respa procedures - comptroller of the currency -occ- us govt. - 2010 handbook

8/3/2019 RESPA PROCEDURES - COMPTROLLER OF THE CURRENCY -OCC- US GOVT. - 2010 HANDBOOK

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Consumer Compliance Examination

Real Estate SettlementProcedures

Comptrollers Handbook

CCE-Respa

Comptroller of the CurrencyAdministrator of National Banks

CCE


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Real EstateSettlement Procedures Table of Contents

Int roduct ion ................................................................................................. 1Background and Summary.................................................................. 1Coverage (24 CFR 3500.5).................................................................. 2Exemptions (24 CFR 3500.5(b))........................................................... 3Special Information Booklet (24 CFR 3500.6)...................................... 4Good Faith Estimate (GFE) of Settlement Costs (24 CFR 3500.7).......... 5

Overview of the Standard GFE....................................................... 5GFE Not Required for Open-End Lines of Credit

(24 CFR 3500.7(h)) ......................................................... 6Availability of GFE Terms (24 CFR 3500.7(c)) ................................ 6

Key GFE Form Contents (24 CFR 3500.7 (d)).................................. 7Tolerances on Settlement Costs (24 CFR 3500.7(e) and (i))........... 11Identification of Third-Party Settlement Service Providers............. 13Binding GFE (24 CFR 3500.7(f))................................................... 13Changed Circumstances (24 CFR 3500. 2(b), 3500.7(f)(1)

and (f)(2))...................................................................... 13Borrower-Requested Changes (24 CFR 3500.7(f)(3))..................... 15Expiration of Original GFE (24 CFR 3500.7(f)(4)).......................... 15Interest Rate-Dependent Charges and Terms (24 CFR 3500.7(f)(5))15New Home Purchases (24 CFR 3500.7(f)(6))................................ 15

Volume-Based Discounts............................................................. 16Uniform Settlement Statement (HUD-1 or HUD-1A)

(24 CFR 3500.8) .......................................................................... 16Key RESPA Reform Enhancements to the HUD-1 or HUD-1A

Settlement Statement .................................................... 16Average Charge Permitted (24 CFR 3500.8(b)(2))......................... 18Printing and Duplication of the Settlement Statement

(24 CFR 3500.9) ........................................................... 18One-Day Advance Inspection of the Settlement Statement

(24 CFR 3500.10(a))...................................................... 19

Delivery (24 CFR 3500.10(b)) ...................................................... 19Retention (24 CFR 3500.10(e))..................................................... 19

Prohibition of Fees for Preparing Federal Disclosures(24 CFR 3500.12) ........................................................................ 19

Prohibition Against Kickbacks and Unearned Fees (24 CFR 3500.14) 20Penalties and Liabil ities .................................................................... 20Affiliated Business Arrangements (24 CFR 3500.15).......................... 20

Comptrollers Handbook Real Estate Settlement Proceduresi


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Comptrollers Handbook Real Estate Settlement Proceduresii

Title Companies (24 CFR 3500.16 and 12 USC 2608)....................... 21Escrow Accounts (24 CFR 3500.17) .................................................. 22

Escrow Account Analysis (24 CFR 3500.17(c)(2) and (3) and3500.17(k).................................................................... 22

Transfer of Servicing (24 CFR 3500.17(e)).................................... 22

Shortages, Surpluses, and Deficiency Requirements (24 CFR3500.17(f)).................................................................... 23

Initial Escrow Account Statement (24 CFR 3500.17(g))................. 24Annual Escrow Account Statement (24 CFR 3500.17(i)) ............... 25Short-Year Statements (24 CFR 3500.17(i)(4))............................... 25Timely Payments (24 CFR 3500.17(k)) ......................................... 25Record Keeping (24 CFR 3500.17(l))............................................ 26Penalties (24 CFR 3500.17(m))..................................................... 26

Mortgage Servicing Disclosures (24 CFR 3500.21) ............................ 26Servicers Must Respond to Borrowers Inquiries

(24 CFR 3500.21(e)) ..................................................... 28Relationship to State Law (24 CFR 3500.31(h) and 12 USC 2616) ..... 28Penalties and Liabil ities (24 CFR 3500.21(f)) ..................................... 28

Expanded Procedures................................................................................. 29Appendix A ................................................................................................ 30

Real Estate Settlement Procedures Act Examination Worksheet ......... 30Appendix B ................................................................................................ 37

Real Estate Settlement Procedures Act Forms Review Worksheet ...... 37References ................................................................................................. 39


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Real EstateSettlement Procedures Introduction

Background and Summary

The Real Estate Settlement Procedures Act of 1974 (RESPA) (12 USC 2601 etseq.) (the act) became effective on June 20, 1975. The act requires lenders,mortgage brokers, or servicers of home loans to provide borrowers withpertinent and timely disclosures regarding the nature and costs of the realestate settlement process. The act also protects borrowers against certainabusive practices, such as kickbacks, and places limitations upon the use ofescrow accounts.

The Department of Housing and Urban Development (HUD) promulgatedRegulation X (24 CFR 3500), which implements RESPA. The NationalAffordable Housing Act of 1990 amended RESPA to require detaileddisclosures concerning the transfer, sale, or assignment of mortgage servicing.It also requires disclosures for mortgage escrow accounts at closing andannually thereafter, itemizing the charges to be paid by the borrower andwhat is paid out of the account by the servicer.

In October 1992, Congress amended RESPA to cover subordinate lien loans.HUD, however, decided not to enforce these provisions until Regulation X

was amended to cover these loans. On February 10, 1994, Regulation X wasamended to extend coverage to subordinate lien loans. The amendmentswere effective on August 9, 1994. Exemptions from coverage of RESPA andRegulation X, set forth in section 3500.5(b), were effective on March 14,1994. Technical corrections and amendments to the rule were issued onMarch 30, 1994, and July 22, 1994.

On June 7, 1996, HUD amended Regulation X to clarify certain exemptionprovisions of RESPA, to amend the controlled business disclosurerequirements, and to address specific comments raised in the 1994 rule.These amendments became effective on October 7, 1996. Congress, when it,enacted the Economic Growth and Regulatory Paperwork Reduction Act of1996,1 further amended RESPA to clarify certain definitions includingcontrolled business arrangement, which changed to affiliated business

Comptrollers Handbook Real Estate Settlement Procedures1

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


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arrangement. The amendments also reduced the disclosures under themortgage servicing provisions of RESPA.

In 2008, HUD issued a RESPA Reform Rule (73 Federal Register68204,November 17, 2008) that included substantive and technical changes to the

existing RESPA regulations and different implementation dates for variousprovisions. Substantive changes included a standard Good Faith EstimateForm and a revised HUD-1 Settlement Statement that are required as ofJanuary 1, 2010. Other technical changes, including streamlined mortgageservicing disclosure language, elimination of outdated escrow accountprovisions, and a provision permitting an average charge to be l isted on theGood Faith Estimate and HUD-1 Settlement Statement, took effect on January16, 2009. In addition, HUD clarified that all disclosures required by RESPAare permitted to be provided electronically, in accordance with the ElectronicSignatures in Global and National Commerce Act (ESIGN).

Coverage (24 CFR 3500.5)

RESPA is applicable to all federally related mortgage loans, which aredefined as:

Loans (other than temporary loans), including refinancings, secured by a firstor subordinate lien on residential real property upon which either:

A one- to four-family structure is located or is to be constructed usingproceeds of the loan (including individual units of condominiums andcooperatives); or

A manufactured home is located or is to be constructed using proceeds ofthe loan;

and to which one of the following applies:

Loans made by a lender,2 creditor,3 or dealer.42A lender includes financial institutions either regulated by, or whose deposits or accounts areinsured by, any agency of the federal government.

3A creditor i s defined in section 103(f) of the Consumer Credit Protection Act (15 USC 1602(f)).RESPA covers any creditor that makes or invests in residential real estate loans aggregating more than$1,000,000 per year.



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Loans made or insured by an agency of the federal government; Loans made in connection with a housing or urban development program

administered by an agency of the federal government;

Loans made and intended to be sold by the originating lender or creditorto FNMA, GNMA, or FHLMC (or its successor);5

Loans that are the subject of a home equity conversion mortgage orreverse mortgage issued by a lender or creditor subject to the regulation;or

Installment sales contracts, land contracts, or contracts for deed onotherwise qualifying residential property if the contract is funded in wholeor in part by proceeds of a loan made by a lender, dealer, or creditorsubject to the regulation.

