When it comes to buying a home, most people don’t have the cash on hand to pay for it outright. That’s where mortgages come in. With a mortgage, a lender provides you with the money you need to buy a home, and you pay the loan back over time with interest. However, there are certain rules and regulations that mortgage lenders must follow. Here are some of the prohibitions that apply to mortgage lenders.
1. Discrimination
Mortgage lenders are prohibited from discriminating against borrowers based on race, color, religion, national origin, sex, marital status, age, or whether they receive public assistance. This means that lenders can’t deny you a loan or charge you higher interest rates because of any of these factors.
2. Kickbacks
Mortgage lenders are also prohibited from receiving kickbacks for referring borrowers to certain service providers. For example, a lender can’t receive a kickback from a title insurance company for referring borrowers to that company for title insurance.
3. Excessive Fees
Mortgage lenders are required to disclose all of the fees associated with your loan, including the interest rate, closing costs, and any other fees. However, they are also prohibited from charging excessive fees, which can make your loan more expensive than it should be.
4. Misrepresentations
Mortgage lenders are prohibited from making false or misleading statements to borrowers. For example, a lender can’t tell you that you’re getting a fixed-rate loan when it’s actually an adjustable-rate loan.
5. Steering
Mortgage lenders are prohibited from steering borrowers to loans that are not in their best interest. For example, a lender can’t steer you to a loan with a higher interest rate just because it’s more profitable for the lender.
6. Prepayment Penalties
Mortgage lenders are prohibited from charging prepayment penalties on certain types of loans. If you have a loan that’s covered by these rules, you can pay off your loan early without being charged a penalty.
7. Unfair Practices
Mortgage lenders are prohibited from engaging in any unfair practices that put borrowers at a disadvantage. For example, a lender can’t require you to buy insurance from a particular company or charge you for services you didn’t receive.
8. Misuse of Escrow Accounts
Mortgage lenders are required to establish escrow accounts to hold funds for property taxes and insurance. However, they are prohibited from misusing these accounts or charging excessive fees for them.
9. High-Interest Loans
Mortgage lenders are prohibited from making loans with high interest rates that are likely to be unaffordable for borrowers. This includes loans with high interest rates and fees, as well as loans with complex terms that make it difficult for borrowers to understand the true cost of the loan.
10. Refinancing Scams
Mortgage lenders are prohibited from engaging in refinancing scams that trick borrowers into taking out loans that are not in their best interest. For example, a lender might encourage you to refinance your loan repeatedly, even though it’s not beneficial for you.
11. Dual Tracking
Mortgage lenders are prohibited from engaging in dual tracking, which means pursuing foreclosure while also considering a loan modification for the borrower. This can be confusing for borrowers and can make it difficult for them to keep their homes.
12. Loan Servicing Abuses
Mortgage lenders are prohibited from engaging in loan servicing abuses, which can include failing to credit payments, charging excessive fees, and failing to respond to borrower complaints.
13. False Advertising
Mortgage lenders are prohibited from making false or misleading statements in their advertising. This includes advertising that suggests that a loan is government-backed when it is not.
14. Failure to Disclose
Mortgage lenders are required to disclose all of the terms of your loan, including the interest rate, fees, and any other charges. They are also required to provide you with a good faith estimate of the costs associated with your loan. Failure to disclose this information can be a violation of the law.
15. Inadequate Underwriting
Mortgage lenders are required to underwrite loans to ensure that borrowers can afford them. This includes verifying income, employment, and other factors that can impact a borrower’s ability to repay the loan. Inadequate underwriting can lead to loans that are more likely to default.
16. Inadequate Documentation
Mortgage lenders are required to maintain accurate and complete documentation for each loan. This includes documentation of the borrower’s income, employment, and other factors that impact their ability to repay the loan. Inadequate documentation can lead to errors and fraud.
17. Unlicensed Lending
Mortgage lenders are required to be licensed in the state where they do business. Unlicensed lending can be a violation of the law and can lead to penalties and fines.
18. Predatory Lending
Mortgage lenders are prohibited from engaging in predatory lending practices, which can include making loans that are unaffordable or that have unfair terms. These loans can be difficult or impossible for borrowers to repay, leading to foreclosure and other financial problems.
19. Failure to Provide Assistance
Mortgage lenders are required to provide assistance to borrowers who are struggling to make their payments. This can include loan modifications, forbearance, and other options. Failure to provide assistance can be a violation of the law.
20. Failure to Provide Notice
Mortgage lenders are required to provide borrowers with notice before initiating foreclosure proceedings. This notice must include information about how to avoid foreclosure and how to get assistance if you’re struggling to make your payments.
21. Wrongful Foreclosure
Mortgage lenders are prohibited from foreclosing on a property without following the proper procedures. This includes providing notice to the borrower and giving them an opportunity to avoid foreclosure.
22. Failure to Provide Information
Mortgage lenders are required to provide borrowers with information about their loans, including how much they owe, how much they’re paying each month, and how much they’ve paid in interest. Failure to provide this information can be a violation of the law.
23. Refusing to Modify Loans
Mortgage lenders are required to consider loan modifications for borrowers who are struggling to make their payments. Refusing to consider loan modifications can be a violation of the law.
24. Misuse of Funds
Mortgage lenders are required to use the funds they receive from borrowers to pay for the property and associated costs. Misusing these funds can be a violation of the law.
25. Failure to Maintain Records
Mortgage lenders are required to maintain accurate and complete records for each loan. Failure to maintain these records can be a violation of the law.
26. Fraudulent Appraisals
Mortgage lenders are prohibited from using fraudulent appraisals to inflate the value of a property. This can lead to borrowers taking out loans that are larger than they can afford.
27. Loan Flipping
Mortgage lenders are prohibited from engaging in loan flipping, which means repeatedly refinancing a borrower’s loan for the purpose of generating fees. This can be expensive for borrowers and can lead to them taking out loans that are not in their best interest.
28. Steering to Higher-Cost Loans
Mortgage lenders are prohibited from steering borrowers to higher-cost loans when they qualify for lower-cost loans. This can be expensive for borrowers and can lead to them taking out loans that are not in their best interest.
29. Failure to Disclose Yield Spread Premiums
Mortgage lenders are required to disclose yield spread premiums, which are payments made to brokers or other third parties for selling loans with higher interest rates. Failure to disclose these premiums can be a violation of the law.
30. Failure to Provide Access to Records
Mortgage lenders are required to provide borrowers with access to their loan records. Failure to provide access to these records can be a violation of the law.
Conclusion
As you can see, there are many prohibitions that apply to mortgage lenders. These rules and regulations are designed to protect borrowers from unfair practices and to ensure that loans are made in a responsible and ethical manner. If you’re considering taking out a mortgage, it’s important to choose a lender who follows these rules and who will work with you to find a loan that meets your needs.