Transcript RESPA - AARMR

BASIC RESPA
Implemented through
HUD’s
Regulation X
1
Objectives
• We will review the following:
– Background of RESPA
– Kickback Rules of Section 8
– Pre-closing Disclosures
– Closing Disclosures
– Post-closing Disclosure
2
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
3
Background
 Purchase Money mortgage loans only
 Three purposes:
 Require advance disclosure of settlement charges
 Prohibit certain referral fees and “kickbacks”
 (Section 8 Violations)
 Limit escrow amounts required for taxes and
insurance
4
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
5
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
6
Section 8 Violations
kickbacks
7
Section 8 Violations
• Section 8A
– No referral fees
• Section 8B
– No splitting of charges except for actual
services performed
• Violations are considered a felony
–
–
–
–
subject to $10,000 fine
1 year prison term
treble damages
attorney’s fees
8
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.
9
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”.
10
Section 8 Violations
• Examples of Section 8 violations
11
RESPA Disclosures
12
RESPA Disclosures
•
Pre Closing Disclosures
–
Special Information Booklet
–
Good Faith Estimate
–
Mortgage Servicing Transfer Disclosure
–
Affiliated Business Arrangement Discl.
13
Disclosures
In the news:
– HUD’s Proposal - Meaningful “GFE”
– Mortgage Servicing Disclosure Violations
14
Special Information Booklet
Isn’t that
special
15
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
16
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)
17
Good Faith Estimate
18
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.
19
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.
20
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.
21
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.
22
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.
23
Mortgage Servicing Transfer
Disclosure
24
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
25
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.
26
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
27
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………”
28
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.”
29
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
30
Affiliated Business Arrangement
31
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
32
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.
33
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.
34
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.
35
Affiliated Business Disclosure
•Record Retention
– Customer acknowledgement of the disclosure is
required and must be retained for 5 years
36
Closing - RESPA
37
Required Disclosures
•
Disclosures at Closing
–
HUD 1/ 1A Settlement Statement
–
Initial Escrow Account Disclosure
38
HUD-1 Hud-1A
Uniform Settlement Statement
39
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
40
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.
41
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.
42
Charging for Disclosures
Lenders are prohibited from charging fees for the
preparation of: HUD1/1A, TIL statement or
escrow account disclosures.
43
Escrow Accounts
44
Escrow Accounts
• Does you bank escrows for taxes and
insurance premiums?
– Refer to p.2 of the HUD 1 Statement 1000 series
45
Escrow Accounts
• What is an Escrow Account?
46
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
47
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
48
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.
avoid tax liens or ensure that hazard policy
premiums are paid
49
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
50
Escrow Accounts
• Prior to establishing an escrow account:
– An escrow account analysis must be
performed to determine amounts the
borrower will deposit into the account
51
Escrow Accounts
• To establish an account, the following
limitations must be followed:3500.17(c)(1)(I)
• collect an amount that is sufficient to bring
taxes and insurance premiums current
• select a cushion that does not exceed 1/6th
of each annual outlay
• must use the “aggregate accounting
method” to determine amounts that are
collected at closing
– All accounts established after October 27, 1997
– 3500.17(b)
52
Escrow Accounts
• During the life of an account:
3500.17(k)(1)
– Servicers are limited to collect monthly
payments that do not exceed 1/12th of each
annual outlay amount
– Must refund surpluses > $50 within 30
days of the escrow analysis statement
53
Escrow Accounts
• During the life of an account:
3500.17(k)(1)
– Servicer must pay outlays in a timely
manner in order to avoid any penalty
– Payments may not be more than 30 days
overdue
54
Escrow Accounts
• During the life of an account: 3500.17(k)(1)
– Discounts and additional fees – HUD
encourages the servicer to follow customer
preference, but does not require payments
to be made so as to earn discounts.
55
Escrow Accounts
• Initial Escrow Account Statement
– amount of the monthly payment (PITI)
– amount of the monthly payment that will be deposited into the
escrow account
• 3500.17(g)(1)(I)
– amounts of outlay(s) that will be paid from the escrow account
(estimated taxes & insurance, etc.)
