```

[Federal Register Volume 76, Number 244 (Tuesday, December 20, 2011)]
[Rules and Regulations]
[Pages 78978-79017]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31722]

[[Page 78977]]

Vol. 76

Tuesday,

No. 244

December 20, 2011

Part II

 Bureau of Consumer Financial Protection

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12 CFR Part 1024

 Real Estate Settlement Procedures Act (Regulation X); Interim Final 
Rule

Federal Register / Vol. 76 , No. 244 / Tuesday, December 20, 2011 / 
Rules and Regulations

[[Page 78978]]

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

[Docket No. CFPB-2011-0030]
RIN 3170-AA06

Real Estate Settlement Procedures Act (Regulation X)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interim final rule with request for public comment.

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SUMMARY: Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) transferred rulemaking authority for a 
number of consumer financial protection laws from seven Federal 
agencies to the Bureau of Consumer Financial Protection (Bureau) as of 
July 21, 2011. The Bureau is in the process of republishing the 
regulations implementing those laws with technical and conforming 
changes to reflect the transfer of authority and certain other changes 
made by the Dodd-Frank Act. In light of the transfer of the Department 
of Housing and Urban Development's (HUD's) rulemaking authority for the 
Real Estate Settlement Procedures Act (RESPA) to the Bureau, the Bureau 
is publishing for public comment an interim final rule establishing a 
new Regulation X (Real Estate Settlement Procedures Act). This interim 
final rule does not impose any new substantive obligations on persons 
subject to the existing Regulation X, previously published by HUD.

DATES: This interim final rule is effective December 30, 2011. Comments 
must be received on or before February 21, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0030 or RIN 3170-AA06, by any of the following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Bureau of Consumer Financial Protection, 1500 Pennsylvania Ave. NW., 
(Attn: 1801 L Street), Washington, DC 20220.
     Hand Delivery/Courier in Lieu of Mail: Monica Jackson, 
Office of the Executive Secretary, Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20006.
    All submissions must include the agency name and docket number or 
Regulatory Information Number (RIN) for this rulemaking. In general, 
all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public 
inspection and copying at 1700 G Street NW., Washington, DC 20006, on 
official business days between the hours of 10 a.m. and 5 p.m. Eastern 
Time. You can make an appointment to inspect the documents by 
telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Joseph Devlin or Jane Gao, Office of 
Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Background

    Congress enacted the Real Estate Settlement Procedures Act of 1974 
(RESPA) based on findings that significant reforms in the real estate 
settlement process were needed to ensure that consumers are provided 
with greater and more timely information on the nature and costs of the 
residential real estate settlement process and are protected from 
unnecessarily high settlement charges caused by certain abusive 
practices that Congress found to have developed. In addition to 
providing consumers with appropriate disclosures, the purposes of RESPA 
include effecting certain changes in the settlement process for 
residential real estate that will result in (1) the elimination of 
kickbacks or referral fees that Congress found to increase 
unnecessarily the costs of certain settlement services; and (2) a 
reduction in the amounts home buyers are required to place in escrow 
accounts established to insure the payment of real estate taxes and 
insurance.\1\ RESPA also prohibits unearned fees in connection with 
federally related mortgage loans. In 1990, Congress amended RESPA by 
adding a new section 6 covering persons responsible for servicing 
mortgage loans and amending statutory provisions related to mortgage 
servicers' administration of borrowers' escrow accounts.\2\
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    \1\ 12 U.S.C. 2601.
    \2\ Public Law 101-625, 104 Stat. 4079 (1990), Sections 941-42.
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    Historically, RESPA has been implemented in Regulation X of the 
Department of Housing and Urban Development (HUD), 24 CFR part 3500. 
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) \3\ amended a number of consumer financial protection laws, 
including RESPA. In addition to various substantive amendments, the 
Dodd-Frank Act transferred rulemaking authority for RESPA to the 
Bureau, effective July 21, 2011. See sections 1061 and 1098 of the 
Dodd-Frank Act. Pursuant to the Dodd-Frank Act and RESPA, as amended, 
the Bureau is publishing for public comment an interim final rule 
establishing a new Regulation X (Real Estate Settlement Procedures 
Act), 12 CFR part 1024, implementing RESPA.
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    \3\ Public Law 111-203, 124 Stat. 1376 (2010).
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II. Summary of the Interim Final Rule

A. General

    The interim final rule substantially duplicates HUD's Regulation X 
as the Bureau's new Regulation X, 12 CFR part 1024, making only certain 
non-substantive, technical, formatting, and stylistic changes. To 
minimize any potential confusion, other than republishing HUD's rule 
(24 CFR part 3500) with the Bureau's part number, the Bureau is 
preserving where possible the section numbering HUD used in 24 CFR part 
3500. For example, while this interim final rule generally incorporates 
HUD's existing regulatory text and appendices (including standardized 
and model forms), the rule has been edited as necessary to reflect 
nomenclature and other technical amendments required by the Dodd-Frank 
Act. Notably, this interim final rule does not impose any new 
substantive obligations on regulated entities. In future rulemakings, 
the Bureau expects to amend Regulation X to implement certain other 
changes to RESPA made by the Dodd-Frank Act, such as preparing and 
distributing booklets ``jointly addressing compliance with the 
requirements of the Truth in Lending Act and [RESPA], in order to help 
persons borrowing money to finance the purchase of residential real 
estate better to understand the nature and costs of real estate 
settlement services,'' \4\ integrating certain disclosure requirements 
of the Truth in Lending Act, 15 U.S.C. 1601 et seq., with certain 
disclosure requirements of RESPA,\5\ adopting regulations pertaining to 
practices of mortgage servicers, and issuing regulations to carry out 
the consumer purposes of RESPA.
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    \4\ Public Law 111-203, Section 1098(3). Accordingly, pending 
further Bureau action, the Bureau is adopting HUD's existing booklet 
on settlement costs.
    \5\ Id. at Section 1032(f).

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[[Page 78979]]

B. Specific Changes

    References to HUD and its administrative structure, including 
provisions for imposing penalties for escrow violations, have been 
replaced with references to the Bureau. Conforming edits have been made 
to internal cross-references and addresses for filing applications and 
notices. Conforming edits have also been made to reflect the scope of 
the Bureau's authority pursuant to RESPA, as amended by the Dodd-Frank 
Act. Historical references that are no longer applicable, and 
references to effective dates that have passed, have been removed as 
appropriate. In addition, the Bureau is correcting a citation error in 
HUD's existing Sec.  3500.17(l)(4). As adopted by HUD, Sec.  
3500.17(l)(4) contains a cross-reference to Sec.  3500.21(f). The 
correct citation should be to Sec.  3500.21(e). The Bureau is 
republishing Sec.  3500.17(l)(4) as Sec.  1024.17(l)(4) with the 
citation corrected to read Sec.  1024.21(e). References to any ``HUD 
Public Guidance Document'' throughout HUD's Regulation X have been 
replaced with references to a ``Public Guidance Document'' throughout 
the Bureau's Regulation X. HUD's existing Regulation X CFR text 
contains several provisions that HUD adopted in 1996 but never made 
effective.\6\ The Bureau is not republishing those provisions with the 
Bureau's Regulation X. Furthermore, the Bureau is clarifying 
permissible changes that covered persons may make to the special 
information booklet without the Bureau's written approval. As adopted 
by HUD, Sec. Sec.  3500.6(d)(2) and (3) set forth the permissible 
changes that covered persons may make in the special information 
booklet without written approval from the Secretary of HUD. To reflect 
the transfer of authority from HUD to the Bureau, the Bureau is 
recodifying Sec.  3500.6(d)(1) as Sec. Sec.  1024.6(d)(1)(i) and (ii) 
to clarify permissible changes covered persons may make to the special 
information booklet without the Bureau's written approval.
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    \6\ See Notice of Final Rule and Delay of Effectiveness, 61 Fed. 
Reg. 51782 (October 4, 1996).
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    As discussed above, the Dodd-Frank Act directed the Bureau to 
integrate certain disclosures required by TILA with certain disclosures 
required by RESPA. The Bureau expects the content and format of HUD's 
existing HUD-1/1A and GFE forms to be significantly revised or replaced 
by such rulemaking. The HUD-1/1A and GFE forms currently list HUD's 
Office of Management and Budget (OMB) control number, 2502-0265, in 
order to satisfy certain information collection requirements of the 
Paperwork Reduction Act. The Bureau believes that requiring covered 
persons to modify existing forms solely to replace HUD's OMB control 
number with the Bureau's OMB control number would impose substantial 
burden on covered persons with limited or no net benefit to consumers. 
Accordingly, covered persons may continue to list HUD's OMB control 
number on the HUD-1/1A and GFE forms until a final rule to the contrary 
takes effect. Covered persons also have the option of replacing HUD's 
OMB control number with the Bureau's OMB control number on the HUD-1/1A 
and GFE forms until a final rule to the contrary takes effect.
    Accordingly, the Bureau is adding language in Appendix C to part 
1024--Instructions for Completing the Good Faith Estimate (GFE) Form to 
clarify that covered persons may replace HUD's OMB control number with 
the Bureau's OMB control number on the form at their option. HUD's 
existing Sec.  3500.9 lists the permissible changes allowed when the 
HUD-1/1A settlement changes are reproduced. The Bureau is recodifying 
Sec.  3500.9 as Sec.  1024.9 and adding language in Sec.  1024.9(c) to 
clarify that covered persons may replace HUD's OMB control number with 
the Bureau's OMB Control number on the HUD-1/1A forms without written 
approval from the Bureau. Furthermore, the Bureau is revising language 
in Sec.  1024.9(a)(5) to clarify that covered persons are not required 
to display the expiration date that is associated with the OMB control 
number displayed on the HUD-1/1A forms.
    The Bureau has certain information gathering and investigative 
authority concerning Federal consumer financial laws, including 
RESPA,\7\ under Subtitles B and E of the Dodd-Frank Act. RESPA also 
confers additional information gathering and investigative authority on 
the Bureau. Accordingly, the Bureau is removing paragraphs (i) and (ii) 
in HUD's existing Sec.  3500.17(l)(3) because the repetition of the 
RESPA-conferred information gathering and investigative authority 
therein is unnecessary.
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    \7\ See Public Law 111-203, Section 1002(12)(M) (defining RESPA 
as an ``enumerated law.'') An enumerated consumer law is a ``Federal 
consumer financial law.'' Id. at Section 1002(14).
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    The Bureau has the authority to enforce RESPA and Regulation X 
pursuant to Subtitle E of Title X of the Dodd-Frank Act.\8\ RESPA also 
confers additional enforcement authority on the Bureau. The Bureau is 
removing the civil money penalties provisions in HUD's existing Sec.  
3500.17(m) and (n) because the repetition of this RESPA-conferred 
authority is unnecessary. Investigations undertaken by the Bureau will 
be conducted in accordance with 12 CFR part 1080, and administrative 
adjudications will be conducted in accordance with 12 CFR part 1081. 
Due to the removal of paragraphs (m) and (n) from Sec.  3500.17, the 
``Discretionary payments'' paragraph in HUD's existing Sec.  3500.17(o) 
is being recodified as Sec.  1024.17(m) in this interim final rule.
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    \8\ Id. at Sections 1051-1057.
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    Finally, the Bureau is removing paragraphs (b) and (c) from HUD's 
existing Sec.  3500.19 because they are repetitive in light of other 
statutory and regulatory provisions. See Sec. Sec.  3500.14-16 (being 
recodified as Sec. Sec.  1024.14-16). Accordingly, corresponding cross-
references to Sec. Sec.  3500.19(b) and (c) in HUD's existing 
Regulation X are also being removed,\9\ and Sec.  3500.19(d) is being 
recodified as Sec.  1024.19(b).
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    \9\ See Sec.  3500.14(a) (being recodified as Sec.  1024.14(a)) 
and Sec.  3500.16 (being recodified as Sec.  1024.16).
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III. Legal Authority

A. Rulemaking Authority

    The Bureau is issuing this interim final rule pursuant to its 
authority under RESPA and the Dodd-Frank Act. Effective July 21, 2011, 
section 1061 of the Dodd-Frank Act transferred to the Bureau all of the 
HUD Secretary's consumer protection functions relating to RESPA.\10\ 
Accordingly, effective July 21, 2011, the authority of HUD to issue 
regulations pursuant to RESPA transferred to the Bureau.\11\
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    \10\ Public Law 111-203, 1061(b)(7)(A). Effective on the 
designated transfer date, July 21, 2011, the Bureau was also granted 
``all powers and duties'' that were vested in the HUD Secretary 
relating to RESPA on the date before the designated transfer date. 
Id. at Section 1061(b)(7)(B). Until this and other interim final 
rules take effect, existing regulations for which rulemaking 
authority transferred to the Bureau continue to govern persons 
covered by this rule. See 76 FR 43569 (July 21, 2011).
    \11\ Section 1066 of the Dodd-Frank Act grants the Secretary of 
the Treasury interim authority to perform certain functions of the 
Bureau. Pursuant to that authority, Treasury is publishing this 
interim final rule on behalf of the Bureau.
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    RESPA, as amended, authorizes the Bureau to issue regulations to 
carry out the provisions of RESPA.\12\ This authority allows the Bureau 
to prescribe such rules and regulations, to make such interpretations, 
and to grant such reasonable exemptions for classes of transactions, as 
may be necessary to achieve the purposes of RESPA. In its existing 
regulation, HUD has used this

[[Page 78980]]

RESPA authority to establish extensive rules concerning appropriate and 
timely disclosures about the nature and costs of the residential real 
estate settlement process, the elimination of kickbacks or referral 
fees with respect to certain settlement services, and mortgage 
servicers' administration of borrowers' escrow accounts, as well as 
their handling of servicing transfers and written consumer 
inquiries.\13\
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    \12\ Public Law 111-203, Section 1098(11); 12 U.S.C. 2603-2605, 
2607, 2609, 2617.
    \13\ See HUD's Regulation X, 24 CFR part 3500.
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B. Authority To Issue an Interim Final Rule Without Prior Notice and 
Comment

    The Administrative Procedure Act (APA) \14\ generally requires 
public notice and an opportunity to comment before promulgation of 
substantive regulations.\15\ The APA provides exceptions to notice-and-
comment procedures, however, where an agency for good cause finds that 
such procedures are impracticable, unnecessary, or contrary to the 
public interest or when a rulemaking relates to agency organization, 
procedure, and practice.\16\ The Bureau finds that there is good cause 
to conclude that providing notice and opportunity for comment would be 
unnecessary and contrary to the public interest under these 
circumstances. In addition, substantially all of the changes made by 
this interim final rule, which were necessitated by the Dodd-Frank 
Act's transfer of RESPA authority from HUD to the Bureau, relate to 
agency organization, procedure, and practice and are thus exempt from 
the APA's notice-and-comment requirements.
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    \14\ 5 U.S.C. 551 et seq.
    \15\ 5 U.S.C. 553(b), (c).
    \16\ 5 U.S.C. 553(b)(3)(A), (B).
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    The Bureau's good cause findings are based on the following 
considerations. As an initial matter, HUD's existing regulation was a 
result of notice-and-comment rulemaking to the extent required. 
Moreover, the interim final rule published today does not impose any 
new, substantive obligations on regulated entities. Rather, the interim 
final rule makes only non-substantive, technical changes to the 
existing text of the regulation, such as renumbering, changing internal 
cross-references, replacing appropriate nomenclature to reflect the 
transfer of authority to the Bureau, and changing the address for 
filing applications and notices. Given the technical nature of these 
changes, and the fact that the interim final rule does not impose any 
additional substantive requirements on covered entities, an opportunity 
for prior public comment is unnecessary. In addition, recodifying HUD's 
regulation to reflect the transfer of authority to the Bureau will help 
facilitate compliance with RESPA and its implementing regulations, and 
will help reduce uncertainty regarding the applicable regulatory 
framework. Using notice-and-comment procedures would delay this process 
and thus be contrary to the public interest.
    The APA generally requires that rules be published not less than 30 
days before their effective dates. See 5 U.S.C. 553(d). As with the 
notice and comment requirement, however, the APA allows an exception 
when ``otherwise provided by the agency for good cause found and 
published with the rule.'' 5 U.S.C. 553(d)(3). The Bureau finds that 
there is good cause for providing less than 30 days notice here. A 
delayed effective date would harm consumers and regulated entities by 
needlessly perpetuating discrepancies between the amended statutory 
text and the implementing regulation, thereby hindering compliance and 
prolonging uncertainty regarding the applicable regulatory 
framework.\17\
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    \17\ This interim final rule is one of 14 companion rulemakings 
that together restate and recodify the implementing regulations 
under 14 existing consumer financial laws (part III.C, below, lists 
the 14 laws involved). In the interest of proper coordination of 
this overall regulatory framework, which includes numerous cross-
references among some of the regulations, the Bureau is establishing 
the same effective date of December 30, 2011 for those rules 
published on or before that date and making those published 
thereafter (if any) effective immediately.
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    In addition, delaying the effective date of the interim final rule 
for 30 days would provide no practical benefit to regulated entities in 
this context and in fact could operate to their detriment. As discussed 
above, the interim final rule published today does not impose any new, 
substantive obligations on regulated entities. Instead, the rule makes 
only non-substantive, technical changes to the existing text of the 
regulation. Thus, regulated entities that are already in compliance 
with the existing rules will not need to modify business practices as a 
result of this rule.

C. Section 1022(b)(2) of the Dodd-Frank Act

    In developing the interim final rule, the Bureau has conducted an 
analysis of potential benefits, costs, and impacts.\18\ The Bureau 
believes that the interim final rule will benefit consumers and covered 
persons by updating and recodifying Regulation X to reflect the 
transfer of authority to the Bureau and certain other changes mandated 
by the Dodd-Frank Act. This will help facilitate compliance with RESPA 
and its implementing regulations and help reduce any uncertainty 
regarding the applicable regulatory framework. The interim final rule 
will not impose any new substantive obligations on consumers or covered 
persons and is not expected to have any impact on consumers' access to 
consumer financial products and services.
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    \18\ Section 1022(b)(2)(A) of the Dodd-Frank Act addresses the 
consideration of the potential benefits and costs of regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services; the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in Section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas. Section 
1022(b)(2)(B) requires that the Bureau ``consult with the 
appropriate prudential regulators or other Federal agencies prior to 
proposing a rule and during the comment process regarding 
consistency with prudential, market, or systemic objectives 
administered by such agencies.'' The manner and extent to which 
these provisions apply to interim final rules and to benefits, 
costs, and impacts that are compelled by statutory changes rather 
than discretionary Bureau action is unclear. Nevertheless, to inform 
this rulemaking more fully, the Bureau performed the described 
analyses and consultations.
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    Although not required by the interim final rule, covered entities 
may incur some costs in updating compliance manuals and related 
materials to reflect the new numbering and other technical changes 
reflected in the new Regulation X. The Bureau has worked to reduce any 
such burden by preserving the existing numbering to the extent possible 
and believes that such costs will likely be minimal. These changes 
could be handled in the short term by providing a short, standalone 
summary alerting users to the changes and in the long term could be 
combined with other updates at the firm's convenience. The Bureau 
intends to continue investigating the possible costs to affected 
entities of updating manuals and related materials to reflect these 
changes and solicits comments on this and other issues discussed in 
this section.
    The interim final rule will have no unique impact on depository 
institutions or credit unions with $10 billion or less in assets as 
described in section 1026(a) of the Dodd-Frank Act. Also, the interim 
final rule will have no unique impact on rural consumers.
    In undertaking the process of recodifying Regulation X, as well as 
regulations implementing thirteen other existing consumer financial 
laws,\19\ the

[[Page 78981]]

Bureau consulted the Federal Deposit Insurance Corporation, the Office 
of the Comptroller of the Currency, the National Credit Union 
Administration, the Board of Governors of the Federal Reserve System, 
the Federal Trade Commission, and the Department of Housing and Urban 
Development, including with respect to consistency with any prudential, 
market, or systemic objectives that may be administered by such 
agencies.\20\ The Bureau also has consulted with the Office of 
Management and Budget for technical assistance. The Bureau expects to 
have further consultations with the appropriate Federal agencies during 
the comment period.
