Mortgage Lender Laws

A mortgage lender is a group or person that provides money to a borrower during the closing phase of a home sale. In exchange for the mortgage loan, the borrower gives their promise to repay the loan that they took out to purchase the home, which is often backed by a lien on the property. As for how the money is repaid, that depends on the specific terms listed in the mortgage contract.

Mortgage lenders are typically financial institutions or companies such as a bank or a mortgage company. Additionally, there are mom-and-pop mortgage lenders and also home loan lenders that specialize in certain types of loans. These include Federal Housing Administration (“FHA”) loans and United States Department of Veteran Affairs (“VA”) loans, or even home loans for those with bad credit.

A mortgage lender is different from a mortgage broker. As mentioned, the lender is the party that actually provides the loan money. A mortgage broker is a party that offers the loan products of many different mortgage lenders.

Lenders and brokers often work together along with other real estate agents. With so many different parties involved in the purchase of your home, it is easy to see why legal disputes often arise from the home’s listing to the closing process.

What Do Mortgage Lenders Do?

Mortgage lenders may offer a number of different loan services to borrowers who are or intend to purchase a home or other piece of real estate. Of course, a mortgage lender’s most important task in such cases is issuing the mortgage loan itself.

Examples of other responsibilities that a mortgage lender may have in connection with mortgage loan documents and real estate transactions include, but are not limited to:

• Discussing the various loan options and terms with the prospective borrower;
• Selling different types of securities to finance the loans they give to borrowers;
• Finding the right type of mortgage loan or lending institution for a borrower (e.g., mortgage brokers);
• Evaluating a borrower’s financial situation;
• Setting up the installment payments for the mortgage loan;
• Hiring appraisers to assess a property before a mortgage loan is issued to a borrower;
• Informing prospective homebuyers about their options regarding loan repayments;
• Conducting research on the market price value of homes in a certain area to determine the rate of a mortgage loan or other service.

In most situations, a mortgage lender will typically present the borrower’s mortgage loan repayment plan during their negotiations with the borrower. They will then incorporate the finalized version in the mortgage contract signed by the borrower. The terms of a mortgage loan contract will also dictate whether or not the parties can modify the mortgage loan contract in the future.

It is important that a borrower confirm they are working with an actual mortgage lender and that the funds backing their mortgage loan are not tied up in any illegal scheme. A borrower can avoid being the victim of mortgage fraud by having a real estate lawyer help them with the mortgage loan process and by performing due diligence on a particular mortgage lender before deciding to do business with them.

Are There Different Types of Mortgage Lenders?

In short, yes, there are many different types of mortgage lenders, including:

• Retail Lenders: Retail lenders offer mortgages directly to consumers.
  • Examples of retail lenders include banks, credit unions, or other financial institutions;
• Direct Lenders: Direct lenders are mortgage lenders that originate their own loans, either with their own funding or by borrowing funds from another party.
  • Direct lenders may sell the loans to other lenders or investors after they close on the loan and may also service the loans themselves;
• Mortgage Brokers: Mortgage brokers are professionals who work as intermediaries between borrowers and lenders.
  • Mortgage brokers do not fund the loans themselves. Instead, they work with lenders to find loans for borrowers;
• Correspondent Lenders: Correspondent lenders are the initial lenders that make a loan or service a loan to a consumer/borrower.
  • Correspondent lenders then will sell the loan they initiated to a larger lender, such as a bank, after the loan has closed. The larger lender then takes over and continues to service the loan;
• Wholesale Lenders: Wholesale lenders are lenders that do not work directly with consumers. Instead, they originate, fund, and often service loans for other mortgage lenders;
• Portfolio Lenders: Portfolio lenders are lenders that fund a borrower’s loan with their own money and keep the loans on their personal financial books.
  • Portfolio lenders have more in their loan underwriting than other lenders because they are not bound by the requirements of outside investors or secondary markets; and
• Hard Money Lenders: Hard money lenders are private companies or individuals that have significant cash reserves, which they utilize to offer short-term loans with high interest rates and fees to borrowers who cannot otherwise qualify for a traditional mortgage loan.

Are Mortgage Lenders Federally Regulated?

In short, yes, mortgage lenders are federally regulated. This means that mortgage lenders must follow all of the rules set by the federal government. These federal rules require mortgage lenders to treat borrowers both fairly and equitably.

In general, the federal government regulates the mortgage industry through a variety of federal agencies and a host of congressional acts. For instance, the Truth in Lending Act (“TILA”) and “Regulation Z” are both acts of congress that were passed to help protect consumers in their relationships with lenders. Under these federal regulations, lenders are required to disclose information about their mortgages in a way that allows consumers to make meaningful comparisons between one mortgage and another.

Other federal acts that regulate mortgage lenders include the Real Estate Settlement Procedures Act (“RESPA”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

What Are Some Common Disputes with Mortgage Lenders?

Mortgage lending is often a necessary part of any home sales transaction, as the average home buyer cannot really afford to make a full payment all at once. As such, mortgage lender disputes often arise. Examples of common issues to be aware of when dealing with a mortgage lender include:

• Contract Disagreements: Every mortgage loan agreement should be formalized into a written contract.
  • If you were not presented with a written document, or if you have any contentions over any terms in the contract, you may have a legal cause of action against the lender;
• Lender Discrimination: Lenders are generally prohibited from discriminating against lenders based on race, gender, national origin, and other factors. Federal laws protect you from being discriminated against when you apply for a mortgage.
  • The Fair Housing Act (“FHA”) prohibits discrimination in residential real estate transactions based on national origin, race, sex, religion, handicaps, and familial status. At the same time, the Equal Credit Opportunity Act (“ECOA”) prohibits discrimination in credit transactions based on national origin, race, sex, age, religion, marital status, and incomes from public assistance programs;
• Predatory Lending: Some fraudulent lenders may target first-time buyers, younger buyers, or elderly persons with unreasonably high interest rates or utilize bait-and-switch tactics at the time of the loan closing;
• Mortgage Fraud: In addition to predatory lending, other types of mortgage fraud may arise, including the use of fake documents or the use of fraudulent tax information. As a borrower, you should be wary of committing mortgage loan fraud by misstating, misrepresenting, or omitting information when trying to obtain a loan.

As can be seen, mortgage lending agreements should be carefully reviewed before signing them. During negotiations, it is important that the buyer raise any questions or concerns they may have regarding the loan and the property involved.

There are numerous examples of lenders mishandling loans, including improper accounting of payments, sending notices claiming false amounts are owed on a loan, and even failing to notify the borrower when the loan itself has been sold to another mortgage lender.

Recently, in 2015, the United States Supreme Court ruled that consumers are allowed to rescind a mortgage for up to three years if the lender does not properly notify them of various details about the loan, such as finance charges and interest rates.

Do I Need to Hire a Lawyer for Help with Mortgage Lender Laws?

You may be a borrower who is seeking to purchase a home or property. If you are, it is in your best interests to consult with an experienced mortgage lawyer to assist you in dealing with mortgage lenders. An experienced lawyer who has experience in handling mortgage loan issues can advise you of the relevant laws in your state and can also explain your legal rights and obligations under a mortgage loan contract.

An experienced mortgage lawyer can also help you to negotiate, draft, and review a mortgage loan contract. The mortgage lending process can often be quite a complicated process, especially with the numerous parties that are involved. As such, an experienced mortgage lawyer can help review documents, assist you in negotiations, and even initiate legal action and represent you in front of a court of law, as needed.