Fair Housing Act and HMDA on the SAFE Exam

Fair lending is one of the most tested themes inside Federal Mortgage-Related Laws, which make up 24% of the national SAFE MLO test. The exam expects you to know two laws that work alongside ECOA: the Fair Housing Act, which bans discrimination in housing and home lending, and the Home Mortgage Disclosure Act (HMDA), which makes lenders report data that regulators and the public use to spot discrimination.

This guide covers what each law does, who enforces it, and how the questions are worded.

The Fair Housing Act in one paragraph

The Fair Housing Act is Title VIII of the Civil Rights Act of 1968. It makes it illegal to discriminate in the sale, rental, or financing of housing, and in other residential real estate-related transactions, because of a protected characteristic. For an MLO, the key phrase is residential real estate-related transactions: making or purchasing loans secured by a dwelling, setting their terms, and appraising residential property are all covered. The Department of Housing and Urban Development (HUD) is the main enforcement agency.

The seven protected classes

The Fair Housing Act protects seven classes. The first four came with the original 1968 law, sex was added in 1974, and the last two were added by the Fair Housing Amendments Act of 1988:

Race
Color
Religion
National origin
Sex
Familial status: children under 18 living with a parent or legal custodian, plus people who are pregnant or securing custody of a child
Disability (the statute uses the older word “handicap”)

Familial status and disability are the two classes that appear in the Fair Housing Act but not in ECOA.

What the Fair Housing Act prohibits in lending

Because of a protected class, a lender or MLO may not:

Refuse to lend or refuse to provide loan information, such as a rate quote or an application.
Impose different terms or conditions, such as a higher interest rate, more points or fees, a larger down payment, or a shorter loan term.
Discourage someone from applying, for example by telling a family with young children they probably would not qualify.
Discriminate in appraising residential property, or in purchasing loans on the secondary market.
Redline: refuse to lend, or offer worse terms, in particular neighborhoods because of the race or national origin of the people who live there.
Steer: guide a borrower toward a particular product, such as a higher-cost loan, or a particular neighborhood because of a protected class rather than the borrower’s qualifications.
Advertise in a discriminatory way: make, print, or publish any notice or ad that indicates a preference, limitation, or discrimination based on a protected class.
Coerce, intimidate, threaten, or retaliate against anyone for exercising fair housing rights or for helping someone else exercise them.

The law also bans blockbusting: trying to get homeowners to sell by telling them that people of a particular race, religion, or other protected class are moving into the neighborhood. Redlining is about where a lender will not lend, steering is about pushing a person toward a product or place, and blockbusting is about scaring owners into selling.

Exam tip: Reverse redlining is the flip side of redlining. Instead of avoiding a minority neighborhood, a lender targets it with predatory, high-cost loans. Both are fair lending violations.

Advertising and the Equal Housing Opportunity logo

Ads may not use words, photos, or placement that suggest a preference based on a protected class. Lenders display the Equal Housing Lender or Equal Housing Opportunity logo or slogan in advertising to show that they lend without discrimination. HUD also requires a fair housing poster in places of business that make residential loans, and failing to display it can be treated as evidence of discrimination if a complaint is investigated.

Enforcement: HUD, the courts, and the deadlines

HUD’s Office of Fair Housing and Equal Opportunity takes and investigates complaints. The Department of Justice can also bring cases, especially when there is a pattern or practice of discrimination. Two deadlines are worth memorizing:

Action	Deadline
File an administrative complaint with HUD	Within 1 year of the alleged discriminatory act
File a private civil lawsuit in federal or state court	Within 2 years of the alleged discriminatory act

A person does not have to file with HUD before suing; the two routes are separate.

Disparate treatment vs. disparate impact

The exam tests the two ways discrimination can be proven:

Disparate treatment means treating an applicant differently because of a protected class. It can be obvious, such as quoting a higher rate because of national origin, or subtle, such as giving some applicants more help than others. It is often shown by comparing how similar applicants were treated.
Disparate impact means a policy that looks neutral and is applied to everyone the same way, but falls more heavily on a protected class and either is not justified by a legitimate business need or that need could be met in a less discriminatory way. A minimum loan amount that screens out most loans in minority neighborhoods is the textbook example. The Supreme Court confirmed in 2015 that disparate impact claims are available under the Fair Housing Act.

Exam tip: If the question says a policy is applied equally to all applicants but has a worse effect on a protected group, the answer is disparate impact. If it says the MLO treated one applicant differently, the answer is disparate treatment.

Fair Housing Act vs. ECOA

The Equal Credit Opportunity Act and Regulation B cover every kind of credit, not just housing: car loans, credit cards, and business credit as well as mortgages. The Fair Housing Act covers housing and residential real estate-related transactions only. A mortgage is covered by both laws at once, so an MLO has to satisfy both lists.

Basis	Fair Housing Act	ECOA
Race, color, religion, national origin, sex	Yes	Yes
Familial status	Yes	No
Disability	Yes	No
Marital status	No	Yes
Age (if old enough to contract)	No	Yes
Income from public assistance	No	Yes
Good-faith exercise of rights under the Consumer Credit Protection Act	No	Yes

That gives the Fair Housing Act seven protected classes and ECOA nine prohibited bases. ECOA also carries its own procedural rules, such as adverse action notices. For the full ECOA rules, read the ECOA and Regulation B guide.