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    \19\ The fourteen laws implemented by this and its companion 
rulemakings are: The Consumer Leasing Act, the Electronic Fund 
Transfer Act (except with respect to Section 920 of that Act), the 
Equal Credit Opportunity Act, the Fair Credit Reporting Act (except 
with respect to Sections 615(e) and 628 of that act), the Fair Debt 
Collection Practices Act, Subsections (b) through (f) of Section 43 
of the Federal Deposit Insurance Act, Sections 502 through 509 of 
the Gramm-Leach-Bliley Act (except for Section 505 as it applies to 
Section 501(b)), the Home Mortgage Disclosure Act, the Real Estate 
Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the 
Truth in Lending Act, the Truth in Savings Act, Section 626 of the 
Omnibus Appropriations Act, 2009, and the Interstate Land Sales Full 
Disclosure Act.
    \20\ In light of the technical but voluminous nature of this 
recodification project, the Bureau focused the consultation process 
on a representative sample of the recodified regulations, while 
making information on the other regulations available. The Bureau 
expects to conduct differently its future consultations regarding 
substantive rulemakings.
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IV. Request for Comment

    Although notice and comment rulemaking procedures are not required, 
the Bureau invites comments on this notice. Commenters are specifically 
encouraged to identify any technical issues raised by the rule. The 
Bureau is also seeking comment in response to a notice published at 76 
FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities 
for streamlining regulations that it has inherited from other Federal 
agencies to address provisions that are outdated, unduly burdensome, or 
unnecessary.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\21\ The RFA generally requires an 
agency to conduct an initial regulatory flexibility analysis (IRFA) and 
a final regulatory flexibility analysis (FRFA) of any rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities.\22\ The Bureau also is subject to 
certain additional procedures under the RFA involving the convening of 
a panel to consult with small business representatives prior to 
proposing a rule for which an IRFA is required.\23\
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    \21\ 5 U.S.C. 601 et seq.
    \22\ 5 U.S.C. 603, 604.
    \23\ 5 U.S.C. 609.
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    The IRFA and FRFA requirements described above apply only where a 
notice of proposed rulemaking is required,\24\ and the panel 
requirement applies only when a rulemaking requires an IRFA.\25\ As 
discussed above in part III, a notice of proposed rulemaking is not 
required for this rulemaking.
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    \24\ 5 U.S.C. 603(a), 604(a); 5 U.S.C. 553(b)(B).
    \25\ 5 U.S.C. 609(b).
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    In addition, as discussed above, this interim final rule has only a 
minor impact on entities subject to Regulation X. The rule imposes no 
new, substantive obligations on covered entities. Accordingly, the 
undersigned certifies that this interim final rule will not have a 
significant economic impact on a substantial number of small entities.

VI. Paperwork Reduction Act

    The Bureau may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
This rule contains information collection requirements under the 
Paperwork Reduction Act (PRA), which have been previously approved by 
OMB, the OMB control number for which is 2502-0265, and the ongoing PRA 
burden for which is unchanged by this rule. There are no new 
information collection requirements in this interim final rule. The 
Bureau's OMB control number for this information collection is: 3170-
0016.

List of Subjects in 12 CFR Part 1024

    Consumer protection, Condominiums, Housing, Mortgages, Mortgagees, 
Mortgage servicing, Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set forth above, the Bureau of Consumer Financial 
Protection adds part 1024 to Chapter X in Title 12 of the Code of 
Federal Regulations to read as follows:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

Sec.
1024.1 Designation.
1024.2 Definitions.
1024.3 Questions or suggestions from public and copies of public 
guidance documents.
1024.4 Reliance upon rule, regulation or interpretation by the 
Bureau.
1024.5 Coverage of RESPA.
1024.6 Special information booklet at time of loan application.
1024.7 Good faith estimate.
1024.8 Use of HUD-1 or HUD-1A settlement statements.
1024.9 Reproduction of settlement statements.
1024.10 One-day advance inspection of HUD-1 or HUD-1A settlement 
statement; delivery; recordkeeping.
1024.11 Mailing.
1024.12 No fee.
1024.13 Relation to state laws.
1024.14 Prohibition against kickbacks and unearned fees.
1024.15 Affiliated business arrangements.
1024.16 Title companies.
1024.17 Escrow accounts.
1024.18 Validity of contracts and liens.
1024.19 Enforcement.
1024.20 [Reserved]
1024.21 Mortgage servicing transfers.
1024.22 Severability.
1024.23 ESIGN applicability.
Appendix A to Part 1024--Instructions for Completing HUD-1 and HUD-
1A Settlement Statements; Sample HUD-1 and HUD-1A Statements
Appendix B to Part 1024--Illustrations of Requirements of RESPA
Appendix C to Part 1024--Instructions for Completing Good Faith 
Estimate (GFE) Form
Appendix D to Part 1024--Affiliated Business Arrangement Disclosure 
Statement Format
Appendix E to Part 1024--Arithmetic Steps
Appendix MS-1 to Part 1024--Servicing Disclosure Statement
Appendix MS-2 to Part 1024--Notice of Assignment, Sale, or Transfer 
of Servicing Rights

    Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5581.

Sec.  1024.1  Designation.

    This part, known as Regulation X, is issued by the Bureau of 
Consumer Financial Protection to implement the Real Estate Settlement 
Procedures Act of 1974, as amended, 12 U.S.C. 2601 et. seq.

Sec.  1024.2  Definitions.

    (a) Statutory terms. All terms defined in RESPA (12 U.S.C. 2602) 
are used in accordance with their statutory meaning unless otherwise 
defined in paragraph (b) of this section or elsewhere in this part.
    (b) Other terms. As used in this part:
    Application means the submission of a borrower's financial 
information in anticipation of a credit decision relating to a 
federally related mortgage loan, which shall include the borrower's 
name, the borrower's monthly income, the borrower's social security 
number to obtain a credit report, the property address, an estimate of 
the value of the

[[Page 78982]]

property, the mortgage loan amount sought, and any other information 
deemed necessary by the loan originator. An application may either be 
in writing or electronically submitted, including a written record of 
an oral application.
    Balloon payment has the same meaning as ``balloon payment'' under 
Regulation Z (12 CFR part 1026).
    Bureau means the Bureau of Consumer Financial Protection.
    Business day means a day on which the offices of the business 
entity are open to the public for carrying on substantially all of the 
entity's business functions.
    Changed circumstances means:
    (1)(i) Acts of God, war, disaster, or other emergency;
    (ii) Information particular to the borrower or transaction that was 
relied on in providing the GFE and that changes or is found to be 
inaccurate after the GFE has been provided. This may include 
information about the credit quality of the borrower, the amount of the 
loan, the estimated value of the property, or any other information 
that was used in providing the GFE;
    (iii) New information particular to the borrower or transaction 
that was not relied on in providing the GFE; or
    (iv) Other circumstances that are particular to the borrower or 
transaction, including boundary disputes, the need for flood insurance, 
or environmental problems.
    (2) Changed circumstances do not include:
    (i) The borrower's name, the borrower's monthly income, the 
property address, an estimate of the value of the property, the 
mortgage loan amount sought, and any information contained in any 
credit report obtained by the loan originator prior to providing the 
GFE, unless the information changes or is found to be inaccurate after 
the GFE has been provided; or
    (ii) Market price fluctuations by themselves.
    Dealer means, in the case of property improvement loans, a seller, 
contractor, or supplier of goods or services. In the case of 
manufactured home loans, ``dealer'' means one who engages in the 
business of manufactured home retail sales.
    Dealer loan or dealer consumer credit contract means, generally, 
any arrangement in which a dealer assists the borrower in obtaining a 
federally related mortgage loan from the funding lender and then 
assigns the dealer's legal interests to the funding lender and receives 
the net proceeds of the loan. The funding lender is the lender for the 
purposes of the disclosure requirements of this part. If a dealer is a 
``creditor'' as defined under the definition of ``federally related 
mortgage loan'' in this part, the dealer is the lender for purposes of 
this part.
    Effective date of transfer is defined in section 6(i)(1) of RESPA 
(12 U.S.C. 2605(i)(1)). In the case of a home equity conversion 
mortgage or reverse mortgage as referenced in this section, the 
effective date of transfer is the transfer date agreed upon by the 
transferee servicer and the transferor servicer.
    Federally related mortgage loan or mortgage loan means as follows:
    (1) Any loan (other than temporary financing, such as a 
construction loan):
    (i) That is secured by a first or subordinate lien on residential 
real property, including a refinancing of any secured loan on 
residential real property upon which there is either:
    (A) Located or, following settlement, will be constructed using 
proceeds of the loan, a structure or structures designed principally 
for occupancy of from one to four families (including individual units 
of condominiums and cooperatives and including any related interests, 
such as a share in the cooperative or right to occupancy of the unit); 
or
    (B) Located or, following settlement, will be placed using proceeds 
of the loan, a manufactured home; and
    (ii) For which one of the following paragraphs applies. The loan:
    (A) Is made in whole or in part by any lender that is either 
regulated by or whose deposits or accounts are insured by any agency of 
the Federal Government;
    (B) Is made in whole or in part, or is insured, guaranteed, 
supplemented, or assisted in any way:
    (1) By the Secretary of the Department of Housing and Urban 
Development (HUD) or any other officer or agency of the Federal 
Government; or
    (2) Under or in connection with a housing or urban development 
program administered by the Secretary of HUD or a housing or related 
program administered by any other officer or agency of the Federal 
Government;
    (C) Is intended to be sold by the originating lender to the Federal 
National Mortgage Association, the Government National Mortgage 
Association, the Federal Home Loan Mortgage Corporation (or its 
successors), or a financial institution from which the loan is to be 
purchased by the Federal Home Loan Mortgage Corporation (or its 
successors);
    (D) Is made in whole or in part by a ``creditor'', as defined in 
section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 
1602(g)), that makes or invests in residential real estate loans 
aggregating more than $1,000,000 per year. For purposes of this 
definition, the term ``creditor'' does not include any agency or 
instrumentality of any State, and the term ``residential real estate 
loan'' means any loan secured by residential real property, including 
single-family and multifamily residential property;
    (E) Is originated either by a dealer or, if the obligation is to be 
assigned to any maker of mortgage loans specified in paragraphs 
(1)(ii)(A) through (D) of this definition, by a mortgage broker; or
    (F) Is the subject of a home equity conversion mortgage, also 
frequently called a ``reverse mortgage,'' issued by any maker of 
mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this 
definition.
    (2) Any installment sales contract, land contract, or contract for 
deed on otherwise qualifying residential property is a federally 
related mortgage loan if the contract is funded in whole or in part by 
proceeds of a loan made by any maker of mortgage loans specified in 
paragraphs (1)(ii) (A) through (D) of this definition.
    (3) If the residential real property securing a mortgage loan is 
not located in a State, the loan is not a federally related mortgage 
loan.
    Good faith estimate or GFE means an estimate of settlement charges 
a borrower is likely to incur, as a dollar amount, and related loan 
information, based upon common practice and experience in the locality 
of the mortgaged property, as provided on the form prescribed in Sec.  
1024.7 and prepared in accordance with the Instructions in Appendix C 
to this part.
    HUD means the Department of Housing and Urban Development.
    HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) means 
the statement that is prescribed in this part for setting forth 
settlement charges in connection with either the purchase or the 
refinancing (or other subordinate lien transaction) of 1- to 4-family 
residential property.
    Lender means, generally, the secured creditor or creditors named in 
the debt obligation and document creating the lien. For loans 
originated by a mortgage broker that closes a federally related 
mortgage loan in its own name in a table funding transaction, the 
lender is the person to whom the obligation is initially assigned at or 
after settlement. A lender, in connection with dealer loans, is the 
lender to whom the loan is assigned, unless the dealer meets the 
definition of creditor as defined under ``federally related mortgage 
loan'' in this

[[Page 78983]]

section. See also Sec.  1024.5(b)(7), secondary market transactions.
    Loan originator means a lender or mortgage broker.
    Manufactured home is defined in HUD regulation 24 CFR 3280.2.
    Mortgage broker means a person (not an employee of a lender) or 
entity that renders origination services and serves as an intermediary 
between a borrower and a lender in a transaction involving a federally 
related mortgage loan, including such a person or entity that closes 
the loan in its own name in a table funded transaction. A loan 
correspondent approved under HUD regulation 24 CFR 202.8 for Federal 
Housing Administration programs is a mortgage broker for purposes of 
this part.
    Mortgaged property means the real property that is security for the 
federally related mortgage loan.
    Origination service means any service involved in the creation of a 
mortgage loan, including but not limited to the taking of the loan 
application, loan processing, the underwriting and funding of the loan, 
and the processing and administrative services required to perform 
these functions.
    Person is defined in section 3(5) of RESPA (12 U.S.C. 2602(5)).
    Prepayment penalty has the same meaning as ``prepayment penalty'' 
under Regulation Z (12 CFR part 1026).
    Public Guidance Documents means Federal Register documents adopted 
or published, that the Bureau may amend from time-to-time by 
publication in the Federal Register. These documents are also available 
from the Bureau at the address indicated in Sec.  1024.3.
    Refinancing means a transaction in which an existing obligation 
that was subject to a secured lien on residential real property is 
satisfied and replaced by a new obligation undertaken by the same 
borrower and with the same or a new lender. The following shall not be 
treated as a refinancing, even when the existing obligation is 
satisfied and replaced by a new obligation with the same lender (this 
definition of ``refinancing'' as to transactions with the same lender 
is similar to Regulation Z, 12 CFR 1026.20(a)):
    (1) A renewal of a single payment obligation with no change in the 
original terms;
    (2) A reduction in the annual percentage rate as computed under the 
Truth in Lending Act with a corresponding change in the payment 
schedule;
    (3) An agreement involving a court proceeding;
    (4) A workout agreement, in which a change in the payment schedule 
or change in collateral requirements is agreed to as a result of the 
consumer's default or delinquency, unless the rate is increased or the 
new amount financed exceeds the unpaid balance plus earned finance 
charges and premiums for continuation of allowable insurance; and
    (5) The renewal of optional insurance purchased by the consumer 
that is added to an existing transaction, if disclosures relating to 
the initial purchase were provided.
    Regulation Z means the regulations issued by the Bureau (12 CFR 
part 1026) to implement the Federal Truth in Lending Act (15 U.S.C. 
1601 et seq.), and includes the Commentary on Regulation Z.
    Required use means a situation in which a person must use a 
particular provider of a settlement service in order to have access to 
some distinct service or property, and the person will pay for the 
settlement service of the particular provider or will pay a charge 
attributable, in whole or in part, to the settlement service. However, 
the offering of a package (or combination of settlement services) or 
the offering of discounts or rebates to consumers for the purchase of 
multiple settlement services does not constitute a required use. Any 
package or discount must be optional to the purchaser. The discount 
must be a true discount below the prices that are otherwise generally 
available, and must not be made up by higher costs elsewhere in the 
settlement process.
    RESPA means the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2601 et seq.).
    Servicer means the person responsible for the servicing of a 
mortgage loan (including the person who makes or holds a mortgage loan 
if such person also services the mortgage loan). The term does not 
include:
    (1) The Federal Deposit Insurance Corporation (FDIC), in connection 
with assets acquired, assigned, sold, or transferred pursuant to 
section 13(c) of the Federal Deposit Insurance Act or as receiver or 
conservator of an insured depository institution; and
    (2) The Federal National Mortgage Corporation (FNMA); the Federal 
Home Loan Mortgage Corporation (Freddie Mac); the FDIC; HUD, including 
the Government National Mortgage Association (GNMA) and the Federal 
Housing Administration (FHA) (including cases in which a mortgage 
insured under the National Housing Act (12 U.S.C. 1701 et seq.) is 
assigned to HUD); the National Credit Union Administration (NCUA); the 
Farm Service Agency; and the Department of Veterans Affairs (VA), in 
any case in which the assignment, sale, or transfer of the servicing of 
the mortgage loan is preceded by termination of the contract for 
servicing the loan for cause, commencement of proceedings for 
bankruptcy of the servicer, or commencement of proceedings by the FDIC 
for conservatorship or receivership of the servicer (or an entity by 
which the servicer is owned or controlled).
    Servicing means receiving any scheduled periodic payments from a 
borrower pursuant to the terms of any mortgage loan, including amounts 
for escrow accounts under section 10 of RESPA (12 U.S.C. 2609), and 
making the payments to the owner of the loan or other third parties of 
principal and interest and such other payments with respect to the 
amounts received from the borrower as may be required pursuant to the 
terms of the mortgage servicing loan documents or servicing contract. 
In the case of a home equity conversion mortgage or reverse mortgage as 
referenced in this section, servicing includes making payments to the 
borrower.
    Settlement means the process of executing legally binding documents 
regarding a lien on property that is subject to a federally related 
mortgage loan. This process may also be called ``closing'' or 
``escrow'' in different jurisdictions.
    Settlement service means any service provided in connection with a 
prospective or actual settlement, including, but not limited to, any 
one or more of the following:
    (1) Origination of a federally related mortgage loan (including, 
but not limited to, the taking of loan applications, loan processing, 
and the underwriting and funding of such loans);
    (2) Rendering of services by a mortgage broker (including 
counseling, taking of applications, obtaining verifications and 
appraisals, and other loan processing and origination services, and 
communicating with the borrower and lender);
    (3) Provision of any services related to the origination, 
processing or funding of a federally related mortgage loan;
    (4) Provision of title services, including title searches, title 
examinations, abstract preparation, insurability determinations, and 
the issuance of title commitments and title insurance policies;
    (5) Rendering of services by an attorney;
    (6) Preparation of documents, including notarization, delivery, and 
recordation;

[[Page 78984]]

    (7) Rendering of credit reports and appraisals;
    (8) Rendering of inspections, including inspections required by 
applicable law or any inspections required by the sales contract or 
mortgage documents prior to transfer of title;
    (9) Conducting of settlement by a settlement agent and any related 
services;
    (10) Provision of services involving mortgage insurance;
    (11) Provision of services involving hazard, flood, or other 
casualty insurance or homeowner's warranties;
    (12) Provision of services involving mortgage life, disability, or 
similar insurance designed to pay a mortgage loan upon disability or 
death of a borrower, but only if such insurance is required by the 
lender as a condition of the loan;
    (13) Provision of services involving real property taxes or any 
other assessments or charges on the real property;
    (14) Rendering of services by a real estate agent or real estate 
broker; and
    (15) Provision of any other services for which a settlement service 
provider requires a borrower or seller to pay.
    Special information booklet means the booklet adopted pursuant to 
section 5 of RESPA (12 U.S.C. 2604) to help persons understand the 
nature and costs of settlement services. The Bureau publishes the form 
of the special information booklet in the Federal Register or by other 
public notice. The Bureau may issue or approve additional booklets or 
alternative booklets by publication of a Notice in the Federal 
Register.
    State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, and any territory or 
possession of the United States.
    Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds. A table-funded transaction is not a 
secondary market transaction (see Sec.  1024.5(b)(7)).
    Third party means a settlement service provider other than a loan 
originator.
    Title company means any institution, or its duly authorized agent, 
that is qualified to issue title insurance.
    Title service means any service involved in the provision of title 
insurance (lender's or owner's policy), including but not limited to: 
Title examination and evaluation; preparation and issuance of title 
commitment; clearance of underwriting objections; preparation and 
issuance of a title insurance policy or policies; and the processing 
and administrative services required to perform these functions. The 
term also includes the service of conducting a settlement.
    Tolerance means the maximum amount by which the charge for a 
category or categories of settlement costs may exceed the amount of the 
estimate for such category or categories on a GFE.

Sec.  1024.3  Questions or suggestions from public and copies of public 
guidance documents.

    Any questions or suggestions from the public regarding RESPA, or 
requests for copies of Public Guidance Documents, should be directed to 
the Associate Director, Research, Markets, and Regulations, Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006. 
