Scope
of RESPA
- What kinds of transactions are covered
under RESPA?
Transactions involving a federally related mortgage loan, which
includes most loans secured by a lien (first or subordinate position)
on residential property. This includes: home purchase loans, refinances,
lender approved assumptions, property improvement loans, equity
lines of credit, and reverse mortgages.
- What
types of transactions are generally not covered?
The following are kinds of transactions that are not covered:
an all cash sale, a sale where the individual home seller takes
back the mortgage, a rental property transaction or other business
purpose transaction.
- Is a "time share" a covered transaction under RESPA?
Yes, if the lender's interest is secured by a lien on residential
property.
-
Is a loan secured by a condominium unit or a cooperative share
a covered transaction under RESPA?
Yes, as long the units are not used for business purposes.
- Is
a loan secured by a manufactured home (mobile home) covered transaction
under RESPA?
Yes, but only if the manufactured home is located on real property
on which the lender's interest is secured by a lien.
- Does
a federally related mortgage loan only involve FHA, VA or other
government sponsored loans?
No, RESPA covers most conventional loans too. See the statute
or regulations for the definition of a federally related mortgage
loan.
- Are
home equity loans covered under RESPA?
Yes, home equity loans secured by residential property are covered.
- How
does the coverage of home equity loans and subordinate
lien loans differ from other RESPA covered loans?
If the loan involves an open-end line of credit, providing the
disclosures required by Regulation Z satisfies the RESPA good
faith estimate and the HUD-1 or HUD-1A requirements.
Both subordinate lien loans and open-end lines of credit (home
equity loans) in first lien position are exempted from the loan
servicing requirements.
-
Are
construction loans covered under RESPA?
No.
Unless: 1) the loan is used as, or may be converted to permanent
financing by the same lender; or 2) the lender issues a commitment
for permanent financing; or 3) the loan is used to finance a
transfer of title to the first user; or 4) the loan is for a
term of two years or more, unless it is to a bona fide builder.
- If a construction loan is covered under RESPA, how do you account
for construction loan closing on the HUD-1 if funds will be held
back by the lender until performance?
List the sales price of the land on Line 204, the construction
cost on Line 105 (Line 101 is left blank) and the amount of the
loan on line 102. The remainder of the form should be completed
taking into account adjustments and charges related to the temporary
and permanent financing which are known at the date of the settlement.
- When
the loan transaction includes an option for the borrower to obtain
additional funds in the future merely by signing a note for the
new amount, must RESPA's disclosure requirements be followed for
the future advance of additional funds?
Yes, because there is a new note. This is consistent with Truth
in Lending Act provisions.
- If
a loan is sold within 1-7 days of closing to another lender, does
the sale of that loan fall within RESPA's coverage?
The sale of a loan after the original funding of the loan at settlement
is a secondary market transaction. Such a sale is exempt from
RESPA coverage as a secondary market transaction. However, any
transfer of ownership and/or servicing rights is subject to RESPA's
requirements in Section 6.
- Does
the exemption from RESPA for the sale of a land parcel of at least
25 acres apply even if there are 2 homes on the property?
Yes,
as long as the property is a single parcel.
- Can
a credit agency provide a lender with a dedicated printer to expedite
communication between the credit agency and the lender?
Yes,
provided the printer can only be used for communication with
the lender and not for general use. If it's for general use
it may be considered payment for the referral of business.
- Can
a flood zone certification company examine a lender's existing
loan portfolio for free or at a reduced rate, in exchange for
the lender sending the company future business?
No.
Flood zone certification is a covered settlement service (24
CFR 3500.2), therefore RESPA would apply to agreements by companies
or persons providing portfolio reviews. Providing free or reduced
reviews is a thing of value. Providing this service in exchange
for referrals of future flood insurance business would violate
Section 8(a) of RESPA which provides that "[n]o person
shall give and no person shall accept any fee, kickback, or
thing of value pursuant to any agreement or understanding, oral
or otherwise, that business incident to or a part of a real
estate settlement service involving a federally related mortgage
loan shall be referred to any person."
- Can
a lender set up a contest for real estate agents under which the
agent who provides the lender with the most business will win
a trip to Hawaii?
No.
