder in Black and Latinx communities than white ones.
The Subprime Mortgage Crisis and the 2007-2010 Recession
Even with all of this high-risk loan-making, things were okay for a while. Waves of new buyers in the market meant that prices rose and inventory shrank (remember supply and demand?). Prices for homes kept going up and up and up. Investors and flippers were making huge profits, turning over houses for much more than they’d paid only a few years ago.
Prices went up, more people entered the market because profit seemed guaranteed, prices went up more, and buyers took out huge loans on homes whose values had recently risen drastically. People who owned homes before the upswing suddenly found themselves with a ton of equity, and some borrowed heavily against that new equity.
A hand with a marker draws a scale that is weighing price and value.
Meanwhile, in the Mortgage Market
At the same time, two new products emerged for investors in the mortgage market. Private-label mortgage-backed securities (PMBS) and collateralized debt obligation (CDOs) are complicated products (and we won’t get into exactly how they worked) that essentially repackaged prime loans with subprime loans, giving investors a false sense of security about what they were buying.
And for a while, everybody made money. As long as the market kept going up and up and up, even subprime loans were relatively stable. These PMBS and CDO products were, for a while, so profitable that even some investors who should’ve known better (for example, people who managed large retirement funds) got dollar signs in their eyes and bought mortgage products that were not as safe as they claimed to be.
But It Held Together for a While
You can see where this is going, right? Home prices hit their peak in 2006. Interest rates went up, and borrowers with ARMs started to default on their loans as they could not afford the new payments. The housing market took a small dip in 2006-2007, leaving many people who bought at the top of the market with 0% down loans “underwater” — they owed more to their mortgage companies than their homes were worth.
You can’t refinance an underwater loan, so all of the borrowers counting on refinancing out of their bad mortgages were stuck. More and more people defaulted on their loans. Short sales and foreclosures flooded an already-weakening housing market with even more housing stock, and home prices continued to fall.
More Homeowners Find Themselves Underwater
Many, many homeowners — even those without subprime loans — found themselves underwater on their loans. Homeowners who borrowed against their new equity found that equity gone, and were unable to sell their homes because they, too, were now underwater.
In April of 2007, New Century Financial Corp., a leading subprime mortgage lender, filed for bankruptcy.
Those mortgage-backed securities became increasingly worthless as more and more homeowners defaulted on their loans. Fannie and Freddie took huge losses as even prime borrowers defaulted.
The Stock Market Crashes
In September of 2008, the stock market crashed. There were a lot of other complicated factors at play (there was a thing called a “credit default swap” that we are not going to get into here), but basically, a lack of regulation and oversight in the banking industry and mortgage industry led to a global financial collapse.
Greedy investors ignored the real risks of the products they were buying and selling, and what could’ve been a normal boom and bust cycle in U.S. real estate ended up being a worldwide, multi-year recession.
And So Dodd-Frank Was Born
In the aftermath of the economic meltdown, Congress was compelled to create more regulation and transparency in the banking, investment, and mortgage industries. This came in the form of a bill called the Dodd-Frank Wall Street Reform and Consumer Protection Act (or Dodd-Frank, to its friends).
Some people (in the investment industry, especially) feel Dodd-Frank went too far. Others, like for example people who lost their homes or retirement savings to unscrupulous investors, feel like it didn’t go far enough. Let’s take a look at what it actually did for the mortgage industry.
Source: Federal Reserve History
The Bubble Pops
In July 2010, The Dodd-Frank Wall Street Reform and Consumer Protection Act, a sizable piece of financial reform legislation named after sponsors U.S. Senator Christopher J. Dodd and U.S. Representative Barney Frank, was passed. The act was a huge Wall Street reform bill, and provided common-sense protections, creating a new consumer watchdog to prevent mortgage companies and payday lenders from exploiting consumers. The main goal of Dodd-Frank was to protect people from unfair and abusive financial practices and to prevent a global financial crisis from happening again (good luck with that, Dodd-Frank!).
