Real Estate Settlement Procedures Act (Regulation X), 78978-79017 [2011-31722]

Download as PDF 78978 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1024 [Docket No. CFPB–2011–0030] RIN 3170–AA06 Real Estate Settlement Procedures Act (Regulation X) Bureau of Consumer Financial Protection. ACTION: Interim final rule with request for public comment. AGENCY: Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred rulemaking authority for a number of consumer financial protection laws from seven Federal agencies to the Bureau of Consumer Financial Protection (Bureau) as of July 21, 2011. The Bureau is in the process of republishing the regulations implementing those laws with technical and conforming changes to reflect the transfer of authority and certain other changes made by the Dodd-Frank Act. In light of the transfer of the Department of Housing and Urban Development’s (HUD’s) rulemaking authority for the Real Estate Settlement Procedures Act (RESPA) to the Bureau, the Bureau is publishing for public comment an interim final rule establishing a new Regulation X (Real Estate Settlement Procedures Act). This interim final rule does not impose any new substantive obligations on persons subject to the existing Regulation X, previously published by HUD. DATES: This interim final rule is effective December 30, 2011. Comments must be received on or before February 21, 2012. ADDRESSES: You may submit comments, identified by Docket No. CFPB–2011– 0030 or RIN 3170–AA06, by any of the following methods: • Electronic: https:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Monica Jackson, Office of the Executive Secretary, Bureau of Consumer Financial Protection, 1500 Pennsylvania Ave. NW., (Attn: 1801 L Street), Washington, DC 20220. • Hand Delivery/Courier in Lieu of Mail: Monica Jackson, Office of the Executive Secretary, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006. All submissions must include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. In general, all comments received will be posted mstockstill on DSK4VPTVN1PROD with RULES2 SUMMARY: VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 without change to https:// www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW., Washington, DC 20006, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435– 7275. All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments will not be edited to remove any identifying or contact information. FOR FURTHER INFORMATION CONTACT: Joseph Devlin or Jane Gao, Office of Regulations, at (202) 435–7700. SUPPLEMENTARY INFORMATION: I. Background Congress enacted the Real Estate Settlement Procedures Act of 1974 (RESPA) based on findings that significant reforms in the real estate settlement process were needed to ensure that consumers are provided with greater and more timely information on the nature and costs of the residential real estate settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that Congress found to have developed. In addition to providing consumers with appropriate disclosures, the purposes of RESPA include effecting certain changes in the settlement process for residential real estate that will result in (1) the elimination of kickbacks or referral fees that Congress found to increase unnecessarily the costs of certain settlement services; and (2) a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance.1 RESPA also prohibits unearned fees in connection with federally related mortgage loans. In 1990, Congress amended RESPA by adding a new section 6 covering persons responsible for servicing mortgage loans and amending statutory provisions related to mortgage servicers’ administration of borrowers’ escrow accounts.2 Historically, RESPA has been implemented in Regulation X of the Department of Housing and Urban Development (HUD), 24 CFR part 3500. The Dodd-Frank Wall Street Reform and 1 12 U.S.C. 2601. Law 101–625, 104 Stat. 4079 (1990), Sections 941–42. 2 Public PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 Consumer Protection Act (Dodd-Frank Act) 3 amended a number of consumer financial protection laws, including RESPA. In addition to various substantive amendments, the DoddFrank Act transferred rulemaking authority for RESPA to the Bureau, effective July 21, 2011. See sections 1061 and 1098 of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act and RESPA, as amended, the Bureau is publishing for public comment an interim final rule establishing a new Regulation X (Real Estate Settlement Procedures Act), 12 CFR part 1024, implementing RESPA. II. Summary of the Interim Final Rule A. General The interim final rule substantially duplicates HUD’s Regulation X as the Bureau’s new Regulation X, 12 CFR part 1024, making only certain nonsubstantive, technical, formatting, and stylistic changes. To minimize any potential confusion, other than republishing HUD’s rule (24 CFR part 3500) with the Bureau’s part number, the Bureau is preserving where possible the section numbering HUD used in 24 CFR part 3500. For example, while this interim final rule generally incorporates HUD’s existing regulatory text and appendices (including standardized and model forms), the rule has been edited as necessary to reflect nomenclature and other technical amendments required by the Dodd-Frank Act. Notably, this interim final rule does not impose any new substantive obligations on regulated entities. In future rulemakings, the Bureau expects to amend Regulation X to implement certain other changes to RESPA made by the Dodd-Frank Act, such as preparing and distributing booklets ‘‘jointly addressing compliance with the requirements of the Truth in Lending Act and [RESPA], in order to help persons borrowing money to finance the purchase of residential real estate better to understand the nature and costs of real estate settlement services,’’ 4 integrating certain disclosure requirements of the Truth in Lending Act, 15 U.S.C. 1601 et seq., with certain disclosure requirements of RESPA,5 adopting regulations pertaining to practices of mortgage servicers, and issuing regulations to carry out the consumer purposes of RESPA. 3 Public Law 111–203, 124 Stat. 1376 (2010). Law 111–203, Section 1098(3). Accordingly, pending further Bureau action, the Bureau is adopting HUD’s existing booklet on settlement costs. 5 Id. at Section 1032(f). 4 Public E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES2 B. Specific Changes References to HUD and its administrative structure, including provisions for imposing penalties for escrow violations, have been replaced with references to the Bureau. Conforming edits have been made to internal cross-references and addresses for filing applications and notices. Conforming edits have also been made to reflect the scope of the Bureau’s authority pursuant to RESPA, as amended by the Dodd-Frank Act. Historical references that are no longer applicable, and references to effective dates that have passed, have been removed as appropriate. In addition, the Bureau is correcting a citation error in HUD’s existing § 3500.17(l)(4). As adopted by HUD, § 3500.17(l)(4) contains a cross-reference to § 3500.21(f). The correct citation should be to § 3500.21(e). The Bureau is republishing § 3500.17(l)(4) as § 1024.17(l)(4) with the citation corrected to read § 1024.21(e). References to any ‘‘HUD Public Guidance Document’’ throughout HUD’s Regulation X have been replaced with references to a ‘‘Public Guidance Document’’ throughout the Bureau’s Regulation X. HUD’s existing Regulation X CFR text contains several provisions that HUD adopted in 1996 but never made effective.6 The Bureau is not republishing those provisions with the Bureau’s Regulation X. Furthermore, the Bureau is clarifying permissible changes that covered persons may make to the special information booklet without the Bureau’s written approval. As adopted by HUD, §§ 3500.6(d)(2) and (3) set forth the permissible changes that covered persons may make in the special information booklet without written approval from the Secretary of HUD. To reflect the transfer of authority from HUD to the Bureau, the Bureau is recodifying § 3500.6(d)(1) as §§ 1024.6(d)(1)(i) and (ii) to clarify permissible changes covered persons may make to the special information booklet without the Bureau’s written approval. As discussed above, the Dodd-Frank Act directed the Bureau to integrate certain disclosures required by TILA with certain disclosures required by RESPA. The Bureau expects the content and format of HUD’s existing HUD–1/ 1A and GFE forms to be significantly revised or replaced by such rulemaking. The HUD–1/1A and GFE forms currently list HUD’s Office of Management and Budget (OMB) control 6 See Notice of Final Rule and Delay of Effectiveness, 61 Fed. Reg. 51782 (October 4, 1996). VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 number, 2502–0265, in order to satisfy certain information collection requirements of the Paperwork Reduction Act. The Bureau believes that requiring covered persons to modify existing forms solely to replace HUD’s OMB control number with the Bureau’s OMB control number would impose substantial burden on covered persons with limited or no net benefit to consumers. Accordingly, covered persons may continue to list HUD’s OMB control number on the HUD–1/1A and GFE forms until a final rule to the contrary takes effect. Covered persons also have the option of replacing HUD’s OMB control number with the Bureau’s OMB control number on the HUD–1/1A and GFE forms until a final rule to the contrary takes effect. Accordingly, the Bureau is adding language in Appendix C to part 1024— Instructions for Completing the Good Faith Estimate (GFE) Form to clarify that covered persons may replace HUD’s OMB control number with the Bureau’s OMB control number on the form at their option. HUD’s existing § 3500.9 lists the permissible changes allowed when the HUD–1/1A settlement changes are reproduced. The Bureau is recodifying § 3500.9 as § 1024.9 and adding language in § 1024.9(c) to clarify that covered persons may replace HUD’s OMB control number with the Bureau’s OMB Control number on the HUD–1/1A forms without written approval from the Bureau. Furthermore, the Bureau is revising language in § 1024.9(a)(5) to clarify that covered persons are not required to display the expiration date that is associated with the OMB control number displayed on the HUD–1/1A forms. The Bureau has certain information gathering and investigative authority concerning Federal consumer financial laws, including RESPA,7 under Subtitles B and E of the Dodd-Frank Act. RESPA also confers additional information gathering and investigative authority on the Bureau. Accordingly, the Bureau is removing paragraphs (i) and (ii) in HUD’s existing § 3500.17(l)(3) because the repetition of the RESPAconferred information gathering and investigative authority therein is unnecessary. The Bureau has the authority to enforce RESPA and Regulation X pursuant to Subtitle E of Title X of the Dodd-Frank Act.8 RESPA also confers additional enforcement authority on the 7 See Public Law 111–203, Section 1002(12)(M) (defining RESPA as an ‘‘enumerated law.’’) An enumerated consumer law is a ‘‘Federal consumer financial law.’’ Id. at Section 1002(14). 8 Id. at Sections 1051–1057. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 78979 Bureau. The Bureau is removing the civil money penalties provisions in HUD’s existing § 3500.17(m) and (n) because the repetition of this RESPAconferred authority is unnecessary. Investigations undertaken by the Bureau will be conducted in accordance with 12 CFR part 1080, and administrative adjudications will be conducted in accordance with 12 CFR part 1081. Due to the removal of paragraphs (m) and (n) from § 3500.17, the ‘‘Discretionary payments’’ paragraph in HUD’s existing § 3500.17(o) is being recodified as § 1024.17(m) in this interim final rule. Finally, the Bureau is removing paragraphs (b) and (c) from HUD’s existing § 3500.19 because they are repetitive in light of other statutory and regulatory provisions. See §§ 3500.14– 16 (being recodified as §§ 1024.14–16). Accordingly, corresponding crossreferences to §§ 3500.19(b) and (c) in HUD’s existing Regulation X are also being removed,9 and § 3500.19(d) is being recodified as § 1024.19(b). III. Legal Authority A. Rulemaking Authority The Bureau is issuing this interim final rule pursuant to its authority under RESPA and the Dodd-Frank Act. Effective July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau all of the HUD Secretary’s consumer protection functions relating to RESPA.10 Accordingly, effective July 21, 2011, the authority of HUD to issue regulations pursuant to RESPA transferred to the Bureau.11 RESPA, as amended, authorizes the Bureau to issue regulations to carry out the provisions of RESPA.12 This authority allows the Bureau to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA. In its existing regulation, HUD has used this 9 See § 3500.14(a) (being recodified as § 1024.14(a)) and § 3500.16 (being recodified as § 1024.16). 10 Public Law 111–203, 1061(b)(7)(A). Effective on the designated transfer date, July 21, 2011, the Bureau was also granted ‘‘all powers and duties’’ that were vested in the HUD Secretary relating to RESPA on the date before the designated transfer date. Id. at Section 1061(b)(7)(B). Until this and other interim final rules take effect, existing regulations for which rulemaking authority transferred to the Bureau continue to govern persons covered by this rule. See 76 FR 43569 (July 21, 2011). 11 Section 1066 of the Dodd-Frank Act grants the Secretary of the Treasury interim authority to perform certain functions of the Bureau. Pursuant to that authority, Treasury is publishing this interim final rule on behalf of the Bureau. 12 Public Law 111–203, Section 1098(11); 12 U.S.C. 2603–2605, 2607, 2609, 2617. E:\FR\FM\20DER2.SGM 20DER2 78980 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES2 RESPA authority to establish extensive rules concerning appropriate and timely disclosures about the nature and costs of the residential real estate settlement process, the elimination of kickbacks or referral fees with respect to certain settlement services, and mortgage servicers’ administration of borrowers’ escrow accounts, as well as their handling of servicing transfers and written consumer inquiries.13 B. Authority To Issue an Interim Final Rule Without Prior Notice and Comment The Administrative Procedure Act (APA) 14 generally requires public notice and an opportunity to comment before promulgation of substantive regulations.15 The APA provides exceptions to notice-and-comment procedures, however, where an agency for good cause finds that such procedures are impracticable, unnecessary, or contrary to the public interest or when a rulemaking relates to agency organization, procedure, and practice.16 The Bureau finds that there is good cause to conclude that providing notice and opportunity for comment would be unnecessary and contrary to the public interest under these circumstances. In addition, substantially all of the changes made by this interim final rule, which were necessitated by the Dodd-Frank Act’s transfer of RESPA authority from HUD to the Bureau, relate to agency organization, procedure, and practice and are thus exempt from the APA’s notice-and-comment requirements. The Bureau’s good cause findings are based on the following considerations. As an initial matter, HUD’s existing regulation was a result of notice-andcomment rulemaking to the extent required. Moreover, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Rather, the interim final rule makes only non-substantive, technical changes to the existing text of the regulation, such as renumbering, changing internal cross-references, replacing appropriate nomenclature to reflect the transfer of authority to the Bureau, and changing the address for filing applications and notices. Given the technical nature of these changes, and the fact that the interim final rule does not impose any additional substantive requirements on covered entities, an opportunity for prior public comment is unnecessary. In addition, recodifying HUD’s regulation to reflect 13 See HUD’s Regulation X, 24 CFR part 3500. U.S.C. 551 et seq. 15 5 U.S.C. 553(b), (c). 16 5 U.S.C. 553(b)(3)(A), (B). 14 5 VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 the transfer of authority to the Bureau will help facilitate compliance with RESPA and its implementing regulations, and will help reduce uncertainty regarding the applicable regulatory framework. Using notice-andcomment procedures would delay this process and thus be contrary to the public interest. The APA generally requires that rules be published not less than 30 days before their effective dates. See 5 U.S.C. 553(d). As with the notice and comment requirement, however, the APA allows an exception when ‘‘otherwise provided by the agency for good cause found and published with the rule.’’ 5 U.S.C. 553(d)(3). The Bureau finds that there is good cause for providing less than 30 days notice here. A delayed effective date would harm consumers and regulated entities by needlessly perpetuating discrepancies between the amended statutory text and the implementing regulation, thereby hindering compliance and prolonging uncertainty regarding the applicable regulatory framework.17 In addition, delaying the effective date of the interim final rule for 30 days would provide no practical benefit to regulated entities in this context and in fact could operate to their detriment. As discussed above, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Instead, the rule makes only non-substantive, technical changes to the existing text of the regulation. Thus, regulated entities that are already in compliance with the existing rules will not need to modify business practices as a result of this rule. C. Section 1022(b)(2) of the Dodd-Frank Act In developing the interim final rule, the Bureau has conducted an analysis of potential benefits, costs, and impacts.18 The Bureau believes that the interim final rule will benefit consumers and covered persons by updating and recodifying Regulation X to reflect the transfer of authority to the Bureau and certain other changes mandated by the Dodd-Frank Act. This will help facilitate compliance with RESPA and its implementing regulations and help reduce any uncertainty regarding the applicable regulatory framework. The interim final rule will not impose any new substantive obligations on consumers or covered persons and is not expected to have any impact on consumers’ access to consumer financial products and services. Although not required by the interim final rule, covered entities may incur some costs in updating compliance manuals and related materials to reflect the new numbering and other technical changes reflected in the new Regulation X. The Bureau has worked to reduce any such burden by preserving the existing numbering to the extent possible and believes that such costs will likely be minimal. These changes could be handled in the short term by providing a short, standalone summary alerting users to the changes and in the long term could be combined with other updates at the firm’s convenience. The Bureau intends to continue investigating the possible costs to affected entities of updating manuals and related materials to reflect these changes and solicits comments on this and other issues discussed in this section. The interim final rule will have no unique impact on depository institutions or credit unions with $10 billion or less in assets as described in section 1026(a) of the Dodd-Frank Act. Also, the interim final rule will have no unique impact on rural consumers. In undertaking the process of recodifying Regulation X, as well as regulations implementing thirteen other existing consumer financial laws,19 the 17 This interim final rule is one of 14 companion rulemakings that together restate and recodify the implementing regulations under 14 existing consumer financial laws (part III.C, below, lists the 14 laws involved). In the interest of proper coordination of this overall regulatory framework, which includes numerous cross-references among some of the regulations, the Bureau is establishing the same effective date of December 30, 2011 for those rules published on or before that date and making those published thereafter (if any) effective immediately. 18 Section 1022(b)(2)(A) of the Dodd-Frank Act addresses the consideration of the potential benefits and costs of regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services; the impact on depository institutions and credit unions with $10 billion or less in total assets as described in Section 1026 of the Dodd-Frank Act; and the impact on consumers in rural areas. Section 1022(b)(2)(B) requires that the Bureau ‘‘consult with the appropriate prudential regulators or other Federal agencies prior to proposing a rule and during the comment process regarding consistency with prudential, market, or systemic objectives administered by such agencies.’’ The manner and extent to which these provisions apply to interim final rules and to benefits, costs, and impacts that are compelled by statutory changes rather than discretionary Bureau action is unclear. Nevertheless, to inform this rulemaking more fully, the Bureau performed the described analyses and consultations. 19 The fourteen laws implemented by this and its companion rulemakings are: The Consumer Leasing Act, the Electronic Fund Transfer Act (except with respect to Section 920 of that Act), the Equal Credit Opportunity Act, the Fair Credit Reporting Act (except with respect to Sections 615(e) and 628 of that act), the Fair Debt Collection Practices Act, Subsections (b) through (f) of Section 43 of the Federal Deposit Insurance Act, Sections 502 through 509 of the Gramm-Leach-Bliley Act (except PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations Bureau consulted the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Department of Housing and Urban Development, including with respect to consistency with any prudential, market, or systemic objectives that may be administered by such agencies.20 The Bureau also has consulted with the Office of Management and Budget for technical assistance. The Bureau expects to have further consultations with the appropriate Federal agencies during the comment period. IV. Request for Comment Although notice and comment rulemaking procedures are not required, the Bureau invites comments on this notice. Commenters are specifically encouraged to identify any technical issues raised by the rule. The Bureau is also seeking comment in response to a notice published at 76 FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities for streamlining regulations that it has inherited from other Federal agencies to address provisions that are outdated, unduly burdensome, or unnecessary. mstockstill on DSK4VPTVN1PROD with RULES2 V. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not-for-profit organizations.21 The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.22 The Bureau also is subject to certain additional procedures under the RFA for Section 505 as it applies to Section 501(b)), the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the Truth in Lending Act, the Truth in Savings Act, Section 626 of the Omnibus Appropriations Act, 2009, and the Interstate Land Sales Full Disclosure Act. 20 In light of the technical but voluminous nature of this recodification project, the Bureau focused the consultation process on a representative sample of the recodified regulations, while making information on the other regulations available. The Bureau expects to conduct differently its future consultations regarding substantive rulemakings. 21 5 U.S.C. 601 et seq. 22 5 U.S.C. 603, 604. VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required.23 The IRFA and FRFA requirements described above apply only where a notice of proposed rulemaking is required,24 and the panel requirement applies only when a rulemaking requires an IRFA.25 As discussed above in part III, a notice of proposed rulemaking is not required for this rulemaking. In addition, as discussed above, this interim final rule has only a minor impact on entities subject to Regulation X. The rule imposes no new, substantive obligations on covered entities. Accordingly, the undersigned certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities. VI. Paperwork Reduction Act The Bureau may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. This rule contains information collection requirements under the Paperwork Reduction Act (PRA), which have been previously approved by OMB, the OMB control number for which is 2502–0265, and the ongoing PRA burden for which is unchanged by this rule. There are no new information collection requirements in this interim final rule. The Bureau’s OMB control number for this information collection is: 3170– 0016. List of Subjects in 12 CFR Part 1024 Consumer protection, Condominiums, Housing, Mortgages, Mortgagees, Mortgage servicing, Reporting and recordkeeping requirements. Authority and Issuance For the reasons set forth above, the Bureau of Consumer Financial Protection adds part 1024 to Chapter X in Title 12 of the Code of Federal Regulations to read as follows: ■ PART 1024—REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X) Sec. 1024.1 Designation. 1024.2 Definitions. 1024.3 Questions or suggestions from public and copies of public guidance documents. 23 5 U.S.C. 609. U.S.C. 603(a), 604(a); 5 U.S.C. 553(b)(B). 25 5 U.S.C. 609(b). 24 5 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 78981 1024.4 Reliance upon rule, regulation or interpretation by the Bureau. 1024.5 Coverage of RESPA. 1024.6 Special information booklet at time of loan application. 1024.7 Good faith estimate. 1024.8 Use of HUD–1 or HUD–1A settlement statements. 1024.9 Reproduction of settlement statements. 1024.10 One-day advance inspection of HUD–1 or HUD–1A settlement statement; delivery; recordkeeping. 1024.11 Mailing. 1024.12 No fee. 1024.13 Relation to state laws. 1024.14 Prohibition against kickbacks and unearned fees. 1024.15 Affiliated business arrangements. 1024.16 Title companies. 1024.17 Escrow accounts. 1024.18 Validity of contracts and liens. 1024.19 Enforcement. 1024.20 [Reserved] 1024.21 Mortgage servicing transfers. 1024.22 Severability. 1024.23 ESIGN applicability. Appendix A to Part 1024—Instructions for Completing HUD–1 and HUD–1A Settlement Statements; Sample HUD–1 and HUD–1A Statements Appendix B to Part 1024—Illustrations of Requirements of RESPA Appendix C to Part 1024—Instructions for Completing Good Faith Estimate (GFE) Form Appendix D to Part 1024—Affiliated Business Arrangement Disclosure Statement Format Appendix E to Part 1024—Arithmetic Steps Appendix MS–1 to Part 1024—Servicing Disclosure Statement Appendix MS–2 to Part 1024—Notice of Assignment, Sale, or Transfer of Servicing Rights Authority: 12 U.S.C. 2603–2605, 2607, 2609, 2617, 5512, 5581. § 1024.1 Designation. This part, known as Regulation X, is issued by the Bureau of Consumer Financial Protection to implement the Real Estate Settlement Procedures Act of 1974, as amended, 12 U.S.C. 2601 et. seq. § 1024.2 Definitions. (a) Statutory terms. All terms defined in RESPA (12 U.S.C. 2602) are used in accordance with their statutory meaning unless otherwise defined in paragraph (b) of this section or elsewhere in this part. (b) Other terms. As used in this part: Application means the submission of a borrower’s financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower’s name, the borrower’s monthly income, the borrower’s social security number to obtain a credit report, the property address, an estimate of the value of the E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78982 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application. Balloon payment has the same meaning as ‘‘balloon payment’’ under Regulation Z (12 CFR part 1026). Bureau means the Bureau of Consumer Financial Protection. Business day means a day on which the offices of the business entity are open to the public for carrying on substantially all of the entity’s business functions. Changed circumstances means: (1)(i) Acts of God, war, disaster, or other emergency; (ii) Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE; (iii) New information particular to the borrower or transaction that was not relied on in providing the GFE; or (iv) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems. (2) Changed circumstances do not include: (i) The borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; or (ii) Market price fluctuations by themselves. Dealer means, in the case of property improvement loans, a seller, contractor, or supplier of goods or services. In the case of manufactured home loans, ‘‘dealer’’ means one who engages in the business of manufactured home retail sales. Dealer loan or dealer consumer credit contract means, generally, any arrangement in which a dealer assists the borrower in obtaining a federally related mortgage loan from the funding lender and then assigns the dealer’s legal interests to the funding lender and receives the net proceeds of the loan. The funding lender is the lender for the purposes of the disclosure requirements VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 of this part. If a dealer is a ‘‘creditor’’ as defined under the definition of ‘‘federally related mortgage loan’’ in this part, the dealer is the lender for purposes of this part. Effective date of transfer is defined in section 6(i)(1) of RESPA (12 U.S.C. 2605(i)(1)). In the case of a home equity conversion mortgage or reverse mortgage as referenced in this section, the effective date of transfer is the transfer date agreed upon by the transferee servicer and the transferor servicer. Federally related mortgage loan or mortgage loan means as follows: (1) Any loan (other than temporary financing, such as a construction loan): (i) That is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property upon which there is either: (A) Located or, following settlement, will be constructed using proceeds of the loan, a structure or structures designed principally for occupancy of from one to four families (including individual units of condominiums and cooperatives and including any related interests, such as a share in the cooperative or right to occupancy of the unit); or (B) Located or, following settlement, will be placed using proceeds of the loan, a manufactured home; and (ii) For which one of the following paragraphs applies. The loan: (A) Is made in whole or in part by any lender that is either regulated by or whose deposits or accounts are insured by any agency of the Federal Government; (B) Is made in whole or in part, or is insured, guaranteed, supplemented, or assisted in any way: (1) By the Secretary of the Department of Housing and Urban Development (HUD) or any other officer or agency of the Federal Government; or (2) Under or in connection with a housing or urban development program administered by the Secretary of HUD or a housing or related program administered by any other officer or agency of the Federal Government; (C) Is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation (or its successors), or a financial institution from which the loan is to be purchased by the Federal Home Loan Mortgage Corporation (or its successors); (D) Is made in whole or in part by a ‘‘creditor’’, as defined in section 103(g) of the Consumer Credit Protection Act PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 (15 U.S.C. 1602(g)), that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. For purposes of this definition, the term ‘‘creditor’’ does not include any agency or instrumentality of any State, and the term ‘‘residential real estate loan’’ means any loan secured by residential real property, including single-family and multifamily residential property; (E) Is originated either by a dealer or, if the obligation is to be assigned to any maker of mortgage loans specified in paragraphs (1)(ii)(A) through (D) of this definition, by a mortgage broker; or (F) Is the subject of a home equity conversion mortgage, also frequently called a ‘‘reverse mortgage,’’ issued by any maker of mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this definition. (2) Any installment sales contract, land contract, or contract for deed on otherwise qualifying residential property is a federally related mortgage loan if the contract is funded in whole or in part by proceeds of a loan made by any maker of mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this definition. (3) If the residential real property securing a mortgage loan is not located in a State, the loan is not a federally related mortgage loan. Good faith estimate or GFE means an estimate of settlement charges a borrower is likely to incur, as a dollar amount, and related loan information, based upon common practice and experience in the locality of the mortgaged property, as provided on the form prescribed in § 1024.7 and prepared in accordance with the Instructions in Appendix C to this part. HUD means the Department of Housing and Urban Development. HUD–1 or HUD–1A settlement statement (also HUD–1 or HUD–1A) means the statement that is prescribed in this part for setting forth settlement charges in connection with either the purchase or the refinancing (or other subordinate lien transaction) of 1- to 4-family residential property. Lender means, generally, the secured creditor or creditors named in the debt obligation and document creating the lien. For loans originated by a mortgage broker that closes a federally related mortgage loan in its own name in a table funding transaction, the lender is the person to whom the obligation is initially assigned at or after settlement. A lender, in connection with dealer loans, is the lender to whom the loan is assigned, unless the dealer meets the definition of creditor as defined under ‘‘federally related mortgage loan’’ in this E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations section. See also § 1024.5(b)(7), secondary market transactions. Loan originator means a lender or mortgage broker. Manufactured home is defined in HUD regulation 24 CFR 3280.2. Mortgage broker means a person (not an employee of a lender) or entity that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan, including such a person or entity that closes the loan in its own name in a table funded transaction. A loan correspondent approved under HUD regulation 24 CFR 202.8 for Federal Housing Administration programs is a mortgage broker for purposes of this part. Mortgaged property means the real property that is security for the federally related mortgage loan. Origination service means any service involved in the creation of a mortgage loan, including but not limited to the taking of the loan application, loan processing, the underwriting and funding of the loan, and the processing and administrative services required to perform these functions. Person is defined in section 3(5) of RESPA (12 U.S.C. 2602(5)). Prepayment penalty has the same meaning as ‘‘prepayment penalty’’ under Regulation Z (12 CFR part 1026). Public Guidance Documents means Federal Register documents adopted or published, that the Bureau may amend from time-to-time by publication in the Federal Register. These documents are also available from the Bureau at the address indicated in § 1024.3. Refinancing means a transaction in which an existing obligation that was subject to a secured lien on residential real property is satisfied and replaced by a new obligation undertaken by the same borrower and with the same or a new lender. The following shall not be treated as a refinancing, even when the existing obligation is satisfied and replaced by a new obligation with the same lender (this definition of ‘‘refinancing’’ as to transactions with the same lender is similar to Regulation Z, 12 CFR 1026.20(a)): (1) A renewal of a single payment obligation with no change in the original terms; (2) A reduction in the annual percentage rate as computed under the Truth in Lending Act with a corresponding change in the payment schedule; (3) An agreement involving a court proceeding; (4) A workout agreement, in which a change in the payment schedule or VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 change in collateral requirements is agreed to as a result of the consumer’s default or delinquency, unless the rate is increased or the new amount financed exceeds the unpaid balance plus earned finance charges and premiums for continuation of allowable insurance; and (5) The renewal of optional insurance purchased by the consumer that is added to an existing transaction, if disclosures relating to the initial purchase were provided. Regulation Z means the regulations issued by the Bureau (12 CFR part 1026) to implement the Federal Truth in Lending Act (15 U.S.C. 1601 et seq.), and includes the Commentary on Regulation Z. Required use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process. RESPA means the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.). Servicer means the person responsible for the servicing of a mortgage loan (including the person who makes or holds a mortgage loan if such person also services the mortgage loan). The term does not include: (1) The Federal Deposit Insurance Corporation (FDIC), in connection with assets acquired, assigned, sold, or transferred pursuant to section 13(c) of the Federal Deposit Insurance Act or as receiver or conservator of an insured depository institution; and (2) The Federal National Mortgage Corporation (FNMA); the Federal Home Loan Mortgage Corporation (Freddie Mac); the FDIC; HUD, including the Government National Mortgage Association (GNMA) and the Federal Housing Administration (FHA) (including cases in which a mortgage insured under the National Housing Act (12 U.S.C. 1701 et seq.) is assigned to HUD); the National Credit Union Administration (NCUA); the Farm Service Agency; and the Department of PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 78983 Veterans Affairs (VA), in any case in which the assignment, sale, or transfer of the servicing of the mortgage loan is preceded by termination of the contract for servicing the loan for cause, commencement of proceedings for bankruptcy of the servicer, or commencement of proceedings by the FDIC for conservatorship or receivership of the servicer (or an entity by which the servicer is owned or controlled). Servicing means receiving any scheduled periodic payments from a borrower pursuant to the terms of any mortgage loan, including amounts for escrow accounts under section 10 of RESPA (12 U.S.C. 2609), and making the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. In the case of a home equity conversion mortgage or reverse mortgage as referenced in this section, servicing includes making payments to the borrower. Settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may also be called ‘‘closing’’ or ‘‘escrow’’ in different jurisdictions. Settlement service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following: (1) Origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of such loans); (2) Rendering of services by a mortgage broker (including counseling, taking of applications, obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender); (3) Provision of any services related to the origination, processing or funding of a federally related mortgage loan; (4) Provision of title services, including title searches, title examinations, abstract preparation, insurability determinations, and the issuance of title commitments and title insurance policies; (5) Rendering of services by an attorney; (6) Preparation of documents, including notarization, delivery, and recordation; E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78984 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations (7) Rendering of credit reports and appraisals; (8) Rendering of inspections, including inspections required by applicable law or any inspections required by the sales contract or mortgage documents prior to transfer of title; (9) Conducting of settlement by a settlement agent and any related services; (10) Provision of services involving mortgage insurance; (11) Provision of services involving hazard, flood, or other casualty insurance or homeowner’s warranties; (12) Provision of services involving mortgage life, disability, or similar insurance designed to pay a mortgage loan upon disability or death of a borrower, but only if such insurance is required by the lender as a condition of the loan; (13) Provision of services involving real property taxes or any other assessments or charges on the real property; (14) Rendering of services by a real estate agent or real estate broker; and (15) Provision of any other services for which a settlement service provider requires a borrower or seller to pay. Special information booklet means the booklet adopted pursuant to section 5 of RESPA (12 U.S.C. 2604) to help persons understand the nature and costs of settlement services. The Bureau publishes the form of the special information booklet in the Federal Register or by other public notice. The Bureau may issue or approve additional booklets or alternative booklets by publication of a Notice in the Federal Register. State means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States. Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. A tablefunded transaction is not a secondary market transaction (see § 1024.5(b)(7)). Third party means a settlement service provider other than a loan originator. Title company means any institution, or its duly authorized agent, that is qualified to issue title insurance. Title service means any service involved in the provision of title insurance (lender’s or owner’s policy), including but not limited to: Title examination and evaluation; preparation and issuance of title commitment; clearance of underwriting VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 objections; preparation and issuance of a title insurance policy or policies; and the processing and administrative services required to perform these functions. The term also includes the service of conducting a settlement. Tolerance means the maximum amount by which the charge for a category or categories of settlement costs may exceed the amount of the estimate for such category or categories on a GFE. § 1024.3 Questions or suggestions from public and copies of public guidance documents. Any questions or suggestions from the public regarding RESPA, or requests for copies of Public Guidance Documents, should be directed to the Associate Director, Research, Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006. Legal questions concerning the interpretation of this part may be directed to the same address. § 1024.4 Reliance upon rule, regulation or interpretation by the Bureau. (a) Rule, regulation or interpretation. (1) For purposes of sections 19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)), only the following constitute a rule, regulation or interpretation of the Bureau: (i) All provisions, including appendices, of this part. Any other document referred to in this part is not incorporated in this part unless it is specifically set out in this part; (ii) Any other document that is published in the Federal Register by the Bureau and states that it is an ‘‘interpretation,’’ ‘‘interpretive rule,’’ ‘‘commentary,’’ or a ‘‘statement of policy’’ for purposes of section 19(a) of RESPA. Such documents will be prepared by Bureau staff and counsel. Such documents may be revoked or amended by a subsequent document published in the Federal Register by the Bureau. (2) A ‘‘rule, regulation, or interpretation thereof by the Bureau’’ for purposes of section 19(b) of RESPA (12 U.S.C. 2617(b)) shall not include the special information booklet prescribed by the Bureau or any other statement or issuance, whether oral or written, by an officer or representative of the Bureau, letter or memorandum by the Director, General Counsel, or other officer or employee of the Bureau, preamble to a regulation or other issuance of the Bureau, Public Guidance Document, report to Congress, pleading, affidavit or other document in litigation, pamphlet, handbook, guide, telegraphic communication, explanation, PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 instructions to forms, speech or other material of any nature which is not specifically included in paragraph (a)(1) of this section. (b) Unofficial interpretations; staff discretion. In response to requests for interpretation of matters not adequately covered by this part or by an official interpretation issued under paragraph (a)(1)(ii) of this section, unofficial staff interpretations may be provided at the discretion of Bureau staff or counsel. Written requests for such interpretations should be directed to the address indicated in § 1024.3. Such interpretations provide no protection under section 19(b) of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or counsel will not issue unofficial interpretations on matters adequately covered by this part or by official interpretations or commentaries issued under paragraph (a)(1)(ii) of this section. (c) All informal counsel’s opinions and staff interpretations issued by HUD before November 2, 1992, were withdrawn as of that date. Courts and administrative agencies, however, may use previous opinions to determine the validity of conduct under the previous Regulation X. § 1024.5 Coverage of RESPA. (a) Applicability. RESPA and this part apply to all federally related mortgage loans, except for the exemptions provided in paragraph (b) of this section. (b) Exemptions. (1) A loan on property of 25 acres or more. (2) Business purpose loans. An extension of credit primarily for a business, commercial, or agricultural purpose, as defined by 12 CFR 1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in determining whether the exemption applies. (3) Temporary financing. Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4-family residential structures for sale or lease), is subject to this part if its term is for two years or more. A ‘‘bridge loan’’ or ‘‘swing loan’’ in which a lender takes a security E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations interest in otherwise covered 1- to 4family residential property is not covered by RESPA and this part. (4) Vacant land. Any loan secured by vacant or unimproved property, unless within two years from the date of the settlement of the loan, a structure or a manufactured home will be constructed or placed on the real property using the loan proceeds. If a loan for a structure or manufactured home to be placed on vacant or unimproved property will be secured by a lien on that property, the transaction is covered by this part. (5) Assumption without lender approval. Any assumption in which the lender does not have the right expressly to approve a subsequent person as the borrower on an existing federally related mortgage loan. Any assumption in which the lender’s permission is both required and obtained is covered by RESPA and this part, whether or not the lender charges a fee for the assumption. (6) Loan conversions. Any conversion of a federally related mortgage loan to different terms that are consistent with provisions of the original mortgage instrument, as long as a new note is not required, even if the lender charges an additional fee for the conversion. (7) Secondary market transactions. A bona fide transfer of a loan obligation in the secondary market is not covered by RESPA and this part, except as set forth in section 6 of RESPA (12 U.S.C. 2605) and § 1024.21. In determining what constitutes a bona fide transfer, the Bureau will consider the real source of funding and the real interest of the funding lender. Mortgage broker transactions that are table-funded are not secondary market transactions. Neither the creation of a dealer loan or dealer consumer credit contract, nor the first assignment of such loan or contract to a lender, is a secondary market transaction (see § 1024.2). mstockstill on DSK4VPTVN1PROD with RULES2 § 1024.6 Special information booklet at time of loan application. (a) Lender to provide special information booklet. Subject to the exceptions set forth in this paragraph, the lender shall provide a copy of the special information booklet to a person from whom the lender receives, or for whom the lender prepares, a written application for a federally related mortgage loan. When two or more persons apply together for a loan, the lender is in compliance if the lender provides a copy of the booklet to one of the persons applying. (1) The lender shall provide the special information booklet by delivering it or placing it in the mail to the applicant not later than three business days (as that term is defined in VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 § 1024.2) after the application is received or prepared. However, if the lender denies the borrower’s application for credit before the end of the threebusiness-day period, then the lender need not provide the booklet to the borrower. If a borrower uses a mortgage broker, the mortgage broker shall distribute the special information booklet and the lender need not do so. The intent of this provision is that the applicant receive the special information booklet at the earliest possible date. (2) In the case of a federally related mortgage loan involving an open-ended credit plan, as defined in Regulation Z, 12 CFR 1026.2(a)(20), a lender or mortgage broker that provides the borrower with a copy of the brochure entitled ‘‘When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit’’, or any successor brochure issued by the Bureau, is deemed to be in compliance with this section. (3) In the categories of transactions set forth at the end of this paragraph, the lender or mortgage broker does not have to provide the booklet to the borrower. Under the authority of section 19(a) of RESPA (12 U.S.C. 2617(a)), the Bureau may issue a revised or separate special information booklet that deals with these transactions, or the Bureau may choose to endorse the forms or booklets of other Federal agencies. In such an event, the requirements for delivery by lenders and the availability of the booklet or alternate materials for these transactions will be set forth in a Notice in the Federal Register. This paragraph shall apply to the following transactions: (i) Refinancing transactions; (ii) Closed-end loans, as defined in 12 CFR 1026.2(a)(10) of Regulation Z, when the lender takes a subordinate lien; (iii) Reverse mortgages; and (iv) Any other federally related mortgage loan whose purpose is not the purchase of a 1- to 4-family residential property. (b) Revision. The Bureau may from time to time revise the special information booklet, publishing a notice in the Federal Register. (c) Reproduction. The special information booklet may be reproduced in any form, provided that no change is made other than as provided under paragraph (d) of this section. The special information booklet may not be made a part of a larger document for purposes of distribution under RESPA and this section. Any color, size and quality of paper, type of print, and method of reproduction may be used so long as the booklet is clearly legible. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 78985 (d) Permissible changes. (1)(i) No changes to, deletions from, or additions to the special information booklet currently prescribed by the Bureau shall be made other than the permissible changes specified in paragraphs (d)(1)(ii) through (d)(3) of this section or changes as otherwise approved in writing by the Bureau in accordance with the procedures described in this paragraph. A request to the Bureau for approval of any changes other than the permissible changes specified in paragraphs (d)(1)(ii) through (d)(3) of this section shall be submitted in writing to the address indicated in § 1024.3, stating the reasons why the applicant believes such changes, deletions or additions are necessary. (ii)(A) In the Complaints section of the booklet, it is a permissible change to substitute ‘‘the Bureau of Consumer Financial Protection’’ for ‘‘HUD’s Office of RESPA’’ and ‘‘the RESPA office.’’ (B) In the Avoiding Foreclosure section of the booklet, it is a permissible change to inform homeowners that they may find information on and assistance in avoiding foreclosures at https:// www.consumerfinance.gov. The deletion of the reference to the HUD Web page, https://www.hud.gov/ foreclosure/, in the Avoiding Foreclosure section of the booklet is not a permissible change. (C) In the Appendix to the booklet, it is a permissible change to substitute ‘‘the Bureau of Consumer Financial Protection’’ for the reference to the ‘‘Board of Governors of the Federal Reserve System’’ in the No Discrimination section of the Appendix to the booklet. In the Contact Information section of the Appendix to the booklet, it is a permissible change to add the following contact information for the Bureau: ‘‘Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006; www.consumerfinance.gov/learnmore’’. It is also a permissible change to remove the contact information for HUD’s Office of RESPA and Interstate Land Sales from the Contact Information section of the Appendix to the booklet. (2) The cover of the booklet may be in any form and may contain any drawings, pictures or artwork, provided that the words ‘‘settlement costs’’ are used in the title. Names, addresses and telephone numbers of the lender or others and similar information may appear on the cover, but no discussion of the matters covered in the booklet shall appear on the cover. References to HUD on the cover of the booklet may be changed to references to the Bureau. E:\FR\FM\20DER2.SGM 20DER2 78986 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations (3) The special information booklet may be translated into languages other than English. mstockstill on DSK4VPTVN1PROD with RULES2 § 1024.7 Good faith estimate. (a) Lender to provide. (1) Except as otherwise provided in paragraphs (a), (b), or (h) of this section, not later than 3 business days after a lender receives an application, or information sufficient to complete an application, the lender must provide the applicant with a GFE. In the case of dealer loans, the lender must either provide the GFE or ensure that the dealer provides the GFE. (2) The lender must provide the GFE to the loan applicant by hand delivery, by placing it in the mail, or, if the applicant agrees, by fax, email, or other electronic means. (3) The lender is not required to provide the applicant with a GFE if, before the end of the 3-business-day period: (i) The lender denies the application; or (ii) The applicant withdraws the application. (4) The lender is not permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement service. The lender may, at its option, charge a fee limited to the cost of a credit report. The lender may not charge additional fees until after the applicant has received the GFE and indicated an intention to proceed with the loan covered by that GFE. If the GFE is mailed to the applicant, the applicant is considered to have received the GFE 3 calendar days after it is mailed, not including Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). (5) The lender may at any time collect from the loan applicant any information that it requires in addition to the required application information. However, the lender is not permitted to require, as a condition for providing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application. (b) Mortgage broker to provide. (1) Except as otherwise provided in paragraphs (a), (b), or (h) of this section, either the lender or the mortgage broker must provide a GFE not later than 3 business days after a mortgage broker receives either an application or information sufficient to complete an application. The lender is responsible for ascertaining whether the GFE has been provided. If the mortgage broker has provided a GFE, the lender is not required to provide an additional GFE. (2) The mortgage broker must provide the GFE by hand delivery, by placing it VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 in the mail, or, if the applicant agrees, by fax, email, or other electronic means. (3) The mortgage broker is not required to provide the applicant with a GFE if, before the end of the 3business-day period: (i) The mortgage broker or lender denies the application; or (ii) The applicant withdraws the application. (4) The mortgage broker is not permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement service. The mortgage broker may, at its option, charge a fee limited to the cost of a credit report. The mortgage broker may not charge additional fees until after the applicant has received the GFE and indicated an intention to proceed with the loan covered by that GFE. If the GFE is mailed to the applicant, the applicant is considered to have received the GFE 3 calendar days after it is mailed, not including Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). (5) The mortgage broker may at any time collect from the loan applicant any information that it requires in addition to the required application information. However, the mortgage broker is not permitted to require, as a condition for providing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application. (c) Availability of GFE terms. Except as provided in this paragraph, the estimate of the charges and terms for all settlement services must be available for at least 10 business days from when the GFE is provided, but it may remain available longer, if the loan originator extends the period of availability. The estimate for the following charges are excepted from this requirement: the interest rate, charges and terms dependent upon the interest rate, which includes the charge or credit for the interest rate chosen, the adjusted origination charges, and per diem interest. (d) Content and form of GFE. The GFE form is set out in Appendix C to this part. The loan originator must prepare the GFE in accordance with the requirements of this section and the Instructions in Appendix C to this part. The instructions in Appendix C to this part allow for flexibility in the preparation and distribution of the GFE in hard copy and electronic format. (e) Tolerances for amounts included on GFE. (1) Except as provided in paragraph (f) of this section, the actual charges at settlement may not exceed the amounts included on the GFE for: (i) The origination charge; PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 (ii) While the borrower’s interest rate is locked, the credit or charge for the interest rate chosen; (iii) While the borrower’s interest rate is locked, the adjusted origination charge; and (iv) Transfer taxes. (2) Except as provided in paragraph (f) of this section, the sum of the charges at settlement for the following services may not be greater than 10 percent above the sum of the amounts included on the GFE: (i) Lender-required settlement services, where the lender selects the third party settlement service provider; (ii) Lender-required services, title services and required title insurance, and owner’s title insurance, when the borrower uses a settlement service provider identified by the loan originator; and (iii) Government recording charges. (3) The amounts charged for all other settlement services included on the GFE may change at settlement. (f) Binding GFE. The loan originator is bound, within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with this paragraph (f) or the GFE expires in accordance with paragraph (f)(4) of this section. If a loan originator provides a revised GFE consistent with this paragraph, the loan originator must document the reason that a revised GFE was provided. Loan originators must retain documentation of any reason for providing a revised GFE for no less than 3 years after settlement. (1) Changed circumstances affecting settlement costs. If changed circumstances result in increased costs for any settlement services such that the charges at settlement would exceed the tolerances for those charges, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances actually resulted in higher charges. (2) Changed circumstances affecting loan. If changed circumstances result in a change in the borrower’s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges. (3) Borrower-requested changes. If a borrower requests changes to the mortgage loan identified in the GFE that change the settlement charges or the terms of the loan, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of the borrower’s request. The revised GFE may increase charges for services listed on the GFE only to the extent that the borrowerrequested changes to the mortgage loan identified on the GFE actually resulted in higher charges. (4) Expiration of GFE. If a borrower does not express an intent to continue with an application within 10 business days after the GFE is provided, or such longer time specified by the loan originator pursuant to paragraph (c) of this section, the loan originator is no longer bound by the GFE. (5) Interest rate-dependent charges and terms. If the interest rate has not been locked, or a locked interest rate has expired, the charge or credit for the interest rate chosen, the adjusted origination charges, per diem interest, and loan terms related to the interest rate may change. When the interest rate is later locked, a revised GFE must be provided showing the revised interest rate-dependent charges and terms. The loan originator must provide the revised GFE within 3 business days of the interest rate being locked or, for an expired interest rate, re-locked. All other charges and terms must remain the same as on the original GFE, except as otherwise provided in paragraph (f) of this section. (6) New construction home purchases. In transactions involving new construction home purchases, where settlement is anticipated to occur more than 60 calendar days from the time a GFE is provided, the loan originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such separate disclosure is provided, the loan originator cannot issue a revised GFE, except as otherwise provided in paragraph (f) of this section. (g) GFE is not a loan commitment. Nothing in this section shall be interpreted to require a loan originator to make a loan to a particular borrower. The loan originator is not required to provide a GFE if the loan originator does VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 not have available a loan for which the borrower is eligible. (h) Open-end lines of credit (homeequity plans) under Truth in Lending Act. In the case of a federally related mortgage loan involving an open-end line of credit (home-equity plan) covered under the Truth in Lending Act and Regulation Z, a lender or mortgage broker that provides the borrower with the disclosures required by 12 CFR 1026.40 of Regulation Z at the time the borrower applies for such loan shall be deemed to satisfy the requirements of this section. (i) Violations of section 5 of RESPA (12 U.S.C. 2604). A loan originator that violates the requirements of this section shall be deemed to have violated section 5 of RESPA. If any charges at settlement exceed the charges listed on the GFE by more than the permitted tolerances, the loan originator may cure the tolerance violation by reimbursing to the borrower the amount by which the tolerance was exceeded, at settlement or within 30 calendar days after settlement. A borrower will be deemed to have received timely reimbursement if the loan originator delivers or places the payment in the mail within 30 calendar days after settlement. § 1024.8 Use of HUD–1 or HUD–1A settlement statements. (a) Use by settlement agent. The settlement agent shall use the HUD–1 settlement statement in every settlement involving a federally related mortgage loan in which there is a borrower and a seller. For transactions in which there is a borrower and no seller, such as refinancing loans or subordinate lien loans, the HUD–1 may be utilized by using the borrower’s side of the HUD– 1 statement. Alternatively, the form HUD–1A may be used for these transactions. The HUD–1 or HUD–1A may be modified as permitted under this part. Either the HUD–1 or the HUD– 1A, as appropriate, shall be used for every RESPA-covered transaction, unless its use is specifically exempted. The use of the HUD–1 or HUD–1A is exempted for open-end lines of credit (home-equity plans) covered by the Truth in Lending Act and Regulation Z. (b) Charges to be stated. The settlement agent shall complete the HUD–1 or HUD–1A, in accordance with the instructions set forth in Appendix A to this part. The loan originator must transmit to the settlement agent all information necessary to complete the HUD–1 or HUD–1A. (1) In general. The settlement agent shall state the actual charges paid by the borrower and seller on the HUD–1, or by the borrower on the HUD–1A. The PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 78987 settlement agent must separately itemize each third party charge paid by the borrower and seller. All origination services performed by or on behalf of the loan originator must be included in the loan originator’s own charge. Administrative and processing services related to title services must be included in the title underwriter’s or title agent’s own charge. The amount stated on the HUD–1 or HUD–1A for any itemized service cannot exceed the amount actually received by the settlement service provider for that itemized service, unless the charge is an average charge in accordance with paragraph (b)(2) of this section. (2) Use of average charge. (i) The average charge for a settlement service shall be no more than the average amount paid for a settlement service by one settlement service provider to another settlement service provider on behalf of borrowers and sellers for a particular class of transactions involving federally related mortgage loans. The total amounts paid by borrowers and sellers for a settlement service based on the use of an average charge may not exceed the total amounts paid to the providers of that service for the particular class of transactions. (ii) The settlement service provider shall define the particular class of transactions for purposes of calculating the average charge as all transactions involving federally related mortgage loans for: (A) A period of time as determined by the settlement service provider, but not less than 30 calendar days and not more than 6 months; (B) A geographic area as determined by the settlement service provider; and (C) A type of loan as determined by the settlement service provider. (iii) A settlement service provider may use an average charge in the same class of transactions for which the charge was calculated. If the settlement service provider uses the average charge for any transaction in the class, the settlement service provider must use the same average charge in every transaction within that class for which a GFE was provided. (iv) The use of an average charge is not permitted for any settlement service if the charge for the service is based on the loan amount or property value. For example, an average charge may not be used for transfer taxes, interest charges, reserves or escrow, or any type of insurance, including mortgage insurance, title insurance, or hazard insurance. (v) The settlement service provider must retain all documentation used to calculate the average charge for a E:\FR\FM\20DER2.SGM 20DER2 78988 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations particular class of transactions for at least 3 years after any settlement for which that average charge was used. (c) Violations of section 4 of RESPA (12 U.S.C. 2603). A violation of any of the requirements of this section will be deemed to be a violation of section 4 of RESPA. An inadvertent or technical error in completing the HUD–1 or HUD– 1A shall not be deemed a violation of section 4 of RESPA if a revised HUD– 1 or HUD–1A is provided in accordance with the requirements of this section within 30 calendar days after settlement. mstockstill on DSK4VPTVN1PROD with RULES2 § 1024.9 Reproduction of settlement statements. (a) Permissible changes—HUD–1. The following changes and insertions are permitted when the HUD–1 settlement statement is reproduced: (1) The person reproducing the HUD– 1 may insert its business name and logo in section A and may rearrange, but not delete, the other information that appears in section A. (2) The name, address, and other information regarding the lender and settlement agent may be printed in sections F and H, respectively. (3) Reproduction of the HUD–1 must conform to the terminology, sequence, and numbering of line items as presented in lines 100–1400. However, blank lines or items listed in lines 100– 1400 that are not used locally or in connection with mortgages by the lender may be deleted, except for the following: Lines 100, 120, 200, 220, 300, 301, 302, 303, 400, 420, 500, 520, 600, 601, 602, 603, 700, 800, 900, 1000, 1100, 1200, 1300, and 1400. The form may be shortened correspondingly. The number of a deleted item shall not be used for a substitute or new item, but the number of a blank space on the HUD–1 may be used for a substitute or new item. (4) Charges not listed on the HUD–1, but that are customary locally or pursuant to the lender’s practice, may be inserted in blank spaces. Where existing blank spaces on the HUD–1 are insufficient, additional lines and spaces may be added and numbered in sequence with spaces on the HUD–1. (5) The following variations in layout and format are within the discretion of persons reproducing the HUD–1 and do not require prior HUD approval: size of pages; tint or color of pages; size and style of type or print; vertical spacing between lines or provision for additional horizontal space on lines (for example, to provide sufficient space for recording time periods used in prorations); printing of the HUD–1 contents on separate pages, on the front and back of a single page, or on one VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 continuous page; use of multicopy tearout sets; printing on rolls for computer purposes; reorganization of sections B through I, when necessary to accommodate computer printing; and manner of placement of the HUD number, but not the OMB approval number, neither of which may be deleted. The expiration date associated with the OMB number listed on the form may be deleted. Any changes in the HUD number or OMB approval number may be announced by notice in the Federal Register, rather than by amendment of this part. (6) The borrower’s information and the seller’s information may be provided on separate pages. (7) Signature lines may be added. (8) The HUD–1 may be translated into languages other than English. (9) An additional page may be attached to the HUD–1 for the purpose of including customary recitals and information used locally in real estate settlements; for example, breakdown of payoff figures, a breakdown of the borrower’s total monthly mortgage payments, check disbursements, a statement indicating receipt of funds, applicable special stipulations between buyer and seller, and the date funds are transferred. If space permits, such information may be added at the end of the HUD–1. (10) As required by HUD/FHA in FHA-insured loans. (11) As allowed by § 1024.17, relating to an initial escrow account statement. (b) Permissible changes—HUD–1A. The changes and insertions on the HUD–1 permitted under paragraph (a) of this section are also permitted when the HUD–1A settlement statement is reproduced, except the changes described in paragraphs (a)(3) and (6) of this section. (c) Written approval. Any other deviation in the HUD–1 or HUD–1A forms is permissible only upon receipt of written approval of the Bureau; provided, however, that notwithstanding contrary instructions in this section or Appendix A, reproducing the HUD–1 or HUD–1A forms with the Bureau’s OMB approval number displayed in place of HUD’s OMB approval number does not require the written approval of the Bureau. A request to the Bureau for approval shall be submitted in writing to the address indicated in § 1024.3 and shall state the reasons why the applicant believes such deviation is needed. The prescribed form(s) must be used until approval is received. PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 § 1024.10 One-day advance inspection of HUD–1 or HUD–1A settlement statement; delivery; recordkeeping. (a) Inspection one day prior to settlement upon request by the borrower. The settlement agent shall permit the borrower to inspect the HUD–1 or HUD–1A settlement statement, completed to set forth those items that are known to the settlement agent at the time of inspection, during the business day immediately preceding settlement. Items related only to the seller’s transaction may be omitted from the HUD–1. (b) Delivery. The settlement agent shall provide a completed HUD–1 or HUD–1A to the borrower, the seller (if there is one), the lender (if the lender is not the settlement agent), and/or their agents. When the borrower’s and seller’s copies of the HUD–1 or HUD–1A differ as permitted by the instructions in Appendix A to this part, both copies shall be provided to the lender (if the lender is not the settlement agent). The settlement agent shall deliver the completed HUD–1 or HUD–1A at or before the settlement, except as provided in paragraphs (c) and (d) of this section. (c) Waiver. The borrower may waive the right to delivery of the completed HUD–1 or HUD–1A no later than at settlement by executing a written waiver at or before settlement. In such case, the completed HUD–1 or HUD–1A shall be mailed or delivered to the borrower, seller, and lender (if the lender is not the settlement agent) as soon as practicable after settlement. (d) Exempt transactions. When the borrower or the borrower’s agent does not attend the settlement, or when the settlement agent does not conduct a meeting of the parties for that purpose, the transaction shall be exempt from the requirements of paragraphs (a) and (b) of this section, except that the HUD–1 or HUD–1A shall be mailed or delivered as soon as practicable after settlement. (e) Recordkeeping. The lender shall retain each completed HUD–1 or HUD– 1A and related documents for five years after settlement, unless the lender disposes of its interest in the mortgage and does not service the mortgage. In that case, the lender shall provide its copy of the HUD–1 or HUD–1A to the owner or servicer of the mortgage as a part of the transfer of the loan file. Such owner or servicer shall retain the HUD– 1 or HUD–1A for the remainder of the five-year period. The Bureau shall have the right to inspect or require copies of records covered by this paragraph (e). E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations § 1024.11 Mailing. The provisions of this part requiring or permitting mailing of documents shall be deemed to be satisfied by placing the document in the mail (whether or not received by the addressee) addressed to the addresses stated in the loan application or in other information submitted to or obtained by the lender at the time of loan application or submitted or obtained by the lender or settlement agent, except that a revised address shall be used where the lender or settlement agent has been expressly informed in writing of a change in address. § 1024.12 No fee. No fee shall be imposed or charge made upon any other person, as a part of settlement costs or otherwise, by a lender in connection with a federally related mortgage loan made by it (or a loan for the purchase of a manufactured home), or by a servicer (as that term is defined under 12 U.S.C. 2605(i)(2)) for or on account of the preparation and distribution of the HUD–1 or HUD–1A settlement statement, escrow account statements required pursuant to section 10 of RESPA (12 U.S.C. 2609), or statements required by the Truth in Lending Act (15 U.S.C. 1601 et seq.). mstockstill on DSK4VPTVN1PROD with RULES2 § 1024.13 Relation to state laws. (a) State laws that are inconsistent with RESPA or this part are preempted to the extent of the inconsistency. However, RESPA and these regulations do not annul, alter, affect, or exempt any person subject to their provisions from complying with the laws of any state with respect to settlement practices, except to the extent of the inconsistency. (b) Upon request by any person, the Bureau is authorized to determine if inconsistencies with state law exist; in doing so, the Bureau shall consult with appropriate Federal agencies. (1) The Bureau may not determine that a state law or regulation is inconsistent with any provision of RESPA or this part, if the Bureau determines that such law or regulation gives greater protection to the consumer. (2) In determining whether provisions of state law or regulations concerning affiliated business arrangements are inconsistent with RESPA or this part, the Bureau may not construe those provisions that impose more stringent limitations on affiliated business arrangements as inconsistent with RESPA so long as they give more protection to consumers and/or competition. (c) Any person may request the Bureau to determine whether an VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 inconsistency exists by submitting to the address indicated in § 1024.3, a copy of the state law in question, any other law or judicial or administrative opinion that implements, interprets or applies the relevant provision, and an explanation of the possible inconsistency. A determination by the Bureau that an inconsistency with state law exists will be made by publication of a notice in the Federal Register. ‘‘Law’’ as used in this section includes regulations and any enactment which has the force and effect of law and is issued by a state or any political subdivision of a State. (d) A specific preemption of conflicting state laws regarding notices and disclosures of mortgage servicing transfers is set forth in § 1024.21(h). § 1024.14 Prohibition against kickbacks and unearned fees. (a) Section 8 violation. Any violation of this section is a violation of section 8 of RESPA (12 U.S.C. 2607). (b) No referral fees. No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in § 1024.14(g)(1). A company may not pay any other company or the employees of any other company for the referral of settlement service business. (c) No split of charges except for actual services performed. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee. (d) Thing of value. This term is broadly defined in section 3(2) of RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 78989 a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses, or reduction in credit against an existing obligation. The term ‘‘payment’’ is used throughout §§ 1024.14 and 1024.15 as synonymous with the giving or receiving of any ‘‘thing of value’’ and does not require transfer of money. (e) Agreement or understanding. An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business. (f) Referral. (1) A referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business. (2) A referral also occurs whenever a person paying for a settlement service or business incident thereto is required to use (see § 1024.2, ‘‘required use’’) a particular provider of a settlement service or business incident thereto. (g) Fees, salaries, compensation, or other payments. (1) Section 8 of RESPA permits: (i) A payment to an attorney at law for services actually rendered; (ii) A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance; (iii) A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan; (iv) A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed; E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78990 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations (v) A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. (The statutory exemption restated in this paragraph refers only to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and has no applicability to any fee arrangements between real estate brokers and mortgage brokers or between mortgage brokers.); (vi) Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; or (vii) An employer’s payment to its own employees for any referral activities. (2) The Bureau may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited. (3) Multiple services. When a person in a position to refer settlement service business, such as an attorney, mortgage lender, real estate broker or agent, or developer or builder, receives a payment for providing additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person. For example, for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing. (h) Recordkeeping. Any documents provided pursuant to this section shall be retained for five (5) years from the date of execution. (i) Appendix B of this part. Illustrations in Appendix B of this part demonstrate some of the requirements of this section. § 1024.15 Affiliated business arrangements. (a) General. An affiliated business arrangement is defined in section 3(7) of RESPA (12 U.S.C. 2602(7)). (b) Violation and exemption. An affiliated business arrangement is not a violation of section 8 of RESPA (12 U.S.C. 2607) and of § 1024.14 if the conditions set forth in this section are satisfied. Paragraph (b)(1) of this section shall not apply to the extent it is inconsistent with section 8(c)(4)(A) of RESPA (12 U.S.C. 2607(c)(4)(A)). (1) The person making each referral has provided to each person whose business is referred a written disclosure, in the format of the Affiliated Business Arrangement Disclosure Statement set forth in Appendix D of this part, of the nature of the relationship (explaining the ownership and financial interest) between the provider of settlement services (or business incident thereto) and the person making the referral and of an estimated charge or range of charges generally made by such provider (which describes the charge using the same terminology, as far as practical, as section L of the HUD–1 settlement statement). The disclosures must be provided on a separate piece of paper no later than the time of each referral or, if the lender requires use of a particular provider, the time of loan application, except that: (i) Where a lender makes the referral to a borrower, the condition contained in paragraph (b)(1) of this section may be satisfied at the time that the good faith estimate or a statement under § 1024.7(d) is provided; and (ii) Whenever an attorney or law firm requires a client to use a particular title insurance agent, the attorney or law firm shall provide the disclosures no later than the time the attorney or law firm is engaged by the client. (iii) Failure to comply with the disclosure requirements of this section may be overcome if the person making a referral can prove by a preponderance of the evidence that procedures reasonably adopted to result in compliance with these conditions have been maintained and that any failure to PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 comply with these conditions was unintentional and the result of a bona fide error. An error of legal judgment with respect to a person’s obligations under RESPA is not a bona fide error. Administrative and judicial interpretations of section 130(c) of the Truth in Lending Act shall not be binding interpretations of the preceding sentence or section 8(d)(3) of RESPA (12 U.S.C. 2607(d)(3)). (2) No person making a referral has required (as defined in § 1024.2, ‘‘required use’’) any person to use any particular provider of settlement services or business incident thereto, except if such person is a lender, for requiring a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender’s interest in a real estate transaction, or except if such person is an attorney or law firm for arranging for issuance of a title insurance policy for a client, directly as agent or through a separate corporate title insurance agency that may be operated as an adjunct to the law practice of the attorney or law firm, as part of representation of that client in a real estate transaction. (3) The only thing of value that is received from the arrangement other than payments listed in § 1024.14(g) is a return on an ownership interest or franchise relationship. (i) In an affiliated business arrangement: (A) Bona fide dividends, and capital or equity distributions, related to ownership interest or franchise relationship, between entities in an affiliate relationship, are permissible; and (B) Bona fide business loans, advances, and capital or equity contributions between entities in an affiliate relationship (in any direction), are not prohibited—so long as they are for ordinary business purposes and are not fees for the referral of settlement service business or unearned fees. (ii) A return on an ownership interest does not include: (A) Any payment which has as a basis of calculation no apparent business motive other than distinguishing among recipients of payments on the basis of the amount of their actual, estimated or anticipated referrals; (B) Any payment which varies according to the relative amount of referrals by the different recipients of similar payments; or (C) A payment based on an ownership, partnership or joint venture share which has been adjusted on the E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations basis of previous relative referrals by recipients of similar payments. (iii) Neither the mere labeling of a thing of value, nor the fact that it may be calculated pursuant to a corporate or partnership organizational document or a franchise agreement, will determine whether it is a bona fide return on an ownership interest or franchise relationship. Whether a thing of value is such a return will be determined by analyzing facts and circumstances on a case by case basis. (iv) A return on franchise relationship may be a payment to or from a franchisee but it does not include any payment which is not based on the franchise agreement, nor any payment which varies according to the number or amount of referrals by the franchisor or franchisee or which is based on a franchise agreement which has been adjusted on the basis of a previous number or amount of referrals by the franchiser or franchisees. A franchise agreement may not be constructed to insulate against kickbacks or referral fees. (c) Definitions. As used in this section: Associate is defined in section 3(8) of RESPA (12 U.S.C. 2602(8)). Affiliate relationship means the relationship among business entities where one entity has effective control over the other by virtue of a partnership or other agreement or is under common control with the other by a third entity or where an entity is a corporation related to another corporation as parent to subsidiary by an identity of stock ownership. Beneficial ownership means the effective ownership of an interest in a provider of settlement services or the right to use and control the ownership interest involved even though legal ownership or title may be held in another person’s name. Control, as used in the definitions of ‘‘associate’’ and ‘‘affiliate relationship,’’ means that a person: (i) Is a general partner, officer, director, or employer of another person; (ii) Directly or indirectly or acting in concert with others, or through one or more subsidiaries, owns, holds with power to vote, or holds proxies representing, more than 20 percent of the voting interests of another person; (iii) Affirmatively influences in any manner the election of a majority of the directors of another person; or (iv) Has contributed more than 20 percent of the capital of the other person. Direct ownership means the holding of legal title to an interest in a provider VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 of settlement service except where title is being held for the beneficial owner. Franchise is defined in FTC regulation 16 CFR 436.1(h). Franchisor is defined in FTC regulation 16 CFR 436.1(k). Franchisee is defined in FTC regulation 16 CFR 436.1(i). FTC means the Federal Trade Commission. Person who is in a position to refer settlement service business means any real estate broker or agent, lender, mortgage broker, builder or developer, attorney, title company, title agent, or other person deriving a significant portion of his or her gross income from providing settlement services. (d) Recordkeeping. Any documents provided pursuant to this section shall be retained for 5 years after the date of execution. (e) Appendix B of this part. Illustrations in Appendix B of this part demonstrate some of the requirements of this section. § 1024.16 Title companies. No seller of property that will be purchased with the assistance of a federally related mortgage loan shall violate section 9 of RESPA (12 U.S.C. 2608). Section 1024.2 defines ‘‘required use’’ of a provider of a settlement service. § 1024.17 Escrow accounts. (a) General. This section sets out the requirements for an escrow account that a lender establishes in connection with a federally related mortgage loan. It sets limits for escrow accounts using calculations based on monthly payments and disbursements within a calendar year. If an escrow account involves biweekly or any other payment period, the requirements in this section shall be modified accordingly. A Public Guidance Document entitled ‘‘Biweekly Payments—Example’’ provides examples of biweekly accounting and a Public Guidance Document entitled ‘‘Annual Escrow Account Disclosure Statement—Example’’ provides examples of a 3-year accounting cycle that may be used in accordance with paragraph (c)(9) of this section. A Public Guidance Document entitled ‘‘Consumer Disclosure for Voluntary Escrow Account Payments’’ provides a model disclosure format that originators and servicers are encouraged, but not required, to provide to consumers when the originator or servicer anticipates a substantial increase in disbursements from the escrow account after the first year of the loan. The disclosures in that model format may be combined with or PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 78991 included in the Initial Escrow Account Statement required in § 1024.17(g). (b) Definitions. As used in this section: Aggregate (or) composite analysis, hereafter called aggregate analysis, means an accounting method a servicer uses in conducting an escrow account analysis by computing the sufficiency of escrow account funds by analyzing the account as a whole. Appendix E to this part sets forth examples of aggregate escrow account analyses. Annual escrow account statement means a statement containing all of the information set forth in § 1024.17(i). As noted in § 1024.17(i), a servicer shall submit an annual escrow account statement to the borrower within 30 calendar days of the end of the escrow account computation year, after conducting an escrow account analysis. Cushion or reserve (hereafter cushion) means funds that a servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements or disbursements made before the borrower’s payments are available in the account, as limited by § 1024.17(c). Deficiency is the amount of a negative balance in an escrow account. As noted in § 1024.17(f), if a servicer advances funds for a borrower, then the servicer must perform an escrow account analysis before seeking repayment of the deficiency. Delivery means the placing of a document in the United States mail, first-class postage paid, addressed to the last known address of the recipient. Hand delivery also constitutes delivery. Disbursement date means the date on which the servicer actually pays an escrow item from the escrow account. Escrow account means any account that a servicer establishes or controls on behalf of a borrower to pay taxes, insurance premiums (including flood insurance), or other charges with respect to a federally related mortgage loan, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay. The definition encompasses any account established for this purpose, including a ‘‘trust account’’, ‘‘reserve account’’, ‘‘impound account’’, or other term in different localities. An ‘‘escrow account’’ includes any arrangement where the servicer adds a portion of the borrower’s payments to principal and subsequently deducts from principal the disbursements for escrow account items. For purposes of this section, the term ‘‘escrow account’’ excludes any account that is under the borrower’s total control. E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78992 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations Escrow account analysis means the accounting that a servicer conducts in the form of a trial running balance for an escrow account to: (1) Determine the appropriate target balances; (2) Compute the borrower’s monthly payments for the next escrow account computation year and any deposits needed to establish or maintain the account; and (3) Determine whether shortages, surpluses or deficiencies exist. Escrow account computation year is a 12-month period that a servicer establishes for the escrow account beginning with the borrower’s initial payment date. The term includes each 12-month period thereafter, unless a servicer chooses to issue a short year statement under the conditions stated in § 1024.17(i)(4). Escrow account item or separate item means any separate expenditure category, such as ‘‘taxes’’ or ‘‘insurance’’, for which funds are collected in the escrow account for disbursement. An escrow account item with installment payments, such as local property taxes, remains one escrow account item regardless of multiple disbursement dates to the tax authority. Initial escrow account statement means the first disclosure statement that the servicer delivers to the borrower concerning the borrower’s escrow account. The initial escrow account statement shall meet the requirements of § 1024.17(g) and be in substantially the format set forth in § 1024.17(h). Installment payment means one of two or more payments payable on an escrow account item during an escrow account computation year. An example of an installment payment is where a jurisdiction bills quarterly for taxes. Payment due date means the date each month when the borrower’s monthly payment to an escrow account is due to the servicer. The initial payment date is the borrower’s first payment due date to an escrow account. Penalty means a late charge imposed by the payee for paying after the disbursement is due. It does not include any additional charge or fee imposed by the payee associated with choosing installment payments as opposed to annual payments or for choosing one installment plan over another. Pre-accrual is a practice some servicers use to require borrowers to deposit funds, needed for disbursement and maintenance of a cushion, in the escrow account some period before the disbursement date. Pre-accrual is subject to the limitations of § 1024.17(c). VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 Shortage means an amount by which a current escrow account balance falls short of the target balance at the time of escrow analysis. Single-item analysis means an accounting method servicers use in conducting an escrow account analysis by computing the sufficiency of escrow account funds by considering each escrow item separately. Appendix E to this part sets forth examples of singleitem analysis. Submission (of an escrow account statement) means the delivery of the statement. Surplus means an amount by which the current escrow account balance exceeds the target balance for the account. System of recordkeeping means the servicer’s method of keeping information that reflects the facts relating to that servicer’s handling of the borrower’s escrow account, including, but not limited to, the payment of amounts from the escrow account and the submission of initial and annual escrow account statements to borrowers. Target balance means the estimated month end balance in an escrow account that is just sufficient to cover the remaining disbursements from the escrow account in the escrow account computation year, taking into account the remaining scheduled periodic payments, and a cushion, if any. Trial running balance means the accounting process that derives the target balances over the course of an escrow account computation year. Section 1024.17(d) provides a description of the steps involved in performing a trial running balance. (c) Limits on payments to escrow accounts. (1) A lender or servicer (hereafter servicer) shall not require a borrower to deposit into any escrow account, created in connection with a federally related mortgage loan, more than the following amounts: (i) Charges at settlement or upon creation of an escrow account. At the time a servicer creates an escrow account for a borrower, the servicer may charge the borrower an amount sufficient to pay the charges respecting the mortgaged property, such as taxes and insurance, which are attributable to the period from the date such payment(s) were last paid until the initial payment date. The ‘‘amount sufficient to pay’’ is computed so that the lowest month end target balance projected for the escrow account computation year is zero (–0–) (see Step 2 in Appendix E to this part). In addition, the servicer may charge the borrower a cushion that shall be no greater than one-sixth (1⁄6) of the PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 estimated total annual payments from the escrow account. (ii) Charges during the life of the escrow account. Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth (1⁄12) of the total annual escrow payments which the servicer reasonably anticipates paying from the account. In addition, the servicer may add an amount to maintain a cushion no greater than one-sixth (1⁄6) of the estimated total annual payments from the account. However, if a servicer determines through an escrow account analysis that there is a shortage or deficiency, the servicer may require the borrower to pay additional deposits to make up the shortage or eliminate the deficiency, subject to the limitations set forth in § 1024.17(f). (2) Escrow analysis at creation of escrow account. Before establishing an escrow account, the servicer must conduct an escrow account analysis to determine the amount the borrower must deposit into the escrow account (subject to the limitations of paragraph (c)(1)(i) of this section), and the amount of the borrower’s periodic payments into the escrow account (subject to the limitations of paragraph (c)(1)(ii) of this section). In conducting the escrow account analysis, the servicer must estimate the disbursement amounts according to paragraph (c)(7) of this section. Pursuant to paragraph (k) of this section, the servicer must use a date on or before the deadline to avoid a penalty as the disbursement date for the escrow item and comply with any other requirements of paragraph (k) of this section. Upon completing the initial escrow account analysis, the servicer must prepare and deliver an initial escrow account statement to the borrower, as set forth in paragraph (g) of this section. The servicer must use the escrow account analysis to determine whether a surplus, shortage, or deficiency exists and must make any adjustments to the account pursuant to paragraph (f) of this section. (3) Subsequent escrow account analyses. For each escrow account, the servicer must conduct an escrow account analysis at the completion of the escrow account computation year to determine the borrower’s monthly escrow account payments for the next computation year, subject to the limitations of paragraph (c)(1)(ii) of this section. In conducting the escrow account analysis, the servicer must estimate the disbursement amounts according to paragraph (c)(7) of this section. Pursuant to paragraph (k) of this section, the servicer must use a date on or before the deadline to avoid a penalty E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations as the disbursement date for the escrow item and comply with any other requirements of paragraph (k) of this section. The servicer must use the escrow account analysis to determine whether a surplus, shortage, or deficiency exists, and must make any adjustments to the account pursuant to paragraph (f) of this section. Upon completing an escrow account analysis, the servicer must prepare and submit an annual escrow account statement to the borrower, as set forth in paragraph (i) of this section. (4) Aggregate accounting required. All servicers must use the aggregate accounting method in conducting escrow account analyses. (5) Cushion. The cushion must be no greater than one-sixth (1⁄6) of the estimated total annual disbursements from the escrow account. (6) Restrictions on pre-accrual. A servicer must not practice pre-accrual. (7) Servicer estimates of disbursement amounts. To conduct an escrow account analysis, the servicer shall estimate the amount of escrow account items to be disbursed. If the servicer knows the charge for an escrow item in the next computation year, then the servicer shall use that amount in estimating disbursement amounts. If the charge is unknown to the servicer, the servicer may base the estimate on the preceding year’s charge, or the preceding year’s charge as modified by an amount not exceeding the most recent year’s change in the national Consumer Price Index for all urban consumers (CPI, all items). In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area. (8) Provisions in mortgage documents. The servicer must examine the mortgage loan documents to determine the applicable cushion for each escrow account. If the mortgage loan documents provide for lower cushion limits, then the terms of the loan documents apply. Where the terms of any mortgage loan document allow greater payments to an escrow account than allowed by this section, then this section controls the applicable limits. Where the mortgage loan documents do not specifically establish an escrow account, whether a servicer may establish an escrow account for the loan is a matter for determination by other Federal or state law. If the mortgage loan document is silent on the escrow account limits and a servicer establishes an escrow account under other Federal or state law, then the limitations of this section apply unless applicable Federal or state law provides for a lower amount. If the loan VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 documents provide for escrow accounts up to the RESPA limits, then the servicer may require the maximum amounts consistent with this section, unless an applicable Federal or state law sets a lesser amount. (9) Assessments for periods longer than one year. Some escrow account items may be billed for periods longer than one year. For example, servicers may need to collect flood insurance or water purification escrow funds for payment every three years. In such cases, the servicer shall estimate the borrower’s payments for a full cycle of disbursements. For a flood insurance premium payable every 3 years, the servicer shall collect the payments reflecting 36 equal monthly amounts. For two out of the three years, however, the account balance may not reach its low monthly balance because the low point will be on a three-year cycle, as compared to an annual one. The annual escrow account statement shall explain this situation (see example in the Public Guidance Document entitled ‘‘Annual Escrow Account Disclosure Statement— Example’’, available in accordance with § 1024.3). (d) Methods of escrow account analysis. (1) The following sets forth the steps servicers must use to determine whether their use of aggregate analysis conforms with the limitations in § 1024.17(c)(1). The steps set forth in this section result in maximum limits. Servicers may use accounting procedures that result in lower target balances. In particular, servicers may use a cushion less than the permissible cushion or no cushion at all. This section does not require the use of a cushion. (2) Aggregate analysis. (i) In conducting the escrow account analysis using aggregate analysis, the target balances may not exceed the balances computed according to the following arithmetic operations: (A) The servicer first projects a trial balance for the account as a whole over the next computation year (a trial running balance). In doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty. The servicer does not use pre-accrual on these disbursement dates. The servicer also assumes that the borrower will make monthly payments equal to onetwelfth of the estimated total annual escrow account disbursements. (B) The servicer then examines the monthly trial balances and adds to the first monthly balance an amount just sufficient to bring the lowest monthly PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 78993 trial balance to zero, and adjusts all other monthly balances accordingly. (C) The servicer then adds to the monthly balances the permissible cushion. The cushion is two months of the borrower’s escrow payments to the servicer or a lesser amount specified by state law or the mortgage document (net of any increases or decreases because of prior year shortages or surpluses, respectively). (ii) Lowest monthly balance. Under aggregate analysis, the lowest monthly target balance for the account shall be less than or equal to one-sixth of the estimated total annual escrow account disbursements or a lesser amount specified by state law or the mortgage document. The target balances that the servicer derives using these steps yield the maximum limit for the escrow account. Appendix E to this part illustrates these steps. (e) Transfer of servicing. (1) If the new servicer changes either the monthly payment amount or the accounting method used by the transferor (old) servicer, then the new servicer shall provide the borrower with an initial escrow account statement within 60 days of the date of servicing transfer. (i) Where a new servicer provides an initial escrow account statement upon the transfer of servicing, the new servicer shall use the effective date of the transfer of servicing to establish the new escrow account computation year. (ii) Where the new servicer retains the monthly payments and accounting method used by the transferor servicer, then the new servicer may continue to use the escrow account computation year established by the transferor servicer or may choose to establish a different computation year using a short-year statement. At the completion of the escrow account computation year or any short year, the new servicer shall perform an escrow analysis and provide the borrower with an annual escrow account statement. (2) The new servicer shall treat shortages, surpluses and deficiencies in the transferred escrow account according to the procedures set forth in § 1024.17(f). (f) Shortages, surpluses, and deficiencies requirements. (1) Escrow account analysis. For each escrow account, the servicer shall conduct an escrow account analysis to determine whether a surplus, shortage or deficiency exists. (i) As noted in § 1024.17(c)(2) and (3), the servicer shall conduct an escrow account analysis upon establishing an escrow account and at completion of the escrow account computation year. E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78994 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations (ii) The servicer may conduct an escrow account analysis at other times during the escrow computation year. If a servicer advances funds in paying a disbursement, which is not the result of a borrower’s payment default under the underlying mortgage document, then the servicer shall conduct an escrow account analysis to determine the extent of the deficiency before seeking repayment of the funds from the borrower under this paragraph (f). (2) Surpluses. (i) If an escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year’s escrow payments. (ii) These provisions regarding surpluses apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower’s payments within 30 days of the payment due date. If the servicer does not receive the borrower’s payment within 30 days of the payment due date, then the servicer may retain the surplus in the escrow account pursuant to the terms of the mortgage loan documents. (iii) After an initial or annual escrow analysis has been performed, the servicer and the borrower may enter into a voluntary agreement for the forthcoming escrow accounting year for the borrower to deposit funds into the escrow account for that year greater than the limits established under paragraph (c) of this section. Such an agreement shall cover only one escrow accounting year, but a new voluntary agreement may be entered into after the next escrow analysis is performed. The voluntary agreement may not alter how surpluses are to be treated when the next escrow analysis is performed at the end of the escrow accounting year covered by the voluntary agreement. (3) Shortages. (i) If an escrow account analysis discloses a shortage of less than one month’s escrow account payment, then the servicer has three possible courses of action: (A) The servicer may allow a shortage to exist and do nothing to change it; (B) The servicer may require the borrower to repay the shortage amount within 30 days; or (C) The servicer may require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period. (ii) If an escrow account analysis discloses a shortage that is greater than or equal to one month’s escrow account VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 payment, then the servicer has two possible courses of action: (A) The servicer may allow a shortage to exist and do nothing to change it; or (B) The servicer may require the borrower to repay the shortage in equal monthly payments over at least a 12-month period. (4) Deficiency. If the escrow account analysis confirms a deficiency, then the servicer may require the borrower to pay additional monthly deposits to the account to eliminate the deficiency. (i) If the deficiency is less than one month’s escrow account payment, then the servicer: (A) May allow the deficiency to exist and do nothing to change it; (B) May require the borrower to repay the deficiency within 30 days; or (C) May require the borrower to repay the deficiency in 2 or more equal monthly payments. (ii) If the deficiency is greater than or equal to 1 month’s escrow payment, the servicer may allow the deficiency to exist and do nothing to change it or may require the borrower to repay the deficiency in two or more equal monthly payments. (iii) These provisions regarding deficiencies apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower’s payments within 30 days of the payment due date. If the servicer does not receive the borrower’s payment within 30 days of the payment due date, then the servicer may recover the deficiency pursuant to the terms of the mortgage loan documents. (5) Notice of shortage or deficiency in escrow account. The servicer shall notify the borrower at least once during the escrow account computation year if there is a shortage or deficiency in the escrow account. The notice may be part of the annual escrow account statement or it may be a separate document. (g) Initial escrow account statement. (1) Submission at settlement, or within 45 calendar days of settlement. As noted in § 1024.17(c)(2), the servicer shall conduct an escrow account analysis before establishing an escrow account to determine the amount the borrower shall deposit into the escrow account, subject to the limitations of § 1024.17(c)(1)(i). After conducting the escrow account analysis for each escrow account, the servicer shall submit an initial escrow account statement to the borrower at settlement or within 45 calendar days of settlement for escrow accounts that are established as a condition of the loan. (i) The initial escrow account statement shall include the amount of PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 the borrower’s monthly mortgage payment and the portion of the monthly payment going into the escrow account and shall itemize the estimated taxes, insurance premiums, and other charges that the servicer reasonably anticipates to be paid from the escrow account during the escrow account computation year and the anticipated disbursement dates of those charges. The initial escrow account statement shall indicate the amount that the servicer selects as a cushion. The statement shall include a trial running balance for the account. (ii) Pursuant to § 1024.17(h)(2), the servicer may incorporate the initial escrow account statement into the HUD–1 or HUD–1A settlement statement. If the servicer does not incorporate the initial escrow account statement into the HUD–1 or HUD–1A settlement statement, then the servicer shall submit the initial escrow account statement to the borrower as a separate document. (2) Time of submission of initial escrow account statement for an escrow account established after settlement. For escrow accounts established after settlement (and which are not a condition of the loan), a servicer shall submit an initial escrow account statement to a borrower within 45 calendar days of the date of establishment of the escrow account. (h) Format for initial escrow account statement. (1) The format and a completed example for an initial escrow account statement are set out in Public Guidance Documents entitled ‘‘Initial Escrow Account Disclosure Statement— Format’’ and ‘‘Initial Escrow Account Disclosure Statement—Example’’, available in accordance with § 1024.3. (2) Incorporation of initial escrow account statement into HUD–1 or HUD– 1A settlement statement. Pursuant to § 1024.9(a)(11), a servicer may add the initial escrow account statement to the HUD–1 or HUD–1A settlement statement. The servicer may include the initial escrow account statement in the basic text or may attach the initial escrow account statement as an additional page to the HUD–1 or HUD– 1A settlement statement. (3) Identification of payees. The initial escrow account statement need not identify a specific payee by name if it provides sufficient information to identify the use of the funds. For example, appropriate entries include: county taxes, hazard insurance, condominium dues, etc. If a particular payee, such as a taxing body, receives more than one payment during the escrow account computation year, the statement shall indicate each payment and disbursement date. If there are E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations several taxing authorities or insurers, the statement shall identify each taxing body or insurer (e.g., ‘‘City Taxes’’, ‘‘School Taxes’’, ‘‘Hazard Insurance’’, or ‘‘Flood Insurance,’’ etc.). (i) Annual escrow account statements. For each escrow account, a servicer shall submit an annual escrow account statement to the borrower within 30 days of the completion of the escrow account computation year. The servicer shall also submit to the borrower the previous year’s projection or initial escrow account statement. The servicer shall conduct an escrow account analysis before submitting an annual escrow account statement to the borrower. (1) Contents of annual escrow account statement. The annual escrow account statement shall provide an account history, reflecting the activity in the escrow account during the escrow account computation year, and a projection of the activity in the account for the next year. In preparing the statement, the servicer may assume scheduled payments and disbursements will be made for the final 2 months of the escrow account computation year. The annual escrow account statement must include, at a minimum, the following (the items in paragraphs (i)(1)(i) through (i)(1)(iv) must be clearly itemized): (i) The amount of the borrower’s current monthly mortgage payment and the portion of the monthly payment going into the escrow account; (ii) The amount of the past year’s monthly mortgage payment and the portion of the monthly payment that went into the escrow account; (iii) The total amount paid into the escrow account during the past computation year; (iv) The total amount paid out of the escrow account during the same period for taxes, insurance premiums, and other charges (as separately identified); (v) The balance in the escrow account at the end of the period; (vi) An explanation of how any surplus is being handled by the servicer; (vii) An explanation of how any shortage or deficiency is to be paid by the borrower; and (viii) If applicable, the reason(s) why the estimated low monthly balance was not reached, as indicated by noting differences between the most recent account history and last year’s projection. Public Guidance Documents entitled ‘‘Annual Escrow Account Disclosure Statement—Format’’ and ‘‘Annual Escrow Account Disclosure Statement—Example’’ set forth an acceptable format and methodology for conveying this information. VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 (2) No annual statements in the case of default, foreclosure, or bankruptcy. This paragraph (i)(2) contains an exemption from the provisions of § 1024.17(i)(1). If at the time the servicer conducts the escrow account analysis the borrower is more than 30 days overdue, then the servicer is exempt from the requirements of submitting an annual escrow account statement to the borrower under § 1024.17(i). This exemption also applies in situations where the servicer has brought an action for foreclosure under the underlying mortgage loan, or where the borrower is in bankruptcy proceedings. If the servicer does not issue an annual statement pursuant to this exemption and the loan subsequently is reinstated or otherwise becomes current, the servicer shall provide a history of the account since the last annual statement (which may be longer than 1 year) within 90 days of the date the account became current. (3) Delivery with other material. The servicer may deliver the annual escrow account statement to the borrower with other statements or materials, including the Substitute 1098, which is provided for Federal income tax purposes. (4) Short year statements. A servicer may issue a short year annual escrow account statement (‘‘short year statement’’) to change one escrow account computation year to another. By using a short year statement a servicer may adjust its production schedule or alter the escrow account computation year for the escrow account. (i) Effect of short year statement. The short year statement shall end the ‘‘escrow account computation year’’ for the escrow account and establish the beginning date of the new escrow account computation year. The servicer shall deliver the short year statement to the borrower within 60 days from the end of the short year. (ii) Short year statement upon servicing transfer. Upon the transfer of servicing, the transferor (old) servicer shall submit a short year statement to the borrower within 60 days of the effective date of transfer. (iii) Short year statement upon loan payoff. If a borrower pays off a mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the pay-off funds. (j) Formats for annual escrow account statement. The formats and completed examples for annual escrow account statements using single-item analysis (pre-rule accounts) and aggregate analysis are set out in Public Guidance Documents entitled ‘‘Annual Escrow PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 78995 Account Disclosure Statement— Format’’ and ‘‘Annual Escrow Account Disclosure Statement—Example’’. (k) Timely payments. (1) If the terms of any federally related mortgage loan require the borrower to make payments to an escrow account, the servicer must pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower’s payment is not more than 30 days overdue. (2) The servicer must advance funds to make disbursements in a timely manner as long as the borrower’s payment is not more than 30 days overdue. Upon advancing funds to pay a disbursement, the servicer may seek repayment from the borrower for the deficiency pursuant to paragraph (f) of this section. (3) For the payment of property taxes from the escrow account, if a taxing jurisdiction offers a servicer a choice between annual and installment disbursements, the servicer must also comply with this paragraph (k)(3). If the taxing jurisdiction neither offers a discount for disbursements on a lump sum annual basis nor imposes any additional charge or fee for installment disbursements, the servicer must make disbursements on an installment basis. If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer’s discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with paragraphs (k)(1) and (k)(2) of this section. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer. (4) Notwithstanding paragraph (k)(3) of this section, a servicer and borrower may mutually agree, on an individual case basis, to a different disbursement basis (installment or annual) or disbursement date for property taxes from that required under paragraph (k)(3) of this section, so long as the agreement meets the requirements of paragraphs (k)(1) and (k)(2) of this section. The borrower must voluntarily agree; neither loan approval nor any term of the loan may be conditioned on the borrower’s agreeing to a different disbursement basis or disbursement date. (l) System of recordkeeping. (1) Each servicer shall keep records, which may involve electronic storage, microfiche E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78996 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations storage, or any method of computerized storage, so long as the information is easily retrievable, reflecting the servicer’s handling of each borrower’s escrow account. The servicer’s records shall include, but not be limited to, the payment of amounts into and from the escrow account and the submission of initial and annual escrow account statements to the borrower. (2) The servicer responsible for servicing the borrower’s escrow account shall maintain the records for that account for a period of at least five years after the servicer last serviced the escrow account. (3) A servicer shall provide the Bureau with information contained in the servicer’s records for a specific escrow account, or for a number or class of escrow accounts, within 30 days of the Bureau’s written request for the information. At the Bureau’s request, the servicer shall convert any information contained in electronic storage, microfiche or computerized storage to paper copies for review by the Bureau. (4) Borrowers may seek information contained in the servicer’s records by complying with the provisions set forth in 12 U.S.C. 2605(e) and § 1024.21(e). (5) After receiving a request from the Bureau for information relating to whether a servicer submitted an escrow account statement to the borrower, the servicer shall respond within 30 days. If the servicer is unable to provide the Bureau with such information, the Bureau shall deem that lack of information to be evidence of the servicer’s failure to submit the statement to the borrower. (m) Discretionary payments. Any borrower’s discretionary payment (such as credit life or disability insurance) made as part of a monthly mortgage payment is to be noted on the initial and annual statements. If a discretionary payment is established or terminated during the escrow account computation year, this change should be noted on the next annual statement. A discretionary payment is not part of the escrow account unless the payment is required by the lender, in accordance with the definition of ‘‘settlement service’’ in § 1024.2, or the servicer chooses to place the discretionary payment in the escrow account. If a servicer has not established an escrow account for a federally related mortgage loan and only receives payments for discretionary items, this section is not applicable. § 1024.18 Validity of contracts and liens. Section 17 of RESPA (12 U.S.C. 2615) governs the validity of contracts and liens under RESPA. VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 § 1024.19 Enforcement. (a) Enforcement policy. It is the policy of the Bureau regarding RESPA enforcement matters to cooperate with Federal, state, or local agencies having supervisory powers over lenders or other persons with responsibilities under RESPA. Federal agencies with supervisory powers over lenders may use their powers to require compliance with RESPA. In addition, failure to comply with RESPA may be grounds for administrative action by HUD under HUD regulation 2 CFR part 2424 concerning debarment, suspension, ineligibility of contractors and grantees, or under HUD regulation 24 CFR part 25 concerning the HUD Mortgagee Review Board. Nothing in this paragraph is a limitation on any other form of enforcement that may be legally available. (b) Investigations. The procedures for investigations and investigational proceedings are set forth in part 1080 of this title. § 1024.20 [Reserved] § 1024.21 Mortgage servicing transfers. (a) Definitions. As used in this section: Master servicer means the owner of the right to perform servicing, which may actually perform the servicing itself or may do so through a subservicer. Mortgage servicing loan means a federally related mortgage loan, as that term is defined in § 1024.2, subject to the exemptions in § 1024.5, when the mortgage loan is secured by a first lien. The definition does not include subordinate lien loans or open-end lines of credit (home equity plans) covered by the Truth in Lending Act and Regulation Z, including open-end lines of credit secured by a first lien. Qualified written request means a written correspondence from the borrower to the servicer prepared in accordance with paragraph (e)(2) of this section. Subservicer means a servicer who does not own the right to perform servicing, but who does so on behalf of the master servicer. Transferee servicer means a servicer who obtains or who will obtain the right to perform servicing functions pursuant to an agreement or understanding. Transferor servicer means a servicer, including a table funding mortgage broker or dealer on a first lien dealer loan, who transfers or will transfer the right to perform servicing functions pursuant to an agreement or understanding. (b) Servicing Disclosure Statement; Requirements. (1) At the time an PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 application for a mortgage servicing loan is submitted, or within 3 business days after submission of the application, the lender, mortgage broker who anticipates using table funding, or dealer who anticipates a first lien dealer loan shall provide to each person who applies for such a loan a Servicing Disclosure Statement. A format for the Servicing Disclosure Statement appears as Appendix MS–1 to this part. The specific language of the Servicing Disclosure Statement is not required to be used. The information set forth in ‘‘Instructions to Preparer’’ on the Servicing Disclosure Statement need not be included with the information given to applicants, and material in square brackets is optional or alternative language. The model format may be annotated with additional information that clarifies or enhances the model language. The lender, table funding mortgage broker, or dealer should use the language that best describes the particular circumstances. (2) The Servicing Disclosure Statement must indicate whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time while the loan is outstanding. If the lender, table funding mortgage broker, or dealer in a first lien dealer loan will engage in the servicing of the mortgage loan for which the applicant has applied, the disclosure may consist of a statement that the entity will service such loan and does not intend to sell, transfer, or assign the servicing of the loan. If the lender, table funding mortgage broker, or dealer in a first lien dealer loan will not engage in the servicing of the mortgage loan for which the applicant has applied, the disclosure may consist of a statement that such entity intends to assign, sell, or transfer servicing of such mortgage loan before the first payment is due. In all other instances, the disclosure must state that the servicing of the loan may be assigned, sold or transferred while the loan is outstanding. (c) Servicing Disclosure Statement; Delivery. The lender, table funding mortgage broker, or dealer that anticipates a first lien dealer loan shall deliver the Servicing Disclosure Statement within 3 business days from receipt of the application by hand delivery, by placing it in the mail, or, if the applicant agrees, by fax, email, or other electronic means. In the event the borrower is denied credit within the 3 business-day period, no servicing disclosure statement is required to be delivered. If co-applicants indicate the same address on their application, one copy delivered to that address is sufficient. If different addresses are E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations shown by co-applicants on the application, a copy must be delivered to each of the co-applicants. (d) Notices of Transfer; loan servicing. (1) Requirement for notice. (i) Except as provided in this paragraph (d)(1)(i) or paragraph (d)(1)(ii) of this section, each transferor servicer and transferee servicer of any mortgage servicing loan shall deliver to the borrower a written Notice of Transfer, containing the information described in paragraph (d)(3) of this section, of any assignment, sale, or transfer of the servicing of the loan. The following transfers are not considered an assignment, sale, or transfer of mortgage loan servicing for purposes of this requirement if there is no change in the payee, address to which payment must be delivered, account number, or amount of payment due: (A) Transfers between affiliates; (B) Transfers resulting from mergers or acquisitions of servicers or subservicers; and (C) Transfers between master servicers, where the subservicer remains the same. (ii) The Federal Housing Administration (FHA) is not required under paragraph (d) of this section to submit to the borrower a Notice of Transfer in cases where a mortgage insured under the National Housing Act is assigned to FHA. (2) Time of notice. (i) Except as provided in paragraph (d)(2)(ii) of this section: (A) The transferor servicer shall deliver the Notice of Transfer to the borrower not less than 15 days before the effective date of the transfer of the servicing of the mortgage servicing loan; (B) The transferee servicer shall deliver the Notice of Transfer to the borrower not more than 15 days after the effective date of the transfer; and (C) The transferor and transferee servicers may combine their notices into one notice, which shall be delivered to the borrower not less than 15 days before the effective date of the transfer of the servicing of the mortgage servicing loan. (ii) The Notice of Transfer shall be delivered to the borrower by the transferor servicer or the transferee servicer not more than 30 days after the effective date of the transfer of the servicing of the mortgage servicing loan in any case in which the transfer of servicing is preceded by: (A) Termination of the contract for servicing the loan for cause; (B) Commencement of proceedings for bankruptcy of the servicer; or (C) Commencement of proceedings by the Federal Deposit Insurance VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 Corporation (FDIC) for conservatorship or receivership of the servicer or an entity that owns or controls the servicer. (iii) Notices of Transfer delivered at settlement by the transferor servicer and transferee servicer, whether as separate notices or as a combined notice, will satisfy the timing requirements of paragraph (d)(2) of this section. (3) Notices of Transfer; contents. The Notices of Transfer required under paragraph (d) of this section shall include the following information: (i) The effective date of the transfer of servicing; (ii) The name, consumer inquiry addresses (including, at the option of the servicer, a separate address where qualified written requests must be sent), and a toll-free or collect-call telephone number for an employee or department of the transferee servicer; (iii) A toll-free or collect-call telephone number for an employee or department of the transferor servicer that can be contacted by the borrower for answers to servicing transfer inquiries; (iv) The date on which the transferor servicer will cease to accept payments relating to the loan and the date on which the transferee servicer will begin to accept such payments. These dates shall either be the same or consecutive days; (v) Information concerning any effect the transfer may have on the terms or the continued availability of mortgage life or disability insurance, or any other type of optional insurance, and any action the borrower must take to maintain coverage; (vi) A statement that the transfer of servicing does not affect any other term or condition of the mortgage documents, other than terms directly related to the servicing of the loan; and (vii) A statement of the borrower’s rights in connection with complaint resolution, including the information set forth in paragraph (e) of this section. Appendix MS–2 of this part illustrates a statement satisfactory to the Bureau. (4) Notices of Transfer; sample notice. Sample language that may be used to comply with the requirements of paragraph (d) of this section is set out in Appendix MS–2 of this part. Minor modifications to the sample language may be made to meet the particular circumstances of the servicer, but the substance of the sample language shall not be omitted or substantially altered. (5) Consumer protection during transfer of servicing. During the 60-day period beginning on the effective date of transfer of the servicing of any mortgage servicing loan, if the transferor servicer (rather than the transferee servicer that PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 78997 should properly receive payment on the loan) receives payment on or before the applicable due date (including any grace period allowed under the loan documents), a late fee may not be imposed on the borrower with respect to that payment and the payment may not be treated as late for any other purposes. (e) Duty of loan servicer to respond to borrower inquiries. (1) Notice of receipt of inquiry. Within 20 business days of a servicer of a mortgage servicing loan receiving a qualified written request from the borrower for information relating to the servicing of the loan, the servicer shall provide to the borrower a written response acknowledging receipt of the qualified written request. This requirement shall not apply if the action requested by the borrower is taken within that period and the borrower is notified of that action in accordance with the paragraph (f)(3) of this section. By notice either included in the Notice of Transfer or separately delivered by first-class mail, postage prepaid, a servicer may establish a separate and exclusive office and address for the receipt and handling of qualified written requests. (2) Qualified written request; defined. (i) For purposes of paragraph (e) of this section, a qualified written request means a written correspondence (other than notice on a payment coupon or other payment medium supplied by the servicer) that includes, or otherwise enables the servicer to identify, the name and account of the borrower, and includes a statement of the reasons that the borrower believes the account is in error, if applicable, or that provides sufficient detail to the servicer regarding information relating to the servicing of the loan sought by the borrower. (ii) A written request does not constitute a qualified written request if it is delivered to a servicer more than 1 year after either the date of transfer of servicing or the date that the mortgage servicing loan amount was paid in full, whichever date is applicable. (3) Action with respect to the inquiry. Not later than 60 business days after receiving a qualified written request from the borrower, and, if applicable, before taking any action with respect to the inquiry, the servicer shall: (i) Make appropriate corrections in the account of the borrower, including the crediting of any late charges or penalties, and transmit to the borrower a written notification of the correction. This written notification shall include the name and telephone number of a representative of the servicer who can provide assistance to the borrower; or (ii) After conducting an investigation, provide the borrower with a written E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 78998 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations explanation or clarification that includes: (A) To the extent applicable, a statement of the servicer’s reasons for concluding the account is correct and the name and telephone number of an employee, office, or department of the servicer that can provide assistance to the borrower; or (B) Information requested by the borrower, or an explanation of why the information requested is unavailable or cannot be obtained by the servicer, and the name and telephone number of an employee, office, or department of the servicer that can provide assistance to the borrower. (4) Protection of credit rating. (i) During the 60-business day period beginning on the date of the servicer receiving from a borrower a qualified written request relating to a dispute on the borrower’s payments, a servicer may not provide adverse information regarding any payment that is the subject of the qualified written request to any consumer reporting agency (as that term is defined in section 603 of the Fair Credit Reporting Act, 15 U.S.C. 1681a). (ii) In accordance with section 17 of RESPA (12 U.S.C. 2615), the protection of credit rating provision of paragraph (e)(4)(i) of this section does not impede a lender or servicer from pursuing any of its remedies, including initiating foreclosure, allowed by the underlying mortgage loan instruments. (f) Damages and costs. (1) Whoever fails to comply with any provision of this section shall be liable to the borrower for each failure in the following amounts: (i) Individuals. In the case of any action by an individual, an amount equal to the sum of any actual damages sustained by the individual as the result of the failure and, when there is a pattern or practice of noncompliance with the requirements of this section, any additional damages in an amount not to exceed $1,000. (ii) Class actions. In the case of a class action, an amount equal to the sum of any actual damages to each borrower in the class that result from the failure and, when there is a pattern or practice of noncompliance with the requirements of this section, any additional damages in an amount not greater than $1,000 for each class member. However, the total amount of any additional damages in a class action may not exceed the lesser of $500,000 or 1 percent of the net worth of the servicer. (iii) Costs. In addition, in the case of any successful action under paragraph (f) of this section, the costs of the action VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 and any reasonable attorneys’ fees incurred in connection with the action. (2) Nonliability. A transferor or transferee servicer shall not be liable for any failure to comply with the requirements of this section, if within 60 days after discovering an error (whether pursuant to a final written examination report or the servicer’s own procedures) and before commencement of an action under this section and the receipt of written notice of the error from the borrower, the servicer notifies the person concerned of the error and makes whatever adjustments are necessary in the appropriate account to ensure that the person will not be required to pay an amount in excess of any amount that the person otherwise would have paid. (g) Timely payments by servicer. If the terms of any mortgage servicing loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums, and other charges with respect to the mortgaged property, the servicer shall make payments from the escrow account in a timely manner for the taxes, insurance premiums, and other charges as the payments become due, as governed by the requirements in § 1024.17(k). (h) Preemption of state laws. A lender who makes a mortgage servicing loan or a servicer shall be considered to have complied with the provisions of any state law or regulation requiring notice to a borrower at the time of application for a loan or transfer of servicing of a loan if the lender or servicer complies with the requirements of this section. Any state law requiring notice to the borrower at the time of application or at the time of transfer of servicing of the loan is preempted, and there shall be no additional borrower disclosure requirements. Provisions of state law, such as those requiring additional notices to insurance companies or taxing authorities, are not preempted by section 6 of RESPA or this section, and this additional information may be added to a notice prepared under this section, if the procedure is allowable under state law. § 1024.22 Severability. If any particular provision of this part or the application of any particular provision to any person or circumstance is held invalid, the remainder of this part and the application of such provisions to other persons or circumstances shall not be affected by such holding. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 § 1024.23 ESIGN applicability. The Electronic Signatures in Global and National Commerce Act (‘‘ESIGN’’), 15 U.S.C. 7001–7031, shall apply to this part. Appendix A to Part 1024—Instructions for Completing HUD–1 and HUD–1a Settlement Statements; Sample HUD–1 and HUD–1a Statements The following are instructions for completing the HUD–1 settlement statement, required under section 4 of RESPA and 12 CFR part 1024 (Regulation X) of the Bureau of Consumer Financial Protection (Bureau) regulations. This form is to be used as a statement of actual charges and adjustments paid by the borrower and the seller, to be given to the parties in connection with the settlement. The instructions for completion of the HUD–1 are primarily for the benefit of the settlement agents who prepare the statements and need not be transmitted to the parties as an integral part of the HUD–1. There is no objection to the use of the HUD– 1 in transactions in which its use is not legally required. Refer to the definitions section of the regulations (12 CFR 1024.2) for specific definitions of many of the terms that are used in these instructions. General Instructions Information and amounts may be filled in by typewriter, hand printing, computer printing, or any other method producing clear and legible results. Refer to the Bureau’s regulations (Regulation X) regarding rules applicable to reproduction of the HUD–1 for the purpose of including customary recitals and information used locally in settlements; for example, a breakdown of payoff figures, a breakdown of the Borrower’s total monthly mortgage payments, check disbursements, a statement indicating receipt of funds, applicable special stipulations between Borrower and Seller, and the date funds are transferred. The settlement agent shall complete the HUD–1 to itemize all charges imposed upon the Borrower and the Seller by the loan originator and all sales commissions, whether to be paid at settlement or outside of settlement, and any other charges which either the Borrower or the Seller will pay at settlement. Charges for loan origination and title services should not be itemized except as provided in these instructions. For each separately identified settlement service in connection with the transaction, the name of the person ultimately receiving the payment must be shown together with the total amount paid to such person. Items paid to and retained by a loan originator are disclosed as required in the instructions for lines in the 800-series of the HUD–1 (and for per diem interest, in the 900-series of the HUD–1). As a general rule, charges that are paid for by the seller must be shown in the seller’s column on page 2 of the HUD–1 (unless paid outside closing), and charges that are paid for by the borrower must be shown in the borrower’s column (unless paid outside closing). However, in order to promote comparability between the charges on the E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES2 GFE and the charges on the HUD–1, if a seller pays for a charge that was included on the GFE, the charge should be listed in the borrower’s column on page 2 of the HUD–1. That charge should also be offset by listing a credit in that amount to the borrower on lines 204–209 on page 1 of the HUD–1, and by a charge to the seller in lines 506–509 on page 1 of the HUD–1. If a loan originator (other than for no-cost loans), real estate agent, other settlement service provider, or other person pays for a charge that was included on the GFE, the charge should be listed in the borrower’s column on page 2 of the HUD–1, with an offsetting credit reported on page 1 of the HUD–1, identifying the party paying the charge. Charges paid outside of settlement by the borrower, seller, loan originator, real estate agent, or any other person, must be included on the HUD–1 but marked ‘‘P.O.C.’’ for ‘‘Paid Outside of Closing’’ (settlement) and must not be included in computing totals. However, indirect payments from a lender to a mortgage broker may not be disclosed as P.O.C., and must be included as a credit on Line 802. P.O.C. items must not be placed in the Borrower or Seller columns, but rather on the appropriate line outside the columns. The settlement agent must indicate whether P.O.C. items are paid for by the Borrower, Seller, or some other party by marking the items paid for by whoever made the payment as ‘‘P.O.C.’’ with the party making the payment identified in parentheses, such as ‘‘P.O.C. (borrower)’’ or ‘‘P.O.C. (seller)’’. In the case of ‘‘no cost’’ loans where ‘‘no cost’’ encompasses third party fees as well as the upfront payment to the loan originator, the third party services covered by the ‘‘no cost’’ provisions must be itemized and listed in the borrower’s column on the HUD–1/1A with the charge for the third party service. These itemized charges must be offset with a negative adjusted origination charge on Line 803 and recorded in the columns. Blank lines are provided in section L for any additional settlement charges. Blank lines are also provided for additional insertions in sections J and K. The names of the recipients of the settlement charges in section L and the names of the recipients of adjustments described in section J or K should be included on the blank lines. Lines and columns in section J which relate to the Borrower’s transaction may be left blank on the copy of the HUD–1 which will be furnished to the Seller. Lines and columns in section K which relate to the Seller’s transaction may be left blank on the copy of the HUD–1 which will be furnished to the Borrower. Line Item Instructions Instructions for completing the individual items on the HUD–1 follow. Section A. This section requires no entry of information. Section B. Check appropriate loan type and complete the remaining items as applicable. Section C. This section provides a notice regarding settlement costs and requires no additional entry of information. Sections D and E. Fill in the names and current mailing addresses and zip codes of the Borrower and the Seller. Where there is VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 more than one Borrower or Seller, the name and address of each one is required. Use a supplementary page if needed to list multiple Borrowers or Sellers. Section F. Fill in the name, current mailing address and zip code of the Lender. Section G. The street address of the property being sold should be listed. If there is no street address, a brief legal description or other location of the property should be inserted. In all cases give the zip code of the property. Section H. Fill in name, address, zip code and telephone number of settlement agent, and address and zip code of ‘‘place of settlement.’’ Section I. Fill in date of settlement. Section J. Summary of Borrower’s Transaction. Line 101 is for the contract sales price of the property being sold, excluding the price of any items of tangible personal property if Borrower and Seller have agreed to a separate price for such items. Line 102 is for the sales price of any items of tangible personal property excluded from Line 101. Personal property could include such items as carpets, drapes, stoves, refrigerators, etc. What constitutes personal property varies from state to state. Manufactured homes are not considered personal property for this purpose. Line 103 is used to record the total charges to Borrower detailed in section L and totaled on Line 1400. Lines 104 and 105 are for additional amounts owed by the Borrower, such as charges that were not listed on the GFE or items paid by the Seller prior to settlement but reimbursed by the Borrower at settlement. For example, the balance in the Seller’s reserve account held in connection with an existing loan, if assigned to the Borrower in a loan assumption case, will be entered here. These lines will also be used when a tenant in the property being sold has not yet paid the rent, which the Borrower will collect, for a period of time prior to the settlement. The lines will also be used to indicate the treatment for any tenant security deposit. The Seller will be credited on Lines 404–405. Lines 106 through 112 are for items which the Seller had paid in advance, and for which the Borrower must therefore reimburse the Seller. Examples of items for which adjustments will be made may include taxes and assessments paid in advance for an entire year or other period, when settlement occurs prior to the expiration of the year or other period for which they were paid. Additional examples include flood and hazard insurance premiums, if the Borrower is being substituted as an insured under the same policy; mortgage insurance in loan assumption cases; planned unit development or condominium association assessments paid in advance; fuel or other supplies on hand, purchased by the Seller, which the Borrower will use when Borrower takes possession of the property; and ground rent paid in advance. Line 120 is for the total of Lines 101 through 112. Line 201 is for any amount paid against the sales price prior to settlement. Line 202 is for the amount of the new loan made by the Lender when a loan to finance PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 78999 construction of a new structure constructed for sale is used as or converted to a loan to finance purchase. Line 202 should also be used for the amount of the first user loan, when a loan to purchase a manufactured home for resale is converted to a loan to finance purchase by the first user. For other loans covered by 12 CFR part 1024 (Regulation X) which finance construction of a new structure or purchase of a manufactured home, list the sales price of the land on Line 104, the construction cost or purchase price of manufactured home on Line 105 (Line 101 would be left blank in this instance) and amount of the loan on Line 202. The remainder of the form should be completed taking into account adjustments and charges related to the temporary financing and permanent financing and which are known at the date of settlement. Line 203 is used for cases in which the Borrower is assuming or taking title subject to an existing loan or lien on the property. Lines 204–209 are used for other items paid by or on behalf of the Borrower. Lines 204–209 should be used to indicate any financing arrangements or other new loan not listed in Line 202. For example, if the Borrower is using a second mortgage or note to finance part of the purchase price, whether from the same lender, another lender or the Seller, insert the principal amount of the loan with a brief explanation on Lines 204–209. Lines 204–209 should also be used where the Borrower receives a credit from the Seller for closing costs, including seller-paid GFE charges. They may also be used in cases in which a Seller (typically a builder) is making an ‘‘allowance’’ to the Borrower for items that the Borrower is to purchase separately. Lines 210 through 219 are for items which have not yet been paid, and which the Borrower is expected to pay, but which are attributable in part to a period of time prior to the settlement. In jurisdictions in which taxes are paid late in the tax year, most cases will show the proration of taxes in these lines. Other examples include utilities used but not paid for by the Seller, rent collected in advance by the Seller from a tenant for a period extending beyond the settlement date, and interest on loan assumptions. Line 220 is for the total of Lines 201 through 219. Lines 301 and 302 are summary lines for the Borrower. Enter total in Line 120 on Line 301. Enter total in Line 220 on Line 302. Line 303 must indicate either the cash required from the Borrower at settlement (the usual case in a purchase transaction), or cash payable to the Borrower at settlement (if, for example, the Borrower’s earnest money exceeds the Borrower’s cash obligations in the transaction or there is a cash-out refinance). Subtract Line 302 from Line 301 and enter the amount of cash due to or from the Borrower at settlement on Line 303. The appropriate box should be checked. If the Borrower’s earnest money is applied toward the charge for a settlement service, the amount so applied should not be included on Line 303 but instead should be shown on the appropriate line for the settlement service, marked ‘‘P.O.C. (Borrower)’’, and must not be included in computing totals. Section K. Summary of Seller’s Transaction. Instructions for the use of Lines E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 79000 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations 101 and 102 and 104–112 above, apply also to Lines 401–412. Line 420 is for the total of Lines 401 through 412. Line 501 is used if the Seller’s real estate broker or other party who is not the settlement agent has received and holds a deposit against the sales price (earnest money) which exceeds the fee or commission owed to that party. If that party will render the excess deposit directly to the Seller, rather than through the settlement agent, the amount of excess deposit should be entered on Line 501 and the amount of the total deposit (including commissions) should be entered on Line 201. Line 502 is used to record the total charges to the Seller detailed in section L and totaled on Line 1400. Line 503 is used if the Borrower is assuming or taking title subject to existing liens which are to be deducted from sales price. Lines 504 and 505 are used for the amounts (including any accrued interest) of any first and/or second loans which will be paid as part of the settlement. Line 506 is used for deposits paid by the Borrower to the Seller or other party who is not the settlement agent. Enter the amount of the deposit in Line 201 on Line 506 unless Line 501 is used or the party who is not the settlement agent transfers all or part of the deposit to the settlement agent, in which case the settlement agent will note in parentheses on Line 507 the amount of the deposit that is being disbursed as proceeds and enter in the column for Line 506 the amount retained by the above-described party for settlement services. If the settlement agent holds the deposit, insert a note in Line 507 which indicates that the deposit is being disbursed as proceeds. Lines 506 through 509 may be used to list additional liens which must be paid off through the settlement to clear title to the property. Other Seller obligations should be shown on Lines 506–509, including charges that were disclosed on the GFE but that are actually being paid for by the Seller. These Lines may also be used to indicate funds to be held by the settlement agent for the payment of either repairs, or water, fuel, or other utility bills that cannot be prorated between the parties at settlement because the amounts used by the Seller prior to settlement are not yet known. Subsequent disclosure of the actual amount of these postsettlement items to be paid from settlement funds is optional. Any amounts entered on Lines 204–209 including Seller financing arrangements should also be entered on Lines 506–509. Instructions for the use of Lines 510 through 519 are the same as those for Lines 210 to 219 above. Line 520 is for the total of Lines 501 through 519. Lines 601 and 602 are summary lines for the Seller. Enter the total in Line 420 on Line 601. Enter the total in Line 520 on Line 602. Line 603 must indicate either the cash required to be paid to the Seller at settlement (the usual case in a purchase transaction), or the cash payable by the Seller at settlement. Subtract Line 602 from Line 601 and enter the amount of cash due to or from the Seller VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 at settlement on Line 603. The appropriate box should be checked. Section L. Settlement Charges Line 700 is used to enter the sales commission charged by the sales agent or real estate broker. Lines 701–702 are to be used to state the split of the commission where the settlement agent disburses portions of the commission to two or more sales agents or real estate brokers. Line 703 is used to enter the amount of sales commission disbursed at settlement. If the sales agent or real estate broker is retaining a part of the deposit against the sales price (earnest money) to apply towards the sales agent’s or real estate broker’s commission, include in Line 703 only that part of the commission being disbursed at settlement and insert a note on Line 704 indicating the amount the sales agent or real estate broker is retaining as a ‘‘P.O.C.’’ item. Line 704 may be used for additional charges made by the sales agent or real estate broker, or for a sales commission charged to the Borrower, which will be disbursed by the settlement agent. Line 801 is used to record ‘‘Our origination charge,’’ which includes all charges received by the loan originator, except any charge for the specific interest rate chosen (points). This number must not be listed in either the buyer’s or seller’s column. The amount shown in Line 801 must include any amounts received for origination services, including administrative and processing services, performed by or on behalf of the loan originator. Line 802 is used to record ‘‘Your credit or charge (points) for the specific interest rate chosen,’’ which states the charge or credit adjustment as applied to ‘‘Our origination charge,’’ if applicable. This number must not be listed in either column or shown on page one of the HUD–1. For a mortgage broker originating a loan in its own name, the amount shown on Line 802 will be the difference between the initial loan amount and the total payment to the mortgage broker from the lender. The total payment to the mortgage broker will be the sum of the price paid for the loan by the lender and any other payments to the mortgage broker from the lender, including any payments based on the loan amount or loan terms, and any flat rate payments. For a mortgage broker originating a loan in another entity’s name, the amount shown on Line 802 will be the sum of all payments to the mortgage broker from the lender, including any payments based on the loan amount or loan terms, and any flat rate payments. In either case, when the amount paid to the mortgage broker exceeds the initial loan amount, there is a credit to the borrower and it is entered as a negative amount. When the initial loan amount exceeds the amount paid to the mortgage broker, there is a charge to the borrower and it is entered as a positive amount. For a lender, the amount shown on Line 802 may include any credit or charge (points) to the Borrower. Line 803 is used to record ‘‘Your adjusted origination charges,’’ which states the net PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 amount of the loan origination charges, the sum of the amounts shown in Lines 801 and 802. This amount must be listed in the columns as either a positive number (for example, where the origination charge shown in Line 801 exceeds any credit for the interest rate shown in Line 802 or where there is an origination charge in Line 801 and a charge for the interest rate (points) is shown on Line 802) or as a negative number (for example, where the credit for the interest rate shown in Line 802 exceeds the origination charges shown in Line 801). In the case of ‘‘no cost’’ loans, where ‘‘no cost’’ refers only to the loan originator’s fees, the amounts shown in Lines 801 and 802 should offset, so that the charge shown on Line 803 is zero. Where ‘‘no cost’’ includes third party settlement services, the credit shown in Line 802 will more than offset the amount shown in Line 801. The amount shown in Line 803 will be a negative number to offset the settlement charges paid indirectly through the loan originator. Lines 804–808 may be used to record each of the ‘‘Required services that we select.’’ Each settlement service provider must be identified by name and the amount paid recorded either inside the columns or as paid to the provider outside closing (‘‘P.O.C.’’), as described in the General Instructions. Line 804 is used to record the appraisal fee. Line 805 is used to record the fee for all credit reports. Line 806 is used to record the fee for any tax service. Line 807 is used to record any flood certification fee. Lines 808 and additional sequentially numbered lines, as needed, are used to record other third party services required by the loan originator. These Lines may also be used to record other required disclosures from the loan originator. Any such disclosures must be listed outside the columns. Lines 901–904. This series is used to record the items which the Lender requires to be paid at the time of settlement, but which are not necessarily paid to the lender (e.g., FHA mortgage insurance premium), other than reserves collected by the Lender and recorded in the 1000-series. Line 901 is used if interest is collected at settlement for a part of a month or other period between settlement and the date from which interest will be collected with the first regular monthly payment. Enter that amount here and include the per diem charges. If such interest is not collected until the first regular monthly payment, no entry should be made on Line 901. Line 902 is used for mortgage insurance premiums due and payable at settlement, including any monthly amounts due at settlement and any upfront mortgage insurance premium, but not including any reserves collected by the Lender and recorded in the 1000-series. If a lump sum mortgage insurance premium paid at settlement is included on Line 902, a note should indicate that the premium is for the life of the loan. Line 903 is used for homeowner’s insurance premiums that the Lender requires to be paid at the time of settlement, except E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations reserves collected by the Lender and recorded in the 1000-series. Lines 904 and additional sequentially numbered lines are used to list additional items required by the Lender (except for reserves collected by the Lender and recorded in the 1000-series), including premiums for flood or other insurance. These lines are also used to list amounts paid at settlement for insurance not required by the Lender. Lines 1000–1007. This series is used for amounts collected by the Lender from the Borrower and held in an account for the future payment of the obligations listed as they fall due. Include the time period (number of months) and the monthly assessment. In many jurisdictions this is referred to as an ‘‘escrow’’, ‘‘impound’’, or ‘‘trust’’ account. In addition to the property taxes and insurance listed, some Lenders may require reserves for flood insurance, condominium owners’ association assessments, etc. The amount in line 1001 must be listed in the columns, and the itemizations in lines 1002 through 1007 must be listed outside the columns. After itemizing individual deposits in the 1000 series, the servicer shall make an adjustment based on aggregate accounting. This adjustment equals the difference between the deposit required under aggregate accounting and the sum of the itemized deposits. The computation steps for aggregate accounting are set out in 12 CFR 1024.17(d). The adjustment will always be a negative number or zero (-0-), except for amounts due to rounding. The settlement agent shall enter the aggregate adjustment amount outside the columns on a final line of the 1000 series of the HUD–1 or HUD–1A statement. Appendix E to this part sets out an example of aggregate analysis. Lines 1100–1108. This series covers title charges and charges by attorneys and closing or settlement agents. The title charges include a variety of services performed by title companies or others, and include fees directly related to the transfer of title (title examination, title search, document preparation), fees for title insurance, and fees for conducting the closing. The legal charges include fees for attorneys representing the lender, seller, or borrower, and any attorney preparing title work. The series also includes any settlement, notary, and delivery fees related to the services covered in this series. Disbursements to third parties must be broken out in the appropriate lines or in blank lines in the series, and amounts paid to these third parties must be shown outside of the columns if included in Line 1101. Charges not included in Line 1101 must be listed in the columns. Line 1101 is used to record the total for the category of ‘‘Title services and lender’s title insurance.’’ This amount must be listed in the columns. Line 1102 is used to record the settlement or closing fee. Line 1103 is used to record the charges for the owner’s title insurance and related endorsements. This amount must be listed in the columns. Line 1104 is used to record the lender’s title insurance premium and related endorsements. VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 Line 1105 is used to record the amount of the lender’s title policy limit. This amount is recorded outside of the columns. Line 1106 is used to record the amount of the owner’s title policy limit. This amount is recorded outside of the columns. Line 1107 is used to record the amount of the total title insurance premium, including endorsements, that is retained by the title agent. This amount is recorded outside of the columns. Line 1108 used to record the amount of the total title insurance premium, including endorsements, that is retained by the title underwriter. This amount is recorded outside of the columns. Additional sequentially numbered lines in the 1100-series may be used to itemize title charges paid to other third parties, as identified by name and type of service provided. Lines 1200–1206. This series covers government recording and transfer charges. Charges paid by the borrower must be listed in the columns as described for lines 1201 and 1203, with itemizations shown outside the columns. Any amounts that are charged to the seller and that were not included on the Good Faith Estimate must be listed in the columns. Line 1201 is used to record the total ‘‘Government recording charges,’’ and the amount must be listed in the columns. Line 1202 is used to record, outside of the columns, the itemized recording charges. Line 1203 is used to record the transfer taxes, and the amount must be listed in the columns. Line 1204 is used to record, outside of the columns, the amounts for local transfer taxes and stamps. Line 1205 is used to record, outside of the columns, the amounts for state transfer taxes and stamps. Line 1206 and additional sequentially numbered lines may be used to record specific itemized third party charges for government recording and transfer services, but the amounts must be listed outside the columns. Line 1301 and additional sequentially numbered lines must be used to record required services that the borrower can shop for, such as fees for survey, pest inspection, or other similar inspections. These lines may also be used to record additional itemized settlement charges that are not included in a specific category, such as fees for structural and environmental inspections; pre-sale inspections of heating, plumbing or electrical equipment; or insurance or warranty coverage. The amounts must be listed in either the borrower’s or seller’s column. Line 1400 must state the total settlement charges as calculated by adding the amounts within each column. Page 3 Comparison of Good Faith Estimate (GFE) and HUD–1/1A Charges The HUD–1/1–A is a statement of actual charges and adjustments. The comparison chart on page 3 of the HUD–1 must be prepared using the exact information and amounts for the services that were purchased or provided as part of the transaction, as that PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 79001 information and those amounts are shown on the GFE and in the HUD–1. If a service that was listed on the GFE was not obtained in connection with the transaction, pages 1 and 2 of the HUD–1 should not include any amount for that service, and the estimate on the GFE of the charge for the service should not be included in any amounts shown on the comparison chart on Page 3 of the HUD– 1. The comparison chart is comprised of three sections: ‘‘Charges That Cannot Increase’’, ‘‘Charges That Cannot Increase More Than 10%’’, and ‘‘Charges That Can Change’’. ‘‘Charges That Cannot Increase’’. The amounts shown in Blocks 1 and 2, in Line A, and in Block 8 on the borrower’s GFE must be entered in the appropriate line in the Good Faith Estimate column. The amounts shown on Lines 801, 802, 803 and 1203 of the HUD–1/1A must be entered in the corresponding line in the HUD–1/1A column. The HUD–1/1A column must include any amounts shown on page 2 of the HUD–1 in the column as paid for by the borrower, plus any amounts that are shown as P.O.C. by or on behalf of the borrower. If there is a credit in Block 2 of the GFE or Line 802 of the HUD–1/1A, the credit should be entered as a negative number. ‘‘Charges That Cannot Increase More Than 10%’’. A description of each charge included in Blocks 3 and 7 on the borrower’s GFE must be entered on separate lines in this section, with the amount shown on the borrower’s GFE for each charge entered in the corresponding line in the Good Faith Estimate column. For each charge included in Blocks 4, 5 and 6 on the borrower’s GFE for which the loan originator selected the provider or for which the borrower selected a provider identified by the loan originator, a description must be entered on a separate line in this section, with the amount shown on the borrower’s GFE for each charge entered in the corresponding line in the Good Faith Estimate column. The loan originator must identify any third party settlement services for which the borrower selected a provider other than one identified by the loan originator so that the settlement agent can include those charges in the appropriate category. Additional lines may be added if necessary. The amounts shown on the HUD– 1/1A for each line must be entered in the HUD–1/1A column next to the corresponding charge from the GFE, along with the appropriate HUD–1/1A line number. The HUD–1/1A column must include any amounts shown on page 2 of the HUD–1 in the column as paid for by the borrower, plus any amounts that are shown as P.O.C. by or on behalf of the borrower. The amounts shown in the Good Faith Estimate and HUD–1/1A columns for this section must be separately totaled and entered in the designated line. If the total for the HUD–1/1A column is greater than the total for the Good Faith Estimate column, then the amount of the increase must be entered both as a dollar amount and as a percentage increase in the appropriate line. ‘‘Charges That Can Change’’. The amounts shown in Blocks 9, 10 and 11 on the borrower’s GFE must be entered in the appropriate lines in the Good Faith Estimate E:\FR\FM\20DER2.SGM 20DER2 79002 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations column. Any third party settlement services for which the borrower selected a provider other than one identified by the loan originator must also be included in this section. The amounts shown on the HUD–1/ 1A for each charge in this section must be entered in the corresponding line in the HUD–1/1A column, along with the appropriate HUD–1/1A line number. The HUD–1/1A column must include any amounts shown on page 2 of the HUD–1 in the column as paid for by the borrower, plus any amounts that are shown as P.O.C. by or on behalf of the borrower. Additional lines may be added if necessary. Loan Terms This section must be completed in accordance with the information and instructions provided by the lender. The lender must provide this information in a format that permits the settlement agent to simply enter the necessary information in the appropriate spaces, without the settlement agent having to refer to the loan documents themselves. Instructions for Completing HUD–1A Note: The HUD–1A is an optional form that may be used for refinancing and subordinatelien federally related mortgage loans, as well as for any other one-party transaction that does not involve the transfer of title to residential real property. The HUD–1 form may also be used for such transactions, by utilizing the borrower’s side of the HUD–1 and following the relevant parts of the instructions as set forth above. The use of either the HUD–1 or HUD–1A is not mandatory for open-end lines of credit (home-equity plans), as long as the provisions of Regulation Z are followed. Background mstockstill on DSK4VPTVN1PROD with RULES2 The HUD–1A settlement statement is to be used as a statement of actual charges and adjustments to be given to the borrower at settlement, as defined in this part. The instructions for completion of the HUD–1A are for the benefit of the settlement agent who prepares the statement; the instructions are not a part of the statement and need not be transmitted to the borrower. There is no objection to using the HUD–1A in transactions in which it is not required, and its use in open-end lines of credit transactions (home-equity plans) is encouraged. It may not be used as a substitute for a HUD–1 in any transaction that has a seller. Refer to the ‘‘definitions’’ section (§ 1024.2) of 12 CFR part 1024 (Regulation X) for specific definitions of terms used in these instructions. VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 General Instructions Information and amounts may be filled in by typewriter, hand printing, computer printing, or any other method producing clear and legible results. Refer to 12 CFR 1024.9 regarding rules for reproduction of the HUD–1A. Additional pages may be attached to the HUD–1A for the inclusion of customary recitals and information used locally for settlements or if there are insufficient lines on the HUD–1A. The settlement agent shall complete the HUD–1A in accordance with the instructions for the HUD–1 to the extent possible, including the instructions for disclosing items paid outside closing and for no cost loans. Blank lines are provided in section L for any additional settlement charges. Blank lines are also provided in section M for recipients of all or portions of the loan proceeds. The names of the recipients of the settlement charges in section L and the names of the recipients of the loan proceeds in section M should be set forth on the blank lines. Line-Item Instructions Page 1 The identification information at the top of the HUD–1A should be completed as follows: The borrower’s name and address is entered in the space provided. If the property securing the loan is different from the borrower’s address, the address or other location information on the property should be entered in the space provided. The loan number is the lender’s identification number for the loan. The settlement date is the date of settlement in accordance with 12 CFR 1024.2, not the end of any applicable rescission period. The name and address of the lender should be entered in the space provided. Section L. Settlement Charges. This section of the HUD–1A is similar to section L of the HUD–1, with minor changes or omissions, including deletion of lines 700 through 704, relating to real estate broker commissions. The instructions for section L in the HUD– 1 should be followed insofar as possible. Inapplicable charges should be ignored, as should any instructions regarding seller items. Line 1400 in the HUD–1A is for the total settlement charges charged to the borrower. Enter this total on line 1601. This total should include section L amounts from additional pages, if any are attached to this HUD–1A. Section M. Disbursement to Others. This section is used to list payees, other than the borrower, of all or portions of the loan proceeds (including the lender, if the loan is paying off a prior loan made by the same lender), when the payee will be paid directly out of the settlement proceeds. It is not used PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 to list payees of settlement charges, nor to list funds disbursed directly to the borrower, even if the lender knows the borrower’s intended use of the funds. For example, in a refinancing transaction, the loan proceeds are used to pay off an existing loan. The name of the lender for the loan being paid off and the pay-off balance would be entered in section M. In a home improvement transaction when the proceeds are to be paid to the home improvement contractor, the name of the contractor and the amount paid to the contractor would be entered in section M. In a consolidation loan, or when part of the loan proceeds is used to pay off other creditors, the name of each creditor and the amount paid to that creditor would be entered in section M. If the proceeds are to be given directly to the borrower and the borrower will use the proceeds to pay off existing obligations, this would not be reflected in section M. Section N. Net Settlement. Line 1600 normally sets forth the principal amount of the loan as it appears on the related note for this loan. In the event this form is used for an open-ended home equity line whose approved amount is greater than the initial amount advanced at settlement, the amount shown on Line 1600 will be the loan amount advanced at settlement. Line 1601 is used for all settlement charges that both are included in the totals for lines 1400 and 1602, and are not financed as part of the principal amount of the loan. This is the amount normally received by the lender from the borrower at settlement, which would occur when some or all of the settlement charges were paid in cash by the borrower at settlement, instead of being financed as part of the principal amount of the loan. Failure to include any such amount in line 1601 will result in an error in the amount calculated on line 1604. Items paid outside of closing (P.O.C.) should not be included in Line 1601. Line 1602 is the total amount from line 1400. Line 1603 is the total amount from line 1520. Line 1604 is the amount disbursed to the borrower. This is determined by adding together the amounts for lines 1600 and 1601, and then subtracting any amounts listed on lines 1602 and 1603. Page 2 This section of the HUD–1A is similar to page 3 of the HUD–1. The instructions for page 3 of the HUD–1 should be followed insofar as possible. The HUD–1/1A Column should include any amounts shown on page 1 of the HUD–1A in the column as paid for by the borrower, plus any amounts that are shown as P.O.C. by the borrower. Inapplicable charges should be ignored. BILLING CODE 4810–AM–P E:\FR\FM\20DER2.SGM 20DER2 VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 79003 ER20DE11.001</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations VerDate Mar<15>2010 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 ER20DE11.002</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 79004 VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 79005 ER20DE11.003</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations VerDate Mar<15>2010 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 ER20DE11.004</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 79006 VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 79007 ER20DE11.005</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations 79008 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES2 Appendix B to Part 1024—Illustrations of Requirements of RESPA The following illustrations provide additional guidance on the meaning and coverage of the provisions of RESPA. Other provisions of Federal or state law may also be applicable to the practices and payments discussed in the following illustrations. 1. Facts: A, a provider of settlement services, provides settlement services at abnormally low rates or at no charge at all to B, a builder, in connection with a subdivision being developed by B. B agrees to refer purchasers of the completed homes in the subdivision to A for the purchase of settlement services in connection with the sale of individual lots by B. Comments: The rendering of services by A to B at little or no charge constitutes a thing of value given by A to B in return for the referral of settlement services business, and both A and B are in violation of section 8 of RESPA. 2. Facts: B, a lender, encourages persons who receive federally related mortgage loans from it to employ A, an attorney, to perform title searches and related settlement services in connection with their transaction. B and A have an understanding that in return for the referral of this business A provides legal services to B or B’s officers or employees at abnormally low rates or for no charge. Comments: Both A and B are in violation of section 8 of RESPA. Similarly, if an attorney gives a portion of his or her fees to another attorney, a lender, a real estate broker or any other provider of settlement services, who had referred prospective clients to the attorney, section 8 would be violated by both persons. 3. Facts: A, a real estate broker, obtains all necessary licenses under state law to act as a title insurance agent. A refers individuals who are purchasing homes in transactions in which A participates as a broker to B, an unaffiliated title company, for the purchase of title insurance services. A performs minimal, if any, title services in connection with the issuance of the title insurance policy (such as placing an application with the title company). B pays A a commission (or A retains a portion of the title insurance premium) for the transactions or alternatively B receives a portion of the premium paid directly from the purchaser. Comments: The payment of a commission or portion of the title insurance premium by B to A, or receipt of a portion of the payment for title insurance under circumstances where no substantial services are being performed by A, is a violation of section 8 of RESPA. It makes no difference whether the payment comes from B or the purchaser. The amount of the payment must bear a reasonable relationship to the services rendered. Here A really is being compensated for a referral of business to B. 4. Facts: A is an attorney who, as a part of his legal representation of clients in residential real estate transactions, orders and reviews title insurance policies for his clients. A enters into a contract with B, a title company, to be an agent of B under a program set up by B. Under the agreement, A agrees to prepare and forward title VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 insurance applications to B, to re-examine the preliminary title commitment for accuracy and if he chooses to attempt to clear exceptions to the title policy before closing. A agrees to assume liability for waiving certain exceptions to title, but never exercises this authority. B performs the necessary title search and examination work, determines insurability of title, prepares documents containing substantive information in title commitments, handles closings for A’s clients and issues title policies. A receives a fee from his client for legal services and an additional fee for his title agent ‘‘services’’ from the client’s title insurance premium to B. Comments: A and B are violating section 8 of RESPA. Here, A’s clients are being double billed because the work A performs as a ‘‘title agent’’ is that which he already performs for his client in his capacity as an attorney. For A to receive a separate payment as a title agent, A must perform necessary core title work and may not contract out the work. To receive additional compensation as a title agent for this transaction, A must provide his client with core title agent services for which he assumes liability, and which includes at a minimum, the evaluation of the title search to determine insurability of the title, and the issuance of a title commitment where customary, the clearance of underwriting objections, and the actual issuance of the policy or policies on behalf of the title company. A may not be compensated for the mere re-examination of work performed by B. Here, A is not performing these services and may not be compensated as a title agent under section 8(c)(1)(B). Referral fees or splits of fees may not be disguised as title agent commissions when the core title agent work is not performed. Further, because B created the program and gave A the opportunity to collect fees (a thing of value) in exchange for the referral of settlement service business, it has violated section 8 of RESPA. 5. Facts: A, a ‘‘mortgage originator,’’ receives loan applications, funds the loans with its own money or with a wholesale line of credit for which A is liable, and closes the loans in A’s own name. Subsequently, B, a mortgage lender, purchases the loans and compensates A for the value of the loans, as well as for any mortgage servicing rights. Comments: Compensation for the sale of a mortgage loan and servicing rights constitutes a secondary market transaction, rather than a referral fee, and is beyond the scope of section 8 of RESPA. For purposes of section 8, in determining whether a bona fide transfer of the loan obligation has taken place, the Bureau examines the real source of funding, and the real interest of the named settlement lender. 6. Facts. A, a credit reporting company, places a facsimile transmission machine (FAX) in the office of B, a mortgage lender, so that B can easily transmit requests for credit reports and A can respond. A supplies the FAX machine at no cost or at a reduced rental rate based on the number of credit reports ordered. Comments: Either situation violates section 8 of RESPA. The FAX machine is a thing of value that A provides in exchange for the PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 referral of business from B. Copying machines, computer terminals, printers, or other like items which have general use to the recipient and which are given in exchange for referrals of business also violate RESPA. 7. Facts: A, a real estate broker, refers title business to B, a company that is a licensed title agent for C, a title insurance company. A owns more than 1% of B. B performs the title search and examination, makes determinations of insurability, issues the commitment, clears underwriting objections, and issues a policy of title insurance on behalf of C, for which C pays B a commission. B pays annual dividends to its owners, including A, based on the relative amount of business each of its owners refers to B. Comments: The facts involve an affiliated business arrangement. The payment of a commission by C to B is not a violation of section 8 of RESPA if the amount of the commission constitutes reasonable compensation for the services performed by B for C. The payment of a dividend or the giving of any other thing of value by B to A that is based on the amount of business referred to B by A does not meet the affiliated business agreement exemption provisions and such actions violate section 8. Similarly, if the amount of stock held by A in B (or, if B were a partnership, the distribution of partnership profits by B to A) varies based on the amount of business referred or expected to be referred, or if B retained any funds for subsequent distribution to A where such funds were generally in proportion to the amount of business A referred to B relative to the amount referred by other owners, such arrangements would violate section 8. The exemption for controlled business arrangements would not be available because the payments here would not be considered returns on ownership interests. Further, the required disclosure of the affiliated business arrangement and estimated charges have not been provided. 8. Facts: Same as illustration 7, but B pays annual dividends in proportion to the amount of stock held by its owners, including A, and the distribution of annual dividends is not based on the amount of business referred or expected to be referred. Comments: If A and B meet the requirements of the affiliated business arrangement exemption there is not a violation of RESPA. Since the payment is a return on ownership interests, A and B will be exempt from section 8 if (1) A also did not require anyone to use the services of B, and (2) A disclosed its ownership interest in B on a separate disclosure form and provided an estimate of B’s charges to each person referred by A to B (see Appendix D of this part), and (3) B makes no payment (nor is there any other thing of value exchanged) to A other than dividends. 9. Facts: A, a franchisor for franchised real estate brokers, owns B, a provider of settlement services. C, a franchisee of A, refers business to B. Comments: This is an affiliated business arrangement. A, B and C will all be exempt from section 8 if C discloses its franchise relationship with the owner of B on a E:\FR\FM\20DER2.SGM 20DER2 mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations separate disclosure form and provides an estimate of B’s charges to each person referred to B (see Appendix D of this part) and C does not require anyone to use B’s services and A gives no thing a value to C under the franchise agreement (such as an adjusted level of franchise payment based on the referrals), and B makes no payments to A other than dividends representing a return on ownership interest (rather than, e.g., an adjusted level of payment being based on the referrals). Nor may B pay C anything of value for the referral. 10. Facts: A is a real estate broker who refers business to its affiliate title company B. A makes all required written disclosures to the homebuyer of the arrangement and estimated charges and the homebuyer is not required to use B. B refers or contracts out business to C who does all the title work and splits the fee with B. B passes its fee to A in the form of dividends, a return on ownership interest. Comments: The relationship between A and B is an affiliated business arrangement. However, the affiliated business arrangement exemption does not provide exemption between an affiliated entity, B, and a third party, C. Here, B is a mere ‘‘shell’’ and provides no substantive services for its portion of the fee. The arrangement between B and C would be in violation of section 8(a) and (b). Even if B had an affiliate relationship with C, the required exemption criteria have not been met and the relationship would be subject to section 8. 