REAL ESTATE SETTLEMENT PROCEDURES ACT ( RESPA ) POLICY

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1 I. INTRODUCTION A. Background and Overview REAL ESTATE SETTLEMENT PROCEDURES ACT ( RESPA ) POLICY The Real Estate Settlement Procedures Act of 1974 ( RESPA ), 12 U.S.C et seq., is a consumer disclosure and protection statute, designed to timely and accurately inform consumers of their settlement costs and to prohibit certain activities including kickbacks and/or referral fees that can increase the cost of obtaining a mortgage. RESPA prevents abusive practices by facilitating shopping among settlement service providers and requiring that applicants receive disclosures at various times throughout the loan process. These disclosures detail the costs associated with settlement, outline lender servicing and escrow account practices, and also describe business relationships with settlement service providers. The Department of Housing and Urban Development ( HUD ) originally promulgated Regulation X, which implements RESPA. Since its initial enactment, Congress has amended RESPA significantly. In 1990, Congress amended RESPA to require detailed disclosures concerning the transfer, sale, or assignment of mortgage servicing, as well as requiring disclosures for mortgage escrow accounts at closing and annually thereafter, itemizing the charges to be paid by the borrower and what is paid out of the account by the servicer. In 1992, Congress amended RESPA to include coverage of subordinate lien loans. In 1996, Congress amended RESPA to clarify the definition of affiliated business arrangements. In 2008, HUD issued a RESPA Reform Rule that included substantial changes, such as the introduction of the Good Faith Estimate form ( GFE ) and a revised HUD-1 Settlement Statement ( HUD-1 ). In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank Act ) granted rule-making authority under RESPA to the Consumer Financial Protection Bureau ( CFPB ). In 2013, the CFPB issued rules to amend Regulation X. These rules included further substantive changes to RESPA, including modification of servicing transfer notice requirements, as well as the introduction of the Loan Estimate form and Closing Disclosure form, which shall be required to be utilized for all loans originated on or after October 3, 2015 and which will replace (i) the GFE and initial Truth-in-Lending form and (ii) the HUD-1 and final Truth-in-Lending form, respectively. Currently, RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and home equity lines of credit. 1

2 Equity Loans LLC ( Company ) implemented these Policy and Procedures, to ensure compliance with RESPA and to establish training programs and compliance systems for adherence with RESPA standards. II. WRITTEN DISCLOSURES Applicants and/or borrowers must be provided with certain disclosures throughout the loan process. Within three business days of an application, the Company will provide the applicants with certain required disclosures as detailed in this Policy. The Company considers an application to be taken when it receives the following information from an applicant: (i) name, (ii) income, (iii) social security number for the purpose of obtaining a credit report, (iv) the property address, (v) the estimated value of the subject property, and (vi) the mortgage loan amount sought. The Company reviews all information received from consumers within one business day to confirm whether the Company received an application and initial disclosures must be provided to the applicant. If the Company determines the six items listed above have not been obtained, the Company will attempt to contact the consumer to obtain the missing information. Once the Company receives an application, it generates initial disclosures. The loan originator on the application then signs and dates the 1003 Uniform Residential Loan Application form and the disclosures are sent to the consumer (unless a consumer opts to withdraw or the application is denied prior to the disclosures being sent). An application may either be in writing or electronically submitted, including a written record of an oral application. The following is a list of disclosures that the Company provides to applicants in accordance with RESPA. 1. Information Booklet a. Shopping for Your Home Loan - Settlement Cost Booklet (purchase transactions only). This booklet was initially prepared by the U.S. Department of Housing and Urban Development ( HUD ). The Consumer Finance Protection Bureau ( CFPB ) made technical updates to the booklet in It contains consumer information regarding various real estate settlement services. The booklet does not need to be provided with applications for the following loans: reverse mortgages, refinance transactions, subordinate liens, and any other federally related mortgage loan not intended for the purchase of a one-to-four family residential property. This booklet will be replaced with the Your Home Loan Toolkit - A Step-by-Step Guide, which was prepared by the CFPB and must be used with the new TILA-RESPA integrated disclosures for applications received on or after October 3, b. What You Should Know about Home Equity Lines of Credit (home equity lines of credit ( HELOCs ) only). The Federal Reserve Board publishes this booklet. It should be used in place of the HUD booklet on all HELOCs. 2

