How the Truth in Lending Act applies to Real Estate

The Truth in Lending Act is a Federal law in the United States of America. Created in 1968, the Truth in Lending Act was fashioned for the protection of credit consumers. People who were in the market for a loan were to be informed of all the loan terms and associated costs.

There are subsections of the Truth in Lending Act. The subsection E is the part that is specifically related to real estate and mortgages. There are disclosures that the lender must make to the borrower before the loan is made so that the borrower is very clear as to the rates, the fees, and the payment schedule and so on.

All banks that provide mortgages must institute policies that set forth a maximum amount of money that can be loaned out per loan, a maximum cumulative, or aggregate amount of money that can be loaned on real estate loans; and if there is a need for amortization, how much is required annually. The bank is also required to set out procedures for real estate appraisals. It is the bank's responsibility to hire qualified and experienced appraisers to make sure the real estate that a loan is being made on is worthy. The Truth in Lending Act also established rules concerning how the bank can establish if a mortgage loan is sound or unsound.

A home equity line of credit is not a real estate lending activity that all banks participate in, but if they do, the bank must adopt policies and procedures that deal with this type of real estate loan. One of the concerns with this type of loan is that the borrower can become overextended and the real estate might need to be foreclosed on.

To ensure that all lending institutions that make real estate loans are following the procedures set forth in the Truth in Lending Act, there is a checklist, which will help to determine if the bank is sufficiently complying. There are also ways to determine if the quantity of risk is low or high with each bank. These evaluations are performed to ensure that each bank is employing proper procedures from the initial interview to the underwriting process.

The overall goal of the Truth in Lending Act is to ensure the borrowers are informed of their rights as well as their responsibilities when it comes to real estate loans. If a bank is found to be violating the law or putting consumers in precarious financial situations by not checking fully their means before granting a loan, they can be found in violation of the law.

Mortgage Calculator