Part II of a Three Part Series

In Series Number One, we reviewed the merits of the Good Faith Estimate and its value to the borrower for transparent disclosure of facts and figures.     In the Part Two, we need to address the “service” aspect of the Real Estate Settlement Procedures Act.

When you apply for a home mortgage, you may think that the lender, or loan originator, will service the loan until it is paid off or your house is sold. However, in today’s market mortgage, servicing rights often are bought and sold. The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute which affords you certain disclosures and strategies for problem resolution with your mortgage and/or escrow account.

Duty of Loan Servicer to Respond to Complaints. If you have questions or problems with the servicing of your loan, the servicer is required to respond to you. Write to your servicer and call it a “qualified written request under Section 6 of RESPA.” It should be a separate letter and not mailed with your payment. The mortgage servicer must                respond to you within 60 business days of receipt.

A Sample Complaint Letter would include the following because the specifics are important:
Attention Customer Service:

Subject: [Your loan number]
[Names on loan documents]
[Property and/or mailing address]

This is a “qualified written request” under Section 6 of the Real Estate Settlement Procedures Act (RESPA).

I am writing because:

• Describe the issue or the question you have and/or what action you believe the lender should take.
• Attach copies of any related written materials.
• Describe any conversations with customer service regarding the issue and to whom you spoke.
• Describe any previous steps you have taken or attempts to resolve the issue.
• List a day time telephone number in case a customer service representative wishes to contact you.
• I understand that under Section 6 of RESPA you are required to acknowledge my request within 20 business days and must try to resolve the issue within 60 business days.

Sincerely,

[Your name]

REMEMBER: This letter SHOULD NOT be included with your mortgage payment, but should be sent separately to the customer service address.

And, it is very important that you continue to make the required mortgage and escrow payment until the request is resolved.

Loan Transferred to New Servicer. Your loan servicer is required to notify you in writing at least 15 days before the servicing of your loan is transferred to a new servicer. The notice must include the following information:

* The effective date of the transfer, the date your current servicer will stop accepting payments and the date the new servicer will begin accepting them.
* The name, address, and toll-free or collect call telephone number for the new servicer.
* Information that tells whether you can continue any optional insurance, such as mortgage life or disability insurance, and what action, if any, you must take to maintain coverage.
* A statement that the transfer of servicing does not affect any term or condition of your mortgage documents other than the terms directly related to the servicing of the loan.

Treatment of Payments During Transfer Period. During the 60-day period beginning on the effective date of the transfer, the payment may not be treated as late if you mistakenly send it to the old mortgage servicer instead of the new one.

Escrow Account. RESPA does not require that you maintain an escrow account for the purpose of paying property taxes, hazard insurance, etc. Nor does RESPA have any jurisdiction over the decision of the lender or servicer to require or terminate an escrow account. RESPA does, however, provide you with the following protections with regard to the escrow account:

• If your lender or mortgage servicer requires you to maintain an escrow account for the purpose of paying property taxes, hazard insurance, etc., RESPA requires that the servicer pay such items by the dates due to avoid a penalty or late charge.
• RESPA sets limits on the maximum amount of money the servicer may require you to maintain and pay in the escrow account. (More information about escrow accounts, including how to calculate the maximum amount RESPA allows the lender to require in the escrow account.)

Multistate Home Lending www.multistatehomelending.com and The Manufactured Home Lending Source www.mh-lending.com are committed to full and complete disclosure. All of our loan officers are registered with the Nationwide Mortgage Licensing System and Registry (Registry), a database established by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the States. As part of this registration process, mortgage loan originators must furnish to the Registry background information and fingerprints for a background check. The S.A.F.E. Act generally prohibits employees of an agency-regulated institution from originating residential mortgage loans without first registering with the Registry.

Part I of a Three Part Series

When the FDA required food manufacturers to reveal the ingredients, nutritional value, calorie count and net weight on their product labeling, the big winner was the consumer. The consumer wins again now that Department of Housing and Urban Development (HUD) has set a standard for loan transparency. As of January 2010, all loan originators are required to give borrowers a loan “ingredient” list called a Good Faith Estimate (GFE). This three page “label” is structured within the Real Estate Settlement Procedures Act (RESPA) and clearly discloses key loan terms and closing costs to the borrower. Actually the Good Faith Estimate is more than a guesstimate, because once presented to the borrower, it is a binding statement of costs with few exceptions. A loan originator must issue a GFE no later than 3 business days after the loan originator receives either an application or information sufficient to complete an application and failure to provide a GFE to a borrower is a violation of Section 5 of RESPA. However, if the loan originator denies the loan before the end of the three business day period, or if the applicant withdraws the application, then the GFE does not need to be provided nor does the Special Information Booklet. HUD’s new settlement cost booklet (pdf version – updated 1/6/2010 with corrections of minor detail)

The only fee that a loan originator can charge before issuing a GFE is the cost of a credit report. However, it is important to note that a GFE is not a loan commitment—it is simply an estimate of settlement charges a borrower is likely to incur to obtain a specific loan. So just because you receive an acknowledgement of receipt of your GFE, the lender cannot automatically conclude that this is an expression of your intention to proceed with the loan or a promise by the lender that they are able to provide you with the loan. Generally speaking if a borrower does not express an intent to continue with an application within ten business days after the GFE is provided, the loan originator is no longer bound by the GFE. Also worthy of note is if a GFE was provide but the interest rate has not been locked, if there are changes to the interest rate dependent charges or loan terms a revised GFE must be issued.

So who exactly is a loan originator? A loan originator is either a lender or a mortgage broker.

And, what constitutes “sufficient” information?:

1. borrower’s name
2. borrower’s monthly income
3. borrower’s social security number to obtain a credit report
4. property address
5. estimate of value of the property
6. loan amount and
7. any other information deemed necessary by the loan originator.

After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services. Some of the fees included in the loan will typically be categorized under processing and administrative services which encompass functions involved in title and origination service. Processing and administrative services include, but are not limited to the following: document delivery, document preparation, copying, wiring, preparing endorsements, document handling and notarization.

In a real estate sales transaction where there is a contract between borrower and seller, the GFE only impacts the borrower. So let’s say there are other charges in a loan transaction that are customarily charged to the seller, they do not need to be included on the GFE. However, if the seller has agreed to pay charges that are normally borrower responsibility (i.e owner’s title insurance), then those charges should be disclosed. The Good Faith Estimate offers the borrower a chance to make a more informed decision and weigh and balance the cost ramifications before him.