RESPA - Real Estate Settlement Procedures Act - Regulation X
Terms in this set (27)
What is the purpose of RESPA
To allow consumers to obtain information about closing costs, so they can shop for settlement services. RESPA uses mandatory disclosure requirements to ensure that consumers receive the closing cost information. Protects consumers from excessive costs (kickbacks and referral fees) and unearned fees.
Settlement aka Closing (terminology)
Borrowers depend on a number of settlement service providers (aka 3rd Parties) to prepare for closing. 3rd Party services are provided by appraisers, credit reporting agencies, title companies, escrow companies, government agencies, etc.
Things of Value (terminology)
Any payment, advance, loan, or service. This includes such things as money, discounts, stocks, trips, tickets, special banking terms, etc. There is no minimum dollar amount required to be considered a "thing of value".
Fee-Splitting and Kickbacks (term)
The sharing of fees among settlement service providers.
A unilateral increase in the cost of settlement and retention of that additional fee by the party making the markup. While there is a difference of opinion in the courts on whether markups violate the RESPA rule against fee-splitting if they are not actually split between the parties HUD's policy on markups is that they violate Section 8 of RESPA. The lender can only charge the actual cost of the service provided by the Third Party. No markups are allowed. (These charges are on the GFE, they can't be higher than 10% if the lender selects the 3rd parties)
Affiliated Business Arrangement (term)
An arrangement in which one party (the lender) refers the loan applicant to a settlement service provider with whom the party has an affiliate relationship or ownership interest of more than 1%. As an example, loanDepot has an Affiliated Business Arrangement with LD Escrow. Except in cases where a lender refers a borrower to an attorney, appraiser, or credit reporting agency, the lender may not require the consumer to use the particular settlement service provider being referred. This is to promote transparency.
Sham Affiliated Business Arrangement (term)
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.
Yield Spread Premium - YSP (term)
A fee paid to a loan originator (mortgage broker) by the lender for originating a loan at an interest rate higher than the par rate. YSP is generally intended to provide a resource for a loan originators to subsidize borrower closing costs. However, it has often come under fire as a violation of RESPA's rules against kickbacks. YSP only applies to mortgage broker transactions and it must be disclosed on the GFE and the HUD-1. It does not apply to loan originators at loanDepot. YSP is also known as a lender's rebate.
What are the 8 Required RESPA Disclosures?
1.) GFE (changing name to LOAN ESTIMATE)
2.) Settlement Cost Information Booklet (SCIB)
3.) Mortgage Servicing Disclosure Statement
4.) HUD-1 Settlement Statement (changing the name to CLOSING DISCLOSURE)
5.) Initial Escrow Statement
6.) Annual Escrow Statement
7.) Affiliated Business Arrangement Disclosure
8.) Servicing Transfer Statement
GFE Application - Good Faith Estimate
An estimate of cost at closing that must be disclosed within 3 business days. P.E.N.C.I.L
Settlement Cost Information Booklet (SCIB)
Booklet describing the loan process that must be disclosed within 3 days.
HUD-1 (Uniform Settlement Statement)
Final cost at closing that must be disclosed in 1 business day.
Initial Escrow Statement
Required by RESPA and due 45 days after closing, although it is often provided at the time of closing.
The initial escrow statement provides an estimate of escrow payments (taxes, insurance, etc.) that will be required in the first 12 months of the loan.
Service Transfer Disclosure
If their loan does get sold, it must be disclosed 15 days PRIOR to being sold (by both the buyer and seller).
There is a 60 day grace period in which no late fees can be charged to a borrower who sends their payment to the original service.
ABA (Affiliated Business Arrangement)
Must be disclosed at the time of referral (this is to promote transparency). To not violate Section 8, must own more than 1% of the company you are referring to
Mortgage Servicing Disclosure Statement
A disclosure that states their loan may be sold. Must be disclosed within 3 business days.
Annual Escrow Statement
The lender or servicer will review the escrow account annually and send the borrower another disclosure each year which shows the prior year's activity and any adjustments necessary in the escrow payments that the borrower will make in the forthcoming year.
P.E.N.C.I.L. aka GFE Application
P - Property Address
E - Estimated Value
N - Name
C - Credit
I - Income
L - Loan Amount
States that no person may give/receive a fee, kickback, or any other form of valuable compensation for referring a potential borrower to a certain lender.
Violations: A fine up to $10K, up to 1 year prison, or both.
How long does a Lender need to keep compliance records of RESPA for?
Who is the CFPB
Consumer Financial Protection Bureau
This is the Mortgage Servicing Disclosure. Violations: If a pattern/practice exists, the servicer can be liable for additional penalties up to $1,000. Class Action lawsuits are limited to $1000 for each member of the Class and total damages may not exceed $500,000 or 1% of the net worth of the servicer.
Covers the two different escrow account statements that the servicer must provide to the borrower. At the settlement or within 45 days after it, the service provider for the loan must give the borrower an initial escrow account statement. That form will show all of the payments which are expected to be deposited into the escrow account and all of the disbursements which are expected to be made from the escrow account during the year ahead.
The 4 Main areas of the GFE are:
1.) 3rd Party Fees. (Private entities not government)
2.) Prepaid costs. (Not fees)
3.) Lender controlled costs
4.) Government fees
RESPA covers 1st and 2nd mortgage related transactions on residential real property.
* 1-4 Family Dwellings
* Manufactured Homes (must be attached to ground)
This charge is for the insurance you must buy for the property to protect from a loss, such as fire. (Protect collateral)
A 3rd party accounting service that disperses the money to all parties involved in the transaction. Escrow provides paper trail and is temporary and it closes when the transaction is done.