Exemptions (24 CFR 3500.5(b))

The following transactions are exempt from coverage:

A loan on property of 25 acres or more (whether or not a dwelling islocated on the property).

A loan primarily for business, commercial, or agricultural purposes(definition identical to Regulation Z, 12 CFR 226.3(a)(1)).

A temporary loan, such as construction loan. (The exemption does notapply to a loan made to finance construction of one- to four-familyresidential property if the loan is used as, or may be converted to,permanent financing by the same lender, or is used to finance transfer oftitle to the first user of the property.) If a lender issues a commitment forpermanent financing, it is covered by the regulation. Any construction

loan with a term of two years or more is covered by the regulation, unless


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

5 FNMAFederal National Mortgage Association; GNMAGovernment National MortgageAssociation; FHLMCFederal Home Loan Mortgage Corporation.


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it is made to a bona fide builder. Bridge or swing loans are notcovered by the regulation.

A loan secured by vacant or unimproved property when no proceeds ofthe loan will be used to construct a one- to four-family residential

structure. If the proceeds will be used to locate a manufactured home orconstruct a structure within two years from the date of settlement, the loanis covered.

An assumption, unless the mortgage instruments require lender approvalfor the assumption and the lender approves the assumption.

A renewal or modification when the original obl igation (note) is stil l ineffect but modified.

A bona fide transfer of a loan obligation in the secondary market.(However, the mortgage servicing disclosure requirements of 24 CFR3500.21 still apply.) Mortgage broker transactions that are table funded(the loan is funded by a contemporaneous advance of loan funds and anassignment of the loan to the person advancing the funds) are notsecondary-market transactions and, therefore, are covered by RESPA.

Special Information Booklet (24 CFR 3500.6)

A loan originator6

is required to provide the borrower with a copy of theSpecial Information booklet at the time a written application is submitted, orno later than three business days after the application is received. If theapplication is denied before the end of the three-business-day period, the loanoriginator is not required to provide the booklet. If the borrower uses amortgage broker, the broker, rather than the lender, must provide the booklet.

The booklet does not need to be provided for refinancing transactions, closed-end subordinate lien mortgage loans and reverse mortgage transactions, or forany other federally related mortgage loan not intended for the purchase of a

one- to four-family residential property.

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


6 The RESPA Reform Rule added the definition of loan originator to the l ist of defined terms in theRESPA regulations. A loan originator is defined as a lender or mortgage broker.


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Good Faith Estimate (GFE) of Settlement Costs (24 CFR 3500.7)

As of January 1, 2010, a loan originator is required to provide a consumerwith the standard GFE form that is designed to allow borrowers to shop for amortgage loan by comparing settlement costs and loan terms. (See GFE format Appendix C of 24 CFR 3500).

Overview of the Standard GFE

The first page of the GFE includes a summary of loan terms and a summary ofestimated settlement charges. It also includes information about key datessuch as when the interest rate for the loan quoted in the GFE expires andwhen the estimate for the settlement charges expires. The second page

discloses settlement charges as subtotals for 11 categories of costs. The thirdpage provides a table explaining which charges can change at settlement, atrade-off table showing the relationship between the interest rate andsettlement charges, and a shopping chart to compare the costs and terms ofloans offered by different originators.

GFE Application Requirements

The loan originator must provide the standard GFE to the applicant withinthree business days of receipt of an application for a mortgage loan. A loan

originator is not required to provide a GFE if, before the end of the three-business-day period, the application is denied or the applicant withdrawsthe application.

An application can be in writing or electronically submitted, including awritten record of an oral application.

A loan originator determines what information it needs to collect from anapplicant and which of the collected information it wi ll use in order toissue a GFE. Under the regulations, an application includes at least the

following six pieces of information: 1) the borrowers name, 2) theborrowers monthly income, 3) the borrowers Social Security number (toenable the loan originator to obtain a credit report), 4) the propertyaddress, 5) an estimate of the value of the property, and 6) the mortgageloan amount sought. In addition, a loan originator may require thesubmission of any other information it deems necessary. A loan originatorwill be presumed to have relied on such information prior to issuing a GFE



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and cannot base a revision of a GFE on that information unless it changesor is later found to be inaccurate.

While the loan originator may require the borrower to submit additionalinformation beyond the six pieces of information listed above in order to

issue a GFE, it cannot require, as a condition of providing the GFE, thesubmission of supplemental documentation to verify the informationprovided by the borrower on the application. However, a loan originatoris not prohibited from using its own sources to verify the informationprovided by the borrower prior to issuing the GFE. The loan originator canrequire borrowers to provide verification information after the GFE hasbeen issued in order to complete final underwriting.

For dealer loans, the loan originator is responsible for providing the GFEdirectly or ensuring that the dealer provides the GFE.

For mortgage brokered loans, either the lender or the mortgage brokermust provide a GFE within three business days after a mortgage brokerreceives either an application or information sufficient to complete anapplication. The lender is responsible for ascertaining whether the GFE hasbeen provided. If the mortgage broker has provided the GFE to theapplicant, the lender is not required to provide an additional GFE.

A loan originator is prohibited from charging a borrower any fee in orderto obtain a GFE unless the fee is limited to the cost of a credit report.

GFE Not Required for Open-End Lines of Credit (24 CFR 3500.7(h))

A loan originator that complies with Regulation Z (12 CFR 226.5b) for open-end home equity plans is deemed to have complied wi th 24 CFR 3500.7.

Availability of GFE Terms (24 CFR 3500.7(c))

Regulation X does not establish a minimum period of availability for which

the interest rate must be honored. The loan originator must determine theexpiration date for the interest rate of the loan stated on the GFE. In contrast,Regulation X requires that the estimated charges and terms for all settlementservices listed on the GFE be honored by the loan originator for at least 10business days from the date the GFE is provided. The period of availability forthe estimated charges and terms for settlement services as well as the period



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of availability for the interest rate of the loan stated on the GFE must be listedon the GFE in the important dates section of the form.

After the expiration date for the interest rate of the loan stated on the GFE, theinterest rate and the other rate-related chargesincluding the charge or credit

for the interest rate chosen, the adjusted origination charges, and the per-dieminterestcan change until the interest rate is locked.

Key GFE Form Contents (24 CFR 3500.7 (d))

The loan originator must ensure that the required GFE form is completed inaccordance with the instructions set forth in Appendix C of 24 CFR 3500.

First Page of GFE

The first page of the GFE discloses identifying information such as thename and address of the loan originator, which is the lender or themortgage broker originating the loan. The purpose section indicateswhat the GFE is about and directs the applicant to the Truth in Lendingdisclosures and HUDs Web site for more information. The GFE states thatonly the borrower can shop for the best loan and that the borrower shouldcompare loan offers using the shopping chart on the third page of the GFE.

The important dates section requires the loan originator to state theexpiration date for the interest rate for the loan provided in the GFE, aswell as the expiration date for the estimate of other settlement charges notdependent upon the interest rate.

While the interest rate stated on the GFE is not required to be honored forany specific period of time, the estimate for the other settlement chargesand other loan terms must be honored for at least 10 business days fromwhen the GFE is provided.

In addition, the form must state how many calendar days within which theborrower must go to settlement once the interest rate is locked (rate lockperiod). The form also requires disclosure of how many days prior tosettlement the interest rate would have to be locked, if applicable.

The summary of your loan section requires disclosure of the loanamount; loan term; initial interest rate; initial monthly payment forprincipal, interest, and any mortgage insurance; whether the interest rate



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can rise, and, if so, the maximum rate to which it can rise over the life ofthe loan and the period of time after which the interest rate can firstchange; whether the loan balance can rise if the payments are made ontime and, if so, the maximum amount to which it can rise over the life ofthe loan; whether the monthly amount owed for principal, interest, and

any mortgage insurance can rise even if payments are made on time and,if so, the maximum amount to which the monthly amount owed can everrise over the life of the loan; whether the loan has a prepayment penaltyand, if so, the maximum amount it could be; and whether the loan has aballoon payment and, i f so, the amount of such payment and in how manyyears it will be due.

The escrow account information section requires the loan originator toindicate whether the loan does or does not have an escrow account to payproperty taxes or other property-related charges. In addition, this sectionalso requires the disclosure of the monthly amount owed for principal,interest, and any mortgage insurance.