Under RESPA, the trip itself, and even the opportunity to win
the trip, would be a thing of value given in exchange for the
referral of business.
- Can
a lender give a borrower an incentive, such as a chance to win
a trip or a rebate, for doing business with the lender?
RESPA
does not prohibit a lender or other settlement provider from
giving the borrower an incentive for doing business with it
as long as the incentive is not based on the borrower referring
business to the lender.
- Can
a mortgage banker and a real estate broker advertise their services
together, for example, on the same brochure or newspaper advertisement?
Nothing
in RESPA prevents joint advertising. However, if one party is
paying less than a pro-rata share for the brochure or advertisement,
there could be a RESPA violation.
- Can
a lender give a real estate agent note pads with the lender's
name on it?
Yes.
Such note pads with the lender's name on it would be allowable
as normal promotional items. However, if the lender gives the
real estate agent note pads with the real estate agent's name
on it for the agent to use to market clients for its real estate
business, then the note pads could be a thing of value given
for referral of loan business, because it defrays a marketing
expense that the real estate agent would otherwise incur.
- Can
a mortgage broker be compensated for referring business to a lender
that is unrelated to a real estate transaction, such as automobile
loans?
Yes,
provided that the compensation is exclusively related to the
automobile loan and does not represent, in whole or in part,
compensation for the referral of real estate business, and no
lien is placed on a residence to secure the auto loan.
Affiliated
businesses
- If
a lender refers a consumer to more than one of its affiliated
settlement service providers, does the lender have to provide
a separate affiliated business arrangement disclosure statement
for each referral?
No,
the lender can use one disclosure statement.
- If
a lender refers a consumer to a settlement service provider with
which it does not have an affiliate relationship, as defined by
RESPA, does the lender still have to provide the affiliated business
arrangement disclosure statement?
No,
the affiliated business arrangement disclosure statement is
only for affiliates.
- When
a principal in a law firm is a member of the board of a lender
and the lender refers RESPA covered settlement service business
to the firm, but not personally to the principal, must the relationship
be disclosed?
Yes.
When the lender refers the borrower to the law firm, the borrower
must be given an Affiliated Business Arrangement Disclosure
Statement.
Fee splitting
- Can a lender charge a borrower a fee for sending documents via
courier and disclose it on the HUD-1 where in fact the borrower
stops by the lender's office and picks up the documents instead?
No, because the charge for the courier service does not represent
a charge for work actually performed which can be imposed on the
borrower.
- Can
a lender collect from the borrower an appraisal fee of $200, listing
the fee as such on the HUD-1, yet pay an independent appraiser
$175 and collect the $25 difference?
No,
the lender may only collect $175 as the actual charge. It is
a violation of Section 8 (b) for any person to accept a split
of a fee where services are not performed.
- Can
a lender charge a borrower at closing a one time charge for setting
up an account with a tax service to arrange for tax payments?
Yes,
the lender may collect a reasonable charge for the service provided.
- Can
a title company, which has the only convenient closing room in
the area, provide it to any interested party at $100 per closing?
Yes,
provided the charge is reasonably related to the value of the
space.
Specific
forms and consumer information
- Where a mortgage broker is used, is it the mortgage broker's
responsibility to provide the Good Faith Estimate (GFE) to consumers,
or is that the lender's responsibility?
If the mortgage broker is not an exclusive agent of the lender,
the broker should provide a GFE within 3 days of receiving an
application. The lender is not required to send an additional
GFE; however, it is the lender's responsibility to ascertain that
one was sent and includes an estimate of all costs that are likely
to occur. Where the broker is the exclusive agent of the lender,
either the broker or the lender shall provide the GFE.
- When
must the special information booklet be provided and by whom?
In
general, the lender or mortgage broker should provide the special
information booklet at application. Alternatively, they may
place it in the mail to the applicant not later than three business
days after the application is received or prepared.
- Must a mortgage servicing transfer notice be given for a prospective
table funded transaction?
Yes, by the mortgage broker.
- When
the potential borrower furnishes a substantial amount of financial
information for prequalification, but no particular property has
been identified, must the good faith estimate be furnished to
the borrower?
No.
