RESPA Flashcards
What is RESPA applicable to?
All federally related mortgage loans
What is a federally related mortgage loan?
Two categories to be satisfied (category 2 has 5 sub categories)
additional 3 loans that apply outside of the two categories
Loans (non temp), including refinancings that satisfy the following two criteria:
-Loan is secured by first or sub lien on residential real property, located within a state (1-4 families, construction to perm, construction only with term of 2+ yrs, condos, cooperatives, manufactured homes)
- Loan falls into one of the following:
-made by lender, creditor, or dealer
-insured by fed agency
-made in connection with HUD program
-intended to be sold to FNMA, GNMA, or FHLMC
-subject of a home equity conversion or reverse mortgage issued by a lender or creditor
Federally related mortgage loans also include:
- installment sales contracts
- land contracts
- contracts for deeds on otherwise qualifying residential property
What transactions are exempt from RESPA? (7)
- loan primarily for business, commercial, or agriculture
- temp loan (construction only loan of 2 yrs or less, or more but made to a contractor)
- Bridge/ swing loans
- loan secured by vacant or unimproved property, where no proceeds will be used to construct a 1-4 fam, locate a manufactured home or construct a structure within 2 yrs from settlement
- assumption that does not require lender approval
- conversion of loan to different terms which are consistent with provisions of original mortgage, as long as new note is not required
- bona fide transfer of a loan to secondary market (mortgage servicing requirements still apply)
What disclosures do open-end reverse mortgages receive?
Open-end disclosures rather than GFEs or HUD-1s
Most closed end mortgages are exempt from the requirement to provide what disclosures?
Why?
GFE, HUD-1 settlement statement, and application servicing disclosures.
Instead these loans are subject to disclosure, timing, and other requirements under TRID.
What types of loans are partially exempt from RESPA disclosures? (2)
- Mortgage loans subject to TRID
- no interest loans secured by subordinate liens made for the purpose of down payment or similar home buyer assistance, property rehabilitation, energy efficiency, or foreclosure avoidance.
What loan types use the TRID Disclosures? (3)
- most closed end mortgage loans
- construction only loans
- Loans secured by vacant land or by 25 or more acres
What loan types use the existing TIL, RESPA disclosures (HUD-1, GFE)? (3)
- HELOCs (TILA disclosures)
- Reverse mortgages (TILA and GFE disclosures)
- Chattel-secured mortgages (TILA disclosures not RESPA)
When is the Special information booklet required to be provided?
For mortgage loans not subject to TRID:
- at the time a written application is submitted, or
- no later than 3 business days after the application is received
The Special Information Booklet may also be required under 12 CFR 1026.19(g) for those closed-end mortgage loans subject to the TILA-RESPA Integrated Disclosure Rule. A discussion of those requirements is located in the Regulation Z examination procedures
For what loan types does the Special information booklet not need to be provided? (4)
- refinancing transactions
- closed-end subordinate lien mortgage loans
- reverse mortgage transactions
- federally related mortgage loan not intended for the purchase of 1-4 fam
What loan types are required to receive a good faith estimate?
Closed-end reverse mortgages
When is the GFE required to be provided to customers?
Within 3 business days of receipt of an application.
The LO is not required to provide it if within the 3 days the application is denied or withdrawn.
What 6 pieces of information are needed from a borrower to be considered an application?
- Name
- Gross monthly income
- SSN for credit report
- Property address
- Estimate of property value
- Mortgage loan amount sought
Can a LO require, as a condition of providing the GFE, that the borrower provide supplemental documentation to verify the information provided by the borrower on the application?
No, however, the LO is not prohibited from using its own sources to verify information or requesting information beyond the 6 pieces required for an application.
Additionally, supporting documentation can be requested for verification after the GFE has been issued in order to complete final underwriting.
Can an LO charge a borrower a fee to obtain a GFE?
No, unless the fee is limited to the cost of the credit report.
True or false: A GFE is required for a open-end line of credit.
False, the GFE is not required for open-end lines of credit. Disclosures for this loan type are required under TILA.