HMDA and Regulation C

The Home Mortgage Disclosure Act of 1975 does not prohibit anything by itself. It is a reporting law. Covered lenders collect and report data about the mortgage applications they receive and the loans they make, and that data becomes public. Since the Dodd-Frank Act, the CFPB writes the rule, Regulation C.

Regulation C states three purposes. HMDA data is meant to:

Help show whether financial institutions are serving the housing needs of their communities
Help public officials distribute public-sector investment to attract private investment where it is needed
Help identify possible discriminatory lending patterns and enforce antidiscrimination laws

Who reports and what goes on the LAR

Covered institutions include banks, savings associations, credit unions, and nondepository mortgage companies that meet the rule’s tests for location, loan volume, and (for depositories) asset size. Each one records its covered applications and loans on a Loan/Application Register (LAR). Entries include the loan type and purpose, amount, property location, the action taken (originated, denied, withdrawn, and so on), pricing information, and demographic information about the applicant.

The LAR for a calendar year is submitted by March 1 of the following year. Regulators use the data in fair lending exams, and the public can view it through the CFPB and FFIEC, with fields that could identify borrowers removed. HMDA is about disclosure and monitoring, not setting loan terms.

Government monitoring information

To make the fair lending data useful, lenders ask applicants for their ethnicity, race, and sex on mortgage applications covered by the rules. On the Uniform Residential Loan Application this is the demographic information section. Key rules:

The lender must ask, but the applicant does not have to answer and may decline. The form explains that the federal government requests the information to monitor compliance with fair lending laws.
The information may not be used in the credit decision.
If the application is taken in person and the applicant declines, the lender notes that the applicant chose not to provide it and records ethnicity, race, and sex on the basis of visual observation or surname.
If the application comes by mail, phone, or online and the applicant declines, the lender simply records that the information was not provided.

Regulation B normally forbids asking about race or national origin; monitoring information is the required exception. For how this section fits into the full application, see The Loan Application (Form 1003) on the SAFE Exam.

HMDA vs. the Community Reinvestment Act

The Community Reinvestment Act (CRA) of 1977 is easy to confuse with HMDA. The difference:

HMDA is a disclosure law. Covered lenders, including nonbank mortgage companies, report data about applications and loans.
CRA is an obligation law for banks and savings associations. It says a federally insured depository institution has a continuing duty to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operations. Bank regulators evaluate and rate that record, and consider it when a bank applies to merge or open branches.

CRA does not apply to independent mortgage companies.

How the exam asks it

Fair lending questions are usually short scenarios. Ask who was treated differently, on what basis, and which law lists that basis.

1. An MLO tells a couple expecting a baby that they should wait until after the birth to apply because “lenders worry about new parents.” Which law does this most directly violate?

Answer: The Fair Housing Act. Discouraging an applicant because of familial status, which includes pregnancy, is prohibited. ECOA does not list familial status.

2. A lender refuses to make any mortgage below $150,000. The rule applies to everyone, but it excludes most homes in several minority neighborhoods and has no strong business justification. This is an example of:

Answer: Disparate impact. A neutral policy with a disproportionate effect on a protected class can be illegal even without intent.

3. A borrower believes she was quoted a higher rate because of her religion. How long does she have to file a complaint with HUD?

Answer: 1 year from the alleged discrimination. She has 2 years to file a private lawsuit.

4. An applicant meeting an MLO in person declines to give his race and ethnicity on the application. What should the MLO do? (A) Stop the application. (B) Require the information before submitting the file. (C) Note that he declined and record the information based on visual observation or surname. (D) Leave the section blank with no notation.

Answer: C. For an in-person application, the lender records the information based on visual observation or surname. The applicant can never be required to provide it.

Common traps to watch for:

Marital status or age in a Fair Housing question. Those are ECOA bases, not Fair Housing Act classes.
Familial status or disability in an ECOA question. Those are Fair Housing Act classes, not ECOA bases.
“HMDA requires lenders to make loans in low-income areas.” False. HMDA is disclosure only; the community lending obligation is the CRA, and it applies to banks.
“The applicant must provide race and sex.” False. The lender must ask, and the applicant may decline.

Quick review

Fair Housing Act = Title VIII of the Civil Rights Act of 1968, enforced by HUD.
Seven classes: race, color, religion, national origin, sex, familial status, disability.
HUD complaint within 1 year; civil suit within 2 years.
Disparate treatment = treated differently; disparate impact = neutral policy, unequal effect.
ECOA covers all credit with nine bases and adds marital status, age, public assistance income, and exercising Consumer Credit Protection Act rights.
HMDA = Regulation C, CFPB; disclosure law; LAR due by March 1.
Monitoring information: ethnicity, race, sex; applicant may decline; in person, record by visual observation or surname.
CRA = banks’ duty to serve their whole community; not the same as HMDA.

Practice this on MLO Pass

Fair lending questions are mostly about matching a scenario to the right list and the right law. A one-time $99 unlock of MLO Pass gives you about 1,154 questions across all five domains: Mortgage Loan Origination Activities 27%, Federal Mortgage-Related Laws 24%, General Mortgage Knowledge 20%, Ethics 18%, and Uniform State Content 11%. Pay once and keep it for life, with no subscription. The real test has 120 questions (115 scored), 190 minutes, and a passing score of 75%. Sign up to pass your test

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