Most of the time, mortgage lenders do what they are supposed to do. They disclose all of the information they are required to disclose. They handle payments and service the loans accurately. They play by the rules. But sometimes, mortgage companies step outside the legal lines.
If you feel your lender is treating you wrong or acting illegally, you should file a mortgage complaint against them. In this article, I’ll explain how to complain about a lender. We will also take a look at some of the consumer-protection laws that come into play.
Consumer Protection Laws that “Regulate” Lenders
Many laws have been passed over the years to protect consumers against predatory lenders (the ones that take advantage of borrowers with misleading tactics). By understanding these laws and the actions they are designed to prevent, you’ll be better able to spot violations. The process of filing a complaint against a mortgage lender requires a bit of homework on your part. At the least, you should review some of the consumer protection laws mentioned below.
Truth in Lending Act (1968) — Requires lenders to disclose all of the details of a mortgage loan, including the full costs to the borrower. It prevents them from downplaying the costs of a the mortgage or offering false “teaser” rates. This law also limits what lenders can say about their loans and interest rates, how they can advertise them, etc. It also gives you the right to cancel a loan within three days of securing it, with no penalties or fees. Due to the broad nature of this law, it accounts for many of the mortgage complaints that are filed each year.
Real Estate Settlement Procedures Act (1974) — As the title suggests, this law relates to the settlement / closing process. It requires lenders to disclose the full cost of settlement to the borrower up front. This is the cause of many mortgage complaints, because lenders frequently violate this act by downplaying the closing costs. In the past, there has been a serious lack of enforcement in this area.
Additional Laws — This page of the Federal Reserve website gives a good overview of the consumer protection laws mentioned above, as well as many others. I have listed the most relevant laws and acts above, and this is a good place to continue your research (especially if you plan to complain about your mortgage company).
Future Laws – In the wake of the mortgage and housing meltdown we just went through, you can bet that some new laws will be put into place. For example, the White House recently announced a proposal to create a Consumer Financial Protection Agency to further regulate the lending industry. Here’s my take on this: Why don’t we start enforcing the laws we already have, instead of creating new ones?
There are also some new rules going into effect in January of 2010, with regard to the Good Faith Estimate (GFE) provided by lenders. It is supposed to make the estimates more accurate, with regard to closing costs. You can learn more about the changes to the GFEs in this post.
How to File a Complaint Against a Mortgage Company
If you feel your mortgage lender has violated some law or behaved unethically, there are certain steps you should take to file a complaint against the company. You can learn more about this process, or initiate a complaint, by visiting the Federal Reserve’s Consumer Help website. Here is the page where you would complain about a bank or lender.
In addition to filing a federal complaint through the website provided above, you should also visit your state attorney general’s website. This is especially true if the mortgage company operates within your state (with either a headquarters or a local office in your state).
Congress + Financial Industry = Best Friends Forever
The financial industry (credit card companies, mortgage lenders, etc.) has a long and cozy relationship with congress. These companies make major financial contributions to political campaigns. They even write some of the bills that are passed through congress, which I find utterly despicable. Here is what Senator Dick Durbin (D-Ill.) had to say about it:
And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place…
As long as this status quo remains in place, there will never be any true reform of the mortgage lending industry.
Consider what has happened over the last few years. We have dozens of laws on the books that are supposed to “regulate” the lending industry, but they still get away with white-collar crime. These laws are not properly enforced because politicians and financial companies are BFFs — best friends forever!
You Should Complain in Two Directions
So here’s my advice. If you have a legitimate complaint about a mortgage company, I recommend that you complain through two channels. First, I would file a complaint through the Federal Reserve website I mentioned earlier. Secondly, I would send a letter to your senator and congressperson to complain about the lack of enforcement. Better yet, look up their campaign contributors and see if they are in the pocket of the financial industry. If they are, tell them what you think about it.
I hope you have enjoyed this lesson on mortgage complaints and consumer protection laws. Remember, the laws only get enforced if we “regulate the regulators.” We must hold our government accountable for inaction, just as much as we must hold lenders accountable for criminal acts.