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US Real Property Statutes, with Real Estate Terms
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Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (15 USCA §§ 1631 et seq.)
|A statute passed after the subprime mortgage crisis of 2008 to "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail', to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes". This federal legislation does not preempt any state law that provides greater protection to the borrower (Sec. 1041).|
The Act is aimed at protecting consumers and investors and contains a number of important provisions that relate to real estate financing and investment, as well as real estate appraisal.
The provisions of the Act that directly impact real estate are: Title X—Bureau of Consumer Financial Protection (Secs. 1001–1100H) and Title XIV—Mortgage Reform and Anti-Predatory Lending Act (Secs. 1400–1498). These provisions include:
Also, the Act provides new disclosure rules under the Real Estate Settlement Procedure Act of 1974 (RESPA), which requires the settlement statement (HUD-1) to set out a comparison between the Good Faith Estimate (GFE) of the cost of a mortgage loan and the costs set out on HUD-1.
- Risk retention. Risk retention requires that throughout the term of a mortgage loan each party who originates, securitizes, or invests in that loan retains enough financial risk so that each party will continue to be engaged in the success of the loan as an investment (Secs. 941, 946).
- Increased disclosure requirement for consumer financial services and products. The new Bureau of Consumer Protection can prescribe rules that “shall contain a clear and conspicuous disclosure that, at a minimum— (A) uses plain language comprehensible to consumers; (B) contains a clear format and design, such as a readable type font; and (C) succinctly explains the information that must be communicated to the consumer”, Sec. 1032(b).
Consumer financial services and products is extensively defined and includes extending credit and servicing loans, including acquiring, selling and brokering credit; extending or brokering leases of personal or real property when this amounts to a purchase finance agreement; and providing real estate settlement services (Sec. 1002(15)(A)).
In addition, consumers have the right to access information regarding consumer financial products and services from any one (a 'covered person') offering or providing such products or services. (Sec. 1033).
Procedures are to be established to ensure timely respond to consumer complaints and inquiries (Sec. 1034).
(Fore more see Title X—Bureau of Consumer Financial Protection (now Consumer Financial Protection Bureau).
- Appraisal management company (AMC) regulation . Every state is required to implement regulation of AMCs. Also, any appraisal carried out by an AMC for a “regulated financial institution” in respect of a “federally related transaction” is only to be carried out by a "licensed or certified appraiser", and the appraisal work to be carried out in accordance with provisions of the Uniform Standards of Professional Appraisal Practice (USPAP). The Act sets out minimum standards and any State may establish additional rules (Sec. 1124).
- "Prohibition on Steering Incentives", i.e. fees charges by originators or mortgage brokers. Including prohibiting the loan originator charging of fees that are not based on the principal amount of the loan and providing for the regulation of the financing aspects of the loan fees. In particular, a prohibition on a mortgage originator charging a yield spread premium (Sec. 1403).
- A lender must make a reasonable, good faith determination of the borrower's underlying ability to pay interest and principal on any consumer credit transaction secured by a first lien on a dwelling (excluding an open-end credit plan, a timeshare plan, a reverse mortgage, or a temporary loan) (Sec. 1411).
- Restrictions on the payment of a prepayment penalty on certain loans, as well as a proving the borrower with an option to allow prepayment without penalty (Sec. 1414).
- Limitations on balloon payments: "No high-cost mortgage may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This subsection shall not apply when the payment schedule is adjusted to the seasonal or irregular income of the consumer". (Sec. 1432).
- A requirement that subprime borrowers should receive counselling after having received the mandatory disclosures (Sec. 1433).
- New "appraiser independence requirements (AIR)". These rules apply especially to appraisal reports carried out for lenders for a consumer credit transaction secured by a family residence that is the principal dwelling of the consumer. (Sec. 1472).
- The fee charged by a fee appraiser must be a "customary and reasonable fee" (Sec. 1472).
Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE) (15 USCA §§ 5101 et seq.)
An Act designed to enhance consumer protection and reduce fraud through the setting of minimum standards for the licensing and registration of any mortgage loan originator (MLO). A “Federal Register” has been established in accordance with the provisions of the Act for the registration of individual employees of Federally-regulated institutions who engage in the business of residential mortgage loan origination. The Wall Street Reform and Consumer Financial Protection Act of 2010 ("the Dodd-Frank Act") transferred authority to maintain this Federal Registry to the Bureau of Consumer Financial Protection (formerly the Consumer Federal Protection Bureau) (CFPB). All other mortgage loan originators must be licensed by the state in which they operate.
Terms in bold are defined and explained in detail in Real Estate Defined (Subscribe to Real Estate Terms).
(suffixes such as (US) (Eng) (F) indicate the country of primary, but not necessarily exclusive, use).
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