Big Reforms from Dodd-Frank
This act created the most significant financial reforms to the American banking system since post-Great Depression legislation.
The act’s numerous provisions were implemented over a period of several years and were intended to decrease various risks that could plague the U.S. financial system in the future. This act ultimately established some new government agencies to oversee various components of the act and by extension various aspects of the banking system.
Dodd-Frank Reforms
The Dodd-Frank Act includes a large group of financial reforms, including:
The Volcker Rule
Regulation of derivatives
Creation of the Consumer Financial Protection Bureau
Creation of the Office of Credit Ratings
Volcker Rule
The Volcker Rule was originally proposed by American economist and former U.S. Federal Reserve Chairman Paul Volcker. The rule did several important things. It:
Restricted United States banks from making certain speculative investments that did not benefit their customers
Prohibited banks from conducting investment activities with their own accounts
Limited banks ownership of hedge funds or private equity funds to 3% of total ownership interest
Volcker felt that all of these activities played a large role in the financial crisis.
The Volcker Rule is thought of primarily as a ban on proprietary trading by commercial banks. What does this mean exactly? Deposits are used to trade on the bank’s own accounts (even though a number of exceptions to this ban were included in the Dodd-Frank Act.)
The Volcker Rule went into effect on July 21, 2015, and in August 2016, many large banks requested a 5-year delay to exit illiquid investments.
Dodd-Frank FDIC Regulations
Dodd-Frank abolished the Office of Thrift Supervision and gave control over state savings associations (building and loan, savings and loan, homestead association, and cooperative banks that are state-chartered) to the FDIC.
Dodd-Frank also increased the insured deposit amount from $100,000 to $250,000. More safe money!
In addition to all of these initiatives, the FDIC now sets real estate lending standards.
Real estate lending standards are the set standards that banks use to determine their lending criteria. Banks need to have a policy in place to establish appropriate limits and standards for all extensions of credit.
Consumer Financial Protection Bureau (CFPB)
In perhaps the most important move for our world, Dodd-Frank created an independent agency to develop and enforce clear and consistent rules for the financial marketplace and hold financial firms to higher standards.
Its name? The Consumer Financial Protection Bureau, or CFPB. The CFPB is responsible for supervising banks, credit unions, and other financial companies to enforce federal consumer financial laws.
The CFPB was also given the job of enforcing TILA and RESPA. Hey, you know those guys!
Dodd–Frank Wall Street Reform and Consumer Protection Act
These are the primary goals of the CFPB:
Create easier-to-use mortgage disclosure forms
Improve consumer understanding
Aid in comparison shopping for the borrower
Prevent surprises at the closing table, aka “Know Before You Owe”
Basically, the Consumer Financial Protection Bureau exists to protect borrowers from dishonest lending practices.A person at a table uses their hands to shield a paper cut-out of a family.
CFPB Does Not Enforce Fair Lending Laws
This bureau can sometimes be confused with the Fair Housing Act, and although they are both public protectors, the CFPB does not field complaints about racial bias in lending.
Know Before You Owe
One CFPB program, Know Before You Owe, combines two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop.
This program and other ongoing federal oversight of nonbank companies and banks in the mortgage market work to protect borrowers from unfair, deceptive, or other illegal mortgage lending practices.
The CFPB Regulates Consumer Financial Products
CFPB regulates all consumer financial products (including mortgages) and holds jurisdiction over the enforcement of TILA and RESPA.
Some types of loans, however, are exempt from CFPB regulations, including:
Reverse mortgages
Home equity lines of credit
Mobile home loans (when the mobile home is not attached to the real property)
CFPB Penalties
If CFPB regulations are broken, people can face daily penalties up to:
$5,000 for failure to follow the law
$25,000 for gross negligence
$1,000,000 for intentional violations
What the CFPB Does
Section 1032(f) of the Dodd-Frank Act required that the CFPB submit integrated TILA and RESPA disclosures for public comment by July 21, 2012.