Legal questions concerning the interpretation of this part may be 
directed to the same address.

Sec.  1024.4  Reliance upon rule, regulation or interpretation by the 
Bureau.

    (a) Rule, regulation or interpretation. (1) For purposes of 
sections 19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)), only the 
following constitute a rule, regulation or interpretation of the 
Bureau:
    (i) All provisions, including appendices, of this part. Any other 
document referred to in this part is not incorporated in this part 
unless it is specifically set out in this part;
    (ii) Any other document that is published in the Federal Register 
by the Bureau and states that it is an ``interpretation,'' 
``interpretive rule,'' ``commentary,'' or a ``statement of policy'' for 
purposes of section 19(a) of RESPA. Such documents will be prepared by 
Bureau staff and counsel. Such documents may be revoked or amended by a 
subsequent document published in the Federal Register by the Bureau.
    (2) A ``rule, regulation, or interpretation thereof by the Bureau'' 
for purposes of section 19(b) of RESPA (12 U.S.C. 2617(b)) shall not 
include the special information booklet prescribed by the Bureau or any 
other statement or issuance, whether oral or written, by an officer or 
representative of the Bureau, letter or memorandum by the Director, 
General Counsel, or other officer or employee of the Bureau, preamble 
to a regulation or other issuance of the Bureau, Public Guidance 
Document, report to Congress, pleading, affidavit or other document in 
litigation, pamphlet, handbook, guide, telegraphic communication, 
explanation, instructions to forms, speech or other material of any 
nature which is not specifically included in paragraph (a)(1) of this 
section.
    (b) Unofficial interpretations; staff discretion. In response to 
requests for interpretation of matters not adequately covered by this 
part or by an official interpretation issued under paragraph (a)(1)(ii) 
of this section, unofficial staff interpretations may be provided at 
the discretion of Bureau staff or counsel. Written requests for such 
interpretations should be directed to the address indicated in Sec.  
1024.3. Such interpretations provide no protection under section 19(b) 
of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or counsel will not 
issue unofficial interpretations on matters adequately covered by this 
part or by official interpretations or commentaries issued under 
paragraph (a)(1)(ii) of this section.
    (c) All informal counsel's opinions and staff interpretations 
issued by HUD before November 2, 1992, were withdrawn as of that date. 
Courts and administrative agencies, however, may use previous opinions 
to determine the validity of conduct under the previous Regulation X.

Sec.  1024.5  Coverage of RESPA.

    (a) Applicability. RESPA and this part apply to all federally 
related mortgage loans, except for the exemptions provided in paragraph 
(b) of this section.
    (b) Exemptions. (1) A loan on property of 25 acres or more.
    (2) Business purpose loans. An extension of credit primarily for a 
business, commercial, or agricultural purpose, as defined by 12 CFR 
1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in 
determining whether the exemption applies.
    (3) Temporary financing. Temporary financing, such as a 
construction loan. The exemption for temporary financing does not apply 
to a loan made to finance construction of 1- to 4-family residential 
property if the loan is used as, or may be converted to, permanent 
financing by the same lender or is used to finance transfer of title to 
the first user. If a lender issues a commitment for permanent 
financing, with or without conditions, the loan is covered by this 
part. Any construction loan for new or rehabilitated 1- to 4-family 
residential property, other than a loan to a bona fide builder (a 
person who regularly constructs 1- to 4-family residential structures 
for sale or lease), is subject to this part if its term is for two 
years or more. A ``bridge loan'' or ``swing loan'' in which a lender 
takes a security

[[Page 78985]]

interest in otherwise covered 1- to 4-family residential property is 
not covered by RESPA and this part.
    (4) Vacant land. Any loan secured by vacant or unimproved property, 
unless within two years from the date of the settlement of the loan, a 
structure or a manufactured home will be constructed or placed on the 
real property using the loan proceeds. If a loan for a structure or 
manufactured home to be placed on vacant or unimproved property will be 
secured by a lien on that property, the transaction is covered by this 
part.
    (5) Assumption without lender approval. Any assumption in which the 
lender does not have the right expressly to approve a subsequent person 
as the borrower on an existing federally related mortgage loan. Any 
assumption in which the lender's permission is both required and 
obtained is covered by RESPA and this part, whether or not the lender 
charges a fee for the assumption.
    (6) Loan conversions. Any conversion of a federally related 
mortgage loan to different terms that are consistent with provisions of 
the original mortgage instrument, as long as a new note is not 
required, even if the lender charges an additional fee for the 
conversion.
    (7) Secondary market transactions. A bona fide transfer of a loan 
obligation in the secondary market is not covered by RESPA and this 
part, except as set forth in section 6 of RESPA (12 U.S.C. 2605) and 
Sec.  1024.21. In determining what constitutes a bona fide transfer, 
the Bureau will consider the real source of funding and the real 
interest of the funding lender. Mortgage broker transactions that are 
table-funded are not secondary market transactions. Neither the 
creation of a dealer loan or dealer consumer credit contract, nor the 
first assignment of such loan or contract to a lender, is a secondary 
market transaction (see Sec.  1024.2).

Sec.  1024.6  Special information booklet at time of loan application.

    (a) Lender to provide special information booklet. Subject to the 
exceptions set forth in this paragraph, the lender shall provide a copy 
of the special information booklet to a person from whom the lender 
receives, or for whom the lender prepares, a written application for a 
federally related mortgage loan. When two or more persons apply 
together for a loan, the lender is in compliance if the lender provides 
a copy of the booklet to one of the persons applying.
    (1) The lender shall provide the special information booklet by 
delivering it or placing it in the mail to the applicant not later than 
three business days (as that term is defined in Sec.  1024.2) after the 
application is received or prepared. However, if the lender denies the 
borrower's application for credit before the end of the three-business-
day period, then the lender need not provide the booklet to the 
borrower. If a borrower uses a mortgage broker, the mortgage broker 
shall distribute the special information booklet and the lender need 
not do so. The intent of this provision is that the applicant receive 
the special information booklet at the earliest possible date.
    (2) In the case of a federally related mortgage loan involving an 
open-ended credit plan, as defined in Regulation Z, 12 CFR 
1026.2(a)(20), a lender or mortgage broker that provides the borrower 
with a copy of the brochure entitled ``When Your Home is On the Line: 
What You Should Know About Home Equity Lines of Credit'', or any 
successor brochure issued by the Bureau, is deemed to be in compliance 
with this section.
    (3) In the categories of transactions set forth at the end of this 
paragraph, the lender or mortgage broker does not have to provide the 
booklet to the borrower. Under the authority of section 19(a) of RESPA 
(12 U.S.C. 2617(a)), the Bureau may issue a revised or separate special 
information booklet that deals with these transactions, or the Bureau 
may choose to endorse the forms or booklets of other Federal agencies. 
In such an event, the requirements for delivery by lenders and the 
availability of the booklet or alternate materials for these 
transactions will be set forth in a Notice in the Federal Register. 
This paragraph shall apply to the following transactions:
    (i) Refinancing transactions;
    (ii) Closed-end loans, as defined in 12 CFR 1026.2(a)(10) of 
Regulation Z, when the lender takes a subordinate lien;
    (iii) Reverse mortgages; and
    (iv) Any other federally related mortgage loan whose purpose is not 
the purchase of a 1- to 4-family residential property.
    (b) Revision. The Bureau may from time to time revise the special 
information booklet, publishing a notice in the Federal Register.
    (c) Reproduction. The special information booklet may be reproduced 
in any form, provided that no change is made other than as provided 
under paragraph (d) of this section. The special information booklet 
may not be made a part of a larger document for purposes of 
distribution under RESPA and this section. Any color, size and quality 
of paper, type of print, and method of reproduction may be used so long 
as the booklet is clearly legible.
    (d) Permissible changes. (1)(i) No changes to, deletions from, or 
additions to the special information booklet currently prescribed by 
the Bureau shall be made other than the permissible changes specified 
in paragraphs (d)(1)(ii) through (d)(3) of this section or changes as 
otherwise approved in writing by the Bureau in accordance with the 
procedures described in this paragraph. A request to the Bureau for 
approval of any changes other than the permissible changes specified in 
paragraphs (d)(1)(ii) through (d)(3) of this section shall be submitted 
in writing to the address indicated in Sec.  1024.3, stating the 
reasons why the applicant believes such changes, deletions or additions 
are necessary.
    (ii)(A) In the Complaints section of the booklet, it is a 
permissible change to substitute ``the Bureau of Consumer Financial 
Protection'' for ``HUD's Office of RESPA'' and ``the RESPA office.''
    (B) In the Avoiding Foreclosure section of the booklet, it is a 
permissible change to inform homeowners that they may find information 
on and assistance in avoiding foreclosures at http://www.consumerfinance.gov. The deletion of the reference to the HUD Web 
page, http://www.hud.gov/foreclosure/, in the Avoiding Foreclosure 
section of the booklet is not a permissible change.
    (C) In the Appendix to the booklet, it is a permissible change to 
substitute ``the Bureau of Consumer Financial Protection'' for the 
reference to the ``Board of Governors of the Federal Reserve System'' 
in the No Discrimination section of the Appendix to the booklet. In the 
Contact Information section of the Appendix to the booklet, it is a 
permissible change to add the following contact information for the 
Bureau: ``Bureau of Consumer Financial Protection, 1700 G Street NW., 
Washington, DC 20006; www.consumerfinance.gov/learnmore''. It is also a 
permissible change to remove the contact information for HUD's Office 
of RESPA and Interstate Land Sales from the Contact Information section 
of the Appendix to the booklet.
    (2) The cover of the booklet may be in any form and may contain any 
drawings, pictures or artwork, provided that the words ``settlement 
costs'' are used in the title. Names, addresses and telephone numbers 
of the lender or others and similar information may appear on the 
cover, but no discussion of the matters covered in the booklet shall 
appear on the cover. References to HUD on the cover of the booklet may 
be changed to references to the Bureau.

[[Page 78986]]

    (3) The special information booklet may be translated into 
languages other than English.

Sec.  1024.7  Good faith estimate.

    (a) Lender to provide. (1) Except as otherwise provided in 
paragraphs (a), (b), or (h) of this section, not later than 3 business 
days after a lender receives an application, or information sufficient 
to complete an application, the lender must provide the applicant with 
a GFE. In the case of dealer loans, the lender must either provide the 
GFE or ensure that the dealer provides the GFE.
    (2) The lender must provide the GFE to the loan applicant by hand 
delivery, by placing it in the mail, or, if the applicant agrees, by 
fax, email, or other electronic means.
    (3) The lender is not required to provide the applicant with a GFE 
if, before the end of the 3-business-day period:
    (i) The lender denies the application; or
    (ii) The applicant withdraws the application.
    (4) The lender is not permitted to charge, as a condition for 
providing a GFE, any fee for an appraisal, inspection, or other similar 
settlement service. The lender may, at its option, charge a fee limited 
to the cost of a credit report. The lender may not charge additional 
fees until after the applicant has received the GFE and indicated an 
intention to proceed with the loan covered by that GFE. If the GFE is 
mailed to the applicant, the applicant is considered to have received 
the GFE 3 calendar days after it is mailed, not including Sundays and 
the legal public holidays specified in 5 U.S.C. 6103(a).
    (5) The lender may at any time collect from the loan applicant any 
information that it requires in addition to the required application 
information. However, the lender is not permitted to require, as a 
condition for providing a GFE, that an applicant submit supplemental 
documentation to verify the information provided on the application.
    (b) Mortgage broker to provide. (1) Except as otherwise provided in 
paragraphs (a), (b), or (h) of this section, either the lender or the 
mortgage broker must provide a GFE not later than 3 business days after 
a mortgage broker receives either an application or information 
sufficient to complete an application. The lender is responsible for 
ascertaining whether the GFE has been provided. If the mortgage broker 
has provided a GFE, the lender is not required to provide an additional 
GFE.
    (2) The mortgage broker must provide the GFE by hand delivery, by 
placing it in the mail, or, if the applicant agrees, by fax, email, or 
other electronic means.
    (3) The mortgage broker is not required to provide the applicant 
with a GFE if, before the end of the 3-business-day period:
    (i) The mortgage broker or lender denies the application; or
    (ii) The applicant withdraws the application.
    (4) The mortgage broker is not permitted to charge, as a condition 
for providing a GFE, any fee for an appraisal, inspection, or other 
similar settlement service. The mortgage broker may, at its option, 
charge a fee limited to the cost of a credit report. The mortgage 
broker may not charge additional fees until after the applicant has 
received the GFE and indicated an intention to proceed with the loan 
covered by that GFE. If the GFE is mailed to the applicant, the 
applicant is considered to have received the GFE 3 calendar days after 
it is mailed, not including Sundays and the legal public holidays 
specified in 5 U.S.C. 6103(a).
    (5) The mortgage broker may at any time collect from the loan 
applicant any information that it requires in addition to the required 
application information. However, the mortgage broker is not permitted 
to require, as a condition for providing a GFE, that an applicant 
submit supplemental documentation to verify the information provided on 
the application.
    (c) Availability of GFE terms. Except as provided in this 
paragraph, the estimate of the charges and terms for all settlement 
services must be available for at least 10 business days from when the 
GFE is provided, but it may remain available longer, if the loan 
originator extends the period of availability. The estimate for the 
following charges are excepted from this requirement: the interest 
rate, charges and terms dependent upon the interest rate, which 
includes the charge or credit for the interest rate chosen, the 
adjusted origination charges, and per diem interest.
    (d) Content and form of GFE. The GFE form is set out in Appendix C 
to this part. The loan originator must prepare the GFE in accordance 
with the requirements of this section and the Instructions in Appendix 
C to this part. The instructions in Appendix C to this part allow for 
flexibility in the preparation and distribution of the GFE in hard copy 
and electronic format.
    (e) Tolerances for amounts included on GFE. (1) Except as provided 
in paragraph (f) of this section, the actual charges at settlement may 
not exceed the amounts included on the GFE for:
    (i) The origination charge;
    (ii) While the borrower's interest rate is locked, the credit or 
charge for the interest rate chosen;
    (iii) While the borrower's interest rate is locked, the adjusted 
origination charge; and
    (iv) Transfer taxes.
    (2) Except as provided in paragraph (f) of this section, the sum of 
the charges at settlement for the following services may not be greater 
than 10 percent above the sum of the amounts included on the GFE:
    (i) Lender-required settlement services, where the lender selects 
the third party settlement service provider;
    (ii) Lender-required services, title services and required title 
insurance, and owner's title insurance, when the borrower uses a 
settlement service provider identified by the loan originator; and
    (iii) Government recording charges.
    (3) The amounts charged for all other settlement services included 
on the GFE may change at settlement.
    (f) Binding GFE. The loan originator is bound, within the 
tolerances provided in paragraph (e) of this section, to the settlement 
charges and terms listed on the GFE provided to the borrower, unless a 
revised GFE is provided prior to settlement consistent with this 
paragraph (f) or the GFE expires in accordance with paragraph (f)(4) of 
this section. If a loan originator provides a revised GFE consistent 
with this paragraph, the loan originator must document the reason that 
a revised GFE was provided. Loan originators must retain documentation 
of any reason for providing a revised GFE for no less than 3 years 
after settlement.
    (1) Changed circumstances affecting settlement costs. If changed 
circumstances result in increased costs for any settlement services 
such that the charges at settlement would exceed the tolerances for 
those charges, the loan originator may provide a revised GFE to the 
borrower. If a revised GFE is to be provided, the loan originator must 
do so within 3 business days of receiving information sufficient to 
establish changed circumstances. The revised GFE may increase charges 
for services listed on the GFE only to the extent that the changed 
circumstances actually resulted in higher charges.
    (2) Changed circumstances affecting loan. If changed circumstances 
result in a change in the borrower's eligibility for the specific loan 
terms identified in the GFE, the loan originator may provide a revised 
GFE to the borrower. If a revised GFE is to be provided, the loan 
originator must do so within 3 business days of receiving information 
sufficient to establish changed circumstances. The

[[Page 78987]]

revised GFE may increase charges for services listed on the GFE only to 
the extent that the changed circumstances affecting the loan actually 
resulted in higher charges.
    (3) Borrower-requested changes. If a borrower requests changes to 
the mortgage loan identified in the GFE that change the settlement 
charges or the terms of the loan, the loan originator may provide a 
revised GFE to the borrower. If a revised GFE is to be provided, the 
loan originator must do so within 3 business days of the borrower's 
request. The revised GFE may increase charges for services listed on 
the GFE only to the extent that the borrower-requested changes to the 
mortgage loan identified on the GFE actually resulted in higher 
charges.
    (4) Expiration of GFE. If a borrower does not express an intent to 
continue with an application within 10 business days after the GFE is 
provided, or such longer time specified by the loan originator pursuant 
to paragraph (c) of this section, the loan originator is no longer 
bound by the GFE.
    (5) Interest rate-dependent charges and terms. If the interest rate 
has not been locked, or a locked interest rate has expired, the charge 
or credit for the interest rate chosen, the adjusted origination 
charges, per diem interest, and loan terms related to the interest rate 
may change. When the interest rate is later locked, a revised GFE must 
be provided showing the revised interest rate-dependent charges and 
terms. The loan originator must provide the revised GFE within 3 
business days of the interest rate being locked or, for an expired 
interest rate, re-locked. All other charges and terms must remain the 
same as on the original GFE, except as otherwise provided in paragraph 
(f) of this section.
    (6) New construction home purchases. In transactions involving new 
construction home purchases, where settlement is anticipated to occur 
more than 60 calendar days from the time a GFE is provided, the loan 
originator may provide the GFE to the borrower with a clear and 
conspicuous disclosure stating that at any time up until 60 calendar 
days prior to closing, the loan originator may issue a revised GFE. If 
no such separate disclosure is provided, the loan originator cannot 
issue a revised GFE, except as otherwise provided in paragraph (f) of 
this section.
    (g) GFE is not a loan commitment. Nothing in this section shall be 
interpreted to require a loan originator to make a loan to a particular 
borrower. The loan originator is not required to provide a GFE if the 
loan originator does not have available a loan for which the borrower 
is eligible.
    (h) Open-end lines of credit (home-equity plans) under Truth in 
Lending Act. In the case of a federally related mortgage loan involving 
an open-end line of credit (home-equity plan) covered under the Truth 
in Lending Act and Regulation Z, a lender or mortgage broker that 
provides the borrower with the disclosures required by 12 CFR 1026.40 
of Regulation Z at the time the borrower applies for such loan shall be 
deemed to satisfy the requirements of this section.
    (i) Violations of section 5 of RESPA (12 U.S.C. 2604). A loan 
originator that violates the requirements of this section shall be 
deemed to have violated section 5 of RESPA. If any charges at 
settlement exceed the charges listed on the GFE by more than the 
permitted tolerances, the loan originator may cure the tolerance 
violation by reimbursing to the borrower the amount by which the 
tolerance was exceeded, at settlement or within 30 calendar days after 
settlement. A borrower will be deemed to have received timely 
reimbursement if the loan originator delivers or places the payment in 
the mail within 30 calendar days after settlement.

Sec.  1024.8  Use of HUD-1 or HUD-1A settlement statements.

    (a) Use by settlement agent. The settlement agent shall use the 
HUD-1 settlement statement in every settlement involving a federally 
related mortgage loan in which there is a borrower and a seller. For 
transactions in which there is a borrower and no seller, such as 
refinancing loans or subordinate lien loans, the HUD-1 may be utilized 
by using the borrower's side of the HUD-1 statement. Alternatively, the 
form HUD-1A may be used for these transactions. The HUD-1 or HUD-1A may 
be modified as permitted under this part. Either the HUD-1 or the HUD-
1A, as appropriate, shall be used for every RESPA-covered transaction, 
unless its use is specifically exempted. The use of the HUD-1 or HUD-1A 
is exempted for open-end lines of credit (home-equity plans) covered by 
the Truth in Lending Act and Regulation Z.
    (b) Charges to be stated. The settlement agent shall complete the 
HUD-1 or HUD-1A, in accordance with the instructions set forth in 
Appendix A to this part. The loan originator must transmit to the 
settlement agent all information necessary to complete the HUD-1 or 
HUD-1A.
