RESPA, for the NMLS exam

The Real Estate Settlement Procedures Act became law in 1974 and lives today as Regulation X.

Its purpose is disclosure and the elimination of kickbacks. The exam tests it as a set of deadlines.

Section 8, the famous part

Section 8 prohibits giving or accepting anything of value for the referral of settlement service business, at 12 USC 2607.

The key phrase is "anything of value". It is broad on purpose - not just cash, but tickets, trips, discounted services and marketing paid for by somebody who benefits from your referrals.

What is permitted is payment for services actually performed. A genuine service, genuinely rendered, at a reasonable market rate.

Affiliated business arrangements: the three conditions

An affiliated business arrangement (ABA) exists when a person in a position to refer settlement-service business has an affiliate relationship or ownership interest in a provider receiving the referral. The relationship itself is not automatically a Section 8 violation. Regulation X provides an exemption only if the arrangement meets three conditions.

1. Give the consumer a separate written ABA disclosure explaining the nature of the relationship, including the ownership or financial interest, and the estimated charge or range of charges for the referred service.
2. Deliver the disclosure no later than the time of the referral, subject to the timing provisions for lender referrals, required use, and attorney title referrals.
3. Do not require the consumer to use the affiliated settlement-service provider, except for the narrow required-use situations allowed by the regulation.

The model disclosure tells the consumer that the referring party has a business relationship with the provider, may receive a financial or other benefit, and that the consumer is free to shop among providers. It also lists the provider and the estimated charge or charge range. A generic notice that merely says “we may receive compensation” may fail to describe the actual ownership or financial relationship and service cost required by the rule.

The disclosure does not permit referral kickbacks

Section 8 still prohibits giving or accepting a fee, kickback, or other thing of value for referring settlement-service business. The ABA exemption does not create a general right to pay an affiliate per lead, per closing, or according to the amount of business referred. A bona fide return on an ownership interest is treated differently from a referral fee, but the payment must reflect the ownership interest and comply with Regulation X. Separate compensation for goods or services must be for actual work or facilities provided, not a disguised referral payment.

Exam sequence for an ABA question

1. Identify the settlement-service referral and the ownership or affiliate relationship.
2. Check whether the consumer received the written ABA disclosure by the required time.
3. Check whether the consumer can choose another provider.
4. Classify the payment: ownership return, actual service compensation, or a payment tied to referrals.
5. Apply Section 8 separately; the form of disclosure does not validate an otherwise prohibited kickback.

Servicing

The 60-day grace period is a favorite. A borrower who pays the old servicer during it has not paid late, and the new servicer cannot treat it as a default.

Escrow

The cushion is capped at two months of escrow payments, under 12 CFR 1024.17(c)(1)(ii). An annual escrow statement is due within 45 days of the end of the computation year.

Loss mitigation and foreclosure

A servicer has 5 business days to acknowledge a loss mitigation application. The first foreclosure filing may not be made until the borrower is more than 120 days delinquent, under 12 CFR 1024.41(f)(1).

That 120-day rule is heavily tested. It exists to give the borrower a window to apply for help before the process begins.