In November of 2013, the CFPB integrated the Real Estate Settlement Procedures Act (RESPA) with the Truth in Lending Act (TILA) to create the Know Before You Owe (KBYO) mortgage initiative known as TILA-RESPA Integrated Disclosure or TRID.
The Backstory
To give you a little more historical perspective regarding the creation and purpose of TRID, I’m going to share with you selections from the introduction of the CFPB’s TILA-RESPA Integrated Disclosure: Guide to the Loan Estimate and Closing Disclosure Forms. You can find the complete document here.
30 Years in the Making
For more than 30 years, federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required 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. It is also not surprising that lenders and settlement agents found the forms burdensome to provide and explain.
Here Comes TRID
On December 31, 2013, the Bureau published a final rule with new, integrated disclosures – “Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z)” (TILARESPA Final Rule). On January 20, 2015 and July 21, 2015, the Bureau issued amendments to the TILA-RESPA Final Rule. Additionally, the Bureau published technical corrections on December 24, 2015, and a correction to supplementary information on February 10, 2016.
The TILA-RESPA Rule Is Born
The TILA-RESPA Final Rule, the amendments, and corrections are collectively referred to as the TILA-RESPA Rule. The TILA-RESPA rule also provides a detailed explanation of how the forms should be filled out and used.
Say Hello to TRID
TRID requires that lenders give borrowers two disclosures: the Loan Estimate and the Closing Disclosure.
Loan Estimate
TRID calls for the use of a Loan Estimate for the loans it covers. The Loan Estimate is just what it sounds like — an estimate of what the terms of the loan will be and how much it will cost. A few key things about the Loan Estimate:
It must contain a good faith estimate of credit costs and transaction terms.
The creditor must deliver or place it in the mail no later than the third business day after having received the consumer’s application.
It must also be delivered or placed in the mail no later than the seventh business day before consummation of the transaction.
In the Old Days: Settlement Statement
RESPA used to require that both the borrower (the buyer) and the seller receive something called the Settlement Statement (HUD-1 form) at closing. It was a standard form that showed all of the borrower’s and seller’s charges arising from the settlement of their real estate transaction (for example, the buyers’ and sellers’ closing costs).
The Closing Disclosure Is the New Wave
In 2015, the HUD-1 Settlement Statement was replaced by a document called the Closing Disclosure (CD) that consolidates the HUD-1, Good Faith Estimate, and Truth in Lending Act (TILA) disclosures.
The Closing Disclosure (also called the closing statement) is a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan.
For loans that require a Loan Estimate and that proceed to closing, creditors must provide the Closing Disclosure reflecting the actual terms of the transaction. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan.
The Closing Disclosure should contain the actual terms and costs of the transaction.
The Closing Disclosure Must Be Accurate
If the actual terms or costs of the transaction change prior to closing, the creditor must provide a corrected disclosure that contains the actual terms, which results in a new three-day waiting period before closing.
To be clear: The Closing Disclosure is the official name of the RESPA/TILA form that serves as the closing statement, which is still sometimes called the settlement statement.
And You Get All of These Disclosures for the Low, Low Price of $0
For loans subject to RESPA, no fee may be charged for preparing the Closing Disclosure, Loan Estimate, escrow account statement, or any other disclosures required by the Truth in Lending Act.
When TRID Does Not Apply
The integrated disclosures are NOT used to disclose information about:
Reverse mortgages
Home equity lines of credit (HELOCs)
Chattel-dwelling loans such as loans secured by a mobile home or by a dwelling that is not attached to real property (i.e., land)
Other transactions not covered by the TILA-RESPA Integrated Disclosure rule
The final rule also does NOT apply to loans made by a creditor who makes five or fewer mortgages in a year. Creditors originating these types of mortgages must continue to use, as applicable, the appropriate disclosures.
