History of Fair Lending Laws
Fair lending laws have their genesis in the Civil Rights movement of the 1960s. Before the upheaval of those times, housing and credit were routinely denied to people of color and to women in this country.
Fair lending laws change over time to remedy those injustices, and there will probably be more legal remedies to help various classes of borrowers in the future. Almost always, they will be controversial. In 2007, for example, the subprime lending disaster brought calls in Congress for vast changes to laws that would protect credit-challenged borrowers from losing their homes. At press time, the dust had yet to settle on those issues.
No, you're not going to be tested on this material. But you should know about the laws that protect you at present in the lending marketplace — and what you can do if they're broken.
Research by the National Association of Realtors and other organizations shows that today, homebuyers represent virtually every demographic in America. Homebuyers include traditional families, wealthy baby boomers, singles, and ethnic and culturally diverse households. Segmentation is even greater along types of property they're interested in.
It's arguable that all of these groups would not have the access they have now to the credit markets without critical changes in federal and state law along the way. The following sections provide a summary of major housing legislation that helps all U.S. homebuyers.
While activism began gaining steam throughout the decade on inequality in credit reporting and lending efforts, it was the Fair Housing Act of 1968 that made lending reform a front-burner priority in this country. Before this legislation was passed, fledgling credit bureaus started gathering records with questionable accuracy and lax privacy rules. And very few women or minorities found their way into this system. At the same time, very few women or people of color could walk into a bank or savings and loan and successfully apply for a mortgage under their own names and credit history. Before the modern credit reporting agencies, most women and people of color weren't really allowed to have credit histories.
The Fair Housing Act prohibited lending discrimination on the basis of race, color, religion, or national origin. In 1974, gender was added to that definition, and by 1988, people with disabilities and familial status (for example, people who might be discriminated against because they had kids) were added to the classes protected under the law.
As this book was going to press, the National Association of Realtors reported that single women were among the fastest-growing groups of first-time homebuyers.
The Truth in Lending Act, passed by Congress in 1969, requires lenders to disclose key terms in extensions of credit. The legislation does not set those terms; most of that business is left to the states. However, it requires credit terms to be disclosed clearly and conspicuously in all consumer credit applications, including credit cards and auto loans. In the pile of papers you get before closing on a loan, you'll see the truth-in-lending form, also known as Regulation Z. In full, it requires lenders to do the following:
Present in writing all credit terms including the cost of credit expressed as a finance charge and an annual percentage rate (APR)
Answer borrower complaints regarding billing errors within a specified period
Identify transactions on monthly bills for credit accounts
Adhere to specific rules when advertising credit offers
However, despite the protections inherent in this law, too many borrowers show up at closing and sign documents that they have not read and do not understand. Truthfully, it's hard to understand everything in these legal documents. That's why it's important to enlist the help of a qualified real estate attorney to look over your loan documents when you apply and again before or even during closing (if you want to pay the attorney extra to come with you to the closing).
This historic act finally gave people the right to see their credit records at credit reporting agencies and to correct any mistakes they found. This legislation has been updated several times since its passage, and it now requires the following:
That there be specific reasons under which reporting agencies can release credit information to those willing to pay for it
That consumers have to give their written permission before employers can successfully obtain that consumer's credit report
That consumers have the right to opt out of direct mail or telemarketing solicitations based on their records at credit reporting agencies
That when a consumer disputes information in a report, the credit reporting agency is legally required to investigate the claim within thirty days and report back
That specific “date certain” measures to calculate the length of time that particular information, such as bankruptcies, collections and loan charge-offs, can remain on a person's credit report
If you fear lending discrimination, there may be a local agency to call, but also be aware whom you should call on the federal level. For violations of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA), call the following numbers respectively: the FTC, at 202-326-2222 (TDD:1-866-653-4261) and HUD, at 800-424-8590 (TDD: 800-543-8294).
In 2003, the Fair Credit Reporting Act got another important improvement with the passage of the Fair and Accurate Credit Transactions Act of 2003, which, among other things, allows borrowers to get one of each of their three credit reports free every twelve months.
Whether you're an ethnic or racial minority, or whether you fear your age or gender might be preventing you from getting a loan, there are some critical steps you should follow to make sure you're armed against unfair treatment.
The first line of defense is preparation. If you've read this book from page one, you know how important it is to determine how much home you can afford and to present a clean (or as clean as possible) credit record before you apply.
The tragedy for so many people, particularly minorities and lower-income Americans, in the recent subprime lending debacle is that they believed the sales pitch offered by many lenders that they could afford particular loans when terms were in fact, patently unfair. That's why it's critical to do the qualification prep work beforehand (asking for help is perfectly acceptable) so a lender can't offer you an unacceptable loan or prevent you from getting a fair one.
If you belong to a racial minority or live in a low-income neighborhood, there are nonprofit organizations that can help you find a loan. Two of the largest are the Association of Community Organizations for Reform Now (
We'll state this several times throughout this book: Prepayment penalties are unacceptable. But in some minority communities, disreputable lenders have asked borrowers to sign uncompleted documents that they fill in later with numbers that make the loan unaffordable with added fees or impossible to renegotiate. If a lender fails to give you copies of everything you sign — and you should double-check her pile of papers against yours — talk to your local Community Reinvestment Act (CRA) organization about canceling the application in writing.
There is also the Homeownership Preservation Foundation, which is a Minneapolis-based nonprofit organization that offers informal phone counseling (at 888-995-4673) for borrowers in trouble. The group can refer callers with current mortgage problems or a need for credit or financial planning advice before applying for a loan.