real estate settlement procedures act

Real Estate Settlement Procedures Act (RESPA)

Background

The Real Estate Settlement Procedures Act of 1974(RESPA) (12 USC 2601 et seq.) (the ‘‘Act’’) becameeffective on June 20, 1975. The Act requireslenders, mortgage brokers, or servicers of homeloans to provide borrowers with pertinent andtimely disclosures regarding the nature and costsof the real estate settlement process. The Act alsoprotects borrowers against certain abusive prac-tices, such as kickbacks, and places limitationsupon the use of escrow accounts. The Departmentof Housing and Urban Development (HUD) promul-gated Regulation X (24 CFR 3500), which imple-ments RESPA. The National Affordable HousingAct of 1990 amended RESPA to require detaileddisclosures concerning the transfer, sale, or assign-ment of mortgage servicing. It also requiresdisclosures for mortgage escrow accounts atclosing and annually thereafter, itemizing thecharges to be paid by the borrower and what ispaid out of the account by the servicer.

In October 1992, Congress amended RESPA tocover subordinate lien loans. HUD, however,decided not to enforce these provisions untilRegulation X was amended to cover these loans.On February 10, 1994, Regulation X was amendedto extend coverage to subordinate lien loans. Theamendments were effective August 9, 1994.Exemptions from coverage of RESPA and Regula-tion X, set forth in section 3500.5(b), were effectiveMarch 14, 1994. Technical corrections and amend-ments to the rule were issued on March 30, 1994and July 22, 1994.

On June 7, 1996, HUD amended Regulation X toclarify certain exemption provisions of RESPA, toamend the controlled business disclosure require-ments, and to address specific comments raised inthe 1994 rule. These amendments became effec-tive on October 7, 1996. When it enacted theEconomic Growth and Regulatory Paperwork Re-duction Act of 1996,1 Congress further amendedRESPA to clarify certain definitions including ‘‘con-trolled business arrangement,’’ which was changedto ‘‘affiliated business arrangement.’’ The changesalso reduced the disclosures under the mortgageservicing provisions of RESPA.

In 2008, HUD issued a RESPA Reform Rule(73 FR 68204, Nov. 17, 2008) that includedsubstantive and technical changes to the existingRESPA regulations and different implementationdates for various provisions. Substantive changes

included a standard Good Faith Estimate form anda revised HUD-1 Settlement Statement that wasrequired as of January 1, 2010. Technical changes,including streamlined mortgage servicing disclo-sure language, elimination of outdated escrowaccount provisions, and a provision permitting an‘‘average charge’’ to be listed on the Good FaithEstimate and HUD-1 Settlement Statement, tookeffect on January 16, 2009. In addition, HUDclarified that all disclosures required by RESPA arepermitted to be provided electronically, in accor-dance with the Electronic Signatures in Global andNational Commerce Act (ESIGN).

Coverage (§3500.5(a))

Federally Related Mortgage Loans

RESPA is applicable to all federally related mort-gage loans, which are defined as:

Loans (other than temporary loans), includingrefinancings secured by a first or subordinate lienon residential real property upon which either:

• A 1-4 family structure is located or is to beconstructed using proceeds of the loan (includ-ing individual units of condominiums and coop-eratives) or

• A manufactured home is located or is to beconstructed using proceeds of the loan.

In addition, the federally related mortgage loanmust meet one of the following conditions:

– Made by a lender,2 creditor,3 dealer;4

– Made or insured by an agency of the federalgovernment;

– Made in connection with a housing or urbandevelopment program administered by anagency of the federal government;

– Made and intended to be sold by the originat-ing lender or creditor to FNMA; GNMA, orFHLMC (or its successor);5

1. Pub.L. 104-208, Div. A., Title II 2103 (c), Sept. 30, 1996.

2. A lender includes financial institutions either regulated by, orwhose deposits or accounts are insured by, any agency of thefederal government.

3. A creditor is defined in section 103(f) of the Consumer CreditProtection Act (15 USC 1602(f)). RESPA covers any creditor thatmakes or invests in residential real estate loans aggregating morethan $1,000,000 per year.

4. Dealer is defined in Regulation X to mean a seller,contractor, or supplier of goods or services. Dealer loans arecovered by RESPA if the obligations are to be assigned before thefirst payment is due to any lender or creditor otherwise subject tothe regulation.

5. FNMA - Federal National Mortgage Association; GNMA -Government National Mortgage Association; FHLMC - Federal

Consumer Compliance Handbook RESPA • 1 (6/10)

– Subject of a home equity conversion mortgageor reverse mortgage issued by a lender orcreditor subject to the regulation; or

– Made by a lender, dealer, or creditor subject tothe regulation and used in whole or in part tofund installment sales contracts, land con-tracts, or contracts for deeds on otherwisequalifying residential property.

Exemptions (§3500.5(b))

The following transactions are exempt from cover-age:

• A loan on property of 25 acres or more (whetheror not a dwelling is located on the property).

• A loan primarily for business, commercial oragricultural purposes (definition identical to Regu-lation Z, 12 CFR 226.3(a)(1)).

• A temporary loan, such as a construction loan.The exemption does not apply if the loan is usedas, or may be converted to, permanent financingby the same financial institution or is used tofinance transfer of title to the first user of theproperty. If the lender issues a commitment forpermanent financing, it is covered by the regula-tion. Any construction loan with a term of twoyears or more is covered by the regulation,unless it is made to a bona fide contractor.‘‘Bridge’’ or ‘‘swing’’ loans are not covered by theregulation.

• A loan secured by vacant or unimproved prop-erty where no proceeds of the loan will be used toconstruct a 1-4 family residential structure. If theproceeds will be used to locate a manufacturedhome or construct a structure within two yearsfrom the date of settlement, the loan is covered.

• An assumption, unless the mortgage instrumentsrequire lender approval for the assumption andthe lender approves the assumption.

• A renewal or modification where the originalobligation (note) is still in effect but modified.

• A bona fide transfer of a loan obligation in thesecondary market. (However, the mortgage ser-vicing transfer disclosure requirements of 24 CFR3500.21 still apply.) Mortgage broker transac-tions that are table funded (the loan is funded bya contemporaneous advance of loan funds andan assignment of the loan to the person advanc-ing the funds) are not secondary market transac-tions and, therefore, are covered by RESPA.

Special Information Booklet (§3500.6)

A loan originator6 is required to provide theborrower with a copy of the Special InformationBooklet at the time a written application is submit-ted, or no later than three-business days after theapplication is received. If the application is deniedbefore the end of the three business-day period,the loan originator is not required to provide thebooklet. If the borrower uses a mortgage broker,the broker rather than the lender, must provide thebooklet.

The booklet does not need to be provided forrefinancing transactions, closed-end subordinatelien mortgage loans and reverse mortgage trans-actions, or for any other federally related mortgageloan not intended for the purchase of a one-to-fourfamily residential property.

A loan originator that complies with Regulation Z(12 CFR 226.5b) for open-end home equity plans isdeemed to have complied with this section.

Good Faith Estimate (GFE) ofSettlement Costs (§3500.7)

Standard GFE Required

As of January 1, 2010, a loan originator wasrequired to provide a consumer with the standardGFE form that is designed to allow borrowers toshop for a mortgage loan by comparing settlementcosts and loan terms. Appendix C to Regulation Xcontains the GFE form and the instructions forcompleting it. The GFE form is also available atwww.hud.gov/offices/adm/hudclips/forms/files/1-gfe.pdf.

Overview of the Standard GFE

The first page of the GFE includes a summary ofloan terms and a summary of estimated settlementcharges. It also includes information about keydates such as when the interest rate for the loanquoted in the GFE expires and when the estimatefor the settlement charges expires. The secondpage discloses settlement charges as subtotals foreleven categories of costs. The third page providesa table explaining which charges can change atsettlement, a trade-off table showing the relation-ship between the interest rate and settlementcharges, and a shopping chart to compare the

Home Loan Mortgage Corporation.

6. The RESPA Reform Rule added the definition of ‘‘loanoriginator’’ to the list of defined terms in the RESPA regulations. A‘‘loan originator’’ is defined as a lender or mortgage broker.

Real Estate Settlement Procedures Act

2 (6/10) • RESPA Consumer Compliance Handbook

costs and terms of loans offered by differentoriginators.

GFE Application Requirements• The loan originator must provide the standard

GFE to the borrower within three business days ofreceipt of an application for a mortgage loan. Aloan originator is not required to provide a GFE ifbefore the end of the three-business-day period,the application is denied or the borrower with-draws the application.

