RESPA and Fuller Center Covenant Partners

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) FACT SHEET AND TIMELINE

 

 

What is RESPA?

 

The Real Estate Settlement Procedures Act of 1974 (“RESPA”) is a federal consumer protection statute that creates uniform disclosure and settlement procedures for residential real estate mortgage transactions. 

 

When does RESPA apply?

 

Covenant Partners are required to comply with RESPA if:

·        They originate more than $1 million a year in mortgages.  In calculating the $1 million threshold, Covenant Partners should include the face amount of all first mortgages, as well as any “silent second” or other deferred or non-deferred subordinate mortgages held by the Covenant Partner.  The RESPA regulations do not stipulate whether a “year” means a calendar year or fiscal year.  Covenant Partners should assume that originating $1 million over either period triggers the compliance requirement.

·        They are required to comply by state law.  Even Covenant Partners that do not meet the $1 million threshold should consult with local counsel to confirm whether state law might still require RESPA compliance.

 

All Fuller Center Covenant Partners should comply with RESPA as a best practice. 

·        A Covenant Partner’s failure to follow RESPA’s disclosure and closing requirements cannot be corrected retroactively.  If there is any chance whatsoever that a Covenant Partner will exceed the $1 million threshold in a year, then the RESPA rules should be followed for all mortgages originated during that year. 

·        Compliance with RESPA is standard operating procedure in the residential real estate market.

·        Some state and/or federal subsidy providers may require compliance with RESPA as a condition to granting a subsidy.

·        Failure to comply with RESPA may make the mortgage loans ineligible for leveraging and discounting programs.  A financing institution may not be willing to accept mortgages that were not originated or administered pursuant to RESPA.  

 

What does RESPA require?

 

1.      Disclosures During Homeowner Workshops

 

Prior to the issuance of the initial RESPA disclosures, discussed in Section 2 below, the Covenant Partner should provide informal written summaries of the likely mortgage terms to the partner family and discuss these terms with the family.  This may be done as part of the Covenant Partner’s borrower education program HUD has approved the use of information worksheets with borrowers, provided that (1) the worksheet does not look like the Good Faith Estimate (GFE) required by RESPA and the borrower is not led to believe that it is a GFE, and (2) the worksheet is not used in lieu of a GFE.  Covenant Partners must still provide the homeowner with a GFE and other RESPA disclosures. 

 

 

 

 

 

 

2.      Disclosures Prior to Closing

 

  1.  What initial disclosures are required?

 

RESPA requires Covenant Partner’s to deliver certain disclosures to the partner family prior to the closing of their home.  It requires Covenant Partner’s to give to borrowers:

 

 

  • a Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. 
  • a Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the Covenant Partner intends to service the loan or transfer it to another lender.  .

 

  1.  When should a Covenant Partner give the initial disclosures?

 

The initial disclosures must be given to borrowers three business days after a homebuyer submits an “application for a mortgage loan.”  An “application for a mortgage loan” under RESPA is considered to be made when a Covenant Partner has the following information: (1) borrower’s name; (2) borrower’s monthly income; (3) borrower’s social security number; (4) property address; (5) estimated value of property; (6) mortgage loan amount sought; and (7) any other information needed by the Covenant Partner.

 

Covenant Partners will often be missing the property address, the estimated value of the property and the loan amount for some time after the homeowner’s application to the Fuller Center program has been approved.  Because a CP’s ability to modify the GFE after its issuance is limited, it is advisable for CP’s to wait to issue the GFE and other disclosures until the lot or house has been selected and the sales price of the completed home and mortgage amount have been determined.  The CP must issue the initial RESPA disclosures within three business days of the date on which these facts are known.  It is recommended that Covenant Partners use a checklist to track when this information is known and keep it as part of the loan file. 

 

The initial disclosures under RESPA should be issued no later than seven days before closing, at the same time the Covenant Partner provides the borrower with the Truth in Lending Disclosure (TIL Disclosure).  See the attachments below for more information.

RESPA (1).pdf 88.5 KB
RESPA HUD powerpoint.pdf 627.9 KB