Financial legislation-lending Flashcards
Three-Day Right of Rescission:
The right of a borrower via Regulation Z of the Truth in Lending Act to rescind the transaction within three days by merely notifying the lender
Equal Credit Opportunity Act (ECOA):
Law prohibiting credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or use of public assistance
Usury Laws:
Laws that limit interest rates
Federal and state governments regulate the lending practices of mortgage lenders through several pieces of legislation, among them are
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Community Reinvestment Act, and the Real Estate Settlement Procedures Act (RESPA).
The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) was enacted:
And mandates:
on July 30, 2008,
a nationwide licensing and registration system for residential mortgage loan originators (MLOs).
The SAFE Act requires that federal registration and state licensing and registration be accomplished through the same online registration system, the
Nationwide Mortgage Licensing System and Registry.
The objectives of the SAFE Act include:
Aggregating and improving the flow of information to and between regulators
Providing increased accountability and tracking of MLOs
Enhancing consumer protections; supporting anti-fraud measures
Providing consumers with easily accessible information at no charge regarding the employment history of and publicly adjudicated disciplinary and enforcement actions against MLOs
The Consumer Financial Protection Bureau (CFBP) is one of the agencies created as result of the
Dodd -Frank Act
The Consumer Financial Protection Bureau (CFBP) directive is to:
educate and protect consumers and prevent predatory lending in the mortgage marketplace.
CFPB Mission (cont.)
Our work includes:
Rooting out unfair, deceptive, or abusive acts or practices by writing rules, supervising companies, and enforcing the law
Enforcing laws that outlaw discrimination in consumer finance
Taking consumer complaints
Enhancing financial education
Researching the consumer experience of using financial products
Monitoring financial markets for new risks to consumers
The Federal Reserve is responsible for enforcing it.
Title I of the Consumer Credit Protection Act of 1968 is known as the Truth in Lending Act (TILA)
Truth in Lending Act
Each of the following loans is covered by the act if the loan is to be repaid in more than four installments or if a finance charge is made:
Real estate loans
Loans for personal, family, or household purposes
Consumer loans for $25,000 or less
The Truth in Lending Act is designed to help consumers in two main ways:
Comparison: TILA helps consumers compare both costs of credit from different lenders AND the cost of buying with cash.
Protection: TILA protects consumers from unfair and inaccurate credit practices.
TILA and regulation Z
Regulation Z applies to credit transactions where credit is:
Extended to consumers
Offered on a regular basis (that is, Mr. A offering his friend Mr. B a loan would not fall under Regulation Z; but a car dealership offering consumer financing on a regular basis would)
Either subject to a finance charge, such as an interest rate or financing fees, or is to be paid in four or more installments
- Secured by a residence
- To be used for personal, family, or household purposes (that is, not for business, commercial, or agricultural purposes)
Involves a closed-end transaction (that is, any line of credit that is not open-end or revolving)
TILA & Regulation Z (cont.)
In it, lenders must disclose:
The application fee for obtaining the loan
The address of the property that is to be collateral for the loan
The total sale price, including the down payment
The amount financed, which is the sale price plus any other financed fees, less the down payment
The loan’s finance charge, which is the sum of the discounts, fees, and interest payments
The total amount of the loan payments
The annual percentage rate (APR), which is the ratio of the finance charge to the total amount of the loan payments
Any prepayment penalties
The charge for late payments
Whether the loan is assumable or not
If the loan is an adjustable rate mortgage, what the highest possible interest rate is
If the loan is an ARM, how the periodic interest rate is calculated and how monthly payments are derived from it
In most consumer credit transactions covered by Regulation Z, the borrower has
three days to rescind the transaction by merely notifying the lender.
applies to other refinancing options on a home mortgage, to a second lien, or to a home equity loan.
