RESPA (Regulation X)

Question 1

What does RESPA stand for? What is it also known as?

Answer 1

The Real Estate Settlement Procedures Act (Regulation X)

Question 2

What does “Settlement/Settlement Cost” mean?

Answer 2

Total costs charged to the borrower that must be paid at closing, by the borrower, the home seller, or the lender.

Question 3

What is the goal of RESPA?

Answer 3

RESPA was passed with a goal of reforming the settlement process “to ensure that consumers throughout the nation are provided 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…”

Question 4

What does RESPA seek to do?

Answer 4

• Require effective advance disclosure of costs
• Eliminate kickbacks and referral fees
• Limit amounts held in escrow or reserve accounts, and
• Reform recordkeeping of local land title information

Question 5

What is a federally-related mortgage loan?

Answer 5

A federally-related mortgage loan is any loan secured by a first or subordinate lien on residential property designed for the occupancy of one to four families made by any lender which meets any of the following criteria:

-Its deposits are insured by the federal government
-It is regulated by the federal government
-The loan is insured by HUD
The lender:
-intends to sell the loan to Fannie Mae, Freddie Mac, or Ginnie Mae, or
makes more than $1,000,000 in residential real estate loans per year

Question 6

What settlement services does RESPA cover?

Answer 6

• Title searches
• Title examinations
• Title insurance
• Attorney services
• Preparation of documents
• Surveys
• Credit reports
• Appraisals
• Pest inspections
• Real estate services
• Loan origination
• Processing mortgages
• Closing or settling mortgages

Question 7

Whether or not the servicing of a mortgage loan may be transferred must be disclosed to the borrower how many days later after a creditor’s receipt of the application?

Answer 7

3 Days

Question 8

If the servicing is transferred, notice must be given to the borrower by the transferring entity no less than how many before the effective date of the transfer?

Answer 8

15 Days

Question 9

If the servicing is transferred, notice must be given to the borrower by the receiving entity no less than how many before the effective date of the transfer?

Answer 9

15 Days

Question 10

True or False: The servicing entities may provide a joint notice to the borrower so long as it is given no less than 15 days prior to the effective date of transfer.

Answer 10

True

Question 11

In regards to Servicing Transfers, what may a borrower do without sufferig any negative implications?

Answer 11

The borrower may make payments to either lender during the 60 days following the effective date of the transfer without suffering any negative implications, including credit reporting and late charges. |

Question 12

What information must the notice of servicing transfer must include?

Answer 12

• Effective date of the transfer
• Contact information and a toll-free or collect number for both the transferring servicer and the new servicer which the borrower may use to submit inquiries
• The date on which the old servicer will cease accepting payments
• Any information regarding mortgage life or disability insurance
• A statement advising the borrower that the terms of their loan will not change

Question 13

What is an escrow account?

Answer 13

An account to hold funds on behalf of borrowers for the payment of taxes and insurance

Question 14

What is the purpose of aggregate escrow analysis?

Answer 14

The purpose of the aggregate escrow analysis is to ensure that the proper amount is being held in escrow or reserve accounts

Question 15

What can a servicer collect in the escow account?

Answer 15

A cushion to cover two months of taxes, insurance, and mortgage insurance, as applicable, and may only collect one month’s worth of escrowed items in each payment, unless there is a shortage in the account.

Question 16

How often must escrow accounts be analyzed?

Answer 16

All accounts must be analyzed once every 12 months

Question 17

What should be done with an overage in an esrow account?

Answer 17

Any overage over $50 refunded to the borrower within 30 days or credited towards the borrower’s escrow payments.

Question 18

What can a servicer do if the escrow account is short by less than one month’s escrow payment?

Answer 18

• Do nothing
• Require the borrower to repay the shortage within 30 days, or
• Require the borrower to repay the shortage in two or more equal monthly payments

Question 19

What can a servicer do if the escrow account is short by one month’s escrow payment or more?

Answer 19

• Do nothing, or

- Allow the borrower to repay it over a minimum 12-month period

Question 20

What does RESPA say about illigal fees and kickbacks?

Answer 20

No person may give or receive any thing of value arising from the referral of settlement services that are part of a federally-regulated mortgage settlement.

Question 21

What does RESPA say about referrals?

Answer 21

A person or entity referring settlement services may not, as part of a mortgage transaction, refer a borrower to a settlement service provider and then receive compensation for the referral from that provider.

Question 22

What is a referral?

Answer 22

A referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the person’s selection of a settlement service provider when the person will pay for that service or pay a charge attributable in whole or in part for the service. A referral also occurs when a person paying for a settlement service is required to use a particular settlement service provider.

Question 23

What is a “thing of value” in reference to kickbacks and referal fees?

Answer 23

• Money, things, discounts, salaries, commissions, fees, stocks, and dividends
• Distributions of partnership profits
• Franchise royalties
• Services or sales/rentals at special prices or rates
• Trips and/or payments of another person’s expenses
• Credits against existing obligations

Question 24

What is the penalty for violating section 8 of RESPA?

Answer 24

The penalty for violating Section 8 is a fine of up to $10,000 and/or up to one year in prison

Question 25

What are “Affiliated Business Arrangements”?

Answer 25

An arrangement in which a person who is in a position to refer business…or an associate of that person has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services and refers business to that provider or affirmatively influences selection of that provider”

Question 26

What is an associate?

Answer 26

An associate is defined as a person that has one or more of the following relationships with a person in a position to refer settlement business

Question 27

What are examples of an associate relationship?

Answer 27

• A 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, or
• Anyone who has an agreement, arrangement, or understanding with such person, the purpose or substantial effect of which is to enable the referrer to benefit financially from providing referrals

Question 28

What must the referring affiliate do if he/she is referring business to an associate?

Answer 28

If one affiliate is referring business to another, the referring affiliate must, at the time of the referral, make a written disclosure to the borrower regarding the affiliate relationship and advise the borrower that he or she is not required to use any particular provider of settlement services. After meeting those two conditions, the only “thing of value” allowable (other than payment for the actual cost of services rendered by the affiliate) is a return on the ownership interest or franchise relationship.

Question 29

What transactions does RESPA not apply to?

Answer 29

• Loans on vacant or unimproved property
• Loans for business, commercial, or agricultural purposes
• Construction loans, unless:
• The lender issues a commitment for permanent financing, or
• They are used to purchase the property
• An assumption of a loan where the creditor’s approval is not required
• The conversion of a federally-related mortgage loan
• The transfer of a loan to the secondary mortgage market

Question 30

In regards to escrow accounts and payments, what can a borrower do against a servicer for non compliance with the mortgage servicing rules?

Answer 30

A borrower may bring an action against a servicer for noncompliance with the mortgage servicing rules and may be awarded actual damages, plus any additional damages as the court sees fit if there is a pattern of noncompliance, up to a maximum of $2,000