December 11, 2013
By HunterMaclean Attorneys, special to Savannah Morning News
On Jan. 10, federally mandated changes to the Real Estate Settlement Procedures Act of 1974 (RESPA) will officially go into effect.
The new rules will require lenders to provide consumers with specific disclosures and written information regarding interest rates, monthly payments and closing costs in a more simplified, concise and easily understandable format.
Small loan servicers with 5,000 or fewer mortgage loans and brokers who only service mortgage loans they originated or own are exempt from the majority of the new rules.
As a consumer protection measure, RESPA mandates that lenders, loan servicers and mortgage brokers provide borrowers with timely disclosures regarding the nature and costs of the real estate settlement process.
Some disclosures explain the costs associated with the settlement, detail lender servicing and escrow account practices and describe business relationships between settlement service providers.
RESPA also prohibits specific practices, such as kickbacks, and places limitations upon the use of escrow accounts.
Earlier this year, the Consumer Financial Protection Bureau finalized new rules governing how mortgage loan servicers communicate with consumers, offer foreclosure avoidance options and manage the foreclosure processes. The new rules fall under the umbrella of RESPA and the Truth in Lending Act.
In addition to providing more detailed information in monthly mortgage statements, servicers must also include details about any loan delinquencies after the borrower misses two consecutive payments. By law, this information should include the date the loan became delinquent, the total amount required to make the loan current and the risks of keeping a mortgage in a delinquent state.
Under the new law effective Jan. 10, loan servicers must attempt to contact borrowers who have missed two consecutive payments via written notice at least 15 days after the second missed payment. By law, the notice must include information about available loss mitigation options to avoid foreclosure.
In an effort to reduce consumer confusion about the Adjustable Rate Mortgage, which often results in dramatic interest rate increases after the first few years of the loan, servicers must provide specific information about adjustable rate mortgages under the new regulations.
Requirements include a written disclosure before the first interest rate adjustment including an estimate of the new interest rate and payments, a comparison to the previous rate and payment, an explanation of how the new payment is calculated, details about when the rate change will take effect and a list of alternatives if the borrower’s new payment is unaffordable.
The new laws are designed to help consumers. However it’s vital for mortgage loan servicers to be in full compliance with the latest federal regulations. For help navigating the latest RESPA and Truth in Lending changes, be sure to consult with an experienced commercial real estate attorney.