• An application can be in writing or electronicallysubmitted, including a written record of an oralapplication.

• A loan originator determines what information itneeds to collect from a borrower and which of thecollected information it will use in order to issue aGFE. Under the regulations, an ‘‘application’’includes at least the following six pieces ofinformation:

– the borrower’s name,

– the borrower’s gross monthly income,

– the borrower’s Social Security number (e.g., toenable the loan originator to obtain a creditreport),

– the property address,

– an estimate of the value of the property, and

– the mortgage loan amount sought.

In addition, a loan originator may require thesubmission of any other information it deemsnecessary. A loan originator will be presumed tohave relied on such information prior to issuing aGFE and cannot base a revision of a GFE on thatinformation unless it changes or is later found tobe inaccurate.

• While the loan originator may require the bor-rower to submit additional information beyond thesix pieces of information listed above in order toissue a GFE, it cannot require, as a condition ofproviding the GFE, the submission of supplemen-tal documentation to verify the information pro-vided by the borrower on the application. How-ever, a loan originator is not prohibited from usingits own sources to verify the information providedby the borrower prior to issuing the GFE. The loanoriginator can require borrowers to provideverification information after the GFE has beenissued in order to complete final underwriting.

• For dealer loans, the loan originator is respon-sible for providing the GFE directly or ensuringthat the dealer provides the GFE.

• For mortgage brokered loans, either the lender orthe mortgage broker must provide a GFE within

three business days after a mortgage brokerreceives either an application or informationsufficient to complete an application. The lenderis responsible for ascertaining whether the GFEhas been provided. If the mortgage broker hasprovided the GFE to the applicant, the lender isnot required to provide an additional GFE.

• A loan originator is prohibited from charging aborrower any fee in order to obtain a GFE, unlessthe fee is limited to the cost of a credit report.

GFE Not Required for Open End Linesof Credit (§3500.7(h))

A loan originator that complies with Regulation Z(12 CFR 226.5b) for open-end home equity plans isdeemed to have complied with section 3500.7.

Availability of GFE Terms (§3500.7(c))

Regulation X does not establish a minimum periodof availability for which the interest rate must behonored. The loan originator must determine theexpiration date for the interest rate of the loanstated on the GFE. In contrast, Regulation Xrequires that the estimated settlement charges andloan terms listed on the GFE be honored by theloan originator for at least ten business days fromthe date the GFE is provided. The period ofavailability for the estimated settlement chargesand loan terms as well as the period of availabilityfor the interest rate of the loan stated on the GFEmust be listed on the GFE in the ‘‘Important dates’’section of the form.

After the expiration date for the interest rate of theloan stated on the GFE, the interest rate and theother rate related charges, including the charge orcredit for the interest rate chosen, the adjustedorigination charges and the per diem interest canchange until the interest rate is locked.

Key GFE Form Contents (§3500.7(d))

The loan originator must ensure that the requiredGFE form is completed in accordance with theInstructions set forth in Appendix C of 24 CFR3500.

First Page of GFE• The first page of the GFE discloses identifying

information such as the name and address of the‘‘loan originator,’’ which includes the lender or themortgage broker originating the loan. The ‘‘pur-pose’’ section indicates what the GFE is aboutand directs the borrower to the Truth in Lendingdisclosures and HUD’s website for more informa-tion. The borrower is informed that only the



borrower can shop for the best loan and that theborrower should compare loan offers using theshopping chart on the third page of the GFE.

• The ‘‘Important dates’’ section requires the loanoriginator to state the expiration date for theinterest rate for the loan provided in the GFE, aswell as the expiration date for the estimate ofother settlement charges and the loan terms notdependent upon the interest rate.

• While the interest rate stated on the GFE is notrequired to be honored for any specific period oftime, the estimate for the other settlement chargesand other loan terms must be honored for at leastten business days from when the GFE isprovided.

• In addition, the form must state how manycalendar days within which the borrower must goto settlement once the interest rate is locked (ratelock period). The form also requires disclosure ofhow many days prior to settlement the interestrate would have to be locked, if applicable.

• The ‘‘Summary of your loan’’ section requiresdisclosure of:

– the loan amount,

– loan term,

– initial interest rate,

– initial monthly payment for principal, interest,and any mortgage insurance,

– whether the interest rate can rise, and if so, themaximum rate to which it can rise over the lifeof the loan, and the period of time after whichthe interest rate can first change,

– whether the loan balance can rise if thepayments are made on time and if so, themaximum amount to which it can rise over thelife of the loan,

– whether the monthly amount owed for princi-pal, interest and any mortgage insurance canrise even if payments are made on time, and ifso, the maximum amount to which the monthlyamount owed can ever rise over the life of theloan,

– whether the loan has a prepayment penalty,and if so, the maximum amount it could be,and

– whether the loan has a balloon payment, and ifso, the amount of such payment and in howmany years it will be due.

• The ‘‘Escrow account information’’ sectionrequires the loan originator to indicate whetherthe loan does or does not have an escrowaccount to pay property taxes or other propertyrelated charges. In addition, this section alsorequires the disclosure of the monthly amount

owed for principal, interest and any mortgageinsurance.

• The bottom of the first page includes subtotals forthe adjusted origination charges and charges forall other settlement charges listed on page two,along with the total estimated settlement charges.

Second Page of GFE

The second page of the GFE requires disclosure ofall settlement charges. It provides for the estimateof total settlement costs in eleven categories(Blocks 1–11) discussed below. The adjustedorigination charges are disclosed in ‘‘Block A’’ andall other settlement charges are disclosed in ‘‘BlockB.’’ The amounts in the blocks are to be added toarrive at the ‘‘Total Estimated Settlement Charges,’’which is required to be listed at the bottom of thepage.

Disclosure of Adjusted Origination Charge (BlockA)

Block A addresses disclosure of originationcharges, which include all lender and mortgagebroker charges. The ‘‘Your Adjusted OriginationCharge’’ results from the subtraction of a ‘‘credit’’from the ‘‘origination charge’’ or the addition of a‘‘charge’’ to the ‘‘origination charge.’’

• Block 1 - The origination charges, which includelender processing and underwriting fees and anyfees paid to a mortgage broker;

Note on Origination Charge: This block requiresthe disclosure of all charges that all loanoriginators involved in the transaction will receivefor originating the loan (excluding any chargesfor points). A loan originator may not separatelycharge any additional fees for getting the loansuch as application, processing or underwritingfees. The amount in Block 1 is subject to zerotolerance, i.e., the amount cannot change atsettlement.

• Block 2 - A ‘‘credit’’ or ‘‘charge’’ for the interestrate chosen;

Notes on Credit or Charge for the Interest RateChosen:

Transaction Involving a Mortgage Broker: For atransaction involving a mortgage broker,7 Block 2

7. The RESPA Reform Rule changed the definition of‘‘mortgage broker’’ to mean a person or entity (not an employee ofa lender) that renders origination services and serves as anintermediary between a lender and a borrower in a transactioninvolving a federally related mortgage loan, including such personor entity that closes the loan in its own name and table funds thetransaction. The definition will also apply to a loan correspondentapproved under 24 CFR 202.8 for Federal Housing Administration(FHA programs). The definition would also include an ‘‘exclusiveagent’’ who is not an employee of the lender.



requires disclosure of a ‘‘credit or charge’’(points) for the specific interest rate chosen. Thecredit or charge for the specific interest ratechosen is the net payment to the mortgagebroker (i.e., the sum of all payments to themortgage broker from the lender, includingpayments based on the loan amount, a flat rate orany other compensation, and in a table fundedtransaction, the loan amount less the price paidfor the loan by the lender).

When the net payment to the mortgage brokerfrom the lender is positive, there is a ‘‘credit’’ tothe borrower and it is entered as a negativeamount. For example, if the lender pays a yieldspread premium to a mortgage broker for theloan set forth in the GFE, the payment must bedisclosed as a ‘‘credit’’ to the borrower for theparticular interest rate listed on the GFE (re-flected on the GFE at Block 2, checkbox 2). Theterm ‘‘yield spread premium’’ is not featured onthe GFE or the HUD-1 Settlement Statement.

Points paid by the borrower for the interest ratechosen must be disclosed as a ‘‘charge’’(reflected on the GFE at Block 2, third checkbox).A loan cannot include both a charge (points) anda credit (yield spread premium).

Transaction Not Involving a Mortgage Broker: Fora transaction without a mortgage broker, a lendermay choose not to separately disclose any creditor charge for the interest rate chosen for the loanin the GFE. If the lender does not include anycredit or charge in Block 2, it must check the firstcheckbox in Block 2 indicating that, ‘‘The creditor charge for the interest rate you have chosen isincluded in ‘our origination charge’ above.’’ Onlyone of the boxes in Block 2 may be checked, asa credit and charge cannot occur together in thesame transaction.