True or false: Regulation X establishes a minimum period of availability for which an interest rate must be honored.
False, the loan originator must determine the expiration date for the interest rate of the loan stated on the GFE.
Does RESPA require that the estimated settlement charges and loan terms listed on the GFE be honored by the loan originator?
Yes, they must be honored for at least 10 business days from the date the GFE was provided.
Where must the interest rate expiration date and period of availability be listed on the GFE?
In the important dates section of the form.
What is required to be included as part of the Origination Charge Note in Block 1 of Block A on the GFE?
Disclosure of all charges that the LOs involved in the transaction will receive for originating the loan (excluding charges for points).
Lender processing and underwriting fees, any fees to the mortgage broker.
What is the tolerance of the Origination Charge Note in Block 1 of Block A of the GFE?
Zero Tolerance, this amount cannot change in settlement.
What is the definition of a mortgage broker under RESPA?
Person or entity (not an employee of lender) that renders origination services and serves as an intermediary between a lender and a borrower in a transaction involving a federally related mortgage loan, including such person or entity that closes the loan in its own name and table funds the transaction.
For a transaction on a reverse mortgage involving a mortgage broker, what is required to be disclosed in Block 2 of Block A of the GFE?
Disclosure of a “credit” or charge (points) for the rate chosen. This is the same as the net payment to the mortgage broker (sum of all payments base on loan amount, flat rate/compensation, and in a table funded transaction the loan amount less the price paid for the loan by the lender)
Is it a credit or a charge on the GFE when the net payment to the mortgage broker from the lender is positive?
Credit to the borrower and it is disclosed as a negative amount.
For example, if the lender pays a yield spread premium to a mortgage broker for the loan set forth in the GFE, the payment must be disclosed as a “credit” to the borrower for the particular interest rate listed on the GFE (reflected on the GFE at Block 2, checkbox 2).
Are points paid by the borrower for the interest rate chosen considered a credit or charge on the GFE?
Charge
GFE at Block 2 third checkbox
Can a loan include both a charge (points) and a credit (yield spread premium)?
No
Are loan originators required to include information about alternative loan options in the trade off table on page 3 of the GFE?
No, this can be provided at the LOs option.
There is also a shopping cart on page three that allows the consumer to fill in loan terms and settlement charges from other lenders or brokers to compare loans.
What can a LO do if the settlement charges exceed the charges listed on the GFE by more than the permitted tolerances?
They may cure the tolerance violation by reimbursing the borrower the amount by which the tolerance was exceeded, at settlement or within 30 calendar days after settlement.
What fees from the GFE fall into the zero tolerance category? (4)
- LO origination charges, including processing and underwriting fees
- credit or charge to interest rate chosen (yield spread/points) while rate is locked
- adjusted origination charge while the rate is locked
- state/local property transfer taxes.
What fees from the GFE fall into the 10% tolerance category? (3)
(for this category of fees, while each fee my increase or decrease, the sum of the charges at settlement may not be greater than 10% above the sum of the amounts included on the GFE)
- LO required settlement services (LO selects third party settlement provider)
- LO required services, title services, required title insurance and owner’s title insurance when the borrower selects a third party provider identified by the LO
- Govt recording charges
What fees from the GFE fall into the No tolerance category (5)?
(these are not subject to any tolerance restriction, they can change without any limitation)
- LO required services where the borrower selects their own provider
- Title services, lenders title insurance, owners title insurance when borrower selects their own provider
- Initial escrow deposit
- Daily interest charges
- Homeowner’s insurance
The Lender is bound to the terms outlined in the GFE (tolerances provided) unless what?
Unless a new GFE is provided prior to settlement typically due to changed circumstances
What are the 4 “changed circumstances” under RESPA, which allow the lender to provide a new GFE?
- acts of god, war, disaster, or other emergency
- information particular to the borrower or transaction that was relied on in providing the GFE that is found to be inaccurate after the GFE has been provided
- new info particular to the borrower or transaction that was not relied on in providing the GFE
- Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.