    (1) In general. The settlement agent shall state the actual charges 
paid by the borrower and seller on the HUD-1, or by the borrower on the 
HUD-1A. The settlement agent must separately itemize each third party 
charge paid by the borrower and seller. All origination services 
performed by or on behalf of the loan originator must be included in 
the loan originator's own charge. Administrative and processing 
services related to title services must be included in the title 
underwriter's or title agent's own charge. The amount stated on the 
HUD-1 or HUD-1A for any itemized service cannot exceed the amount 
actually received by the settlement service provider for that itemized 
service, unless the charge is an average charge in accordance with 
paragraph (b)(2) of this section.
    (2) Use of average charge. (i) The average charge for a settlement 
service shall be no more than the average amount paid for a settlement 
service by one settlement service provider to another settlement 
service provider on behalf of borrowers and sellers for a particular 
class of transactions involving federally related mortgage loans. The 
total amounts paid by borrowers and sellers for a settlement service 
based on the use of an average charge may not exceed the total amounts 
paid to the providers of that service for the particular class of 
transactions.
    (ii) The settlement service provider shall define the particular 
class of transactions for purposes of calculating the average charge as 
all transactions involving federally related mortgage loans for:
    (A) A period of time as determined by the settlement service 
provider, but not less than 30 calendar days and not more than 6 
months;
    (B) A geographic area as determined by the settlement service 
provider; and
    (C) A type of loan as determined by the settlement service 
provider.
    (iii) A settlement service provider may use an average charge in 
the same class of transactions for which the charge was calculated. If 
the settlement service provider uses the average charge for any 
transaction in the class, the settlement service provider must use the 
same average charge in every transaction within that class for which a 
GFE was provided.
    (iv) The use of an average charge is not permitted for any 
settlement service if the charge for the service is based on the loan 
amount or property value. For example, an average charge may not be 
used for transfer taxes, interest charges, reserves or escrow, or any 
type of insurance, including mortgage insurance, title insurance, or 
hazard insurance.
    (v) The settlement service provider must retain all documentation 
used to calculate the average charge for a

[[Page 78988]]

particular class of transactions for at least 3 years after any 
settlement for which that average charge was used.
    (c) Violations of section 4 of RESPA (12 U.S.C. 2603). A violation 
of any of the requirements of this section will be deemed to be a 
violation of section 4 of RESPA. An inadvertent or technical error in 
completing the HUD-1 or HUD-1A shall not be deemed a violation of 
section 4 of RESPA if a revised HUD-1 or HUD-1A is provided in 
accordance with the requirements of this section within 30 calendar 
days after settlement.

Sec.  1024.9  Reproduction of settlement statements.

    (a) Permissible changes--HUD-1. The following changes and 
insertions are permitted when the HUD-1 settlement statement is 
reproduced:
    (1) The person reproducing the HUD-1 may insert its business name 
and logo in section A and may rearrange, but not delete, the other 
information that appears in section A.
    (2) The name, address, and other information regarding the lender 
and settlement agent may be printed in sections F and H, respectively.
    (3) Reproduction of the HUD-1 must conform to the terminology, 
sequence, and numbering of line items as presented in lines 100-1400. 
However, blank lines or items listed in lines 100-1400 that are not 
used locally or in connection with mortgages by the lender may be 
deleted, except for the following: Lines 100, 120, 200, 220, 300, 301, 
302, 303, 400, 420, 500, 520, 600, 601, 602, 603, 700, 800, 900, 1000, 
1100, 1200, 1300, and 1400. The form may be shortened correspondingly. 
The number of a deleted item shall not be used for a substitute or new 
item, but the number of a blank space on the HUD-1 may be used for a 
substitute or new item.
    (4) Charges not listed on the HUD-1, but that are customary locally 
or pursuant to the lender's practice, may be inserted in blank spaces. 
Where existing blank spaces on the HUD-1 are insufficient, additional 
lines and spaces may be added and numbered in sequence with spaces on 
the HUD-1.
    (5) The following variations in layout and format are within the 
discretion of persons reproducing the HUD-1 and do not require prior 
HUD approval: size of pages; tint or color of pages; size and style of 
type or print; vertical spacing between lines or provision for 
additional horizontal space on lines (for example, to provide 
sufficient space for recording time periods used in prorations); 
printing of the HUD-1 contents on separate pages, on the front and back 
of a single page, or on one continuous page; use of multicopy tear-out 
sets; printing on rolls for computer purposes; reorganization of 
sections B through I, when necessary to accommodate computer printing; 
and manner of placement of the HUD number, but not the OMB approval 
number, neither of which may be deleted. The expiration date associated 
with the OMB number listed on the form may be deleted. Any changes in 
the HUD number or OMB approval number may be announced by notice in the 
Federal Register, rather than by amendment of this part.
    (6) The borrower's information and the seller's information may be 
provided on separate pages.
    (7) Signature lines may be added.
    (8) The HUD-1 may be translated into languages other than English.
    (9) An additional page may be attached to the HUD-1 for the purpose 
of including customary recitals and information used locally in real 
estate settlements; for example, breakdown of payoff figures, a 
breakdown of the borrower's total monthly mortgage payments, check 
disbursements, a statement indicating receipt of funds, applicable 
special stipulations between buyer and seller, and the date funds are 
transferred. If space permits, such information may be added at the end 
of the HUD-1.
    (10) As required by HUD/FHA in FHA-insured loans.
    (11) As allowed by Sec.  1024.17, relating to an initial escrow 
account statement.
    (b) Permissible changes--HUD-1A. The changes and insertions on the 
HUD-1 permitted under paragraph (a) of this section are also permitted 
when the HUD-1A settlement statement is reproduced, except the changes 
described in paragraphs (a)(3) and (6) of this section.
    (c) Written approval. Any other deviation in the HUD-1 or HUD-1A 
forms is permissible only upon receipt of written approval of the 
Bureau; provided, however, that notwithstanding contrary instructions 
in this section or Appendix A, reproducing the HUD-1 or HUD-1A forms 
with the Bureau's OMB approval number displayed in place of HUD's OMB 
approval number does not require the written approval of the Bureau. A 
request to the Bureau for approval shall be submitted in writing to the 
address indicated in Sec.  1024.3 and shall state the reasons why the 
applicant believes such deviation is needed. The prescribed form(s) 
must be used until approval is received.

Sec.  1024.10  One-day advance inspection of HUD-1 or HUD-1A settlement 
statement; delivery; recordkeeping.

    (a) Inspection one day prior to settlement upon request by the 
borrower. The settlement agent shall permit the borrower to inspect the 
HUD-1 or HUD-1A settlement statement, completed to set forth those 
items that are known to the settlement agent at the time of inspection, 
during the business day immediately preceding settlement. Items related 
only to the seller's transaction may be omitted from the HUD-1.
    (b) Delivery. The settlement agent shall provide a completed HUD-1 
or HUD-1A to the borrower, the seller (if there is one), the lender (if 
the lender is not the settlement agent), and/or their agents. When the 
borrower's and seller's copies of the HUD-1 or HUD-1A differ as 
permitted by the instructions in Appendix A to this part, both copies 
shall be provided to the lender (if the lender is not the settlement 
agent). The settlement agent shall deliver the completed HUD-1 or HUD-
1A at or before the settlement, except as provided in paragraphs (c) 
and (d) of this section.
    (c) Waiver. The borrower may waive the right to delivery of the 
completed HUD-1 or HUD-1A no later than at settlement by executing a 
written waiver at or before settlement. In such case, the completed 
HUD-1 or HUD-1A shall be mailed or delivered to the borrower, seller, 
and lender (if the lender is not the settlement agent) as soon as 
practicable after settlement.
    (d) Exempt transactions. When the borrower or the borrower's agent 
does not attend the settlement, or when the settlement agent does not 
conduct a meeting of the parties for that purpose, the transaction 
shall be exempt from the requirements of paragraphs (a) and (b) of this 
section, except that the HUD-1 or HUD-1A shall be mailed or delivered 
as soon as practicable after settlement.
    (e) Recordkeeping. The lender shall retain each completed HUD-1 or 
HUD-1A and related documents for five years after settlement, unless 
the lender disposes of its interest in the mortgage and does not 
service the mortgage. In that case, the lender shall provide its copy 
of the HUD-1 or HUD-1A to the owner or servicer of the mortgage as a 
part of the transfer of the loan file. Such owner or servicer shall 
retain the HUD-1 or HUD-1A for the remainder of the five-year period. 
The Bureau shall have the right to inspect or require copies of records 
covered by this paragraph (e).

[[Page 78989]]

Sec.  1024.11  Mailing.

    The provisions of this part requiring or permitting mailing of 
documents shall be deemed to be satisfied by placing the document in 
the mail (whether or not received by the addressee) addressed to the 
addresses stated in the loan application or in other information 
submitted to or obtained by the lender at the time of loan application 
or submitted or obtained by the lender or settlement agent, except that 
a revised address shall be used where the lender or settlement agent 
has been expressly informed in writing of a change in address.

Sec.  1024.12  No fee.

    No fee shall be imposed or charge made upon any other person, as a 
part of settlement costs or otherwise, by a lender in connection with a 
federally related mortgage loan made by it (or a loan for the purchase 
of a manufactured home), or by a servicer (as that term is defined 
under 12 U.S.C. 2605(i)(2)) for or on account of the preparation and 
distribution of the HUD-1 or HUD-1A settlement statement, escrow 
account statements required pursuant to section 10 of RESPA (12 U.S.C. 
2609), or statements required by the Truth in Lending Act (15 U.S.C. 
1601 et seq.).

Sec.  1024.13  Relation to state laws.

    (a) State laws that are inconsistent with RESPA or this part are 
preempted to the extent of the inconsistency. However, RESPA and these 
regulations do not annul, alter, affect, or exempt any person subject 
to their provisions from complying with the laws of any state with 
respect to settlement practices, except to the extent of the 
inconsistency.
    (b) Upon request by any person, the Bureau is authorized to 
determine if inconsistencies with state law exist; in doing so, the 
Bureau shall consult with appropriate Federal agencies.
    (1) The Bureau may not determine that a state law or regulation is 
inconsistent with any provision of RESPA or this part, if the Bureau 
determines that such law or regulation gives greater protection to the 
consumer.
    (2) In determining whether provisions of state law or regulations 
concerning affiliated business arrangements are inconsistent with RESPA 
or this part, the Bureau may not construe those provisions that impose 
more stringent limitations on affiliated business arrangements as 
inconsistent with RESPA so long as they give more protection to 
consumers and/or competition.
    (c) Any person may request the Bureau to determine whether an 
inconsistency exists by submitting to the address indicated in Sec.  
1024.3, a copy of the state law in question, any other law or judicial 
or administrative opinion that implements, interprets or applies the 
relevant provision, and an explanation of the possible inconsistency. A 
determination by the Bureau that an inconsistency with state law exists 
will be made by publication of a notice in the Federal Register. 
``Law'' as used in this section includes regulations and any enactment 
which has the force and effect of law and is issued by a state or any 
political subdivision of a State.
    (d) A specific preemption of conflicting state laws regarding 
notices and disclosures of mortgage servicing transfers is set forth in 
Sec.  1024.21(h).

Sec.  1024.14  Prohibition against kickbacks and unearned fees.

    (a) Section 8 violation. Any violation of this section is a 
violation of section 8 of RESPA (12 U.S.C. 2607).
    (b) No referral fees. No person shall give and no person shall 
accept any fee, kickback or other thing of value pursuant to any 
agreement or understanding, oral or otherwise, that business incident 
to or part of a settlement service involving a federally related 
mortgage loan shall be referred to any person. Any referral of a 
settlement service is not a compensable service, except as set forth in 
Sec.  1024.14(g)(1). A company may not pay any other company or the 
employees of any other company for the referral of settlement service 
business.
    (c) No split of charges except for actual services performed. No 
person shall give and no person shall accept any portion, split, or 
percentage of any charge made or received for the rendering of a 
settlement service in connection with a transaction involving a 
federally related mortgage loan other than for services actually 
performed. A charge by a person for which no or nominal services are 
performed or for which duplicative fees are charged is an unearned fee 
and violates this section. The source of the payment does not determine 
whether or not a service is compensable. Nor may the prohibitions of 
this part be avoided by creating an arrangement wherein the purchaser 
of services splits the fee.
    (d) Thing of value. This term is broadly defined in section 3(2) of 
RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, 
things, discounts, salaries, commissions, fees, duplicate payments of a 
charge, stock, dividends, distributions of partnership profits, 
franchise royalties, credits representing monies that may be paid at a 
future date, the opportunity to participate in a money-making program, 
retained or increased earnings, increased equity in a parent or 
subsidiary entity, special bank deposits or accounts, special or 
unusual banking terms, services of all types at special or free rates, 
sales or rentals at special prices or rates, lease or rental payments 
based in whole or in part on the amount of business referred, trips and 
payment of another person's expenses, or reduction in credit against an 
existing obligation. The term ``payment'' is used throughout Sec. Sec.  
1024.14 and 1024.15 as synonymous with the giving or receiving of any 
``thing of value'' and does not require transfer of money.
    (e) Agreement or understanding. An agreement or understanding for 
the referral of business incident to or part of a settlement service 
need not be written or verbalized but may be established by a practice, 
pattern or course of conduct. When a thing of value is received 
repeatedly and is connected in any way with the volume or value of the 
business referred, the receipt of the thing of value is evidence that 
it is made pursuant to an agreement or understanding for the referral 
of business.
    (f) Referral. (1) A referral includes any oral or written action 
directed to a person which has the effect of affirmatively influencing 
the selection by any person of a provider of a settlement service or 
business incident to or part of a settlement service when such person 
will pay for such settlement service or business incident thereto or 
pay a charge attributable in whole or in part to such settlement 
service or business.
    (2) A referral also occurs whenever a person paying for a 
settlement service or business incident thereto is required to use (see 
Sec.  1024.2, ``required use'') a particular provider of a settlement 
service or business incident thereto.
    (g) Fees, salaries, compensation, or other payments. (1) Section 8 
of RESPA permits:
    (i) A payment to an attorney at law for services actually rendered;
    (ii) A payment by a title company to its duly appointed agent for 
services actually performed in the issuance of a policy of title 
insurance;
    (iii) A payment by a lender to its duly appointed agent or 
contractor for services actually performed in the origination, 
processing, or funding of a loan;
    (iv) A payment to any person of a bona fide salary or compensation 
or other payment for goods or facilities actually furnished or for 
services actually performed;

[[Page 78990]]

    (v) A payment pursuant to cooperative brokerage and referral 
arrangements or agreements between real estate agents and real estate 
brokers. (The statutory exemption restated in this paragraph refers 
only to fee divisions within real estate brokerage arrangements when 
all parties are acting in a real estate brokerage capacity, and has no 
applicability to any fee arrangements between real estate brokers and 
mortgage brokers or between mortgage brokers.);
    (vi) Normal promotional and educational activities that are not 
conditioned on the referral of business and that do not involve the 
defraying of expenses that otherwise would be incurred by persons in a 
position to refer settlement services or business incident thereto; or
    (vii) An employer's payment to its own employees for any referral 
activities.
    (2) The Bureau may investigate high prices to see if they are the 
result of a referral fee or a split of a fee. If the payment of a thing 
of value bears no reasonable relationship to the market value of the 
goods or services provided, then the excess is not for services or 
goods actually performed or provided. These facts may be used as 
evidence of a violation of section 8 and may serve as a basis for a 
RESPA investigation. High prices standing alone are not proof of a 
RESPA violation. The value of a referral (i.e., the value of any 
additional business obtained thereby) is not to be taken into account 
in determining whether the payment exceeds the reasonable value of such 
goods, facilities or services. The fact that the transfer of the thing 
of value does not result in an increase in any charge made by the 
person giving the thing of value is irrelevant in determining whether 
the act is prohibited.
    (3) Multiple services. When a person in a position to refer 
settlement service business, such as an attorney, mortgage lender, real 
estate broker or agent, or developer or builder, receives a payment for 
providing additional settlement services as part of a real estate 
transaction, such payment must be for services that are actual, 
necessary and distinct from the primary services provided by such 
person. For example, for an attorney of the buyer or seller to receive 
compensation as a title agent, the attorney must perform core title 
agent services (for which liability arises) separate from attorney 
services, including the evaluation of the title search to determine the 
insurability of the title, the clearance of underwriting objections, 
the actual issuance of the policy or policies on behalf of the title 
insurance company, and, where customary, issuance of the title 
commitment, and the conducting of the title search and closing.
    (h) Recordkeeping. Any documents provided pursuant to this section 
shall be retained for five (5) years from the date of execution.
    (i) Appendix B of this part. Illustrations in Appendix B of this 
part demonstrate some of the requirements of this section.

Sec.  1024.15  Affiliated business arrangements.

    (a) General. An affiliated business arrangement is defined in 
section 3(7) of RESPA (12 U.S.C. 2602(7)).
    (b) Violation and exemption. An affiliated business arrangement is 
not a violation of section 8 of RESPA (12 U.S.C. 2607) and of Sec.  
1024.14 if the conditions set forth in this section are satisfied. 
Paragraph (b)(1) of this section shall not apply to the extent it is 
inconsistent with section 8(c)(4)(A) of RESPA (12 U.S.C. 
2607(c)(4)(A)).
    (1) The person making each referral has provided to each person 
whose business is referred a written disclosure, in the format of the 
Affiliated Business Arrangement Disclosure Statement set forth in 
Appendix D of this part, of the nature of the relationship (explaining 
the ownership and financial interest) between the provider of 
settlement services (or business incident thereto) and the person 
making the referral and of an estimated charge or range of charges 
generally made by such provider (which describes the charge using the 
same terminology, as far as practical, as section L of the HUD-1 
settlement statement). The disclosures must be provided on a separate 
piece of paper no later than the time of each referral or, if the 
lender requires use of a particular provider, the time of loan 
application, except that:
    (i) Where a lender makes the referral to a borrower, the condition 
contained in paragraph (b)(1) of this section may be satisfied at the 
time that the good faith estimate or a statement under Sec.  1024.7(d) 
is provided; and
    (ii) Whenever an attorney or law firm requires a client to use a 
particular title insurance agent, the attorney or law firm shall 
provide the disclosures no later than the time the attorney or law firm 
is engaged by the client.
    (iii) Failure to comply with the disclosure requirements of this 
section may be overcome if the person making a referral can prove by a 
preponderance of the evidence that procedures reasonably adopted to 
result in compliance with these conditions have been maintained and 
that any failure to comply with these conditions was unintentional and 
the result of a bona fide error. An error of legal judgment with 
respect to a person's obligations under RESPA is not a bona fide error. 
Administrative and judicial interpretations of section 130(c) of the 
Truth in Lending Act shall not be binding interpretations of the 
preceding sentence or section 8(d)(3) of RESPA (12 U.S.C. 2607(d)(3)).
    (2) No person making a referral has required (as defined in Sec.  
1024.2, ``required use'') any person to use any particular provider of 
settlement services or business incident thereto, except if such person 
is a lender, for requiring a buyer, borrower or seller to pay for the 
services of an attorney, credit reporting agency, or real estate 
appraiser chosen by the lender to represent the lender's interest in a 
real estate transaction, or except if such person is an attorney or law 
firm for arranging for issuance of a title insurance policy for a 
client, directly as agent or through a separate corporate title 
insurance agency that may be operated as an adjunct to the law practice 
of the attorney or law firm, as part of representation of that client 
in a real estate transaction.
    (3) The only thing of value that is received from the arrangement 
other than payments listed in Sec.  1024.14(g) is a return on an 
ownership interest or franchise relationship.
    (i) In an affiliated business arrangement:
    (A) Bona fide dividends, and capital or equity distributions, 
related to ownership interest or franchise relationship, between 
entities in an affiliate relationship, are permissible; and
    (B) Bona fide business loans, advances, and capital or equity 
contributions between entities in an affiliate relationship (in any 
direction), are not prohibited--so long as they are for ordinary 
business purposes and are not fees for the referral of settlement 
service business or unearned fees.
