Which federal law provides the definition of a nontraditional loan?

The federal law that provides the definition of a nontraditional loan is the SAFE Act. The SAFE Act, which stands for the Secure and Fair Enforcement for Mortgage Licensing Act, was designed to enhance consumer protection and reduce fraud by establishing licensing requirements for mortgage loan originators. A key aspect of the act is its focus on nontraditional mortgage products, which are loans that do not fall within conventional lending standards. These include adjustable-rate mortgages, interest-only loans, and loans with less conventional underwriting criteria. By defining what constitutes a nontraditional loan, the SAFE Act aims to help regulators and lenders better understand these products, ensuring that borrowers are appropriately educated about the risks associated with them.

In contrast, other laws mentioned, such as the Equal Credit Opportunity Act, focus primarily on prohibiting discrimination in lending practices; the Truth in Lending Act emphasizes disclosure and consumer rights related to the terms of loans; and the Veterans' Housing Act provides benefits and protections specifically for veterans obtaining housing loans. While each of these acts plays a critical role in the mortgage industry, they do not specifically define nontraditional loans.