The bottom of the first page includes subtotals for the adjusted originationcharges and charges for all other settlement charges listed on page 2,along with the total estimated settlement charges.

Second Page of GFE

The second page of the GFE requires disclosure of all settlement charges. Itprovides for the estimate of total settlement costs in 11 categories discussedbelow. The adjusted origination charges are disclosed in Block A and allother settlement charges are disclosed in Block B. The amounts in theblocks are to be added to arrive at the total estimated settlement charges,which is required to be listed at the bottom of the page.

Disclosure of Adjusted Origination Charge (Block A)

Block Aaddresses disclosure of origination charges, which include alllender and mortgage broker charges. The adjusted origination chargeresults from the subtraction of a credit from the origination charge or theaddition of a charge to the origination charge.

Block 1the origination charges, which includes lender-processingand underwriting fees and any fees paid to a mortgage broker.



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Origination Charge Note:This block requires the disclosure of allcharges that all loan originators involved in the transaction will receivefor originating the loan (excluding any charges for points). A loanoriginator may not separately charge any additional fees for getting theloan, such as application, processing, or underwriting fees. The amount

in Block 1 is subject to zero tolerance; i.e., the amount cannot increaseat settlement.

Block 2a credit or charge for the interest rate chosen.Credit or Charge for the Interest Rate Chosen Note:

Transaction Involving a Mortgage Broker:7 In Block 2, if there is acredit or charge (points) for the specific interest rate chosen, themortgage broker must check the box and disclose the amount of thecredit or charge.The credit or charge for the specific interest ratechosen is the net payment to the mortgage broker (i.e., the sum of allpayments to the mortgage broker from the lender, including paymentsbased on the loan amount, a flat rate or any other compensation, andin a table-funded transaction, the loan amount less the price paid forthe loan by the lender), excluding any fee the borrower pays directly tothe mortgage broker, which is included in Block 1.

When the net payment to the mortgage broker from the lender is

positive, there is a credit to the borrower and it is entered as anegative amount. For example, if the lender pays a yield spreadpremium to a mortgage broker for the loan set forth in the GFE, thepayment must be disclosed as a credit to the borrower for theparticular interest rate listed on the GFE (reflected on the GFE at Block2, second checkbox). The term yield spread premium is not featuredon the GFE or the HUD-1 Settlement Statement.

Points paid by the borrower for the interest rate chosen must bedisclosed as a charge (reflected on the GFE at Block 2, third


7 The RESPA Reform Rule changed the definition of mortgage broker to mean a person or entity(not an employee of a lender) that renders origination services and serves as an intermediary betweena lender and a borrower in a transaction involving a federally related mortgage loan, including suchperson or entity that closes the loan in its own name and table-funds the transaction. The defini tionalso applies to a loan correspondent approved under 24 CFR 202.8 for Federal HousingAdministration (FHA programs). The definition would also include an exclusive agent who is notan employee of the lender.


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checkbox). Block 2 cannot include both a charge (points) and a credit(yield-spread premium).

Transaction Not Involving a Mortgage Broker:For a transactionwithout a mortgage broker, a lender may choose not to separately

disclose any credit or charge for the interest rate chosen for the loan inthe GFE. If the lender does not include any credit or charge in Block 2,it must check the first checkbox in Block 2 indicating that The creditor charge for the interest rate you have chosen is included in ourorigination charge above, insert the interest rate and also insert 0 inBlock 2. Only one of the boxes in Block 2 may be checked, as a creditand charge cannot occur together in the same transaction.

Disclosure of Charges for All Other Settlement Services (Block B)

Block B is the sum of charges for all settlement services other than theorigination charges.

Block 3required services by providers selected by the lender such asappraisal and flood certification fees;

Block 4title service fees and the cost of lenders title insurance; Block 5owners title insurance; Block 6other required services for which the consumer may shop; Block 7government recording charges; Block 8transfer tax charges; Block 9initial deposit for escrow account; Block 10daily interest charges; Block 11homeowners insurance charges.



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Third Page of GFE

The third page of the GFE includes the following information:

A tolerance chart identifying the charges that can change at settlement (seediscussion on tolerances below);

A trade-off table, which requires the loan originator to provide informationon the loan described in the GFE and, at the loan originators option,information about alternative loans (one with lower settlement charges buta higher interest rate and one with a lower interest rate but highersettlement charges);

A shopping chart that allows the consumer to fill in loan terms andsettlement charges from other lenders or brokers to use to compare loans;and

Language indicating that some lenders may sell the loan after settlementbut that any fees the lender receives in the future cannot change theborrowers loan or the settlement charges.

Tolerances on Settlement Costs (24 CFR 3500.7(e) and (i))

The RESPA Reform Rule established tolerances or limits on the amountactual settlement charges can vary at closing from the amounts stated on theGFE. The rule established three categories of settlement charges and eachcategory has different tolerances. If, at settlement, the charges exceed thecharges listed on the GFE by more than the permitted tolerances, the loanoriginator may cure the tolerance violation by reimbursing to the borrowerthe amount by which the tolerance was exceeded, at settlement or within 30calendar days after settlement.

Tolerance Categories

Zero-tolerance category. This category of fees is subject to a zero-tolerancestandard. The fees estimated on the GFE may not be exceeded at closing.These fees include:



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The loan originators own origination charge, including processing andunderwri ting fees;

The credit or charge for the interest rate chosen (i.e. yield-spreadpremium or discount points) while the interest rate is locked;

The adjusted origination charge while the interest rate is locked; and State/local property transfer taxes.

10-percent-tolerance category. For this category of fees, while eachindividual fee may increase or decrease, the sum of the charges at settlementmay not be greater than 10 percent above the sum of the amounts includedon the GFE.This category includes fees for:

Loan-originator-required-settlement services, when the loan originatorselects the third-party settlement service provider;

Loan-originator-required services, title services, required title insuranceand owners title insurance, when the borrower selects a third-partyprovider identified by the loan originator; and

Government recording charges.No-tolerance-restr iction category.The final category of fees is not subject toany tolerance restriction. The amounts charged for the following settlementservices included on the GFE can change at settlement:

Loan originator required services, when the borrower selects his or herown third-party provider that was not identified by the loan originator;

Title services, lenders title insurance and owners title insurance, whenthe borrower selects his or her own provider that was not identified bythe loan originator;

Initial escrow deposit; Daily interest charges; and Homeowners insurance.



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Identification of Third-Party Settlement Service Providers

When the loan originator permits a borrower to shop for one or morerequired third-party settlement services and select the settlement serviceprovider for such required services, the loan originator must list in therelevant block on page 2 of the GFE the settlement service and the estimatedcharge to be paid to the provider of each required service. In addition, theloan originator must provide the borrower with a written list of settlementservice providers for those required services on a separate sheet of paper atthe time the GFE is provided.

Binding GFE (24 CFR 3500.7(f))

The loan originator is bound, within the tolerances provided, to thesettlement charges and terms listed on the GFE provided to the borrower,unless a new GFE is provided prior to settlement under specifiedcircumstances (see discussion below, including changed circumstances andborrower-requested changes). This also means that if a lender accepts a GFEissued by a mortgage broker, the lender is subject to the loan terms andsettlement charges listed in the GFE, unless a new GFE is permitted to beissued prior to settlement.

Changed Circumstances (24 CFR 3500. 2(b), 3500.7(f)(1) and (f)(2))

Changed circumstances are defined as:

1. Acts of God, war, disaster, or other emergency;2. Information particular to the borrower or transaction that was relied on in

providing the GFE that changes or is found to be inaccurate after the GFEhas been provided;

3. New information particular to the borrower or transaction that was notrelied on in providing the GFE; or

4. Other circumstances that are particular to the borrower or transaction,including boundary disputes, the need for flood insurance, orenvironmental problems.



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Changed circumstances do not include the borrowers name, the borrowersmonthly income, the property address, an estimate of the value of theproperty, the mortgage loan amount sought, and any information contained inany credit report obtained by the loan originator prior to providing the GFE,unless the information changes or is found to be inaccurate after the GFE has

been provided. In addition, market price fluctuations by themselves do notconstitute changed ci rcumstances.

