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Truth in Lending: 1.5.2.1 General

The basic source of Truth in Lending law is, of course, the statute itself,207 reprinted at Appendix A to this treatise. As a practical matter, however, the statute will seldom provide quick answers to everyday Truth in Lending Act questions.

Mortgage Lending: 2.1.1 Overview

A mortgage loan can be a very simple transaction—a loan of money with the promise to repay secured by real estate. But modern mortgage contracts include many more bells and whistles. This chapter describes how the most common types of mortgages work (nontraditional mortgages are described in Ch. 12, infra), and how to calculate the most expensive part of getting a mortgage: the interest charged.

Mortgage Lending: 9.3.1 Overview

The Depository Institutions Deregulation and Monetary Control Act of 1980 (referred to here as DIDA and sometimes referred to as DIDMCA) preempts state laws limiting interest rates and charges on first mortgage loans. DIDA overrides state laws and state constitutional provisions which limit “the rate or amount of interest, discount points, finance charges, or other charges” on loans secured by first liens on residential real estate, residential cooperatives, or residential manufactured homes.53

Mortgage Lending: 9.1 Overview

Regulation of mortgage interest and other loan terms is determined by a complex web of federal law, state law, and federal preemption of state law. The applicable federal or state law governing a loan term will often depend on the nature of the lender, the date of the mortgage, and the type of mortgage loan. Whether state law is preempted is an even more varied issue, depending not only on the type of lender, the type of loan, and the date of the mortgage, but even the state where the mortgage loan is made.

Home Foreclosures: 6.2.1 Overview

The Federal Housing Administration (FHA) is part of the Department of Housing and Urban Development (HUD). FHA administers a variety of single-family mortgage insurance programs designed to make homeownership more readily available.3 These programs operate through HUD-approved lending institutions such as banks, savings and loan associations, and mortgage companies. These lenders fund the mortgage, which HUD insures.

Mortgage Servicing and Loan Modifications: 8.1 Introduction

Congress created the Federal Housing Administration (FHA) in 1934 to help define federal housing policy during the Depression. FHA’s programs further Congress’s stated national housing goal of “a decent home and a suitable living environment for every American family.”1 The FHA’s primary public purpose is now to expand homeownership and rental housing opportunities for people not adequately served by the private mortgage markets.

Mortgage Lending: 8.5.2 Regulation of PMI

The primary regulation of the terms of private mortgage insurance, as an insurance product, occurs at the state level.467 The extent of the regulations and the nature of the controls imposed vary widely.468 For example, in California, if PMI is required as a condition of securing a loan, the lender must notify the borrower whether they have a right to cancel the insurance and under what conditions the insurance can be canceled.469 In Minnesot

Home Foreclosures: 6.3.1 Overview

The Department of Veterans Affairs (VA) Home Loan Guaranty Program303 allows eligible veterans to purchase homes without any down payment at relatively low interest rates. The VA guarantees the loans made by private lenders.

Mortgage Servicing and Loan Modifications: 9.1 Introduction

The United States Department of Veterans Affairs (VA) and the Rural Housing Service (RHS) (formerly the Farmers Home Administration) make, insure, or guarantee loans, mostly on behalf of low and moderate income individuals. These types of mortgages provide an alternative to consumers unable to access conventional mortgages or looking to access the benefits provided by federally insured loans.

Home Foreclosures: 6.4.1 Rural Housing Mortgages

Two different mortgage loan programs are administered by the Rural Housing Service (RHS), an agency of the United States Department of Agriculture (USDA).382 The Rural Housing Service was briefly named the Rural Housing and Community Development Service (RHCDS) and is the successor agency to the Farmers Home Administration (Fahad), which was eliminated in 1994 when the USDA was reorganized.

