. After mounting pressure over the last two years, RESPA again appeared on the lending scene early this year (Feb. 2009), HUD adopted new rules likely to more than double the number of loans covered by the act.
These new rules implement 1992 statutory amendments. They have transformed lending in three ways: 1. They extend RESPA coverage to refinancings and subordinate liens. 2. They clarify that RESPA covers origination and funding of mortgages-- a legal issue that needed resolving. 3. They exempt from disclosure requirements any applications rejected within three business days of receipt. A number of amendments to HUD's 1992 rules also are included.
RESPA now covers virtually all consumer-purpose and investment-purpose loans secured by one-to-four-family dwellings. RESPA's new exemptions took effect on March 14, and expanded coverage and disclosures take effect Aug. 9. And there's more coming-- HUD deferred several major decisions and planned to make more clarifications this year. RESPA perspective RESPA was enacted in 1974 to help homebuyers shop for loans.
It prohibited referral fees and kickbacks, and required lenders to disclose information about settlement procedures and costs in writing. In 1983, it was amended to cover "controlled business arrangements," and required disclosure of whether a lender has an ownership stake in the referred settlement service company; all fees paid to that affiliate; and the fact that use of that settlement company is not required. Catching the mortgage industry by surprise, HUD amended RESPA in 1992 to cover first-lien refinancings of "federally related mortgage loans," which included almost all first-lien and residential loans, both conventional and government. HUD also addressed a number of controversial coverage, referral fee, and business issues. Equally surprising, Congress passed the junior lien amendment.
The new rules are almost certain to gain new attention from HUD's fledgling RESPA Enforcement Unit, which for the past three years has worked with state and federal agencies and community groups to identify and investigate RESPA violations. Noncompliance has brought severe penalties to lenders and service providers. What's covered, what's not The best way to ensure compliance with RESPA is to fully understand which disclosures are required and when they apply. The following summary provides a reference point for lenders. 1. All refinancings are now covered. Under the new rules, the definition of a refinancing is simple and mirrors the Truth in Lending Act and its implementing Regulation Z. Generally speaking, if a new note is created, then the transaction is a refinancing. For covered refinancings, lenders must provide the good faith estimate disclosure and either the HUD-1 or new HUD-1A settlement statement. 2. For home equity lines of credit, lenders can substitute disclosures required by the Truth in Lending Act for RESPA disclosures. Therefore, lenders can provide the truth-in-lending equity line brochure and disclosures in lieu of the RESPA good faith estimate and special information booklet. 3. While its farm property coverage was once unclear, RESPA now carries an absolute exemption of a single transaction for properties of 25 or more acres, regardless of the purpose of the loan or whether the land is vacant or has a residential structure. Agricultural loans involving properties of fewer acres are still exempt as business credit. 4. Loans for vacant land or unimproved property covered only if loan proceeds will be used within two years of settlement to construct or purchase a dwelling to be placed on that property. Properties of 25 acres or more are exempt even if a residential structure is added within two years. 5. Temporary financings, such as construction loans. are exempt from RESPA in most instances. However, RESPA covers temporary loans issued with commitments by the lender to provide permanent financing, with or without conditions. RESPA presumes a loan exceeding two years is not "temporary financing." Therefore, any construction loan with a term of at ]east two years that is made for a new or rehabilitated one-to-four-family structure is covered, unless the loan is to a bona fide builder. RESPA does not cover "bridge" or "swing" loans, which are the short-term loans made to cover interim obligations of a person who is selling a property and buying another.6. RESPA does not cover secondary market transactions, except for new rules affecting escrow and servicing transfers. |
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