    (ii) A return on an ownership interest does not include:
    (A) Any payment which has as a basis of calculation no apparent 
business motive other than distinguishing among recipients of payments 
on the basis of the amount of their actual, estimated or anticipated 
referrals;
    (B) Any payment which varies according to the relative amount of 
referrals by the different recipients of similar payments; or
    (C) A payment based on an ownership, partnership or joint venture 
share which has been adjusted on the

[[Page 78991]]

basis of previous relative referrals by recipients of similar payments.
    (iii) Neither the mere labeling of a thing of value, nor the fact 
that it may be calculated pursuant to a corporate or partnership 
organizational document or a franchise agreement, will determine 
whether it is a bona fide return on an ownership interest or franchise 
relationship. Whether a thing of value is such a return will be 
determined by analyzing facts and circumstances on a case by case 
basis.
    (iv) A return on franchise relationship may be a payment to or from 
a franchisee but it does not include any payment which is not based on 
the franchise agreement, nor any payment which varies according to the 
number or amount of referrals by the franchisor or franchisee or which 
is based on a franchise agreement which has been adjusted on the basis 
of a previous number or amount of referrals by the franchiser or 
franchisees. A franchise agreement may not be constructed to insulate 
against kickbacks or referral fees.
    (c) Definitions. As used in this section:
    Associate is defined in section 3(8) of RESPA (12 U.S.C. 2602(8)).
    Affiliate relationship means the relationship among business 
entities where one entity has effective control over the other by 
virtue of a partnership or other agreement or is under common control 
with the other by a third entity or where an entity is a corporation 
related to another corporation as parent to subsidiary by an identity 
of stock ownership.
    Beneficial ownership means the effective ownership of an interest 
in a provider of settlement services or the right to use and control 
the ownership interest involved even though legal ownership or title 
may be held in another person's name.
    Control, as used in the definitions of ``associate'' and 
``affiliate relationship,'' means that a person:
    (i) Is a general partner, officer, director, or employer of another 
person;
    (ii) Directly or indirectly or acting in concert with others, or 
through one or more subsidiaries, owns, holds with power to vote, or 
holds proxies representing, more than 20 percent of the voting 
interests of another person;
    (iii) Affirmatively influences in any manner the election of a 
majority of the directors of another person; or
    (iv) Has contributed more than 20 percent of the capital of the 
other person.
    Direct ownership means the holding of legal title to an interest in 
a provider of settlement service except where title is being held for 
the beneficial owner.
    Franchise is defined in FTC regulation 16 CFR 436.1(h).
    Franchisor is defined in FTC regulation 16 CFR 436.1(k).
    Franchisee is defined in FTC regulation 16 CFR 436.1(i).
    FTC means the Federal Trade Commission.
    Person who is in a position to refer settlement service business 
means any real estate broker or agent, lender, mortgage broker, builder 
or developer, attorney, title company, title agent, or other person 
deriving a significant portion of his or her gross income from 
providing settlement services.
    (d) Recordkeeping. Any documents provided pursuant to this section 
shall be retained for 5 years after the date of execution.
    (e) Appendix B of this part. Illustrations in Appendix B of this 
part demonstrate some of the requirements of this section.

Sec.  1024.16  Title companies.

    No seller of property that will be purchased with the assistance of 
a federally related mortgage loan shall violate section 9 of RESPA (12 
U.S.C. 2608). Section 1024.2 defines ``required use'' of a provider of 
a settlement service.

Sec.  1024.17  Escrow accounts.

    (a) General. This section sets out the requirements for an escrow 
account that a lender establishes in connection with a federally 
related mortgage loan. It sets limits for escrow accounts using 
calculations based on monthly payments and disbursements within a 
calendar year. If an escrow account involves biweekly or any other 
payment period, the requirements in this section shall be modified 
accordingly. A Public Guidance Document entitled ``Biweekly Payments--
Example'' provides examples of biweekly accounting and a Public 
Guidance Document entitled ``Annual Escrow Account Disclosure 
Statement--Example'' provides examples of a 3-year accounting cycle 
that may be used in accordance with paragraph (c)(9) of this section. A 
Public Guidance Document entitled ``Consumer Disclosure for Voluntary 
Escrow Account Payments'' provides a model disclosure format that 
originators and servicers are encouraged, but not required, to provide 
to consumers when the originator or servicer anticipates a substantial 
increase in disbursements from the escrow account after the first year 
of the loan. The disclosures in that model format may be combined with 
or included in the Initial Escrow Account Statement required in Sec.  
1024.17(g).
    (b) Definitions. As used in this section:
    Aggregate (or) composite analysis, hereafter called aggregate 
analysis, means an accounting method a servicer uses in conducting an 
escrow account analysis by computing the sufficiency of escrow account 
funds by analyzing the account as a whole. Appendix E to this part sets 
forth examples of aggregate escrow account analyses.
    Annual escrow account statement means a statement containing all of 
the information set forth in Sec.  1024.17(i). As noted in Sec.  
1024.17(i), a servicer shall submit an annual escrow account statement 
to the borrower within 30 calendar days of the end of the escrow 
account computation year, after conducting an escrow account analysis.
    Cushion or reserve (hereafter cushion) means funds that a servicer 
may require a borrower to pay into an escrow account to cover 
unanticipated disbursements or disbursements made before the borrower's 
payments are available in the account, as limited by Sec.  1024.17(c).
    Deficiency is the amount of a negative balance in an escrow 
account. As noted in Sec.  1024.17(f), if a servicer advances funds for 
a borrower, then the servicer must perform an escrow account analysis 
before seeking repayment of the deficiency.
    Delivery means the placing of a document in the United States mail, 
first-class postage paid, addressed to the last known address of the 
recipient. Hand delivery also constitutes delivery.
    Disbursement date means the date on which the servicer actually 
pays an escrow item from the escrow account.
    Escrow account means any account that a servicer establishes or 
controls on behalf of a borrower to pay taxes, insurance premiums 
(including flood insurance), or other charges with respect to a 
federally related mortgage loan, including charges that the borrower 
and servicer have voluntarily agreed that the servicer should collect 
and pay. The definition encompasses any account established for this 
purpose, including a ``trust account'', ``reserve account'', ``impound 
account'', or other term in different localities. An ``escrow account'' 
includes any arrangement where the servicer adds a portion of the 
borrower's payments to principal and subsequently deducts from 
principal the disbursements for escrow account items. For purposes of 
this section, the term ``escrow account'' excludes any account that is 
under the borrower's total control.

[[Page 78992]]

    Escrow account analysis means the accounting that a servicer 
conducts in the form of a trial running balance for an escrow account 
to:
    (1) Determine the appropriate target balances;
    (2) Compute the borrower's monthly payments for the next escrow 
account computation year and any deposits needed to establish or 
maintain the account; and
    (3) Determine whether shortages, surpluses or deficiencies exist.
    Escrow account computation year is a 12-month period that a 
servicer establishes for the escrow account beginning with the 
borrower's initial payment date. The term includes each 12-month period 
thereafter, unless a servicer chooses to issue a short year statement 
under the conditions stated in Sec.  1024.17(i)(4).
    Escrow account item or separate item means any separate expenditure 
category, such as ``taxes'' or ``insurance'', for which funds are 
collected in the escrow account for disbursement. An escrow account 
item with installment payments, such as local property taxes, remains 
one escrow account item regardless of multiple disbursement dates to 
the tax authority.
    Initial escrow account statement means the first disclosure 
statement that the servicer delivers to the borrower concerning the 
borrower's escrow account. The initial escrow account statement shall 
meet the requirements of Sec.  1024.17(g) and be in substantially the 
format set forth in Sec.  1024.17(h).
    Installment payment means one of two or more payments payable on an 
escrow account item during an escrow account computation year. An 
example of an installment payment is where a jurisdiction bills 
quarterly for taxes.
    Payment due date means the date each month when the borrower's 
monthly payment to an escrow account is due to the servicer. The 
initial payment date is the borrower's first payment due date to an 
escrow account.
    Penalty means a late charge imposed by the payee for paying after 
the disbursement is due. It does not include any additional charge or 
fee imposed by the payee associated with choosing installment payments 
as opposed to annual payments or for choosing one installment plan over 
another.
    Pre-accrual is a practice some servicers use to require borrowers 
to deposit funds, needed for disbursement and maintenance of a cushion, 
in the escrow account some period before the disbursement date. Pre-
accrual is subject to the limitations of Sec.  1024.17(c).
    Shortage means an amount by which a current escrow account balance 
falls short of the target balance at the time of escrow analysis.
    Single-item analysis means an accounting method servicers use in 
conducting an escrow account analysis by computing the sufficiency of 
escrow account funds by considering each escrow item separately. 
Appendix E to this part sets forth examples of single-item analysis.
    Submission (of an escrow account statement) means the delivery of 
the statement.
    Surplus means an amount by which the current escrow account balance 
exceeds the target balance for the account.
    System of recordkeeping means the servicer's method of keeping 
information that reflects the facts relating to that servicer's 
handling of the borrower's escrow account, including, but not limited 
to, the payment of amounts from the escrow account and the submission 
of initial and annual escrow account statements to borrowers.
    Target balance means the estimated month end balance in an escrow 
account that is just sufficient to cover the remaining disbursements 
from the escrow account in the escrow account computation year, taking 
into account the remaining scheduled periodic payments, and a cushion, 
if any.
    Trial running balance means the accounting process that derives the 
target balances over the course of an escrow account computation year. 
Section 1024.17(d) provides a description of the steps involved in 
performing a trial running balance.
    (c) Limits on payments to escrow accounts. (1) A lender or servicer 
(hereafter servicer) shall not require a borrower to deposit into any 
escrow account, created in connection with a federally related mortgage 
loan, more than the following amounts:
    (i) Charges at settlement or upon creation of an escrow account. At 
the time a servicer creates an escrow account for a borrower, the 
servicer may charge the borrower an amount sufficient to pay the 
charges respecting the mortgaged property, such as taxes and insurance, 
which are attributable to the period from the date such payment(s) were 
last paid until the initial payment date. The ``amount sufficient to 
pay'' is computed so that the lowest month end target balance projected 
for the escrow account computation year is zero (-0-) (see Step 2 in 
Appendix E to this part). In addition, the servicer may charge the 
borrower a cushion that shall be no greater than one-sixth (\1/6\) of 
the estimated total annual payments from the escrow account.
    (ii) Charges during the life of the escrow account. Throughout the 
life of an escrow account, the servicer may charge the borrower a 
monthly sum equal to one-twelfth (\1/12\) of the total annual escrow 
payments which the servicer reasonably anticipates paying from the 
account. In addition, the servicer may add an amount to maintain a 
cushion no greater than one-sixth (\1/6\) of the estimated total annual 
payments from the account. However, if a servicer determines through an 
escrow account analysis that there is a shortage or deficiency, the 
servicer may require the borrower to pay additional deposits to make up 
the shortage or eliminate the deficiency, subject to the limitations 
set forth in Sec.  1024.17(f).
    (2) Escrow analysis at creation of escrow account. Before 
establishing an escrow account, the servicer must conduct an escrow 
account analysis to determine the amount the borrower must deposit into 
the escrow account (subject to the limitations of paragraph (c)(1)(i) 
of this section), and the amount of the borrower's periodic payments 
into the escrow account (subject to the limitations of paragraph 
(c)(1)(ii) of this section). In conducting the escrow account analysis, 
the servicer must estimate the disbursement amounts according to 
paragraph (c)(7) of this section. Pursuant to paragraph (k) of this 
section, the servicer must use a date on or before the deadline to 
avoid a penalty as the disbursement date for the escrow item and comply 
with any other requirements of paragraph (k) of this section. Upon 
completing the initial escrow account analysis, the servicer must 
prepare and deliver an initial escrow account statement to the 
borrower, as set forth in paragraph (g) of this section. The servicer 
must use the escrow account analysis to determine whether a surplus, 
shortage, or deficiency exists and must make any adjustments to the 
account pursuant to paragraph (f) of this section.
    (3) Subsequent escrow account analyses. For each escrow account, 
the servicer must conduct an escrow account analysis at the completion 
of the escrow account computation year to determine the borrower's 
monthly escrow account payments for the next computation year, subject 
to the limitations of paragraph (c)(1)(ii) of this section. In 
conducting the escrow account analysis, the servicer must estimate the 
disbursement amounts according to paragraph (c)(7) of this section. 
Pursuant to paragraph (k) of this section, the servicer must use a date 
on or before the deadline to avoid a penalty

[[Page 78993]]

as the disbursement date for the escrow item and comply with any other 
requirements of paragraph (k) of this section. The servicer must use 
the escrow account analysis to determine whether a surplus, shortage, 
or deficiency exists, and must make any adjustments to the account 
pursuant to paragraph (f) of this section. Upon completing an escrow 
account analysis, the servicer must prepare and submit an annual escrow 
account statement to the borrower, as set forth in paragraph (i) of 
this section.
    (4) Aggregate accounting required. All servicers must use the 
aggregate accounting method in conducting escrow account analyses.
    (5) Cushion. The cushion must be no greater than one-sixth (\1/6\) 
of the estimated total annual disbursements from the escrow account.
    (6) Restrictions on pre-accrual. A servicer must not practice pre-
accrual.
    (7) Servicer estimates of disbursement amounts. To conduct an 
escrow account analysis, the servicer shall estimate the amount of 
escrow account items to be disbursed. If the servicer knows the charge 
for an escrow item in the next computation year, then the servicer 
shall use that amount in estimating disbursement amounts. If the charge 
is unknown to the servicer, the servicer may base the estimate on the 
preceding year's charge, or the preceding year's charge as modified by 
an amount not exceeding the most recent year's change in the national 
Consumer Price Index for all urban consumers (CPI, all items). In cases 
of unassessed new construction, the servicer may base an estimate on 
the assessment of comparable residential property in the market area.
    (8) Provisions in mortgage documents. The servicer must examine the 
mortgage loan documents to determine the applicable cushion for each 
escrow account. If the mortgage loan documents provide for lower 
cushion limits, then the terms of the loan documents apply. Where the 
terms of any mortgage loan document allow greater payments to an escrow 
account than allowed by this section, then this section controls the 
applicable limits. Where the mortgage loan documents do not 
specifically establish an escrow account, whether a servicer may 
establish an escrow account for the loan is a matter for determination 
by other Federal or state law. If the mortgage loan document is silent 
on the escrow account limits and a servicer establishes an escrow 
account under other Federal or state law, then the limitations of this 
section apply unless applicable Federal or state law provides for a 
lower amount. If the loan documents provide for escrow accounts up to 
the RESPA limits, then the servicer may require the maximum amounts 
consistent with this section, unless an applicable Federal or state law 
sets a lesser amount.
    (9) Assessments for periods longer than one year. Some escrow 
account items may be billed for periods longer than one year. For 
example, servicers may need to collect flood insurance or water 
purification escrow funds for payment every three years. In such cases, 
the servicer shall estimate the borrower's payments for a full cycle of 
disbursements. For a flood insurance premium payable every 3 years, the 
servicer shall collect the payments reflecting 36 equal monthly 
amounts. For two out of the three years, however, the account balance 
may not reach its low monthly balance because the low point will be on 
a three-year cycle, as compared to an annual one. The annual escrow 
account statement shall explain this situation (see example in the 
Public Guidance Document entitled ``Annual Escrow Account Disclosure 
Statement--Example'', available in accordance with Sec.  1024.3).
    (d) Methods of escrow account analysis. (1) The following sets 
forth the steps servicers must use to determine whether their use of 
aggregate analysis conforms with the limitations in Sec.  
1024.17(c)(1). The steps set forth in this section result in maximum 
limits. Servicers may use accounting procedures that result in lower 
target balances. In particular, servicers may use a cushion less than 
the permissible cushion or no cushion at all. This section does not 
require the use of a cushion.
    (2) Aggregate analysis. (i) In conducting the escrow account 
analysis using aggregate analysis, the target balances may not exceed 
the balances computed according to the following arithmetic operations:
    (A) The servicer first projects a trial balance for the account as 
a whole over the next computation year (a trial running balance). In 
doing so the servicer assumes that it will make estimated disbursements 
on or before the earlier of the deadline to take advantage of 
discounts, if available, or the deadline to avoid a penalty. The 
servicer does not use pre-accrual on these disbursement dates. The 
servicer also assumes that the borrower will make monthly payments 
equal to one-twelfth of the estimated total annual escrow account 
disbursements.
    (B) The servicer then examines the monthly trial balances and adds 
to the first monthly balance an amount just sufficient to bring the 
lowest monthly trial balance to zero, and adjusts all other monthly 
balances accordingly.
    (C) The servicer then adds to the monthly balances the permissible 
cushion. The cushion is two months of the borrower's escrow payments to 
the servicer or a lesser amount specified by state law or the mortgage 
document (net of any increases or decreases because of prior year 
shortages or surpluses, respectively).
    (ii) Lowest monthly balance. Under aggregate analysis, the lowest 
monthly target balance for the account shall be less than or equal to 
one-sixth of the estimated total annual escrow account disbursements or 
a lesser amount specified by state law or the mortgage document. The 
target balances that the servicer derives using these steps yield the 
maximum limit for the escrow account. Appendix E to this part 
illustrates these steps.
    (e) Transfer of servicing. (1) If the new servicer changes either 
the monthly payment amount or the accounting method used by the 
transferor (old) servicer, then the new servicer shall provide the 
borrower with an initial escrow account statement within 60 days of the 
date of servicing transfer.
    (i) Where a new servicer provides an initial escrow account 
statement upon the transfer of servicing, the new servicer shall use 
the effective date of the transfer of servicing to establish the new 
escrow account computation year.
    (ii) Where the new servicer retains the monthly payments and 
accounting method used by the transferor servicer, then the new 
servicer may continue to use the escrow account computation year 
established by the transferor servicer or may choose to establish a 
different computation year using a short-year statement. At the 
completion of the escrow account computation year or any short year, 
the new servicer shall perform an escrow analysis and provide the 
borrower with an annual escrow account statement.
    (2) The new servicer shall treat shortages, surpluses and 
deficiencies in the transferred escrow account according to the 
procedures set forth in Sec.  1024.17(f).
    (f) Shortages, surpluses, and deficiencies requirements. (1) Escrow 
account analysis. For each escrow account, the servicer shall conduct 
an escrow account analysis to determine whether a surplus, shortage or 
deficiency exists.
    (i) As noted in Sec.  1024.17(c)(2) and (3), the servicer shall 
conduct an escrow account analysis upon establishing an escrow account 
and at completion of the escrow account computation year.

[[Page 78994]]

    (ii) The servicer may conduct an escrow account analysis at other 
times during the escrow computation year. If a servicer advances funds 
in paying a disbursement, which is not the result of a borrower's 
payment default under the underlying mortgage document, then the 
servicer shall conduct an escrow account analysis to determine the 
extent of the deficiency before seeking repayment of the funds from the 
borrower under this paragraph (f).
    (2) Surpluses. (i) If an escrow account analysis discloses a 
surplus, the servicer shall, within 30 days from the date of the 
analysis, refund the surplus to the borrower if the surplus is greater 
than or equal to 50 dollars ($50). If the surplus is less than 50 
dollars ($50), the servicer may refund such amount to the borrower, or 
credit such amount against the next year's escrow payments.
    (ii) These provisions regarding surpluses apply if the borrower is 
current at the time of the escrow account analysis. A borrower is 
current if the servicer receives the borrower's payments within 30 days 
of the payment due date. If the servicer does not receive the 
borrower's payment within 30 days of the payment due date, then the 
servicer may retain the surplus in the escrow account pursuant to the 
terms of the mortgage loan documents.
    (iii) After an initial or annual escrow analysis has been 
performed, the servicer and the borrower may enter into a voluntary 
agreement for the forthcoming escrow accounting year for the borrower 
to deposit funds into the escrow account for that year greater than the 
limits established under paragraph (c) of this section. Such an 
agreement shall cover only one escrow accounting year, but a new 
voluntary agreement may be entered into after the next escrow analysis 
is performed. The voluntary agreement may not alter how surpluses are 
to be treated when the next escrow analysis is performed at the end of 
the escrow accounting year covered by the voluntary agreement.