Changed circumstances affectingsettlement costsare those circumstances thatresult in increased costs for settlement services such that the charges atsettlement would exceed the tolerances or limits on those charges establishedby the regulations.

Changed circumstances affecting the loan are those circumstances that affectthe borrowers eligibil ity for the loan. For example, if underwriting andverification indicate that the borrower is ineligible for the loan provided inthe GFE, the loan originator would no longer be bound by the original GFE.In such cases, if a new GFE is to be provided, the loan originator must do sowithin three business days of receiving information sufficient to establishchanged circumstances. The loan originator must document the reason that anew GFE was provided and must retain documentation of any reasons forproviding a new GFE for no less than three years after settlement.

None of the information collected by the loan originator prior to issuing the

GFE may later become the basis for a changed circumstance upon which itcould offer a revised GFE, unless the loan originator could demonstrate that:(1) there was a change in the particular information, (2) the information wasinaccurate, or (3) the loan originator did not rely on that particularinformation in issuing the GFE. A loan originator has the burden ofdemonstrating nonreliance on the collected information, but may do sothrough various means, including through a documented record in theunderwriting file or an established policy of relying on a more limited set ofinformation in providing GFEs.

If a loan originator issues a revised GFE based on information previouslycollected in issuing the original GFE and changed circumstances, it mustdocument the reasons for issuing the revised GFE, such as its nonreliance onsuch information or the inaccuracy of such information.



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Borrower-Requested Changes (24 CFR 3500.7(f)(3))

If a borrower requests changes to the mortgage loan identified in the GFE thatchange the settlement charges or the terms of the loan, the loan originatormay provide a revised GFE to the borrower. If a revised GFE is provided, theloan originator must do so within three business days of the borrowersrequest.

Expiration of Original GFE (24 CFR 3500.7(f)(4))

If a borrower does not express intent to continue with an application within10 business days after the GFE is provided, or such longer time provided bythe loan originator, the loan originator is no longer bound by the GFE.

Interest Rate-Dependent Charges and Terms (24 CFR 3500.7(f)(5))

If the interest rate has not been locked by the borrower, or a locked interestrate has expired, all interest-rate-dependent charges on the GFE are subject tochange. The charges that may change include the charge or credit for theinterest rate chosen, the adjusted origination charges, per-diem interest, andloan terms related to the interest rate. However, the loan originatorsorigination charge (listed in Block 1 of page 2 of the GFE) is not subject tochange, even if the interest rate floats, unless there is another changedcircumstance or borrower-requested change.

If the borrower later locks the interest rate, a new GFE must be providedshowing the revised interest rate dependent charges and terms. All othercharges and terms must remain the same as on the original GFE, unlesschanged circumstances or borrower-requested changes create increased costsfor settlement services or affect the borrowers eligibility for the specific loanterms identified in the original GFE.

New Home Purchases (24 CFR 3500.7(f)(6))

In transactions involving new home purchases, when settlement is expectedto occur more than 60 calendar days from the time a GFE is provided, theloan originator may provide the GFE to the borrower with a clear andconspicuous disclosure stating that at any time up until 60 calendar days priorto closing, the loan originator may issue a revised GFE. If the loan originator



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does not provide such a disclosure, it cannot issue a revised GFE except asotherwise provided in Regulation X.

Volume-Based Discounts

The RESPA Reform Rule did not formally address the legality of volume-baseddiscounts. However, HUD indicated in the preamble to the rule thatdiscounts negotiated between loan originators and other settlement serviceproviders, when the discount is ultimately passed on to the borrower in full, isnot, depending on the circumstances of a particular transaction, a violation ofSection 8 of RESPA.8

Uniform Settlement Statement (HUD-1 or HUD-1A) (24 CFR 3500.8)

Section 4 of RESPA requires the person conducting the settlement (settlementagent) to provide the borrower with a HUD-1 Settlement Statement at orbefore settlement that clearly itemizes all charges imposed on the borrowerand the seller in connection with the settlement. The RESPA Reform ruleincluded a revised HUD-1 or HUD-1A Settlement Statement form that HUDrequires as of January 1, 2010. The HUD-1 is used for transactions in whichthere is a borrower and seller. For transactions in which there is a borrowerand no seller (refinancings and subordinate lien loans), the settlement agentmay complete the HUD-1 by using the borrower's side of the settlementstatement. Alternatively, the agent may use the HUD-1A. However, no

settlement statement is required for home equity plans subject to the Truth inLending Act and Regulation Z. Appendix A of Regulation X contains theinstructions for completing the forms.

Key RESPA Reform Enhancements to the HUD-1 or HUD-1ASettlement Statement

While the RESPA Reform Rule did not include any substantive changes to thefirst page of the HUD-1 or HUD-1A form, there were changes to the second

page of the form to facilitate comparison between the HUD-1 or HUD-1Aand the GFE. Each designated line on the second page of the revised HUD-1or HUD-1A includes a reference to the relevant line from the GFE.


8 73 Federal Register68204, 68232 (November 17, 2008).


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With respect to disclosure of no cost loans, when no cost refers only tothe loan originators fees (see Section L, subsection 800 of the HUD-1 form),the amounts shown for the origination charge and the credit or charge forthe interest rate chosen should offset each other, so that the adjustedorigination charge is zero.

In the case of a no cost loan, when no cost encompasses loan originatorand third-party fees, all third-party fees must be i temized and listed in theborrowers column on the HUD-1 or HUD-1A. These itemized charges mustbe offset with a negative adjusted origination charge (Line 803) and recordedin the columns.

To further facilitate comparability between the forms, the revised HUD-1includes a new third page (second page of the HUD-1A) that allowsborrowers to compare the loan terms and settlement charges listed on theGFE with the terms and charges listed on the closing statement. The first halfof the third page includes a comparison chart that sets forth the settlementcharges from the GFE and the settlement charges from the HUD-1 to allowthe borrower to easily determine whether the settlement charges exceed thecharges stated on the GFE. If any charges at settlement exceed the chargeslisted on the GFE by more than the permitted tolerances, the loan originatormay cure the tolerance violation by reimbursing the borrower the amount bywhich the tolerance was exceeded. A borrower will be deemed to havereceived timely reimbursement if the loan originator delivers or places the

payment in the mail within 30 calendar days after settlement.

The second half of the third page sets forth the loan terms for the loanreceived at settlement in a format that reflects the summary of loan terms onthe first page of the GFE, but with additional loan-related information thatwould be available at closing. The note at the bottom of the page indicatesthat the borrower should contact the lender if the borrower has questionsabout the settlement charges or loan terms listed on the form.

Section 3500.8(b) and the instructions for completing the HUD-1 or HUD-1A

Settlement Statement provide that the loan originator shall transmit sufficientinformation to the settlement agent to allow the settlement agent to completethe HUD-1 or HUD-1A. The loan originator must provide the information in aformat that permits the settlement agent to enter the information in theappropriate spaces on the HUD-1 or HUD-1A, without having to refer to theloan documents.



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Inadvertent or technical errors on the settlement statement are not deemed aviolation of Section 4 of RESPA if a revised HUD-1 or HUD-1A is provided tothe borrower within 30 calendar days after settlement.

Average Charge Permitted (24 CFR 3500.8(b)(2))

As of January 16, 2009, an average charge may be stated on the HUD-1 orHUD-1A if such average charge is computed in accordance with section3500.8(b)(2). All settlement service providers, including loan originators, arepermitted to list the average charge for a settlement service on the HUD-1 orHUD-1A Settlement Statement (and on the GFE) rather than the exact cost forthat service. The average charge also cannot be used if the charge is based onthe loan amount or the value of the property.

The method of determining the average charge is left up to the settlementservice provider, within certain parameters. The average charge may be usedas the charge for any third-party vendor charge, not for the providers owninternal charges.

The average charge may be used for any third-party settlement service,provided that the total amounts paid by borrowers and sellers for that servicefor a particular class of transactions do not exceed the total amounts paid toproviders of that service for that class of transactions. A class of transactionsmust be defined based on the period of time, type of loan, and geographic

area. If an average charge is used in any class of transactions defined by theloan originator, then the loan originator must use the same average charge forevery transaction within that class. The loan originator must recalculate theaverage charge at least every six months.

A settlement service provider that uses an average charge for a particularservice must maintain all documents that it used to calculate the averagecharge for at least three years after any settlement in which the settlementservice provider used the average charge.