Disclosure of Charges for All Other SettlementServices (Block B)

Block B is the sum of charges for all settlementservices other than the origination charges.

• Block 3 - Required services by providers selectedby the lender such as appraisal and floodcertification fees;

• Block 4 - Title service fees and the cost oflender’s title insurance;

• Block 5 - Owner’s title insurance;

• Block 6 - Other required services for which theconsumer may shop;

• Block 7 - Government recording charges;

• Block 8 - Transfer tax charges;

• Block 9 - Initial deposit for escrow account;

• Block 10 - Daily interest charges; and

• Block 11 - Homeowner’s insurance charges.

Third Page of GFE

The third page of the GFE includes the followinginformation:

• A tolerance chart identifying the charges that canchange at settlement (see discussion on toler-ances below);

• A trade-off table which requires the loan origina-tor to provide information on the loan describedin the GFE and at the loan originator’s option,information about alternative loans (one withlower settlement charges but a higher interestrate and one with a lower interest rate but highersettlement charges);

• A shopping chart that allows the consumer to fillin loan terms and settlement charges from otherlenders or brokers to use to compare loans; and

• Language indicating that some lenders may sellthe loan after settlement but that any fees thelender receives in the future cannot change theborrower’s loan or the settlement charges.

Tolerances on Settlement Costs(§3500.7(e) and (i))

The RESPA Reform Rule established ‘‘tolerances’’or limits on the amount actual settlement chargescan vary at closing from the amounts stated on theGFE. The rule established three categories ofsettlement charges and each category has differ-ent tolerances. If, at settlement, the chargesexceed the charges listed on the GFE by more thanthe permitted tolerances, the loan originator maycure the tolerance violation by reimbursing to theborrower the amount by which the tolerance wasexceeded, at settlement or within 30 calendar daysafter settlement.

Tolerance Categories• Zero tolerance category. This category of fees is

subject to a zero tolerance standard. The feesestimated on the GFE may not be exceeded atclosing. These fees include:

– the loan originator’s own origination charge,including processing and underwriting fees;

– the credit or charge for the interest rate chosen(i.e., yield spread premium or discount points)while the interest rate is locked;

– the adjusted origination charge while theinterest rate is locked; and

– state/local property transfer taxes.

• Ten percent tolerance category. For this categoryof fees, while each individual fee may increase or



decrease, the sum of the charges at settlementmay not be greater than 10 percent above thesum of the amounts included on the GFE. Thiscategory includes fees for:

– loan originator required settlement services,where the loan originator selects the third-partysettlement service provider;

– loan originator required services, title services,required title insurance and owner’s title insur-ance when the borrower selects a third-partyprovider identified by the loan originator; and

– government recording charges.

• No tolerance category. The final category of feesis not subject to any tolerance restriction. Theamounts charged for the following settlementservices, included on the GFE, can change atsettlement:

– loan originator required services, where theborrower selects his or her own third-partyprovider;

– title services, lender’s title insurance andowner’s title insurance, where the borrowerselects his or her own provider;

– initial escrow deposit;

– daily interest charges; and

– homeowner’s insurance.

Identification of Third-Party SettlementService Providers

When the loan originator permits a borrower toshop for one or more required third-party settle-ment services and select the settlement serviceprovider for such required services, the loanoriginator must list in the relevant block on page 2of the GFE the settlement service and the estimatedcharge to be paid to the provider of each requiredservice. In addition, the loan originator mustprovide the borrower with a written list of settlementservice providers for those required services on aseparate sheet of paper at the time the GFE isprovided.

Binding GFE (§3500.7(f))

The loan originator is bound, within the tolerancesprovided, to the settlement charges and termslisted on the GFE provided to the borrower, unlessa new GFE is provided prior to settlement (seediscussion below on changed circumstances). Thisalso means that if a lender accepts a GFE issuedby a mortgage broker, the lender is subject to theloan terms and settlement charges listed in theGFE, unless a new GFE is issued prior to settlement.

Changed Circumstances (§3500.2(b);§3500.7(f)(1) and (f)(2))

Changed circumstances are defined as:

• acts of God, war, disaster or other emergency;

• information particular to the borrower or transac-tion that was relied on in providing the GFE thatchanges or is found to be inaccurate after theGFE has been provided;

• new information particular to the borrower ortransaction that was not relied on in providing theGFE; or

• other circumstances that are particular to theborrower or transaction, including boundarydisputes, the need for flood insurance, or envi-ronmental problems.

Changed circumstances do not include the borrow-er’s name, the borrower’s monthly income, theproperty address, an estimate of the value of theproperty, the mortgage loan amount sought, andany information contained in any credit reportobtained by the loan originator prior to providingthe GFE, unless the information changes or is foundto be inaccurate after the GFE has been provided.In addition, market price fluctuations by themselvesdo not constitute changed circumstances.

Changed circumstances affecting settlementcosts are those circumstances that result inincreased costs for settlement services such thatthe charges at settlement would exceed thetolerances or limits on those charges establishedby the regulations.

Changed circumstances affecting the loan arethose circumstances that affect the borrower’seligibility for the loan. For example, if underwritingand verification indicate that the borrower isineligible for the loan provided in the GFE, the loanoriginator would no longer be bound by the originalGFE. In such cases, if a new GFE is to be provided,the loan originator must do so within three businessdays of receiving information sufficient to establishchanged circumstances. The loan originator mustdocument the reason that a new GFE was providedand must retain documentation of any reasons forproviding a new GFE for no less than three yearsafter settlement.

None of the information collected by the loanoriginator prior to issuing the GFE may laterbecome the basis for a ‘‘changed circumstance’’upon which it may offer a revised GFE, unless:

• it can demonstrate that there was a change in theparticular information,

• that the information was inaccurate, or

• that it did not rely on that particular information inissuing the GFE. A loan originator has the burden



of demonstrating nonreliance on the collectedinformation, but may do so through variousmeans, including through a documented recordin the underwriting file or an established policy ofrelying on a more limited set of information inproviding GFEs.

If a loan originator issues a revised GFE basedon information previously collected in issuing theoriginal GFE and ‘‘changed circumstances,’’ it mustdocument the reasons for issuing the revised GFE,such as its nonreliance on such information or theinaccuracy of such information.

Borrower Requested Changes(§3500.7(f)(3))

If a borrower requests changes to the mortgageloan identified in the GFE that change the settle-ment charges or the terms of the loan, the loanoriginator may provide a revised GFE to theborrower. If a revised GFE is provided, the loanoriginator must do so within three business days ofthe borrower’s request.

Expiration of Original GFE (§3500.7(f)(4))

If a borrower does not express an intent to continuewith an application within 10 business days afterthe GFE is provided, or such longer time providedby the loan originator, the loan originator is nolonger bound by the GFE.

Interest Rate Dependent Charges and Terms(§3500.7(f)(5))

If the interest rate has not been locked by theborrower, or a locked interest rate has expired, allinterest rate-dependent charges on the GFE aresubject to change. The charges that may changeinclude the charge or credit for the interest ratechosen, the adjusted origination charges, per dieminterest, and loan terms related to the interest rate.However, the loan originator’s origination charge(listed in Block 1 of page 2 of the GFE) is notsubject to change, even if the interest rate floats,unless there is another changed circumstance orborrower-requested change.

If the borrower later locks the interest rate, a newGFE must be provided showing the revised interestrate dependent charges and terms. All othercharges and terms must remain the same as on theoriginal GFE, unless changed circumstances orborrower-requested changes result in increasedcosts for settlement services or affect the borrow-er’s eligibility for the specific loan terms identified inthe original GFE.

New Home Purchases (§3500.7(f)(6))

In transactions involving new home purchases,where settlement is expected to occur more than60 calendar days from the time a GFE is provided,the loan originator may provide the GFE to theborrower with a clear and conspicuous disclosurestating that at any time up until 60 calendar daysprior to closing, the loan originator may issue arevised GFE. If the loan originator does not providesuch a disclosure, it cannot issue a revised GFEexcept as otherwise provided in Regulation X.