3 c. Consumer Handbook on Adjustable-Rate Mortgages ( CHARM Booklet) (adjustablerate mortgages only). The Consumer Finance Protection Bureau ( CFPB ) publishes this booklet. It contains general information on adjustable rate mortgages. 2. Good Faith Estimate ( GFE ) or Loan Estimate Except for HELOCs, the Company will provide applicants with a GFE, which details the dollar amounts of each charge for settlement services incurred as part of the loan application. Unless a specified exception exists, such as where the consumer requests a change, or where the consumer does not express an interest to continue with the loan application within ten business days of receipt of the GFE, the Company will be bound by the terms of the GFE provided. As such, the Company must conduct a thorough review of each GFE to confirm accuracy and completeness prior to its issuance. Once issued, a GFE cannot change without a valid changed circumstance. A valid changed circumstance may include locking in a consumer s interest rate. Once an interest rate is locked, the Company can issue a new GFE within three business days of the rate lock provided only interest dependent charges change. Valid changed circumstances do not include a vendor increasing a fee or a creditor correcting a mistake made on a prior GFE. Rather, changed circumstances include: o Acts of God, war, disaster, or other emergency; o If information particular to the applicant or transaction that was relied on in providing the GFE changes or is found to be inaccurate after the GFE has been provided. This may include, but is not limited to, information about the credit quality of the applicant, the amount of the loan, and/or the estimated value of the property; o New information particular to the applicant or transaction that was not relied on in providing the GFE; or o Other circumstances particular to the applicant or transaction, including boundary disputes, the need for flood insurance, or environmental problems. None of the information collected prior to issuing a GFE may later become the basis for a changed circumstance unless there is a change in the particular information, the information becomes inaccurate. If a valid changed circumstance exists, the Company may only issue a revised GFE reflecting those increased charges resulting from the changed circumstance, no other charges or fees may change. The Company shall issue a changed circumstance letter with any revised GFE explaining the changed circumstance and the additional fees or costs related to that changed circumstance. The Company does not charge any fees, except fees related to the cost of ordering a credit report prior to providing a GFE to a consumer and the consumer expressing an intent to proceed with the transaction. 3

4 On October 3, 2015, the CFPB s new TILA-RESPA Integrated Disclosure Rule ( TRID ) will become effective. Pursuant to TRID, for applications related to closed-end credit transactions secured by real property (including construction-only loans and loans secured by vacant land or by 25 or more acres) that are received on or after October 3, 2015, the Company will issue the new Loan Estimate form in place of any GFE disclosure requirements. However, because TRID does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or dwelling not attached to real property, the Company will continue issuing GFEs to applicants applying for these loan products. Under TRID, the Loan Estimate must be delivered or placed in the mail to the consumer within three (3) business days of the receipt of the consumer s loan application. Additionally, when issuing a revised Loan Estimate for a valid changed circumstance, the revised Loan Estimate must be delivered or placed in the mail to the consumer within three (3) business days of the changed circumstance. For purposes of providing the Loan Estimate, a business day is a day on which the Company s offices are open to the public for carrying out substantially all of its business functions. The Loan Estimate provided to applicants must contain a good faith estimate of credit costs and transaction terms. Please refer to the Company s TILA-RESPA Integrated Disclosure Rule Policy and Procedures for more details. 3. New Construction Disclosure In connection with any loan involving a new home purchase where settlement is anticipated to occur more than 60 days from the time of the GFE, this disclosure must be provided indicating that a new GFE can be issued up to 60 calendar days prior to closing, without needing a changed circumstance. If this disclosure is not provided, the Company will not be able to issue a revised GFE without a valid changed circumstance. 4. Loan Servicing Disclosure Statement This document discloses to the applicant at the time of application whether the lender intends to service the loan or transfer it to another lender. TRID incorporates this disclosure statement into the Loan Estimate as of October 3, However, because TRID does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or dwelling not attached to real property, the Company will continue issuing this disclosure to applicants applying for these loan products. 5. Affiliated Business Arrangement Disclosure This document is required whenever a settlement service provider refers a consumer to a provider with whom the referring party has an ownership or other beneficial interest. The disclosure must be made at or prior to the time of the referral and must describe the business arrangement that exists between the two providers and give the borrower an estimate of the second provider s charges. The 4

