RESPA: SECTION 10 ESCROW ACCOUNTS

April 9, 2010

RESPA: DEPUTY DIRECTOR IVY JACKSON IS SHUFFLED OUT OF RESPA DIVISION

The U.S. Housing and Urban Development (HUD) made a number of surprising management changes last month including the shuffling of Ivy Jackson, the Director of the Office of RESPA and Interstate Land Sales to the Office of Insured Health Care Facilities. Ivy Jackson’s departure took the real estate industry by surprise and created uncertainty for state regulators who were relying on her to educate them the new RESPA regulations this year.

The Sterbcow Law Group would like to thank Ivy Jackson for her contributions over the years at RESPA. She will always be remembered as a federal regulator who was fair to the real estate industry and to consumer interests while at RESPA. Ms. Jackson’s work ethic, honesty, and experience will be missed.

HUD promoted Teresa Baker Payne to the position of Assistant Deputy Assistant Secretary and Barton Shapiro was named Acting Director of RESPA and Interstate Land Sales. Ms. Payne and Mr. Shapiro both bring experience to their new positions. Ms.Payne and Mr. Shapiro both are excellent choices for their respective roles at HUD.
Continue reading

October 28, 2009

RUMOR: RESPA REFORM BILL TO BE DELAYED SIX MONTHS: HUD DENIES DELAY

by Marx Sterbcow

The Real Estate Settlement Procedures Act “RESPA” regulations set to take place on January 1, 2010 has purportedly been delayed by HUD for six months. We are now waiting for an official announcement to take place by HUD to officially confirm the six month delay which should make the new implementation date on or around July 1, 2010.

We don’t know what precipitated this possible delay by HUD but the real estate industry has stepped up their criticisms on the new rule, including a recent letter sent to HUD by numerous trade organizations, issues with the new Truth In Lending Act form “TILA” integration, and other federal enforcement agencies concerns about the transparency of the new HUD-1 have forced HUD to re-evaluate parts of the new rule. Of course one of the other problems is that many in the real estate industry are still very much unaware or uneducated on the new RESPA Rule.

UPDATED at 10:39 PM:

July 14, 2009

MORTGAGE DISCLOSURE IMPROVEMENT ACT (MDIA) GOES INTO EFFECT ON JULY 30, 2009

by Marx Sterbcow

On July 30, 2009, some of the provisions of the Mortgage Disclosure Improvement Act of 2008 (MDIA) go into effect and lenders, mortgage brokers, title agents, real estate agents, and real estate brokerages need be alert as to these new federal governmental regulations. Here are the details for the MDIA:

1. The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial TIL statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.

2. If the final annual percentage rate APR is off by more than .125% from the initial GFE disclosure then the lender must re-disclose and wait yet another three business days before closing on the transaction.

3. The consumer has the right to cancel and not proceed with the transaction if they so choose.

4. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the Truth In Lending (TIL). Lenders can only collect from the borrower the credit report fee at the time of prior to delivery of the final TIL. No other fees are permitted to be collected at the time of application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.

5. The following language must be clearly written on the initial and final TIL: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

If you are a real estate agent or title agent you need to manage the process very carefully by:

A. Making sure that you check the initial Good Faith Estimate and Truth In Lending form for your buyers and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.

B. Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial TIL.
Continue reading

July 13, 2009

THE CONSUMER FINANCIAL PROTECTION AGENCY (CFPA) PROPOSAL INCLUDES RESPA AND TILA REGULATORY GOVERNANCE

by Marx Sterbcow

U.S. Rep. Barney Frank officially introduced legislation to create the Consumer Financial Protection Agency (CFPA). The legislation, which is backed by the Obama Administration, would consolidate the consumer protection powers of the fifty various federal financial regulatory agencies by creating a single regulatory agency. The creation of this single regulatory agency is the single most important aspect of the proposed 229 page Consumer Financial Protection Agency proposal.

The current financial governing system encourages abuses in the industry to take place because of the loopholes created by an inefficient and ineffective regulatory structure. The loopholes are exploited even further by the mass infighting that many of the governmental regulatory bureaucracies regularly display. The consolidation of these various federal agencies into one rule-making and investigative federal division should provide more uniform rules for those in the real estate industry and for consumers of real estate products.

The CFPA will have sole authority to draft and interpret regulations under the existing consumer financial services and fair lending statutes. The recent Good Faith Estimate/HUD-1 Settlement Statement forms developed by HUD and the Truth In Lending Act form is a prime example of decisions being made by one federal agency without input from a completely different agency. The biggest benefit consolidation presents to the industry and to the consumer is that this will increase the number of enforcement investigators. The consolidation of regulatory investigators is crucial because quite often investigators in one agency stop investigating abuses that relate to other agencies due to a myriad of reasons.
Continue reading

May 22, 2009

RESPA: THE FINANCIAL PRODUCT SAFETY COMMISSION ACT OF 2009

by Marx Sterbcow

The Obama Administration is pushing new legislation which would create a financial services regulatory commission. The commission would be called “The Financial Product Safety Commission” and it would regulate all mortgages, credit cards, and mutual funds. The Washington Post’s Zachary A. Goldfarb, Binyamin Appelbaum and David Cho wrote an article on May 20, 2009.

The Senate version of this bill under Section 10: Enforcement has some very strong criminal and civil money penalties that could further strengthen consumer protections against businesses. The current senate & house versions of the bill could add considerable consumer protections against loan servicing companies which under Section 6 of RESPA offer consumers very little protection from some mortgage servicing companies abusive practices. This is definitely one of those bills to keep an eye on as the ramifications could be huge for businesses and consumers.
Continue reading

March 31, 2009

REAL ESTATE SETTLEMENT PROCEDURES ACT: RESPA SECTION 10 GUIDELINES

by Marx Sterbcow

The Real Estate Settlement Procedures Act (RESPA) has strict guidelines on Escrow Accounts under Section 10. Sec. 10 places limits on the amount of money a lender requires a borrower to hold in an escrow account for payment of taxes, homeowners insurance, flood insurance, private mortgage insurance, or any other charge related to the property. RESPA’s Section 10 does not require that all loans have an escrow account, instead it regulates the maximum amount of money that can be deposited into an escrow account.

Lenders under Section 10 must conduct a escrow account analysis at least once a year and if there is a shortage they must notify the borrower of the problem and if a borrower’s escrow account has more than $50.00 the lender is required to refund the borrower the difference.
Continue reading