Volume-Based Discounts

The RESPA Reform Rule did not formally addressthe legality of volume-based discounts. However,HUD indicated in the preamble to the rule thatdiscounts negotiated between loan originators andother settlement service providers, where thediscount is ultimately passed on to the borrower infull, is not, depending on the circumstances of aparticular transaction, a violation of section 8 ofRESPA.8

Uniform Settlement Statement(HUD-1 or HUD-1A) (§3500.8)

Section 4 of RESPA requires the person conductingthe settlement (settlement agent) to provide theborrower with a HUD-1 Settlement Statement at orbefore settlement that clearly itemizes all chargesimposed on the buyer and the seller in connectionwith the settlement. The RESPA Reform ruleincluded a revised HUD-1/1A Settlement Statementform that was required as of January 1, 2010. TheHUD-1 is used for transactions in which there is aborrower and seller. For transactions in which thereis a borrower and no seller (refinancings andsubordinate lien loans), the HUD-1 may be com-pleted by using the borrower’s side of the settle-ment statement. Alternatively, the HUD-1A may beused. However, no settlement statement is requiredfor home equity plans subject to the Truth inLending Act (TILA) and Regulation Z. Appendix Acontains the HUD-1/1A forms and instructions forcompleting them. The HUD-1/1A forms are alsoavailable at www.hud.gov/offices/adm/hudclips/forms/hud1.cfm.

Key RESPA Reform Enhancements tothe HUD-1/1A Settlement Statement

While the RESPA Reform Rule did not include anysubstantive changes to the first page of theHUD-1/1A form, there were changes to the secondpage of the form to facilitate comparison between

8. 73 FR 68204, 68232 (November 17, 2008).



the HUD-1/1A and the GFE. Each designated lineon the second page of the revised HUD-1/1Aincludes a reference to the relevant line from theGFE.

With respect to disclosure of ‘‘no cost’’ loanswhere ‘‘no cost’’ refers only to the loan originator’sfees (see section L, subsection 800 of the HUD-1form), the amounts shown for the ‘‘originationcharge’’ and the ‘‘credit or charge for the interestrate chosen’’ should offset each other, so that the‘‘adjusted origination charge’’ is zero.

In the case of a ‘‘no cost’’ loan where ‘‘no cost’’encompasses loan originator and third party fees,all third party fees must be itemized and listed inthe borrower’s column on the HUD-1/1A. Theseitemized charges must be offset with a negativeadjusted origination charge (Line 803) and recordedin the columns.

To further facilitate comparability between theforms, the revised HUD-1 includes a new thirdpage (second page of the HUD-1A) that allowsborrowers to compare the loan terms and settle-ment charges listed on the GFE with the terms andcharges listed on the closing statement. The firsthalf of the third page includes a comparison chartthat sets forth the settlement charges from the GFEand the settlement charges from the HUD-1 toallow the borrower to easily determine whether thesettlement charges exceed the charges stated onthe GFE. If any charges at settlement exceed thecharges listed on the GFE by more than thepermitted tolerances, the loan originator may curethe tolerance violation by reimbursing to theborrower the amount by which the tolerance wasexceeded. A borrower will be deemed to havereceived timely reimbursement if the financialinstitution delivers or places the payment in the mailwithin 30 calendar days after settlement.

Inadvertent or technical errors on the settlementstatement are not deemed to be a violation ofsection 4 of RESPA, if a revised HUD-1/1A isprovided to the borrower within 30 calendar daysafter settlement.

The second half of the third page sets forth theloan terms for the loan received at settlement in aformat that reflects the summary of loan terms onthe first page of the GFE, but with additional loanrelated information that would be available atclosing. The note at the bottom of the pageindicates that the borrower should contact thelender if the borrower has questions about thesettlement charges or loan terms listed on the form.

Section 3500.8(b) and the instructions for com-pleting the HUD-1/1A Settlement Statement pro-vide that the loan originator shall transmit sufficientinformation to the settlement agent to allow thesettlement agent to complete the ‘‘loan terms’’

section. The loan originator must provide theinformation in a format that permits the settlementagent to enter the information in the appropriatespaces on the HUD-1/1A, without having to refer tothe loan documents.

Average Charge Permitted

As of January 16, 2009, an average charge may bestated on the HUD-1/1A if such average charge iscomputed in accordance with section 3500.8(b)(2).All settlement service providers, including loanoriginators, are permitted to list the average chargefor a settlement service on the HUD-1/1A Settle-ment Statement (and on the GFE) rather than theexact cost for that service.

The method of determining the average chargeis left up to the settlement service provider. Theaverage charge may be used as the charge for anythird party vendor charge, not for the provider’sown internal charges. The average charge alsocannot be used where the charge is based on theloan amount or the value of the property.

The average charge may be used for any thirdparty settlement service, provided that the totalamounts received from borrowers for that servicefor a particular class of transactions do not exceedthe total amounts paid to providers of that servicefor that class of transactions. A class of transac-tions may be defined based on the period of time,type of loan, or geographic area. If an averagecharge is used in any class of transactions definedby the loan originator, then the loan originator mustuse the same average charge for every transactionwithin that class. The average charge must berecalculated at least every six months.

A settlement service provider that uses anaverage charge for a particular service mustmaintain all documents that were used to calculatethe average charge for at least three years after anysettlement in which the average charge was used.

Printing and Duplication of theSettlement Statement (§3500.9)

Financial institutions have numerous options forlayout and format in reproducing the HUD-1 andHUD-1A that do not require prior HUD approvalsuch as size of pages; tint or color of pages; sizeand style of type or print; spacing; printing onseparate pages, front and back of a single page oron one continuous page; use of multi-copy tear-outsets; printing on rolls for computer purposes;addition of signature lines; and translation into anylanguage. Other changes may be made only withthe approval of the Secretary of Housing and UrbanDevelopment.



One-Day Advance Inspection of theSettlement Statement (§3500.10)

Upon request by the borrower, the HUD-1 orHUD-1A must be completed and made availablefor inspection during the business day immediatelypreceding the day of settlement, setting forth thoseitems known at that time by the person conductingthe closing.

Delivery (§3500.10(a) and (b))

The completed HUD-1 or HUD-1A must be mailedor delivered to the borrower, the seller (if there isone), the lender (if the lender is not the settlementagent), and/or their agents at or before settlement.However, the borrower may waive the right ofdelivery by executing a written waiver at or beforesettlement. The HUD-1 or HUD-1A shall be mailedor delivered as soon as practicable after settlementif the borrower or borrower’s agent does not attendthe settlement.

Retention (§3500.10(e))

A lender must retain each completed HUD-1 orHUD-1A and related documents for five years aftersettlement, unless the lender disposes of itsinterest in the mortgage and does not service themortgage. If the loan is transferred, the lender shallprovide a copy of the HUD-1 or HUD-1A to theowner or servicer of the mortgage as part of thetransfer. The owner or servicer shall retain theHUD-1 or HUD-1A for the remainder of the five-yearperiod.

Prohibition of Fees for PreparingFederal Disclosures (§3500.12)

For loans subject to RESPA, no fee may becharged for preparing the Settlement Statement orthe Escrow Account statement or any disclosuresrequired by TILA.

Prohibition Against Kickbacks andUnearned Fees (§3500.14)

Any person who gives or receives a fee or a thing ofvalue (payments, commissions, fees, gifts or spe-cial privileges) for the referral of settlement busi-ness is in violation of section 8 of RESPA. Paymentsin excess of the reasonable value of goodsprovided or services rendered are consideredunearned fees. Appendix B of Regulation X pro-vides guidance on the meaning and coverage ofthe prohibition against kickbacks and unearnedfees.

Penalties and Liabilities

Civil and criminal liability is provided for violatingthe prohibition against kickbacks and unearnedfees including:

• Civil liability to the parties affected, equal tothree times the amount of any charge paid forsuch settlement service.

• The possibility that the costs associated withany court proceeding together with reasonableattorney’s fees could be recovered.

• A fine of not more than $10,000 or imprison-ment for not more than one year or both.

Affiliated Business Arrangements(§3500.15)

If a loan originator has either an affiliate relationshipor a direct or beneficial ownership interest of morethan 1% in a provider of settlement services andthe loan originator directly or indirectly refersbusiness to the provider, it is an affiliated businessarrangement. An affiliated business arrangement isnot a violation of section 8 of RESPA and of section3500.14 of Regulation X, if the following conditionsare satisfied:

• Prior to the referral, the person making eachreferral has provided to each person whosebusiness is referred an Affiliated BusinessArrangement Disclosure Statement (AppendixD of Regulation X). This disclosure shall specifythe following:

– nature of the relationship (explaining the own-ership and financial interest) between theprovider and the loan originator, and

– estimated charge or range of charges gener-ally made by such provider.

This disclosure must be provided on a separatepiece of paper either at the time of loanapplication, when the GFE is provided, or at thetime of the referral.