    (3) Shortages. (i) If an escrow account analysis discloses a 
shortage of less than one month's escrow account payment, then the 
servicer has three possible courses of action:
    (A) The servicer may allow a shortage to exist and do nothing to 
change it;
    (B) The servicer may require the borrower to repay the shortage 
amount within 30 days; or
    (C) The servicer may require the borrower to repay the shortage 
amount in equal monthly payments over at least a 12-month period.
    (ii) If an escrow account analysis discloses a shortage that is 
greater than or equal to one month's escrow account payment, then the 
servicer has two possible courses of action:
    (A) The servicer may allow a shortage to exist and do nothing to 
change it; or
    (B) The servicer may require the borrower to repay the shortage in 
equal monthly payments over at least a 12-month period.
    (4) Deficiency. If the escrow account analysis confirms a 
deficiency, then the servicer may require the borrower to pay 
additional monthly deposits to the account to eliminate the deficiency.
    (i) If the deficiency is less than one month's escrow account 
payment, then the servicer:
    (A) May allow the deficiency to exist and do nothing to change it;
    (B) May require the borrower to repay the deficiency within 30 
days; or
    (C) May require the borrower to repay the deficiency in 2 or more 
equal monthly payments.
    (ii) If the deficiency is greater than or equal to 1 month's escrow 
payment, the servicer may allow the deficiency to exist and do nothing 
to change it or may require the borrower to repay the deficiency in two 
or more equal monthly payments.
    (iii) These provisions regarding deficiencies apply if the borrower 
is current at the time of the escrow account analysis. A borrower is 
current if the servicer receives the borrower's payments within 30 days 
of the payment due date. If the servicer does not receive the 
borrower's payment within 30 days of the payment due date, then the 
servicer may recover the deficiency pursuant to the terms of the 
mortgage loan documents.
    (5) Notice of shortage or deficiency in escrow account. The 
servicer shall notify the borrower at least once during the escrow 
account computation year if there is a shortage or deficiency in the 
escrow account. The notice may be part of the annual escrow account 
statement or it may be a separate document.
    (g) Initial escrow account statement. (1) Submission at settlement, 
or within 45 calendar days of settlement. As noted in Sec.  
1024.17(c)(2), the servicer shall conduct an escrow account analysis 
before establishing an escrow account to determine the amount the 
borrower shall deposit into the escrow account, subject to the 
limitations of Sec.  1024.17(c)(1)(i). After conducting the escrow 
account analysis for each escrow account, the servicer shall submit an 
initial escrow account statement to the borrower at settlement or 
within 45 calendar days of settlement for escrow accounts that are 
established as a condition of the loan.
    (i) The initial escrow account statement shall include the amount 
of the borrower's monthly mortgage payment and the portion of the 
monthly payment going into the escrow account and shall itemize the 
estimated taxes, insurance premiums, and other charges that the 
servicer reasonably anticipates to be paid from the escrow account 
during the escrow account computation year and the anticipated 
disbursement dates of those charges. The initial escrow account 
statement shall indicate the amount that the servicer selects as a 
cushion. The statement shall include a trial running balance for the 
account.
    (ii) Pursuant to Sec.  1024.17(h)(2), the servicer may incorporate 
the initial escrow account statement into the HUD-1 or HUD-1A 
settlement statement. If the servicer does not incorporate the initial 
escrow account statement into the HUD-1 or HUD-1A settlement statement, 
then the servicer shall submit the initial escrow account statement to 
the borrower as a separate document.
    (2) Time of submission of initial escrow account statement for an 
escrow account established after settlement. For escrow accounts 
established after settlement (and which are not a condition of the 
loan), a servicer shall submit an initial escrow account statement to a 
borrower within 45 calendar days of the date of establishment of the 
escrow account.
    (h) Format for initial escrow account statement. (1) The format and 
a completed example for an initial escrow account statement are set out 
in Public Guidance Documents entitled ``Initial Escrow Account 
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure 
Statement--Example'', available in accordance with Sec.  1024.3.
    (2) Incorporation of initial escrow account statement into HUD-1 or 
HUD-1A settlement statement. Pursuant to Sec.  1024.9(a)(11), a 
servicer may add the initial escrow account statement to the HUD-1 or 
HUD-1A settlement statement. The servicer may include the initial 
escrow account statement in the basic text or may attach the initial 
escrow account statement as an additional page to the HUD-1 or HUD-1A 
settlement statement.
    (3) Identification of payees. The initial escrow account statement 
need not identify a specific payee by name if it provides sufficient 
information to identify the use of the funds. For example, appropriate 
entries include: county taxes, hazard insurance, condominium dues, etc. 
If a particular payee, such as a taxing body, receives more than one 
payment during the escrow account computation year, the statement shall 
indicate each payment and disbursement date. If there are

[[Page 78995]]

several taxing authorities or insurers, the statement shall identify 
each taxing body or insurer (e.g., ``City Taxes'', ``School Taxes'', 
``Hazard Insurance'', or ``Flood Insurance,'' etc.).
    (i) Annual escrow account statements. For each escrow account, a 
servicer shall submit an annual escrow account statement to the 
borrower within 30 days of the completion of the escrow account 
computation year. The servicer shall also submit to the borrower the 
previous year's projection or initial escrow account statement. The 
servicer shall conduct an escrow account analysis before submitting an 
annual escrow account statement to the borrower.
    (1) Contents of annual escrow account statement. The annual escrow 
account statement shall provide an account history, reflecting the 
activity in the escrow account during the escrow account computation 
year, and a projection of the activity in the account for the next 
year. In preparing the statement, the servicer may assume scheduled 
payments and disbursements will be made for the final 2 months of the 
escrow account computation year. The annual escrow account statement 
must include, at a minimum, the following (the items in paragraphs 
(i)(1)(i) through (i)(1)(iv) must be clearly itemized):
    (i) The amount of the borrower's current monthly mortgage payment 
and the portion of the monthly payment going into the escrow account;
    (ii) The amount of the past year's monthly mortgage payment and the 
portion of the monthly payment that went into the escrow account;
    (iii) The total amount paid into the escrow account during the past 
computation year;
    (iv) The total amount paid out of the escrow account during the 
same period for taxes, insurance premiums, and other charges (as 
separately identified);
    (v) The balance in the escrow account at the end of the period;
    (vi) An explanation of how any surplus is being handled by the 
servicer;
    (vii) An explanation of how any shortage or deficiency is to be 
paid by the borrower; and
    (viii) If applicable, the reason(s) why the estimated low monthly 
balance was not reached, as indicated by noting differences between the 
most recent account history and last year's projection. Public Guidance 
Documents entitled ``Annual Escrow Account Disclosure Statement--
Format'' and ``Annual Escrow Account Disclosure Statement--Example'' 
set forth an acceptable format and methodology for conveying this 
information.
    (2) No annual statements in the case of default, foreclosure, or 
bankruptcy. This paragraph (i)(2) contains an exemption from the 
provisions of Sec.  1024.17(i)(1). If at the time the servicer conducts 
the escrow account analysis the borrower is more than 30 days overdue, 
then the servicer is exempt from the requirements of submitting an 
annual escrow account statement to the borrower under Sec.  1024.17(i). 
This exemption also applies in situations where the servicer has 
brought an action for foreclosure under the underlying mortgage loan, 
or where the borrower is in bankruptcy proceedings. If the servicer 
does not issue an annual statement pursuant to this exemption and the 
loan subsequently is reinstated or otherwise becomes current, the 
servicer shall provide a history of the account since the last annual 
statement (which may be longer than 1 year) within 90 days of the date 
the account became current.
    (3) Delivery with other material. The servicer may deliver the 
annual escrow account statement to the borrower with other statements 
or materials, including the Substitute 1098, which is provided for 
Federal income tax purposes.
    (4) Short year statements. A servicer may issue a short year annual 
escrow account statement (``short year statement'') to change one 
escrow account computation year to another. By using a short year 
statement a servicer may adjust its production schedule or alter the 
escrow account computation year for the escrow account.
    (i) Effect of short year statement. The short year statement shall 
end the ``escrow account computation year'' for the escrow account and 
establish the beginning date of the new escrow account computation 
year. The servicer shall deliver the short year statement to the 
borrower within 60 days from the end of the short year.
    (ii) Short year statement upon servicing transfer. Upon the 
transfer of servicing, the transferor (old) servicer shall submit a 
short year statement to the borrower within 60 days of the effective 
date of transfer.
    (iii) Short year statement upon loan payoff. If a borrower pays off 
a mortgage loan during the escrow account computation year, the 
servicer shall submit a short year statement to the borrower within 60 
days after receiving the pay-off funds.
    (j) Formats for annual escrow account statement. The formats and 
completed examples for annual escrow account statements using single-
item analysis (pre-rule accounts) and aggregate analysis are set out in 
Public Guidance Documents entitled ``Annual Escrow Account Disclosure 
Statement--Format'' and ``Annual Escrow Account Disclosure Statement--
Example''.
    (k) Timely payments. (1) If the terms of any federally related 
mortgage loan require the borrower to make payments to an escrow 
account, the servicer must pay the disbursements in a timely manner, 
that is, on or before the deadline to avoid a penalty, as long as the 
borrower's payment is not more than 30 days overdue.
    (2) The servicer must advance funds to make disbursements in a 
timely manner as long as the borrower's payment is not more than 30 
days overdue. Upon advancing funds to pay a disbursement, the servicer 
may seek repayment from the borrower for the deficiency pursuant to 
paragraph (f) of this section.
    (3) For the payment of property taxes from the escrow account, if a 
taxing jurisdiction offers a servicer a choice between annual and 
installment disbursements, the servicer must also comply with this 
paragraph (k)(3). If the taxing jurisdiction neither offers a discount 
for disbursements on a lump sum annual basis nor imposes any additional 
charge or fee for installment disbursements, the servicer must make 
disbursements on an installment basis. If, however, the taxing 
jurisdiction offers a discount for disbursements on a lump sum annual 
basis or imposes any additional charge or fee for installment 
disbursements, the servicer may, at the servicer's discretion (but is 
not required by RESPA to), make lump sum annual disbursements in order 
to take advantage of the discount for the borrower or avoid the 
additional charge or fee for installments, as long as such method of 
disbursement complies with paragraphs (k)(1) and (k)(2) of this 
section. The Bureau encourages, but does not require, the servicer to 
follow the preference of the borrower, if such preference is known to 
the servicer.
    (4) Notwithstanding paragraph (k)(3) of this section, a servicer 
and borrower may mutually agree, on an individual case basis, to a 
different disbursement basis (installment or annual) or disbursement 
date for property taxes from that required under paragraph (k)(3) of 
this section, so long as the agreement meets the requirements of 
paragraphs (k)(1) and (k)(2) of this section. The borrower must 
voluntarily agree; neither loan approval nor any term of the loan may 
be conditioned on the borrower's agreeing to a different disbursement 
basis or disbursement date.
    (l) System of recordkeeping. (1) Each servicer shall keep records, 
which may involve electronic storage, microfiche

[[Page 78996]]

storage, or any method of computerized storage, so long as the 
information is easily retrievable, reflecting the servicer's handling 
of each borrower's escrow account. The servicer's records shall 
include, but not be limited to, the payment of amounts into and from 
the escrow account and the submission of initial and annual escrow 
account statements to the borrower.
    (2) The servicer responsible for servicing the borrower's escrow 
account shall maintain the records for that account for a period of at 
least five years after the servicer last serviced the escrow account.
    (3) A servicer shall provide the Bureau with information contained 
in the servicer's records for a specific escrow account, or for a 
number or class of escrow accounts, within 30 days of the Bureau's 
written request for the information. At the Bureau's request, the 
servicer shall convert any information contained in electronic storage, 
microfiche or computerized storage to paper copies for review by the 
Bureau.
    (4) Borrowers may seek information contained in the servicer's 
records by complying with the provisions set forth in 12 U.S.C. 2605(e) 
and Sec.  1024.21(e).
    (5) After receiving a request from the Bureau for information 
relating to whether a servicer submitted an escrow account statement to 
the borrower, the servicer shall respond within 30 days. If the 
servicer is unable to provide the Bureau with such information, the 
Bureau shall deem that lack of information to be evidence of the 
servicer's failure to submit the statement to the borrower.
    (m) Discretionary payments. Any borrower's discretionary payment 
(such as credit life or disability insurance) made as part of a monthly 
mortgage payment is to be noted on the initial and annual statements. 
If a discretionary payment is established or terminated during the 
escrow account computation year, this change should be noted on the 
next annual statement. A discretionary payment is not part of the 
escrow account unless the payment is required by the lender, in 
accordance with the definition of ``settlement service'' in Sec.  
1024.2, or the servicer chooses to place the discretionary payment in 
the escrow account. If a servicer has not established an escrow account 
for a federally related mortgage loan and only receives payments for 
discretionary items, this section is not applicable.

Sec.  1024.18  Validity of contracts and liens.

    Section 17 of RESPA (12 U.S.C. 2615) governs the validity of 
contracts and liens under RESPA.

Sec.  1024.19  Enforcement.

    (a) Enforcement policy. It is the policy of the Bureau regarding 
RESPA enforcement matters to cooperate with Federal, state, or local 
agencies having supervisory powers over lenders or other persons with 
responsibilities under RESPA. Federal agencies with supervisory powers 
over lenders may use their powers to require compliance with RESPA. In 
addition, failure to comply with RESPA may be grounds for 
administrative action by HUD under HUD regulation 2 CFR part 2424 
concerning debarment, suspension, ineligibility of contractors and 
grantees, or under HUD regulation 24 CFR part 25 concerning the HUD 
Mortgagee Review Board. Nothing in this paragraph is a limitation on 
any other form of enforcement that may be legally available.
    (b) Investigations. The procedures for investigations and 
investigational proceedings are set forth in part 1080 of this title.

Sec.  1024.20  [Reserved]

Sec.  1024.21  Mortgage servicing transfers.

    (a) Definitions. As used in this section:
    Master servicer means the owner of the right to perform servicing, 
which may actually perform the servicing itself or may do so through a 
subservicer.
    Mortgage servicing loan means a federally related mortgage loan, as 
that term is defined in Sec.  1024.2, subject to the exemptions in 
Sec.  1024.5, when the mortgage loan is secured by a first lien. The 
definition does not include subordinate lien loans or open-end lines of 
credit (home equity plans) covered by the Truth in Lending Act and 
Regulation Z, including open-end lines of credit secured by a first 
lien.
    Qualified written request means a written correspondence from the 
borrower to the servicer prepared in accordance with paragraph (e)(2) 
of this section.
    Subservicer means a servicer who does not own the right to perform 
servicing, but who does so on behalf of the master servicer.
    Transferee servicer means a servicer who obtains or who will obtain 
the right to perform servicing functions pursuant to an agreement or 
understanding.
    Transferor servicer means a servicer, including a table funding 
mortgage broker or dealer on a first lien dealer loan, who transfers or 
will transfer the right to perform servicing functions pursuant to an 
agreement or understanding.
    (b) Servicing Disclosure Statement; Requirements. (1) At the time 
an application for a mortgage servicing loan is submitted, or within 3 
business days after submission of the application, the lender, mortgage 
broker who anticipates using table funding, or dealer who anticipates a 
first lien dealer loan shall provide to each person who applies for 
such a loan a Servicing Disclosure Statement. A format for the 
Servicing Disclosure Statement appears as Appendix MS-1 to this part. 
The specific language of the Servicing Disclosure Statement is not 
required to be used. The information set forth in ``Instructions to 
Preparer'' on the Servicing Disclosure Statement need not be included 
with the information given to applicants, and material in square 
brackets is optional or alternative language. The model format may be 
annotated with additional information that clarifies or enhances the 
model language. The lender, table funding mortgage broker, or dealer 
should use the language that best describes the particular 
circumstances.
    (2) The Servicing Disclosure Statement must indicate whether the 
servicing of the loan may be assigned, sold, or transferred to any 
other person at any time while the loan is outstanding. If the lender, 
table funding mortgage broker, or dealer in a first lien dealer loan 
will engage in the servicing of the mortgage loan for which the 
applicant has applied, the disclosure may consist of a statement that 
the entity will service such loan and does not intend to sell, 
transfer, or assign the servicing of the loan. If the lender, table 
funding mortgage broker, or dealer in a first lien dealer loan will not 
engage in the servicing of the mortgage loan for which the applicant 
has applied, the disclosure may consist of a statement that such entity 
intends to assign, sell, or transfer servicing of such mortgage loan 
before the first payment is due. In all other instances, the disclosure 
must state that the servicing of the loan may be assigned, sold or 
transferred while the loan is outstanding.
    (c) Servicing Disclosure Statement; Delivery. The lender, table 
funding mortgage broker, or dealer that anticipates a first lien dealer 
loan shall deliver the Servicing Disclosure Statement within 3 business 
days from receipt of the application by hand delivery, by placing it in 
the mail, or, if the applicant agrees, by fax, email, or other 
electronic means. In the event the borrower is denied credit within the 
3 business-day period, no servicing disclosure statement is required to 
be delivered. If co-applicants indicate the same address on their 
application, one copy delivered to that address is sufficient. If 
different addresses are

[[Page 78997]]

shown by co-applicants on the application, a copy must be delivered to 
each of the co-applicants.
    (d) Notices of Transfer; loan servicing. (1) Requirement for 
notice. (i) Except as provided in this paragraph (d)(1)(i) or paragraph 
(d)(1)(ii) of this section, each transferor servicer and transferee 
servicer of any mortgage servicing loan shall deliver to the borrower a 
written Notice of Transfer, containing the information described in 
paragraph (d)(3) of this section, of any assignment, sale, or transfer 
of the servicing of the loan. The following transfers are not 
considered an assignment, sale, or transfer of mortgage loan servicing 
for purposes of this requirement if there is no change in the payee, 
address to which payment must be delivered, account number, or amount 
of payment due:
    (A) Transfers between affiliates;
    (B) Transfers resulting from mergers or acquisitions of servicers 
or subservicers; and
    (C) Transfers between master servicers, where the subservicer 
remains the same.
    (ii) The Federal Housing Administration (FHA) is not required under 
paragraph (d) of this section to submit to the borrower a Notice of 
Transfer in cases where a mortgage insured under the National Housing 
Act is assigned to FHA.
    (2) Time of notice. (i) Except as provided in paragraph (d)(2)(ii) 
of this section:
    (A) The transferor servicer shall deliver the Notice of Transfer to 
the borrower not less than 15 days before the effective date of the 
transfer of the servicing of the mortgage servicing loan;
    (B) The transferee servicer shall deliver the Notice of Transfer to 
the borrower not more than 15 days after the effective date of the 
transfer; and
    (C) The transferor and transferee servicers may combine their 
notices into one notice, which shall be delivered to the borrower not 
less than 15 days before the effective date of the transfer of the 
servicing of the mortgage servicing loan.
    (ii) The Notice of Transfer shall be delivered to the borrower by 
the transferor servicer or the transferee servicer not more than 30 
days after the effective date of the transfer of the servicing of the 
mortgage servicing loan in any case in which the transfer of servicing 
is preceded by:
    (A) Termination of the contract for servicing the loan for cause;
    (B) Commencement of proceedings for bankruptcy of the servicer; or
    (C) Commencement of proceedings by the Federal Deposit Insurance 
Corporation (FDIC) for conservatorship or receivership of the servicer 
or an entity that owns or controls the servicer.
    (iii) Notices of Transfer delivered at settlement by the transferor 
servicer and transferee servicer, whether as separate notices or as a 
combined notice, will satisfy the timing requirements of paragraph 
(d)(2) of this section.
