Real Estate Settlement Procedures Act (RESPA) - Chapter 5

Question 1

Regulation X (CFPB)

Answer 1

The Real Estate Settlement Procedures Act (RESPA, Regulation X) is the federal law that governs the oversight of costs associated with the mortgage and the entire real estate transaction.

Question 2

RESPA Governs

Answer 2

RESPA governs all federally-regulated mortgage loans that are secured by residential property. To be secured by residential property simply means that the loan (mortgage) provided by the lender is given (secured) in exchange for the borrower’s collateral, which is the home (residential property).

Question 3

RESPA Does Not Govern

Answer 3

• Loans on residential property of more than 25 acres
• Properties with a business purpose
• Temporary loans, such as construction loans and bridge loans
• Modified loans
• Sale of the loan in the secondary market

Question 4

RESPA’s purpose

Answer 4

To ensure that consumers can make informed decisions about real estate transactions by understanding the costs for settlement. The law prohibits illegal practices such as referral fees or kickbacks paid or provided by real estate settlement service providers. As we already discussed, RESPA governs mortgages on residential property.

Question 5

Real estate settlement

Answer 5

The process in which all of the parties involved agree to the terms of the transaction and sign the documents needed to demonstrate their agreement. This process is also known as closing.

Question 6

What is a settlement service?

Answer 6

A settlement service is any service needed or provided in order to carry the transaction to the closing table. These services include:
• Servicing: Collecting the payment from the borrower
• Appraisal: Determine the property’s value
• Title Work (including title insurance): Clarifies and protects the property’s ownership rights.
• Legal Services
• Document Preparation: There hasn’t been a mortgage transaction yet that didn’t kill a few trees. There’s a lot of paperwork and somebody has to put it all together.
• Credit Reporting: Credit reports come from companies like TransUnion, Experian, and Equifax.
• Property Surveys and Inspections: Depending on the transaction, property lines may need to be determined and inspections might be needed.
• Real Estate Services and Brokerage: If it’s a purchase transaction, there could be a real estate agent involved, and they don’t get paid until the paperwork is signed and filed.
• Loan Origination (includes processing, underwriting and funding): This is where you fit in. What? You thought we’d forget you?
• Closing or Settling the Transaction: Nothing is free, including signing the paperwork. This covers the cost of the closing agent and associated fees.

Question 7

RESPA, Section 6

Answer 7

Servicing:
Section 6 of RESPA requires servicers to set specific policies and procedures within their organization in order to meet certain RESPA-required objectives. Servicing is the process of collecting payments from the borrower and disbursing them to the loan owner(s) and proper escrower authorities.

Question 8

Section 6 - Objective 1

Answer 8

Provide timely and accurate information in relation to an information request, complaint, foreclosure process, or death of a borrower. Ensure that borrowers are well informed about procedures for submitting error notices and requests for information.

Question 9

Section 6 - Objective 2

Answer 9

Properly oversee and ensure compliance of all employees with relation to procedures and laws. Certain procedures must be followed with relation to a borrower’s escrow account and/or hazard insurance policy.

Question 10

Section 6 - Objective 3

Answer 10

Properly process and evaluate loss mitigation applications. Follow proper regulations with regard to the pre- foreclosure process.

Question 11

Section 6 - Objective 4

Answer 11

Ensure that necessary information about probable or actual transfer of servicing are disclosed, and ensure that all documentation is transferred during actual servicing transfer situations.

Question 12

RESPA, Section 8

Answer 12

Referrals:
Deals with prohibitions on referrals and kickbacks. In most circumstances, the payment or provision of a thing of value in exchange for a referral is outlawed under RESPA.

Referral fees to lisenced MLOs within the same company is permissable. MLOs at different companies may not pay referral fees to each other.

Section 8 also requires that an MLO disclose to their client if they are referring them to a company with whom the MLO is affiliated. Affiliated means they own 1% or more of the other business. If a company is an affiliated business, we must tell the borrower about the relationship if we refer them.

Question 13

RESPA, Section 9

Answer 13

Title Agent:

The borrower has the right to choose their own title agent.

Question 14

RESPA, Section 10

Answer 14

Escrow:
(Think ONE - OH, ES-CROW!) of RESPA is focused on protection for consumers with escrow accounts. As with most consumer protection laws, RESPA’s Section 10 requires that borrowers be informed about their escrow account.

Section 10 allows the servicer to collect a maximum of one-sixth (or 2 months) of the borrower’s annual tax and insurance payment. An overage is allowed as a cushion in case the tax or insurance bill fluctuates higher than expected. At the time of the annual escrow analysis, if a surplus of $50 or higher is discovered, the complete overage must be returned to the borrower within 30 days of the analysis.

Question 15

Three Types of Disclosures Required Under RESPA

Answer 15

Basic, written, and form.