5 referring party cannot require a consumer to use a particular service provider unless it is an attorney, credit reporting agency or real estate appraiser representing the lender s interest. 6. HUD-1 Settlement Statement ( HUD-1 ) or Closing Disclosure The HUD-1 (or HUD-1a for refinances) itemizes the costs associated with the loan closing and explains to whom the fees and charges are imposed upon and to whom they are paid. A HUD-1 is not required for home equity lines of credit. Pursuant to TRID, all applications related to closed-end credit transactions secured by real property (including construction-only loans and loans secured by vacant land or by 25 or more acres) that are received and close on or after October 3, 2015, the Company will issue the new Closing Disclosure form in place of the HUD-1. However, because TRID does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or dwelling not attached to real property, the Company will continue issuing HUD-1 Settlement Statements to borrowers that close these types of transactions with the Company. The Closing Disclosure is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan. Consummation occurs when the consumer becomes contractually obligated to a creditor on a loan. The point in time when a consumer becomes contractually obligated to a creditor on the loan depends on applicable state law. Under TRID, a business day is given a different meaning for purposes of providing the Closing Disclosure than it is for purposes of providing the Loan Estimate. For purposes of providing the Closing Disclosure, the term business day means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year s Day, the Birthday of Martin Luther King, Jr., Washington s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. Please refer to the Company s TILA-RESPA Integrated Disclosure Rule Policy and Procedures for more details. 7. Initial Escrow Account Disclosure Statement This statement will be given at closing to explain the establishment of the escrow account. TRID incorporates this disclosure statement into the Loan Estimate as of October 3, However, because TRID does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or dwelling not attached to real property, the Company will continue issuing this disclosure to applicants applying for these loan products. Further, an additional statement will be sent in the event of a transfer of any mortgage loan or within sixty (60) days of any change in the monthly escrow account payments. 5

6 8. Annual Escrow Account Disclosure Statement During the course of the loan and not more than thirty (30) days after the end of the Company s fiscal year, this disclosure statement will be sent to the borrower providing a historical account of the escrow account activity in the prior year, making projections for the upcoming year, and detailing any shortages in the account. 9. Mortgage Servicing Transfer Disclosures Both the transferor and the transferee servicer must notify a borrower in writing of the assignment, sale, or transfer of the servicing of a loan. The transferor must provide a notice ( goodbye letter ) no less than fifteen (15) days before the effective date of the transfer and the transferee must provide its notice ( hello letter ) within fifteen (15) days after the effective date of the transfer. The notifications must include: (i) the effective date of the transfer, (ii) name, address and toll-free or collect call telephone number of the transferee servicer, (iii) date upon which the transferor servicer will no longer accept loan payments and the date on which the transferee servicer will begin to accept payments, (iv) information concerning the effect, if any, that the transfer may have upon the terms of mortgage life, disability or other optional insurance and what action the borrower must take to maintain the insurance, and (v) a statement that the assignment, sale, or transfer of servicing does not affect any term or condition of the security instrument other than terms directly related to the servicing of the loan. 10. Escrow Closing Notice Under TRID, effective October 3, 2015, this disclosure must be provided no later than three (3) business days before a servicer cancels a consumer s escrow account if the consumer requests cancellation and no later than thirty (30) business days before an escrow account is closed if the cancellation is for any other reason. The disclosure must include, among other information, the date the account will be closed and the reason why it is being closed, that the consumer must pay all property costs (such as property taxes and homeowner s insurance) directly, and the consequences if a consumer fails to make such payments. Please refer to the Company s TILA-RESPA Integrated Disclosure Rule Policy and Procedures for more details. III. PROHIBITED ACTIVITIES The following activities are strictly prohibited by any person employed by the Company or acting on its behalf. Violators may be subject to termination as well as criminal and civil penalties. Knowledge or suspicion of a violation of any of the following provisions must be immediately reported to the Company s Compliance Officer for further investigation. 6

