Real Estate Settlement Procedures Act (RESPA)

Judicial Foreclosure

allows the property to be sold by court order after the mortgagee has given sufficient public notice

Referral

an action, either written or oral, that influences the selection of a provider of a settlement service.

Agreement or Understanding

an agreement or understanding for the referral of business related to settlement services. - stated or written agreement OR - established through a practice, pattern, or course of conduct, to offer things of value in exchange for the referral of settlement business

Disclosures required by RESPA

- Loan estimate - Closing Disclosure - Special Information Booklet (Your Home Loan Tool Kit: A Step by Step Guide) - HELOC Information Booklet (What You Should Know about Home Equity Lines of Credit) - Affiliated Business Arrangement Disclosure - Disclosures Related to Mortgage Servicing - Initial Escrow Statement - Annual Escrow Account Statement - Good Faith Estimate & HUD-1 Settlement Statement (reverse mortgages)

"What You Should Know about Home Equity Lines of Credit" booklet

- RESPA disclosure of open-end loans - due within 3 business days - available online

When do you provide an Affiliated Business Arrangement disclosure?

- at the time of the referral IF MADE THROUGH THE PHONE - written disclosure must also be given within 3 business days

Loans exempt from RESPA

- business, commercial, or agricultural (25 acres or more) - temporary financing - loans secured by vacant land - loan assumptions which are permissible without lender approval - transactions between lenders and investors for the sale of a closed loan to a purchaser in the secondary market - loan conversions

Examples of mortgage loan servicers

- lending institutions that make or service their own loans - those that have purchased the servicing rights for mortgage loans

Prohibited Lending Practices (Section 8)

- referral fees - kickbacks - fee splitting (splitting money w/ unlicensed person) - unearned fees (aka upfront fees or advanced fees) - exchange of things of value - sham affiliated business arrangements

What is the purpose of RESPA?

1) Protect consumers from excessive settlement costs and unearned fees 2) Limit the amount of funds that creditors can require consumers to deposit in escrow accounts 3) Establish disclosures, policies, and procedures to facilitate timely communications between loan servicers and consumers

What is the record retention requirement for an Affiliated Business Arrangement disclosure?

5 years

Loan Estimate

A combination of the TILA initial disclosure and the RESPA good faith estimate which must be provided to a buyer at the time of, or within three days of loan application

Subordinate lien

A lien on property that is junior, or subsequent, to another lien or liens. In the event of foreclosure, subordinate financing does not receive priority until prior liens are paid. a.k.a.: Subordinate financing, junior lien, junior financing

First lien

loan secured by real estate as collateral

Sham Affiliated Business Arrangement

A partnership or joint venture created between settlement service providers for the illegal purpose of splitting fees under the guise of a bona fide affiliated business arrangement.

Mortgage Loan Servicer

An entity or individual that is responsible for servicing a federally-related mortgage loan & manage escrow accounts maintain policies and procedures to: - provide disclosures - evaluate a borrower's eligibility - provide information and documents

Good Faith Estimate (GFE)

An estimate of all closing fees that must be provided to a borrower within three days of the loan application as required by the Real Estate Settlement Procedures Act (RESPA).

Markups

An upcharge in the actual cost of a settlement service and retention of the additional fee.

Thing of Value

Any payment, advance, loan, or service given. "Thing of value" can include money as well as non-monetary items, such as discounts, special rates, special services, meals, tickets to events or entertainment, office equipment, expense reimbursements, or similar.

Settlement Service

Any service provided in connection to real estate ex: - origination of a federally related mortgage loan - mortgage broker services - services related to origination, processing, or federal mortgage loan funding - title services

Who provides third party settlement services?

Appraisers, inspectors, credit reporting agencies, title insurers, and loan processors

Who is the regulatory agency for RESPA?

Consumer Financial Protection Bureau (CFPB) / REGULATION X

Section 10

Identifies the amounts that can be charged to maintain escrow accounts - no more than 1/12 of annual property tax and annual insurance premium each month - escrow cushion - annual escrow analysis

Your Home Loan Toolkit

Informational booklet provided to mortgage applicants with general information about closing and a detailed description of the Loan Disclosure form - explains the settlement process - informs borrowers of rights to negotiate terms of a loan - reviews RESPA protections - warns borrowers that using false info on an application can lead to the loss of their home, a poor credit rating, and criminal prosecution for fraud

Annual Escrow Account Statement

Must be submitted to the borrower *WITHIN 30 CALENDAR DAYS of THE COMPLETION OF THE COMPUTATION YEAR*. (The escrow analysis must be completed before this) Must include: - Account history & Projections for next year - Current monthly mortgage & last years payment and portion going to escrow - Total amount paid into escrow in past year - Balance at end of period & Explanation of how the servicer is handling the surplus - explanation of how the borrower is to pay any deficiency

Section 8

Prohibits kickbacks, fee-splitting, and unearned fees

What law allows the borrower to sue the seller for treble damages of all title insurance charges?