Mortgage Lending: 2.1.3.4 Mortgages Held or Guaranteed by the USDA’s Rural Housing Service

The Rural Housing Service (RHS),37 an agency of the United States Department of Agriculture (USDA), administers the Section 502 Single-Family Housing Program, named after section 502 of the Housing Act of 1949.38 The section 502 program consists of two programs: a direct loan program and a loan guarantee program.39 The direct loan program provides mortgages to very-low and low-income individuals for the purchase, construction, or rehabilitation of

Mortgage Lending: 2.1.3.5 Section 184 Indian Home Loan Guarantee Program

The Section 184 Indian Home Loan Guarantee Program is another United States Department of Housing and Urban Development loan guarantee program. Created in 1992 and amended multiple times since then,50 it helps to provide Indians and tribes with access to private financing that they could not otherwise obtain because of the unique legal status of trust land.51 The section 184 program guarantees 100% of unpaid principal on mortgages made by approved direct guarantee lenders.

Mortgage Lending: 4.4.3 Truth in Lending Rescission Rights

The right of rescission applies to consumer credit transactions in which a nonpurchase-money lien or security interest is or will be placed on the consumer’s principal dwelling.328 Home equity loans, transactions that refinance purchase-money mortgages, home improvement loans, and credit sales secured by the consumer’s home are common examples of rescindable transactions. The right to rescind does not apply to transactions for the purchase of the home.329

Mortgage Lending: 2.1.5 Purchase-Money Mortgages

A purchase-money mortgage is any mortgage used to help the borrower buy real estate. A purchase-money mortgage can be a first or subordinate lien mortgage, as long as it is used to purchase the property. The Truth in Lending Act (TILA)’s right to cancel59 does not apply to purchase-money mortgages. Confusingly, TILA refers to these loans as “residential mortgage transactions.”60

Mortgage Lending: 9.7.3 VA Loans

The origination charges associated with loans guaranteed by the Department of Veterans Affairs (VA) are regulated by a combination of statute,273 VA regulations,274 the VA Lenders Handbook,275 and Government National Mortgage Association (Ginnie Mae) program guidelines.276 These rules allow the borrower to pay “reasonable discount points.”277

Mortgage Lending: 4.4.1 General

The Truth in Lending Act (TILA) was originally designed to provide consumers with accurate information about loan transactions in order to facilitate the informed use of credit. Nearly all home mortgages are subject to TILA’s disclosure requirements when the lender is in the business of making loans to consumers.

Mortgage Lending: 2.1.7 Refinance Loans

In this instance, the name says it all. These loans are used to pay off and replace an existing mortgage with a new one. A “cash-out” refinancing is a transaction that uses a larger loan to refinance a smaller, existing one, with the excess from the new loan going to the borrower in cash. Another version is a “cash-in” refinancing. This is a transaction that uses a new, smaller loan to replace an existing, larger one, with the borrower paying cash to make up the difference.63

Truth in Lending: 1.2.3 1988 Consumer Protection Amendments

The next two major amendments to TILA were driven by changes in consumer credit products and marketing practices. In 1988, the Act was amended to add the Fair Credit and Charge Card Disclosure Act.54 Competition for the extremely profitable credit card business had become more intense, and issuers bombarded consumers with solicitations. (One estimate was that U.S.

Truth in Lending: 1.2.6 The 2005 Bankruptcy Amendments Affecting TILA

On April 20, 2005, the President signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.81 A small portion of this Act amended TILA.82 These amendments create additional disclosure requirements for credit card issuers regarding the effect of paying the minimum payment, teaser or introductory annual percentage rates, late payment deadlines, and internet-based credit card solicitations.

Truth in Lending: 1.5.2.2 The Pre-Simplification Version of TILA

The pre-Simplification Act generally applies to loans made prior to 1982. There are few if any consumer loans still outstanding from the pre-Simplification era, so that law is unlikely to be relevant. However, for some now very old loans, recoupment claims may remain available in the context of bankruptcy or defending against collection.209 These claims may be especially relevant in defending foreclosures of older mortgages. The pre-Simplification law and the regulation implementing it are no longer contained in this treatise.

Truth in Lending: 1.5.3.3.5 The CFPB’s 2019 Sandbox and No Action Letter Policies

In September 2019, the CFPB published final versions of two new policies that purported to shield regulated entities from certain enforcement actions and liabilities. Both policies were applicable to TILA compliance. The two policies were the Compliance Assistance Sandbox Policy (Sandbox Policy)275 and the No Action Letter Policy (NAL Policy).276 Consumer groups and state officials voiced strong opposition to both measures when they were proposed.