Important State-Level Mortgage Compliance Issues to Consider
Lenders and regulators know that mortgage compliance is important to not only protect the integrity of the industry, but to safeguard borrowers as well. Each state has its own set of laws and regulations that govern mortgage lending and servicing, but do you know which ones to focus on? Here are a few important state-level mortgage compliance issues currently in place that lenders should consider.
1. Licensing requirements
Each state has its own licensing requirements for mortgage lenders, brokers and servicers. These requirements can vary widely, so it’s important to check with each state’s regulatory agency to verify compliance.
For example, in California, mortgage loan originators must be licensed by the Department of Business Oversight, while in Texas, they must be licensed by the Texas Department of Savings and Mortgage Lending.
Identifying the proper avenue for meeting your state’s licensing requirements should be one of the first priorities for any lender.
2. Interest rate limits
Many states have laws that limit the interest rates lenders can charge on loans. These laws are designed to protect borrowers from predatory lending practices. In New York, the maximum interest rate on a first-lien mortgage loan is 16%, while in South Dakota, there is no interest rate cap.
3. Prepayment penalties
Some states prohibit or limit prepayment penalties on mortgage loans. These penalties are fees charged to borrowers who pay off their mortgage loan early, and they can be a significant financial burden. In California, prepayment penalties are generally not allowed on residential mortgage loans, while in Florida, they are allowed but only for a limited time.
4. Foreclosure procedures
Foreclosure laws and procedures vary from state to state. It’s important for lenders to understand the specific requirements in each state where they operate to avoid legal issues. For example, in some states, lenders must go through a judicial foreclosure process, while in others, a non-judicial process can be used.
5. Escrow requirements
Many states require lenders to set up escrow accounts to hold funds for property taxes and insurance premiums. These requirements can vary based on the type of loan and the size of the down payment. For example, in Texas, escrow accounts are required for all mortgage loans, while in Colorado, they are only required for certain types of loans.
Mortgage compliance is a complex issue that requires lenders to stay up to date with the regulations in each state where they operate. However, keeping up with these issues does not have to be nearly as complicated. Using regulation assistance tools can reduce risk and the cost of tracking regulation changes across each state.
Please note that the information provided is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed through the use or dissemination of this information. If you require legal advice, please consult with a licensed attorney in your jurisdiction who can provide you with advice tailored to your individual circumstances.