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
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
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.