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BASIC RESPA

BASIC RESPA. Implemented through HUD’s Regulation X. Objectives. We will review the following: Background of RESPA Kickback Rules of Section 8 Pre-closing Disclosures Closing Disclosures Post-closing Disclosure. Background .

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BASIC RESPA

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  1. BASIC RESPA Implemented through HUD’s Regulation X

  2. Objectives • We will review the following: • Background of RESPA • Kickback Rules of Section 8 • Pre-closing Disclosures • Closing Disclosures • Post-closing Disclosure

  3. Background • Real Estate Settlement Procedures Act (RESPA) passed by Congress in 1974 • HUD designated to write the regulation to implement the law • HUD Regulation X implements RESPA

  4. Background • Purchase Money mortgage loans only • Three purposes: • Requireadvance disclosure of settlement charges • Prohibitcertain referral fees and “kickbacks” • (Section 8 Violations) • Limitescrow amounts required for taxes and insurance

  5. Background • In 1990, Congress added two more requirements: • Provide disclosures when mortgage servicing rights are transferred • Provide annual escrow account statements by servicers to borrowers

  6. Background • In 1992, RESPA’s coverage expanded to include all 1st mortgages on 1-4 family homes • not just purchase money mortgages • In 1994, Coverage was further expanded to include loans secured by junior liens

  7. Section 8 Violations kickbacks

  8. Section 8 Violations • Section 8A • No referral fees • Section 8B • No splitting of charges except for actual services performed • Violationsare considered a felony • subject to $10,000 fine • 1 year prison term • treble damages • attorney’s fees

  9. Section 8 Violations • Mortgage Yield Spread Premiums • March 1, 1999 • HUD Issues Policy Statement on the legality of payments by lenders to mortgage brokers under the RESPA • Holds Mortgage Industry to a 2 part test: • Goods or facilities must be furnished or services must actually be performed • Compensation for goods or services must commensurate with their value.

  10. HUD’s Policy Statements • 2 part test threshold - the broker must: • Take the application • Perform 5 of 14 additional services. • October 18, 2001 • HUD was challenged in court and reissued another statement asserting the same criteria • The Policy Statement does not legally resolve the issue regarding “Yield Spread Premiums”.

  11. Section 8 Violations • Examples of Section 8 violations

  12. RESPA Disclosures

  13. RESPA Disclosures • Pre Closing Disclosures • Special Information Booklet • Good Faith Estimate • Mortgage Servicing Transfer Disclosure • Affiliated Business Arrangement Discl.

  14. Disclosures In the news: • HUD’s Proposal - Meaningful “GFE” • Mortgage Servicing Disclosure Violations

  15. Special Information Booklet Isn’t that special

  16. Special Information Booklet • Purpose • Designed to help applicants understand the home buying, financing & settlement processes • Timing • Required to be provided on: • Purchase money applications • Unless declined within 3 business days

  17. Special Information Booklet • Internal Review • Determine that booklet is provided: • Within three business days • After receipt of a written application • Determine that current version is being used (Sept. ’97)

  18. Good Faith Estimate

  19. GFE Definition • Application • A submission of a borrower’s financial information in anticipation of a credit decision whether written or computer generated relating to a federally-related mortgage loan • If no property is specified, then it is not considered an application • It's a prequalification.

  20. GFE Definition • Business Day • Business day means a day on which the offices of the business entity are open to the public for carrying on substantially all of the entity's business functions.

  21. Good Faith Estimate (“GFE”) • Purpose • Provides applicants with information regarding which settlement services will be required and how much the charge for each of those services is likely to be. • Timing • The GFE should be provided within three business days after receipt of a written application • Not required if the application is declined within 3 days from application.

  22. Good Faith Estimate (“GFE”) • Internal Review • Review form for the required terms as outlined in Appendix C of HUD Regulation X • The estimates must bear a “reasonable relationship” to the charge a borrower is likely to pay at settlement • Lenders may substitute GFE for Itemization of Amount Financed required by Regulation Z for mortgage loans subject to RESPA.

  23. Good Faith Estimate (“GFE”) • HUD Proposal • HUD makes proposal to attach liability to disclosure similar to Reg Z. • Either create tolerance for accuracy compared to HUD 1 actual costs or Lender guarantee closing costs on front end • Alphonso Jackson replaces Mel Martinez as HUD Secretary of Housing & proposal is tabled.

  24. Mortgage Servicing Transfer Disclosure

  25. Mortgage Servicing Transfer Disclosure • Purpose: • Informs the applicant of the likelihood that servicing (collection of payments) will be sold or transferred to another institution • There are 5 parts to this disclosure: • Transfer Practices and Requirements • Complaint Resolution • Damages and Costs • Servicing Transfer Estimates by Original Lender • Customer Acknowledgement

  26. Mortgage Servicing Transfer Disclosure • Original Requirements • Disclosure must be provided for 1st lien loans • Historical data had to be updated by March 31 of each calendar year.

