One of the most significant pieces of legislation to address unfair lending practices and consumer rights is the Fair and Accurate Credit Transactions Act of 2003. The Fair and Accurate Credit Transactions Act address identity theft, as well as allowing the consumer to receive a free copy of their credit report from each of the credit reporting agencies every year.
When you apply for a mortgage, one of the first things the mortgage lender will do is look at your credit report. Credit reports contain information about how you have used and are using your credit lines. They contain information like your payment history, delinquent payments, and outstanding debt. Mortgage lenders use this information to help decide how much of a risk you would be to offer a loan to.
Credit reports are nothing new and have been used by businesses for thousands of years. In concept, using a credit reporting system makes sense, as it allows businesses to more easily analyze risk. However, in the past a great deal of personal information, such as race and religion, was included in credit reports and this information was often used to discriminate against a prospective borrower. There have been many pieces of legislation to address this issue and keep the lending industry more honest, although its success is debatable.
The information contained in a credit report is maintained by one of three credit reporting agencies. Businesses report information to these agencies, who then compile a report that can be used by mortgage lenders and others who offer credit lines.
Up until very recently, there were a number of hurdles that made it difficult and costly for a consumer to view their credit report. It is very easy for an error to end up on your credit report and without being able to easily and inexpensively check, many consumers were penalized for these mistakes when they applied for a mortgage or loan.
The Fair and Accurate Credit Transactions Act addressed this issue and requires that each of the three credit reporting agencies provide consumers with one free copy of their credit report every year. However, in some states, the credit reporting agencies have fought this law by making it more difficult and complicated to receive these reports.
Another big part of the Fair and Accurate Credit Transactions Act is aimed at preventing identity theft. Under the Fair and Accurate Credit Transactions Act, consumers who think they might be about to be the victim of identity theft can place a fraud alert on their credit report, ensuring that potential creditors are more diligent in checking ones identity and providing some recourse if identity theft occurs. It also set up some red flag rules, which were to be developed by the credit industry to help detect fraud, although these have not been fully implemented.
The Fair and Accurate Credit Transactions Act also sets up some rights for those who have been the victim of identity theft. The credit reporting agencies are now required to block cases of identity theft from being visible on credit reports, providing the consumer has provided sufficient evidence of the identity theft. The credit industry is also required to be more corporative when investigating identity theft.
The law also requires that credit card merchants print no more than the last five digits of a credit card on a receipt.
The effectiveness of this law and others that address the credit and mortgage industry are highly debatable and many institutions deliberately try to find ways to get around these law.
Businesses and creditors have for years kept information about the people who use their business, using this information to determine whether to continue offering an individual services. Until the advent of modern technology making it easier to reliably send information across long distances, these records were usually only used internally or in specific locations.
However, beginning in the eighteenth and nineteenth centuries, businesses began sharing these records with each other on a much larger scale, which is the basis for the modern credit report.
As is often the case, with no oversight banks, mortgage lenders, and other creditors were quick to abuse this system. They began storing all sorts of personal information in credit reports, including race, gender, religion, and sexual preference. Worse, the lenders would then use this information to deny or approve a loan.
To help address this problem, the Fair Credit Reporting Act was passed in 1970. Since then, the law has been changed many times, but its premise, to regulate the credit reporting industry, remains the same.
The Fair Credit Reporting Act helps to regulate both credit reporting agencies, as well as who can provide information to these agencies.
There are three main credit reporting agencies, Equifax, TransUnion, and Experian. These agencies compile information about how a person uses their credit lines, including tracking payment history.
As part of the Fair Credit Reporting Act, these agencies are required to ensure that there is a way for consumers to address errors on their credit report and that these errors are removed in a timely manner. They are also not allowed to keep information indefinitely and in most cases can only cover the last 7 years, although bankruptcies can be kept on a credit report for up to 10 years.
Only recently, consumers were given the right to see a copy of their credit report for free and purchase a copy for a fair price.
While a big part of the Fair Credit Reporting Act is aimed at regulating credit reporting agencies, it also deals with who can report information to these agencies and what type of information can be added to a credit report.
As part of the Fair Credit Reporting Act, agencies that report information to credit reporting agencies must:
The Fair Credit Reporting Act also puts limits on who can report information to credit reporting agencies, which is usually limited to banks, credit unions, and other creditors. It also put regulations on how credit reports can be used for background checks by employers.
While the Fair Credit Reporting Act took steps to help make the credit reporting industry more transparent and less discriminatory, it still has a long way to go and it would require a number of other laws to bring the credit industry under better control.
The nineteen sixties was a very controversial time for the United States, with one of the most important issues being equality among race and gender. Racism was visible in almost all areas of life, including the financial industry. To help address this issue, congress passed a series of laws intended to help prevent discriminatory lending practices.