Regulation Z & Advertising
if specific trigger terms (such as the down payment, number of payments, monthly payment, or dollar amount of the finance charge) are used, the following information must be included as well:
Amount or percentage of down payment
Terms of repayment, reflecting repayment obligations over the full term of the loan, including any balloon payment, and
Annual percentage rate and any increase in the rate after loan closing
The amount of the down payment
The amount of any payment
The number of payments or the period of repayment
The amount of any finance charge
If you see any of these terms on an advertisement for real estate, you must ensure to also include the following:
Amount or percentage of down payment
Terms of repayment
Annual percentage rate
A summary of your major rights under the FCRA include:
You must be told if information in your file has been used against you
You have the right to know what is in your file
You have the right to ask for a credit score
You have a right to dispute incomplete or inaccurate information
Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information
Consumer reporting agencies may not report outdated negative information
Access to your file is limited
You must give your consent for reports to be provided to employers
You may limit “prescreened” offers of credit and insurance you get based on information in your credit report
You may seek damages from violators
Identity theft victims and active duty military personnel have additional rights
RESPA is a consumer protection statute that aims to
help educate consumers about closing and settlement services.
One important goal of RESPA is to
protect consumers from abusive lending practices.
RESPA is enforced by the
Consumer Financial Protection Bureau (CFPB).
RESPA & Closing Procedures
within three days of receiving a loan application, the lender must provide the applicant with the following material:
A booklet entitled “Settlement Costs and You,” published by HUD, concerning settlement services.
A Truth-in-Lending Statement (TIL), indicating the total credit costs and the annual percentage rate (APR) of the loan, which may differ from the initial rate a borrower will pay on the loan
A good-faith estimate of settlement costs, detailing the expected costs of closing and indicating which settlement services are mandated by the lender
RESPA also requires that any time the closing agent refers a borrower to a firm with which the lender is affiliated, the lender must inform the borrower of the connection through an
Affiliate Business Arrangement (ABA) Disclosure stating the relationship and that the buyer need not use affiliated firms.
RESPA also requires that both the borrower (i.e., the buyer) and the seller receive a standardized form from the United States Department of Housing and Urban Development (HUD) that shows all of the
borrower’s and seller’s charges arising from the settlement of their real estate transaction (for example, the buyers’ and sellers’ closing costs).
in 2015, the HUD-1 Settlement Statement was replaced by a document called
the Closing Disclosure
…that consolidates the HUD-1, Good Faith Estimate, and Truth in Lending Act disclosures.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the
Equal Credit Opportunity Act (ECOA)
The Community Reinvestment Act (CRA), passed by Congress in 1977, ensures that financial institutions pursue their responsibilities to meet both
the deposit and the credit needs of members of the communities in which they are chartered.
Community Reinvestment Act (cont.)
The CRA requires that each government-insured depository institution act in
good faith to meet the credit needs of its entire community.
The CRA requires that lenders submit an annual statement, including public comments about
their attempts to help low-income communities.
The Community Reinvestment Act expressly prohibits
Redlining
-purposely limit the number of loans or the loan-to-value ratio in certain areas of a community or city.
State laws that limit interest rates are known as
usury laws
Real Property:
Land from the surface to the center of earth and upward into space, including everything attached by man or nature as well as the bundle of legal rights of the ownership
Police Power:
A government’s constitutional right to regulate an individual’s conduct or property to protect the health, safety, welfare, and morals of the community
Zoning:
division of land within a jurisdiction into separate districts within which uses are permitted, prohibited, or permitted with conditions
Variance:
Permission granted by the government so that property may be used in a manner not allowed by the current zoning
Building Codes:
Sets of regulations pertaining to building design, materials, safety, sanitation, and structure
Eminent domain:
The power of government or public entity to take private property for public use without consent of the property’s owner
Condemnation:
governmental act of seizing private land through exercise of power of eminent domain
Escheat:
legal doctrine by which the decedent’s property will pass to the state without their consent if that individual dies without a will, a surviving spouse, lineal descendants, or other known heirs
Intestate:
Describes someone who dies without a will; their estate will be distributed to surviving heirs according to the law of descent
Deed Restrictions:
Non-governmental limitations that control the land’s use
the objective of land-use controls is to ensure that this limited commodity is being put to its
highest and best use which benefits private owners as well as the needs of the general public.
