The Home Mortgage Disclosure Act (HMDA) was created as a response to findings that banks and other financial institutions contributed to the decline of some communities by not giving qualified members of the community adequate home financing on reasonable terms and conditions.
Essentially, qualified bank customers in certain communities were being discriminated against by their banks and were not receiving reasonable loans that would help them pay for their housing.
The HMDA was designed to stop this kind of discrimination by exposing financial institutions’ practices to decide who would receive home financing. Therefore, financial institutions could retain business by operating fairly with members of the community.
Who Does the HMDA Cover?
This act generally covers financial institutions that lend money to customers. The act covers two types of lenders specifically.
The first category of lenders includes banks, savings associations, and credit unions that:
- Are federally insured/regulated
- Provide loans that are federally insured, guaranteed, or supplemented
- Sell the loan to Fannie Mae or Freddie Mac
Lenders who specialize in lending mortgages are non-depository, for-profit institutions.
What Information Must the Lender Disclose Under the HMDA?
Lending institutions must report every loan and application they have dealt with in a calendar year. The Federal Financial Institutions Examination Council (FFIEC) looks for specific information in each of these forms when it compiles the data for:
- Race, national origin, sex, and income of mortgage applicants and borrowers
- The date on loan applications, originations, and purchases
- Class of purchaser for home financing
- The reasons for a decision not to grant credit
Can I See the Results of the Data Compiled by the FFIEC?
Yes. Once the FFIEC compiles the data and writes a report, the information for each institution is disclosed to the public. A financial institution covered under the HMDA must post a notice at its home office and branches to indicate the report’s availability. Upon request, the institution must make the report available to anyone.
What Is Lender Discrimination or “Redlining?”
Redlining involves denying mortgage loans to certain low-income, minority communities or restricting their numbers. This inequity is usually achieved by aggressive sales tactics and manipulating borrowers’ lack of understanding of extremely complicated financing transactions. Lender discrimination in the form of redlining mirrors outright fraud.
Examples of Redlining Practices
One common ingredient in redlining practices is the exploitation of minority or lower-income borrowers. Redlining methods include:
- Financing excessive fees into loans
- Charging higher interest rates than a borrower’s credit warrants
- Making loans without regard to the borrower’s ability to pay
- Prepayment penalties
- Loans more than 100 percent loan to value
- Single premium credit insurance
- Balloon payments
- Loan flipping
- Property flipping
- Yield spread premiums
Stopping Lender Discrimination or Redlining
The federal government and state legislatures have responded to redlining practices by passing anti-predatory lending legislation to protect consumers from abusive lending practices, particularly in low-income and minority communities.
The following federal statutes address redlining:
- Home Ownership Equity Protection Act (HOEPA): Protects borrowers in high-cost home loans and establishes penalties or fines for redlining practices
- The Community Reinvestment Act (CRA): Encourages banking institutions to help meet the credit needs of the communities in which they operate, as well as penalizes banks that assist lending institutions practicing predatory lending
- Home Mortgage Disclosure Act (HMDA): Requires lending institutions to report public loan data
When Do You Need a Financial Lawyer?
Many legal disputes and conflicts have financial components to them. Financial lawyers in the U.S. can work in many different areas of the law and may have advanced knowledge of the financial aspects of many legal issues.
Changes in financial circumstances, such as loss of employment or the birth of another child, may require lowering child support. It can be challenging to understand the complexities involved in these types of child support determinations without the assistance of a lawyer.
While some legal matters might not be financial at their root, many depend heavily on financial calculations and determinations for their outcome.
Other areas that may require the assistance of a financial attorney can include:
- Creating a financial affidavit for divorce purposes;
- Cases involving financial exploitation of the elderly (the elderly are often the targets of various financial scams and fraud schemes);
- In cases where legal penalties involve financial consequences for the defendant, such as financial penalties for drunk driving cases; a lawyer can help sort out payment and other issues;
- Lawsuits involving false statements to deceive a financial institution (for instance, if a person has submitted false information in a loan application);
- Various legal matters involving financial privacy, credit card information, online spending habits, and other data.
Also, financial planning lawsuits can be expected. These typically involve some form of misconduct by a financial planner.
Claims can include negligence, fraud, or misrepresentation by a financial planning expert. For instance, a financial advisor may have obtained access to a client’s trust fund and then used some funds for personal use. These types of claims can involve complex determinations under state and federal laws.
How Much Does it Cost to Hire a Financial Lawyer in the U.S.?
Legal fees for business lawyers are generally structured as hourly fees. Several factors generally determine what a financial attorney in the U.S. charges per hour. These factors include:
- The experience of the lawyer;
- The complexity of each specific case;
- The average hourly rate in your community; and
- The size of the firm.
It is common for larger law firms to charge more per hour than smaller firms. Depending on the task, some attorneys may charge a higher hourly rate for court work and a lower rate for research. Hourly fees typically range from $150 to $325 per hour.
Based on the abovementioned factors, hourly legal services fees can vary widely.
Litigation work can incur higher rates if financial issues go to trial, as can complex work such as mergers and acquisitions. When consulting attorneys, it is imperative to discuss their fee structure and clarify their hourly rate if that is the agreed-upon rate.
When you meet with an attorney, they will discuss how fees will be paid. A standard attorney fee arrangement will usually require you to fill the attorney’s retainer, providing a set amount to the attorney they may draw from for their first amount of work. The agreed-upon hourly rate would apply to any subsequent legal work. A financial lawyer’s retainer fee typically ranges from $2,000 to $100,000.
What to Look for in a Financial Lawyer
It is important to choose the right financial lawyer for your legal issue. A good financial lawyer will provide you with the following services:
- Experience: Since there are many specific finance law issues, you should choose a specialized financial lawyer that regularly deals with cases like yours. To help you with your situation, you should choose a lawyer with special knowledge and skills. If you have a similar case to yours, you should hire an attorney with experience handling similar cases.
- Available Time: Find a financial lawyer who has time to work on your case. Sometimes, an attorney can have too many cases on their plate. Give your attorney enough time to devote to your case.
- Reputation: The reputation of a financial lawyer is an essential factor to consider. A financial lawyer with a good reputation in a specialized area of finance law will give you the best results.
- Personality: Everyone has a different personality. You should choose the one you like and trust based on your interactions with the lawyer. You will be in contact with the lawyer regularly. You should choose a lawyer who you feel comfortable with.
What Should I Do if My Financial Institution is Not Complying with the HMDA?
The Office of the Comptroller of Currency (OCC) is charged with ensuring financial institutions abide by the criteria outlined in the HMDA. If you feel your financial institution is not complying with the HMDA, you may make a complaint with the OCC. Also, suppose you feel your financial institution may be discriminating against you regarding securing a loan.
In that case, you may want to consult a financial attorney with consumer protection experience. Your attorney can advise you of your rights and let you know if you are entitled to monetary damages in a lawsuit against your financial institution for discrimination.
