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© Cengage Learning 1
CHAPTER 11
COMPLIANCE
OBJECTIVES OF CHAPTER
Upon successful completion of this chapter, students should be able to:
List the major rules and regulations impacting mortgage lending
Discuss the nine prohibited bases of ECOA and discuss discrimination in
lending
Discuss the usage of adverse action
Understand the impact of recent federal regulations on lenders, consumers,
and the industry
Explain how the Right to Rescind (Cancel) works
Understand how compliance regulations impact lender behavior and activity
Become familiar with the forms as demonstrated in the chapter
I. Introduction
II. Fair Lending Regulations
A. Discrimination
B. Effects Test
III. Fair Housing Act
A. Redlining
B. Equal Housing Opportunity Logo
IV. Equal Credit Opportunity Act
A. The Loan Application and ECOA
B. Questioning Marital Status
C. Cosigner
D. Copy of Appraisal
E. Notice of Status of the Application
F. Adverse Action
G. Government Monitoring
H. Consumer Privacy Regulations
I. U.S. Patriot Act
V. Fair Credit Reporting Act
How has the process of creating mortgage
regulations changed since 2005 and what are the
effects of this change?
Do you think the Fair Lending laws are current with
our society? Can you think of any additional classes
to include?
Although there are regulations covering the proper
behavior concerning discriminatory actions, do you
think they are effective in deterring discriminatory
behavior?
What are the differences between the FCRA and the
FACT Acts?
Teaching Tips
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F. Billing Rights
G. Home Ownership and Equity Protection Act of
1994
H. Mortgage Loan Programs
I. Home Equity Loan Consumer Protection Act
J. Right to Rescind
K. Canceling the Transaction
L. Confirmation of Non-cancellation
X. Real Estate Settlement Procedures Act-Regulation X)
A. Scope
B. Required Disclosures
1. Origination
2. Closing
3. Servicing
C. Special Information Booklet
D. Servicing Disclosure Statement
E. Affiliated Business Relationship Disclosure
F. MDIA and HUD’s RESPA Final Rule November
2008
G. Definitions
H. Good Faith Estimate Form
I. HUD-1 Uniform Settlement Statement
J. Servicing Transfer Statement
K. Initial and Annual Escrow Statements
L. Escrow Rules and Requirements
M Escrow Surplus, Shortage, and Deficit
XI. Flood Disaster Protection Act (FDPA)
XII. Homeowners Protection Act (HPA) of 1998
A. Automatic Cancellation of Mortgage Insurance
B. Borrower Cancellation of Mortgage Insurance
C. Other Termination
D. Disclosure Requirements
E. Annual Notice
XIII. Home Mortgage Disclosure Act (HMDA)
A. HMDA Loan Activity Register
XIV. Fair Debt Collection Practices Act
XV. Community Reinvestment Act
XVI. Secure and Fair Enforcement for of MLA for 2008
A. Federally Registered MLO Requirements
B. State Licensed MLO Requirements
XVII. Dodd-Frank Wall Street Reform and Consumer
Protection Act
A. Title X
B. Title XIV
C. Timing
List some points covered in RESPA that are not
covered in TIL.
What important areas of the GFE and the HUD should
the lender review with the applicant and why?
Demonstrate through role playing in class.
If the borrowers have owned their house for five years
and just received a notice that they need flood
insurance, how would the lender explain this? What if
they cannot afford the extra cost of flood insurance?
How might the information collected and reported
under HMDA be used?
Compare the different requirements under the SAFE
Act for registered vs. licensed MLOs.
What are some of the goals of the Dodd-Frank Wall
Street Reform and Consumer Protection Act?
What benefits and issues do you anticipate for
regulators, lenders and consumers as a result of it?
© Cengage Learning 3
SUGGESTED TRUE/FALSE QUIZ
1. Fair Lending provisions come from the Equal Credit Opportunity
Act solely.
2. “Redlining” is the practice of some mortgage lenders to refuse to
lend to Indians.
3. Whenever an applicant is turned down for a loan that person must
receive a notice of adverse action.
4. The “effects test” applies when a practice that is not discriminatory
on its face results in an adverse impact on protected applicants.
5. The Equal Housing Poster only needs to be displayed in
advertisements for mortgage loans
6. ECOA prohibits all discrimination tests or qualifications in
mortgage lending.
7. Truth-in-Lending applies to all mortgage loans
8. Mortgage lenders must ensure that flood insurance is in effect for the
© Cengage Learning 4
life of the loan when the property is in a special flood hazard area.