The loan originator may not require the use ofsuch a provider, with the following exception: theinstitution may require a buyer, borrower or sellerto pay for the services of an attorney, creditreporting agency or real estate appraiser chosenby the institution to represent its interest. Theloan originator may only receive a return onownership or franchise interest or paymentotherwise permitted by RESPA.

Title Companies (§3500.16)

Sellers that hold legal title to the property beingsold are prohibited from requiring borrowers, eitherdirectly or indirectly, as a condition to selling the



property, to use a particular title company.

Civil liability for violating the provision that afinancial institution (seller) cannot require a bor-rower to use a particular title company is an amountequal to three times all charges made for such titleinsurance.

Escrow Accounts (§3500.17)

On October 26, 1994, HUD issued its final rulechanging the accounting method for escrowaccounts, which was originally effective April 24,1995. The rule establishes a national standardaccounting method, known as aggregate account-ing.9 The final rule also established formats andprocedures for initial and annual escrow accountstatements.

The amount of escrow funds that can becollected at settlement or upon creation of anescrow account is restricted to an amount sufficientto pay charges, such as taxes and insurance, thatare attributable to the period from the date suchpayments were last paid until the initial paymentdate. Throughout the life of an escrow account, theservicer may charge the borrower a monthly sumequal to one-twelfth of the total annual escrowpayments that the servicer reasonably anticipatespaying from the account. In addition, the servicermay add an amount to maintain a cushion nogreater than one-sixth of the estimated total annualpayments from the account.

Escrow Account Analysis(§3500.17(c)(2) and (3) and 3500.17(k))

Before establishing an escrow account, a servicermust conduct an analysis to determine the periodicpayments and the amount to be deposited. Theservicer shall use an escrow disbursement datethat is on or before the deadline to avoid a penaltyand may make annual lump sum payments to takeadvantage of a discount.

Transfer of Servicing (§3500.17(e))

If the new servicer changes either the monthlypayment amount or the accounting method usedby the old servicer, then it must provide theborrower with an initial escrow account statementwithin 60 days of the date of transfer. When the newservicer provides an initial escrow account state-ment, it shall use the effective date of the transfer ofservicing to establish the new escrow account

computation year. In addition, if the new servicerretains the monthly payments and accountingmethod used by the old servicer, then the newservicer may continue to use the same computationyear established by the old servicer or it maychoose a different one, using a short-year state-ment.

Shortages, Surpluses, and DeficiencyRequirements (§3500.17(f))

The servicer shall conduct an annual escrowaccount analysis to determine whether a surplus,shortage, or deficiency exists as defined undersection 3500.17(b).

If the escrow account analysis discloses asurplus, the servicer shall, within 30 days from thedate of the analysis, refund the surplus to theborrower if the surplus is greater than or equal to$50. If the surplus is less than $50, the servicer mayrefund such amount to the borrower, or credit suchamount against the next year’s escrow payments.These provisions apply as long as the borrower’smortgage payment is current at the time of theescrow account analysis.

If the escrow account analysis discloses ashortage of less than one month’s escrow pay-ments, then the servicer has three possible coursesof action:

• the servicer may allow the shortage to exist anddo nothing to change it;

• the servicer may require the borrower to repaythe shortage amount within 30 days; or

• the servicer may require the borrower to repaythe shortage amount in equal monthly pay-ments over at least a 12-month period.

If the shortage is more than or equal to one month’sescrow payment, then the servicer has two pos-sible courses of action:

• the servicer may allow the shortage to exist anddo nothing to change it; or

• the servicer may require the borrower to repaythe shortage in equal monthly payments over atleast a 12-month period.

If the escrow account analysis discloses a defi-ciency, then the servicer may require the borrowerto pay additional monthly deposits to the account toeliminate the deficiency.

If the deficiency is less than one month’s escrowaccount payment, then the servicer:

• may allow the deficiency to exist and donothing to change it;

• may require the borrower to repay the defi-ciency within 30 days; or

9. Existing escrow accounts were allowed a three-yearphase-in period to convert to the aggregate accounting method.The 2008 RESPA Reform Rule eliminated provisions in section3500.17 that related to the phase-in period for aggregateaccounting, effective January 16, 2009.



• may require the borrower to repay the defi-ciency in two or more equal monthly payments.

If the deficiency is greater than or equal to onemonth’s escrow payment, the servicer may allowthe deficiency to exist and do nothing to change it,or require the borrower to repay the deficiency intwo or more equal monthly payments.

These provisions apply as long as the borrower’smortgage payment is current at the time of theescrow account analysis.

A servicer must notify the borrower at least onceduring the escrow account computation year if ashortage or deficiency exists in the account.

Initial Escrow Account Statement(§3500.17(g))

After analyzing each escrow account, the servicermust submit an initial escrow account statement tothe borrower at settlement or within 45 calendardays of settlement for escrow accounts that areestablished as a condition of the loan.

The initial escrow account statement must con-tain:

• the monthly mortgage payment,

• the portion going to escrow,

• itemize estimated taxes, insurance premiums,and other charges,

• the anticipated disbursement dates of thosecharges,

• the amount of the cushion, and

• a trial running balance.

Annual Escrow Account Statement(§3500.17(i))

A servicer shall submit to the borrower an annualstatement for each escrow account within 30 daysof the completion of the computation year. Theservicer must conduct an escrow account analysisbefore submitting an annual escrow account state-ment to the borrower.

The annual escrow account statements mustcontain:

• the account history,

• projections for the next year,

• current mortgage payment and portion goingto escrow,

• amount of past year’s monthly mortgage pay-ment and portion that went into the escrowaccount,

• total amount paid into the escrow account

during the past year,

• amount paid from the account for taxes,insurance premiums, and other charges,

• balance at the end of the period,

• explanation of how the surplus, shortage, ordeficiency is being handled, and

• if applicable, the reasons why the estimatedlow monthly balance was not reached.

Short-Year Statements (§3500.17(i)(4))

Short-year statements can be issued to end theescrow account computation year and establishthe beginning date of the new computation year.Short-year statements may be provided upon thetransfer of servicing and are required upon loanpayoff. The statement is due to the borrower within60 days after receiving the pay-off funds.

Timely Payments (§3500.17(k))

The servicer shall pay escrow disbursements bythe disbursement date. In calculating the disburse-ment date, the servicer must use a date on orbefore the deadline to avoid a penalty and maymake annual lump sum payments to take advan-tage of a discount.

Record Keeping (3500.17(l))

Each servicer shall keep records that are easilyretrievable, reflecting the servicer’s handling ofeach borrower’s escrow account. The servicer shallmaintain the records for each escrow account for atleast five years after the servicer last serviced theaccount.

Penalties (§3500.17(m))

Failure to provide an initial or annual escrowaccount statement to a borrower can result in thefinancial institution or the servicer being assesseda civil penalty of $75 for each such failure, with thetotal for any 12 month period not to exceed$130,000. If the violation is due to intentionaldisregard, the penalty is $110 for each failurewithout any annual cap on liability.

Mortgage Servicing TransferDisclosures (§3500.21)

The disclosures related to the transfer of mortgageservicing are required for first mortgage liens,including all refinancing transactions. Subordinatelien loans and open-end lines of credit (homeequity plans), that are covered under the TILA andRegulation Z, are exempt from this section.



A financial institution that receives an applicationfor a federally related mortgage loan is required toprovide the servicing disclosure statement to theborrower within three business days after receipt ofthe application. The 2008 RESPA Reform Ruleincluded a technical revision to the mortgageservicing disclosure statement in Appendix MS-1 toRegulation X, effective January 16, 2009. The rulestreamlined the initial servicing disclosure state-ment language to be consistent with statutorychanges.

When a federally related mortgage loan isassigned, sold or transferred, the transferor (presentservicer) must provide a disclosure at least 15 daysbefore the effective date of the transfer. A transferof servicing notice from the transferee (new ser-vicer) must be provided not more than 15 daysafter the effective date of the transfer. Both noticesmay be combined into one notice if delivered to theborrower at least 15 days before the effective dateof the transfer. The disclosure must include:

• The effective date of the transfer.

• The name, address for consumer inquiries, andtoll-free or collect-call telephone number of thetransferee servicer.

• A toll-free or collect-call telephone number foran employee of the transferor servicer who canbe contacted by the borrower to answerservicing questions.

• The date on which the transferor servicer willcease accepting payments relating to the loanand the date on which the transferee servicerwill begin to accept such payments. The datesmust either be the same or consecutive dates.

• Any information concerning the effect of thetransfer on the availability of optional insuranceand any action the borrower must take tomaintain coverage.

