Quicken Settlement Procedure Violations Discussed

The government’s push to quicken lawsuit loans is aimed at creating a “safe” lending practice that can be used by FHA-insured borrowers and other lenders nationwide. Although the details are still being worked out, the basic premise of the proposal would be that the mortgage company would issue the loan, and the applicant would repay it directly from income earned through his or her employment. The proposal is currently under discussion in Congress, and although there is some resistance to the idea from members of both parties, it is expected to be adopted as part of a larger FHA-insured housing bill. (The House is expected to pass the legislation soon.) More immediate changes would come in the form of lowering the monthly premiums paid by current borrowers.

The current rules regarding administrative exemptions allow mortgage loan officers to deny applicants based on race, color, religion, gender, sexual orientation, or any other protected category.

In addition, loan officers could also refuse to approve a loan to a borrower based on the potential threat to the lender’s interest. The proposed 2021 interpretations change these provisions to prevent the denial of loan applications based on protected categories. For example, if the borrower has been previously denied due to the applicant’s race, the revised rule would require the borrower to show that discrimination has occurred elsewhere.

Another provision in the proposed revisions would allow borrowers to challenge the basis for an adverse decision whether to deny delay, or decline a mortgage loan based on race, color, religious beliefs, national origin, or any other protected category. The provision does not define a ‘buzzword’ but current practice among mortgage lenders is to refer to such applicants as “potential risks.” An attorney who has previously represented a plaintiff in a case about similar allegations against a mortgage lender could become a buzzword, and courts generally require the disclosure of this type of information during depositions.

The Department of Housing and Urban Development is now soliciting input from mortgage lenders on their definition of ‘disability’ about the Real Estate Settlement Procedures Act. This would seem to be directly related to the provision in HAMP that protects the consumer from a lender’s refusal to make a reasonable accommodation that would facilitate the borrower’s payment. In recent years, lawsuits have targeted lenders for making blatantly discriminatory practices based on prohibited categories. A lawsuit says that the guidelines fail to provide sufficient protection for disabled persons in rural areas and low-income neighborhoods.

The government will not publish proposed guidelines until it receives feedback from industry experts.

In response to criticisms that the standards are too complicated and costly, HUD released three draft rule sets. One guideline would require mortgage loan officers to inform applicants of the likely cost of alternative options. Another guideline says that brokers should investigate loan alternatives provided by lenders, but should not rely on these brokers to select lender sources. The third guideline says that the Consumer Financial Protection Bureau will monitor compliance with these rules and provide public notice of any enforcement action.

There are two lawsuits in one week against lenders that allegedly discriminated against minorities. In both cases, the plaintiffs have improperly originated home loans that were written by sub-prime lenders and that contained many defective elements. The complaint in the first case claims that a black homeowner was unnecessarily submitted to a three-month foreclosure while another case claims that a Hispanic homeowner was underwritten by a mortgage company that passed away within days of the transaction. Both plaintiffs were ultimately forced to forfeit their homes to the defendants. While it is clear that the brokers did indeed discriminate against these two homeowners, it is unclear whether they acted deliberately or if they were acting unethically.

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