11. Facts: A, a mortgage lender is affiliated with B, a title company, and C, an escrow company and offers consumers a package of mortgage title and escrow services at a discount from the prices at which such services would be sold if purchased separately. Neither A, B, nor C requires consumers to purchase the services of their sister companies and each company sells such services separately and as part of the package. A also pays its employees (e.g., loan officers, secretaries, etc.) a bonus for each loan, title insurance or closing that A’s employees generate for A, B, or C respectively. A pays such employee bonuses out of its own funds and receives no payments or reimbursements for such bonuses from B or C. At or before the time that customers are told by A or its employees about the services offered by B and C and/ or the package of services that is available, the customers are provided with an affiliated business disclosure form. Comments: A’s selling of a package of settlement services at a discount to a settlement service purchaser does not violate section 8 of RESPA. A’s employees are making appropriate affiliated business disclosures and since the services are available separately and as part of a package, there is not ‘‘required use’’ of the additional services. A’s payments of bonuses to its employees for the referral of business to A or A’s affiliates, B and C, are exempt from section 8 under § 1024.14(g)(1). However, if B or C reimbursed A for any bonuses that A paid to its employees for referring business to B or C, such reimbursements would violate section 8. Similarly, if B or C paid bonuses to A’s employees directly for generating VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 business for them, such payments would violate section 8. 12. Facts. A is a mortgage broker who provides origination services to submit a loan to a Lender for approval. The mortgage broker charges the borrower a uniform fee for the total origination services, as well as a direct up-front charge for reimbursement of credit reporting, appraisal services or similar charges. Comment. The mortgage broker’s fee must be itemized in the Good Faith Estimate and on the HUD–1 Settlement Statement. Other charges which are paid for by the borrower and paid in advance are listed as P.O.C. on the HUD–1 Settlement Statement, and reflect the actual provider charge for such services. Also, any other fee or payment received by the mortgage broker from either the lender or the borrower arising from the initial funding transaction, including a servicing release premium or yield spread premium, is to be noted on the Good Faith Estimate and listed in the 800 series of the HUD–1 Settlement Statement. 13. Facts. A is a dealer in home improvements who has established funding arrangements with several lenders. Customers for home improvements receive a proposed contract from A. The proposal requires that customers both execute forms authorizing a credit check and employment verification, and frequently, execute a dealer consumer credit contract secured by a lien on the customer’s (borrower’s) 1- to 4-family residential property. Simultaneously with the completion and certification of the home improvement work, the note is assigned by the dealer to a funding lender. Comments. The loan that is assigned to the funding lender is a loan covered by RESPA, when a lien is placed on the borrower’s 1to 4-family residential structure. The dealer loan or consumer credit contract originated by a dealer is also a RESPA-covered transaction, except when the dealer is not a ‘‘creditor’’ under the definition of ‘‘federally related mortgage loan’’ in § 1024.2. The lender to whom the loan will be assigned is responsible for assuring that the lender or the dealer delivers to the borrower a Good Faith Estimate of closing costs consistent with Regulation X, and that the HUD–1 or HUD– 1A Settlement Statement is used in conjunction with the settlement of the loan to be assigned. A dealer who, under § 1024.2, is covered by RESPA as a creditor is responsible for the Good Faith Estimate of Closing Costs and the use of the appropriate settlement statement in connection with the loan. Appendix C to Part 1024—Instructions for Completing Good Faith Estimate (GFE) Form The following are instructions for completing the GFE required under section 5 of RESPA and 12 CFR 1024.7 of the Bureau regulations. The standardized form set forth in this Appendix is the required GFE form and must be provided exactly as specified; provided, however, preparers may replace HUD’s OMB approval number listed on the form with the Bureau’s OMB approval number when they reproduce the GFE form. The instructions for completion of the GFE PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 79009 are primarily for the benefit of the loan originator who prepares the form and need not be transmitted to the borrower(s) as an integral part of the GFE. The required standardized GFE form must be prepared completely and accurately. A separate GFE must be provided for each loan where a transaction will involve more than one mortgage loan. General Instructions The loan originator preparing the GFE may fill in information and amounts on the form by typewriter, hand printing, computer printing, or any other method producing clear and legible results. Under these instructions, the ‘‘form’’ refers to the required standardized GFE form. Although the standardized GFE is a prescribed form, Blocks 3, 6, and 11 on page 2 may be adapted for use in particular loan situations, so that additional lines may be inserted there, and unused lines may be deleted. All fees for categories of charges shall be disclosed in U.S. dollar and cent amounts. Specific Instructions Page 1 Top of the Form—The loan originator must enter its name, business address, telephone number, and email address, if any, on the top of the form, along with the applicant’s name, the address or location of the property for which financing is sought, and the date of the GFE. ‘‘Purpose.’’—This section describes the general purpose of the GFE as well as additional information available to the applicant. ‘‘Shopping for your loan.’’—This section requires no loan originator action. ‘‘Important dates.’’—This section briefly states important deadlines after which the loan terms that are the subject of the GFE may not be available to the applicant. In Line 1, the loan originator must state the date and, if necessary, time until which the interest rate for the GFE will be available. In Line 2, the loan originator must state the date until which the estimate of all other settlement charges for the GFE will be available. This date must be at least 10 business days from the date of the GFE. In Line 3, the loan originator must state how many calendar days within which the applicant must go to settlement once the interest rate is locked. In Line 4, the loan originator must state how many calendar days prior to settlement the interest rate would have to be locked, if applicable. ‘‘Summary of your loan’’—In this section, for all loans the loan originator must fill in, where indicated: (i) The initial loan amount; (ii) The loan term; and (iii) The initial interest rate. The loan originator must fill in the initial monthly amount owed for principal, interest, and any mortgage insurance. The amount shown must be the greater of: (1) The required monthly payment for principal and interest for the first regularly scheduled payment, plus any monthly mortgage insurance payment; or (2) the accrued interest for the first regularly scheduled payment, plus any monthly mortgage insurance payment. E:\FR\FM\20DER2.SGM 20DER2 79010 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES2 The loan originator must indicate whether the interest rate can rise, and, if it can, must insert the maximum rate to which it can rise over the life of the loan. The loan originator must also indicate the period of time after which the interest rate can first change. The loan originator must indicate whether the loan balance can rise even if the borrower makes payments on time, for example in the case of a loan with negative amortization. If it can, the loan originator must insert the maximum amount to which the loan balance can rise over the life of the loan. For Federal, state, local, or tribal housing programs that provide payment assistance, any repayment of such program assistance should be excluded from consideration in completing this item. If the loan balance will increase only because escrow items are being paid through the loan balance, the loan originator is not required to check the box indicating that the loan balance can rise. The loan originator must indicate whether the monthly amount owed for principal, interest, and any mortgage insurance can rise even if the borrower makes payments on time. If the monthly amount owed can rise even if the borrower makes payments on time, the loan originator must indicate the period of time after which the monthly amount owed can first change, the maximum amount to which the monthly amount owed can rise at the time of the first change, and the maximum amount to which the monthly amount owed can rise over the life of the loan. The amount used for the monthly amount owed must be the greater of: (1) The required monthly payment for principal and interest for that month, plus any monthly mortgage insurance payment; or (2) the accrued interest for that month, plus any monthly mortgage insurance payment. The loan originator must indicate whether the loan includes a prepayment penalty, and, if so, the maximum amount that it could be. The loan originator must indicate whether the loan requires a balloon payment and, if so, the amount of the payment and in how many years it will be due. ‘‘Escrow account information.’’—The loan originator must indicate whether the loan includes an escrow account for property taxes and other financial obligations. The amount shown in the ‘‘Summary of your loan’’ section for ‘‘Your initial monthly amount owed for principal, interest, and any mortgage insurance’’ must be entered in the space for the monthly amount owed in this section. ‘‘Summary of your settlement charges.’’— On this line, the loan originator must state the Adjusted Origination Charges from subtotal A of page 2, the Charges for All Other Settlement Services from subtotal B of page 2, and the Total Estimated Settlement Charges from the bottom of page 2. Page 2 ‘‘Understanding your estimated settlement charges.’’—This section details 11 settlement cost categories and amounts associated with the mortgage loan. For purposes of determining whether a tolerance has been met, the amount on the GFE should be compared with the total of any amounts shown on the HUD–1 in the borrower’s VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 column and any amounts paid outside closing by or on behalf of the borrower. ‘‘Your Adjusted Origination Charges’’ Block 1, ‘‘Our origination charge.’’—The loan originator must state here all charges that all loan originators involved in this transaction will receive, except for any charge for the specific interest rate chosen (points). A loan originator may not separately charge any additional fees for getting this loan, including for application, processing, or underwriting. The amount stated in Block 1 is subject to zero tolerance, i.e., the amount may not increase at settlement. Block 2, ‘‘Your credit or charge (points) for the specific interest rate chosen.’’—For transactions involving mortgage brokers, the mortgage broker must indicate through check boxes whether there is a credit to the borrower for the interest rate chosen on the loan, the interest rate, and the amount of the credit, or whether there is an additional charge (points) to the borrower for the interest rate chosen on the loan, the interest rate, and the amount of that charge. Only one of the boxes may be checked; a credit and charge cannot occur together in the same transaction. For transactions without a mortgage broker, the lender may choose not to separately disclose in this block any credit or charge for the interest rate chosen on the loan; however, if this block does not include any positive or negative figure, the lender must check the first box to indicate that ‘‘The credit or charge for the interest rate you have chosen’’ is included in ‘‘Our origination charge’’ above (see Block 1 instructions above), must insert the interest rate, and must also insert ‘‘0’’ in Block 2. Only one of the boxes may be checked; a credit and charge cannot occur together in the same transaction. For a mortgage broker, the credit or charge for the specific interest rate chosen is the net payment to the mortgage broker from the lender (i.e., the sum of all payments to the mortgage broker from the lender, including payments based on the loan amount, a flat rate, or any other computation, and in a table funded transaction, the loan amount less the price paid for the loan by the lender). When the net payment to the mortgage broker from the lender is positive, there is a credit to the borrower and it is entered as a negative amount in Block 2 of the GFE. When the net payment to the mortgage broker from the lender is negative, there is a charge to the borrower and it is entered as a positive amount in Block 2 of the GFE. If there is no net payment (i.e., the credit or charge for the specific interest rate chosen is zero), the mortgage broker must insert ‘‘0’’ in Block 2 and may check either the box indicating there is a credit of ‘‘0’’ or the box indicating there is a charge of ‘‘0’’. The amount stated in Block 2 is subject to zero tolerance while the interest rate is locked, i.e., any credit for the interest rate chosen cannot decrease in absolute value terms and any charge for the interest rate chosen cannot increase. (Note: An increase in the credit is allowed since this increase is a reduction in cost to the borrower. A decrease in the credit is not allowed since it is an increase in cost to the borrower.) PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 Line A, ‘‘Your Adjusted Origination Charges.’’—The loan originator must add the numbers in Blocks 1 and 2 and enter this subtotal at highlighted Line A. The subtotal at Line A will be a negative number if there is a credit in Block 2 that exceeds the charge in Block 1. The amount stated in Line A is subject to zero tolerance while the interest rate is locked. In the case of ‘‘no cost’’ loans, where ‘‘no cost’’ refers only to the loan originator’s fees, Line A must show a zero charge as the adjusted origination charge. In the case of ‘‘no cost’’ loans where ‘‘no cost’’ encompasses third party fees as well as the upfront payment to the loan originator, all of the third party fees listed in Block 3 through Block 11 to be paid for by the loan originator (or borrower, if any) must be itemized and listed on the GFE. The credit for the interest rate chosen must be large enough that the total for Line A will result in a negative number to cover the third party fees. ‘‘Your Charges for All Other Settlement Services’’ There is a 10 percent tolerance applied to the sum of the prices of each service listed in Block 3, Block 4, Block 5, Block 6, and Block 7, where the loan originator requires the use of a particular provider or the borrower uses a provider selected or identified by the loan originator. Any services in Block 4, Block 5, or Block 6 for which the borrower selects a provider other than one identified by the loan originator are not subject to any tolerance and, at settlement, would not be included in the sum of the charges on which the 10 percent tolerance is based. Where a loan originator permits a borrower to shop for third party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time of the GFE, on a separate sheet of paper. Block 3, ‘‘Required services that we select.’’—In this block, the loan originator must identify each third party settlement service required and selected by the loan originator (excluding title services), along with the estimated price to be paid to the provider of each service. Examples of such third party settlement services might include provision of credit reports, appraisals, flood checks, tax services, and any upfront mortgage insurance premium. The loan originator must identify the specific required services and provide an estimate of the price of each service. Loan originators are also required to add the individual charges disclosed in this block and place that total in the column of this block. The charge shown in this block is subject to an overall 10 percent tolerance as described above. Block 4, ‘‘Title services and lender’s title insurance.’’—In this block, the loan originator must state the estimated total charge for third party settlement service providers for all closing services, regardless of whether the providers are selected or paid for by the borrower, seller, or loan originator. The loan originator must also include any lender’s title insurance premiums, when required, regardless of whether the provider is selected or paid for by the borrower, seller, or loan originator. All fees for title searches, E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES2 examinations, and endorsements, for example, would be included in this total. The charge shown in this block is subject to an overall 10 percent tolerance as described above. Block 5, ‘‘Owner’s title insurance.’’—In this block, for all purchase transactions the loan originator must provide an estimate of the charge for the owner’s title insurance and related endorsements, regardless of whether the providers are selected or paid for by the borrower, seller, or loan originator. For nonpurchase transactions, the loan originator may enter ‘‘NA’’ or ‘‘Not Applicable’’ in this Block. The charge shown in this block is subject to an overall 10 percent tolerance as described above. Block 6, ‘‘Required services that you can shop for.’’—In this block, the loan originator must identify each third party settlement service required by the loan originator where the borrower is permitted to shop for and select the settlement service provider (excluding title services), along with the estimated charge to be paid to the provider of each service. The loan originator must identify the specific required services (e.g., survey, pest inspection) and provide an estimate of the charge of each service. The loan originator must also add the individual charges disclosed in this block and place the total in the column of this block. The charge shown in this block is subject to an overall 10 percent tolerance as described above. Block 7, ‘‘Government recording charge.’’— In this block, the loan originator must estimate the state and local government fees for recording the loan and title documents that can be expected to be charged at settlement. The charge shown in this block is subject to an overall 10 percent tolerance as described above. Block 8, ‘‘Transfer taxes.’’—In this block, the loan originator must estimate the sum of all state and local government fees on mortgages and home sales that can be expected to be charged at settlement, based upon the proposed loan amount or sales price and on the property address. A zero tolerance applies to the sum of these estimated fees. Block 9, ‘‘Initial deposit for your escrow account.’’—In this block, the loan originator must estimate the amount that it will require the borrower to place into a reserve or escrow account at settlement to be applied to VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 recurring charges for property taxes, homeowner’s and other similar insurance, mortgage insurance, and other periodic charges. The loan originator must indicate through check boxes if the reserve or escrow account will cover future payments for all tax, all hazard insurance, and other obligations that the loan originator requires to be paid as they fall due. If the reserve or escrow account includes some, but not all, property taxes or hazard insurance, or if it includes mortgage insurance, the loan originator should check ‘‘other’’ and then list the items included. Block 10, ‘‘Daily interest charges.’’—In this block, the loan originator must estimate the total amount that will be due at settlement for the daily interest on the loan from the date of settlement until the first day of the first period covered by scheduled mortgage payments. The loan originator must also indicate how this total amount is calculated by providing the amount of the interest charges per day and the number of days used in the calculation, based on a stated projected closing date. Block 11, ‘‘Homeowner’s insurance.’’—The loan originator must estimate in this block the total amount of the premiums for any hazard insurance policy and other similar insurance, such as fire or flood insurance that must be purchased at or before settlement to meet the loan originator’s requirements. The loan originator must also separately indicate the nature of each type of insurance required along with the charges. To the extent a loan originator requires that such insurance be part of an escrow account, the amount of the initial escrow deposit must be included in Block 9. Line B, ‘‘Your Charges for All Other Settlement Services.’’—The loan originator must add the numbers in Blocks 3 through 11 and enter this subtotal in the column at highlighted Line B. Line A+B, ‘‘Total Estimated Settlement Charges.’’—The loan originator must add the subtotals in the right-hand column at highlighted Lines A and B and enter this total in the column at highlighted Line A+B. Page 3 ‘‘Instructions’’ ‘‘Understanding which charges can change at settlement.’’—This section informs the PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 79011 applicant about which categories of settlement charges can increase at closing, and by how much, and which categories of settlement charges cannot increase at closing. This section requires no loan originator action. ‘‘Using the tradeoff table.’’—This section is designed to make borrowers aware of the relationship between their total estimated settlement charges on one hand, and the interest rate and resulting monthly payment on the other hand. The loan originator must complete the left hand column using the loan amount, interest rate, monthly payment figure, and the total estimated settlement charges from page 1 of the GFE. The loan originator, at its option, may provide the borrower with the same information for two alternative loans, one with a higher interest rate, if available, and one with a lower interest rate, if available, from the loan originator. The loan originator should list in the tradeoff table only alternative loans for which it would presently issue a GFE based on the same information the loan originator considered in issuing this GFE. The alternative loans must use the same loan amount and be otherwise identical to the loan in the GFE. The alternative loans must have, for example, the identical number of payment periods; the same margin, index, and adjustment schedule if the loans are adjustable rate mortgages; and the same requirements for prepayment penalty and balloon payments. If the loan originator fills in the tradeoff table, the loan originator must show the borrower the loan amount, alternative interest rate, alternative monthly payment, the change in the monthly payment from the loan in this GFE to the alternative loan, the change in the total settlement charges from the loan in this GFE to the alternative loan, and the total settlement charges for the alternative loan. If these options are available, an applicant may request a new GFE, and a new GFE must be provided by the loan originator. ‘‘Using the shopping chart.’’—This chart is a shopping tool to be provided by the loan originator for the borrower to complete, in order to compare GFEs. ‘‘If your loan is sold in the future.’’—This section requires no loan originator action. BILLING CODE 4810–AM–P E:\FR\FM\20DER2.SGM 20DER2 VerDate Mar<15>2010 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00036 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 ER20DE11.006</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 79012 VerDate Mar<15>2010 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00037 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 79013 ER20DE11.007</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations VerDate Mar<15>2010 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations 17:18 Dec 19, 2011 Jkt 226001 PO 00000 Frm 00038 Fmt 4701 Sfmt 4725 E:\FR\FM\20DER2.SGM 20DER2 ER20DE11.008</GPH> mstockstill on DSK4VPTVN1PROD with RULES2 79014 79015 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations Appendix D to Part 1024 Affiliated Business Arrangement Disclosure Statement Format Notice To: lllllllllllllllllll From: lllllllllllllllll (Entity Making Statement) Property: llllllllllllllll Date: llllllllllllllllll This is to give you notice that [referring party] has a business relationship with [settlement services provider(s)]. [Describe the nature of the relationship between the referring party and the provider(s), including percentage of ownership interest, if applicable.] Because of this relationship, this referral may provide [referring party] a financial or other benefit. [A.] Set forth below is the estimated charge or range of charges for the settlement services listed. You are NOT required to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES. [provider and settlement service] lllll lllllllllllllllllllll lllllllllllllllllllll [charge or range of charges] llllllll lllllllllllllllllllll lllllllllllllllllllll [B.] Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction. [provider and settlement service] lllll lllllllllllllllllllll lllllllllllllllllllll [charge or range of charges] llllllll lllllllllllllllllllll lllllllllllllllllllll ACKNOWLEDGMENT I/we have read this disclosure form, and understand that referring party is referring me/us to purchase the above-described settlement service(s) and may receive a financial or other benefit as the result of this referral. lllllllllllllllllllll Signature [INSTRUCTIONS TO PREPARER:] [Use paragraph A for referrals other than those by a lender to an attorney, a credit reporting agency, or a real estate appraiser that a lender is requiring a borrower to use to represent the lender’s interests in the transaction. Use paragraph B for those referrals to an attorney, credit reporting agency, or real estate appraiser that a lender is requiring a borrower to use to represent the lender’s interests in the transaction. When applicable, use both paragraphs. Specific timing rules for delivery of the affiliated business disclosure statement are set forth in 12 CFR 1024.15(b)(1) of Regulation X). These INSTRUCTIONS TO PREPARER should not appear on the statement.] Appendix E to Part 1024—Arithmetic Steps STEP 2—ADJUSTED TRIAL BALANCE [Increase monthly balances to eliminate negative balances] Aggregate pmt Jun .................... Jul ..................... Aug ................... Sep ................... Oct .................... Nov ................... Dec ................... Jan .................... Feb .................... Mar .................... Apr .................... May ................... Jun .................... 0 130 130 130 130 130 130 130 130 130 130 130 130 disb bal 0 500 0 360 0 0 700 0 0 0 0 0 0 780 410 540 310 440 570 0 130 260 390 520 650 780 I. Example Illustrating Aggregate Analysis STEP 3—TRIAL BALANCE WITH CUSHION Assumptions Disbursements: $360 for school taxes disbursed on September 20 $1,200 for county property taxes: $500 disbursed on July 25 $700 disbursed on December 10 Aggregate pmt Cushion: One-sixth of estimated annual disbursements Settlement: May 15 First Payment: July 1 STEP 1—INITIAL TRIAL BALANCE Aggregate pmt Jun .................... Jul ..................... Aug ................... Sep ................... Oct .................... Nov ................... Dec ................... Jan .................... Feb .................... Mar .................... Apr .................... May ................... Jun .................... disb 0 130 130 130 130 130 130 130 130 130 130 130 130 0 500 0 360 0 0 700 0 0 0 0 0 0 bal 0 ¥370 ¥240 ¥470 ¥340 ¥210 ¥780 ¥650 ¥520 ¥390 ¥260 ¥130 0 Jun .................... Jul ..................... Aug ................... Sep ................... Oct .................... Nov ................... Dec ................... Jan .................... Feb .................... Mar .................... Apr .................... May ................... Jun .................... 0 130 130 130 130 130 130 130 130 130 130 130 130 disb bal 0 500 0 360 0 0 700 0 0 0 0 0 0 1040 670 800 570 700 830 260 390 520 650 780 910 1040 II. Example Illustrating Single-Item Analysis Assumptions Disbursements: $360 for school taxes disbursed on September 20 $1,200 for county property taxes: $500 disbursed on July 25 $700 disbursed on December 10 Cushion: One-sixth of estimated annual disbursements Settlement: May 15 First Payment: July 1 STEP 1—INITIAL TRIAL BALANCE Single-item mstockstill on DSK4VPTVN1PROD with RULES2 Taxes pmt June ..................... July ....................... August .................. September ............ October ................ November ............. VerDate Mar<15>2010 17:18 Dec 19, 2011 School taxes disb 0 100 100 100 100 100 Jkt 226001 bal 0 500 0 0 0 0 PO 00000 Frm 00039 pmt 0 ¥400 ¥300 ¥200 ¥100 0 Fmt 4701 Sfmt 4700 disb 0 30 30 30 30 30 E:\FR\FM\20DER2.SGM bal 0 0 0 360 0 0 20DER2 0 30 60 ¥270 ¥240 ¥210 79016 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations STEP 1—INITIAL TRIAL BALANCE—Continued Single-item Taxes pmt School taxes disb December ............. January ................ February ............... March ................... April ...................... May ...................... June ..................... bal 100 100 100 100 100 100 100 pmt ¥600 ¥500 ¥400 ¥300 ¥200 ¥100 0 700 0 0 0 0 0 0 disb bal 30 30 30 30 30 30 30 ¥180 ¥150 ¥120 ¥90 ¥60 ¥30 0 0 0 0 0 0 0 0 STEP 2—ADJUSTED TRIAL BALANCE [Increase monthly balances to eliminate negative balances] Single-item Taxes pmt School taxes disb Jun ....................... Jul ......................... Aug ....................... Sep ....................... Oct ........................ Nov ....................... Dec ....................... Jan ....................... Feb ....................... Mar ....................... Apr ........................ May ...................... Jun ....................... bal 0 100 100 100 100 100 100 100 100 100 100 100 100 0 500 0 0 0 0 700 0 0 0 0 0 0 pmt 600 200 300 400 500 600 0 100 200 300 400 500 600 disb 0 30 30 30 30 30 30 30 30 30 30 30 30 bal 0 0 0 360 0 0 0 0 0 0 0 0 0 270 300 330 0 30 60 90 120 150 180 210 240 270 STEP 3—TRIAL BALANCE WITH CUSHION Single-item Taxes pmt disb Jun ....................... Jul ......................... Aug ....................... Sep ....................... Oct ........................ Nov ....................... Dec ....................... Jan ....................... Feb ....................... Mar ....................... Apr ........................ May ...................... Jun ....................... 0 100 100 100 100 100 100 100 100 100 100 100 100 mstockstill on DSK4VPTVN1PROD with RULES2 [Sample language; use business stationery or similar heading] [Date] SERVICING DISCLOSURE STATEMENT NOTICE TO FIRST LIEN MORTGAGE LOAN APPLICANTS: THE RIGHT TO COLLECT YOUR MORTGAGE LOAN PAYMENTS MAY BE TRANSFERRED You are applying for a mortgage loan covered by the Real Estate Settlement 17:18 Dec 19, 2011 Jkt 226001 bal 0 500 0 0 0 0 700 0 0 0 0 0 0 Appendix MS–1 to Part 1024 VerDate Mar<15>2010 School taxes pmt 800 400 500 600 700 800 200 300 400 500 600 700 800 0 30 30 30 30 30 30 30 30 30 30 30 30 Procedures Act (RESPA) (12 U.S.C. 2601 et seq.). RESPA gives you certain rights under Federal law. This statement describes whether the servicing for this loan may be transferred to a different loan servicer. ‘‘Servicing’’ refers to collecting your principal, interest, and escrow payments, if any, as well as sending any monthly or annual statements, tracking account balances, and handling other aspects of your loan. You will be given advance notice before a transfer occurs. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 disb bal 0 0 0 360 0 0 0 0 0 0 0 0 0 330 360 390 60 90 120 150 180 210 240 270 300 330 Servicing Transfer Information [We may assign, sell, or transfer the servicing of your loan while the loan is outstanding.] [or] [We do not service mortgage loans of the type for which you applied. We intend to assign, sell, or transfer the servicing of your mortgage loan before the first payment is due.] [or] E:\FR\FM\20DER2.SGM 20DER2 Federal Register / Vol. 76, No. 244 / Tuesday, December 20, 2011 / Rules and Regulations [The loan for which you have applied will be serviced at this financial institution and we do not intend to sell, transfer, or assign the servicing of the loan.] [INSTRUCTIONS TO PREPARER: Insert the date and select the appropriate language under ‘‘Servicing Transfer Information.’’ The model format may be annotated with further information that clarifies or enhances the model language.] Appendix MS–2 to Part 1024 [Sample language; use business stationery or similar heading] mstockstill on DSK4VPTVN1PROD with RULES2 NOTICE OF ASSIGNMENT, SALE, OR TRANSFER OF SERVICING RIGHTS You are hereby notified that the servicing of your mortgage loan, that is, the right to collect payments from you, is being assigned, sold or transferred from __________ to __________ effective __________. The assignment, sale or transfer of the servicing of the mortgage loan does not affect any term or condition of the mortgage instruments, other than terms directly related to the servicing of your loan. Except in limited circumstances, the law requires that your present servicer send you this notice at least 15 days before the effective date of transfer, or at closing. Your new servicer must also send you this notice no later than 15 days after this effective date or at closing. [In this case, all necessary information is combined in this one notice]. Your present servicer is __________. If you have any question relating to the transfer of servicing from your present servicer call __________ [enter the name of an individual or department here] between __ a.m. and __ p.m. on the following days __________. This is a [toll-free] or [collect call] number. Your new servicer will be __________. The business address for your new servicer is: lllllllllllllllllllll _________________________________________ . The [toll-free] [collect call] telephone number of your new servicer is __________. If you have any question relating to the transfer of servicing to your new servicer call __________ [enter the name of an individual or department here] at __________ [toll free or collect call telephone number] between VerDate Mar<15>2010 19:47 Dec 19, 2011 Jkt 226001 __ a.m. and __ p.m. on the following days __________. The date that your present servicer will stop accepting payments form you is __________. The date that your new servicer will start accepting payments from you is __________. Send all payments due on or after that date to your new servicer. [Use the paragraph if appropriate; otherwise omit.] The transfer of servicing rights may affect the term of or the continued availability of mortgage life or disability insurance or any other type of optional insurance in the following manner: lllllllllllllllllllll lllllllllllllllllllll lllllllllllllllllllll lllllllllllllllllllll lllllllllllllllllllll __________ and you should take the following action to maintain coverage: lllllllllllllllllllll lllllllllllllllllllll __________. You should also be aware of the following information, which is set out in more detail in Section 6 of the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 2605): During the 60-day period following the effective date of the transfer of the loan servicing, a loan payment received by your old servicer before its due date may not be treated by the new loan servicer as late, and a late fee may not be imposed on you. Section 6 of RESPA (12 U.S.C. 2605) gives you certain consumer rights. If you send a ‘‘qualified written request’’ to your loan servicer concerning the servicing of your loan, your servicer must provide you with a written acknowledgment within 20 Business Days of receipt of your request. A ‘‘qualified written request’’ is a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, which includes your name and account number, and your reasons for the request. [If you want to send a ‘‘qualified written request’’ regarding the servicing of your loan, it must be sent to this address: ________________________________________ ] Not later than 60 Business Days after receiving your request, your servicer must make any appropriate corrections to your PO 00000 Frm 00041 Fmt 4701 Sfmt 9990 79017 account, and must provide you with a written clarification regarding any dispute. During this 60-Business Day period, your servicer may not provide information to a consumer reporting agency concerning any overdue payment related to such period or qualified written request. However, this does not prevent the servicer from initiating foreclosure if proper grounds exist under the mortgage documents. A Business Day is a day on which the offices of the business entity are open to the public for carrying on substantially all of its business functions. Section 6 of RESPA also provides for damages and costs for individuals or classes of individuals in circumstances where servicers are shown to have violated the requirements of that section. You should seek legal advice if you believe your rights have been violated. [INSTRUCTIONS TO PREPARER: Delivery means placing the notice in the mail, first class postage prepaid, prior to 15 days before the effective date of transfer (transferor) or prior to 15 days after the effective date of transfer (transferee). However, this notice may be sent not more than 30 days after the effective date of the transfer of servicing rights if certain emergency business situations occur. See 12 CFR § 1024.21(d)(1)(ii). ‘‘Lender’’ may be substituted for ‘‘present servicer’’ where appropriate. These instructions should not appear on the format.] lllllllllllllllllllll PRESENT SERVICER [Signature not required] lllllllllllllllllllll Date [and][or] lllllllllllllllllllll FUTURE SERVICER [Signature not required] lllllllllllllllllllll Date Dated: October 24, 2011. Alastair M. Fitzpayne, Deputy Chief of Staff and Executive Secretary, Department of the Treasury. [FR Doc. 2011–31722 Filed 12–19–11; 8:45 am] BILLING CODE 4810–AM–P E:\FR\FM\20DER2.SGM 20DER2

