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How RESPA And Other Disclosures Can Affect Your Mortgage Business


How RESPA And Other Disclosures Can Affect Your Mortgage Business 

More than four decades ago in 1974, the U.S. Congress passed the Real Estate Settlement Procedures Act (RESPA). This law required mortgage companies to disclose certain information at various points throughout the real estate settlement process. The purpose for this was to provide buyers with a greater comprehension of the financial impacts of their home buying decisions. It was intended to help improve their decisions by making them more informed consumers.

How does RESPA, GFE, & HUD-1 disclosures affect your mortgage business? To understand this it’s important to know what happens and what is required of lenders at different points throughout the mortgage lending process.

Beginning of Loan Application

When a borrower applies for a loan, the lender must provide the following items:

  • Special Information Booklet, consists of consumer information describing types of services involved in a real estate settlement
  • Good Faith Estimate (GFE), which shows an estimate of the various charges the borrower can expect to pay at settlement and, if the lender requires a specific settlement provider, he or she must disclose it on the GFE. The GFE is a prescribed, standardized form (updated in 2009) that the lender is required to use to provide this financial information so the buyer can make informed decisions.
  • Mortgage Servicing Disclosure Statement, which informs the borrower whether or not the lender intends to service the account or pass it on to another servicing company.

If the lenders do not give the above information at the time the borrower applies for the loan, they must do so within three days of receiving the loan application.

Before the Closing

RESPA requires lenders to disclose all Affiliated Business Arrangements (ABA’s) to the borrower before the transaction settlement date. An ABA means that the lender involved in the real estate transaction has done the following:

  • is in a position to refer the borrower to a service provider
  • has an ownership interest in a particular service provider
  • refers or influences the borrower, to choose that particular service provider

In the above situation, the referring individuals must disclose the ABA to the borrower at the time that they make the referral. Additionally, unless the referral is to someone who will solely represent the interests of the borrower (an attorney, credit reporting agency, or real estate appraiser), the referring person cannot require the borrower to use the referred services.

During the Closing

RESPA requires lenders to provide an initial Escrow Statement that lays out an estimate of the taxes, insurance premiums, and other charges that the borrower can expect to come out of his escrow account during the loan's first 12-month period. The Escrow Statement discloses the amount of the escrow payment and any reserve. In addition to the initial Escrow Statement, the lender must provide an Annual Escrow Statement to the borrower one time each year.

The lender must also provide the HUD-1 Settlement Statement, describing all the real estate settlement charges that apply to both the borrowers and sellers, including any apportionment of costs between both parties. Updated in 2010, HUD-1 is a prescribed, standardized form that HUD requires the lender to use to provide the settlement information.

After the Closing

RESPA requires that a loan servicing company send a Servicing Transfer Statement (STS) to the borrower if the loan servicing company transfers the borrower's loan to another loan servicing company. The borrower must receive the notice 15 days before the transfer effective date. The notice must identify the new loan servicing company, the address, contact information, and the date that the new company will begin to receive payments.

Because of the complexity of sensitive information throughout a mortgage-lending process, your mortgage company can save time, reduce stress, and eliminate costly processing errors with MortgageWorkSpace® from Access Business Technologies. This is a cloud-based powerhouse of a platform that allows you to keep vital documents organized, readily available anywhere at all hours of the day, and ensures 100 percent buyer compliance with the most recent banking standards and the Safeguards Rule. It’s a virtual desktop with 24/7 technical support for your mortgage company’s time-sensitive needs. To learn more about how Access Business Technologies can help you move your mortgage business into the cloud, contact us today.

Topics: Cloud Mortgage Servicing Access Business Technologies ABT's Hosted Mortgage Servicing