TRID Disclosures
Now let’s talk about some other laws that protect consumers in the real estate industry, starting with the Equal Credit Opportunity Act (ECOA.) The Equal Credit Opportunity Act (ECOA) was passed in 1974. It prohibits lending discrimination on the basis of race, color, religion, national origin, sex, marital status, age, sexuality, gender presentation, or use of public assistance. It’s administered by the Federal Trade Commission (FTC).
On March 9, 2021, the CFPB issued an interpretive rule clarifying that the ECOA prohibited discrimination based on sexual orientation or gender identity.
“The CFPB will ensure that consumers are protected against such discrimination and provided equal opportunities in credit,” said CFPB Acting Director David Uejio.
Who Is Covered by the ECOA?
The ECOA applies to anyone who regularly participates in a credit decision, including banks, credit unions, lenders, bankcard companies, and finance companies.
Creditors may ask for most of this demographic information in certain situations, but they may not use it when deciding whether to give credit or when setting the terms of credit. Not everyone who applies for credit gets it or gets the same terms. Factors like income, expenses, debts, and credit history are among the considerations lenders use to determine creditworthiness.
The History of Credit Discrimination
We’ll go into this much, much deeper in our fair housing level, but for a long time, lenders freely discriminated against people of color, women, and religious minorities when extending credit.
In a practice known as redlining, mortgage lenders would delineate areas on a map in red (usually low-income areas or areas that were predominantly non-white) and refuse to lend money to purchase homes in those areas.
Lenders have historically discriminated against non-white borrowers in general, a practice that made it much harder for minority communities to build generational wealth through homeownership and small business ownership. The effects of these practices are still being felt today.
Janelle Jones writes in the Economic Policy Institute’s Working Economics Blog:
Overall, housing equity makes up about two-thirds of all wealth for the typical (median) household. In short, for median families, the racial wealth gap is primarily a housing wealth gap. This is no accident. Besides facing discrimination in employment and wage-setting, for generations even those African-American families that did manage to earn decent incomes were barred from accessing the most important financial market for typical families: the housing market.
Credit Discrimination Is Still a Problem Despite the passage of the ECOA over 40 years ago, Black and Latinx borrowers are denied conventional loans at twice the rate of white borrowers. Why? The reasons are as complex as the intersection of race and class in America.
Credit Scores Aren’t Neutral
For one thing, credit scores are often used as a way of determining a person’s creditworthiness. And while it’s tempting to think of credit scores as value-neutral, they instead encapsulate the results of decades of policies that have disadvantaged people of color. Writes Sarah Ludwig in the Guardian:
Credit reports and scores are not race neutral. Rather, they embed existing racial inequities in our credit system and economy – to the point that a person’s credit information serves as a proxy for race.
You see, Anthony, when credit scores were implemented, they were developed to reflect the reality at the time, without accounting for the historical factors that caused that reality. It’s like pointing out that someone running a race isn’t in first place without accounting for the fact that they started late. There’s nothing wrong with the information itself, but it’s lacking context and incomplete.
Discrimination Persists
Even when you’re comparing borrowers with similar credit profiles, a study from the Urban Institute found that Black borrowers are still denied loans 1.2x more often than white borrowers.
An expert sums up the discrepancy in Business Insider this way:
“Race and ethnicity should not be a factor in determining lending decisions,” says Samuel Deane, a financial planner with Deane Financial Partners. “Yet, even with similar creditworthiness, whether face to face or online, the Black community is unfairly being charged higher interest rates and refinance costs — a practice that is deeply rooted in systematic racism.”
What Does This Mean for You?
I’m not telling you this to make you feel bad about credit discrimination, Anthony. Instead, I’m telling you so that you can feel empowered to stand up for clients who may be facing credit discrimination. If you are working with someone and find that they’re being denied credit or offered worse terms than other clients, ask questions about why.
