As a mortgage broker, you are responsible for understanding and complying with a variety of state and federal laws. These regulations cover everything from which documents are required to close on a loan to the way that you treat your clients.
Perhaps the most significant regulations that govern your behavior as a mortgage broker are fair housing laws.
Below, we’ll outline the basics provisions of fair housing laws. We also discuss your responsibilities as a mortgage broker.
What is the Federal Fair Housing Act?
Put simply, the Fair Housing Act is federal legislation that protects home buyers from discrimination. The Fair Housing Act was originally part of the Civil Rights Act of 1968, although it has been added to and amended since that time. Virtually every state has passed additional fair housing laws to further protect home buyers from discrimination.
Who is Protected?
The Fair Housing Act was designed to protect groups that had previously been subject to unfair practices. Specifically, the Fair Housing Act prohibits discrimination on the basis of:
- Familial status
- Country of origin
Presently, the Fair Housing Act does not prevent discrimination based on:
- Receipt of public assistance
- Gender identity
- Sexual preference
- Marital status
However, many states have expanded on the provisions of the federal law in order to protect these classes. In many cases, a person that has faced discrimination can still file a grievance with the U.S. Department of Housing and Urban Development.
Your Responsibilities as a Mortgage Broker
Since mortgage brokers play a pivotal role in the home-buying process, they are bound by the provisions of the Fair Housing Act. State and local fair housing laws also apply to loan officers and mortgage brokers. That is why you must familiarize yourself and your employees with state and local requirements to ensure that you are in compliance.
Generally, fair housing laws prohibit mortgage brokers from taking the following actions based on discriminatory practices:
- Refusing to loan to people in protected classes
- Declining to provide information regarding a loan product
- Intentionally under appraising a property
When determining a person’s eligibility for a loan, mortgage brokers can only use pertinent financial information.
Penalties for Violating Fair Housing Laws
Violations of the federal Fair Housing Act go before a civil trial judge. Alternatively, they can be heard by a HUD Administrative Law judge. If a mortgage broker is found to have violated the Fair Housing Act, they can be ordered to:
- Pay compensation for actual damages and emotional distress
- Provide permanent injunctive relief
- Provide equitable relief (i.e., make housing available)
- Pay attorneys’ fees
- Pay a penalty to HUD ($16,000 for first violation)
In addition, mortgage brokers and other housing professionals may be subject to state penalties. State courts can levy additional fines or revoke business licenses.
While the penalties for violating fair housing laws are stiff, avoiding these penalties is simple. All mortgage decisions should be made based solely on verifiable financial information. In addition, mortgage brokers should strive to provide every client with an exceptional customer experience.