TILA, HOEPA, RESPA

Hello everybody, well the loan modification biz is in full swing. It seems that the new US economy will be essentially redefining and reorganizing the debt of the everybody gets a home fiasco of a few years ago.

As such, being the legal eagle I will break down the crux of the laws that are the center of the universe for our new economy. Sigh, I guess its true what they say. They don't call it legal tender for nothing.
Here is a basic summary of the laws that are apart of this.

TILA was created to guarantee the accurate and meaningful disclosure of the true cost of credit, so that consumers can make informed decisions about borrowing. TILA provides that lenders are strictly liable for their failure to provide proper disclosures pursuant to the Act.

Under TILA, a creditor must accurately disclose the finance charge to the consumer, including certain charges imposed directly or indirectly by it as an incident to the extension of credit. A creditor must also disclose the amount financed to the consumer as well as the annual percentage rate to the consumer.

HOEPA is an amendment to TILA and offers further protections for high rate mortgages. A mortgage that is a credit transaction secured by the consumer’s principal dwelling and whose "total points and fees" exceed eight percent of the total loan amount is a high rate mortgage within the meaning of HOEPA.

Every creditor, when extending credit on a "high rate mortgage" as defined under the law and regulations, must provide, not less than three business days prior to the closing, specific disclosure of the annual percentage rate and the amount of the regular monthly payment, as well as the following disclosures in conspicuous type size:

You are not required to complete this agreement merely because you received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.

A creditor, when extending credit on a high rate mortgage, may not enter into a mortgage that contains "terms [requiring that] a consumer pay a prepayment penalty for paying all or part of the principal before the date on which the principal is due." A creditor, when extending credit on a high rate mortgage, shall not engage in a pattern or practice of extending credit to consumers based on their collateral, without regard to the consumers’ repayment ability, including their current and expected income, current obligations and employment.

In the case of any consumer transaction in which a security interest is or will be retained or acquired in any property that is used as the principal dwelling of the person to whom the credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the transaction or delivery of the information and rescission forms required in this section together with a statement containing the material disclosures required, whichever is later, by notifying the creditor of her intention to do so. A debtor’s right to rescind lasts up until three years from the date of consummation of the transaction, transfer of all of the debtor’s interest in the property, or the sale of the property, whichever comes first, when the creditor fails to deliver to the debtor the required notice of the right to rescind or the required material disclosures. Upon receipt by the creditor of a debtor’s notice of rescission of the mortgage, the security interest in the loan is automatically void and the debtor’s obligation to pay finance and other charges is nullified.

If a creditor fails to comply with any requirement under 15 U.S.C. § 1601 et seq., the creditor is liable also for actual damages and statutory damages in the amount equal to:

a) twice the amount of any finance charge in connection with the transaction; or

b) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, statutory damages not less than $200.00 or greater than $2,000.00.

In a successful action against a creditor who fails to comply with any requirement, the creditor is liable also for the costs of the action and for a reasonable attorney’s fee as determined by the court.

Congress enacted RESPA in December, 1974 for the purpose of protecting consumers from "unnecessarily high settlement charges caused by certain abusive practices…" in the making of " federally related mortgage loans,"

Amoung other things RESPA prohibits kickbacks and referral fees: "No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding oral or otherwise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." RESPA also prohibits unearned fees: "No person shall give and no person shall accept any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed." RESPA requires that the lender provide to the borrower a settlement statement which shall "conspicuously and clearly itemize all charges imposed upon the borrower…in connection with the settlement." 12 U.S.C. § 2603(a).

RESPA requires that the lender and mortgage broker provide to the borrower "a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur in connection with the settlement." The term "settlement services" includes "any service provided in connection with a real estate settlement including, but not limited to…the origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans)."

Any person who violates the provisions of RESPA is liable for treble damages, costs, and reasonable attorneys’ fees.

Whew, this was a mouth full, but I think it gives a basic explanation of the details of these ancillary laws.