Realtors: Here’s What You Should Know About Regulation B
Last month on the blog, we delved into the veritable alphabet of Federal Fair Housing, Credit and Lending Law Regulations. This month, we’re starting to take a closer look at each regulation, how it applies to you as a Realtor, and how it applies to your clients and the Lender or Mortgage Broker they work with when purchasing a home.
We’ll start with Regulation B and explore why it matters to you, your clients, and their Lenders.
What is Regulation B?
Regulation B, also known as the Equal Credit Opportunity Act or simply, ECOA, prohibits creditor practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, and age. It’s a law created to give all individuals the equal opportunity to obtain loans and other kinds of credit from Lenders and financial institutions.
This law applies to all organizations that extend credit, including:
- Banks and Credit Unions
- Small Loan and Finance Companies
- Retail and Department Stores
- Credit Card Companies
- Real Estate Brokers Who Arrange Financing
And it applies to all types of credit, such as personal loans, credit cards, home loans, student loans, car loans, and small business loans.
Put simply, ECOA means organizations that can extend credit to individuals can only evaluate their creditworthiness based solely on directly related financial factors like credit scores, existing debt, debt-to-income ratios, income, and credit history.
How Does ECOA Apply to You, the Realtor?
As a Realtor, you are a steward of the right to own, purchase, and sell real estate in your community. And although you are not directly involved in credit approval decisions for your client(s) when they apply for a loan, you are certainly close to the process. It’s important for you to understand ECOA as you guide your client(s) through connecting with a trusted, reputable, and law-abiding Lender or Mortgage Broker to apply for and ultimately secure a loan.
How Does ECOA Apply to Your Client?
Under ECOA, creditors may only use financial factors as the basis of loan consideration and approval for your client. These include factors such as credit score, income, credit history, your debt-to-income ratio, and your existing debt. If your client isn’t approved for a loan, he or she must be given a specific reason for their rejection within 30 days of completing their loan application.
It’s important for your clients (and you!) to understand what ECOA means for them as loan applicants and be aware of signs of credit discrimination. Should there be unfair treatment in the credit application process, there are numerous steps your client can take to report the situation, including submitting a complaint to the Consumer Financial Protection Bureau.
How Does It Apply to the Lender or Mortgage Broker?
Regulation B applies most directly to the procedures and Lenders and Mortgage Brokers when evaluating applicants for loan approval. Legally, creditors cannot:
- Discriminate based on a credit applicant’s race, marital status, nationality, gender, age, or religion
- Discriminate against an applicant that gets income from public assistance programs
- Discriminate against an applicant who has exercised his or her rights under the Consumer Credit Protection Act of 1968
Any creditors that demonstrate a history of discrimination against applicants can be sued by the Department of Justice.
Additional Resources on Regulation B
As with all the regulations relating to Fair Housing, Equal Credit Opportunity, and lending laws, there are numerous resources out there to help you learn and stay informed for the good of your real estate business and your clients. The National Association of Realtors especially has helpful primers on understanding ECOA and the Fair Housing Act, and how it applies to your business.
Do You Have Questions on ECOA and Other Lending Regulations?
I love helping educate my clients on financial wellness and lending and legal matters alike! Whether you’d like to discuss the post-COVID lending landscape, mortgage rates, mortgage basics, or lending laws, give me a call at 480-313-7103 or email me at sam@mindfulmoneyusa.com.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.