• A statement that the transfer does not affect theterms or conditions of the mortgage (except asrelated to servicing).

• A statement of the borrower’s rights in connec-tion with complaint resolution.

During the 60-day period beginning on the date oftransfer, no late fee can be imposed on a borrowerwho has made the payment to the wrong servicer.

The following transfers are not considered anassignment, sale, or transfer of mortgage loanservicing for purposes of this requirement if there isno change in the payee, address to which paymentmust be delivered, account number, or amount ofpayment due:

• Transfers between affiliates;

• Transfers resulting from mergers or acquisi-

tions of service or subservicers; and

• Transfers between master servicers, when thesubservicer remains the same.

Servicers Must Respond to Borrower’sInquiries (§3500.21(e))

A financial institution servicer must respond to aborrower’s qualified written request for informationrelating to the servicing of the loan and takeappropriate action within established time framesafter receipt of the inquiry. Generally, the financialinstitution must provide written acknowledgmentwithin 20 business days, and take certain specifiedactions within 60 business days of receipt of suchinquiry. The written inquiry must include the nameand account number of the borrower and thereasons the borrower believes the account is inerror.

During the 60 business day period followingreceipt of a qualified written request from aborrower relating to a payment, a financial institu-tion may not provide adverse information regardingany payment that is the subject of the qualifiedwritten request to any consumer reporting agency.

Relationship to State Law (§3500.21(h)and 12 USC 2616)

Financial institutions complying with the mortgageservicing transfer disclosure requirements of RESPAare considered to have complied with any State lawor regulation requiring notice to a borrower at thetime of application or transfer of a mortgage.

Other state laws shall not be affected by RESPA,except to the extent that they are inconsistent andthen only to the extent of the inconsistency. TheSecretary of Housing and Urban Development isauthorized, after consulting with the appropriatefederal agencies, to determine whether suchinconsistencies exist.

Penalties and Liabilities (§3500.21(f))

Failure to comply with any provision of sec-tion 3500.21 will result in actual damages and,where there is a pattern or practice of noncompli-ance, any additional damages in an amount not toexceed $1,000. In class action cases, eachborrower may receive actual damages and addi-tional damages, as the court allows, up to $1,000for each member of the class, except that the totalamount of damages in any class action may notexceed the lesser of $500,000 or one percent of thenet worth of the servicer. In addition, costs of theaction and attorney fees may be awarded in anysuccessful action.



Real Estate Settlement Procedures Act (RESPA)Examination Objectives and Procedures

Examination Objectives1. To determine if the financial institution has

established procedures to ensure compliancewith RESPA.

2. To determine that the financial institution doesnot engage in any practices prohibited byRESPA, such as kickbacks, payment or receiptof referral fees or unearned fees, or excessiveescrow assessments.

3. To determine if the Special Information Booklet,Good Faith Estimate (GFE) form, UniformSettlement Statement (Form HUD-1 or HUD1A), mortgage servicing transfer disclosures,and other required disclosures are in a formthat complies with Regulation X, are properlycompleted, and are provided to borrowerswithin prescribed time periods.

4. To determine if the institution is submitting therequired initial and annual escrow accountstatements to borrowers as applicable, andcomplying with established limitations on es-crow account arrangements.

5. To determine whether the institution is respond-ing to borrower inquiries for information relatingto the servicing of their loans in compliancewith the provisions of RESPA.

Examination Procedures

Management and Policy-RelatedExamination Procedures

If the financial institution has loans covered byRESPA, determine whether the institution’s policies,practices, and procedures are in compliance.

1. Review the types of loans covered by RESPAand applicable exemptions.

2. Review the Special Information Booklet, GoodFaith Estimate (GFE) form, Uniform SettlementStatement (Form HUD-1 or HUD-1A), mortgageservicing transfer disclosure forms, and affili-ated business arrangement disclosure form forcompliance with the requirements of Regula-tion X. Review standardized and model formsin the appendices to the regulation.

3. If electronic disclosures are provided, deter-mine whether the institution has policies andprocedures to provide electronic delivery inaccordance with the Electronic Signaturesin Global and National Commerce Act(ESIGN).

4. Review written loan policies and operatingprocedures in connection with federally relatedmortgage loans and discuss them with institu-tion personnel.

a. Determine whether the financial institutionhas policies and procedures concerningwhat information will be collected fromapplicants in connection with issuing aGFE, and what information will be relied onto issue a GFE.

b. Determine whether the financial institutionhas policies and procedures concerningprovision of a revised GFE in the event ofchanged circumstances.

c. Determine whether the financial institutionhas policies and procedures concerningprovision of a revised GFE for transactionsinvolving new home purchases.

d. Determine whether the financial institutionhas policies and procedures to cure atolerance violation by reimbursing the bor-rower the amount by which the tolerancewas exceeded within 30 calendar daysfrom date of settlement.

e. Determine whether the financial institutionhas polices and procedures to cure atechnical or inadvertent error on the HUD-1/1A by providing a revised settlementstatement to the borrower within 30 calen-dar days of settlement.

5. Interview mortgage lending personnel to deter-mine:

a. Identity of persons or entities referringfederally related mortgage loan business;

b. The nature of services provided by referralsources, if any;

c. Settlement service providers used by theinstitution;

d. When the Special Information Booklet isgiven;

e. The timing of the GFE and how fee informa-tion is determined;

f. Any providers whose services are requiredby the institution;

g. How borrower inquiries regarding loanservicing are handled and within what timeframes;

h. Whether escrow arrangements exist onmortgage loans.


6. Assess the overall level of knowledge andunderstanding of mortgage lending personnel.

Special Information Booklet

7. Determine through discussion with manage-ment and review of credit files whether theSpecial Information Booklet, if required, isprovided within 3 business days after thefinancial institution or broker receives a writtenapplication for a loan. [§ 3500.6(a)(1)].

Good Faith Estimate (GFE) Form

8. Determine whether the financial institution pro-vides a GFE of charges for settlement services,if required, within three business days afterreceipt of a written application. [§ 3500.7(a)].

9. Review the GFE to determine if it appearsexactly as set forth in Appendix C.

10. Review a sample of loan files that include GFEsto determine the following:

a. Whether the financial institution followedGFE application requirements.

b. If the institution provided a revised GFE tothe applicant due to changed circum-stances, determine whether institution fol-lowed regulatory requirements for issuing arevised GFE due to changed circum-stances.

c. Whether the GFE was completed as re-quired in Regulation X and in the instruc-tions (§ 3500.7 and Appendix C) andwhether it included the following information:

(i) Interest rate expiration date,

(ii) Settlement charges expiration date,

(iii) Rate lock period,

(iv) Number of days before settlementthe interest rate must be locked, ifapplicable,

(v) Summary of loan information,

(vi) Escrow account information,

(vii) Estimates for settlement charges,and

(viii) In left hand column on trade-offtable, information for loan in theGFE.

d. Whether, for no cost loans, all third partyfees paid by the financial institution areitemized and listed in the appropriateblocks on the second page of the GFE.

e. Whether a separate sheet was providedwith the GFE that identifies the settlement

service providers for the services listed onthe GFE.

Uniform Settlement Statement Form(HUD-1 and HUD-1A)

11. Using the same sample of loan files as used forthe review of the GFE, review the UniformSettlement Statement (HUD-1 or HUD-1A, asappropriate) [§ 3500.8 and Appendix A] todetermine whether:

a. Charges are properly itemized in accor-dance with the instructions for completionof the HUD-1 or HUD-1A (Appendix A).

b. All charges paid by the borrower and theseller are itemized and include the name ofthe recipient. [§ 3500.8(b), Appendix A].

c. Average charges for settlement servicesare calculated in accordance with sec-tion 3500.8(b)(2).

d. Charges required by the financial institutionbut paid outside of closing are itemized onthe settlement statement, marked as ‘‘paidoutside of closing’’ or ‘‘P.O.C.,’’ but notincluded in cost totals. [§ 3500.8(b); Appen-dix A].

12. If the financial institution conducts the settle-ment, determine whether:

a. The borrower, upon request, is allowed toinspect the HUD-1 or HUD-1A at least onebusiness day prior to settlement.[§ 3500.10(a)].

b. The HUD-1 or HUD-1A is provided to theborrower and seller at or before settlement(except where the borrower has waived theright to delivery and in the case of exempttransactions). [§ 3500.10(b)].

c. In cases where the right to delivery iswaived or the transaction is exempt, theHUD-1/1A is mailed as soon as practicableafter settlement. [§ 3500.10(b),(c), and (d)].