RESPA Section 9

RESPA

Real Estate Settlement Procedures Act

Initial Escrow Statement

Required by RESPA and due 45 days after closing, this disclosure is often provided at the time of closing. INCLUDES: - amount of the borrower's mortgage payment and the portion deposited into the escrow account - itemized estimated taxes, insurance, and other payments to be made for the escrow account during the computation year - amount that the servicer has selected as a cushion - a "trial running balance"

How does Regulation X prevent loan servicers from overcharging?

SECTION 10 - requiring an annual escrow analysis - limiting the cushion that the borrower must maintain to cover anticipated disbursements to 1/6 of the estimated total disbursements - requiring the refund of any surpluses greater than or equal to $50 within 30 days after the escrow account analysis ~ if the surplus is less than $50, the servicer may credit the amount towards the next year's escrow payments

transferor servicer

The entity that is making the transfer - must provide notice to the consumer no less than 15 days before the effective date of the transfer of servicing.

Transferee Servicer

The entity that receives servicing rights. Must provide notice to the consumer no more than 15 days after the transfer. Must provide INITIAL ESCROW ACCOUNT STATEMENT within 60 DAYS after transfer

What disclosure is required for open ended loans (ex: HELOC)?

What You Should Know about Home Equity Lines of Credit

Affiliated Business Arrangement

When a service provider has a business relationship with or have an ownership interest in other settlement service providers

mortgage broker

a person, other than an employee of a lender, that - renders origination services and - serves as an intermediary between a borrower and a lender in a transaction that involves a federally-related mortgage loan This includes persons that close loans in their own name in table-funded transactions.

Section 6

deals with mortgage servicing

Bona fide discount point

discount points paid by the borrower which reduce the interest rate. typically, one point is equal to 1% of the principal amount of the loan

Delinquencies and Foreclosure Prevention Efforts

early intervention to assist borrowers who are delinquent or in jeopardy of default - encourages loss mitigation options that may prevent foreclosure

Escrow Account

established for the payment of mortgage-related expenses (ex: taxes and insurance)

What loans are covered by RESPA?

federally-related mortgage loans owner occupied 1-4 unit dwellings

Penalties for Violations of RESPA and Regulation X

fines up to $10,000 and one year in prison CIVIL PENALTIES - $103 per failure to issue an escrow statement to a borrower as required - $207 per intentional failure to issue an escrow statement to the borrower as required

Non-Judicial Foreclosure

foreclosure that does not require court proceedings or a judgment of foreclosure - the result of the power of sale clause in a deed of trust - NOTICE OF DEFAULT at least 120 days before the foreclosure date - lender must publish NOTICE OF DEFAULT at least ONCE A WEEK for 4 consecutive weeks - last notice at least 20 days BEFORE the sale of property - public auction, sold to highest bidder for cash - before the sale, borrower can cure the default by paying all past due amounts

Lien

form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation

RESPA Limitations for affiliated businesses

limit their financial gains to a LEGITIMATE return on ownership interest includes: - Bona Fide dividends - capital or equity distributions

Federally-related mortgage loans

loans secured by a first or subordinate lien on residential property - funds insured by the federal gov (FHA Loans) - made w/ collateral insured by the federal gov (flood insurance) - funds from a lender regulated by the federal gov or that has deposits insured by the federal gov (depository institutions regulated by the FDIC or NCUA) - intended for sale to Fannie Mae or Freddie Mac - made by a creditor regulated under the Truth-in-Lending Act - made by a mortgage broker and assigned to a creditor if they are federally related

Fee-Splitting and Kickbacks

neither RESPA nor Regulation X define "fee-splitting" or "kickbacks," but the terms are generally understood to - refer to paying or accepting unearned fees, or marking up the fee for a particular settlement service and splitting the overage with another settlement service provider

Mortgage Servicing Disclosure

servicers must provide notice to consumers of any assignment, sale, or transfer of servicing INCLUDES - effective date of transfer - name, address, and toll-free phone number that can be used to reach the transferee servicer - date which the transferor servicer will no longer accept payments and the date the transferee will accept them - indication of whether the transfer will impact the continued availability of optional insurance products - statement that the transfer does NOT change the terms or conditions of the mortgage

Section 9

states that seller cant require use of a particular title company

Trial running balance

the accounting process used to reach the target balances over the course of a computation year

Servicing

the receipt of mortgage payments from a borrower including: - payments for taxes and insurance that are deposited in an escrow account - forwarding these payments to the owner of the loan and to third parties, such as providers of homeowners' insurance

escrow cushion

when the lender collects 2 months or 1/6th of property taxes and hazard insurance costs at closing

When does the Your Home Loan Toolkit and HELOC booklets need to be provided?

within 3 days of receiving or preparing the application - in-person delivery or by mail - only 1 disclosure necessary - also available online

Affiliated Business Arrangement Disclosure

• Describe the business arrangement, including the percentage of ownership of the interest of the referring party and service provider • Indicate that the referral may result in a financial benefit for the referring party • Estimate the costs that will be charged by the provider to whom the loan applicant is referred • Advise the borrower that he/she is not required to use the service provider to whom he/she was referred and that other providers are available (Note, however, that lenders can require the use of a particular attorney, appraiser, and credit reporting agency)