RESPA Flashcards
Real Estate Settlement Procedures Act
When was the Real Estate Settlement Procedures Act (RESPA) made
law?
A. 1955
B. 1988
C. 1972
D. 1974
Answer: D
D is correct, as RESPA was passed into law by the United States Congress on the 22nd of December 1974. It was codified as Title 12, Chapter 27 of the United States Code, 12 USC §§ 2601–2617. A, B, and C are incorrect as these are years unrelated to when the RESPA was made an official law.
Why was the RESPA passed into law?
A. To allow house owners to settle their real estate affairs outside of court.
B. To limit the use of escrow accounts and to prohibit abusive practices in the real estate industry (for example, kickbacks and referral fees).
C. To give lenders more freedom when negotiating with consumers.
D. To ensure banks’ money is well protected by law.
Answer: B
B is correct because lawmakers felt consumers were being taken advantage of by some lenders, so the RESPA was implemented to protect the rights of consumers. This included the primary aim of the legislation to make changes to the process so lenders must be more transparent and not charge extra fees where it’s not appropriate. It is not A because RESPA doesn’t impact court affairs, and it’s not C or D because it is related to a crackdown
on lender processes to ensure they don’t take advantage of their consumers and not banks specifically.
Who does the RESPA protect?
A. Prospective personal home mortgage borrower.
B. Mortgages for businesses.
C. A mortgage loan for agricultural development.
D. Anyone outside of business that needs a home loan.
E. A & D.
Correct answer: E
E is correct because RESPA ensures that lenders do not take advantage of house buyers or owners by common predatory lending practices like extra fees or account holdings. It’s not just A or D because the law covers buyers and current homeowners. It is not B or C because the RESPA is specific to
house lender relations with consumers.
How does the RESPA protect?
A. Lenders must employ a moderate third party to ensure fair trading and operations.
B. Consumers should run all paperwork with a Justice of the Peace.
C. Lenders must disclose all settlement costs to their consumers and reduce their fees by eliminating referral and kickback fees.
D. Lenders don’t need to disclose a breakdown of costs, protecting their business from the competition and trying to undercut them.
Correct answer: C
C is correct because the RESPA is about eliminating extra fees that add more money to lenders’ pockets while adding the surmounting costs by consumers who want to buy or continue to own a home. These fees are banned, and lenders must be frank about how much each settlement costs
and why. It is not A as lenders don’t need to have a third party to ensure
these fair practices as they should know the law. It is not B, as it is not up to consumers to ensure that RESPA is being followed. It should be followed by the lender, who should be up to date with the law. It’s not D because RESPA requires lenders by law to declare their breakfast of costs regardless
of if it exposes them to competition; it supports the rights of the consumer to shop around for the best deals.
What is NOT an amendment to the RESPA?
A. More buyer choice through open lender disclosures.
B. Average cost pricing for any settlement services.
C. Transparent lender and mortgage broker fees.
D. Consumers can now choose what lenders sell their services for.
Correct answer: D
D is not an amendment to the RESPA, as although consumers have more freedom and protection over what mortgage service providers they will hire, they can’t choose the exact price lenders can charge. The freedom they have, thanks to RESPA, is the option to ask for quotes from various
companies to decide the most affordable price for their case. A, B, and C are not the answer, as they are official amendments made to the RESPA
over the years.
Who enforces RESPA Today?
A. The President.
B. The CFPB (Consumer Financial Protection Bureau)
C. The US
Department of Housing and Urban Development (HUD)
D. The individual state government.
Correct answer: B
B is correct because, since 2010, the RESPA has been overseen and
enforced by CFPB. It is not C because HUD passed ownership to the current owner after the formation of CFPB by Congress. It is not A or D as the law is enforced on a federal level, but not the sole hand of the president or state government to uphold.
How is RESPA enforced?
A. Lenders and mortgage brokers uphold universal standards.
B. Unlawful practitioners reported to CFPB.
C. Impose hefty fines or jail time.
D. The removal of practitioner licenses.
E. All of the above.
Correct answer: E
E is correct, as RESPA uses multiple ways to uphold its laws. This includes having clear and robust laws that licensed lenders and mortgage brokers must learn before they enter the field. Those that don’t follow these rules can be reported to CFPB, and a case will be opened to investigate these reports. Someone found guilty of breaking RESPA law may find themselves
with hefty fines. Repeat offenders will lose their licenses or jail time for
those more serious cases.
What does RESPA reduce the cost of?
A. Heavily subsidize service fees.
B. The complete removal of extra service fees related to escrow accounts.
C. State funding for low-income consumers with fully funded service fees for those that need a house.
D. B & C
Correct answer: B
B is correct because RESPA applies not to reduced consumer fees through aided funding but a standardized change across the board to make lender and mortgage broker fees fairer for all personal home buyers overall. This is aided by removing extra service fees related to escrow accounts.
RESPA prohibits a real estate agent from receiving a referral payment for pointing a buyer to a certain service provider.
A. True
B. False
Correct answer: A
A is correct because RESPA protects the consumer from being pushed in the direction of a service just so an agent can make a quick dollar. This will ensure agents make recommendations based on merit and not just because they know they will make more money.
The Housing Act of 1990 was an amendment to RESPA requiring
what?
A. Requiring the complete eradication of an extensive list of service-related fees.
B. Requiring complete disclosures of the transfer, sale, or assignment of mortgage servicing.
C. From that day forth, RESPA must be operated on a national, not federal, level.
D. The RESPA increased fines and prison time for breaking the outlined laws.
E. A & B
Correct answer: E
E is correct because the House Act of 1990 amended the RESPA to require lenders and mortgage brokers to disclose all transfers, sales, assignments, or mortgage servicing as part of the open-air policy of their law. This also included the removal of many extra fees that reduced the cost-of-service fees for consumers. C isn’t correct, as RESPA is operated at a federal level today, and D isn’t correct, either.
What is NOT an example of RESPA non-compliance?
A. A lender provides an LE to their borrower within three business days of getting an application.
B. A lender takes two weeks to respond to a loan application with an LE.
C. A lender gets given a kickback from a settlement service provider in exchange for referrals of business.
D. A lender gives the borrower disclosure documents including an LE and CD during the loan application process.
E. A & D.
Correct answer: E
E is correct as these are two classic examples of RESPA compliance.
Firstly, A shows the lender responding to the application within three business days as required by law and giving them an LE document for the borrower to get an estimated rundown of the loan costs before they proceed
further in the application process. D shows an example of a lender giving
the correct disclosure documents during the lending process, these being the LE at the start of the loan and then two CDs (one at the start and the finalized one at the end). Keeping to these time frames is important, and disclosures ensure that borrowers get no unforeseen surprises and know exactly what they are signing up for.
What is an example of RESPA non-compliance?
A. Lenders keeping records of their loan-related disclosures for a certain period of time.
B. Borrowers suing for damages resulting from lending RESPA violation.
C. A lender advertising the services of a settlement service provider for a referral payment.
D. A lender not recommending a certain insurance company as a condition for signing a loan.
Correct answer: C
C is correct, as this is a great example of a common RESPA malpractice where the lender is paid by a mortgage service provider to refer their client for their services. This is forbidden under RESPA as the lender could easily recommend the services to their client without actually disclosing the true nature of the advice. Lenders should be honest to their clients and every do thing for the prospect of money or self-gain, they should always work for the best interests of their clients.