    (3) Notices of Transfer; contents. The Notices of Transfer required 
under paragraph (d) of this section shall include the following 
information:
    (i) The effective date of the transfer of servicing;
    (ii) The name, consumer inquiry addresses (including, at the option 
of the servicer, a separate address where qualified written requests 
must be sent), and a toll-free or collect-call telephone number for an 
employee or department of the transferee servicer;
    (iii) A toll-free or collect-call telephone number for an employee 
or department of the transferor servicer that can be contacted by the 
borrower for answers to servicing transfer inquiries;
    (iv) The date on which the transferor servicer will cease to accept 
payments relating to the loan and the date on which the transferee 
servicer will begin to accept such payments. These dates shall either 
be the same or consecutive days;
    (v) Information concerning any effect the transfer may have on the 
terms or the continued availability of mortgage life or disability 
insurance, or any other type of optional insurance, and any action the 
borrower must take to maintain coverage;
    (vi) A statement that the transfer of servicing does not affect any 
other term or condition of the mortgage documents, other than terms 
directly related to the servicing of the loan; and
    (vii) A statement of the borrower's rights in connection with 
complaint resolution, including the information set forth in paragraph 
(e) of this section. Appendix MS-2 of this part illustrates a statement 
satisfactory to the Bureau.
    (4) Notices of Transfer; sample notice. Sample language that may be 
used to comply with the requirements of paragraph (d) of this section 
is set out in Appendix MS-2 of this part. Minor modifications to the 
sample language may be made to meet the particular circumstances of the 
servicer, but the substance of the sample language shall not be omitted 
or substantially altered.
    (5) Consumer protection during transfer of servicing. During the 
60-day period beginning on the effective date of transfer of the 
servicing of any mortgage servicing loan, if the transferor servicer 
(rather than the transferee servicer that should properly receive 
payment on the loan) receives payment on or before the applicable due 
date (including any grace period allowed under the loan documents), a 
late fee may not be imposed on the borrower with respect to that 
payment and the payment may not be treated as late for any other 
purposes.
    (e) Duty of loan servicer to respond to borrower inquiries. (1) 
Notice of receipt of inquiry. Within 20 business days of a servicer of 
a mortgage servicing loan receiving a qualified written request from 
the borrower for information relating to the servicing of the loan, the 
servicer shall provide to the borrower a written response acknowledging 
receipt of the qualified written request. This requirement shall not 
apply if the action requested by the borrower is taken within that 
period and the borrower is notified of that action in accordance with 
the paragraph (f)(3) of this section. By notice either included in the 
Notice of Transfer or separately delivered by first-class mail, postage 
prepaid, a servicer may establish a separate and exclusive office and 
address for the receipt and handling of qualified written requests.
    (2) Qualified written request; defined. (i) For purposes of 
paragraph (e) of this section, a qualified written request means a 
written correspondence (other than notice on a payment coupon or other 
payment medium supplied by the servicer) that includes, or otherwise 
enables the servicer to identify, the name and account of the borrower, 
and includes a statement of the reasons that the borrower believes the 
account is in error, if applicable, or that provides sufficient detail 
to the servicer regarding information relating to the servicing of the 
loan sought by the borrower.
    (ii) A written request does not constitute a qualified written 
request if it is delivered to a servicer more than 1 year after either 
the date of transfer of servicing or the date that the mortgage 
servicing loan amount was paid in full, whichever date is applicable.
    (3) Action with respect to the inquiry. Not later than 60 business 
days after receiving a qualified written request from the borrower, 
and, if applicable, before taking any action with respect to the 
inquiry, the servicer shall:
    (i) Make appropriate corrections in the account of the borrower, 
including the crediting of any late charges or penalties, and transmit 
to the borrower a written notification of the correction. This written 
notification shall include the name and telephone number of a 
representative of the servicer who can provide assistance to the 
borrower; or
    (ii) After conducting an investigation, provide the borrower with a 
written

[[Page 78998]]

explanation or clarification that includes:
    (A) To the extent applicable, a statement of the servicer's reasons 
for concluding the account is correct and the name and telephone number 
of an employee, office, or department of the servicer that can provide 
assistance to the borrower; or
    (B) Information requested by the borrower, or an explanation of why 
the information requested is unavailable or cannot be obtained by the 
servicer, and the name and telephone number of an employee, office, or 
department of the servicer that can provide assistance to the borrower.
    (4) Protection of credit rating. (i) During the 60-business day 
period beginning on the date of the servicer receiving from a borrower 
a qualified written request relating to a dispute on the borrower's 
payments, a servicer may not provide adverse information regarding any 
payment that is the subject of the qualified written request to any 
consumer reporting agency (as that term is defined in section 603 of 
the Fair Credit Reporting Act, 15 U.S.C. 1681a).
    (ii) In accordance with section 17 of RESPA (12 U.S.C. 2615), the 
protection of credit rating provision of paragraph (e)(4)(i) of this 
section does not impede a lender or servicer from pursuing any of its 
remedies, including initiating foreclosure, allowed by the underlying 
mortgage loan instruments.
    (f) Damages and costs. (1) Whoever fails to comply with any 
provision of this section shall be liable to the borrower for each 
failure in the following amounts:
    (i) Individuals. In the case of any action by an individual, an 
amount equal to the sum of any actual damages sustained by the 
individual as the result of the failure and, when there is a pattern or 
practice of noncompliance with the requirements of this section, any 
additional damages in an amount not to exceed $1,000.
    (ii) Class actions. In the case of a class action, an amount equal 
to the sum of any actual damages to each borrower in the class that 
result from the failure and, when there is a pattern or practice of 
noncompliance with the requirements of this section, any additional 
damages in an amount not greater than $1,000 for each class member. 
However, the total amount of any additional damages in a class action 
may not exceed the lesser of $500,000 or 1 percent of the net worth of 
the servicer.
    (iii) Costs. In addition, in the case of any successful action 
under paragraph (f) of this section, the costs of the action and any 
reasonable attorneys' fees incurred in connection with the action.
    (2) Nonliability. A transferor or transferee servicer shall not be 
liable for any failure to comply with the requirements of this section, 
if within 60 days after discovering an error (whether pursuant to a 
final written examination report or the servicer's own procedures) and 
before commencement of an action under this section and the receipt of 
written notice of the error from the borrower, the servicer notifies 
the person concerned of the error and makes whatever adjustments are 
necessary in the appropriate account to ensure that the person will not 
be required to pay an amount in excess of any amount that the person 
otherwise would have paid.
    (g) Timely payments by servicer. If the terms of any mortgage 
servicing loan require the borrower to make payments to the servicer of 
the loan for deposit into an escrow account for the purpose of assuring 
payment of taxes, insurance premiums, and other charges with respect to 
the mortgaged property, the servicer shall make payments from the 
escrow account in a timely manner for the taxes, insurance premiums, 
and other charges as the payments become due, as governed by the 
requirements in Sec.  1024.17(k).
    (h) Preemption of state laws. A lender who makes a mortgage 
servicing loan or a servicer shall be considered to have complied with 
the provisions of any state law or regulation requiring notice to a 
borrower at the time of application for a loan or transfer of servicing 
of a loan if the lender or servicer complies with the requirements of 
this section. Any state law requiring notice to the borrower at the 
time of application or at the time of transfer of servicing of the loan 
is preempted, and there shall be no additional borrower disclosure 
requirements. Provisions of state law, such as those requiring 
additional notices to insurance companies or taxing authorities, are 
not preempted by section 6 of RESPA or this section, and this 
additional information may be added to a notice prepared under this 
section, if the procedure is allowable under state law.

Sec.  1024.22  Severability.

    If any particular provision of this part or the application of any 
particular provision to any person or circumstance is held invalid, the 
remainder of this part and the application of such provisions to other 
persons or circumstances shall not be affected by such holding.

Sec.  1024.23  ESIGN applicability.

    The Electronic Signatures in Global and National Commerce Act 
(``ESIGN''), 15 U.S.C. 7001-7031, shall apply to this part.

Appendix A to Part 1024--Instructions for Completing HUD-1 and HUD-1a 
Settlement Statements; Sample HUD-1 and HUD-1a Statements

    The following are instructions for completing the HUD-1 
settlement statement, required under section 4 of RESPA and 12 CFR 
part 1024 (Regulation X) of the Bureau of Consumer Financial 
Protection (Bureau) regulations. This form is to be used as a 
statement of actual charges and adjustments paid by the borrower and 
the seller, to be given to the parties in connection with the 
settlement. The instructions for completion of the HUD-1 are 
primarily for the benefit of the settlement agents who prepare the 
statements and need not be transmitted to the parties as an integral 
part of the HUD-1. There is no objection to the use of the HUD-1 in 
transactions in which its use is not legally required. Refer to the 
definitions section of the regulations (12 CFR 1024.2) for specific 
definitions of many of the terms that are used in these 
instructions.

General Instructions

    Information and amounts may be filled in by typewriter, hand 
printing, computer printing, or any other method producing clear and 
legible results. Refer to the Bureau's regulations (Regulation X) 
regarding rules applicable to reproduction of the HUD-1 for the 
purpose of including customary recitals and information used locally 
in settlements; for example, a breakdown of payoff figures, a 
breakdown of the Borrower's total monthly mortgage payments, check 
disbursements, a statement indicating receipt of funds, applicable 
special stipulations between Borrower and Seller, and the date funds 
are transferred.
    The settlement agent shall complete the HUD-1 to itemize all 
charges imposed upon the Borrower and the Seller by the loan 
originator and all sales commissions, whether to be paid at 
settlement or outside of settlement, and any other charges which 
either the Borrower or the Seller will pay at settlement. Charges 
for loan origination and title services should not be itemized 
except as provided in these instructions. For each separately 
identified settlement service in connection with the transaction, 
the name of the person ultimately receiving the payment must be 
shown together with the total amount paid to such person. Items paid 
to and retained by a loan originator are disclosed as required in 
the instructions for lines in the 800-series of the HUD-1 (and for 
per diem interest, in the 900-series of the HUD-1).
    As a general rule, charges that are paid for by the seller must 
be shown in the seller's column on page 2 of the HUD-1 (unless paid 
outside closing), and charges that are paid for by the borrower must 
be shown in the borrower's column (unless paid outside closing). 
However, in order to promote comparability between the charges on 
the

[[Page 78999]]

GFE and the charges on the HUD-1, if a seller pays for a charge that 
was included on the GFE, the charge should be listed in the 
borrower's column on page 2 of the HUD-1. That charge should also be 
offset by listing a credit in that amount to the borrower on lines 
204-209 on page 1 of the HUD-1, and by a charge to the seller in 
lines 506-509 on page 1 of the HUD-1. If a loan originator (other 
than for no-cost loans), real estate agent, other settlement service 
provider, or other person pays for a charge that was included on the 
GFE, the charge should be listed in the borrower's column on page 2 
of the HUD-1, with an offsetting credit reported on page 1 of the 
HUD-1, identifying the party paying the charge.
    Charges paid outside of settlement by the borrower, seller, loan 
originator, real estate agent, or any other person, must be included 
on the HUD-1 but marked ``P.O.C.'' for ``Paid Outside of Closing'' 
(settlement) and must not be included in computing totals. However, 
indirect payments from a lender to a mortgage broker may not be 
disclosed as P.O.C., and must be included as a credit on Line 802. 
P.O.C. items must not be placed in the Borrower or Seller columns, 
but rather on the appropriate line outside the columns. The 
settlement agent must indicate whether P.O.C. items are paid for by 
the Borrower, Seller, or some other party by marking the items paid 
for by whoever made the payment as ``P.O.C.'' with the party making 
the payment identified in parentheses, such as ``P.O.C. (borrower)'' 
or ``P.O.C. (seller)''.
    In the case of ``no cost'' loans where ``no cost'' encompasses 
third party fees as well as the upfront payment to the loan 
originator, the third party services covered by the ``no cost'' 
provisions must be itemized and listed in the borrower's column on 
the HUD-1/1A with the charge for the third party service. These 
itemized charges must be offset with a negative adjusted origination 
charge on Line 803 and recorded in the columns.
    Blank lines are provided in section L for any additional 
settlement charges. Blank lines are also provided for additional 
insertions in sections J and K. The names of the recipients of the 
settlement charges in section L and the names of the recipients of 
adjustments described in section J or K should be included on the 
blank lines.
    Lines and columns in section J which relate to the Borrower's 
transaction may be left blank on the copy of the HUD-1 which will be 
furnished to the Seller. Lines and columns in section K which relate 
to the Seller's transaction may be left blank on the copy of the 
HUD-1 which will be furnished to the Borrower.

Line Item Instructions

    Instructions for completing the individual items on the HUD-1 
follow.
    Section A. This section requires no entry of information.
    Section B. Check appropriate loan type and complete the 
remaining items as applicable.
    Section C. This section provides a notice regarding settlement 
costs and requires no additional entry of information.
    Sections D and E. Fill in the names and current mailing 
addresses and zip codes of the Borrower and the Seller. Where there 
is more than one Borrower or Seller, the name and address of each 
one is required. Use a supplementary page if needed to list multiple 
Borrowers or Sellers.
    Section F. Fill in the name, current mailing address and zip 
code of the Lender.
    Section G. The street address of the property being sold should 
be listed. If there is no street address, a brief legal description 
or other location of the property should be inserted. In all cases 
give the zip code of the property.
    Section H. Fill in name, address, zip code and telephone number 
of settlement agent, and address and zip code of ``place of 
settlement.''
    Section I. Fill in date of settlement.
    Section J. Summary of Borrower's Transaction. Line 101 is for 
the contract sales price of the property being sold, excluding the 
price of any items of tangible personal property if Borrower and 
Seller have agreed to a separate price for such items.
    Line 102 is for the sales price of any items of tangible 
personal property excluded from Line 101. Personal property could 
include such items as carpets, drapes, stoves, refrigerators, etc. 
What constitutes personal property varies from state to state. 
Manufactured homes are not considered personal property for this 
purpose.
    Line 103 is used to record the total charges to Borrower 
detailed in section L and totaled on Line 1400.
    Lines 104 and 105 are for additional amounts owed by the 
Borrower, such as charges that were not listed on the GFE or items 
paid by the Seller prior to settlement but reimbursed by the 
Borrower at settlement. For example, the balance in the Seller's 
reserve account held in connection with an existing loan, if 
assigned to the Borrower in a loan assumption case, will be entered 
here. These lines will also be used when a tenant in the property 
being sold has not yet paid the rent, which the Borrower will 
collect, for a period of time prior to the settlement. The lines 
will also be used to indicate the treatment for any tenant security 
deposit. The Seller will be credited on Lines 404-405.
    Lines 106 through 112 are for items which the Seller had paid in 
advance, and for which the Borrower must therefore reimburse the 
Seller. Examples of items for which adjustments will be made may 
include taxes and assessments paid in advance for an entire year or 
other period, when settlement occurs prior to the expiration of the 
year or other period for which they were paid. Additional examples 
include flood and hazard insurance premiums, if the Borrower is 
being substituted as an insured under the same policy; mortgage 
insurance in loan assumption cases; planned unit development or 
condominium association assessments paid in advance; fuel or other 
supplies on hand, purchased by the Seller, which the Borrower will 
use when Borrower takes possession of the property; and ground rent 
paid in advance.
    Line 120 is for the total of Lines 101 through 112.
    Line 201 is for any amount paid against the sales price prior to 
settlement.
    Line 202 is for the amount of the new loan made by the Lender 
when a loan to finance construction of a new structure constructed 
for sale is used as or converted to a loan to finance purchase. Line 
202 should also be used for the amount of the first user loan, when 
a loan to purchase a manufactured home for resale is converted to a 
loan to finance purchase by the first user. For other loans covered 
by 12 CFR part 1024 (Regulation X) which finance construction of a 
new structure or purchase of a manufactured home, list the sales 
price of the land on Line 104, the construction cost or purchase 
price of manufactured home on Line 105 (Line 101 would be left blank 
in this instance) and amount of the loan on Line 202. The remainder 
of the form should be completed taking into account adjustments and 
charges related to the temporary financing and permanent financing 
and which are known at the date of settlement.
    Line 203 is used for cases in which the Borrower is assuming or 
taking title subject to an existing loan or lien on the property.
    Lines 204-209 are used for other items paid by or on behalf of 
the Borrower. Lines 204-209 should be used to indicate any financing 
arrangements or other new loan not listed in Line 202. For example, 
if the Borrower is using a second mortgage or note to finance part 
of the purchase price, whether from the same lender, another lender 
or the Seller, insert the principal amount of the loan with a brief 
explanation on Lines 204-209. Lines 204-209 should also be used 
where the Borrower receives a credit from the Seller for closing 
costs, including seller-paid GFE charges. They may also be used in 
cases in which a Seller (typically a builder) is making an 
``allowance'' to the Borrower for items that the Borrower is to 
purchase separately.
    Lines 210 through 219 are for items which have not yet been 
paid, and which the Borrower is expected to pay, but which are 
attributable in part to a period of time prior to the settlement. In 
jurisdictions in which taxes are paid late in the tax year, most 
cases will show the proration of taxes in these lines. Other 
examples include utilities used but not paid for by the Seller, rent 
collected in advance by the Seller from a tenant for a period 
extending beyond the settlement date, and interest on loan 
assumptions.
    Line 220 is for the total of Lines 201 through 219.
    Lines 301 and 302 are summary lines for the Borrower. Enter 
total in Line 120 on Line 301. Enter total in Line 220 on Line 302.
    Line 303 must indicate either the cash required from the 
Borrower at settlement (the usual case in a purchase transaction), 
or cash payable to the Borrower at settlement (if, for example, the 
Borrower's earnest money exceeds the Borrower's cash obligations in 
the transaction or there is a cash-out refinance). Subtract Line 302 
from Line 301 and enter the amount of cash due to or from the 
Borrower at settlement on Line 303. The appropriate box should be 
checked. If the Borrower's earnest money is applied toward the 
charge for a settlement service, the amount so applied should not be 
included on Line 303 but instead should be shown on the appropriate 
line for the settlement service, marked ``P.O.C. (Borrower)'', and 
must not be included in computing totals.
    Section K. Summary of Seller's Transaction. Instructions for the 
use of Lines

[[Page 79000]]

101 and 102 and 104-112 above, apply also to Lines 401-412. Line 420 
is for the total of Lines 401 through 412.
    Line 501 is used if the Seller's real estate broker or other 
party who is not the settlement agent has received and holds a 
deposit against the sales price (earnest money) which exceeds the 
fee or commission owed to that party. If that party will render the 
excess deposit directly to the Seller, rather than through the 
settlement agent, the amount of excess deposit should be entered on 
Line 501 and the amount of the total deposit (including commissions) 
should be entered on Line 201.
    Line 502 is used to record the total charges to the Seller 
detailed in section L and totaled on Line 1400.
    Line 503 is used if the Borrower is assuming or taking title 
subject to existing liens which are to be deducted from sales price.
    Lines 504 and 505 are used for the amounts (including any 
accrued interest) of any first and/or second loans which will be 
paid as part of the settlement.
    Line 506 is used for deposits paid by the Borrower to the Seller 
or other party who is not the settlement agent. Enter the amount of 
the deposit in Line 201 on Line 506 unless Line 501 is used or the 
party who is not the settlement agent transfers all or part of the 
deposit to the settlement agent, in which case the settlement agent 
will note in parentheses on Line 507 the amount of the deposit that 
is being disbursed as proceeds and enter in the column for Line 506 
the amount retained by the above-described party for settlement 
services. If the settlement agent holds the deposit, insert a note 
in Line 507 which indicates that the deposit is being disbursed as 
proceeds.
    Lines 506 through 509 may be used to list additional liens which 
must be paid off through the settlement to clear title to the 
property. Other Seller obligations should be shown on Lines 506-509, 
including charges that were disclosed on the GFE but that are 
actually being paid for by the Seller. These Lines may also be used 
to indicate funds to be held by the settlement agent for the payment 
of either repairs, or water, fuel, or other utility bills that 
cannot be prorated between the parties at settlement because the 
amounts used by the Seller prior to settlement are not yet known. 
Subsequent disclosure of the actual amount of these post-settlement 
items to be paid from settlement funds is optional. Any amounts 
entered on Lines 204-209 including Seller financing arrangements 
should also be entered on Lines 506-509.