What does changed circumstances not include?
Changed circumstances do not include the borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided.
In addition, market price fluctuations by themselves do not constitute changed circumstances
What are changed circumstances affecting settlement costs?
circumstances that resulted in increased costs for settlement services such that the charges at settlement would exceed the tolerances
What are changed circumstances affecting the loan?
circumstances that affect the borrower’s eligibility for the loan.
What should be done if the underwriting verification indicates the borrower is ineligible for the loan provided in the GFE?
The LO is no longer bound to the original GFE. If a new GFE will be provided it must be done within 3 business days of receiving the new info and must document the reason the new GFE was provided.
Can information collected prior to issuing the GFE later become the basis for a “changed circumstance”?
Not unless it can demonstrate:
- there was a change in the particular info
- info was inaccurate
- that the LO did not rely on that particular info in issuing the GFE.
The LO must document the reasons for issuing the revised GFE, such as non-reliance on such info or the inaccuracy of such info.
Can the origination charge on the GFE (Block 1 pg2) change due to an expired interest rate lock, or a rate that has not been locked?
What about any other interest rate dependent charges?
No, this would only change if there is a changed circumstance or borrower requested change.
However, if the interest rate is locked or changes then all interest rate dependent charges are subject to change. The LO would need to provide a new GFE showing the revised interest rate dependent charges and terms. All other charges and terms must remain the same as on the original GFE (unless changed circumstances or borrower request result in increased cost for settlement services or change the borrowers eligibility)
What special circumstances apply when providing a revised GFE on new home purchases?
For new home purchases, where settlement is expected to occur more than 60 calendar days from the time the GFE was provided, the LO may disclose on the GFE that any time up to 60 calendar days prior to closing the LO may issue a revised GFE.
If the LO does not provide such a disclosure they cannot issue a revised GFE except as otherwise provided by RESPA.
Are volume based discounts a violation of RESPA section 8?
Discounts negotiated between LOs and other settlement service providers, where the discount is ultimately passed on to the borrower in full, is NOT, depending on the circumstances of a particular transaction, a VIOLATION.
What is a HUD-1?
What is the HUD-1A?
For closed-end reverse mortgages, the document that the settlement agent must provide to the borrower at or before settlement. This doc itemizes all charges imposed on the buyer and seller in connection with the settlement. This is used for transactions where there is a buyer and seller.
HUD-1A can be used for transactions with no seller (sub liens, refinance). In these situations a HUD-1 may be completed by using the borrower’s side of the settlement statement or using the HUD-1A
Are HUD-1 (settlement statements) required for home equity plans?
No, subject to TRID instead.
When reimbursing a consumer for settlement charges over tolerance, when should a creditor provide the reimbursement by?
A borrower will be deemed to have received timely reimbursement if the financial institution delivers or places the payment in the mail within 30 calendar days after settlement.
Are inadvertent or technical errors on a settlement statement considered a violation of RESPA?
Yes, unless a Revised HUD-1/1A is provided to the borrower within 30 calendar days after settlement.
True or false:
The LO must provide the information included in the “loan terms” section of the HUD-1 form to the settlement agent in a format that permits the agent to enter the info in the appropriate spaces without having to refer to the loan documents.
True
Are creditors permitted to list an average charge for a settlement service on the HUD-1 or GFE?
Yes, they are permitted to use an average rather than the exact cost for service as long as the charge is computed according to 1024.8(b)(2).
Also this is only permitted for third party vendor charges, not so for the provider’s own internal charges.
Cannot be used where the charge is based on the loan amount or value of the property.
When does a one-day advance inspection of the settlement statement apply?
For closed end reverse mortgages and upon request by the borrower, the doc must be completed and available for inspection during the business day immediately proceeding the day of settlement.
Who should receive the HUD-1? (4)
- borrower
- seller (if applicable)
- lender(if not settlement agent)
- settlement agents
Can a creditor charge a fee for preparing the settlement statement, escrow statement, or other TILA disclosure?