  27. Mortgage Servicing Transfer Disclosure • Timing Requirement: • If the application is taken face-to-face, provide the disclosure at the time of application. • If the application is taken in a manner other than face-to-face, provide the disclosure within 3 business days • Mandatory Customer Acknowledgement • Disclosure must be retained for 5 years

  28. Mortgage Servicing Transfer Disclosure • Congress Changes the Law • September 30, 1996 • Congress amended RESPA to eliminate hist. data & acknowledgement • HUD Proposes Amendments • HUD proposes to amend Regulation X to implement 1996 requirements but never finalizes proposed regulation • July 29, 2003 • HUD proposes revisions to Regulation X and provides interim rule: • “….However, in the meantime, the Section 6 language in the statute may be provided in conjunction with the GFE………”

  29. Mortgage Servicing Transfer Disclosure • Section 6 • “Each person who makes a federally related mortgage loan shall disclose to each person who applies for the loan, at the time of application for the loan, whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding.”

  30. Mortgage Servicing Transfer Disclosure • Current requirements • 3500.21(b)(1) • Servicing disclosure statement must be given within 3 business days • 3500.21(b)(3)(I) • Servicing disclosure statement must disclose whether servicing may be assigned, sold, or transferred

  31. Affiliated Business Arrangement

  32. Affiliated Business Disclosure • Purpose • The disclosure informs borrowers of any affiliated relationship that exists between the lender and service provider • Disclosure Information • Provided on a separate paper • The name & address of service provider • Describes the service they are providing • Lists the cost ( $) for that service

  33. Affiliated Relationship • Affiliated Relationship Exists: • When a company refers a settlement service to a provider with whom the company has an affiliate relationship and that company benefits financially from the referral of business. • If so, the lender is limited to requiring an: • Appraiser • Attorney • Credit Bureau.

  34. Affiliated Relationship • Affiliated Relationship Exists When: • One business entity has effective control over another by virtue of a partnership or other agreement or • A parent to subsidiary relationship or where the two entities are under common control of a third entity • Or in which the referring company owns 1% or more of the company providing the settlement service.

  35. Affiliated Business Disclosure • Timing of Disclosure • Face-to-face application • no later than the time of each referral • if the lender requires use of a particular provider • at the time of loan application, except that • where a lender makes the referral to a borrower, the referral may be satisfied at the time that the good faith estimate is provided • Telephone application???? • affiliation may be given orally • followed by the written disclosure within 3 days.

  36. Affiliated Business Disclosure • Record Retention • Customer acknowledgement of the disclosure is required and must be retained for 5 years

  37. Closing - RESPA

  38. Required Disclosures • Disclosures at Closing • HUD 1/ 1A Settlement Statement • Initial Escrow Account Disclosure

  39. HUD-1 Hud-1A Uniform Settlement Statement

  40. HUD-1 or HUD-1A • Determine if the financial institution uses the current HUD-1 or HUD-1A, as appropriate • HUD –1 may always be used • Review HUD-1 to see that charges are properly disclosed for both borrower and seller

  41. HUD-1 or HUD-1A • Required Disclosures • Charges paid outside of closing must be labeled “POC” but not included in the totals. • The name of any 3rd party was the recipient of a fee must be disclosed. • Timing for Disclosure • Must be provided at or prior to settlement.

  42. HUD-1 or HUD-1A • Timing for Disclosure • HUD-1 or HUD-1A must be available for inspection by the borrower at least one business day before settlement.

  43. Charging for Disclosures • Lenders are prohibited from charging fees for the preparation of: HUD1/1A, TIL statement or escrow account disclosures.

  44. Escrow Accounts

  45. Escrow Accounts • Does you bank escrows for taxes and insurance premiums? • Refer to p.2 of the HUD 1 Statement - 1000 series

  46. Escrow Accounts • What is an Escrow Account?

  47. Escrow Accounts • Definition • “a separate bank account segregated from the bank’s own funds in which the bank is required by state law to deposit all monies collected for clients” • AKA Trust, Reserve or Impound Account

  48. Escrow Accounts • What kinds of payments would a servicer make from an Escrow account? • Hazard Insurance • Flood Insurance • Guarantee Insurance (PMI or Government) • Various Types of Taxes

  49. Escrow Accounts • Why would a bank condition a loan or require a borrower to pay amounts into an escrow account? • To protect its interest in the collateral i.e. avoidtax liens or ensure that hazard policy premiums are paid

  50. Escrow Accounts • If the bank engages in this activity, there are requirements, restrictions, and limitations outlined in Section 3500.17 of Regulation X and Section 10(C)(1) of RESPA • Civil Liability as well

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