RESPA applies to home loans made for residential properties designed to accommodate one to four families. These loans include most home purchase loans as well as home equity lines of credit (HELOCs), mortgage refinances and home improvement loans.
RESPA covers all federally regulated mortgage loans including purchase loans, refinances, home improvement loans, land contracts and home equity lines of credit (HELOCs).
The following transactions are not covered by RESPA: An all-cash sale; • A sale where the individual home seller takes back the mortgage; and • Business, Commercial, or Agricultural purpose loans. RESPA requires disclosures to be given to applicants for a federally related mortgage loan.
RESPA applies to all federally related mortgage loans made by lenders for the sale or transfer of 1-4 unit residential dwellings. The Housing Financial Discrimination Act prohibits redlining.
Types of Real Estate Loans Exempt From RESPA Requirements
Normally, loans secured by real estate for a business or agricultural purpose are not covered by RESPA. However, if the loan is made to an individual to purchase or improve a rental property of one to four residential units, then it is regulated by RESPA.
RESPA applies to most residential loans, particularly those financed by federally regulated lenders, including: FHA Loans - Loans backed by the Federal Housing Administration are a prime example of RESPA coverage.
RESPA covers loans secured with a mortgage placed on one-to-four family residential properties.
RESPA does not apply to extensions of credit to the government, government agencies, or instrumentalities, or in situations where the borrower plans to use property or land primarily for business, commercial, or agricultural purposes.
It requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures about the nature and costs of the real estate settlement process. RESPA also prohibits practices such as kickbacks, and limits the use of escrow accounts.
Bridge loans are typically used in real estate transactions when a person needs to purchase a new home before selling their current home. Because bridge loans are meant to be short-term and temporary, they are not subject to RESPA regulations.
RESPA also prohibits a lender from charging excessive amounts for the escrow account. The lender may require a borrower to pay into the escrow account no more than 1/12 of the total of all disbursements payable during the year, plus an amount necessary to pay for any shortage in the account.
An application is defined as the submission of six pieces of information: (1) the consumer's name, (2) the consumer's income, (3) the consumer's Social Security number to obtain a credit report (or other unique identifier if the consumer has no Social Security number), (4) the property address, (5) an estimate of the ...
The new rules, which would modify RESPA and Regulation X's existing mortgage servicing framework, are designed to streamline the process for obtaining mortgage assistance, and incentivize servicers to prioritize borrower aid over foreclosure.
In general, RESPA's servicing rules do not apply to HELOCs whenever the Act or rule uses the term “mortgage loan.”
The provisions of the act apply to most types of consumer credit, including closed-end credit, such as car loans and home mortgages, and open-end credit, such as a credit card or home equity line of credit.
The TILA-RESPA rule applies to most closed-end consumer credit transactions secured by real property, but does not apply to: HELOCs; • Reverse mortgages; or • Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property (i.e., land).
RESPA and this part apply to federally related mortgage loans, except as provided in paragraphs (b) and (d) of this section. (b) Exemptions. (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.
Examples of Loans Exempt from RESPA:
Loans on vacant land: These loans do not involve the purchase of a primary residence and thus fall outside the purview of RESPA. Loans made in connection with HUD: Certain loans backed by the Department of Housing and Urban Development may also be exempt.
One of these programs, under the Real Estate Settlement Procedures Act (RESPA), applies to almost all mortgage loans and mortgage companies, not just FHA-insured mortgages.
Transactions generally not covered under RESPA include: “an all cash sale, a sale where the individual home seller takes back the mortgage, a rental property transaction or other business purpose transaction.” “The sale of a loan after the original funding of the loan at settlement is a secondary market transaction.
CFPB considers a RESPA violation when the costs of services for a third party closing or services rendered are inflated. For example: Mortgage brokers are prohibited from charging a buyer for a credit report at closing more than what the mortgage broker paid to obtain the credit report.
This includes: home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages.
According to the Consumer Financial Protection Bureau's final rule, the creditor must deliver the Closing Disclosure to the consumer at least three business days prior to the date of consummation of the transaction.
RESPA eliminates abusive practices, such as kickbacks and referral fees, which increase the costs paid by consumers. RESPA reduces the amounts that homebuyers must place in escrow accounts.