Real Estate Basics-Equal Credit Opportunity Act

Posted by admin on June 27, 2010 under Real Estate License Basics | Be the First to Comment

Understanding the legislation associated with loans and lending is crucial to succeeding with your real estate license. In the light of the mortgage industry crisis it is more important than ever to know what makes a potential buyer creditworthy. Real estate courses will review in many laws associated with lending. In this installment of Real Estate Basics we will concentrate on the Equal Credit Opportunity Act.

The Equal Credit Opportunity Act is federal legislation established in 1974 designed to ensure that financial institutions extend credit fairly and without discrimination. This legislation is enforced by the Federal Trade Commission and dictates that no one can be denied credit on the basis of their race, religion, color, nationality, sex, marital status, age or income received from public assistance programs like Social Security.

The Equal Credit Opportunity Act also enforces the Consumer Credit Protection Act which states that any consumer denied credit has the right to know the reason the creditor has denied them credit. This act is applicable to any person or institution that extends or arranges for the extension of credit regularly. If you have your real estate license and assist in facilitating financing for your clients by determining their creditworthiness, you are considered a “creditor”.

Lenders are required to extend credit based upon a consumer’s income, job stability, net worth and overall credit rating. According to the terms of the Equal Credit Opportunity Act, lenders are prohibited from many practices as they relate to loan underwriting. A lender may not disregard any verifiable income that is from sources like part-time employment, child support or separate maintenance if the applicant has asked to include it. The loan officer is not permitted to ask if any income they receive is from any of these sources.

If a spouse’s income is not to be included on the loan application the lender may not request that the spouse sign any document for the loan. Additionally a lender is not permitted to ask any questions regarding age, sex, religion, race or nationality, except as the law requires. It is also prohibited for a loan officer to make assumptions of income reduction due to pregnancy or raising children interfering with employment. Asking questions about an applicant’s plans for having children or use of birth control is illegal.

The Equal Credit Opportunity Act states that if a loan request is denied, or if a loan with different terms is being offered to the applicant, the lender must notify the applicant in writing with the specific reasons for the denial of credit.

Success in a post housing crisis real estate career will require a greater understanding of credit and lending practices. All real estate training at accredited real estate schools will include sections on the Equal Credit Opportunity Act and other legislation associated with lending. A solid understanding of lending basics can only make you more successful with your real estate license.