Printing and Duplication of the Settlement Statement (24 CFR 3500.9)

Loan originators have numerous options for layout and format in reproducingthe HUD-1 and HUD-1A that do not require prior HUD approval, such assize of pages; tint or color of pages; size and style of type or print; spacing;printing on separate pages, front and back of a single page, or on one



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continuous page; use of multi-copy, tear-out sets; printing on rolls forcomputer purposes; addition of signature lines; and translation into anylanguage. Other changes may be made only with the approval of theSecretary of Housing and Urban Development.

One-Day Advance Inspection of the Settlement Statement (24 CFR3500.10(a))

Upon request by the borrower, the person conducting the closing mustcomplete the HUD-1 or HUD-1A and make it available for inspection duringthe business day immediately preceding the day of settlement, setting forththose items known at that time by that person.

Delivery (24 CFR 3500.10(b))

The settlement agent must complete a HUD-1 or HUD-1A and mail or deliverit to the borrower, the seller (if there is one), the lender (if the lender is notthe settlement agent), and/or their agents at or before settlement. However,the borrower may waive the right of delivery by executing a written waiver ator before settlement. The settlement agent shall mail or deliver the HUD-1 orHUD-1A as soon as practicable after settlement if the borrower or borrower'sagent does not attend the settlement.

Retention (24 CFR 3500.10(e))

A lender must retain each completed HUD-1 or HUD-1A and relateddocuments for five years after settlement, unless the lender disposes of itsinterest in the mortgage and does not service it. If the loan is transferred, thelender shall provide a copy of the HUD-1 or HUD-1A to the owner orservicer of the mortgage as part of the transfer. The owner or servicer shallretain the HUD-1 or HUD-1A for the remainder of the five-year period.

Prohibition of Fees for Preparing Federal Disclosures (24 CFR

3500.12)

For loans subject to RESPA, no fee may be charged for preparing theSettlement Statement or the Escrow Account statement or any disclosuresrequired by the Truth in Lending Act.



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Prohibition Against Kickbacks and Unearned Fees (24 CFR 3500.14)

Any person who gives or receives a fee for or a thing of value (payments,commissions, fees, gifts, or special privileges) for the referral of settlementbusiness is in violation of section 8 of RESPA. Payments in excess of thereasonable value of goods provided or services rendered may be consideredunearned fees in violation of section 8 of RESPA. Appendix B of Regulation Xprovides guidance on the meaning and coverage of the prohibition againstkickbacks and unearned fees.

Penalties and Liabilities

Civil and criminal liability is provided for violating the prohibition againstkickbacks and unearned fees including:

Civil liability to the parties affected equal to three times the amount of anycharge paid for such settlement service.

The possibility that the costs associated with any court proceedingtogether with reasonable attorney's fees could be recovered.

A fine of not more than $10,000 or imprisonment for not more than 1 yearor both.

Affiliated Business Arrangements (24 CFR 3500.15)

If a loan originator has either an affiliate relationship or a direct or beneficialownership interest of more than 1 percent in a provider-of-settlement servicesand the loan originator directly or indirectly refers business to the provider oraffirmatively influences the selection of that provider, it is an affiliatedbusiness arrangement. An affiliated business arrangement is not a violation ofsection 8 of RESPA and section 3500.14 of Regulation X if the followingconditions are satisfied:

Prior to the referral, the person making each referral has provided to eachperson whose business is referred an Affiliated Business ArrangementDisclosure Statement (Appendix D to 24 CFR 3500). This disclosure shallspecify the following:



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The nature of the relationship (explaining the ownership and financialinterest) between the provider and the loan originator; and

The estimated charge or range of charges generally made by suchprovider.

This disclosure must be provided on a separate piece of paper either at orbefore the time of the referral, or with the GFE.

The loan originator may not require the use of such a provider, with thefollowing exceptions: the institution may require a buyer, borrower, or sellerto pay for the services of an attorney, credit reporting agency, or real estateappraiser chosen by the institution to represent its interest. Further, the loanoriginator may only receive a return on ownership or franchise interest orpayment otherwise permitted by RESPA.

The affiliated business arrangement (ABA) must be a legitimate provider ofsettlement services. The Department of Housing and Urban Development hasissued guidelines for determining whether an ABA is a bona fide provider ofsettlement services (and thus is not a sham or shell entity organized tocircumvent RESPAs restrictions on payment of fees or other compensation forthe referral of real estate settlement services business). These guidelines listmultiple factors that are to be taken into account in determining whether anABA is a bona fide provider of settlement services. A full discussion and

explanation of these guidelines is in HUDs RESPA Statement of Policy1996-2 Regarding Sham Controlled Business Arrangements.

Title Companies (24 CFR 3500.16 and 12 USC 2608)

Sellers that hold legal title to the property being sold are prohibited fromrequiring borrowers, either directly or indirectly, as a condition to selling theproperty, to use a particular title company.

Civil liabil ity for violating the provision that a financial institution (seller)

cannot require a borrower to use a particular ti tle company is an amountequal to three times all charges made for the title insurance.



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Escrow Accounts (24 CFR 3500.17)

Effective April 24, 1995, HUD changed the accounting method for escrowaccounts. HUDs rule established a national standard accounting methodknown as aggregate accounting. Existing escrow accounts were allowed athree-year phase-in period to convert to the aggregate accounting method.The rule also established formats and procedures for initial and annual escrowaccount statements (The 2008 RESPA Reform Rule eliminated provisions insection 3500.17 that related to the phase-in period for aggregate accounting,effective January 16, 2009.)

The amount of escrow funds that can be collected at settlement or uponcreation of an escrow account is restricted to an amount sufficient to paycharges, such as taxes and insurance, that are attributable to the period from

the date such payments were last paid until the initial payment date.Throughout the life of an escrow account, the servicer may charge theborrower a monthly sum equal to one-twelfth of the total annual escrowpayments that the servicer reasonably anticipates paying from the account. Inaddition, the servicer may add an amount to maintain a cushion no greaterthan one-sixth of the estimated total annual payments from the account.

Escrow Account Analysis (24 CFR 3500.17(c)(2) and (3) and3500.17(k)

Before establishing an escrow account, a servicer must conduct an analysis todetermine the periodic payments and the amount to be deposited. Theservicer shall use an escrow disbursement date that is on or before thedeadline to avoid a penalty and may make annual lump-sum payments totake advantage of a discount.

Transfer of Servicing (24 CFR 3500.17(e))

If the new servicer changes either the monthly payment amount or the

accounting method used by the old servicer, then it must provide theborrower with an initial escrow account statement within 60 days of the dateof transfer. When the new servicer provides an initial escrow accountstatement, it shall use the effective date of the transfer of servicing to establishthe new escrow account computation year. In addition, if the new servicerretains the monthly payments and accounting method used by the oldservicer, then the new servicer may continue to use the same computation



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year established by the old servicer or it may choose a different one, using ashort-year statement.

Shortages, Surpluses, and Deficiency Requirements (24 CFR

3500.17(f))The servicer shall conduct an annual escrow account analysis to determinewhether a surplus,9 shortage,10 or deficiency11 exists as defined under section3500.17(b).

If the escrow account analysis discloses a surplus, the servicer shall, within 30days from the date of the analysis, refund the surplus to the borrower if thesurplus is greater than or equal to $50. If the surplus is less than $50, theservicer may refund such amount to the borrower, or credit such amount

against the next years escrow payments. These provisions apply as long asthe borrowers mortgage payment is current at the time of the escrow accountanalysis.

If the escrow account analysis discloses a shortage of less than one monthsescrow payments, then the servicer has three possible courses of action:

The servicer may allow the shortage to exist and do nothing to change it; The servicer may require the borrower to repay the shortage amount

wi thin 30 days; or

The servicer may require the borrower to repay the shortage amount inequal monthly payments over at least a 12-month period.

If the shortage is more than or equal to one months escrow payment, thenthe servicer has two possible courses of action:


9

Surplus means an account by which the current escrow account balance exceeds the target balancefor the account.

10 Shortage means an amount by which a current escrow account balance falls short of the targetbalance at the time of escrow analysis.

11 Deficiency is the amount of a negative balance in an escrow account. If a servicer advances fundsfor a borrower, then the servicer must perform an escrow analysis before seeking repayment of thedeficiency.


