RESPA Overview and Coverage

RESPA (Real Estate Settlement Procedures Act) Overview

• RESPA, or Regulation X, was created in 1975 to protect consumers in residential real estate transactions.
• It covers federally-related transactions for 1-4 family homes.
• Includes purchase loans, refinances, and HELOCs.
• Excludes business, commercial, agricultural loans, temporary loans (under 2 years), bridge loans, loans on vacant land, and certain assumption scenarios.

RESPA Coverage

• Covers a broad range of real estate service providers in federally related transactions: real estate brokers, mortgage lenders, third-party settlement service providers, title companies, home warranty providers, insurance agents, appraisers, inspectors, and others involved in closings.
• Notably excludes home improvement contractors, movers, and others who are not directly paid at settlement.

RESPA Disclosures and Requirements

• Lenders must provide timely and accurate disclosures of settlement costs and processes.
• Application disclosures must include a Good Faith Estimate (replaced by the Loan Estimate under TRID), a list of settlement service providers, and other relevant documents within 3 business days of the application (with specific minimum data requirements, Six pieces of borrower information needed for trigger).
• A HUD Special Information Booklet about settlement costs (replaced by the CFPB Homebuyer's Toolkit for purchase transactions).
• Mortgage servicing disclosures, affiliated business disclosures, and homeownership counseling organization lists.
• Closing disclosures (HUD-1 Settlement Statement replaced by Closing Disclosure) required 3 business days before closing.
• Initial Escrow account disclosures, annual escrow statements, and servicing transfer statements (when applicable).

RESPA Prohibitions

• Prohibits kickbacks, unearned fees, forced title insurance purchases from specific companies, fees for required disclosures.
• Specific rules on fees charged during loan origination processes, particularly during closing.

RESPA Definitions

• Defines "Mortgage Broker" as a non-employee intermediary between lender and borrower in federally-related mortgage transactions, including those that close and fund the loan themselves.
• Includes loan correspondents under specific circumstances or exclusive agents who are not lender employees.

RESPA Foreclosure, Servicing, and Collections

• Loan servicers are restricted from excessively large escrow accounts.
• Borrowers can make "Qualified Written Requests" for information or error correction and the servicers must comply within timeframes.
• Servicers must attempt live contact and maintain communication with borrowers, provide written notice of delinquency, and adhere to loss mitigation policies.
• Foreclosure cannot be initiated on loans 120 days delinquent or less.
• Servicers must investigate and rectify legitimate errors identified by those seeking Qualified Written Requests.

Other RESPA Elements

• Includes requirements for disclosures related to transfers of servicing, including timeframes.
• Requires loan originators who are also real estate agents in the same transaction to disclose their dual roles.
• Mortgage brokers are required to disclose they are not lenders.
• "Discount points" are bona fide discount points to reduce interest rate.