Question 16

Basic Disclosure

Answer 16

The basic disclosure means that the law compels (requires) the MLO to disclose to the borrower certain things like, “you should keep all of the documents you receive for this transaction”. Basic disclosures are not limited by how they must be provided to the borrower, but most MLOs provide them in written form to ensure the borrower can keep a copy.

Question 17

Written Disclosure

Answer 17

Must be provided in writing

Question 18

Form Disclosure

Answer 18

Form disclosures are disclosures that must be provided to the borrower on a specific type of form. For example, The Loan Estimate and Closing Disclosure are two forms that must be used when a borrower is in process for a closed- end mortgage.

Question 19

Required RESPA Disclosures For Most Loan Transactions:

Answer 19

• Mortgage Servicing Disclosure Statement (MSDS)
• Notice of Transfer Statement (NTS)
• Affiliated Business Arrangement Disclosure (ABA or AfBA)
• Initial & Annual Escrow Statement
• Homeownership Counseling Organizations List

Question 20

MORTGAGE SERVICING DISCLOSURE STATEMENT (MSDS)

Answer 20

Required under Section 6: Servicing:
Must be delivered to the consumer AT APPLICATION or within 3 days (excluding legal public holidays, Saturdays and Sundays) on first lien mortgages
Informs the borrower that their loan may be assigned to another company for servicing Includes:
• Likelihood of the loan’s servicing rights being sold
• Explains the borrower’s rights for complaint resolution
• Applicant acknowledgment signature line

Question 21

NOTICE OF TRANSFER STATEMENT (NTS)

Answer 21

Required under Section 6: Servicing:
Must be delivered to the borrower 15 days prior to the transfer of servicing AND 15 days after the servicing is transferred
Informs the borrower that their loan is being placed with a new servicer Includes:
• Contact information for current servicer
• Contact information and payment address information for new servicer
• Provision that during the 60-day period following the transfer, a late fee cannot be charged to the borrower for payments sent to the previous servicer

Question 22

AFFILIATED BUSINESS ARRANGEMENT DISCLOSURE (ABA, AfBA)

Answer 22

Required under Section 8: Referrals:
• Must be delivered to the consumer at the TIME OF REFERRAL if the originator is affilliated with the service provider
• Informs the consumer of the business arrangement between the two parties Includes:
• Description of the business arrangement as well as ownership interest
• An estimate of costs
• Statement that the consumer is not required to use the affiliate for the service and may instead choose their own provider

Question 23

INITIAL AND ANNUAL ESCROW STATEMENTS

Answer 23

Required under Section 10: Escrow:
Initial Escrow Statement:
• Due AT CLOSING or within 45 calendar days of establishment of escrow account
• Explains the amount needed for escrow and breaks down each payment Annual Escrow Statement:
• Due within 30 days of analysis
• Determines any overages or shortages

Question 24

HOMEOWNERSHIP COUNSELING ORGANIZATIONS LIST

Answer 24

Required under the general rules of RESPA:
• Must be delivered to the consumer AT APPLICATION (or within 3 business days if mailed)
• Informs the borrower of local counseling organizations
• The lender is ultimately responsible for ensuring that the consumer receives the list
• Reverse mortgages and timeshares are exempt from receiving the list
• Must have at least 10 organizations listed within the vicinity of the subject property

Question 25

GOOD FAITH ESTIMATE (GFE)

Answer 25

This disclosure is for HELOC & Reverse Mortgages Only, Required under the general rules of RESPA:
• Must be delivered to the consumer AT APPLICATION (or within 3 business days if mailed)
• Informs the consumer of expected costs of the complete transaction and is good for 10 business days

Question 26

HUD-1 SETTLEMENT STATEMENT (HUD-1)

Answer 26

This disclosure is for HELOC & Reverse Mortgages Only, Required under the general rules of RESPA:
• Must be delivered to the borrower AT CLOSING (or 1 day prior if requested)
• Informs the borrower of the final costs for the entire transaction

Question 27

RESPA Penalties

Answer 27

Section 6: Servicing
• Damages not to exceed $1,000
• Class Actions: Penalties up to $1,000 for each member, total damages not to exceed
$500,000, or 1% of net worth, whichever is less
Section 8: Referrals
• Fines up to $10,000 and up to 1 year in prison
Section 9: Title Agent
• Borrower can sue for up to 3x amount charged for title insurance
Section 10: Escrows
• Failure to provide an Annual Escrow Statement = $75 per violation ($130,000 annual limit)
• Intentional violations = $110 per violation (no limit)

Question 28

RESPA Record Keeping

Answer 28

According to RESPA, The Good Faith Estimate (GFE) must be kept for 3 years from the date of settlement.

The following disclosures must be retained for 5 years from settlement:
• The HUD-1 Settlement Disclosure
• The Affiliated Business Arrangement Disclosure (ABA or AfBA)
• Mortgage Servicing Disclosure Statement (MSDS)