One of the major problems in the lending and credit industries was that the terms of a loan was often not completely obvious to borrowers. This meant there were often hidden terms and costs, which would not be disclosed to the borrower until they violated these terms. To help protect against this, Congress passed the Truth in Lending Act in 1968.
The main purpose of the Truth in Lending Act was to ensure that prospective borrowers were made fully aware of all terms and costs associated with a loan, before they actually signed the loan agreement. This may sound like common sense advice that should be used before entering any contract, but many lenders purposely hid information from borrowers.
In most cases the Truth in Lending Act does not attempt to regulate the types of charges that can be applied to a consumer credit line, but instead is aimed at requiring a standardized disclosure of the charges and terms, without requiring the consumer to first sign the contract. The exception to this is subprime mortgages and high cost mortgages, whose charges may be regulated by the Truth in Lending Act.
The Truth in Lending Act also allows the borrower more freedom in canceling credit transactions that require a lien to be placed on the borrowers primary dwelling.
The Truth in Lending Act contains several sections, which require that:
While the Truth in Lending Act was a step in the right direction, a true change in the lending industry would take many years and still has a long way to go.
With as complicated as most mortgages are, even with the information fully disclosed, many borrowers do not fully read or understand closing documents, which can lead to many problems.
Today, women borrowers are one of the fastest growing demographics in the lending industry, however even just a short while ago, this would have been impossible. This is because until the Civil Rights Movement of the 1960’s, lenders participated in discriminatory lending, discriminating by race and gender. These practices began to change with the passage of several pieces of legislation in the sixties and seventies.
One of the most important pieces of legislation to reduce discriminatory lending practices was the Fair Housing Act of 1968, which led the way for several other laws that would help further reduce discrimination.
The Fair Housing Act of 1968 was passed to prevent mortgage lenders from discriminating against people by their race, gender, religion, or nationality. Today, this seems like common sense, but at the time, creditors would gather a great deal of personal information about prospective borrowers and use this information to decide whether or not to offer them a loan.
Originally, the Fair Housing Act was referred to as the Civil Rights Act of 1968 and came 4 years after the first Civil Rights Act. However, because it addressed housing discrimination, it became known as the Fair Housing Act.
The Fair Housing Act not only prevents discrimination when selling homes, but also in lending, as a it prohibits people from refusing to rent or sell a property based on a persons race, gender, religion, or nationality. It also prevents changing the terms of a loan or rental agreement based on discriminatory factors, using coercion in lending practices, and discrimination in advertising.
While the Fair Housing Act is designed to prevent discrimination, it does allow landlords some rights when selecting a tenant for their rental property. For example, a landlord can discriminate against someone based upon their income, ability to pay rent, job status, or credit history. Landlords are also not required to accept Section 8 Housing Vouchers in all areas.
The main purpose of the Fair Housing Act is to prevent discrimination against prospective buyers and renters, but these groups themselves are allowed to be discriminatory when looking for a home. For example, it is not illegal for a potential buyer to ask their real estate agent to search for homes using a discriminatory basis.
Since the Fair Housing Act prohibited outright discrimination, the lending industry and real estate industry became more subtle in their approach, using redlining and steering to achieve a similar goal. These subtle forms of discrimination took the place of outright discrimination in the real estate and lending industries.
Redlining is the practice of not offering credit to certain areas of a city. This was typically preformed in low income areas or minority areas and would prevent people in these areas from getting a loan. Redlining was so prevalent in the industry that there were even official maps made by banks and other creditors outlining areas that should not receive credit.
Steering is when real estate agents, bankers, and city officials would try to steer minorities and certain social groups to a specific part of the city. These officials would lie or manipulate prospective buyers and steer them into housing projects, creating ghettos and low income housing areas.
Today, other pieces of legislation have been passed to prevent steering and redlining, although the practices still occur.
Discrimination based upon race, gender, religion, and nationality were deep seated and could not be removed with only one law or over night. However, the Fair Housing Act was a step in the right direction to help protect the rights of buyers and renters in the housing market.
It would be followed by a number of pieces of legislation to further protect the rights of minorities.
A Credit Score is a numerical value between 300 and 850 that is used by lenders to determine the risk offering someone a loan. Credit scores are based off of a number of factors, including the number of different lines of credit a person has, their payment history, and how long they have had credit. When applying for a mortgage, credit scores are one factor that are considered by mortgage lenders, so it is important to understand the relationship between credit scores and mortgages.
