Topic: Real Estate Settlement Procedures Act (RESPA)
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We are considering a referral program in which we would pay customers $25 if an individual they refer opens a checking account at our bank. We are aware that there are prohibitions on paying referral fees in relation to mortgage loans, but we are not aware of similar prohibitions for deposit accounts. Are there any prohibitions on paying referral fees related to deposit accounts?
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No, we are not aware of any prohibitions on paying referral fees related to deposit accounts. However, you do have a duty to maintain your customers’ privacy. As a result, we recommend obtaining a new deposit account customer’s authorization before notifying the referring party that they are entitled to a fee. As you noted, the…
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We are a national bank that is going to begin offering escrow accounts to mortgage loan customers. We are aware we will need to provide several documents in conjunction with these accounts, including an initial escrow account statement, annual escrow account statement, escrow closing notice, Illinois Mortgage Escrow Account Act notice, Illinois notice of right to terminate escrow, Illinois notice of tax payments, Illinois escrow account disclosure agreement, and Illinois escrow account election form. Are there any other federal or state documents we may be overlooking, and can you direct us to any model forms (other than the escrow closing notice, which we have)?
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While we cannot provide an exhaustive list of every document you might need in relation to offering your customers escrow accounts, as your needs may vary depending on the circumstances of each loan, we believe the federal documents you listed generally would meet federal requirements related to providing escrow accounts, with the caveats noted below.…
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Our bank has established an affiliate relationship with a newly formed title company, of which we have 50% ownership. We will share only necessary information for everyday business purposes with this affiliate and will not share information for marketing purposes. We are revising our privacy notice and our website privacy notice, sending out a mass mailing, and providing each customer with the affiliated business arrangement disclosure required under the Real Estate Settlement Procedures Act (RESPA) for real estate transactions. Do these steps cover our responsibilities?
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In addition to providing the notices mentioned in your question, we recommend reviewing the information provided to your affiliate — if you are sharing credit-related information with your affiliate, you must provide customers with a notice and an opportunity to opt-out under the Fair Credit Reporting Act (FCRA). A financial institution that provides “consumer reports”…
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Are we allowed pay a referral fee for referrals of consumer loans that are not secured by real estate?
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We are not aware of any prohibitions on paying referral fees related to unsecured consumer loans. The Real Estate Settlement Procedures Act of 1974 (RESPA) prohibits kickbacks for referrals of real estate settlement services for “federally related mortgage loans,” which are defined as first or subordinate liens on residential real property designed for the occupancy…
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We are a small servicer under Regulation X. How long we are required to keep escrow account analysis statements?
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We believe that Regulation X requires you to maintain evidence of escrow account analyses and escrow account statements for a minimum of two years. Regulation X requires creditors to retain evidence of actions required to be performed and disclosures made for two years. As Regulation X requires escrow account analyses to be performed and escrow…
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Are we allowed to pay a referral fee to past mortgage customers who refer new mortgage customers, or would this be a RESPA violation? If this practice is acceptable, should we have the new mortgage customer sign a statement permitting us to inform the referring customer of their loan so we can pay the referral fee and avoid any privacy concerns?
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We believe RESPA prohibits you from paying referral fees related to consumer mortgage loans, but we are not aware of any prohibitions on paying referral fees related to commercial mortgage loans. RESPA prohibits kickbacks for referrals of real estate settlement services related to consumer mortgage loans. This prohibition does not apply to commercial loans (credit…
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We are an out-of-state bank that purchased an Illinois bank, which will merge into our bank. Do we need to send mortgage transfer notices as required by the Illinois Banking Act to mortgage customers from the Illinois bank if the only thing that will be changing for them is the name of the institution they will be corresponding with? We will continue receiving and processing mortgage payments at the same location and phone number. Or does Illinois law not apply since we are an out-of-state bank?
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We believe that your bank is required to send transfer notices for residential mortgage financing transactions under the Illinois Banking Act, in addition to potentially sending notices under Regulation X and Regulation Z, as well as Regulation P. Under the Illinois Banking Act, any bank making residential mortgage financing transactions is required to send written…
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Is it legal for a bank to pay a referral fee for a commercial mortgage loan or an unsecured commercial loan? The fee would be paid by the bank and would not be part of the customer’s loan transaction. The person receiving the referral fee would not negotiate the loan and would be only introducing a potential customer to the bank.
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Yes, we believe a bank may pay a referral fee for a commercial loan, whether the loan is secured or unsecured. We are not aware of any Illinois or federal law that would prohibit such an arrangement for a commercial loan. Although RESPA prohibits kickbacks for referrals of real estate settlement services related to consumer…
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One of our directors has purchased a title company, and we now believe we have an affiliate relationship as defined by the Real Estate Settlement Procedures Act (RESPA). We do not refer business to this title company or use them for refinances, and we do not list the title company on our written list of service providers, since it services only one county in our service area. Do we need to provide Affiliated Business Arrangement Disclosures to all consumer mortgage applicants when we deliver Loan Estimates? Do we need to add the company to our written list of service providers?
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As it appears that you are not referring your customers to the director’s title company, we do not believe that an Affiliated Business Arrangement Disclosure Statement is required. RESPA and Regulation X require an Affiliated Business Arrangement Disclosure whenever you make a referral, including cases in which you require the use of a certain service…
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A borrower with a residential mortgage died, and their spouse (who signed the mortgage but is not on the note) is living in the property. The deceased borrower also had a car loan solely in their name. The mortgage and the car loan have not been paid for several months, and the spouse has not responded to our communications. What steps can we take moving forward?
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Since the spouse has not responded to your communications, and presumably has not indicated an interest in assuming either loan, we generally recommend following the same procedures you would follow when a living borrower has defaulted on a residential mortgage loan or a car loan — with the caveats addressed below. We also recommend conferring…