What is RESPA
Real Estate Settlement Procedures Act (Reg X) - to ensure that consumers throughout the Nation are provide with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices. It applies to any Federally Regulated Mortgage Loan
Four Purposes of RESPA
- Require effective advance disclosure of costs
- Eliminate kickbacks and referral fees
- Limit amount held in escrow or reserve accounts
- Reform record keeping of land title information
What is Federally Regulated Mortgage Loan?
Secured by a first lien, residential, occupancy 1-4 families and meets the following criteria:
- Has deposits insured by the Federal Government
- Regulated by the Federal Government
- Insured by HUD
- Intends to sell the loan to Fannie Mae, Freddie Mac, or Ginnie Mae
- Makes more than $1,000,000 in loans per year
What settlement services does RESPA affect?
Settlement services that include the following:
Title searches Title examinations Title insurance Attorney services Preparation of documents Surveys Credit reports Appraisals Pest inspections Real estate services Loan origination Processing mortgage Closing or settling mortgages
Servicing Transfer Requirements
- Must be disclosed to the borrower at time of application or within 3 days of applications (regardless if it can be done)
- If the servicing is transferred, notice must be given no less than 15 days before effective date
- Borrower has right to make payment to either lender during 60 days following effective date of transfer without penalties
- Initial servicing disclosure must disclose whether or not the lender intends to transfer servicing of the loan or lender’s history of transferring service
- Must include info for both the old and new lender
What must the notice of servicing transfer include?
- Effective date of transfer
- Toll free or collect number for both the transferring servicer and the new servicer
- Name or department of both companies for contact to answer inquiries
- The date on which the old servicer will cease accepting payment
- Any information regarding mortgage life or disability insurance
- A statement advising the borrower that the terms of their loan will not change
What is the Aggregate Escrow Analysis and what are its requirements?
Purpose is to reduce amount being held in escrow
Services may hold a cushion of tow months taxes insurances, and mortgage insurance
Services may only collect one month’s worth of escrowed items in each payment unless there’s a shortage in the account
All accounts must be analyzed once every 12 months and any overage over $50 refunded to the borrower within 30 days
If the account is short, the servicer has the following options:
- do nothing
- require a lump sum deposit into the account, but only if the shortage/deficiency is less than one month’s worth of deposits
- require the borrower to repay SHORTAGES (based on analysis) over 12 months
- require borrower to repay DEFICIENCIES (negative balances) over a two month period
Penalty for compliance is $65 per occurence up to $120K per year (uninentional); $110 with no limit if intentional
Affiliated Business Arrangements
It allows the referrer of business to recieve compensation through ownership
How does RESPA define an affiliated business arrangement?
- A person in a position to refer business, an associate, has an affiliate relationship with or direct beneficial ownership interest of more than 1% in a provider of settlement services
- Either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection fo that provider
How does RESPA define an associate?
One who has one or more of the following relationships with a person in a position to refer settlement business:
- Spouse, parent, or child
- A corporation or business entity that controls, is controlled, or is under common control with such person
- An employer, officer, director, partner, franchisor, or franchisee of such person
- Anyone who has an agreement, arrangement, or understanding with such person, ther purpose of which is to enable the person in a positon to refer business to benefit financially from the referrals of such business
What is true regarding one affiliate referring to another affiliate?
The referring affiliate must make a written disclosure to the borrower regarding the affiliate relationship at the time of the referral (the new lender must be a legitimate separate entity
What four disclosures must a lender or originator give the customer within 3 days of application?
- Special info pamphlet that explains common mortgage terms and closing costs (only Purchase)
- Good Faith Estimate of the anticipated costs or Loan Estimate
- Mortgage Servicing Disclosure Statement that informs the applicant whether the lender intends to service the loan or xfer the servicing to another lender
- List of 10 HUD approved housing counseling agencies closest to the customer’s current address
What is the only fee that can be collected prior to the delivery of the Loan Estimate
The Credit Report fee
What information is needed from the customer for a lender to send closing costs?
- Name
- Customer’s Income
- SSN
- Property address or zip code (if unknown)
- Estimated Property Value
- Requested loan amount
When can a lender/creditor revise a Loan Estimate?
If changing circumstances:
- Increase closing costs
- Affect property value
- Negatively affects a borrower’s ability to qualify for the loan
- Consumer waits more than 10 biz days to indicate intent to proceed
- Settlement is delayed more than 60 calendar days for a new construction if the original Loan Estimate can be revised for this reason
How many days do lenders have to refund any excessive variance between the GFE and HUD-1?
30 days
How many days do lenders have to refund any excessive variance between the LE and Closing Disclosure?
60 days
When must a borrower receive teh Closing DIsclosure?
3 biz days before consummation (time shares at time of consummation)
RESPA only allows referrals fees for what entities?
Between two real estate companies