Credit scores are not exactly new and have been around for many years. The FICO credit score is the most common type used, but there are others as well, specifically those offered by the three credit reporting agencies. However, up until relatively recently, the average consumer was not able to see their credit score. This changed in 2003 with the passage of the Fair Credit Reporting Act, which required credit reporting agencies to provide consumers with their credit score for a reasonable fee.
There are many factors that goes into a credit score and a persons debt level is actually not what the credit score is predominantly based upon. Instead, only about 30% of the credit score is based off of a persons current debt, with more weight being placed upon how the person handles debt, as well as their credit history and payment history.
In times past, getting a home mortgage was a much more personal process. The loan officer took the time to get to know the person and made a subjective decision based upon the information available to them. Today, however, much of this personal touch has been lost, replaced by mathematical formulas that are processed by computers. These formulas take into account the persons credit history, their credit report, and their credit score, determining mathematically the risk of offering the prospective lender a home mortgage.
Since so much of the mortgage approval process has been automated, it is essential to have a good credit report and as high of a credit score as possible. Studies have been shown that the higher a credit score is, the lower the mortgage rate offered will be.
For example, according to myfico.com, in 2007, a person with a credit score between 760 and 850, which is considered to be very good, received an average interest rate of 6.3%. A person with a credit score between 500 and 579, on the other hand, received a interest rate of 9.9%. This shows the importance of having a high credit score before applying for a home mortgage.
Since having a high credit score is such an important factor when applying for a mortgage, it is a good idea to spend time fixing any areas and maintaining a healthy credit score before applying for a mortgage.
One of the most important steps of maintaining a healthy credit score is taking care of any errors on your credit report, which even though they may simply be a mistake, such as a creditor not reporting a payment. Even though the mistake is not your fault, it still affects your credit score the same, so finding and fixing errors on your credit report is essential.
Paying bills on time is also extremely important to help maintain a healthy credit score and is one of the main factors prospective mortgage lenders consider when considering a mortgage application. If you have missed a payment, always make sure all of your payments are up to date before applying for a mortgage or other type of loan.
It is also important to pay down your credit lines based upon the amount owed and interest rates of the credit line. For instance, it is important to pay down those credit lines with higher interest rates sooner, rather than later, which not only helps your credit score, but also helps you save money.
Today, there are many incentives to purchase a new home, namely historically low interest rates and a surplus in empty homes, which has reduced the overall cost of a new home. Together, these incentives can make it much more affordable to own a new home and it is possible to end up paying much less than you would in rent. The government is also currently offering an incentive for first time home buyers in the form of a tax credit of up to $8,000 towards the purchase price of the home. While this tax credit can be applied to either your 2008 or 2009 tax return, it is probably in your best interest to file an amended 2008 tax return, so the first time home buyers credit can be received sooner rather than later.
The 2009 First Time Home Buyers Tax Credit is part of the American Recovery and Reinvestment Act, which is designed to help stimulate the economy. President Obama signed this bill into law in February and it includes a number of tax incentives for both consumers and corporations. All told, the American Recovery and Reinvestment Act includes $288 Billion in tax relief, which represents about a third of the American Recovery and Reinvestment Act’s budget.
Of the $288 Billion in tax relief, $6.6 Billion has been set aside for first time home buyers. There are several requirements to receive the first time home buyers credit, including that the individual has not owned a home in the last three years and that their income is less than $75,000. For those that meet the requirements up to $8,000 is offered in the form of a tax credit that does not need to be repaid.
Obama’s First Time Homebuyers tax credit can be claimed on either ones 2008 or 2009 tax return, but rather than waiting, it is generally in your best interest to file an amended tax return, so that the funds can be received right away. Filing an amended tax return is very easy and it is only necessary to resubmit a 1040X IRS Form and include a form 5405, which is required as part of the First Time Home Buyers Tax Credit. After the amended tax return has been submitted and received by the IRS, it usually takes between 8 and 12 weeks to process.
By filing an amended tax return, it is possible to get your stimulus check much quicker than if you were to wait until 2009. This means you get the money right away and can reinvest it in your home, simultaneously increasing equity and reducing mortgage rates. It can also be spent on home improvements or to help with bills.
Those that decide to file for the 2009 First Time Homebuyers tax credit return on their 2009 taxes will have to wait much longer to receive their stimulus check. It also could mean that the budget could be expended, which has already happened with the Cash for Clunkers incentive program. However, in order for the first time Homebuyers tax credit’s budget to be expended, 825,000 people would have to submit an application.
While it is possible to file an amended tax return to receive your funds right away, it is also possible to change your number of deductions, so that you pay less, or even nothing, towards your federal taxes in your paychecks. At the end of the year, the First Time Home Buyers Tax Credit will be applied to what you owe to the IRS and the difference will be refunded.