Compliance Blog

Posted by Anthony Demangone

First things first.  Here's a link again to the final RESPA rule.  "Ugh," you may say.  "It is 86 pages long.  And not just 86 pages - 86 "Federal Register" pages!  Who has the time!?"

Ah, but most of the 86 pages will be useless fluff when it comes to your specific questions.  So, don't worry about the forest.  Focus on the trees you care about.  If you were to cut out the pages that contain the new regulatory text, those 86 pages turn into five pages.  That's right.  There are five pages of new regulation, and 81 pages of explanation, model forms, new appendixes, etc.

Here are those five pages. 

So, if you have a question, you may want to see if the new changes address it.  You may need to look at the existing regs for a while as well, as the new RESPA that take affect January 1, 2010 do not completely replace the existing regs. So here's a link to the existing RESPA rule.

Let's begin, shall we?

24 C.F.R. 5300.1: Designation and Applicability

There's not too much here.  This is the section that created the two different compliance deadlines within the new RESPA rules.  Some requirements took affect January 16, 2009.  Those were sections addressing "required use," the use of actual charges on settlement statements, escrow accounts, the servicing disclosure statement, and E-SIGN applicability, and a "severability" section.  Remember that HUD withdrew the "required use" provision after an avalanche of criticism crashed into the Agency.  Those changes were not earth-shattering, and they went into affect a long time ago.

24 C.F.R 5300.2: Definitions

HUD tweaked or created 12 new definitions in its new RESPA rule.  One of those was "required use," so perhaps a more accurate count is 11.  Regulatory definitions are like...well, potatoes.  You take the potato for granted.  But take away the potato, and you have problems.  No french fries.  No mashed potatoes.  No Mr. Potato Head.  You get the idea.  Definition sections are like that.  They are in every regulation, but many fail to consult them.   You might think you know what terms such as prepayment penalty, balloon payment, changed circumstances, or application mean.  But do you know what they mean in the context of RESPA?  When you are doing research, always look for defined terms.    For example, can one of your employees be viewed as a mortgage broker?  No.  The definition of "mortgage broker" specifically excludes employees of the lender.

Of note, the term "application" is interesting.  What constitutes an application?  It has to have at least 6 pieces of information.  (Name, monthly income, SSN, property address, estimate of property's value, and the mortgage amount sought."  Here's what HUD had to say:

The final rule now defines ‘‘application’’ to include at least these six items of information. Therefore, under this single application process, a loan originator may ask for, or a borrower may choose to submit, more information than the loan originator intends to use to process the GFE, for example the information on a standard 1003 mortgage loan application form, but beyond the six items of information, the loan originator will determine what it needs to issue a GFE. HUD strongly urges loan originators to develop consistent policies or procedures concerning what information it will require to minimize delays in issuing GFEs.

Can you issue a GFE without the property's address?  HUD's RESPA FAQ guidance says yes.  But it clarifies that the subsequent submission of an address does not allow the lender to establish a "changed circumstance" pursuant to section 3500.7.  (We'll get to that later.)