Redlining and Housing Laws Overview

Redlining

• Community Reinvestment Act (CRA) of 1977: Required insured depository institutions to lend in all their community areas
• Redlining: Banks drawing red lines on maps to designate areas for which they would not lend, often low-income or minority neighborhoods.
• CRA Applicability to Non-depository Lenders: Does not directly apply, but they must follow fair standards and equal access. Some states extend CRA standards to them.
• Fair Housing Act: Prohibits redlining for all lenders.

RESPA (Real Estate Settlement Procedures Act)

• RESPA (1975): Ensures standardized disclosures to homebuyers about settlement costs, outlaws kickbacks, and regulates escrow accounts.
• CFPB Oversight: The Consumer Financial Protection Bureau now oversees and enforces RESPA.
• Lender Disclosures: Must provide borrowers with disclosures on homeownership counseling, settlement processes, and transaction details.
• Consumer Lawsuits: Permits lawsuits if RESPA is not followed.
• Consumer Education: Lenders must educate borrowers on settlement costs.
• Kickbacks and Referral Fees: Prohibits kickbacks (things of value given for referrals), and outlaws referral fees.
• Kickback Violation Elements: (1) Exchange of "thing of value", (2) Agreement/understanding, (3) Referral, (4) Referral of settlement service, (5) Federally related mortgage loan. -"Thing of value" includes non-cash incentives.
• Disclosures from Brokers, Servicers, Lenders: Advance and final disclosures regarding transactions are required.
• Affiliation Disclosure: Lenders must disclose affiliations with settlement service providers.
• Unacceptable Practices (RESPA): Telling borrowers they're the only option, forcing specific settlement service providers, excessive escrow, blank/incomplete documents, false FHA loan information, changing terms/costs, & promises of refinancing solving credit issues.

ECOA (Equal Credit Opportunity Act) / Reg. B

• Information on Marital Status: Allowed if relevant to loan repayment in community property states. Applicants asked about married, unmarried or separated status. NOT used to discriminate.
• Joint Liability: Married applicants cannot be required for joint credit application.
• Co-signers: Lenders may require co-signers/co-borrowers for securing collateral if needed.

Loan Processor Duties (SAFE Act)

• Licensing Requirements: Anyone performing residential MLO activities are required to be licensed or registered with the NMLS.
• Covered Financial Institution Employees: Must register as mortgage loan originators (MLOs) if performing MLO activities.
• MLO Activities: Taking applications, arranging credits, assisting consumers, negotiating, extending credit, referrals for compensation, advertising loan origination services.
• Exempt Activities (Post-Application): Ordering appraisals/reports, inputting into AUS, gathering documentation, evaluating applications (after accepted).
• General Responsibilities of Tasks: Administrative, clerical, providing applications for completion, delivering completed applications, providing guidance/explanation on application instructions, providing information on products, contact information, performing processing activities.
• Loan Closing: Communicating with consumers about closing process/deadlines while not changing previous loan terms.
• Loan Underwriting: Performing underwriting tasks that do not discuss credit terms with the consumer.

Explore key legislation related to housing, such as the Community Reinvestment Act, Fair Housing Act, and RESPA. Understand the implications of redlining and the protections afforded to consumers against discriminatory lending practices. This quiz will help you grasp important concepts in housing policy.