Laws Governing Mortgage Companies

Mortgage originators are subject to much of the same regulation that governs banks and other financial institutions; mortgage brokers, because they are not directly providing funding, are not subject to any federal regulation. Rather, brokers fall under state statutes, which vary by state.

On the federal front, the new Home Mortgage Disclosure Act (HDMA), requires mortgage lenders to make public information about their lending practices. Lenders are required under HDMA to report pricing data for higher-priced loans by borrower characteristic, and must also report the ethnic and racial mix of the neighborhood where the property is located. Lenders are also required to report whether loans fall under the Home Ownership and Equity Protection Act, on lien status, and whether mortgages are for manufactured homes. Although the reporting requirement under HDMA is substantial, already software companies such as Pci Corporation have come to the rescue with software tools to make the task of compliance easier.

Economists indicate that HDMA requirements encourage low- and moderate-income lending, and help to identify new markets for mortgagers who want to service low- and moderate-income communities. HDMA data will become public in August 2005.

More legislators have become concerned about predatory lending practices, and new legislation has been introduced this year to create standards for sub-prime lenders. The Responsible Lending Act clamps down on predatory practices, while also addressing conflicting state laws that govern the practice. According to a policy brief published by the Bond Market Association, the proposed legislation preserves the sub-prime market, which makes mortgages available to people with less than perfect credit; while still protecting consumers from predatory practices.

Other compliance regulations that govern mortgage companies include Gramm-Leach-Bliley, which requires financial institutions to notify consumers of privacy and information sharing practices; state licensing requirements for mortgage brokers; and the anti-money laundering provision of the Patriot Act.