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The servicer may allow the shortage to exist and do nothing to change it;or

The servicer may require the borrower to repay the shortage in equalmonthly payments over at least a 12-month period.

If the escrow account analysis discloses a deficiency, then the servicer mayrequire the borrower to pay additional monthly deposits to the account toeliminate the deficiency.

If the escrow account analysis discloses a deficiency that is less than onemonths escrow account payment, then the servicer may:

Allow the deficiency to exist and do nothing to change it; Require the borrower to repay the deficiency within 30 days; or Require the borrower to repay the deficiency in two or more equal

monthly payments.

If the deficiency is greater than or equal to one months escrow payment, thenthe servicer:

May allow the deficiency to exist and do nothing to change it; or Require the borrower to repay the deficiency in two or more equal

monthly payments.

These provisions apply as long as the borrowers mortgage payment is currentat the time of the escrow account analysis.

A servicer must notify the borrower at least once during the escrow accountcomputation year if a shortage or deficiency exists in the account. This noticemay be part of the annual escrow account settlement.

Initial Escrow Account Statement (24 CFR 3500.17(g))

After analyzing each escrow account, the servicer must submit an initialescrow account statement to the borrower at settlement or within 45 calendardays of settlement for escrow accounts that are established as a condition ofthe loan.



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The initial escrow account statement must include the amount of theborrowers monthly mortgage payment; the portion going to escrow; anitemized estimate of taxes, insurance premiums, and other charges; theanticipated disbursement dates of those charges; the amount of the cushion;

and a trial running balance.

Annual Escrow Account Statement (24 CFR 3500.17(i))

A servicer shall submit to the borrower an annual statement for each escrowaccount within 30 days of the completion of the computation year. Theservicer must conduct an escrow account analysis before submitting anannual escrow account statement to the borrower.

The annual escrow account statements must contain the account history;projections for the next year; current monthly mortgage payment and portiongoing to escrow; amount of past years monthly mortgage payment andportion that went into the escrow account; total amount paid into the escrowaccount during the past year; amount paid from the escrow account for taxes,insurance premiums, and other charges during the same period; balance atthe end of the period; explanation of how any surplus, shortage, or deficiencyis being handled; and, if applicable, the reasons why the estimated lowmonthly balance was not reached.

Short-Year Statements (24 CFR 3500.17(i)(4))

Short-year statements can be issued to end the escrow account computationyear and establish the beginning date of the new computation year. Short-yearstatements may be provided upon the transfer of servicing and are requiredupon loan payoff. The statement is due to the borrower wi thin 60 days fromthe end of the short year.

Timely Payments (24 CFR 3500.17(k))

The servicer shall pay escrow disbursements by the disbursement date. Incalculating the disbursement date, the servicer must use a date on or beforethe deadline to avoid a penalty and may make annual lump-sum payments totake advantage of a discount.



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Record Keeping (24 CFR 3500.17(l))

Each servicer shall keep records that are easily retrievable, reflecting theservicers handling of each borrowers escrow account. The servicer shallmaintain the records for each escrow account for at least five years after theservicer last serviced the account.

Penalties (24 CFR 3500.17(m))

Failure to provide an initial or annual escrow account statement to a borrowercan result in the servicer (including the originator) being assessed a civilpenalty of $75 for each such failure, with the total for any 12-month periodnot to exceed $130,000. If the violation is due to intentional disregard, thepenalty is $110 for each failure without any annual cap on liability.

Mortgage Servicing Disclosures (24 CFR 3500.21)

The disclosures related to the transfer of mortgage servicing are required forfirst mortgage liens including all refinancing transactions. Subordinate lienloans and open-end lines of credit (home equity plans), that are coveredunder the Truth in Lending Act and Regulation Z are exempt from thissection.

A loan originator or a mortgage broker in a table-funded transaction that

receives an application for a federally related mortgage loan is required toprovide the Servicing Disclosure Statement to the borrower wi thin threebusiness days after receipt of the application. The 2008 RESPA Reform Ruleincluded a technical revision to the mortgage servicing disclosure statementin Appendix MS-1 of 24 CFR 3500, effective January 16, 2009. The rulestreamlined the initial servicing disclosure statement language to beconsistent with statutory changes.

When servicing of a federally related mortgage loan is assigned, sold, ortransferred, the transferor (present servicer) must provide a disclosure at least15 days before the effective date of the transfer. A transfer of servicing noticefrom the transferee (new servicer) must be provided not more than 15 daysafter the effective date of the transfer. Both notices may be combined into onenotice if delivered to the borrower at least 15 days before the effective date ofthe transfer. The disclosure must include:



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The effective date of the transfer. The name, address for consumer inquiries, and toll-free or collect-call

telephone number of the transferee servicer.

A toll-free or collect-call telephone number for an employee of thetransferor servicer that can be contacted by the borrower to answerservicing questions.

The date on which the transferor servicer will cease accepting paymentsrelating to the loan and the date on which the transferee servicer willbegin to accept such payments. The dates must either be the same orconsecutive.

Any information concerning the effect of the transfer on the availability ofoptional insurance and any action the borrower must take to maintaincoverage.

A statement that the transfer does not affect the terms or conditions of themortgage (except as related to servicing).

A statement of the borrowers rights in connection with complaintresolution.

During the 60-day period beginning on the date of transfer, no late fee can beimposed on a borrower who has made a timely payment to the wrongservicer.

The following transfers are not considered an assignment, sale, or transfer ofmortgage loan servicing for purposes of this requirement if there is no changein the payee, address to which payment must be delivered, account number,or amount of payment due:

Transfers between affiliates; Transfers resulting from mergers or acquisitions of service or subservicers;

and

Transfers between master servicers, when the subservicer remains thesame.



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Servicers Must Respond to Borrowers Inquiries (24 CFR 3500.21(e))

A servicer must respond to a borrower's qualified written request forinformation relating to the servicing of the loan and take appropriate actionwithin established time frames after receipt of the inquiry. Generally, theservicer must provide written acknowledgment within 20 business days andtake certain specified actions within 60 business days of receipt of suchinquiry. The written inquiry must include the name and account number ofthe borrower and the reasons the borrower believes the account is in error.

During the 60-business-day period following receipt of a qualified writtenrequest from a borrower relating to a payment, a servicer may not provideadverse information regarding any payment that is the subject of the qualifiedwritten request to any consumer reporting agency.

Relationship to State Law (24 CFR 3500.31(h) and 12 USC 2616)

Servicers complying with the mortgage servicing transfer disclosurerequirements of RESPA are considered to have complied with any state law orregulation requiring notice to a borrower at the time of application or transferof a mortgage.

Other state laws shall not be affected by the act, except to the extent that theyare inconsistent and then only to the extent of the inconsistency. The

Secretary of Housing and Urban Development is authorized, after consultingwith the appropriate federal agencies, to determine whether suchinconsistencies exist.

Penalties and Liabilities (24 CFR 3500.21(f))

Failure to comply with any provision of section 3500.21 will result in actualdamages and, when there is a pattern or practice of noncompliance, anyadditional damages in an amount not to exceed $1,000. In class action cases,each borrower may receive actual damages and additional damages, as thecourt allows, up to $1,000 for each member of the class, except that the totalamount of damages in any class action may not exceed the lesser of $500,000or 1 percent of the net worth of the servicer. In addition, costs of the actionand attorney fees may be awarded in any successful action.



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Real EstateSettlement Procedures Expanded Procedures

Objectives

1. To determine whether the financial institution has established policiesand procedures to ensure compliance with RESPA.

2. To determine that the financial institution does not engage in anypractices prohibited by RESPA, such as kickbacks, payment, or receipt ofreferral fees or unearned fees, or excessive escrow assessments.

3. To determine whether the Special Information booklet, Good FaithEstimate, Uniform Settlement Statement (Form HUD-1 or HUD-1A),mortgage servicing transfer disclosures, and other required disclosuresare in a form that complies with Regulation X, are properly completed,and provided to borrowers within prescribed time periods.

4. To determine whether the institution or its servicer is submitting therequired initial and annual escrow account statements to borrowers, asapplicable, and complying with established limitations on escrowaccount arrangements.

5. To determine whether the institution or its servicer is responding toborrowers inquiries for information relating to the servicing of theirloans in compliance with the provisions of RESPA.



