One of the important aspects of an FHA insured loan is a zealous commitment to fairness in lending. The FHA has strict requirements for its lenders when it comes to best practices, and in addition to the laws passed by the federal government to insure fairness in lending, the FHA works with the HUD Office of Fair Housing and Equal Opportunity to investigate complaints about unfair or discriminatory lending practices.
But for the first time home buyer, there may be a bit of learning needed to understand the basic home buyer’s rights. What does the FHA guarantee when it talks about fair lending and housing practices?
For starters, FHA loan applicants are protected by the The Fair Housing Act, which makes it unlawful to deny equal opportunity to apply for a loan or purchase a home based on race, color, national origin, religion, sex, familial status or disability. The FHA actively investigates complaints of such discrimination. According to the FHA official site, it is unlawful for lenders or any other interested party to:
- Refuse to make a mortgage loan
- Refuse to provide information regarding loans
- Impose different terms or conditions on a loan, such as different interest rates, points, or fees
- Discriminate in appraising property
- Refuse to purchase a loan or set different terms or conditions for purchasing a loan
…based on race, national origin or any of the other qualifiers listed previously. But discriminatory practices aren’t the only things an FHA mortgage loan seeker is protected against.
The FHA and HUD also want buyers to know about the protections available to consumers against predatory lending. Predatory loans are, in the words of the FHA, “in excess of those available to similarly situated borrowers from other lenders elsewhere in the lending market,” or the loans are “not justified by the creditworthiness of the borrower or the risk of loss.”
Predatory loan practices are just as illegal as refusal to issue loans based on discrimination. But predatory loan practices may be harder to spot, which is why the FHA recommends borrowers applying for FHA home loans contact the FHA directly when they don’t understand aspects of the loan process or feel they aren’t being told everything they need to know.
HUD conducts fair lending studies and encourages buyers to contact the FHA when they have issues or questions. According to the FHA, “If potential home buyers cannot obtain full and fair access to information about mortgage financing, they may give up on their pursuit of home ownership, their housing search may be restricted, or they may be unable to negotiate the most favorable loan terms.”