13. Determine whether, in the case of an inadvert-ent or technical error on the HUD-1 or HUD-1A,the financial institution provides a revisedHUD-1/1A to the borrower within 30 calendardays after settlement. [§ 3500.8(c)].

14. Review the HUD-1 or HUD-1A form prepared inconnection with each GFE reviewed to deter-mine if the amount stated for any itemizedservice exceeds the amount shown on the GFEfor that service. If the amount stated on theHUD-1 exceeds the amount shown on the GFEand such overcharge violates the tolerance forthat category of settlement services, determinewhether the financial institution cured the

Real Estate Settlement Procedures Act: Examination Objectives and Procedures


tolerance violation by reimbursing to the bor-rower the amount by which the tolerance wasexceeded at settlement or within 30 calendardays from date of settlement. [§ 3500.7(i)].

15. Determine whether HUD-1 and HUD-1A formsare retained for five years. If the financialinstitution disposes of its interest in the mort-gage and does not service the loan, determinewhether the HUD-1 or HUD-1A form is trans-ferred to the new asset owner with the loan file.[§ 3500.10(e)].

Mortgage Servicing Transfer Disclosure

16. Determine whether the disclosure form issubstantially in conformity with the modeldisclosure in Appendix MS-1.

17. Determine that the mortgage servicing transferdisclosure was provided to the applicant withinthree business days after receipt of the appli-cation. [§ 3500.21(c)].

18. Determine that the disclosure states whetherthe loan may be assigned, sold, or transferredwhile the loan is outstanding. [§ 3500.21(b)(2)].

Notice to Borrower of Transfer ofMortgage Servicing

19. Determine whether the institution has trans-ferred or received mortgage servicing rights.

20. If it has transferred servicing rights, determinewhether notice to the borrower was given atleast 15 days prior to the transfer.[§ 3500.21(d)(2)].

21. If it has received servicing rights, determinewhether notice was given to the borrower within15 days after the transfer. [§ 3500.21(d)(2)].

22. Determine whether the notices by transferorand transferee include the following information(sample language for the notice of transfer iscontained in Appendix MS-2). [§3500.21(d)(3)]:

a. The effective date of the transfer;

b. A statement that the transfer does not affectthe terms or conditions of the mortgage,other than terms directly related to itsservicing;

c. The name, consumer inquiry addresses(including, at the option of the servicer, aseparate address where qualified writtenrequests must be sent), and a toll-free orcollect call telephone number for an em-ployee or department of the transfereeservicer;

d. A toll-free or collect call telephone numberfor an employee or department of the

transferor servicer that can be contacted bythe borrower for answers to servicing trans-fer inquiries;

e. The date on which the present servicer willcease accepting payments and the datethe new servicer will begin acceptingpayments relating to the transferred loan;

f. Any information concerning the effect of thetransfer on the availability or terms ofoptional insurance and any action theborrower must take to maintain coverage;and

g. A statement of the borrowers rights inconnection with complaint resolution (Ap-pendix MS-2).

Responsibilities of Servicer23. Through a review of late notices, or otherwise if

the transferor servicer received payment, de-termine that no late fees have been imposedand that no payments have been treated aslate within 60 days following a transfer ofservicing. [§ 3500.21(d)(5)].

24. Determine that the institution, as loan servicerfor mortgage loans and refinancings subject toRESPA, responds to borrower inquiries relatingto these loans as prescribed in Regulation X,including:

a. Provides the notice of receipt of inquiry forqualified written requests from borrowerswithin 20-business days (unless the actionrequested is taken within that period andthe borrower is notified in writing of thataction). [§ 3500.21(e)(1)].

b. Provides written notification of the correc-tions taken on the account, or statement ofthe reasons the account is correct orexplanation why the information requestedis unavailable not later than 60-businessdays after receipt of the qualified writtenrequest from the borrower. [§3500.21(e)(3)].

c. Determine that the institution does notprovide information to any consumer report-ing agency regarding overdue paymentwhen investigating a qualified written re-quest from borrower regarding disputedpayments during this 60-business day pe-riod. [§ 3500.21(e)(4)(I)].

No Fees for RESPA Disclosures25. a. Determine whether the financial institution

charges a fee specifically for preparing anddistributing the HUD-1 forms, escrow state-ments or documents required under theTruth in Lending Act. [§ 3500.12].



b. If any fee is charged before providing aGFE, determine whether such fee is limitedto the cost of a credit report. [§3500.7(a)(4)].

Purchase of Title Insurance26. When the financial institution owns the property

being sold, determine whether it requires thattitle insurance be purchased from a particularcompany. [§ 3500.16].

Payment or Receipt of Referral orUnearned Fees27. Determine if management is aware of the

prohibitions against payment or receipt ofkickbacks and unearned fees. [RESPA § 8;§ 3500.14].

28. Through interviews with institution manage-ment and personnel, file reviews, reviews ofGFE forms, and HUD-1 and HUD-1A forms,determine if federally related mortgage loantransactions are referred by brokers, affiliates,or other parties. Identify those parties. Also,identify persons or entities to which the institu-tion refers services in connection with afederally related mortgage transaction.

a. Identify the types of services rendered bythe broker, affiliate, or service provider.

b. By a review of the institution’s generalledger or otherwise, determine if fees werepaid to the institution or any parties identi-fied.

c. Confirm that any fees paid to the broker,affiliate, service provider, or other partymeet the requirements of section 3500.14(g)and are for goods or facilities actuallyfurnished or services actually performed.This includes payments to an affiliate or theaffiliate’s employees.

Affiliated Business Arrangements29. Determine from the HUD-1 or HUD-1A and

from interviews with institution management ifthe institution referred a borrower to a settle-ment service provider.

30. If the financial institution referred a borrower toan affiliated settlement service provider, deter-mine whether the Affiliated Business Arrange-ment disclosure statement (Appendix D) wasprovided as required by section 3500.15(b)(1).

31. Other than an attorney, credit reporting agency,or appraiser representing the lender, if thefinancial institution referred a borrower to asettlement service provider, determine whetherthe institution required the use of the provider.

[§ 3500.15(b)(2)].

Escrow Accounts

If the institution maintains escrow accounts inconnection with a federally related mortgage loan,complete the following procedures.

32. Determine whether the institution performed aninitial escrow analysis [§ 3500.17(c)(2)] andprovided the initial escrow statement[§ 3500.17(g)]. The statement must contain thefollowing:

a. Amount of monthly payment

b. Portion of the monthly payment beingplaced in escrow

c. Charges to be paid from the escrowaccount during the first 12 months

d. Disbursement dates

e. Amount of cushion

33. Determine if the statement was given to theborrower at settlement or within 45 days afterthe escrow account was established. Thisstatement may be incorporated into the HUD-1statement. [§ 3500.17(g)(1) and (2)].

34. Determine whether the institution performs anannual analysis of the escrow account.[§ 3500.17(c)(3) and (7), and 3500.17(i)].

35. Determine whether the annual escrow accountstatement is provided to the borrower within 30days of the end of the computation year.[§ 3500.17(i)].

36. Determine if the annual escrow statementcontains the following:

a. Amount of monthly mortgage payment andportion that was placed in escrow

b. Amount of past year’s monthly mortgagepayment and portion that went into escrow

c. Total amount paid into escrow during thepast computation year

d. Total amount paid out of escrow accountduring same period for taxes, insurance,and other charges

e. Balance in the escrow account at the end ofthe period

f. How a surplus, shortage, or deficiency is tobe paid/handled

g. If applicable, the reason why estimated lowmonthly balance was not reached.[§ 3500.17(i)(1)].