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Real EstateSettlement Procedures Appendix A

Real Estate Settlement Procedures Act Examination Worksheet

This worksheet can be used for reviewing audit work papers, evaluating bankpolicies, performing expanded procedures, and training, as appropriate.Complete only those sections that specifically relate to the issue beingreviewed, evaluated, or tested and retain the completed sections in the workpapers.

When reviewing audit or evaluating bank policies, a no answer indicates apossible exception or deficiency and should be explained in the work papers.

When performing expanded procedures, a no answer indicates a violationand should be explained in the work papers. If a line item is not applicablewi thin the area you are reviewing, indicate NA.

Underline the applicable use:

Audit Bank Policies Expanded Procedures

Name of Borrower:

Loan #Yes No NA

1. Are written loan policies in connection with federally related mortgageloans in compliance with RESPA and Regulation X?

2. Does the institution have established operating procedures thataddress the requirements of Regulation X?

3. Are mortgage lending personnel knowledgeable of the requirements ofRESPA and Regulation X?

Special Information Booklet

4. For transactions involving purchases of 1-4 family homes, is theSpecial Information booklet provided within three business days after the

financial institution or broker receives or prepares a written applicationfor a first lien closed-end loan? (24 CFR 3500.6)

Good Faith Estimate

5. Does the financial institution use the standard/required Good FaithEstimate (GFE)?



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6. Is a GFE of charges for settlement services, if required, provided withinthree business days after receipt of an application or informationsufficient to complete an application by the lender or mortgage broker?(24 CFR 3500.7(a))

7. Does the GFE appear in the exact form required by Appendix C to

Regulation X? (24 CFR 3500.7(d))

8. Does the GFE contain the following required elements:

a. (i) Interest rate expiration date?

(ii) Settlement charges expiration date?

(iii) Rate lock period?

(iv) Number of days before settlement the interest rate must belocked, if applicable?

(v) Summary of loan information?

(vi) Escrow account i nformation?(vii ) Estimates for settlement charges?

(viii) Left-hand column on trade-off table completed for loan in theGFE?

b. For all loans, are all third-party fees, including those paid by thefinancial institution in the case of no-cost loans, itemized and listed inthe appropriate blocks on the second page of the GFE?

c. Did the financial institution provide a separate sheet that identifiesthe settlement service providers for the services listed? (24 CFR3500.7 and Appendix C to 24 CFR 3500)

9. If the institution provided a revised GFE because of changedcircumstances, borrower-requested changes, or interest-rate-dependentchanges, did the institution issue a new GFE within three business daysof receiving information sufficient to establish changed circumstances,and did the new GFE reflect only permissible changes? (24 CFR3500.7(f))

Affiliated Business Arrangements

10. Does the financial institution refer borrowers to affiliated settlementservice providers?

11. If the financial institution refers borrowers to affiliated settlementservice providers, is the Affiliated Business Disclosure statement providedto each borrower as set forth in Appendix D to 24 CFR 3500? (24 CFR3500.15(b)(1))

12. Other than an attorney, credit reporting agency, or appraiserrepresenting the lender, does the financial institution prohibit requiringthe use of an affiliate? (24 CFR 3500.15(b)(2)



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

13. Does the financial institution use the appropriate Uniform SettlementStatement (HUD-1 or HUD-1A)? (24 CFR 3500.8 and Appendix A to 24CFR 3500)

14 Does the HUD-1 or HUD-1A contain the following?

a. Charges properly itemized for both borrower and seller inaccordance with the instructions for completion of the HUD-1 orHUD-1A?

b. All charges paid to one other than the lender itemized and therecipient named?

c. Itemized charges imposed by the lender and any sales commissionspaid by the borrower or seller outside of closing, identified as paidoutside of closing or POC and not included in totals?

d. When an average charge was listed for a settlement service, wasthe charge calculated in accordance with the requirements set forth in3500.8(b)(2)?

15. From a review of the HUD-1 or HUD-1A prepared in connectionwith each GFE reviewed, are amounts shown on the GFE the same as thefees actually paid by the borrower? (24 CFR 3500.7(i))

16. If a charge stated on the HUD-1 or HUD-1A exceeds the chargesstated on the GFE by more than the permitted tolerance, does thefinancial institution cure the tolerance violation by reimbursing theborrower the amount by which the tolerance was exceeded at settlement,or by delivering or placing the payment in the mail wi thin 30 calendardays after settlement? (24 CFR 3500.7(i))

17. If the financial institution conducts settlement:

a. Is the borrower, upon request, allowed to inspect the HUD-1 orHUD-1A at least one day prior to settlement? (24 CFR 3500.10(a))

b. Is the HUD-A or HUD-1A provided to the borrower and seller at orbefore settlement? (24 CFR 3500.10(b))

c. In cases when the right to delivery is waived or the transaction isexempt, is the statement mailed as soon as possible after settlement?(24 CFR 3500.10(b), (c), and (d))

18. In the case of an inadvertent or technical error on the HUD-1 orHUD-1A, does the institution provide a revised HUD-1 or HUD-1A tothe borrower within 30 calendar days after settlement? (24 CFR3500.8(c))

19. If the financial institution retains its interest in the mortgage and/orservices it, is the HUD-1 or HUD-1A form retained for five years? (24CFR 3500.10(e))



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20. If the financial institution disposes of i ts interest in the mortgage anddoes not service the loan, is the HUD-1 or HUD-1A transferred to thenew asset owner with the loan file? (24 CFR 3500.10(e))

Mortgage Servicing Statement Disclosure

21. Does the mortgage servicing disclosure statement languagesubstantially conform to the model disclosure in Appendix MS-1 to 24CFR 3500?

22. Does the lender provide the mortgage servicing disclosure statementwithin three business days after receipt of the application? (24 CFR3500.21(c))

23. Does the disclosure state whether the loan may be assigned ortransferred while outstanding? (24 CFR 3500.21(b)(2))

Notice to Borrower of Transfer of Mortgage Servicing

24. If the institution has transferred servicing rights, was notice to theborrower given at least 15 days prior to the effective date of the transfer?(24 CFR 3500.21(d)(2))

25. If the institution has received servicing rights, was notice given to theborrower within 15 days after the effective date of the transfer? (24 CFR3500.21(d)(2))

26. Does the notice by transferor and transferee include the followinginformation as contained in Appendix MS-2 to 24 CFR 3500?

a. The effective date of the transfer?

b. The new servicers name, address, and toll-free or collect call

telephone number of the transferor servicer?

c. A toll-free or collect call telephone number of the present servicerto answer inquiries relating to the transfer?

d. The date on which the present servicer wil l cease acceptingpayments and the date the new servicer wi ll begin acceptingpayments relating to the transferred loan?

e. Any information concerning the effect of the transfer on theavailability of terms of optional insurance and any action theborrower must take to maintain coverage?

f. A statement that the transfer does not affect the terms or conditionsof the mortgage other than terms directly related to its servicing?

g. A statement of the borrowers rights in connection with complaintresolution?



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27. Does the institution ensure that no late fees are imposed during the60 days following a transfer of servicing and that no timely payments aretreated as late when received by transferor rather than transferee? (24CFR 3500.21(d)(5))

Responding to Borrower Inquir ies

28. Does the institution respond to borrower inquiries relating toservicing of RESPA-covered mortgage loans and refinancings asprescribed in the regulation? Specificall y, does the institution:

a. Provide a written response acknowledging receipt of a quali fiedwritten request from a borrower for information relating to theservicing of the loan within 20 business days? (24 CFR 3500 21(e)(1))

b. If not, has the action requested by the borrower been taken withinthe 20 business day period?

c. Within 60 business days after the receipt of a qualified written

request, does the institution make appropriate corrections in theaccount of the borrower and provide a written notification of thecorrection (including in the notice the name and the telephonenumber of a representative of the institution who can provideassistance)?

or

Provide the borrower with a written explanation stating the reasonsthe account is correct explaining why the information requested isunavailable or cannot be obtained by the institution (in either caseincluding the name and telephone number of a representative of theinstitution who can provide assistance) (24 CFR 3500.21(e)(3))?

29. Does the institution cease providing information regarding anoverdue payment to any consumer reporting agency during the 60business day period beginning on the date the institution received anyqualified written request relating to a dispute regarding the borrowerspayments? (24 CFR 3500.21(e)(4)(i))

Escrow Accounts

30. Does the institution perform an escrow analysis at the creation of theescrow account? (24 CFR 3500.17(c)(2))

31. Is the ini tial escrow statement given to the borrower at settlement or

within 45 calendar days after the escrow account is established? (24 CFR3500.17(g))

32. Does the initial escrow statement itemize:

a. Amount of monthly mortgage payment?

b. Portion of the monthly payment being placed in escrow?



