Topic: Real Estate Settlement Procedures Act (RESPA)
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Are we required to issue delinquency notices for commercial, residential real estate, and consumer non-real estate loans? If there are multiple borrowers on these accounts, must each borrower receive a delinquency notice?
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Yes, we believe that there are federal delinquency notice requirements for residential real estate and consumer non-real estate loans that your bank must comply with, but we do not believe that there are similar requirements under Illinois law or for commercial loans. We do recommend reviewing your loan agreements for each type of loan to…
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A loan customer who owns multiple rental homes was dropped by their hazard insurance carrier after making three claims. The customer is current on their loan and makes monthly payments into a hazard insurance escrow. We used the escrowed funds to purchase insurance for the properties. Would this be considered force-placed insurance? The premiums are covered by the funds deposited into the borrower’s escrow account, so we have not posted the fees to the account as “force-placed.” We are a small servicer.
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We believe the insurance you obtained for the borrower would be considered force-placed insurance, even though you are able to pay for the premiums out of the borrower’s escrow account. Regulation X defines force-placed insurance as “hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures…
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Are there any state regulations regarding the language that appears in a customer’s periodic statement when their mortgage loan is in forbearance? We are a small servicer, and some of our customers are in forbearance with Freddie Mac due to COVID-19. They have signed a “Forbearance Plan Offer” form provided to us by Freddie Mac, which states that we will not pursue foreclosure during the term of the forbearance plan but that “the terms of your mortgage remain unchanged” and “you will become more delinquent,” among other information. We are not reporting these customers as delinquent to the credit bureaus, but our statements tally the “missed payments” in the “Overdue Payment – Total Amount Due” section and include a “Delinquency Notice” indicating that failure to bring the loan current may result in fees and foreclosure. Freddie Mac does not specify what goes on the periodic statements, and we have been advised to check state law.
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We are not aware of any Illinois law or regulation requiring certain language to appear on a periodic statement when a mortgage loan is in forbearance, and, as a small servicer, you are not required to comply with Regulation Z’s requirements for periodic statements. However, Regulation Z’s periodic statement requirements for large servicers may be…
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How should we disclose property taxes on the Closing Disclosure (CD) that are to be paid at closing if the current tax bill has not yet been issued and the loan has a tax escrow? In many counties, the tax bills may be issued less than two months before the taxes are due. If a loan is scheduled to close before the tax bill has been issued, should we disclose the amount of the prior year’s taxes in the “Prepaids” section of the CD? If the new taxes are higher than what was disclosed on the CD, can we take the additional amount out of the tax escrow? If so, do we have the option of preparing a short-year statement to reanalyze the escrow payment, or should we let the shortage go until the annual analysis and risk payment shock to the customer?
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We believe you should list property taxes that will be due within sixty days after the closing in the “Prepaids” section of the CD, and we recommend obtaining publicly available tax information directly from the county, when possible, rather than relying on the prior year’s property tax bill, which may be out-of-date. In addition, you…
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Is there an Illinois state law requirement for a mortgage servicer to send a “Hazard Insurance Endorsement Letter” to the insurance company when a bank is transferring servicing of a mortgage loan to another servicer?
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No, we are not aware of a requirement under Illinois law for a mortgage servicer to send a “Hazard Insurance Endorsement Letter” or other notice to an insurance company when a bank transfers servicing of a mortgage loan to another servicer. Although Regulation X references the possibility that state law may require notice of a…
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Our bank is going to begin accepting applications for commercial and agricultural loans and working with a new document vendor. What disclosures and terms and conditions are required for commercial and agricultural loans?
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While we cannot provide an exhaustive list of all necessary disclosures without knowing the details of the specific loans, we have highlighted some of the possibly applicable disclosure requirements below. Mortgage loans extended for primarily commercial or agricultural purposes are not subject to the TILA-RESPA Integrated Disclosure (TRID) requirements. However, certain disclosure requirements apply to…
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We collect our own debts for residential home loans, and we are a large servicer for purposes of the CFPB’s mortgage servicing rules. Can you recommend any training resources on Regulation X and Regulation Z as they apply to loss mitigation? We would like to develop our staff’s ability to make critical assessments of loss mitigation situations. Any resources for developing related soft skills, such asking probing questions, also would be useful.
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We can recommend a Total Training Solutions (TTS) webinar focusing on Regulations X and Z as they apply to the 2017 revised mortgage servicing rules and a webinar on mortgage servicing compliance that covers loss mitigation options, applications, and processes. Also, the American Bankers Association (ABA) provides a webinar on mortgage servicing and loss mitigation.…
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What type of escrow account statement must be provided to a customer when a loan is paid off?
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When a borrower pays off a “federally related mortgage loan” (essentially any non-construction residential loan made by your bank), the servicer is required to provide the borrower with a “short year” annual escrow account statement (a “short year statement”) within sixty days after receiving the payoff funds. A short year statement must contain each of…
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When we force-place an escrow account to pay property taxes, are there any rules governing when we may change the payment amount to include the additional amount covering property taxes? For example, should we send notice no less than thirty days prior to the next payment date?
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No, we are not aware of any rules governing how long a lender must wait before imposing a change in a loan payment amount after establishing an escrow account for property taxes without the borrower’s consent. Consequently, we recommend establishing a reasonable period for providing notice of the payment amount change, after reviewing the terms…
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We would like to enter into an agreement with a local real estate office to put a link on its website to our bank’s website. We would research the fair market rate for this advertising service and enter into an agreement with the real estate office for a comparable amount. The real estate office’s website also would link to two other lenders. We would not share any information with the real estate office and would not place a link to its website on our bank’s website. Are there any Real Estate Settlement Procedures Act (RESPA) concerns we should be aware of when entering into a marketing services agreement (MSA) of this kind?
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Yes, there are concerns related to your proposal, but we think they could be worked through depending on the right structure. MSAs with real estate settlement providers pose an inherent risk and can be very difficult to monitor to ensure that the parties to the agreement do not run afoul of RESPA’s anti-kickback provisions. However,…