We’ll talk more about what to look for and what to do when we talk about predatory lending in the next chapter. While we can’t change structural inequalities as individuals, we can still work to be a force for good in our industry. I know you’re up to the challenge!
Equal Credit Opportunity Act (ECOA)
Here are the things the ECOA prohibits lenders from doing.
Discourage Applicants
Lenders can’t discourage anyone from applying or reject an application because of race, color, religion, national origin, sex, gender presentation, sexuality, marital status, age, or because public assistance is received.
Consider Protected Categories
Lenders must not consider race, sex, or national origin, although a consumer may be asked to disclose this information if they want to. It helps federal agencies enforce anti-discrimination laws. A creditor may consider immigration status and whether a consumer has the right to stay in the country long enough to repay the debt.
Offer Different Terms
Lenders can’t impose different terms or conditions, like a higher interest rate or higher fees, on a loan based on race, color, religion, national origin, sex, gender presentation, sexuality, marital status, age, or receipt of public assistance.
Ask If a Borrower Is Widowed or Divorced
Lenders are prohibited from asking if the applicant is widowed or divorced. A creditor may use only the terms: married, unmarried, or separated. The term unmarried includes widowed and divorced.
Ask About Marital Status
Lenders must not ask about marital status if the consumer is applying for a separate, unsecured account. A creditor may ask for this information from those who live in “community property” states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A creditor in any state may ask for this information if the consumer is applying for a joint account or one secured by property, or if the applicant is planning to use spousal support or child support as part of their qualifying income.
What Creditors May NOT Do
An applicant also has the right to:
Have credit in their birth name (Mary Smith), their first name and their spouse’s last name (Mary Jones), or their first name and a combined last name (Mary Smith Jones)
Get credit without a cosigner, if the applicant meets the creditor’s standards
Have a cosigner other than a spouse, if a cosigner is necessary
Keep their own accounts after they change their name, marital status, reach a certain age, or retire, unless the creditor has evidence that they’re not willing or able to pay
Know whether their application was accepted or rejected within 30 days of filing a complete application
Know why their application was rejected: The creditor must tell the applicant the specific reason for the rejection or that the applicant is entitled to learn the reason if they ask within 60 days. An acceptable reason might be: “Your income is too low” or “You haven’t been employed long enough.” “You didn’t meet our minimum standards” is not an acceptable reason. That information isn’t specific enough.
The consumer has the right to learn the specific reason they were offered less favorable terms than applied for, but only if they reject these terms. For example, if the lender offers a smaller loan or a higher interest rate, and the applicant doesn’t accept the offer, they have the right to know why those terms were offered.
They can find out why their account was closed or why the terms of the account were made less favorable, unless the account was inactive or they failed to make payments as agreed.
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Applicant Rights
While we are on the topic of fair crediting, I’d like to briefly touch on the Community Reinvestment Act.
The Community Reinvestment Act (CRA) was passed in 1977 with the goal of encouraging banks to help improve the communities in which they operate by creating loans that meet the credit needs of their communities. For example, banks that had branches in low- or medium-income communities needed to be making loans in those communities, too.
Banks Have to Meet Local Credit Needs
The CRA requires that each government-insured depository institution act in good faith to meet the credit needs of its entire community. In other words, to fight redlining, the CRA requires banks to make loans in the neighborhoods they operate in. The good faith of the institutions covered under the CRA is evaluated periodically by federal agencies responsible for regulating financial institutions.
The CRA requires that lenders submit an annual statement including public comments about their attempts to help low-income communities. An institution’s past performance of helping its community is taken into account in considering an institution’s application for new banks, including mergers and acquisitions.
An aerial view of a neighborhood.
The Community Reinvestment Act
Another law that came out of the subprime mortgage crisis is called the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act. It was passed on July 30, 2008. In 2011, Title X of the Dodd-Frank Act gave the CFPB the job of administering the SAFE Act.