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c. Charges to be paid from the escrow account during the first 12months?

d. Disbursement date?

e. Amount of cushion (24 CFR 3500.17(g)(1)(i))?

33. Is the annual escrow statement provided wi thin 30 days of thecompletion of the escrow account computation year? (24 CFR3500.17(c)(i))

34. Does the annual escrow statement itemize:

a. Current mortgage payment and portion going to escrow?

b. Amount of last years mortgage payment and portion that went toescrow?

c. Total amount paid into the escrow account during the pastcomputation year?

d. Total amount paid from the escrow account during the past year fortaxes, insurance premiums, and other charges?

e. Balance in the escrow account at the end of the period?

f. Explanation of how any surplus is being handled?

g. Explanation of how any shortage or deficiency is to be paid by theborrower?

h. If applicable, the reason(s) why the estimated low monthly balancewas not reached? (24 CFR 3500.17(i))

35. Are monthly escrow payments following settlement no larger than1/12 of the amount expected to be paid for taxes, insurance premiums,and other charges in the following 12 months, plus 1/6 of the totalannual payments from the account? (24 CFR 3500.17(c)(1)(ii))

36. Does the servicer notify the borrower at least annually if there is ashortage or deficiency in the escrow account? (24 CFR 3500.17(f)(5))

37. Does the institution make payments from the escrow account fortaxes, insurance premiums, and other charges in a timely manner as theybecome due or before a deadline to avoid a penalty? (24 CFR 3500.17(k))



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No Fees for RESPA Disclosures

38. Fees in connection with RESPA disclosures

a. Does the financial institution ensure that no fee is charged forpreparing and distributing the HUD-1 forms, escrow statements, or

documents required under the Truth in Lending Act? (24 CFR3500.12)

b. If a fee is charged for a GFE, is the fee limited to the cost of a creditreport? (24 CFR 3500.7(a(4))

Purchase of Title Insurance

39. When the financial institution owns the property being sold, does itensure that it does not require that title insurance be obtained from aparticular company? (24 CFR 3500.16)

Payment or Receipt of Referral or Unearned Fees

40. Is institution management aware of the prohibiti ons against paymentsor receipt of kickbacks and unearned fees? (24 CFR 3500.14)

41. Are federally related mortgage loan transactions referred by brokers,affiliates, or other parties? (24 CFR 3500.14)

or

Does the institution refer services to brokers, affiliates, or otherparties?

43. If fees were paid to the institution or any parties identified, were allfees paid to the broker, affiliate, service provider, or other party

consistent with the requirements of 3500.14(g) and for goods or facilitiesactually furnished or services actually performed? (24 CFR 3500.14(g))

44. Is the compensation received by the lender in connection with anAffi li ated Business Arrangement limited to a return on an ownershipinterest or other amounts permissible under RESPA? (24 CFR 3500.15(b)



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Real EstateSettlement Procedures Appendix B

Real Estate Settlement Procedures Act Forms Review Worksheet

This worksheet can be used for reviewing audit work papers, evaluating bankpolicies, performing expanded procedures, and training, as appropriate.Complete only those sections that specifically relate to the issue beingreviewed, evaluated, or tested, and retain the completed sections in the workpapers.

When reviewing audit or evaluating bank policies, a no answer indicates apossible exception or deficiency and should be explained in the work papers.

When performing expanded procedures, a no answer indicates a violationand should be explained in the work papers. If a line item is not applicablewi thin the area you are reviewing, indicate NA.

Underline the applicable use:

Audit Bank Policies Expanded Procedures

Product Type Yes No NA

1. Is the Special Information booklet used by the bank the most current

version published by HUD in the Federal Register? (24 CFR 3500.6(b))2. Is the Good Faith Estimate form used by the bank the one in AppendixC of 24 CFR 3500?

3. Is the HUD-1 or HUD-1A closing statement used by the bank thecurrent form as contained in Appendix A of 24 CFR 3500? Any changesmust conform to 24 CFR 3500.9.

4. Is the mortgage servicing disclosure statement similar to the modeldisclosure in Appendix MS-1 of 24 CFR 3500?

5. Is the notice of transfer of mortgage servicing used by the bank similarto Appendix MS-2 of 24 CFR 3500 and does the form disclose:

a. Effective date of the transfer? (24 CFR 3500.21(d)(3)(i))

b. New servicer's name, address for consumer inquiries, and tol l-freeor collect call telephone number? (24 CFR 3500.21(d)(3)(ii))

c. A toll-free or collect call telephone number of the transferorservicer to answer inquiries relating to the transfer? (24 CFR



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3500.21(d)(3)(iii))

d. Date on which the transferor servicer wil l cease acceptingpayments and the date the new servicer wi ll begin acceptingpayments relating to the transferred loan? (24 CFR 3500.21(d)(3)(iv))

e. Any information concerning any effect of the transfer on theavailability of terms of optional insurance and any action theborrower must take to maintain coverage? (24 CFR CFR3500.21(d)(3))(v))

f. A statement that the transfer does not affect the terms or conditionsof the mortgage, other than terms directly related to its servicing? (24CFR 3500.21(d)(3)(vi))

6. Does the initi al escrow statement form used by the bank conform torequirements in 24 CFR 3500.17(h)?

7. Does the annual escrow statement form used by the bank conform torequirements in 24 CFR 3500.17(i)(1))?



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Real EstateSettlement Procedures References

Laws

12 USC 2601 et seq., Real Estate Settlement Procedures Act.

Regulations

24 CFR 3500, Real Estate Settlement Procedures Regulation (HUDRegulation X).

HUD Policy Statements

Statement of Policy 2001-1, Regarding Lender Payments to Mortgage Brokers,and Guidance Concerning Unearned Fees Under Section 8(b) (on HUDsWeb site at www.hud.gov/offices/hsg/ramh/res/2001-1ltr.doc).

Statement of Policy 1999-1, Regarding Lender Payments to Mortgage Brokers(on HUDs Web site at www.hud.gov/offices/hsg/ramh/res/resp0222.cfm).

Statement of Policy 1996-2, Sham Controlled Business Arrangements (onHUDs Web site at www.hud.gov/offices/hsg/ramh/res/res0607c.cfm) (See

also OCC Bulletin 2005-27).

HUD Forms

Good Faith Estimate (on HUDs Web site atwww.hud.gov/offices/hsg/ramh/res/gfestimate.pdf).

HUD-1 (on HUDs Web site at www.hud.gov/offices/hsg/ramh/res/hud1.pdf).

HUD-1A (on HUDs Web site at www.hud.gov/offices/hsg/ramh/res/hud1-a.pdf).

New RESPA Rule FAQs (on HUDs Web site atwww.hud.gov/offices/hsg/ramh/res/resparulefaqs422010.pdf).
http://www.hud.gov/offices/hsg/ramh/res/2001-1ltr.dochttp://www.hud.gov/offices/hsg/ramh/res/2001-1ltr.dochttp://www.hud.gov/offices/hsg/ramh/res/resp0222.cfmhttp://www.hud.gov/offices/hsg/ramh/res/res0607c.cfmhttp://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdfhttp://www.hud.gov/offices/hsg/ramh/res/hud1.pdfhttp://www.hud.gov/offices/hsg/ramh/res/hud1-a.pdfhttp://www.hud.gov/offices/hsg/ramh/res/resparulefaqs422010.pdfhttp://www.hud.gov/offices/hsg/ramh/res/resparulefaqs422010.pdfhttp://www.hud.gov/offices/hsg/ramh/res/hud1-a.pdfhttp://www.hud.gov/offices/hsg/ramh/res/hud1.pdfhttp://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdfhttp://www.hud.gov/offices/hsg/ramh/res/res0607c.cfmhttp://www.hud.gov/offices/hsg/ramh/res/resp0222.cfmhttp://www.hud.gov/offices/hsg/ramh/res/2001-1ltr.dochttp://www.hud.gov/offices/hsg/ramh/res/2001-1ltr.doc

respa procedures - comptroller of the currency -occ- us govt. - 2010 handbook

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