Buying a home is one of the biggest investments many Americans make in life. Few can afford a home outright with cash. Realizing the dream of home ownership means finding a mortgage lender who finds us worthy enough to advance us a loan. Mortgages are an important part of the financial system. They can be complex, even more so when lenders don't have their clients' best interests at heart. So who regulates the mortgage industry? This article discusses the key players responsible for holding lenders accountable.
- The federal government regulates the mortgage industry through a number of acts passed by Congress.
- Regulation Z in the Truth in Lending Act arms consumers with the information they need to make informed decisions about interest rates, fees and credit terms.
- RESPA prohibits real estate agents from receiving kickbacks and prevents lenders from demanding that borrowers use a preferred title insurer.
The Basics of Mortgage Regulation
Mortgage lenders must follow rules set by the federal government. These rules require lenders to treat borrowers fairly and equitably. Simply put, the federal government regulates the mortgage industry, and does this through a variety of agencies and a host of Congressional acts.
The Truth in Lending Act (TILA) and Regulation Z was designed to help protect consumers in their relationships with lenders. Under the regulations, lenders are required to disclose information about their products in a way that allows consumers to make meaningful comparisons. Prior to the act, consumers faced a barrage of confusing and misleading terms.
Another key component to mortgage regulation is the Real Estate Settlement Procedures Act (RESPA). This act was enacted by Congress so buyers and sellers are given disclosures about the full settlement costs related to home buying.
One of the more significant pieces of regulation is the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed following the subprime meltdown that contributed to the 2007-08 financial crisis. Dodd-Frank aimed to deal with some of the problems that led to the subprime crisis, such as predatory lending practices and lax mortgage qualifying standards. Congress relaxed provisions under Dodd-Frank in 2018, including easing escrow requirements for depository institutions or credit unions.
The financial crisis also led to government bailouts of Freddie Mac and Fannie Mae, which were put into conservatorship. The Federal Housing Finance Agency (FHFA) oversees both to ensure the agencies continue to offer support for the mortgage market without the need for further government intervention.
The passing of Dodd-Frank put more protections in place for consumers, but changes in 2018 relaxed some portions of the act.
Regulation Z's Truth in Lending Act
Implemented by Regulation Z, the Truth in Lending Act was created in 1968 as a way to protect consumers from malicious, shady, or unfair practices by lenders and other creditors. Lenders are required to make full disclosures about interest rates, fees, terms of credit, and other provisions. They must also provide consumers with the steps they need to take in order to file a complaint, and complaints must be dealt with in a timely manner. Borrowers can also cancel certain kinds of loans with a specified period of time. Having all of this information at their disposal gives consumers a way to shop around for the best possible rates and lenders when it comes to borrowing money or getting a credit card.
This act regulates the relationships between mortgage lenders and other real estate professionals—principally real estate agents—to ensure no parties receive kickbacks for encouraging consumers to use certain mortgage services. The act also prohibits loan providers from making demands for large escrow accounts, while restricting sellers from mandating title insurance companies.
The Consumer Financial Protection Bureau (CFPB), an independent government agency, was created to provide a single point of accountability to enforce financial and consumer protection laws. The Federal Reserve also supervises the banking industry, which extends to mortgage lenders. The U.S. Department of Housing and Urban Development (HUD) oversees Federal Housing Administration (FHA) programs that have provided $1.3 trillion in mortgage insurance to home buyers. The Federal Housing Finance Agency oversees the activities of mortgage market liquidity providers Fannie Mae and Freddie Mac.
Filing a Complaint
Consumers with complaints about mortgage lenders should first reach out to CFPB via the agency’s website. It provides consumers with numerous tools to address lending complaints. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) also invite consumers to contact them about mortgage lender complaints.