There are four basic types of public land-use controls. And luckily for us, they spell out the name PETE:
P is for Police Power
E is for Eminent Domain
T is for Taxation
E is for Escheat
The Tenth Amendment of the United States Constitution provides, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”
Grounded in the Tenth Amendment, every state, as well as its counties and municipalities, have the authority to adopt whatever regulations are necessary in order to protect the
general welfare of the public, including health, safety, and morals.
This authority is known as police power.
four major types of land-use controls that fall under the scope of police power:
Zoning
Building codes
Regulation of subdivisions
Application of rules
The main goals of zoning are to promote public health, safety, morals, and general welfare, and to protect
places of historical, cultural, or architectural importance.
Zoning determines such factors as:
Permitted uses for each parcel of land
Lot sizes
Types of structures
Building heights
Setbacks (the minimum distance away from streets and the side and rear property lines that structures may be built)
Density (either population density or the amount of structures per unit area of land)
Style and appearances of structures
Allowable activities (concert venue, residential, commercial)
Protection of natural resources
Traffic impacts and access to a site
Overall compatibility (How can the land be used here?)
the Planning and Zoning Commission might approve the property use with certain stipulations by issuing a
conditional use permit. This is sometimes called a special use permit or specific use permit.
Zoning ordinances are enforced through permits issued by
the municipality (the city).
When a pre-existing structure violates a zoning regulation, it is considered
Non-conforming use
A variance allows the individual property to deviate from a specific
provision of the zoning ordinance
A variance may be granted for things such as:
These types of variances are called:
Height of a building
Setback requirements
Minimum square footage of the lot area
Percent of the lot that can be covered by the house or building
Required number of parking spaces
*area variances
If the finished product is in compliance with building codes, the inspector issues a
certificate of occupancy or an occupancy permit.
application of rules means
If there is conflict between a government restriction and a private restriction, the strictest restriction will be applied.
Eminent domain
it is the right to take private land for public use.
Inverse condemnation occurs when the government takes private property but fails to
pay the just compensation required by the Constitution.
The Fifth Amendment of the Constitution gives the government the right to exercise eminent domain. The law states, among other things: “…Nor shall private property be taken for public use, without just compensation.”
This clause in the Fifth Amendment serves two purposes:
It allows for the government’s use of eminent domain.
It protects citizens’ rights by stipulating that the government must provide just compensation in exchange for the property.
Taxation is a charge (in this case, a charge on real estate) that is used to pay for
services provided by the government.
The assessed value of a property is the value placed on a property by a governmental unit for use in levying
annual real estate taxes.
Ad valorem taxes, which are calculated according to the
assessed value of real estate, are levied through property taxes by the local authorities.
It’s possible for a taxing authority to assess
“rollback” taxes after the sale of a property.
Rollback tax
is a property tax rate that applies when land changes from a qualifying use to a non-qualifying use.
This can happen if the property once had the benefit of a tax exemption (example: agricultural tax exemption) at some point in the past.
TIRZs, or TIFs, help finance the cost of
redeveloping in a part of the city or county that would otherwise not get much private investment.
Tax Increments: The “TI” in “TIRZ”
Taxes which are attributable to new improvements (the tax increment) are put
in a fund to pay for public improvements in a reinvestment zone. This could include parks, street lighting, and building acquisition or rehabilitation costs.
If someone dies without a will, they have died intestate. Their estate will be distributed to their surviving heirs according to
Law of descent
If someone dies intestate and also has no surviving spouse, lineal descendants, or other known heirs, their property will pass
to the state by the legal doctrine of escheat.
