Loan Officer Federal Laws: RESPA Questions and Answers — Questions and Answers
Question 1: According to Section 8 of RESPA, which of the following is strictly prohibited?
- A real estate agent requiring a buyer to use a specific title company in which the agent has an undisclosed ownership interest. (Correct answer)
- A mortgage lender providing a borrower with a list of approved appraisers.
- A title company charging a fee for conducting a title search.
- A loan officer paying a marketing firm to create advertising materials.
Correct answer: A real estate agent requiring a buyer to use a specific title company in which the agent has an undisclosed ownership interest.
Section 8 of RESPA prohibits kickbacks, referral fees, and unearned fees. Requiring the use of an affiliated business without proper disclosure, and receiving a thing of value (the return on ownership interest tied to the referral) is a violation. Providing a list of approved providers is permissible, and charging for services rendered (like a title search or marketing services) is a legitimate business practice.
Question 2: A loan officer at a mortgage company has a close friend who is a real estate agent. The agent regularly sends clients to the loan officer. To show appreciation, the loan officer gives the agent a $100 gift card for every funded loan that the agent refers. This arrangement is a violation of which federal law?
- Truth in Lending Act (TILA)
- Equal Credit Opportunity Act (ECOA)
- Real Estate Settlement Procedures Act (RESPA) (Correct answer)
- Fair Housing Act (FHA)
Correct answer: Real Estate Settlement Procedures Act (RESPA)
Section 8 of RESPA prohibits giving or receiving a 'thing of value' in exchange for the referral of settlement service business. The $100 gift card is a 'thing of value' given specifically for the referral, which is a classic example of a prohibited kickback.
Question 3: Under RESPA, a lender is establishing a new escrow account for a borrower. The lender may collect a cushion at closing that is limited to what amount?
- One-sixth of the estimated total annual disbursements. (Correct answer)
- One month of the estimated total annual disbursements.
- One-twelfth of the estimated total annual disbursements.
- One-quarter of the estimated total annual disbursements.
Correct answer: One-sixth of the estimated total annual disbursements.
RESPA limits the amount a lender can require a borrower to keep in an escrow account. The cushion is limited to an amount equal to one-sixth (or two months) of the total estimated annual disbursements from the account.
Question 4: Which of the following is NOT a primary purpose of the Real Estate Settlement Procedures Act (RESPA)?
- To prohibit kickbacks and unearned referral fees.
- To provide consumers with disclosures regarding settlement costs.
- To regulate the interest rates charged on mortgage loans. (Correct answer)
- To place limitations on the use of escrow accounts.
Correct answer: To regulate the interest rates charged on mortgage loans.
RESPA's main goals are to ensure consumers receive timely disclosures about settlement costs, to eliminate kickbacks and referral fees that can inflate costs, and to regulate escrow accounts. Regulating the maximum interest rates on loans is a function of other laws, not RESPA.
Question 5: An Affiliated Business Arrangement (AfBA) disclosure must be provided to the consumer under RESPA:
- Within three business days after closing.
- At least seven business days before closing.
- At or before the time the referral is made. (Correct answer)
- Only if the consumer questions the relationship.
Correct answer: At or before the time the referral is made.
For an affiliated business arrangement to be permissible under RESPA, the consumer must be given a written disclosure of the nature of the relationship and the estimated charges of the provider at or before the time of the referral.
Question 6: Which of the following transactions is generally exempt from RESPA requirements?
- A loan to purchase a four-unit residential property.
- A home equity line of credit (HELOC).
- A loan to purchase a 25-acre tract of vacant land where no loan proceeds will be used to construct a residence. (Correct answer)
- A refinance of an existing mortgage on a primary residence.
Correct answer: A loan to purchase a 25-acre tract of vacant land where no loan proceeds will be used to construct a residence.
RESPA applies to federally related mortgage loans for one-to-four family residential properties. It does not typically cover loans for the purchase of vacant land, unless the loan proceeds are used to construct a one-to-four family structure within two years. All-cash sales and loans for business or commercial purposes are also exempt.
Loan Officer Federal Laws: RESPA Questions and Answers
According to Section 8 of RESPA, which of the following is strictly prohibited?