Section 4 Unit 2 Introduction to RESPA Flashcards
Real Estate Settlement Procedures Act 1974
RESPA Prohibits the payment of kickbacks or unearned fees between settlement service providers, such as when a lender gives a real estate agent a fee for using the lender or vice versa
Respa insures
that mortgage borrowers know and understand all settlement costs prior to closing
Borrowers must receive loan disclosures at specific times during the transaction process
RESPA Loan Disclosures
It is a consumer protection statute designed to help homebuyers be better informed shoppers.
CFPB renforces RESPA
which requires that consumers receive disclosures or various times in the transaction and outlaws kickbacks that increases the costs of settlement services or limit consumer choice.
RESPA Regulations apply
It applies to loans granted on one to four family residential properties including assumptions, refinances, home improvement loans, and home equity lines of credit (HELOC)
RESPA requires
that the lender provide the borrower with a written disclosure of estimated settlement costs.
Loan Estimate
LE form itemizes these costs at the beginning of the application process
Closing Disclosure (CD)
It provides a precise accounting of costs and is used at closing
Regulation X
A loan application must contain specific pieces of information in ordered to be considered “complete” and subject to RESPA
1. The borrowers’s name
2. Monthly Income
3. SSN to obtain credit report
4. The property’s address
5. An estimate of the property’s value
6. The mortgage loan amount sought
7. Any other information deemed necessary by the loan orgination
Loan applications
It must be in writing or signed as electronic documents`
RESPA Exemptions
Commercial or business loans
Vacant land
Land tracts of 25 acres or larger, with a residence or not
Certain kinds of loan assumptions
Construction only loans
Loans to the government
Quick Recap
RESPA is an important law that applies to mortgage loan transactions:
It ensures that a buyer in a residential real estate transaction financed by a federally related mortgage loan has knowledge of all settlement costs. This knowledge is provided through a series of documents that mortgage brokers or lenders must provide to the borrower
Required Document
The two required documents are the LE (Provided within 3 days of completing the loan application and CD (provided three days prior to closing)
Kickbacks
It expressly prohibits the payment of kickbacks or unearned fees between settlement service providers
Introduction to TILA
The Truth in Lending ACT was created to ensure that consumers have access to all the information they need to make informed decisions about their financing.
A closer look at TILA
The truth in Lending Act was enacted as part of the Consumer Credit Protection Act (CCPA) in 1968. It was created to better educate the public about the costs of credit and financing through improved disclosures that TILA made required of lenders and credit providers.
In 2011, DDA shifted part of TILAs rule making authority to the Consumer Financial Protection Bureau.
What is covered under TILA
TILA applies to lenders who provide closed-end credit (Including car loan and home mortgage) and open ended credit (including credit cards and home equity lines of credit, or HELOCs), if the following four conditions are met:
- Credit is being offered to a consumer
- the offer for credit is done reqularly
- the loan is subject to finance charges (fees that are charged for the use of the credit or taking out a loan) or payable in four or more installments.
- The credit is primarily for personal, family or household purposes.
What else is covered by TILA
Home Mortgages
Reverse Mortgages
Some type of student loans, Credit card loans
HELOC
Installment loan are under regulation Z
Commercial, Business
Agriculture loans
Credits are exempt from Regulation Z
Rental properties not occupied by the owner are also exempt.
Dwelling
TILA considers as a “dwelling” a residential structure containing at least one and no more than four units, regardless of whether the structure is attached to real property. That means TILa considers condos, cooperatives, mobile homes and trailers to all be dwellings if they are used as residences and attached to the real property.
Therefore, loans for these types of properties are considered mortgage and fall under regulation Z
Regulation Z
It requires lenders to use a standardize measure for interest rates (the APR). Lenders must disclose the APR, finance charges, lender’s name, total amount being finances, number of payments due, as well as the amount and dates of payments. Lenders must also disclose information related to loan assumption and information about the lates and pre-payment penalties.
TILA and laon Advertisements
TILA also required full disclosure, clearly and conspicuously, of financing terms in loan advertising.
Today if a “triggering detail” of the loan is disclosed, all items must be disclosed.
Triggering details:
Specific payment
Rate
down payment amount
Specifically, “the amount or percentage of any down payment amounts
Number of payments or period of repayment,
The amount of any payment,
Or the amount of any finance charges
Advertisements
If any of those details are included in an advertisement then all of these items must be included as well:
Down payment amount or percentage
Repayment terms for the full term of the loan(including a ballon payment, if any)
APR (and whether the APR can increase after closing)
TILA Violation
Lenders that violate TILA face fines and imprisonment.
Intentional violations: Fines of as much as $5000 and /or imprisonment as long as 12 months.
Unintentional Violations: Damages of two times the finance charge, with a $1000 maximum