37. Determine whether monthly escrow paymentsfollowing settlement are within the limits ofsection 3500.17(c).



Real Estate Settlement Procedures Act (RESPA)Examination Checklist

Examination Checklist1. Are written loan policies in connection with federally related mortgage loans

in compliance with Regulation X? Yes No2. Does the institution have established operating procedures which address

the requirements of Regulation X? Yes No3. Are mortgage lending personnel knowledgeable of the requirements of

RESPA and Regulation X? Yes No

Special Information Booklet4. For applicable transactions, is the Special Information Booklet provided

within three business days after the financial institution or broker receives orprepares a written application for a loan? Yes No

Good Faith Estimate5. Does the financial institution use the required Good Faith Estimate (GFE)

form? Yes No6. Is a GFE of charges for settlement services, if required, provided within three

business days after an application is received or prepared? Yes No7. Does the GFE appear in the exact form as in Appendix C to Regulation X? Yes No8. Does the GFE contain the following required elements:

a. (i) Interest rate expiration date? Yes No(ii) Settlement charges expiration date? Yes No(iii) Rate lock period? Yes No

(iv) Number of days before settlement the interest rate must be locked,if applicable? Yes No

(v) Summary of loan information? Yes No(vi) Escrow account information? Yes No(vii) Estimates for settlement charges? Yes No(viii) In left hand column on trade-off table, information for loan in the

GFE? Yes Nob. For all loans, are all third party fees, including those paid by the financial

institution in the case of no cost loans, itemized and listed in theappropriate blocks on the second page of the GFE? Yes No

c. Did the financial institution provide a separate sheet that identifies thesettlement service providers for the services listed? Yes No

Affiliated Business Arrangements9. Does the financial institution refer borrowers to settlement service providers? Yes No

10. If the institution refers borrowers to affiliated settlement service providers, isthe Affiliated Business Disclosure statement provided to each borrower asset forth in Appendix D? Yes No

11. Other than an attorney, credit reporting agency, or appraiser representingthe lender, does the financial institution require the use of an affiliate? Yes No

Uniform Settlement Statement Form (HUD-1 and HUD-1A)12. Does the financial institution use the Uniform Settlement Statement (HUD-1 or

HUD-1A) as appropriate? Yes No


13. Does the HUD-1 or HUD-1A contain the following:a. Charges properly itemized for both borrower and seller in accordance

with the instructions for completion of the HUD-1 or HUD-1A? Yes Nob. All charges paid to someone other than the lender itemized and the

recipient named? Yes Noc. Charges required by the financial institution but paid outside of closing,

itemized on the settlement statement, marked as ‘‘paid outside of closing’’or ‘‘P.O.C.’’ but not included in totals? Yes No

d. Where an average charge was listed for a settlement service, was thecharge calculated in accordance with requirements set forth in sec-tion 3500.8(b)(2)? Yes No

14. From a review of the HUD-1 or HUD-1/A prepared in connection with eachGFE reviewed, are amounts shown on the GFE the same as the fees actuallypaid by the borrower? Yes No

15. If a charge stated on the HUD-1/1A exceeds the charges stated on the GFEby more than the permitted tolerance, does the financial institution cure thetolerance violation by reimbursing to the borrower the amount by which thetolerance was exceeded at settlement, or by delivering or placing thepayment in the mail within 30 calendar days after settlement? Yes No

16. If the financial institution conducts settlement:a. Is the borrower, upon request, allowed to inspect the HUD-1 or HUD-1A at

least one day prior to settlement? Yes Nob. Is the HUD-1 or HUD-1A provided to the borrower and seller at

settlement? Yes Noc. In cases where the right to delivery is waived or the transaction is exempt,

is the statement mailed as soon as possible after settlement? Yes No17. In the case of an inadvertent or technical error on the HUD-1/1A, does the

institution provide a revised HUD-1/1A to the borrower within 30 calendardays after settlement? Yes No

18. If the financial institution retains its interest in the mortgage and/or services it,is the HUD-1 or HUD-1A form retained for five years? Yes No

19. If the financial institution disposes of its interest in the mortgage and does notservice the loan, is the HUD-1/1A transferred to the new asset owner with theloan file? Yes No

Mortgage Servicing Transfer Disclosure20. Does the mortgage servicing transfer disclosure form language substantially

conform to the model disclosure in Appendix MS-1? Yes No21. Does the lender provide the mortgage servicing transfer disclosure within

three business days after receipt of the application? Yes No22. Does the disclosure state whether the loan may be assigned or transferred

while outstanding? Yes No

Notice to Borrower of Transfer of Mortgage Servicing23. If the institution has transferred servicing rights, was notice to the borrower

given at least 15 days prior to the transfer? Yes No24. If the institution has received servicing rights, was notice given the borrower

within 15 days after the transfer? Yes No25. Do the notices by transferor and transferee include the following information

as contained in Appendix MS-2:a. The effective date of the transfer? Yes Nob. The new servicer’s name, address, and toll-free or collect call telephone

number of the transferor servicer? Yes No

Real Estate Settlement Procedures Act: Examination Checklist


c. A toll-free or collect call telephone number of the present servicer toanswer inquiries relating to the transfer? Yes No

d. The date on which the present servicer will cease accepting paymentsand the date the new servicer will begin accepting payments relating tothe transferred loan? Yes No

e. Any information concerning the effect of the transfer on the availability ofterms of optional insurance and any action the borrower must take tomaintain coverage? Yes No

f. A statement that the transfer does not affect the terms or conditions of themortgage, other than terms directly related to its servicing? Yes No

g. A statement of the borrower’s rights in connection with complaintresolution? Yes No

Responding to Borrower Inquiries26. Have late fees been imposed within 60 days following a transfer of servicing

or were payments treated as late when received by transferor rather thantransferee? Yes No

27. Does the institution respond to borrower inquiries relating to servicing ofRESPA-covered mortgage loans and refinancings as prescribed in Regula-tion X? Yes NoSpecifically, does the institution:a. Provide a written response acknowledging receipt of a qualified written

request from a borrower for information relating to the servicing of the loanwithin 20-business days? Yes No

b. If not, has the action requested by the borrower been taken within the20-business day period? Yes No

c. Within 60-business days after the receipt of a qualified written request,does the institution make appropriate corrections in the account of theborrower and provide a written notification of the correction (including inthe notice the name and the telephone number of a representative of theinstitution who can provide assistance)? Yes NoORProvide the borrower with a written explanation:

i. Stating the reasons the account is correct (including the name andtelephone number of a representative of the institution who canprovide assistance)? Yes NoOR

ii. Explaining why the information requested is unavailable or cannot beobtained by the institution (including the name and telephone numberof a representative of the institution who can provide assistance)? Yes No

28. Does the institution provide information regarding an overdue payment to anyconsumer reporting agency during the 60-day period beginning on the datethe institution received any qualified written request relating to a disputeregarding the borrower’s payments? Yes No

Escrow Accounts29. Does the institution perform an escrow analysis at the creation of the escrow

account? Yes No30. Is the initial escrow statement given to the borrower at settlement within 45

days after the escrow account is established? Yes No31. For continuing escrow arrangements, is an annual escrow statement

provided to the borrower at least once every twelve months? Yes No32. Does the initial escrow statement itemize:



a. Amount of monthly mortgage payment? Yes Nob. Portion of the monthly payment being placed in escrow? Yes Noc. Charges to be paid from the escrow account during the first 12 months? Yes Nod. Disbursement date? Yes Noe. Amount of cushion? Yes No

33. Is the annual escrow statement provided within 30 days of the completion ofthe escrow account computation year? Yes No

34. Does the annual escrow statement itemize:a. Current mortgage payment and portion going to escrow? Yes Nob. Amount of last year’s mortgage payment and portion that went to escrow? Yes No

c. Total amount paid into the escrow account during the past computationyear? Yes No

d. Total amount paid from the escrow account during the year for taxes,insurance premiums, and other charges? Yes No

e. Balance in the escrow account at the end of the period? Yes Nof. Explanation of how any surplus is being handled? Yes No

g. Explanation of how any shortage or deficiency is to be paid by theborrower? Yes No

h. If applicable, the reason(s) why the estimated low monthly balance wasnot reached? Yes No

35. Are monthly escrow payments following settlement no larger than one-twelfthof the amount expected to be paid for taxes, insurance premiums, and othercharges in the following twelve months, plus one-sixth of that amount? Yes No

36. Does the servicer notify the borrower at least annually of any shortage ordeficiency in the escrow account? Yes No

37. Does the institution make payments from the escrow account for taxes,insurance premiums and other charges in a timely manner as they becomedue? Yes No

No Fees for RESPA Disclosures38. a. Does the financial institution charge a fee specifically for preparing and

distributing the HUD-1 forms, escrow statements or documents requiredunder the Truth in Lending Act? Yes No

b. If a fee is charged for a GFE, is the fee limited to the cost of a credit report? Yes No

Purchase of Title Insurance39. When the financial institution owns the property being sold, does it require

that title insurance be purchased from a particular company? Yes No

Payment or Receipt of Referral or Unearned Fees40. Is institution management aware of the prohibitions against payment or

receipt of kickbacks and unearned fees? Yes No41. a. Are federally related mortgage loan transactions referred by brokers,

affiliates, or other parties? Yes NoOR

b. Does the institution refer services to brokers, affiliates, or other parties? Yes No42. If fees were paid to the institution or any parties identified, were all fees paid

to the broker, affiliate, service provider, or other party consistent with all therequirements of section 3500.14(g) and for goods or facilities actuallyfurnished or services actually performed? Yes No



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