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Mortgage Lending: 4.17.4.1 Overview

Because a PMI requirement increases the borrower’s monthly mortgage payment, it is in the borrower’s best interest to end the requirement as soon as possible. With lender-paid PMI, this can only be done by paying off or refinancing the entire loan. But, for borrower-paid PMI, the HPA allows—and, in some circumstances, requires—ending a PMI requirement during the loan term.

The HPA designates three points at which the borrower’s PMI requirement may or must end:

Credit Discrimination: 11.6.1.3 State Laws Generally Not Preempted

The Equal Credit Opportunity Act (ECOA) preempts only those state laws that are inconsistent with the Act and with Regulation B and then only to the extent of the inconsistency.308 A state law which is more protective of a credit applicant is not considered inconsistent with the ECOA and Regulation B and is therefore unaffected by them.309

Truth in Lending: 5.13.2.2 Maximum Interest Rate

CEBA does not set the maximum interest rate; determination of the maximum rate is within the creditor’s discretion (although the upper limit should be any applicable state or federal usury caps).1274 However, as a result of the Act, creditors must specify in their ARMs a maximum interest rate that can be imposed.

Home Foreclosures: 17.4.9.1 State Usury Laws and Their Penalties

Once a transaction is deemed a loan, state credit and usury laws may apply.586 State general credit laws may apply even if the state rejects the equitable mortgage doctrine and will not deem the deed to be a mortgage.587 Moreover, even in states that do not have a usury cap, the transaction may violate laws specifying the form of disclosures for credit.588 Most states have several different usury statutes.

Mortgage Lending: 13.7.1 General

In addition to holding lenders responsible for misconduct in originating loans, it important to try to reach the financiers who enable loan originators to operate by providing them with a financial lifeline. Financiers make loan origination possible by providing lenders with up-front operating credit for their ventures or by providing the back-end cash flow when these lenders finance individual borrowers’ loans.

Mortgage Lending: 13.7.2 Liability for Employees and Agents

According to the common law doctrine of agency, principals are liable for an agent’s misconduct when the agent acts with the principal’s actual or apparent authority, the principal ratifies the agent’s conduct, or the principal is negligent in selecting, supervising, or otherwise controlling the agent.

Mortgage Lending: 8.2.4.1 Overview

Consumers believe—and are lead to believe—that brokers act in the borrowers’ best interests.44 But the question of whether a mortgage broker is legally the borrower’s agent is more complex. In practice, a broker may be the borrower’s agent, the lender’s agent, both, or neither.

Mortgage Lending: 5.9.1 Overview

Many business transactions are presumed to be at arm’s length. The parties are on equal footing, with no obligation to show concern for the other’s best interests. But that presumption changes dramatically if one of the parties owes the other a fiduciary duty.

Mortgage Lending: 5.9.3 When Is a Creditor a Fiduciary?

A traditional debtor-creditor or lender-borrower relationship is usually considered an arm’s length transaction.311 But the majority of courts have also held that, given the right circumstances, a creditor may owe a fiduciary duty to a borrower.312 Such a duty may arise if the creditor acts as the borrower’s agent (a principal-agent relationship);313 if the borrower places a significant amount of trust and confidence in the other party;

Mortgage Lending: 8.2.4.3 When the Broker Is the Borrower’s Agent

In many states the broker is assumed to be the borrower’s agent. This may be a matter of case law73 or by statute.74 State law may also describe the duties a broker owes to the borrower. If state law is less clear, practitioners may need evidence to establish that the broker is the borrower’s agent.

Mortgage Lending: 5.2.3.2 Actionable Deception and Unfairness in Mortgage Lending

UDAP statutes are particularly well suited to challenging deception in soliciting or closing a mortgage loan—such as advertising or promising a lower rate or better terms than provided.21 The Consumer Financial Protection Bureau’s Mortgage Advertising Rule,22 originally adopted by the Federal Trade Commission (FTC),23 broadly prohibits material misrepresentations in commercial communications regarding any term of a mortgage credit product.

Mortgage Lending: 4.3.1 Generally

The federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) requires all individual mortgage loan originators278 to be licensed or registered and sets minimum standards for state licensing regimes.279 The Truth in Lending Act’s Regulation Z also requires loan originators to be licensed or registered under the SAFE Act when required by law.280 The SAFE Act requires all states to adopt compliant licensing regimes or be

Mortgage Lending: 8.3.1 Introduction

Loan originator—particularly mortgage broker—compensation has long been a widely criticized source of abuse in mortgage lending. While this section focuses on mortgage brokers, many of the practices and regulations discussed also apply to in-house loan officers.

Mortgage Lending: 4.2.4.3 Good Faith Estimate

For all loans subject to RESPA, lenders must give borrowers a good faith estimate of the expected settlement charges within three business days after receiving either an application or enough information to complete an application, subject to limited exceptions.136 This requirement still applies to loans not covered by the partial exemption described in § 4.2.4.2.1,

Mortgage Lending: 8.2.3 Regulation of Mortgage Brokers

The licensing and regulation of mortgage brokers is a hodgepodge of federal and state law that often combines brokers with in-house loan officers under the more general term “mortgage loan originators.”34 Mortgage brokers are licensed at the state level.

Mortgage Lending: 8.3.4.1 General

Mortgage broker compensation is subject to regulation under RESPA and TILA.134 Federal banking agencies have also issued guidance on incentive-based compensation that is relevant to brokers. The impact of these provisions varies by the type of loan, when the loan application was submitted, and the type of lender.

Mortgage Lending: 4.2.3 Overview of Prohibition Against Kickbacks and Unearned Fees

The typical settlement involves a consumer who has little or no mortgage experience and mortgage industry representatives with vastly more experience. This imbalance and abuses arising from it led Congress to recognize that disclosure alone will not adequately protect borrowers. As a result, one of the clearly stated purposes of RESPA is “the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.”107

Mortgage Lending: 4.2.7.1 Generally

Some parts of RESPA explicitly provide a private right of action, while others must be enforced through other statutes or using common law claims.

Mortgage Lending: 4.2.7.2 Venue and Statute of Limitations

RESPA provides for venue where “the property involved is located, or where the violation is alleged to have occurred.”250 This provision is narrower than the general provision for venue in the federal courts.251 The general rule applies “[e]xcept as otherwise provided by law,”252 so RESPA’s venue rule likely supersedes the general one when RESPA claims are involved.