A submission by a borrower to a lender that does not identify
a property is not an application and thus does not trigger the
Good Faith Estimate requirement. However, HUD encourages providing
information to the borrower on settlement costs as soon as it
can be estimated, so that the borrower may be better able to
shop.
- If the servicer neglects to pay the homeowner's insurance bill
out of escrow and, as a result, the consumer loses coverage, what
are the servicer's responsibilities and what is the servicer's
liability for harm to the consumer that results?
The servicer is required to pay escrow items on time, so long
as the borrower is timely in his/her mortgage payments. If the
borrower is damaged by the servicer's failure to pay for the insurance
on time, the borrower can sue under section 6.
Additional
FAQs
- If the borrower is getting a "no cost" loan, must
the lender list charges the lender is going to pay?
Yes. The charges to be shown on the GFE and the HUD-1 must include
any payments by the lender to affiliated or independent settlement
providers. These payments should be shown as P.O.C. (paid outside
of closing).
- The regulations at 3500.15 (b)(1)(i) state that where a lender
makes a referral to a borrower the condition for providing an
Affiliated Business Disclosure (AfBA) may be satisfied as part
of and at the time of the GFE. Does this mean the lender does
not have to give a separate AfBA disclosure if the information
is part of the GFE?
No. A separate AfBA must be given. The regulation means the AfBA
may be given at the time the GFE is given if this is when the
affiliate is referred or is required to be used (a lender may
require the use of an appraisal, credit reporting company, or
attorney).
- Must
a mortgage broker disclose payments he receives that the borrower
does not pay for directly?
Yes.
The mortgage broker must disclose all payments and fees he receives
whether they are received directly from the borrower or indirectly
from the lender.
- If
I have a question concerning the calculation of the "Annual
Percentage Rate" or "APR", can HUD answer it?
The
calculation of the APR is part of the Truth-in-Lending Act (TILA)
which is administered by the Federal Reserve Board. Questions
concerning TILA as well as Section 32 (high cost loan disclosure)
may be directed to the Federal Reserve Board at (202) 452-3693.
- May
a settlement service provider charge a fee that reflects its own
fee plus any recording fees as the servicer provider's fee? Example:
An attorney charges $500 for its services and the county charges
$30 for recording fees. May the attorney simply charge the consumer
$530 and pay the county as a cost of doing business?
No.
The "Line Item" instructions to the HUD-1 state that
"[f]or all items except for those paid to and retained
by the lender, the name of the person or firm ultimately receiving
the payment should be shown." The attorney must disclose
all entities ultimately receiving the fee.
- May
real estate agents that are independent contractors be considered
employees under the "employer-employee" exemption, for
purposes of being allowed to be paid referral fees from employers?
No.
The exemption applies only to bona-fide employees.
- If
the borrower's escrow account includes a surplus greater than
$50 which HUD's rules require be refunded, may the servicer credit
the surplus directly to the principal, rather than refund the
surplus to the borrower?
No.
However, the servicer may inform the borrower in the information
accompanying the return of the surplus that the borrower may
elect to use the refund to reduce principal or have it credited
against the next year's escrow payments.
- If
there is a surplus in the escrow account and the borrower is in
default, may the servicer retain the surplus as payment towards
the amount in default?
HUD's
escrow rules are inapplicable to loans that are in default,
which is defined under the RESPA rules as current payments which
are more than 30 days delinquent. The parties should consult
the mortgage documents or state law to resolve whether escrow
funds are available for this purpose.
- May
a consumer delay or avoid a mortgage transaction if it discovers
that there exists a RESPA violation?
No.
RESPA specifically provides that it does not affect the validity
or enforceability of any sale or contract for the sale of real
property, or any agreement arising in connection with a federally-related
mortgage loan.
- How
should I report a violation of RESPA?
You
should send a written complaint describing the practice that
you believe violates RESPA. The complaint should include the
names, addresses and phone numbers of the alleged violators.
It is preferred that you include your name and phone number
in case an investigator wishes to ask further questions. You
may request confidentiality. Send the complaint to:
U.S.
Department of HUD
Office of RESPA and Interstate Land Sales
451 7th Street, SW, Room 9154
Washington, DC 20410
- You
may also wish to send a complaint to State and other Federal agencies
that have the responsibility for regulating the settlement providers
engaged in the referenced practice.
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