Refinancing your mortgage is a complex financial decision that requires careful consideration. The paperwork and wide range of loan choices can seem daunting, but the good news is that consumer protection "watchdogs" can help prevent problems. Several federal agencies oversee mortgage lending practices:
Federal Housing Finance Agency: FHFA
This agency oversees Fannie Mae and Freddie Mac, which buy or guarantee many mortgage loans. FHFA's " rules help ensure that consumers don't borrow more than they can repay and limit the types of mortgages eligible for transfer to Fannie Mae and Freddie Mac.
U.S. Department of Housing and Urban Development: HUD
The Federal Housing Administration (FHA) is an agency of HUD. FHA loan programs help mortgage lenders provide affordable home financing options with flexible credit requirements. HUD regulations help to protect home buyers and homeowners from problems associated with "exotic" mortgage terms and defective property conditions. HUD requirements for home appraisals and inspections help ensure that homes purchased or refinanced with FHA loans are safe and sound. HUD requires mortgage lenders to provide borrowers with a "good faith estimate" of loan terms and costs within three days of applying for a mortgage or refinance loan.
U.S. Department of Veterans Affairs: VA
The VA's home loan guaranty program provides eligible military servicemembers and veterans a zero down payment program for buying or refinancing homes. VA loan and property requirements are designed to ensure that borrowers are not surprised by loan features or property problems after signing their mortgage or refinance documents. VA programs also provide grants for buying, remodeling or constructing adaptive housing for veterans with qualified service-related disabilities.
Consumer Financial Protection Bureau: CFPB
This federal agency provides financial information in plain language. If you want to learn more about topics such as adjustable rate mortgages or home equity financing, CFPB offers free information that can help with choosing a loan and other decisions.
Truth in Lending Act, Regulation Z Provide Consumer Protection in Loan Transactions
The Federal Reserve developed "Regulation Z" to provide consumers with full disclosure of consumer credit and mortgage terms. Language contained in Regulation Z is similar to that of the Truth in Lending Act of 1968; the two terms may be used interchangeably by lenders. Regulation Z requires lenders to disclose interest rates as an annual percentage rate (APR). This guards against disclosing interest rates over shorter terms such as weekly or monthly. The annual percentage rate disclosure is important as it expresses interest rates and loan fees as an annual percentage of the loan amount.
Another important protection for consumers is the Real Estate Settlement Procedures Act (RESPA). This federal regulation requires mortgage and refinance loan settlement terms to be clear and complete; language in RESPA also prohibits the paying of kickbacks by mortgage lenders to affiliated professionals or entities. According to HUD, the latest version of RESPA requires mortgage lenders to use standardized Good Faith Estimates and HUD-1 settlement forms.
HUD Approved Housing Counseling Agencies and the Federal Trade Commission (FTC) can provide additional information about consumer protection as it relates to mortgage and refinance loans.