Private land-use controls come in the form of
Covenants, Conditions, and Restrictions — or CC&Rs
dedicatory instrument means:
communicated in a deed, a lease, or other instrument of conveyance governing the establishment, maintenance, or operation of a residential subdivision, planned unit development, condominium or townhouse regime, or any similar planned development.
Restrictive covenants are non-governmental limitations that control
how buyers of lots within residential subdivisions use their land.
restrictive covenants put limitations on
the use and maintenance or require specific standards for improvements, lot sizes, or architectural design.
Deed restrictions are usually put into place by the developer in order to fulfill the aspects of the city’s master plan. They should be disclosed to parcel buyers in the sales contract. These restrictions must:
Not be discriminatory
Promote the general welfare of the public
Be consistent
Be exercised reasonably
Be clear and specific
There is a distinction between restrictions on the owner’s right to use and
restrictions on their right to sell.
A deed restriction does not influence how title is transferred to a buyer, though it does
set limits on how the property may be used by the owner.
The effective term of the restrictions might also be extended with the consent of a majority (or sometimes two-thirds) of the owners in a subdivision. In Texas, a lot owner has the right to opt out of
the renewal or extension.
A deed restriction is a private contract between the developer and the property owner, and the city does not
get involved in this private contract.
Deed restrictions are enforced by
various civil authorities and courts, depending on the type of restriction and the governmental structure of the city in which the deed is issued.
a city could zone a property for a certain use, but if the deed prohibits that use, the deed restriction will
supersede the city’s zoning.
construction on or alterations to private property have to comply with any deed restrictions in addition to
whatever state, local, and municipal regulations and legislation may apply.
A subdivider is an individual who engages in the purchase of undeveloped land and
divides it into smaller parcels for resale or lease to individuals and/or developers.
Public land-use controls:
Government-issued land-use controls such as zoning ordinances, subdivision regulations, and building codes.
Private land-use controls:
Land-use controls that are put into place by non-governmental entities, such as real estate developers. Most commonly, these come in the form of deed restrictions.
Public ownership of land:
The role of government to own and maintain public land such as streets, highways, and parks.
public ownership for use as:
Municipal buildings State legislative houses Schools Military installations Streets and highways Parks*
*Not only do national and state parks and forest preserves create areas for public use and enjoyment, but they also help conserve our natural resources.
According to the Congressional Research Service, the following federal agencies control the most land:
Bureau of Land Management controls 247.3 million acres 🏞
Forest Service controls 192.9 million acres 🌲
Fish and Wildlife Service controls 89.1 million acres 🐟
National Parks System controls 79.6 million acres 🏕
The Bureau of Land Management is a government agency that manages hundreds of millions of acres of the :
The BLM has two main jobs:
remaining “public domain” land in the United States.
1) Make sure that natural, cultural, and historical resources on the land are properly conserved
2) Manage the use of public land for activities like energy development, livestock grazing, mining, timber harvesting, and outdoor recreation
The Forest Service manages public lands in the form of
national forests and grasslands, provides technical and financial assistance to state and private forestry agencies, and makes up the largest forestry research organization in the world.
Fish and Wildlife Service, their mission is to work with others to conserve, protect and enhance
fish, wildlife and plants and their habitats for the continuing benefit of the American people through Federal programs relating to migratory birds, endangered species, interjurisdictional fish and marine mammals, and inland sport fisheries.
The mission of the National Parks System is to
preserve nature for future generations.
They help revitalize communities, create outdoor opportunities for kids and families, and celebrate local heritage.
there is very little federally-owned land in the
State if Texas
it owns its 22.5 million acres of public land, with the federal government owning less than 2 percent of Texas land.