NO
What is prohibited under RESPA section 8? (2)
Violations: Kickbacks and Unearned fees
- any person who gives or accepts a fee, kickback, or thing of value (payments, commissions, gifts, special privileges) for the referral of settlement business
- any person who gives or accepts any portion, split or % of a charge for RE settlement services other than services actually performed.
Is it a violation of RESPA section 8 if a single party charges and retains a settlement service fee, and that fee is unearned or excessive?
No this is not a violation
What are the penalties and liabilities for violating RESPA section 8? (3)
- Civil liability equal to 3x the amount of any charge paid for such settlement service
- possibility of paying attorney fees and costs
- Fine not more than $10,000 or imprisonment for not more than 1 year or both.
What is an affiliated business arrangement?
If an LO or associate has either an affiliate relationship or a direct or beneficial ownership interest of more than 1% in a provider of settlement services and the LO directly or indirectly refers business to the provider
Are affiliated business relationships a violation of RESPA section 8?
No as long as the person making the referral has provided each person whose business is referred an Affiliated Business Arrangement Disclosure (Appendix D).
What must be disclosed on an Affiliated Business Arrangement Disclosure? (2)
- Nature of the relationship (expl ownership and financial interest) between the provider and the LO
- Estimated charge or range of charges generally made by such provider.
When is the Affiliated Business Arrangement Disclosure required to be provided?
At the time of Loan application, with the GFE, or at the time of referral.
Can a LO require the use of an affiliated provider?
No, however there are some exceptions including attorney, credit reporting agency, and appraiser.
True or false: Sellers can require borrowers use a particular title insurance company as a condition of selling the property.
False, This is prohibited.
What amount of escrow funds can be collected at settlement or upon creation of an escrow account?
The amount is restricted to only what is sufficient to pay taxes and insurance from the date of the last payment until the initial payment date
What can a servicer charge a borrower monthly for escrow?
A monthly sum equal to 1/12 of the total annual escrow payments the servicer reasonably anticipates paying from the account.
The servicer may add an amount to maintain a cushion no greater than 1/6 of the estimated total annual payments from the account.
What must a confirmed successor in interest be treated as?
A borrower
Before establishing an escrow account a servicer must do what?
Conduct and analysis to determine the periodic payments and the amount to be deposited in the account.
What must be provided to a customer if a transfer in servicing occurs and the new servicer changes the monthly payment or the accounting method used by the old servicer?
The new servicer must provide the borrower with an initial escrow account statement within 60 days of the date of transfer.
What must a servicer do annually regarding escrow accounts?
They must conduct an annual escrow account analysis to determine if a surplus, shortage, or deficiency exists.
What should a servicer do if the annual escrow account analysis discloses a surplus?
What if is is less than $50?
If the mortgage payment is current:
They shall refund the surplus to the borrower if it is greater or equal to $50. This must be done within 30 days of the date of the analysis.
If it is less than $50, the servicer can still return it to the borrower or credit it against the next year’s escrow payments.
What should a servicer do if the annual escrow account analysis discloses a shortage of less than one month’s escrow payments? (3)
Possible courses of action:
- allow shortage and do nothing
- require the borrower to repay the shortage amount within 30 days
- require the borrower to repay the shortage amount in equal monthly payments over at least a 12 mo period.
What should a servicer do if the annual escrow account analysis discloses a shortage greater or equal to one month’s escrow payment? (2)
Possible courses of action:
- allow shortage or do nothing
- require borrower to repay in equal monthly payments over at least 12 months.
What should a servicer do if the annual escrow account analysis discloses a deficiency less than one month’s escrow account payment? (3)
- allow the deficiency
- require repayment within 30 days
- require repayment in two or more equal monthly payments
What is the difference between a shortage and a deficiency in escrow accounts?
Shortage: Balance is positive but there isn’t enough to pay tax and insurance for the future
Deficiency: Balance is negative. Likely due to the servicer having to advance funds to pay taxes and insurance on the borrower’s behalf.