9. If an applicant(s) refuses to provide the government-monitoring
information in a face-to-face interview the lender must leave the
space on the application blank.
10. The Right to Rescind (Cancel) applies to all mortgage transactions
SUGGESTED SHORT ESSAY QUESTIONS
1. How did the passage of RESPA and subsequent amendments change
loan application and closing procedures?
ANSWER: RESPA required lenders to supply borrowers with
information about settlement procedures, such as that contained in a
booklet prepared by HUD, and a good faith estimate of settlement
2. What are the major federal regulations that are applicable to
residential mortgage lending? Briefly describe their provisions.
ANSWER: The major ones are:
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Truth-In-Lending, must supply applicant with annual percentage rate;
Equal Credit Opportunities Act, lender may not discriminate on a
Fair Credit Report Act, applicant must be informed if their credit
Flood Disaster Protection Act requires a lender to inform the
Real Estate Settlement Procedures Act requires lender to use the
Gramm-Leach-Bliley Financial Modernization Act added several
Dodd-Frank Wall Street Reform and Consumer Protection Act
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3. List the circumstances under which ECOA permits questions
concerning an applicant’s spouse.
ANSWER These questions are permitted when:
o Spouse will be contractually liable
4. What is nonpublic personal information (NPI) and what are a lender’s
responsibilities concerning it?
ANSWER: Lenders must disclose to applicants how they will use this
information and give consumers certain rights to its use. Lenders also must
5. What are some of the goals of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (DFA)? What benefits and issues do you anticipate
for regulators, lenders and consumers as a result of it?
ANSWER: The DFA is intended to provide consumers with additional
protections from predatory lending practices and to reduce mortgage fraud
DFA changed the way mortgage regulation is implemented by transferring
most consumer compliance regulations from different federal agencies to a
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MULTIPLE CHOICE QUESTIONS More than one answer may be correct –
select all correct answers. (Correct answers are italicized.)
1. RESPA does not apply to the following transactions:
a. Construction loans
2. What is the lender not allowed to do during the 3 day rescission
period?
a. Lower the interest rate
3. Which Disclosure is required under Regulation X
a. Right to Rescind
4. The Good Faith Estimate disclosure is required by:
a. A. The Dodd-Frank Act
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5. The Dodd-Frank Bill was enacted
a. After the Great Depression
ANSWERS TO ORAL DISCUSSION POINTS
The discussion points at the end of each chapter are intended for oral
discussion in class. Suggested answers/points to emphasize for the
questions are found below.
1. ECOA (Regulation B) prohibits discrimination based upon what factors?
ANSWER: 1. Sex, 2. Marital Status, 3. Age, 4. Race, 5. Color, 6. Religion,
2. If a mortgage lender denies an application for a mortgage loan, what must
the lender do? How is it done?
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ANSWER: Whenever a lender denies an application that lender must send
3. Are business loans covered by Truth in Lending? What is covered?
ANSWER: Today TIL covers consumer purpose loans in amounts less than
or equal to $25,000, or any consumer purpose loan, regardless of size, if
4. What items are included in the Annual Percentage Rate? What is excluded?
ANSWER: The APR must include all Finance Charges - charges that are
included in the Finance Charge: interest adjustments (odd days interest),
5. What is the Right of Rescission (Right to Cancel)? What is required of a
mortgage lender?
ANSWER: TIL provides certain consumers with a very important right to
cancel certain real estate financial transactions if they change their mind
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6. What is “life of loan coverage”? Why is this important to a mortgage
lender?
ANSWER: Mortgage lender must ensure that flood insurance (if required at
all) is in effect for the life of the loan. If property is later classified as in a
7. What three categories of fees does the revised RESPA rule create?
ANSWER: There are three categories for fees listed in the GFE: a) charges
that may not increase at settlement, b) charges that may increase but only by
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8. Compare the different requirements under the Secure and Fair Enforcement
for Mortgage Licensing Act (SAFE) for registered vs. licensed MLOs.
ANSWER: The SAFE Act creates two categories of MLOs: federally
registered and state licensed. Effective July, 2011 the Consumer Financial
9. How has the process of creating and enforcing a consumer compliance
regulation evolved? What is the impact on mortgage originators, lenders,
and consumers?
ANSWER: Consumer compliance regulation has evolved most dramatically
in the past few years. Many changes occurred in mortgage origination –
mostly in processing and underwriting, as well as compensation. New
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All these factors must be taken into account when scheduling closings.