– cushion, if any, selected by the servicer
– trial running balance
• 3500.17(g)(1)(I)
56
Escrow Accounts
• Timing
– The bank must furnish the borrower with an initial
disclosure within 45 days upon establishing an
escrow account - 3500.17(g)(1)
• Record Retention
– Recordkeeping requirement for 5 years after the
account is last serviced
• 3500.17(l)(2)
–
57
Escrow Exercise
Review In-Class Exercise
RESPA’s Appendix E Example
58
Escrow Exercise
• Use HUD’s Aggregate Accounting Method & 3 Step
Process to compute a Trial Balance with Cushion
• This analysis is used to help in the preparation of the
Initial Escrow Account Statement
59
Escrow Exercise
• Exercise Loan Scenario:
– Settlement Date:
May 15
– First Payment Date:
July 1
– Projected Outlays:
• School Taxes (Paid Sept. 20)
• County Taxes (Paid July 25 $500
& Dec.10 $700)
Total Annual Outlays
$360
$1,200
$1,560
• Monthly Deposits to Account = $1,560 / 12 =
$130 per month
• Servicer Selects a 2 Month Cushion
60
Escrow Exercise
• Step 1 - Initial Trial Balance
Month
Payment
Balance
June
July
August
September
October
November
December
January
February
March
April
May
June
0
130
130
130
130
130
130
130
130
130
130
130
130
Disbursement
0
500
0
360
0
0
700
0
0
0
0
0
0
0
-370
-240
-470
-340
-210
-780 *
-650
-520
-390
-260
-130
0
* = High Deficit
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Escrow Exercise
• Step 2 - Adjusted Trial Balance
Month
June
July
August
September
October
November
December
January
February
March
April
May
June
Payment
0
130
130
130
130
130
130
130
130
130
130
130
130
Disbursement
0
500
0
360
0
0
700
0
0
0
0
0
0
Balance
780
410
540
310
440
570
0
130
260
390
520
650
780
62
Escrow Exercise
• Step 3 - Trial Balance with Cushion
Month
Payment
Disbursement
Balance
June
0
0
1040
July
130
500
670
August
130
0
800
September
130
360
570
October
130
0
700
November
130
0
830
December
130
700
260
January
130
0
390
February
130
0
520
March
130
0
650
April
130
0
780
May
130
0
910
June
130
0
1040
High Deficit (780) + 2 Month Cushion (260) = 1040 (Opening Statement
Balance)
63
Escrow Exercise
Single Item Accounting Method
School Taxes
County Property Taxes
Paid on: Sept. 20
$360
Jun
Jul
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Paid on July 25 and on Dec. 10
$1,200
Dep.
Outlay
Bal.
0
0
30
30
30
60
30
360
<270>*
30
<240>
30
<210>
30
<180>
30
<150>
30
<120>
30
<90>
30
<60>
30
<30>
30
0
High Deficits: $270 + $600
2 Mos.Cushion: $60 + $200
$330 + $800 = $1,130
Dep.
0
100
100
100
100
100
100
100
100
100
100
100
100
Outlays
500
700
Bal.
0
<400>
<300>
<200>
<100>
0
<600>*
<500>
<400>
<300>
<200>
<100>
0
Trial Balance with
Cushion using the Single Item
Accounting Method
64
Escrow Exercise
Trial Balance with Cushion:
Single Item Accounting Method: $1,130 *
*Used on the HUD 1 Settlement
Aggregate Accounting Method: $1,040 **
**Amount collected at closing &
<$90>
Used as “Starting Balance” on
Initial Escrow Account Statement
$90 = Aggregate Accounting Adjustment
used on the HUD 1 Settlement Statement
65
Post Closing - RESPA
66
RESPA / Regulation X
• Disclosures: Post Closing
• Annual Escrow Account Statement
• Notice of sale or transfer of servicing “Hello - Goodbye”, if applicable.
67
Annual Escrow Account Statement
68
Annual Escrow Statement
 Contents
 Disclosure is similar to Initial Statement
 3500.17(I)(1)(I) thru (viii)
 However, it shows actual amounts paid from the
account and addresses overages and shortages
 Timing
 Must be provided within 30 days at the end of the
annual escrow accounting computation year
 3500.17(I)
69
Notice of Sale or Transfer of Servicing
Hello Goodbye
70
Notice of Sale or Transfer of Servicing
“Transferee” (the new servicer) must provide
notice not more than 15 days after the
effective date of the transfer of servicing;
 “Transferor” (the old servicer) must provide a
notice not less than 15 days before the
effective date of the transfer.
71
Notice of Sale or Transfer of Servicing
 Option for transferor and transferee to combine
notices into one notice which must be provided not
less than15 days before the effective date of the
transfer.
 Special circumstances allow for the notices to be
given within 30 days after the effective date of the
transfer of servicing
72
Questions
73