Agencies

BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 76, Number 244 (Tuesday, December 20, 2011)]
[Rules and Regulations]
[Pages 78978-79017]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31722]

[[Page 78977]]

Vol. 76

Tuesday,

No. 244

December 20, 2011

Part II

Bureau of Consumer Financial Protection

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12 CFR Part 1024

Real Estate Settlement Procedures Act (Regulation X); Interim Final
Rule

Federal Register / Vol. 76 , No. 244 / Tuesday, December 20, 2011 /
Rules and Regulations

[[Page 78978]]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

[Docket No. CFPB-2011-0030]
RIN 3170-AA06

Real Estate Settlement Procedures Act (Regulation X)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

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SUMMARY: Title X of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) transferred rulemaking authority for a
number of consumer financial protection laws from seven Federal
agencies to the Bureau of Consumer Financial Protection (Bureau) as of
July 21, 2011. The Bureau is in the process of republishing the
regulations implementing those laws with technical and conforming
changes to reflect the transfer of authority and certain other changes
made by the Dodd-Frank Act. In light of the transfer of the Department
of Housing and Urban Development's (HUD's) rulemaking authority for the
Real Estate Settlement Procedures Act (RESPA) to the Bureau, the Bureau
is publishing for public comment an interim final rule establishing a
new Regulation X (Real Estate Settlement Procedures Act). This interim
final rule does not impose any new substantive obligations on persons
subject to the existing Regulation X, previously published by HUD.

DATES: This interim final rule is effective December 30, 2011. Comments
must be received on or before February 21, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0030 or RIN 3170-AA06, by any of the following methods:
Electronic: https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Monica Jackson, Office of the Executive Secretary,
Bureau of Consumer Financial Protection, 1500 Pennsylvania Ave. NW.,
(Attn: 1801 L Street), Washington, DC 20220.
Hand Delivery/Courier in Lieu of Mail: Monica Jackson,
Office of the Executive Secretary, Bureau of Consumer Financial
Protection, 1700 G Street NW., Washington, DC 20006.
All submissions must include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. In general,
all comments received will be posted without change to https://www.regulations.gov. In addition, comments will be available for public
inspection and copying at 1700 G Street NW., Washington, DC 20006, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Time. You can make an appointment to inspect the documents by
telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or social
security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Joseph Devlin or Jane Gao, Office of
Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Background

Congress enacted the Real Estate Settlement Procedures Act of 1974
(RESPA) based on findings that significant reforms in the real estate
settlement process were needed to ensure that consumers are provided
with greater and more timely information on the nature and costs of the
residential real estate settlement process and are protected from
unnecessarily high settlement charges caused by certain abusive
practices that Congress found to have developed. In addition to
providing consumers with appropriate disclosures, the purposes of RESPA
include effecting certain changes in the settlement process for
residential real estate that will result in (1) the elimination of
kickbacks or referral fees that Congress found to increase
unnecessarily the costs of certain settlement services; and (2) a
reduction in the amounts home buyers are required to place in escrow
accounts established to insure the payment of real estate taxes and
insurance.\1\ RESPA also prohibits unearned fees in connection with
federally related mortgage loans. In 1990, Congress amended RESPA by
adding a new section 6 covering persons responsible for servicing
mortgage loans and amending statutory provisions related to mortgage
servicers' administration of borrowers' escrow accounts.\2\
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\1\ 12 U.S.C. 2601.
\2\ Public Law 101-625, 104 Stat. 4079 (1990), Sections 941-42.
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Historically, RESPA has been implemented in Regulation X of the
Department of Housing and Urban Development (HUD), 24 CFR part 3500.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) \3\ amended a number of consumer financial protection laws,
including RESPA. In addition to various substantive amendments, the
Dodd-Frank Act transferred rulemaking authority for RESPA to the
Bureau, effective July 21, 2011. See sections 1061 and 1098 of the
Dodd-Frank Act. Pursuant to the Dodd-Frank Act and RESPA, as amended,
the Bureau is publishing for public comment an interim final rule
establishing a new Regulation X (Real Estate Settlement Procedures
Act), 12 CFR part 1024, implementing RESPA.
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\3\ Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------

II. Summary of the Interim Final Rule

A. General

The interim final rule substantially duplicates HUD's Regulation X
as the Bureau's new Regulation X, 12 CFR part 1024, making only certain
non-substantive, technical, formatting, and stylistic changes. To
minimize any potential confusion, other than republishing HUD's rule
(24 CFR part 3500) with the Bureau's part number, the Bureau is
preserving where possible the section numbering HUD used in 24 CFR part
3500. For example, while this interim final rule generally incorporates
HUD's existing regulatory text and appendices (including standardized
and model forms), the rule has been edited as necessary to reflect
nomenclature and other technical amendments required by the Dodd-Frank
Act. Notably, this interim final rule does not impose any new
substantive obligations on regulated entities. In future rulemakings,
the Bureau expects to amend Regulation X to implement certain other
changes to RESPA made by the Dodd-Frank Act, such as preparing and
distributing booklets ``jointly addressing compliance with the
requirements of the Truth in Lending Act and [RESPA], in order to help
persons borrowing money to finance the purchase of residential real
estate better to understand the nature and costs of real estate
settlement services,'' \4\ integrating certain disclosure requirements
of the Truth in Lending Act, 15 U.S.C. 1601 et seq., with certain
disclosure requirements of RESPA,\5\ adopting regulations pertaining to
practices of mortgage servicers, and issuing regulations to carry out
the consumer purposes of RESPA.
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\4\ Public Law 111-203, Section 1098(3). Accordingly, pending
further Bureau action, the Bureau is adopting HUD's existing booklet
on settlement costs.
\5\ Id. at Section 1032(f).

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[[Page 78979]]

B. Specific Changes

References to HUD and its administrative structure, including
provisions for imposing penalties for escrow violations, have been
replaced with references to the Bureau. Conforming edits have been made
to internal cross-references and addresses for filing applications and
notices. Conforming edits have also been made to reflect the scope of
the Bureau's authority pursuant to RESPA, as amended by the Dodd-Frank
Act. Historical references that are no longer applicable, and
references to effective dates that have passed, have been removed as
appropriate. In addition, the Bureau is correcting a citation error in
HUD's existing Sec. 3500.17(l)(4). As adopted by HUD, Sec.
3500.17(l)(4) contains a cross-reference to Sec. 3500.21(f). The
correct citation should be to Sec. 3500.21(e). The Bureau is
republishing Sec. 3500.17(l)(4) as Sec. 1024.17(l)(4) with the
citation corrected to read Sec. 1024.21(e). References to any ``HUD
Public Guidance Document'' throughout HUD's Regulation X have been
replaced with references to a ``Public Guidance Document'' throughout
the Bureau's Regulation X. HUD's existing Regulation X CFR text
contains several provisions that HUD adopted in 1996 but never made
effective.\6\ The Bureau is not republishing those provisions with the
Bureau's Regulation X. Furthermore, the Bureau is clarifying
permissible changes that covered persons may make to the special
information booklet without the Bureau's written approval. As adopted
by HUD, Sec. Sec. 3500.6(d)(2) and (3) set forth the permissible
changes that covered persons may make in the special information
booklet without written approval from the Secretary of HUD. To reflect
the transfer of authority from HUD to the Bureau, the Bureau is
recodifying Sec. 3500.6(d)(1) as Sec. Sec. 1024.6(d)(1)(i) and (ii)
to clarify permissible changes covered persons may make to the special
information booklet without the Bureau's written approval.
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\6\ See Notice of Final Rule and Delay of Effectiveness, 61 Fed.
Reg. 51782 (October 4, 1996).
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As discussed above, the Dodd-Frank Act directed the Bureau to
integrate certain disclosures required by TILA with certain disclosures
required by RESPA. The Bureau expects the content and format of HUD's
existing HUD-1/1A and GFE forms to be significantly revised or replaced
by such rulemaking. The HUD-1/1A and GFE forms currently list HUD's
Office of Management and Budget (OMB) control number, 2502-0265, in
order to satisfy certain information collection requirements of the
Paperwork Reduction Act. The Bureau believes that requiring covered
persons to modify existing forms solely to replace HUD's OMB control
number with the Bureau's OMB control number would impose substantial
burden on covered persons with limited or no net benefit to consumers.
Accordingly, covered persons may continue to list HUD's OMB control
number on the HUD-1/1A and GFE forms until a final rule to the contrary
takes effect. Covered persons also have the option of replacing HUD's
OMB control number with the Bureau's OMB control number on the HUD-1/1A
and GFE forms until a final rule to the contrary takes effect.
Accordingly, the Bureau is adding language in Appendix C to part
1024--Instructions for Completing the Good Faith Estimate (GFE) Form to
clarify that covered persons may replace HUD's OMB control number with
the Bureau's OMB control number on the form at their option. HUD's
existing Sec. 3500.9 lists the permissible changes allowed when the
HUD-1/1A settlement changes are reproduced. The Bureau is recodifying
Sec. 3500.9 as Sec. 1024.9 and adding language in Sec. 1024.9(c) to
clarify that covered persons may replace HUD's OMB control number with
the Bureau's OMB Control number on the HUD-1/1A forms without written
approval from the Bureau. Furthermore, the Bureau is revising language
in Sec. 1024.9(a)(5) to clarify that covered persons are not required
to display the expiration date that is associated with the OMB control
number displayed on the HUD-1/1A forms.
The Bureau has certain information gathering and investigative
authority concerning Federal consumer financial laws, including
RESPA,\7\ under Subtitles B and E of the Dodd-Frank Act. RESPA also
confers additional information gathering and investigative authority on
the Bureau. Accordingly, the Bureau is removing paragraphs (i) and (ii)
in HUD's existing Sec. 3500.17(l)(3) because the repetition of the
RESPA-conferred information gathering and investigative authority
therein is unnecessary.
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\7\ See Public Law 111-203, Section 1002(12)(M) (defining RESPA
as an ``enumerated law.'') An enumerated consumer law is a ``Federal
consumer financial law.'' Id. at Section 1002(14).
---------------------------------------------------------------------------

The Bureau has the authority to enforce RESPA and Regulation X
pursuant to Subtitle E of Title X of the Dodd-Frank Act.\8\ RESPA also
confers additional enforcement authority on the Bureau. The Bureau is
removing the civil money penalties provisions in HUD's existing Sec.
3500.17(m) and (n) because the repetition of this RESPA-conferred
authority is unnecessary. Investigations undertaken by the Bureau will
be conducted in accordance with 12 CFR part 1080, and administrative
adjudications will be conducted in accordance with 12 CFR part 1081.
Due to the removal of paragraphs (m) and (n) from Sec. 3500.17, the
``Discretionary payments'' paragraph in HUD's existing Sec. 3500.17(o)
is being recodified as Sec. 1024.17(m) in this interim final rule.
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\8\ Id. at Sections 1051-1057.
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Finally, the Bureau is removing paragraphs (b) and (c) from HUD's
existing Sec. 3500.19 because they are repetitive in light of other
statutory and regulatory provisions. See Sec. Sec. 3500.14-16 (being
recodified as Sec. Sec. 1024.14-16). Accordingly, corresponding cross-
references to Sec. Sec. 3500.19(b) and (c) in HUD's existing
Regulation X are also being removed,\9\ and Sec. 3500.19(d) is being
recodified as Sec. 1024.19(b).
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\9\ See Sec. 3500.14(a) (being recodified as Sec. 1024.14(a))
and Sec. 3500.16 (being recodified as Sec. 1024.16).
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III. Legal Authority

A. Rulemaking Authority

The Bureau is issuing this interim final rule pursuant to its
authority under RESPA and the Dodd-Frank Act. Effective July 21, 2011,
section 1061 of the Dodd-Frank Act transferred to the Bureau all of the
HUD Secretary's consumer protection functions relating to RESPA.\10\
Accordingly, effective July 21, 2011, the authority of HUD to issue
regulations pursuant to RESPA transferred to the Bureau.\11\
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\10\ Public Law 111-203, 1061(b)(7)(A). Effective on the
designated transfer date, July 21, 2011, the Bureau was also granted
``all powers and duties'' that were vested in the HUD Secretary
relating to RESPA on the date before the designated transfer date.
Id. at Section 1061(b)(7)(B). Until this and other interim final
rules take effect, existing regulations for which rulemaking
authority transferred to the Bureau continue to govern persons
covered by this rule. See 76 FR 43569 (July 21, 2011).
\11\ Section 1066 of the Dodd-Frank Act grants the Secretary of
the Treasury interim authority to perform certain functions of the
Bureau. Pursuant to that authority, Treasury is publishing this
interim final rule on behalf of the Bureau.
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RESPA, as amended, authorizes the Bureau to issue regulations to
carry out the provisions of RESPA.\12\ This authority allows the Bureau
to prescribe such rules and regulations, to make such interpretations,
and to grant such reasonable exemptions for classes of transactions, as
may be necessary to achieve the purposes of RESPA. In its existing
regulation, HUD has used this

[[Page 78980]]

RESPA authority to establish extensive rules concerning appropriate and
timely disclosures about the nature and costs of the residential real
estate settlement process, the elimination of kickbacks or referral
fees with respect to certain settlement services, and mortgage
servicers' administration of borrowers' escrow accounts, as well as
their handling of servicing transfers and written consumer
inquiries.\13\
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\12\ Public Law 111-203, Section 1098(11); 12 U.S.C. 2603-2605,
2607, 2609, 2617.
\13\ See HUD's Regulation X, 24 CFR part 3500.
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B. Authority To Issue an Interim Final Rule Without Prior Notice and
Comment

The Administrative Procedure Act (APA) \14\ generally requires
public notice and an opportunity to comment before promulgation of
substantive regulations.\15\ The APA provides exceptions to notice-and-
comment procedures, however, where an agency for good cause finds that
such procedures are impracticable, unnecessary, or contrary to the
public interest or when a rulemaking relates to agency organization,
procedure, and practice.\16\ The Bureau finds that there is good cause
to conclude that providing notice and opportunity for comment would be
unnecessary and contrary to the public interest under these
circumstances. In addition, substantially all of the changes made by
this interim final rule, which were necessitated by the Dodd-Frank
Act's transfer of RESPA authority from HUD to the Bureau, relate to
agency organization, procedure, and practice and are thus exempt from
the APA's notice-and-comment requirements.
---------------------------------------------------------------------------

\14\ 5 U.S.C. 551 et seq.
\15\ 5 U.S.C. 553(b), (c).
\16\ 5 U.S.C. 553(b)(3)(A), (B).
---------------------------------------------------------------------------

The Bureau's good cause findings are based on the following
considerations. As an initial matter, HUD's existing regulation was a
result of notice-and-comment rulemaking to the extent required.
Moreover, the interim final rule published today does not impose any
new, substantive obligations on regulated entities. Rather, the interim
final rule makes only non-substantive, technical changes to the
existing text of the regulation, such as renumbering, changing internal
cross-references, replacing appropriate nomenclature to reflect the
transfer of authority to the Bureau, and changing the address for
filing applications and notices. Given the technical nature of these
changes, and the fact that the interim final rule does not impose any
additional substantive requirements on covered entities, an opportunity
for prior public comment is unnecessary. In addition, recodifying HUD's
regulation to reflect the transfer of authority to the Bureau will help
facilitate compliance with RESPA and its implementing regulations, and
will help reduce uncertainty regarding the applicable regulatory
framework. Using notice-and-comment procedures would delay this process
and thus be contrary to the public interest.
The APA generally requires that rules be published not less than 30
days before their effective dates. See 5 U.S.C. 553(d). As with the
notice and comment requirement, however, the APA allows an exception
when ``otherwise provided by the agency for good cause found and
published with the rule.'' 5 U.S.C. 553(d)(3). The Bureau finds that
there is good cause for providing less than 30 days notice here. A
delayed effective date would harm consumers and regulated entities by
needlessly perpetuating discrepancies between the amended statutory
text and the implementing regulation, thereby hindering compliance and
prolonging uncertainty regarding the applicable regulatory
framework.\17\
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\17\ This interim final rule is one of 14 companion rulemakings
that together restate and recodify the implementing regulations
under 14 existing consumer financial laws (part III.C, below, lists
the 14 laws involved). In the interest of proper coordination of
this overall regulatory framework, which includes numerous cross-
references among some of the regulations, the Bureau is establishing
the same effective date of December 30, 2011 for those rules
published on or before that date and making those published
thereafter (if any) effective immediately.
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In addition, delaying the effective date of the interim final rule
for 30 days would provide no practical benefit to regulated entities in
this context and in fact could operate to their detriment. As discussed
above, the interim final rule published today does not impose any new,
substantive obligations on regulated entities. Instead, the rule makes
only non-substantive, technical changes to the existing text of the
regulation. Thus, regulated entities that are already in compliance
with the existing rules will not need to modify business practices as a
result of this rule.

C. Section 1022(b)(2) of the Dodd-Frank Act

In developing the interim final rule, the Bureau has conducted an
analysis of potential benefits, costs, and impacts.\18\ The Bureau
believes that the interim final rule will benefit consumers and covered
persons by updating and recodifying Regulation X to reflect the
transfer of authority to the Bureau and certain other changes mandated
by the Dodd-Frank Act. This will help facilitate compliance with RESPA
and its implementing regulations and help reduce any uncertainty
regarding the applicable regulatory framework. The interim final rule
will not impose any new substantive obligations on consumers or covered
persons and is not expected to have any impact on consumers' access to
consumer financial products and services.
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\18\ Section 1022(b)(2)(A) of the Dodd-Frank Act addresses the
consideration of the potential benefits and costs of regulation to
consumers and covered persons, including the potential reduction of
access by consumers to consumer financial products or services; the
impact on depository institutions and credit unions with $10 billion
or less in total assets as described in Section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas. Section
1022(b)(2)(B) requires that the Bureau ``consult with the
appropriate prudential regulators or other Federal agencies prior to
proposing a rule and during the comment process regarding
consistency with prudential, market, or systemic objectives
administered by such agencies.'' The manner and extent to which
these provisions apply to interim final rules and to benefits,
costs, and impacts that are compelled by statutory changes rather
than discretionary Bureau action is unclear. Nevertheless, to inform
this rulemaking more fully, the Bureau performed the described
analyses and consultations.
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Although not required by the interim final rule, covered entities
may incur some costs in updating compliance manuals and related
materials to reflect the new numbering and other technical changes
reflected in the new Regulation X. The Bureau has worked to reduce any
such burden by preserving the existing numbering to the extent possible
and believes that such costs will likely be minimal. These changes
could be handled in the short term by providing a short, standalone
summary alerting users to the changes and in the long term could be
combined with other updates at the firm's convenience. The Bureau
intends to continue investigating the possible costs to affected
entities of updating manuals and related materials to reflect these
changes and solicits comments on this and other issues discussed in
this section.
The interim final rule will have no unique impact on depository
institutions or credit unions with $10 billion or less in assets as
described in section 1026(a) of the Dodd-Frank Act. Also, the interim
final rule will have no unique impact on rural consumers.
In undertaking the process of recodifying Regulation X, as well as
regulations implementing thirteen other existing consumer financial
laws,\19\ the

[[Page 78981]]

Bureau consulted the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency, the National Credit Union
Administration, the Board of Governors of the Federal Reserve System,
the Federal Trade Commission, and the Department of Housing and Urban
Development, including with respect to consistency with any prudential,
market, or systemic objectives that may be administered by such
agencies.\20\ The Bureau also has consulted with the Office of
Management and Budget for technical assistance. The Bureau expects to
have further consultations with the appropriate Federal agencies during
the comment period.
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\19\ The fourteen laws implemented by this and its companion
rulemakings are: The Consumer Leasing Act, the Electronic Fund
Transfer Act (except with respect to Section 920 of that Act), the
Equal Credit Opportunity Act, the Fair Credit Reporting Act (except
with respect to Sections 615(e) and 628 of that act), the Fair Debt
Collection Practices Act, Subsections (b) through (f) of Section 43
of the Federal Deposit Insurance Act, Sections 502 through 509 of
the Gramm-Leach-Bliley Act (except for Section 505 as it applies to
Section 501(b)), the Home Mortgage Disclosure Act, the Real Estate
Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the
Truth in Lending Act, the Truth in Savings Act, Section 626 of the
Omnibus Appropriations Act, 2009, and the Interstate Land Sales Full
Disclosure Act.
\20\ In light of the technical but voluminous nature of this
recodification project, the Bureau focused the consultation process
on a representative sample of the recodified regulations, while
making information on the other regulations available. The Bureau
expects to conduct differently its future consultations regarding
substantive rulemakings.
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IV. Request for Comment

Although notice and comment rulemaking procedures are not required,
the Bureau invites comments on this notice. Commenters are specifically
encouraged to identify any technical issues raised by the rule. The
Bureau is also seeking comment in response to a notice published at 76
FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities
for streamlining regulations that it has inherited from other Federal
agencies to address provisions that are outdated, unduly burdensome, or
unnecessary.

V. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations.\21\ The RFA generally requires an
agency to conduct an initial regulatory flexibility analysis (IRFA) and
a final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities.\22\ The Bureau also is subject to
certain additional procedures under the RFA involving the convening of
a panel to consult with small business representatives prior to
proposing a rule for which an IRFA is required.\23\
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\21\ 5 U.S.C. 601 et seq.
\22\ 5 U.S.C. 603, 604.
\23\ 5 U.S.C. 609.
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The IRFA and FRFA requirements described above apply only where a
notice of proposed rulemaking is required,\24\ and the panel
requirement applies only when a rulemaking requires an IRFA.\25\ As
discussed above in part III, a notice of proposed rulemaking is not
required for this rulemaking.
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\24\ 5 U.S.C. 603(a), 604(a); 5 U.S.C. 553(b)(B).
\25\ 5 U.S.C. 609(b).
---------------------------------------------------------------------------

In addition, as discussed above, this interim final rule has only a
minor impact on entities subject to Regulation X. The rule imposes no
new, substantive obligations on covered entities. Accordingly, the
undersigned certifies that this interim final rule will not have a
significant economic impact on a substantial number of small entities.

VI. Paperwork Reduction Act

The Bureau may not conduct or sponsor, and a respondent is not
required to respond to, an information collection unless it displays a
currently valid Office of Management and Budget (OMB) control number.
This rule contains information collection requirements under the
Paperwork Reduction Act (PRA), which have been previously approved by
OMB, the OMB control number for which is 2502-0265, and the ongoing PRA
burden for which is unchanged by this rule. There are no new
information collection requirements in this interim final rule. The
Bureau's OMB control number for this information collection is: 3170-
0016.

List of Subjects in 12 CFR Part 1024

Consumer protection, Condominiums, Housing, Mortgages, Mortgagees,
Mortgage servicing, Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set forth above, the Bureau of Consumer Financial
Protection adds part 1024 to Chapter X in Title 12 of the Code of
Federal Regulations to read as follows:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

Sec.
1024.1 Designation.
1024.2 Definitions.
1024.3 Questions or suggestions from public and copies of public
guidance documents.
1024.4 Reliance upon rule, regulation or interpretation by the
Bureau.
1024.5 Coverage of RESPA.
1024.6 Special information booklet at time of loan application.
1024.7 Good faith estimate.
1024.8 Use of HUD-1 or HUD-1A settlement statements.
1024.9 Reproduction of settlement statements.
1024.10 One-day advance inspection of HUD-1 or HUD-1A settlement
statement; delivery; recordkeeping.
1024.11 Mailing.
1024.12 No fee.
1024.13 Relation to state laws.
1024.14 Prohibition against kickbacks and unearned fees.
1024.15 Affiliated business arrangements.
1024.16 Title companies.
1024.17 Escrow accounts.
1024.18 Validity of contracts and liens.
1024.19 Enforcement.
1024.20 [Reserved]
1024.21 Mortgage servicing transfers.
1024.22 Severability.
1024.23 ESIGN applicability.
Appendix A to Part 1024--Instructions for Completing HUD-1 and HUD-
1A Settlement Statements; Sample HUD-1 and HUD-1A Statements
Appendix B to Part 1024--Illustrations of Requirements of RESPA
Appendix C to Part 1024--Instructions for Completing Good Faith
Estimate (GFE) Form
Appendix D to Part 1024--Affiliated Business Arrangement Disclosure
Statement Format
Appendix E to Part 1024--Arithmetic Steps
Appendix MS-1 to Part 1024--Servicing Disclosure Statement
Appendix MS-2 to Part 1024--Notice of Assignment, Sale, or Transfer
of Servicing Rights

Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5581.

Sec. 1024.1 Designation.

This part, known as Regulation X, is issued by the Bureau of
Consumer Financial Protection to implement the Real Estate Settlement
Procedures Act of 1974, as amended, 12 U.S.C. 2601 et. seq.

Sec. 1024.2 Definitions.

(a) Statutory terms. All terms defined in RESPA (12 U.S.C. 2602)
are used in accordance with their statutory meaning unless otherwise
defined in paragraph (b) of this section or elsewhere in this part.
(b) Other terms. As used in this part:
Application means the submission of a borrower's financial
information in anticipation of a credit decision relating to a
federally related mortgage loan, which shall include the borrower's
name, the borrower's monthly income, the borrower's social security
number to obtain a credit report, the property address, an estimate of
the value of the

[[Page 78982]]

property, the mortgage loan amount sought, and any other information
deemed necessary by the loan originator. An application may either be
in writing or electronically submitted, including a written record of
an oral application.
Balloon payment has the same meaning as ``balloon payment'' under
Regulation Z (12 CFR part 1026).
Bureau means the Bureau of Consumer Financial Protection.
Business day means a day on which the offices of the business
entity are open to the public for carrying on substantially all of the
entity's business functions.
Changed circumstances means:
(1)(i) Acts of God, war, disaster, or other emergency;
(ii) Information particular to the borrower or transaction that was
relied on in providing the GFE and that changes or is found to be
inaccurate after the GFE has been provided. This may include
information about the credit quality of the borrower, the amount of the
loan, the estimated value of the property, or any other information
that was used in providing the GFE;
(iii) New information particular to the borrower or transaction
that was not relied on in providing the GFE; or
(iv) Other circumstances that are particular to the borrower or
transaction, including boundary disputes, the need for flood insurance,
or environmental problems.
(2) Changed circumstances do not include:
(i) The borrower's name, the borrower's monthly income, the
property address, an estimate of the value of the property, the
mortgage loan amount sought, and any information contained in any
credit report obtained by the loan originator prior to providing the
GFE, unless the information changes or is found to be inaccurate after
the GFE has been provided; or
(ii) Market price fluctuations by themselves.
Dealer means, in the case of property improvement loans, a seller,
contractor, or supplier of goods or services. In the case of
manufactured home loans, ``dealer'' means one who engages in the
business of manufactured home retail sales.
Dealer loan or dealer consumer credit contract means, generally,
any arrangement in which a dealer assists the borrower in obtaining a
federally related mortgage loan from the funding lender and then
assigns the dealer's legal interests to the funding lender and receives
the net proceeds of the loan. The funding lender is the lender for the
purposes of the disclosure requirements of this part. If a dealer is a
``creditor'' as defined under the definition of ``federally related
mortgage loan'' in this part, the dealer is the lender for purposes of
this part.
Effective date of transfer is defined in section 6(i)(1) of RESPA
(12 U.S.C. 2605(i)(1)). In the case of a home equity conversion
mortgage or reverse mortgage as referenced in this section, the
effective date of transfer is the transfer date agreed upon by the
transferee servicer and the transferor servicer.
Federally related mortgage loan or mortgage loan means as follows:
(1) Any loan (other than temporary financing, such as a
construction loan):
(i) That is secured by a first or subordinate lien on residential
real property, including a refinancing of any secured loan on
residential real property upon which there is either:
(A) Located or, following settlement, will be constructed using
proceeds of the loan, a structure or structures designed principally
for occupancy of from one to four families (including individual units
of condominiums and cooperatives and including any related interests,
such as a share in the cooperative or right to occupancy of the unit);
or
(B) Located or, following settlement, will be placed using proceeds
of the loan, a manufactured home; and
(ii) For which one of the following paragraphs applies. The loan:
(A) Is made in whole or in part by any lender that is either
regulated by or whose deposits or accounts are insured by any agency of
the Federal Government;
(B) Is made in whole or in part, or is insured, guaranteed,
supplemented, or assisted in any way:
(1) By the Secretary of the Department of Housing and Urban
Development (HUD) or any other officer or agency of the Federal
Government; or
(2) Under or in connection with a housing or urban development
program administered by the Secretary of HUD or a housing or related
program administered by any other officer or agency of the Federal
Government;
(C) Is intended to be sold by the originating lender to the Federal
National Mortgage Association, the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation (or its
successors), or a financial institution from which the loan is to be
purchased by the Federal Home Loan Mortgage Corporation (or its
successors);
(D) Is made in whole or in part by a ``creditor'', as defined in
section 103(g) of the Consumer Credit Protection Act (15 U.S.C.
1602(g)), that makes or invests in residential real estate loans
aggregating more than $1,000,000 per year. For purposes of this
definition, the term ``creditor'' does not include any agency or
instrumentality of any State, and the term ``residential real estate
loan'' means any loan secured by residential real property, including
single-family and multifamily residential property;
(E) Is originated either by a dealer or, if the obligation is to be
assigned to any maker of mortgage loans specified in paragraphs
(1)(ii)(A) through (D) of this definition, by a mortgage broker; or
(F) Is the subject of a home equity conversion mortgage, also
frequently called a ``reverse mortgage,'' issued by any maker of
mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this
definition.
(2) Any installment sales contract, land contract, or contract for
deed on otherwise qualifying residential property is a federally
related mortgage loan if the contract is funded in whole or in part by
proceeds of a loan made by any maker of mortgage loans specified in
paragraphs (1)(ii) (A) through (D) of this definition.
(3) If the residential real property securing a mortgage loan is
not located in a State, the loan is not a federally related mortgage
loan.
Good faith estimate or GFE means an estimate of settlement charges
a borrower is likely to incur, as a dollar amount, and related loan
information, based upon common practice and experience in the locality
of the mortgaged property, as provided on the form prescribed in Sec.
1024.7 and prepared in accordance with the Instructions in Appendix C
to this part.
HUD means the Department of Housing and Urban Development.
HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) means
the statement that is prescribed in this part for setting forth
settlement charges in connection with either the purchase or the
refinancing (or other subordinate lien transaction) of 1- to 4-family
residential property.
Lender means, generally, the secured creditor or creditors named in
the debt obligation and document creating the lien. For loans
originated by a mortgage broker that closes a federally related
mortgage loan in its own name in a table funding transaction, the
lender is the person to whom the obligation is initially assigned at or
after settlement. A lender, in connection with dealer loans, is the
lender to whom the loan is assigned, unless the dealer meets the
definition of creditor as defined under ``federally related mortgage
loan'' in this

[[Page 78983]]

section. See also Sec. 1024.5(b)(7), secondary market transactions.
Loan originator means a lender or mortgage broker.
Manufactured home is defined in HUD regulation 24 CFR 3280.2.
Mortgage broker means a person (not an employee of a lender) or
entity that renders origination services and serves as an intermediary
between a borrower and a lender in a transaction involving a federally
related mortgage loan, including such a person or entity that closes
the loan in its own name in a table funded transaction. A loan
correspondent approved under HUD regulation 24 CFR 202.8 for Federal
Housing Administration programs is a mortgage broker for purposes of
this part.
Mortgaged property means the real property that is security for the
federally related mortgage loan.
Origination service means any service involved in the creation of a
mortgage loan, including but not limited to the taking of the loan
application, loan processing, the underwriting and funding of the loan,
and the processing and administrative services required to perform
these functions.
Person is defined in section 3(5) of RESPA (12 U.S.C. 2602(5)).
Prepayment penalty has the same meaning as ``prepayment penalty''
under Regulation Z (12 CFR part 1026).
Public Guidance Documents means Federal Register documents adopted
or published, that the Bureau may amend from time-to-time by
publication in the Federal Register. These documents are also available
from the Bureau at the address indicated in Sec. 1024.3.
Refinancing means a transaction in which an existing obligation
that was subject to a secured lien on residential real property is
satisfied and replaced by a new obligation undertaken by the same
borrower and with the same or a new lender. The following shall not be
treated as a refinancing, even when the existing obligation is
satisfied and replaced by a new obligation with the same lender (this
definition of ``refinancing'' as to transactions with the same lender
is similar to Regulation Z, 12 CFR 1026.20(a)):
(1) A renewal of a single payment obligation with no change in the
original terms;
(2) A reduction in the annual percentage rate as computed under the
Truth in Lending Act with a corresponding change in the payment
schedule;
(3) An agreement involving a court proceeding;
(4) A workout agreement, in which a change in the payment schedule
or change in collateral requirements is agreed to as a result of the
consumer's default or delinquency, unless the rate is increased or the
new amount financed exceeds the unpaid balance plus earned finance
charges and premiums for continuation of allowable insurance; and
(5) The renewal of optional insurance purchased by the consumer
that is added to an existing transaction, if disclosures relating to
the initial purchase were provided.
Regulation Z means the regulations issued by the Bureau (12 CFR
part 1026) to implement the Federal Truth in Lending Act (15 U.S.C.
1601 et seq.), and includes the Commentary on Regulation Z.
Required use means a situation in which a person must use a
particular provider of a settlement service in order to have access to
some distinct service or property, and the person will pay for the
settlement service of the particular provider or will pay a charge
attributable, in whole or in part, to the settlement service. However,
the offering of a package (or combination of settlement services) or
the offering of discounts or rebates to consumers for the purchase of
multiple settlement services does not constitute a required use. Any
package or discount must be optional to the purchaser. The discount
must be a true discount below the prices that are otherwise generally
available, and must not be made up by higher costs elsewhere in the
settlement process.
RESPA means the Real Estate Settlement Procedures Act of 1974 (12
U.S.C. 2601 et seq.).
Servicer means the person responsible for the servicing of a
mortgage loan (including the person who makes or holds a mortgage loan
if such person also services the mortgage loan). The term does not
include:
(1) The Federal Deposit Insurance Corporation (FDIC), in connection
with assets acquired, assigned, sold, or transferred pursuant to
section 13(c) of the Federal Deposit Insurance Act or as receiver or
conservator of an insured depository institution; and
(2) The Federal National Mortgage Corporation (FNMA); the Federal
Home Loan Mortgage Corporation (Freddie Mac); the FDIC; HUD, including
the Government National Mortgage Association (GNMA) and the Federal
Housing Administration (FHA) (including cases in which a mortgage
insured under the National Housing Act (12 U.S.C. 1701 et seq.) is
assigned to HUD); the National Credit Union Administration (NCUA); the
Farm Service Agency; and the Department of Veterans Affairs (VA), in
any case in which the assignment, sale, or transfer of the servicing of
the mortgage loan is preceded by termination of the contract for
servicing the loan for cause, commencement of proceedings for
bankruptcy of the servicer, or commencement of proceedings by the FDIC
for conservatorship or receivership of the servicer (or an entity by
which the servicer is owned or controlled).
Servicing means receiving any scheduled periodic payments from a
borrower pursuant to the terms of any mortgage loan, including amounts
for escrow accounts under section 10 of RESPA (12 U.S.C. 2609), and
making the payments to the owner of the loan or other third parties of
principal and interest and such other payments with respect to the
amounts received from the borrower as may be required pursuant to the
terms of the mortgage servicing loan documents or servicing contract.
In the case of a home equity conversion mortgage or reverse mortgage as
referenced in this section, servicing includes making payments to the
borrower.
Settlement means the process of executing legally binding documents
regarding a lien on property that is subject to a federally related
mortgage loan. This process may also be called ``closing'' or
``escrow'' in different jurisdictions.
Settlement service means any service provided in connection with a
prospective or actual settlement, including, but not limited to, any
one or more of the following:
(1) Origination of a federally related mortgage loan (including,
but not limited to, the taking of loan applications, loan processing,
and the underwriting and funding of such loans);
(2) Rendering of services by a mortgage broker (including
counseling, taking of applications, obtaining verifications and
appraisals, and other loan processing and origination services, and
communicating with the borrower and lender);
(3) Provision of any services related to the origination,
processing or funding of a federally related mortgage loan;
(4) Provision of title services, including title searches, title
examinations, abstract preparation, insurability determinations, and
the issuance of title commitments and title insurance policies;
(5) Rendering of services by an attorney;
(6) Preparation of documents, including notarization, delivery, and
recordation;

[[Page 78984]]

(7) Rendering of credit reports and appraisals;
(8) Rendering of inspections, including inspections required by
applicable law or any inspections required by the sales contract or
mortgage documents prior to transfer of title;
(9) Conducting of settlement by a settlement agent and any related
services;
(10) Provision of services involving mortgage insurance;
(11) Provision of services involving hazard, flood, or other
casualty insurance or homeowner's warranties;
(12) Provision of services involving mortgage life, disability, or
similar insurance designed to pay a mortgage loan upon disability or
death of a borrower, but only if such insurance is required by the
lender as a condition of the loan;
(13) Provision of services involving real property taxes or any
other assessments or charges on the real property;
(14) Rendering of services by a real estate agent or real estate
broker; and
(15) Provision of any other services for which a settlement service
provider requires a borrower or seller to pay.
Special information booklet means the booklet adopted pursuant to
section 5 of RESPA (12 U.S.C. 2604) to help persons understand the
nature and costs of settlement services. The Bureau publishes the form
of the special information booklet in the Federal Register or by other
public notice. The Bureau may issue or approve additional booklets or
alternative booklets by publication of a Notice in the Federal
Register.
State means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, and any territory or
possession of the United States.
Table funding means a settlement at which a loan is funded by a
contemporaneous advance of loan funds and an assignment of the loan to
the person advancing the funds. A table-funded transaction is not a
secondary market transaction (see Sec. 1024.5(b)(7)).
Third party means a settlement service provider other than a loan
originator.
Title company means any institution, or its duly authorized agent,
that is qualified to issue title insurance.
Title service means any service involved in the provision of title
insurance (lender's or owner's policy), including but not limited to:
Title examination and evaluation; preparation and issuance of title
commitment; clearance of underwriting objections; preparation and
issuance of a title insurance policy or policies; and the processing
and administrative services required to perform these functions. The
term also includes the service of conducting a settlement.
Tolerance means the maximum amount by which the charge for a
category or categories of settlement costs may exceed the amount of the
estimate for such category or categories on a GFE.

Sec. 1024.3 Questions or suggestions from public and copies of public
guidance documents.

Any questions or suggestions from the public regarding RESPA, or
requests for copies of Public Guidance Documents, should be directed to
the Associate Director, Research, Markets, and Regulations, Bureau of
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006.
Legal questions concerning the interpretation of this part may be
directed to the same address.

Sec. 1024.4 Reliance upon rule, regulation or interpretation by the
Bureau.

(a) Rule, regulation or interpretation. (1) For purposes of
sections 19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)), only the
following constitute a rule, regulation or interpretation of the
Bureau:
(i) All provisions, including appendices, of this part. Any other
document referred to in this part is not incorporated in this part
unless it is specifically set out in this part;
(ii) Any other document that is published in the Federal Register
by the Bureau and states that it is an ``interpretation,''
``interpretive rule,'' ``commentary,'' or a ``statement of policy'' for
purposes of section 19(a) of RESPA. Such documents will be prepared by
Bureau staff and counsel. Such documents may be revoked or amended by a
subsequent document published in the Federal Register by the Bureau.
(2) A ``rule, regulation, or interpretation thereof by the Bureau''
for purposes of section 19(b) of RESPA (12 U.S.C. 2617(b)) shall not
include the special information booklet prescribed by the Bureau or any
other statement or issuance, whether oral or written, by an officer or
representative of the Bureau, letter or memorandum by the Director,
General Counsel, or other officer or employee of the Bureau, preamble
to a regulation or other issuance of the Bureau, Public Guidance
Document, report to Congress, pleading, affidavit or other document in
litigation, pamphlet, handbook, guide, telegraphic communication,
explanation, instructions to forms, speech or other material of any
nature which is not specifically included in paragraph (a)(1) of this
section.
(b) Unofficial interpretations; staff discretion. In response to
requests for interpretation of matters not adequately covered by this
part or by an official interpretation issued under paragraph (a)(1)(ii)
of this section, unofficial staff interpretations may be provided at
the discretion of Bureau staff or counsel. Written requests for such
interpretations should be directed to the address indicated in Sec.
1024.3. Such interpretations provide no protection under section 19(b)
of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or counsel will not
issue unofficial interpretations on matters adequately covered by this
part or by official interpretations or commentaries issued under
paragraph (a)(1)(ii) of this section.
(c) All informal counsel's opinions and staff interpretations
issued by HUD before November 2, 1992, were withdrawn as of that date.
Courts and administrative agencies, however, may use previous opinions
to determine the validity of conduct under the previous Regulation X.

Sec. 1024.5 Coverage of RESPA.

(a) Applicability. RESPA and this part apply to all federally
related mortgage loans, except for the exemptions provided in paragraph
(b) of this section.
(b) Exemptions. (1) A loan on property of 25 acres or more.
(2) Business purpose loans. An extension of credit primarily for a
business, commercial, or agricultural purpose, as defined by 12 CFR
1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in
determining whether the exemption applies.
(3) Temporary financing. Temporary financing, such as a
construction loan. The exemption for temporary financing does not apply
to a loan made to finance construction of 1- to 4-family residential
property if the loan is used as, or may be converted to, permanent
financing by the same lender or is used to finance transfer of title to
the first user. If a lender issues a commitment for permanent
financing, with or without conditions, the loan is covered by this
part. Any construction loan for new or rehabilitated 1- to 4-family
residential property, other than a loan to a bona fide builder (a
person who regularly constructs 1- to 4-family residential structures
for sale or lease), is subject to this part if its term is for two
years or more. A ``bridge loan'' or ``swing loan'' in which a lender
takes a security

[[Page 78985]]

interest in otherwise covered 1- to 4-family residential property is
not covered by RESPA and this part.
(4) Vacant land. Any loan secured by vacant or unimproved property,
unless within two years from the date of the settlement of the loan, a
structure or a manufactured home will be constructed or placed on the
real property using the loan proceeds. If a loan for a structure or
manufactured home to be placed on vacant or unimproved property will be
secured by a lien on that property, the transaction is covered by this
part.
(5) Assumption without lender approval. Any assumption in which the
lender does not have the right expressly to approve a subsequent person
as the borrower on an existing federally related mortgage loan. Any
assumption in which the lender's permission is both required and
obtained is covered by RESPA and this part, whether or not the lender
charges a fee for the assumption.
(6) Loan conversions. Any conversion of a federally related
mortgage loan to different terms that are consistent with provisions of
the original mortgage instrument, as long as a new note is not
required, even if the lender charges an additional fee for the
conversion.
(7) Secondary market transactions. A bona fide transfer of a loan
obligation in the secondary market is not covered by RESPA and this
part, except as set forth in section 6 of RESPA (12 U.S.C. 2605) and
Sec. 1024.21. In determining what constitutes a bona fide transfer,
the Bureau will consider the real source of funding and the real
interest of the funding lender. Mortgage broker transactions that are
table-funded are not secondary market transactions. Neither the
creation of a dealer loan or dealer consumer credit contract, nor the
first assignment of such loan or contract to a lender, is a secondary
market transaction (see Sec. 1024.2).

Sec. 1024.6 Special information booklet at time of loan application.

(a) Lender to provide special information booklet. Subject to the
exceptions set forth in this paragraph, the lender shall provide a copy
of the special information booklet to a person from whom the lender
receives, or for whom the lender prepares, a written application for a
federally related mortgage loan. When two or more persons apply
together for a loan, the lender is in compliance if the lender provides
a copy of the booklet to one of the persons applying.
(1) The lender shall provide the special information booklet by
delivering it or placing it in the mail to the applicant not later than
three business days (as that term is defined in Sec. 1024.2) after the
application is received or prepared. However, if the lender denies the
borrower's application for credit before the end of the three-business-
day period, then the lender need not provide the booklet to the
borrower. If a borrower uses a mortgage broker, the mortgage broker
shall distribute the special information booklet and the lender need
not do so. The intent of this provision is that the applicant receive
the special information booklet at the earliest possible date.
(2) In the case of a federally related mortgage loan involving an
open-ended credit plan, as defined in Regulation Z, 12 CFR
1026.2(a)(20), a lender or mortgage broker that provides the borrower
with a copy of the brochure entitled ``When Your Home is On the Line:
What You Should Know About Home Equity Lines of Credit'', or any
successor brochure issued by the Bureau, is deemed to be in compliance
with this section.
(3) In the categories of transactions set forth at the end of this
paragraph, the lender or mortgage broker does not have to provide the
booklet to the borrower. Under the authority of section 19(a) of RESPA
(12 U.S.C. 2617(a)), the Bureau may issue a revised or separate special
information booklet that deals with these transactions, or the Bureau
may choose to endorse the forms or booklets of other Federal agencies.
In such an event, the requirements for delivery by lenders and the
availability of the booklet or alternate materials for these
transactions will be set forth in a Notice in the Federal Register.
This paragraph shall apply to the following transactions:
(i) Refinancing transactions;
(ii) Closed-end loans, as defined in 12 CFR 1026.2(a)(10) of
Regulation Z, when the lender takes a subordinate lien;
(iii) Reverse mortgages; and
(iv) Any other federally related mortgage loan whose purpose is not
the purchase of a 1- to 4-family residential property.
(b) Revision. The Bureau may from time to time revise the special
information booklet, publishing a notice in the Federal Register.
(c) Reproduction. The special information booklet may be reproduced
in any form, provided that no change is made other than as provided
under paragraph (d) of this section. The special information booklet
may not be made a part of a larger document for purposes of
distribution under RESPA and this section. Any color, size and quality
of paper, type of print, and method of reproduction may be used so long
as the booklet is clearly legible.
(d) Permissible changes. (1)(i) No changes to, deletions from, or
additions to the special information booklet currently prescribed by
the Bureau shall be made other than the permissible changes specified
in paragraphs (d)(1)(ii) through (d)(3) of this section or changes as
otherwise approved in writing by the Bureau in accordance with the
procedures described in this paragraph. A request to the Bureau for
approval of any changes other than the permissible changes specified in
paragraphs (d)(1)(ii) through (d)(3) of this section shall be submitted
in writing to the address indicated in Sec. 1024.3, stating the
reasons why the applicant believes such changes, deletions or additions
are necessary.
(ii)(A) In the Complaints section of the booklet, it is a
permissible change to substitute ``the Bureau of Consumer Financial
Protection'' for ``HUD's Office of RESPA'' and ``the RESPA office.''
(B) In the Avoiding Foreclosure section of the booklet, it is a
permissible change to inform homeowners that they may find information
on and assistance in avoiding foreclosures at https://www.consumerfinance.gov. The deletion of the reference to the HUD Web
page, https://www.hud.gov/foreclosure/, in the Avoiding Foreclosure
section of the booklet is not a permissible change.
(C) In the Appendix to the booklet, it is a permissible change to
substitute ``the Bureau of Consumer Financial Protection'' for the
reference to the ``Board of Governors of the Federal Reserve System''
in the No Discrimination section of the Appendix to the booklet. In the
Contact Information section of the Appendix to the booklet, it is a
permissible change to add the following contact information for the
Bureau: ``Bureau of Consumer Financial Protection, 1700 G Street NW.,
Washington, DC 20006; www.consumerfinance.gov/learnmore''. It is also a
permissible change to remove the contact information for HUD's Office
of RESPA and Interstate Land Sales from the Contact Information section
of the Appendix to the booklet.
(2) The cover of the booklet may be in any form and may contain any
drawings, pictures or artwork, provided that the words ``settlement
costs'' are used in the title. Names, addresses and telephone numbers
of the lender or others and similar information may appear on the
cover, but no discussion of the matters covered in the booklet shall
appear on the cover. References to HUD on the cover of the booklet may
be changed to references to the Bureau.

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(3) The special information booklet may be translated into
languages other than English.

Sec. 1024.7 Good faith estimate.

(a) Lender to provide. (1) Except as otherwise provided in
paragraphs (a), (b), or (h) of this section, not later than 3 business
days after a lender receives an application, or information sufficient
to complete an application, the lender must provide the applicant with
a GFE. In the case of dealer loans, the lender must either provide the
GFE or ensure that the dealer provides the GFE.
(2) The lender must provide the GFE to the loan applicant by hand
delivery, by placing it in the mail, or, if the applicant agrees, by
fax, email, or other electronic means.
(3) The lender is not required to provide the applicant with a GFE
if, before the end of the 3-business-day period:
(i) The lender denies the application; or
(ii) The applicant withdraws the application.
(4) The lender is not permitted to charge, as a condition for
providing a GFE, any fee for an appraisal, inspection, or other similar
settlement service. The lender may, at its option, charge a fee limited
to the cost of a credit report. The lender may not charge additional
fees until after the applicant has received the GFE and indicated an
intention to proceed with the loan covered by that GFE. If the GFE is
mailed to the applicant, the applicant is considered to have received
the GFE 3 calendar days after it is mailed, not including Sundays and
the legal public holidays specified in 5 U.S.C. 6103(a).
(5) The lender may at any time collect from the loan applicant any
information that it requires in addition to the required application
information. However, the lender is not permitted to require, as a
condition for providing a GFE, that an applicant submit supplemental
documentation to verify the information provided on the application.
(b) Mortgage broker to provide. (1) Except as otherwise provi

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