Topic: Real Estate Settlement Procedures Act (RESPA)
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Our bank does not qualify as a small servicer. Can we charge a fee to mortgage loan borrowers who choose to receive paper periodic statements instead of e-statements?
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We believe such a charge would violate the Real Estate Settlement Procedures Act (RESPA). The RESPA prohibits a servicer from charging a fee for certain mortgage statements, including those required by the Truth in Lending Act (TILA). The TILA requires larger servicers (such as your bank) to provide periodic loan statements for residential mortgage loans.…
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Our mortgage escrow department issued a $1,300 check for homeowners insurance that has not been deposited by the insurance company. The house securing the mortgage loan was sold about one month after the check was issued, but we do not know whether all or a portion of the check amount is refundable due to the sale of the house. The borrower has since died, and his son and daughter have asked us to issue a check to them for the $1,300 amount. What should we do?
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We recommend contacting the insurance company to inquire about the status of the check and to determine what amount of the check is refundable to your former borrower’s estate. In any event, if the loan has remained current and there is a surplus of over $50 in the mortgage loan escrow account, that surplus should…
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Can we provide realtors with coupons to hand out in relation to our home loans (e.g., a coupon offering a free appraisal or a waived loan origination charge)? We know there may be some fair lending risks because the realtors can select who will receive the coupons, but could we alleviate that risk by making the coupons available in our lobby? In addition to fair lending issues, are there any RESPA Section 8 concerns?
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We recommend instituting safeguards addressing possible fair lending and UDAAP concerns, but we do not believe this practice would violate the RESPA prohibition of kickbacks for referrals of mortgage services. The coupon program you described does raise some fair lending concerns, particularly because disseminating the coupons has the potential to have a “disparate impact” on…
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We are researching an external firm to provide force-placed insurance and insurance tracking services. The company says it will have to charge us a separate fee for the tracking services and cannot recover tracking costs through the premiums on the force-placed policies it underwrites for us. The company referred to a “recent multi-state settlement” that stated RESPA Section 8 prohibits insurance trackers from providing tracking services “free or below cost” and “seeking to cover tracking costs through force-placed insurance premiums.” Do you know what settlement they are talking about? If not, can you provide any other guidance or clarification?
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We are not sure which multi-state settlement that your proposed tracking firm is describing. However, we know that certain arrangements in which banks receive free or discounted tracking services in exchange for using a particular insurance provider have been argued to violate RESPA. RESPA’s implementing rule, Regulation X, requires that all charges to borrowers related…
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A bank employee’s husband works for an auto dealer in town. He occasionally refers auto loans to our bank. We do not compensate or encourage these referrals. The employee enters auto loans into our system, but she does not have any sales goals or incentives. Does that create a conflict of interest or other issues?
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We are not aware of any laws or regulations that would prohibit your employee’s husband from referring loans to your bank, given that neither your employee nor her husband receives compensation for these referrals. RESPA’s prohibition of kickbacks would not apply, as the loans are not secured by real estate and no compensation is changing…
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Our bank offers a three-year, interest only home equity line of credit (HELOC) with a balloon feature, and a ten-year HELOC with a monthly payment of 1% of the balance and a balloon feature. Can we modify these loans to extend their maturity date another three or ten years and add an amortization schedule? Or would that be considered a refinancing? Does it matter if the modification occurs before or after maturity?
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We believe that you may modify the HELOCS in the way that you described before or after maturity without treating the changes as a “refinancing.” However, the language that you use in the loan modification documents will determine whether you achieve this result. The Seventh Circuit has considered a similar issue, albeit in the context…
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Our management would like to cut down on over twenty pages of documents that we send to borrowers when a mortgage is paid off. What are we required to send? A copy of the paid note and lien release?
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Illinois and federal law require mortgage lenders to provide certain documents to a borrower after paying off the mortgage loan, and additional requirements may stem from secondary market purchaser requirements or your bank’s loan agreements. Illinois law requires a lender to provide the borrower with a release of the mortgage within one month after the…
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Can you clarify whether we can pay referral fees for mortgages to our own employees? Are there any other requirements or caps?
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Yes, you may pay mortgage referral fees to bank employees who refer mortgage business to your bank. RESPA prohibits most referral fees related to mortgages, but that prohibition does not apply when compensating bank employees for mortgage referrals. Any referral fees paid to bank employees who are loan originators for referrals also must comply with…
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Is the Illinois version of the Notice of Assignment, Sale and Transfer form intended to supersede the federal form? Or should we provide the RESPA form and include a reference to Illinois law?
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No, the Illinois notice of a mortgage servicing transfer does not supersede the federal notice required by the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA). Consequently, you should provide either a combined notice that encompasses both the federal and Illinois requirements or separate federal and Illinois notices. It would be…
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A compliance firm told us that we are required to disclose the name and license number for the settlement agent and a contact person on page five of the Closing Disclosure. But our title company told us that they do not obtain NMLS numbers for individual agents. Are we required to list NMLS numbers for a title agent if the agent has not obtained one?
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No, we do not believe that you need to include an NMLS number for title agents who have not obtained a license from the state of Illinois. The Official Interpretations of the Closing Disclosure rules state that if a person does not have an NMLS ID, then that space in the Closing Disclosure simply is…