While the Equal Credit Opportunities Act and the compliance guidelines associated with them aren’t exactly new rules (they were implemented in 2013), we have a feeling navigating them is a little tricky. Let’s start with a short history lesson: ECOA was originally implemented in 1974 to prohibit creditors from discriminating due to race, religion, ethnicity, sex, marital status, age, or public assisted income. In 2010, Dodd-Frank amended ECOA to provide guarantees that applicants receive information about their home value estimates. To ensure these amendments were implemented, the Consumer Financial Protection Bureau finalized requirements under the ECOA in 2013. Now, five years later, we’re taking a look at the 411 on the ECOA. Using our summary below, your team of mortgage lenders and other personnel will be able to determine if you’re complying with these guidelines.
New ECOA rules, new ECOA paperwork.
It should come as no surprise that these new rules require new paperwork. Prior to 2010’s changes, creditors were only required to supply appraisal copies to applicants if they were requested. Under the new compliance guidelines, creditors must disclose upfront that clients have the right to receive appraisal copies. Additionally, the rule requires creditors to automatically send a free copy of the home appraisal promptly after it is completed, regardless of the lending status. In general, this should happen as soon as the valuation is completed or at least three business days before consummation, whichever comes first. Keep in mind these new changes applies to all written valuations, not just appraisals, so if you’re not doing so already, consider establishing an automated process to improve efficiency.
All first-lien dwellings apply.
Loans for businesses, vacation homes, mobile homes, etc. would all apply if they are secured by a first-lien on a dwelling under the ECOA rules. All closed-end or open-end credit secured by a first lien are a part of this rule.
The word “dwelling” covers just about any type of home you can imagine. If you’re the type of person that needs a definition, we can handle that for you too. According to the Consumer Finance Protection Bureau, a dwelling is a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, individual condominium units, mobile homes, and manufactured homes.
How do you comply with the ECOA rules?
Thankfully, it’s not as challenging as it seems, and to make it even easier for you, we’re breaking it down into a few manageable steps:
- Notify the applicant in writing within three business days of the right to receive a copy of any appraisal or valuation developed.
- When processing an application for a closed-end loan, you are required to deliver appraisal and written valuation copies upon completion, or three business days before consummation.
- Copies must be free. You can, however, charge a reasonable fee to reimburse the cost if not prohibited by law.
- Send the copies to the applicant’s last-known physical or electronic address. If you do send copies electronically, remember to get consent from the applicant.
- Should an applicant choose to waive required copies, you must provide the copies either at, or prior to, consummation or account opening.
We believe we are a top appraisal management company which is why we believe in sharing the ins and outs of compliance guidelines with you – whether you’re our client or not. While these guidelines have been in place for a few years, it’s always a good idea to double check that you’re in compliance. For even more information about ECOA, take a look at this comprehensive guide. As always, don’t hesitate to ask us any questions you might have.