Privacy rights are a significant concern for mortgage professionals who are involved in the solicitation, origination, processing, closing and servicing of mortgage loans. Multiple laws protect the privacy of borrowers, and violation of these laws can result in serious liability. The following pages review the privacy laws that protect borrowers from the time they receive a solicitation for a mortgage loan until their loans are repaid.
The actions that are necessary to maintain compliance with privacy laws are an ongoing concern for mortgage professionals. Distinct privacy issues arise at each stage of a lending transaction, and additional issues arise while servicing a mortgage loan:
- Telephone Solicitation of Consumers: Privacy compliance issues begin when a mortgage professional uses the telephone to solicit business from a consumer. Consumers have protection against unwanted telephone solicitations under the National Do-Not-Call Registry, the Telemarketing Rule, and state Do-Not-Call laws.
- Completion of a Loan Application: Under the Gramm-Leach-Bliley Act (GLB Act), a consumer becomes a customer, earning special protections of his/her personal financial information, when completing an application for a mortgage.
- Processing of a Loan Application: While processing a loan application, lenders and other settlement service providers exchange personal financial information about the loan applicant. The Fair Credit Reporting Act (FCRA) protects the privacy of information that a lender and a consumer-reporting agency exchange. The Gramm-Leach-Bliley Act (GLB Act) and the Safeguards Rule protect any private information exchanged by other settlement service providers.
- Mortgage Settlement: At the time of settlement, a loan is often transferred to a second financial institution for loan servicing. The settlement service providers who no longer have a customer relationship with the borrower must safeguard the privacy of the borrower’s information during the period of time that they are required to retain records related to the transaction. The Safeguards Rule establishes the standards for protecting the privacy of the borrower’s personal information. When record retention periods expire and settlement service providers want to dispose of outdated records, they must protect the privacy of the information shown on the records by adhering to the requirements of the Fair and Accurate Credit Transactions Act’s (FACTA) Disposal Rule.
- Loan Servicing: As long as it accepts mortgage payments and provides statements to the borrower, a loan servicer must comply with the provisions of the Gramm-Leach-Bliley Act (GLB Act). The loan servicer must protect the privacy of personal information and comply with the rules that address the sharing of information with affiliated and non-affiliated parties. The loan servicer will also function as a furnisher of information to consumer reporting agencies. When providing information to consumer reporting agencies on the borrower’s payment history, loan servicers must comply with the provisions of the Fair Credit Reporting Act (FCRA).
- Loan Repayment: When a borrower completes payment of a loan and record retention periods expire, the loan servicer must dispose of information in compliance with the Fair and Accurate Credit Transactions Act’s (FACTA) Disposal Rule.
The following material is presented in four sections, with each section addressing the privacy issues that arise at the different stages marked by:
- The solicitation
- Completion and processing of loan applications
- Settlement and servicing of a mortgage loan
- Repayment of a mortgage loan