Redlining and Housing Laws Overview

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Questions and Answers

What was the primary purpose of the Community Reinvestment Act (CRA) passed in 1977?

To deregulate lending practices in urban areas.

To promote non-depository lenders as primary lending institutions.

To facilitate easier access to credit for high-income earners.

To encourage banks to lend in communities where they gather deposits. (correct)

What practice does the term 'redlining' refer to?

Providing equal access to lending for all neighborhoods.

Encouraging community investments in low-income neighborhoods.

Lending to all areas without any risk assessment.

Indicating areas on a map where banks choose not to lend. (correct)

What authority was established to oversee the enforcement of RESPA?

The Federal Reserve Board

The National Association of Realtors

The Department of Housing and Urban Development

The Consumer Financial Protection Bureau (correct)

Which of the following is NOT prohibited under RESPA?

Providing detailed disclosures to borrowers. Signup and view all the answers

Which of the following describes a key element in a RESPA Section 8 ‘kickback’ violation?

A referral must have occurred relating to a settlement service. Signup and view all the answers

Under RESPA, what is meant by a 'thing of value'?

Items like favors or free services that can influence a referral. Signup and view all the answers

Which group is directly affected by the Fair Housing Act in relation to lending practices?

Non-depository lenders and banks alike. Signup and view all the answers

What is one of the main functions of the Real Estate Settlement Procedures Act (RESPA)?

To ensure standardized disclosures of settlement costs. Signup and view all the answers

Which of the following is considered an unacceptable practice under RESPA?

Modifying loan terms after agreement has been reached Signup and view all the answers

What type of loan requires certain disclosures to be provided to borrowers?

Federally related mortgage loan Signup and view all the answers

Under ECOA, which circumstance allows a lender to inquire about an applicant's marital status?

The applicant resides in a community property state Signup and view all the answers

Which of the following activities does NOT require a license according to the CFPB?

Ordering an appraisal for a loan Signup and view all the answers

What can a lender do if they require a co-signer for a loan application?

Ask about the availability of a co-signer Signup and view all the answers

Which of the following is TRUE regarding mortgage loan originators according to the SAFE Act?

Employees of covered institutions must register with NMLS regardless of state requirements Signup and view all the answers

Which of the following must lenders disclose to borrowers?

Any affiliations with settlement service providers Signup and view all the answers

Which practice is NOT permitted under RESPA?

Requiring borrowers to choose specific settlement service providers Signup and view all the answers

What must a lender do in regard to escrow accounts?

Provide clear rationale for escrow amounts used Signup and view all the answers

Which of the activities described requires licensing as a mortgage loan originator?

Negotiating loan credit terms Signup and view all the answers

Which scenario would NOT violate the ECOA regarding personal information inquiries?

Asking for marital status in a community property state Signup and view all the answers

Which of the following duties requires a mortgage loan originator's license?

Advertising loan origination services Signup and view all the answers

Which agency enforces regulations surrounding the activities of mortgage loan originators?

The Consumer Financial Protection Bureau (CFPB) Signup and view all the answers

Which of the following actions is allowed without a mortgage loan originator's license?

Collecting information to support an application Signup and view all the answers

Study Notes

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.

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Description

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.