This law requires mortgage loan originators, or MLOs, to be licensed according to national standards. It also created the Nationwide Mortgage Licensing System and Registry (NMLS), a nationwide database of licensed MLOs, and required every state to participate in the registry.
MLO Requirements: NMLS Identifier
Per the SAFE Act, a person is prohibited from engaging in the business of originating residential mortgage loans unless they register as an MLO and receive a unique NMLS identifier.
This registration might be federal or state, depending on the financial institution the person works for, and must be updated annually.
MLO Requirements: Pre-Licensing Education
The SAFE Act requires state-licensed MLOs to pass a written qualified test, complete pre-licensure education courses, and take annual continuing education courses.
MLO Requirements: Fingerprints
The SAFE Act also requires all MLOs to submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check. State-licensed MLOs must also provide authorization for NMLS to obtain an independent credit report.
MLO Requirements: Use the Online System
The SAFE Act requires that federal registration and state licensing and registration be accomplished through the same online registration system, the Nationwide Mortgage Licensing System and Registry.
Documents under an alert icon and a magnifying glass.
What’s the Point?
The primary purpose of the SAFE Act is to protect consumers and reduce fraud.
Additional objectives of the SAFE Act include:
Aggregating and improving the flow of information to and between regulators
Providing increased accountability and tracking of MLOs
Enhancing consumer protections and supporting anti-fraud measures
Providing consumers with easily accessible information at no charge regarding the employment history of and publicly adjudicated disciplinary and enforcement actions against MLOs
Why It Matters
We saw in 2008-2010 what happens when mortgage originators go rogue and do their own thing. The SAFE Act attempts to create more accountability for the people who help buyers obtain loans.
(Thanks to the CFPB for this description of the SAFE Act.)
SAFE Mortgage Licensing Act
I hope you enjoyed part two of our thrilling conversation on consumer protection laws. Whether you were directly affected by the 2008 subprime lending crisis or were just a kid back then (sweet summer child), understanding what caused that implosion and recession is important for all of us (so hopefully we don’t do it again). TRID’s disclosure forms — the LE and CD — are absolutely something you will see in your day-to-day on the job.
Key Terms
Here are the key terms you learned in this chapter:
Dodd-Frank Act
a law passed in response to the subprime mortgage crisis that created the Consumer Finance Protection Bureau
Equal Credit Opportunity Act (ECOA)
a fair lending law that aims to bar discriminatory lending practices
Key Concepts & Principles
Here are the concepts and principles you’ll want to master from this chapter.
Subprime Lending Crisis Timeline
Here’s a timeline of the leadup to (and passage of) the Dodd-Frank Act.
A timeline of the Subprime Mortgage Crisis.
TRID Disclosures
The two forms mandated for most loans by TRID are the Loan Estimate and the Closing Disclosure. Lenders cannot charge for the preparation of either of these documents.
Loan Estimate
The Loan Estimate is just what it sounds like — an estimate of what the terms of the loan will be and how much it will cost. A few key things about the Loan Estimate:
It must contain a good faith estimate of credit costs and transaction terms.
The creditor must deliver or place it in the mail no later than the third business day after having received the consumer’s application.
It must also be delivered or placed in the mail no later than the seventh business day before consummation of the transaction.
Closing Disclosure
The Closing Disclosure (also called the closing statement) is a form used to itemize services and fees charged to the borrower by the lender when applying for a real estate loan.
For loans that require a Loan Estimate and that proceed to closing, creditors must provide the Closing Disclosure reflecting the actual terms of the transaction. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan.
The Closing Disclosure should contain the actual terms and costs of the transaction.
Other Consumer Protection Laws
Here is a big chart with all of the consumer protection laws we covered in this and the last chapter.
Consumer protection laws: TILA, Reg Z, RESPA, TRIP, ECOA, Dodd-Frank, Safe Mortgage Licensing Act, Community Reinvestment Act.
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Chapter Summary
