§24.4 - other Federal Laws

• Jurisdiction: Washington

§24.4 OTHER FEDERAL LAWS

In addition to DIDMCA and the other federal laws preempting state usury laws, a number of other federal laws may be applicable to real estate lending and are discussed below.

(1) Commercial lending

Most federal regulation of real estate lending is confined to the residential area or confined to specialized types of lenders such as banks. The only federal lending law of general applicability to commercial lending is the Equal Credit Opportunity Act (ECOA), 15 U.S.C. §1691, discussed in §24.4(2)(c), below.

(2) Residential lending

In contrast to commercial lending, residential lending is very heavily regulated at the federal level. The federal laws impose disclosure requirements and/or substantive restrictions on document terms and lender conduct. The major federal laws are described briefly below. Immediately following the description of each law is a summary of the action required to comply with that law.

(a) Truth-in-Lending Act (TILA)

The federal Truth-in-Lending Act (TILA), 15 U.S.C. §§1601- 1667f , implemented by Federal Reserve Board Regulation Z (Reg. Z), 12 C.F.R. pt. 1026, governs disclosure of the cost of credit to borrowers.

(i) Overview

TILA and Reg. Z require lenders to disclose the cost of credit to their borrowers using statutorily prescribed forms, grant borrowers a three-day rescission right on refinance and certain bridge loans secured by owner-occupied residential real property, and impose additional disclosure requirements and substantive restrictions on certain "high cost" mortgage loans. TILA applies to any creditor (including a governmental unit) that makes more than five consumer- purpose loans secured by a dwelling or more than 25 consumer-purpose loans in total in a given calendar year. 12 C.F.R. §1026.2(a)(17) n.3. The triggers are lower for certain high-cost loans. TILA does not, under any circumstances, apply to business-purpose loans. There are three sources of the law in this area. The Act itself (15 U.S.C. §§1601-1667f), Reg. Z, and the Federal Reserve Board commentary to Reg. Z (both found at 12 C.F.R. pt. 1026). The CFPB is the agency charged with interpreting and enforcing Truth-in-Lending Act requirements.

(ii) Action required

TILA requires creditors to make disclosure of significant credit terms (i.e., finance charge, APR, payment schedule, etc.) on a form prescribed by statute. Significant revisions to these disclosure forms are pending as of the date of publication of this chapter.

TILA allows the borrower a three-day rescission right (and disclosure of rescission right on forms prescribed by statute) on all refinances of owner-occupied properties and on certain bridge loans.

TILA requires certain additional disclosures and imposes substantive requirements on "high cost" and "higher priced" home loans (as defined by statute and regulation).

(b) Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §2601, is both a disclosure statute and a statute with substantive restrictions, such as prohibitions against kickbacks and unearned fees.

(i) Overview

RESPA and its implementing Regulation X, 12 C.ER. pt. 1024, apply to all creditors that are subject to the Truth-in-Lending Act other than an "agency or instrumentality" of any state. The CFPB is the agency responsible for interpreting and enforcing RESPA.

(ii) Action required

RESPA requires creditors to provide estimated and final disclosures of settlement costs. The "Good Faith Estimate of Settlement Costs" disclosure must be provided within three business days of application. The lender is required to provide a HUD Information Booklet to the borrower together with the good faith estimate. The final HUD-1 Settlement Statement must be provided at closing. Significant revisions to these disclosure forms are pending as of the date of this chapter.

RESPA prohibits payment to parties in a position to refer loans other than for services actually rendered, exclusive of the referral. RESPA further prohibits lenders from marking up third-party charges. This rule, often referred to as the "anti-kickback" provision, is the focus of considerable controversy regarding its scope and interpretation, see Carter v. Wells-Bowen Realty, Inc., 736 F.3d 722 (6th Cir. 2013), and must be reviewed closely in any circumstance in which a party in a position to refer residential loan business, such as a realtor or home builder, is partnering with a lender or engaging in a joint marketing campaign with a lender. Finally, RESPA requires additional disclosures on loans with escrows for taxes and/or insurance.

(c) Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA), 15 U.S.C. §1691, implemented by Regulation B, 12 C.F.R. pt. 1002, prevents discrimination in the granting of credit to persons on the following bases: race, color, religion, national origin, sex, marital status, receipt of public assistance benefits, or exercise of rights under the Consumer Credit Protection Act. Additionally, Washington law prevents creditors from denying credit...