Federal law and Michigan state law provide a framework of protections for mortgage borrowers. These protections don't eliminate predatory lending, but they create legal remedies, disclosure requirements, and regulatory oversight that informed borrowers can use to their advantage. Understanding the legal landscape is part of being an informed borrower - and knowing which laws apply to your situation is the first step in using them.
Truth in Lending Act (TILA)
TILA requires lenders to disclose the Annual Percentage Rate (APR), the total amount financed, the total of payments, and the finance charge on any loan. These disclosures must be provided before the loan closes and must be presented in a standardized format that allows comparison across lenders. The purpose of the standardized disclosure is to give borrowers real information before they're committed - not just a rate quote that obscures fees.
TILA applies to most residential mortgage loans. What it specifically requires is that borrowers receive a complete set of disclosures before closing, and that those disclosures accurately reflect the actual terms of the loan. When the disclosures are wrong - when the APR disclosed before closing differs materially from the APR in the final documents - that's a TILA violation. Material violations give borrowers the right to rescind a loan within three days of closing, or in the most serious cases, up to three years.
The three-day rescission right applies to refinances of a borrower's primary residence. It does not apply to purchase money mortgages or to investment property. But when it applies and a borrower exercises it properly, the lender must return all money paid and release the lien on the property within 20 days.
Real Estate Settlement Procedures Act (RESPA)
RESPA governs the settlement process for residential mortgage loans. It has two practical functions: disclosure and kickback prohibition. On the disclosure side, RESPA requires a Loan Estimate within three business days of a complete application and a Closing Disclosure at least three business days before closing. Both documents use standardized formats designed to make costs transparent and comparable.
The fee tolerances under RESPA matter. Certain fees on the Loan Estimate cannot increase at all between the Estimate and the Closing Disclosure - lender charges, for example. Others can only increase by up to 10% (transfer taxes, third-party services where the lender provides the borrower a list of acceptable providers). And others can increase without limit (prepaid interest, homeowner's insurance). If a fee that should have been locked increased at closing without justification, that's a RESPA violation the lender must cure.
RESPA's kickback prohibition is equally important. Section 8 of RESPA prohibits any payment, fee, kickback, or thing of value between settlement service providers in exchange for referrals. A lender directing borrowers to a specific title company and receiving a fee in return violates RESPA. A title company giving a real estate agent "marketing support" in exchange for referrals violates RESPA. Violations of Section 8 carry civil and criminal exposure - fines up to $10,000 and up to one year in prison per violation, plus private rights of action for three times the amount paid in violation.
Home Ownership and Equity Protection Act (HOEPA)
HOEPA was enacted in 1994 as an amendment to TILA. Its purpose is to impose additional protections on high-cost mortgage loans - the category of loans most likely to harm borrowers. HOEPA was expanded significantly by the Dodd-Frank Act in 2010, and the CFPB implemented updated HOEPA rules in 2013.
A loan qualifies as a HOEPA high-cost mortgage when it meets any one of three threshold tests. The APR test triggers HOEPA when the APR on a first mortgage exceeds the Average Prime Offer Rate (APOR) by more than 6.5 percentage points. For subordinate liens (second mortgages, HELOCs), the threshold is APOR plus 8.5 percentage points. The points and fees test triggers HOEPA when total points and fees exceed 5% of the total loan amount, or $1,099 (indexed annually) for loans under $21,980. The prepayment penalty test triggers HOEPA for loans with prepayment penalties exceeding certain limits or extending beyond 36 months.
When a loan is classified as a HOEPA high-cost mortgage, it triggers mandatory pre-loan counseling from a HUD-approved housing counselor, prohibition on balloon payments in most cases, prohibition on negative amortization, prohibition on prepayment penalties, limits on fees charged for loan modifications, and additional disclosure requirements. Lenders who make high-cost loans without complying with these requirements face civil liability to borrowers including the right to rescind the loan and recover damages.
The CFPB's Ability-to-Repay Rule
The CFPB's Ability-to-Repay (ATR) rule, implemented in 2014, requires mortgage lenders to make a reasonable determination that a borrower can repay the loan before making it. This rule was a direct response to the pre-2008 practice of making loans without verifying income or assets. Under the ATR rule, lenders must verify eight specific underwriting factors including income, assets, employment status, credit history, monthly payment, debt obligations, debt-to-income ratio, and monthly residual income after the loan payment.
A Qualified Mortgage (QM) provides a safe harbor or rebuttable presumption that the lender met its ATR obligations. QM loans must meet specific criteria including a points and fees limit, prohibition on certain risky loan features, and an income verification requirement. Non-QM loans don't automatically violate ATR, but the lender must independently document and verify that it made a reasonable ATR determination. Loans made without adequate ability-to-repay analysis expose lenders to civil liability from borrowers who default.
Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act
Michigan requires licensing for mortgage brokers, lenders, and servicers under MCL 445.1651 et seq. DIFS oversees compliance. Unlicensed activity is itself a violation and can result in loans being voided in some circumstances. Licensees must meet net worth, bonding, and continuing education requirements. The Act prohibits misrepresentation, fraud, failure to make required disclosures, and a range of unfair and deceptive practices specific to mortgage transactions. Violations are subject to civil money penalties and license action, and may support private litigation by harmed borrowers.
Michigan Consumer Protection Act (MCPA)
The MCPA prohibits unfair, unconscionable, and deceptive trade practices. Predatory lending conduct that falls within MCPA coverage can give borrowers state court remedies. Actual damages and attorney fees are available, and treble damages may be awarded in some circumstances. Michigan courts have applied the MCPA to mortgage lending practices including misrepresentation of loan terms, bait-and-switch on interest rates, and undisclosed fee arrangements.
How to Use These Laws in Practice
Knowing these laws exist is useful. Knowing how to apply them is more so. If you believe you were harmed by a predatory lender, the practical path looks like this:
First, collect all of your loan documents and organize them chronologically. You're looking for discrepancies - between what you were promised verbally, what was disclosed in writing before closing, and what appeared in the final signed documents. Discrepancies in rates, fees, terms, or loan features are the raw material of regulatory complaints and legal claims.
Second, identify which laws were potentially violated. TILA and RESPA violations typically show up in disclosure timing and content. HOEPA violations show up when the loan's rate and fees were never tested against the thresholds. ATR violations show up when the lender didn't actually verify your ability to repay before approving the loan.
Third, file regulatory complaints. The CFPB, Michigan DIFS, and the Michigan Attorney General all accept complaints and can investigate. Regulatory complaints don't get you money directly, but they create a record and can lead to enforcement actions that benefit borrowers as a class.
Fourth, if you have direct financial harm - you paid fees you shouldn't have, you're in a loan you couldn't qualify for under proper underwriting, or you lost property as a result of predatory conduct - consult a consumer protection or real estate attorney. Federal and Michigan law both provide private rights of action with fee-shifting provisions, meaning that if you win, the lender may have to pay your attorney fees.
Coventry Enterprises provides loan education and review. Related: borrower rights and Michigan lending regulations.