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14.2 Residential Mortgage Loan Origination Standards

<< Title XIV Overview

 

The following links provide expanded analysis within this section:


14.2.     Residential Mortgage Loan Origination Standards.  The Act amends TILA in an effort to ensure that consumers are offered and receive residential mortgage loans that reflect their ability to repay, that are understandable, and that are not unfair, deceptive, or abusive. [§1402(a)] 

14.2.1.    Qualification and Licensing Standard for Mortgage Originators. Mortgage originators are placed under a duty to be qualified, and, to the extent required under state or Federal law, including the SAFE Act, to be licensed or registered as mortgage originators.

 

The Fed must issue regulations requiring depository institutions to establish and maintain procedures for compliance with the licensing and registration requirements for mortgage originators and the SAFE Act.

 

            14.2.1.1.           Definition of "Mortgage Originators". Mortgage originators include any person that takes a residential loan application, assists a consumer in obtaining or applying for a mortgage loan, preparing loan packages, or collects information on behalf of the consumer with regard to a loan or offers or negotiates terms of a residential mortgage loan, for direct or indirect compensation. The term does not include persons who perform administrative or clerical tasks relating to the application for a mortgage. It does not apply to loan servicers who work with borrowers on potential loan modifications. [§1401]

                        14.2.2.    Prohibition on Steering Incentives. Direct and indirect compensation to the originator from all sources may not vary with the terms of the mortgage loan, other than the amount of the principal. [§1403]  This prohibition does not, however, prevent an originator from receiving compensation from a person other than the borrower if the consumer does not make an upfront payment of points or fees (although this provision may be waived by the Fed if it determines that the waiver is in the interest of consumers and the public interest).

                        14.2.3.    Prohibitions against Certain Mortgage Origination-Related Practices.  The Act contains provisions intended to address concerns that have arisen in connection with the 2008-2009 financial crisis that mortgage originators engaged in a range of practices that resulted in borrowers being placed in residential mortgages that it is unlikely they would be able to repay.  The Act directs the Fed to issue regulations prohibiting originators from:

·         steering a consumer to a residential mortgage that the consumer lacks a reasonable ability to repay (in accordance with regulations under TILA) ;

 

·         has predatory characteristics or effects (such as equity stripping, excessive fees, or abusive terms;

 

·         is not a "qualified mortgage" (as described below) when the consumer qualifies for a qualified mortgage; or    

 

·         involves abusive practices that promote credit disparities among consumers of equal creditworthiness but different race, ethnicity, gender or age.

 

Mortgage lenders will be prohibited from mischaracterizing (i) the credit history of a consumer or the loans available to a consumer; (ii) the loans available to a consumer; or (iii) the appraised value of the security property.  They will also be prohibited from discouraging a consumer in certain circumstances from seeking a loan from another mortgage originator. [§1403]

                        14.2.4.    Liability. Mortgage originators who fail to comply with the   requirements imposed on them under TILA will be subject to liability not exceed the greater of actual damages or three times the total amount of compensation the originator received from the mortgage loan involved in the violation, plus the cost of the action, including reasonable attorney's fees. [§1404]

                        14.2.5.    Discretionary Regulatory Authority. The Fed is directed to issue regulations prohibiting or placing conditions on any terms or practices it finds to be abusive, unfair, deceptive, predatory and to issue any regulations it determines to be necessary or proper to ensure that responsible, affordable credit remains available to consumers. [§1405(a)]  The Fed also may issue rules modifying or exempting disclosure requirements for any class of residential mortgage loans in order to improve consumer awareness and understanding of mortgage transactions. [§1405(b)]

                        14.2.6.     HUD Study. The HUD Secretary is required to conduct a study, in consultation with the Treasury Secretary, to determine prudent statutory and regulatory requirements to provide for the widespread use of shared appreciation mortgages. The HUD Secretary must complete this study and issue a report to Congress within 6 months of the enactment of the Act. [§1406]