7 Under no circumstances will the Company: 1. Give or accept any fee, kickback or item of value pursuant to any agreement or understanding, oral or otherwise, that business incident to the settlement of a mortgage loan will be referred to any person. Certain referrals may be permitted in connection with an affiliated business arrangement, covered under an existing affiliated business disclosure. 2. Give or accept a portion, split or percentage of any fee or fees charged in connection with the settlement of a mortgage loan except for services actually performed. 3. Charge a borrower for costs incurred in the preparation or distribution of any required disclosures. 4. Require, directly or indirectly, that a borrower use a specific settlement service provider, unless it is an attorney, credit reporting agency or real estate appraiser that is representing the lender s interest. 5. Require a borrower to maintain escrows for taxes, insurance or other charges in excess of the amounts permitted by applicable law. IV. AFFILIATED BUSINESS ARRANGEMENT EXCEPTION RESPA provides for an exception to its rules prohibiting referrals fees, kickbacks or illegal fee splitting arrangements for affiliated business arrangements. An affiliated business arrangement involves two or more entities that are under common ownership or control, which refer settlement service business to each other and disclose the nature of the affiliated relationship to their consumers at or prior to the referral. Whenever the Company refers an applicant to a settlement service provider that has an affiliated business arrangement with the Company, it will provide an affiliated business arrangement disclosure to the applicant. The disclosure will explain the relationship between the person or company to which we are making the referral and will also include estimates of the charges that person or company will impose. V. ESCROW ACCOUNTS Having an escrow account helps ensure that homeowners better understand the overall costs of maintaining their home. Section 10 of RESPA limits the amount of money a lender may require the borrower to hold in an escrow account for payment of taxes, insurance, etc. The Company utilizes the aggregate analysis method in calculating the amounts required to establish an escrow account. During the course of the loan, the Company may require the 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. In addition, the Company may require a cushion, not to exceed an amount equal to 1/6 of the total disbursement for the year. The Company will perform an escrow account analysis at 7

8 least annually and notify the borrowers of any shortage. Any surplus amounts above the cushion amount and provided that the borrower is not in default, will be promptly refunded. VI. COMPLIANCE A. Oversight The Company s Compliance Officer is responsible for the enforcement and general oversight of the Company s RESPA Policy and Procedures. The Compliance Officer will shall evaluate and update this policy no less than annually to reflect any legal or regulatory changes. Any necessary industrywide or regulatory changes to be made to his Policy are to be reported in a quarterly report to Senior Management. B. Training The Company participates in ongoing training designed to improve the knowledge, performance and skills of its employees and to ensure compliance with RESPA and Regulation X. The Compliance Officer will ensure that new employees are provided a broad overview of the rules and requirements under RESPA and Regulation X promptly after hire. Additionally, training will be provided to all employees at least annually. Specialized training tailored to specific employee s roles and responsibilities or for remedial purposes may also be provided, as necessary. Records will be maintained and shall include training dates, attendees, who conducted the training, content of the training and any test or performance results. C. Loan Servicing Complaints In accordance with RESPA, borrowers with servicing inquiries and/or complaints will be directed to the Company s Compliance Officer for prompt handling. The Compliance Officer will respond in accordance with the Company s Consumer Complaint Policy. D. Record Retention Requirements The Company retains copies of all required disclosures for five years to comply with RESPA requirements. E. Electronic Delivery of Disclosures The Company adheres to the procedures set forth in the Company s E-Sign Act Policy for advising consumers of their right to receive disclosures electronically. If a consumer opts-in electronic disclosures will be permitted. The following guidelines must be applied in addition to when issuing electronic disclosures in connection with RESPA: 8

9 Provide consumer with all required pre-consent disclosures before sending any electronic disclosures; Obtain consent or confirmation of consent from consumer, in an electronic manner that reasonably demonstrates the consumer s ability to receive electronic disclosures; Ensure that the electronic disclosure is in a form that can be retained by the consumer; Provide consumer with a notice of any changes in hardware or software that may create a material risk that the consumer will not be able to access or retain electronic disclosures; and Make a note in the loan file of any electronic disclosures that are retuned undelivered and re-send a paper copy of the disclosure. VII. CONCLUSION & ADOPTION The procedures set forth in this Policy represent the minimum requirements under current applicable statutory and regulatory guidelines and wherever local regulations are stricter than the requirements set out in this Policy, the stricter standard shall be applied. This Policy will be reviewed at least annually. This Policy was last reviewed by James Minghini, the Company s Compliance Officer, on: July 3, This Real Estate Settlement Procedures Act ( RESPA ) Policy is adopted and made effective as of July 3,