Property Report:
Document that contains all essential information about a property, such as distance over paved roads to nearby communities, number of homes currently occupied, soil conditions affecting foundations and septic systems, type of title a buyer will receive, and existence of liens
the U.S. Congress passed the Interstate Land Sales Full Disclosure Act (sometimes called ILSFDA or ISLA) in 1968. Basically a consumer protection act, the law requires developers engaged in the interstate sale or leasing of 100 or more lots to
file a statement of record and register the subdivision with the Consumer Financial Protection Bureau as of 2011.
Interstate Land Sales Full Disclosure Act
Any contract to purchase a lot covered by this act may be revoked at the purchaser’s option before
midnight of the seventh day following the signing of the contract.
To offer protection for the consumer against fraudulent sales operations, Congress passed the
Interstate Land Sales Full Disclosure Act in 1968.
If you plan to purchase a lot which is offered by promotional land sales, take plenty of time before coming to a decision. Before signing a purchase agreement, a contract, or a check:
Know your rights as a buyer
Know something about the developer
Know the facts about the development and the lot you plan to buy
Know what you are doing when you encounter high-pressure sales campaigns
if the company from which you plan to buy is offering 100 or more unimproved lots for sale or lease through the mail or by means of interstate commerce, it may be required to register with the
Consumer Financial Protection Bureau (CFPB).
This means that the company must file with the CFPB and provide prospective buyers with a
property report containing detailed information about the property.
Failure to do this may be a violation of the law, punishable by up to five years in prison, a $10,000 fine, or both.
The information filed by the developer and retained by the CFPB, must contain the following items:
A copy of the corporate charter and financial statement
Information about the land, including title policy or attorney’s title opinion; copies of deed and mortgages
Information on local ordinances, health regulations, etc.
Information about facilities available in the area, such as schools, hospitals, and transportation systems
Information about availability of utilities and water and plans for sewage disposal
Development plans for the property, including information on roads, streets, and recreational facilities
Supporting documents, such as maps, plats, and letters from suppliers of water and sewer facilities
The property report, which is also prepared by the developer, goes to the buyer. The law requires the seller to give the report to a prospective lot purchaser before
purchase agreement is signed.
kind of information you will find in a property report:
Distances to nearby communities over paved or unpaved roads
Existence of mortgages or liens on the property
Whether contract payments are placed in escrow, a special fund set aside to ensure that all payments are applied to the purchase of the property
Availability and location of recreational facilities
Availability of sewer and water service or septic tanks and wells
Present and proposed utility services and charges
The number of homes currently occupied
Soil and foundation conditions which could cause problems in construction or in using septic tanks
The type of title the buyer may receive and when it should be received
Interstate Land Sales Full Disclosure Act,
The contract should state that the buyer has a
“cooling-off” period of seven days (or longer if allowed by State law) following the day that the contract is signed to cancel the contract, for any reason, by notice to the seller, and get their money back.
Interstate land sale disclosure act
within 180 days after the contract is signed, the buyer has a right to cancel the contract for up to two years from the day that the contract is signed unless the contract contains the following provisions:
clear description of the lot so that the buyer may record the contract with the proper county authority
The right of the buyer to a notice of any default (by the buyer) and at least 20 days after receipt of that notice to cure or remedy the default
A limitation on the amount of money the seller may keep as liquidated damages of 15% of the principal paid by the buyer (exclusive of interest) or the seller’s actual damages, whichever is greater
Dishonest Sales Practice #1
Concealing or
misrepresenting facts about current and resale value.
Dishonest Sales Practice #2
Failure to honor
refund promises or agreements.
Dishonest Sales Practice #4
Failure to develop the
subdivision as planned.
Dishonest Sales Practice #5
Failure to deliver
deeds and/or title insurance policies.
Dishonest Sales Practice #6
Abusive treatment and
high-pressure sales tactics.
Dishonest Sales Practice #7
Failure to make good on
sales inducements.
Dishonest Sales Practice #8
What tactics?
“Bait and switch”
Dishonest Sales Practice #9
Failure to grant rights under the
Interstate Land Sales Full Disclosure Act.
