RESPA, ECOA, mortgage fraud, and predatory lending

Four different protections

RESPA regulates settlement-service referrals and charges. ECOA protects fair access to credit. Mortgage fraud involves intentional material deception in obtaining or funding a mortgage. Predatory lending uses abusive lending practices to exploit borrowers. One transaction can raise several concerns.

Settlement services

For federally related mortgage loans, RESPA prohibits giving or accepting a thing of value under an agreement or understanding to refer settlement business. The understanding need not be written. It also prohibits splitting settlement charges except for services actually performed. Bona fide compensation for actual services is distinct from a disguised referral payment. Cooperative brokerage and referral arrangements between real estate agents and brokers are expressly permitted by the statute.

An affiliated business arrangement needs the required relationship disclosure and written charge estimate, freedom from required use subject to statutory exceptions, and limits on financial benefits, generally an ownership return apart from otherwise permitted payments. Disclosure alone does not authorize a kickback. A seller cannot condition a covered sale on the buyer purchasing title insurance from a particular title company.

Equal credit opportunity

ECOA prohibits creditor discrimination in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age when the applicant can contract, public-assistance income, or good-faith exercise of protected credit rights. Objective evaluation of creditworthiness remains appropriate. For example, evaluating probable continuance of income differs from rejecting income merely because it is public assistance.

Ordinarily, a creditor must notify an applicant of action within 30 days after receiving a completed application. An applicant facing adverse action is entitled to specific reasons, either supplied directly or through the statutory request procedure. For first-lien dwelling applications, written appraisals and valuations must be furnished even if credit is denied; the copy carries no additional charge, though the appraisal itself may have a reasonable cost.

Deception and exploitation

Fraud examples include knowingly inflated income, fabricated employment records, concealed debts, false owner-occupancy statements, and collusive appraisal inflation. An honest mistake should be corrected; intent distinguishes it from deliberate deception. Predatory practices include deceptive pricing, repeated fee-generating refinancing without meaningful borrower benefit, and exploiting equity through unaffordable lending. A high rate or a balloon payment alone does not establish abuse; examine the full terms and conduct.

Ask four questions: Is someone paid for referrals? Is credit evaluated fairly? Are material facts truthful? Do the loan's terms and sales practices exploit the borrower? Refuse to help falsify information, preserve accurate records, and raise discrepancies through appropriate supervisory or compliance channels.