    Instructions for the use of Lines 510 through 519 are the same 
as those for Lines 210 to 219 above.
    Line 520 is for the total of Lines 501 through 519.
    Lines 601 and 602 are summary lines for the Seller. Enter the 
total in Line 420 on Line 601. Enter the total in Line 520 on Line 
602.
    Line 603 must indicate either the cash required to be paid to 
the Seller at settlement (the usual case in a purchase transaction), 
or the cash payable by the Seller at settlement. Subtract Line 602 
from Line 601 and enter the amount of cash due to or from the Seller 
at settlement on Line 603. The appropriate box should be checked.

Section L. Settlement Charges

    Line 700 is used to enter the sales commission charged by the 
sales agent or real estate broker.
    Lines 701-702 are to be used to state the split of the 
commission where the settlement agent disburses portions of the 
commission to two or more sales agents or real estate brokers.
    Line 703 is used to enter the amount of sales commission 
disbursed at settlement. If the sales agent or real estate broker is 
retaining a part of the deposit against the sales price (earnest 
money) to apply towards the sales agent's or real estate broker's 
commission, include in Line 703 only that part of the commission 
being disbursed at settlement and insert a note on Line 704 
indicating the amount the sales agent or real estate broker is 
retaining as a ``P.O.C.'' item.
    Line 704 may be used for additional charges made by the sales 
agent or real estate broker, or for a sales commission charged to 
the Borrower, which will be disbursed by the settlement agent.
    Line 801 is used to record ``Our origination charge,'' which 
includes all charges received by the loan originator, except any 
charge for the specific interest rate chosen (points). This number 
must not be listed in either the buyer's or seller's column. The 
amount shown in Line 801 must include any amounts received for 
origination services, including administrative and processing 
services, performed by or on behalf of the loan originator.
    Line 802 is used to record ``Your credit or charge (points) for 
the specific interest rate chosen,'' which states the charge or 
credit adjustment as applied to ``Our origination charge,'' if 
applicable. This number must not be listed in either column or shown 
on page one of the HUD-1.
    For a mortgage broker originating a loan in its own name, the 
amount shown on Line 802 will be the difference between the initial 
loan amount and the total payment to the mortgage broker from the 
lender. The total payment to the mortgage broker will be the sum of 
the price paid for the loan by the lender and any other payments to 
the mortgage broker from the lender, including any payments based on 
the loan amount or loan terms, and any flat rate payments. For a 
mortgage broker originating a loan in another entity's name, the 
amount shown on Line 802 will be the sum of all payments to the 
mortgage broker from the lender, including any payments based on the 
loan amount or loan terms, and any flat rate payments.
    In either case, when the amount paid to the mortgage broker 
exceeds the initial loan amount, there is a credit to the borrower 
and it is entered as a negative amount. When the initial loan amount 
exceeds the amount paid to the mortgage broker, there is a charge to 
the borrower and it is entered as a positive amount. For a lender, 
the amount shown on Line 802 may include any credit or charge 
(points) to the Borrower.
    Line 803 is used to record ``Your adjusted origination 
charges,'' which states the net amount of the loan origination 
charges, the sum of the amounts shown in Lines 801 and 802. This 
amount must be listed in the columns as either a positive number 
(for example, where the origination charge shown in Line 801 exceeds 
any credit for the interest rate shown in Line 802 or where there is 
an origination charge in Line 801 and a charge for the interest rate 
(points) is shown on Line 802) or as a negative number (for example, 
where the credit for the interest rate shown in Line 802 exceeds the 
origination charges shown in Line 801).
    In the case of ``no cost'' loans, where ``no cost'' refers only 
to the loan originator's fees, the amounts shown in Lines 801 and 
802 should offset, so that the charge shown on Line 803 is zero. 
Where ``no cost'' includes third party settlement services, the 
credit shown in Line 802 will more than offset the amount shown in 
Line 801. The amount shown in Line 803 will be a negative number to 
offset the settlement charges paid indirectly through the loan 
originator.
    Lines 804-808 may be used to record each of the ``Required 
services that we select.'' Each settlement service provider must be 
identified by name and the amount paid recorded either inside the 
columns or as paid to the provider outside closing (``P.O.C.''), as 
described in the General Instructions.
    Line 804 is used to record the appraisal fee.
    Line 805 is used to record the fee for all credit reports.
    Line 806 is used to record the fee for any tax service.
    Line 807 is used to record any flood certification fee.
    Lines 808 and additional sequentially numbered lines, as needed, 
are used to record other third party services required by the loan 
originator. These Lines may also be used to record other required 
disclosures from the loan originator. Any such disclosures must be 
listed outside the columns.
    Lines 901-904. This series is used to record the items which the 
Lender requires to be paid at the time of settlement, but which are 
not necessarily paid to the lender (e.g., FHA mortgage insurance 
premium), other than reserves collected by the Lender and recorded 
in the 1000-series.
    Line 901 is used if interest is collected at settlement for a 
part of a month or other period between settlement and the date from 
which interest will be collected with the first regular monthly 
payment. Enter that amount here and include the per diem charges. If 
such interest is not collected until the first regular monthly 
payment, no entry should be made on Line 901.
    Line 902 is used for mortgage insurance premiums due and payable 
at settlement, including any monthly amounts due at settlement and 
any upfront mortgage insurance premium, but not including any 
reserves collected by the Lender and recorded in the 1000-series. If 
a lump sum mortgage insurance premium paid at settlement is included 
on Line 902, a note should indicate that the premium is for the life 
of the loan.
    Line 903 is used for homeowner's insurance premiums that the 
Lender requires to be paid at the time of settlement, except

[[Page 79001]]

reserves collected by the Lender and recorded in the 1000-series.
    Lines 904 and additional sequentially numbered lines are used to 
list additional items required by the Lender (except for reserves 
collected by the Lender and recorded in the 1000-series), including 
premiums for flood or other insurance. These lines are also used to 
list amounts paid at settlement for insurance not required by the 
Lender.
    Lines 1000-1007. This series is used for amounts collected by 
the Lender from the Borrower and held in an account for the future 
payment of the obligations listed as they fall due. Include the time 
period (number of months) and the monthly assessment. In many 
jurisdictions this is referred to as an ``escrow'', ``impound'', or 
``trust'' account. In addition to the property taxes and insurance 
listed, some Lenders may require reserves for flood insurance, 
condominium owners' association assessments, etc. The amount in line 
1001 must be listed in the columns, and the itemizations in lines 
1002 through 1007 must be listed outside the columns.
    After itemizing individual deposits in the 1000 series, the 
servicer shall make an adjustment based on aggregate accounting. 
This adjustment equals the difference between the deposit required 
under aggregate accounting and the sum of the itemized deposits. The 
computation steps for aggregate accounting are set out in 12 CFR 
1024.17(d). The adjustment will always be a negative number or zero 
(-0-), except for amounts due to rounding. The settlement agent 
shall enter the aggregate adjustment amount outside the columns on a 
final line of the 1000 series of the HUD-1 or HUD-1A statement. 
Appendix E to this part sets out an example of aggregate analysis.
    Lines 1100-1108. This series covers title charges and charges by 
attorneys and closing or settlement agents. The title charges 
include a variety of services performed by title companies or 
others, and include fees directly related to the transfer of title 
(title examination, title search, document preparation), fees for 
title insurance, and fees for conducting the closing. The legal 
charges include fees for attorneys representing the lender, seller, 
or borrower, and any attorney preparing title work. The series also 
includes any settlement, notary, and delivery fees related to the 
services covered in this series. Disbursements to third parties must 
be broken out in the appropriate lines or in blank lines in the 
series, and amounts paid to these third parties must be shown 
outside of the columns if included in Line 1101. Charges not 
included in Line 1101 must be listed in the columns.
    Line 1101 is used to record the total for the category of 
``Title services and lender's title insurance.'' This amount must be 
listed in the columns.
    Line 1102 is used to record the settlement or closing fee.
    Line 1103 is used to record the charges for the owner's title 
insurance and related endorsements. This amount must be listed in 
the columns.
    Line 1104 is used to record the lender's title insurance premium 
and related endorsements.
    Line 1105 is used to record the amount of the lender's title 
policy limit. This amount is recorded outside of the columns.
    Line 1106 is used to record the amount of the owner's title 
policy limit. This amount is recorded outside of the columns.
    Line 1107 is used to record the amount of the total title 
insurance premium, including endorsements, that is retained by the 
title agent. This amount is recorded outside of the columns.
    Line 1108 used to record the amount of the total title insurance 
premium, including endorsements, that is retained by the title 
underwriter. This amount is recorded outside of the columns.
    Additional sequentially numbered lines in the 1100-series may be 
used to itemize title charges paid to other third parties, as 
identified by name and type of service provided.
    Lines 1200-1206. This series covers government recording and 
transfer charges. Charges paid by the borrower must be listed in the 
columns as described for lines 1201 and 1203, with itemizations 
shown outside the columns. Any amounts that are charged to the 
seller and that were not included on the Good Faith Estimate must be 
listed in the columns.
    Line 1201 is used to record the total ``Government recording 
charges,'' and the amount must be listed in the columns.
    Line 1202 is used to record, outside of the columns, the 
itemized recording charges.
    Line 1203 is used to record the transfer taxes, and the amount 
must be listed in the columns.
    Line 1204 is used to record, outside of the columns, the amounts 
for local transfer taxes and stamps.
    Line 1205 is used to record, outside of the columns, the amounts 
for state transfer taxes and stamps.
    Line 1206 and additional sequentially numbered lines may be used 
to record specific itemized third party charges for government 
recording and transfer services, but the amounts must be listed 
outside the columns.
    Line 1301 and additional sequentially numbered lines must be 
used to record required services that the borrower can shop for, 
such as fees for survey, pest inspection, or other similar 
inspections. These lines may also be used to record additional 
itemized settlement charges that are not included in a specific 
category, such as fees for structural and environmental inspections; 
pre-sale inspections of heating, plumbing or electrical equipment; 
or insurance or warranty coverage. The amounts must be listed in 
either the borrower's or seller's column.
    Line 1400 must state the total settlement charges as calculated 
by adding the amounts within each column.

Page 3

Comparison of Good Faith Estimate (GFE) and HUD-1/1A Charges

    The HUD-1/1-A is a statement of actual charges and adjustments. 
The comparison chart on page 3 of the HUD-1 must be prepared using 
the exact information and amounts for the services that were 
purchased or provided as part of the transaction, as that 
information and those amounts are shown on the GFE and in the HUD-1. 
If a service that was listed on the GFE was not obtained in 
connection with the transaction, pages 1 and 2 of the HUD-1 should 
not include any amount for that service, and the estimate on the GFE 
of the charge for the service should not be included in any amounts 
shown on the comparison chart on Page 3 of the HUD-1. The comparison 
chart is comprised of three sections: ``Charges That Cannot 
Increase'', ``Charges That Cannot Increase More Than 10%'', and 
``Charges That Can Change''.
    ``Charges That Cannot Increase''. The amounts shown in Blocks 1 
and 2, in Line A, and in Block 8 on the borrower's GFE must be 
entered in the appropriate line in the Good Faith Estimate column. 
The amounts shown on Lines 801, 802, 803 and 1203 of the HUD-1/1A 
must be entered in the corresponding line in the HUD-1/1A column. 
The HUD-1/1A column must include any amounts shown on page 2 of the 
HUD-1 in the column as paid for by the borrower, plus any amounts 
that are shown as P.O.C. by or on behalf of the borrower. If there 
is a credit in Block 2 of the GFE or Line 802 of the HUD-1/1A, the 
credit should be entered as a negative number.
    ``Charges That Cannot Increase More Than 10%''. A description of 
each charge included in Blocks 3 and 7 on the borrower's GFE must be 
entered on separate lines in this section, with the amount shown on 
the borrower's GFE for each charge entered in the corresponding line 
in the Good Faith Estimate column. For each charge included in 
Blocks 4, 5 and 6 on the borrower's GFE for which the loan 
originator selected the provider or for which the borrower selected 
a provider identified by the loan originator, a description must be 
entered on a separate line in this section, with the amount shown on 
the borrower's GFE for each charge entered in the corresponding line 
in the Good Faith Estimate column. The loan originator must identify 
any third party settlement services for which the borrower selected 
a provider other than one identified by the loan originator so that 
the settlement agent can include those charges in the appropriate 
category. Additional lines may be added if necessary. The amounts 
shown on the HUD-1/1A for each line must be entered in the HUD-1/1A 
column next to the corresponding charge from the GFE, along with the 
appropriate HUD-1/1A line number. The HUD-1/1A column must include 
any amounts shown on page 2 of the HUD-1 in the column as paid for 
by the borrower, plus any amounts that are shown as P.O.C. by or on 
behalf of the borrower.
    The amounts shown in the Good Faith Estimate and HUD-1/1A 
columns for this section must be separately totaled and entered in 
the designated line. If the total for the HUD-1/1A column is greater 
than the total for the Good Faith Estimate column, then the amount 
of the increase must be entered both as a dollar amount and as a 
percentage increase in the appropriate line.
    ``Charges That Can Change''. The amounts shown in Blocks 9, 10 
and 11 on the borrower's GFE must be entered in the appropriate 
lines in the Good Faith Estimate

[[Page 79002]]

column. Any third party settlement services for which the borrower 
selected a provider other than one identified by the loan originator 
must also be included in this section. The amounts shown on the HUD-
1/1A for each charge in this section must be entered in the 
corresponding line in the HUD-1/1A column, along with the 
appropriate HUD-1/1A line number. The HUD-1/1A column must include 
any amounts shown on page 2 of the HUD-1 in the column as paid for 
by the borrower, plus any amounts that are shown as P.O.C. by or on 
behalf of the borrower. Additional lines may be added if necessary.

Loan Terms

    This section must be completed in accordance with the 
information and instructions provided by the lender. The lender must 
provide this information in a format that permits the settlement 
agent to simply enter the necessary information in the appropriate 
spaces, without the settlement agent having to refer to the loan 
documents themselves.

Instructions for Completing HUD-1A

    Note: The HUD-1A is an optional form that may be used for 
refinancing and subordinate-lien federally related mortgage loans, 
as well as for any other one-party transaction that does not involve 
the transfer of title to residential real property. The HUD-1 form 
may also be used for such transactions, by utilizing the borrower's 
side of the HUD-1 and following the relevant parts of the 
instructions as set forth above. The use of either the HUD-1 or HUD-
1A is not mandatory for open-end lines of credit (home-equity 
plans), as long as the provisions of Regulation Z are followed.

Background

    The HUD-1A settlement statement is to be used as a statement of 
actual charges and adjustments to be given to the borrower at 
settlement, as defined in this part. The instructions for completion 
of the HUD-1A are for the benefit of the settlement agent who 
prepares the statement; the instructions are not a part of the 
statement and need not be transmitted to the borrower. There is no 
objection to using the HUD-1A in transactions in which it is not 
required, and its use in open-end lines of credit transactions 
(home-equity plans) is encouraged. It may not be used as a 
substitute for a HUD-1 in any transaction that has a seller.
    Refer to the ``definitions'' section (Sec.  1024.2) of 12 CFR 
part 1024 (Regulation X) for specific definitions of terms used in 
these instructions.

General Instructions

    Information and amounts may be filled in by typewriter, hand 
printing, computer printing, or any other method producing clear and 
legible results. Refer to 12 CFR 1024.9 regarding rules for 
reproduction of the HUD-1A. Additional pages may be attached to the 
HUD-1A for the inclusion of customary recitals and information used 
locally for settlements or if there are insufficient lines on the 
HUD-1A. The settlement agent shall complete the HUD-1A in accordance 
with the instructions for the HUD-1 to the extent possible, 
including the instructions for disclosing items paid outside closing 
and for no cost loans.
    Blank lines are provided in section L for any additional 
settlement charges. Blank lines are also provided in section M for 
recipients of all or portions of the loan proceeds. The names of the 
recipients of the settlement charges in section L and the names of 
the recipients of the loan proceeds in section M should be set forth 
on the blank lines.

Line-Item Instructions

Page 1

    The identification information at the top of the HUD-1A should 
be completed as follows: The borrower's name and address is entered 
in the space provided. If the property securing the loan is 
different from the borrower's address, the address or other location 
information on the property should be entered in the space provided. 
The loan number is the lender's identification number for the loan. 
The settlement date is the date of settlement in accordance with 12 
CFR 1024.2, not the end of any applicable rescission period. The 
name and address of the lender should be entered in the space 
provided.
    Section L. Settlement Charges. This section of the HUD-1A is 
similar to section L of the HUD-1, with minor changes or omissions, 
including deletion of lines 700 through 704, relating to real estate 
broker commissions. The instructions for section L in the HUD-1 
should be followed insofar as possible. Inapplicable charges should 
be ignored, as should any instructions regarding seller items.
    Line 1400 in the HUD-1A is for the total settlement charges 
charged to the borrower. Enter this total on line 1601. This total 
should include section L amounts from additional pages, if any are 
attached to this HUD-1A.
    Section M. Disbursement to Others. This section is used to list 
payees, other than the borrower, of all or portions of the loan 
proceeds (including the lender, if the loan is paying off a prior 
loan made by the same lender), when the payee will be paid directly 
out of the settlement proceeds. It is not used to list payees of 
settlement charges, nor to list funds disbursed directly to the 
borrower, even if the lender knows the borrower's intended use of 
the funds.
    For example, in a refinancing transaction, the loan proceeds are 
used to pay off an existing loan. The name of the lender for the 
loan being paid off and the pay-off balance would be entered in 
section M. In a home improvement transaction when the proceeds are 
to be paid to the home improvement contractor, the name of the 
contractor and the amount paid to the contractor would be entered in 
section M. In a consolidation loan, or when part of the loan 
proceeds is used to pay off other creditors, the name of each 
creditor and the amount paid to that creditor would be entered in 
section M. If the proceeds are to be given directly to the borrower 
and the borrower will use the proceeds to pay off existing 
obligations, this would not be reflected in section M.
    Section N. Net Settlement. Line 1600 normally sets forth the 
principal amount of the loan as it appears on the related note for 
this loan. In the event this form is used for an open-ended home 
equity line whose approved amount is greater than the initial amount 
advanced at settlement, the amount shown on Line 1600 will be the 
loan amount advanced at settlement. Line 1601 is used for all 
settlement charges that both are included in the totals for lines 
1400 and 1602, and are not financed as part of the principal amount 
of the loan. This is the amount normally received by the lender from 
the borrower at settlement, which would occur when some or all of 
the settlement charges were paid in cash by the borrower at 
settlement, instead of being financed as part of the principal 
amount of the loan. Failure to include any such amount in line 1601 
will result in an error in the amount calculated on line 1604. Items 
paid outside of closing (P.O.C.) should not be included in Line 
1601.
    Line 1602 is the total amount from line 1400.
    Line 1603 is the total amount from line 1520.
    Line 1604 is the amount disbursed to the borrower. This is 
determined by adding together the amounts for lines 1600 and 1601, 
and then subtracting any amounts listed on lines 1602 and 1603.

Page 2

    This section of the HUD-1A is similar to page 3 of the HUD-1. 
The instructions for page 3 of the HUD-1 should be followed insofar 
as possible. The HUD-1/1A Column should include any amounts shown on 
page 1 of the HUD-1A in the column as paid for by the borrower, plus 
any amounts that are shown as P.O.C. by the borrower. Inapplicable 
charges should be ignored.
BILLING CODE 4810-AM-P

[[Page 79003]]

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[[Page 79005]]

[GRAPHIC] [TIFF OMITTED] TR20DE11.003

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[[Page 79008]]

Appendix B to Part 1024--Illustrations of Requirements of RESPA

    The following illustrations provide additional guidance on the 
meaning and coverage of the provisions of RESPA. Other provisions of 
Federal or state law may also be applicable to the practices and 
payments discussed in the following illustrations.
    1. Facts: A, a provider of settlement services, provides 
settlement services at abnormally low rates or at no charge at all 
to B, a builder, in connection with a subdivision being developed by 
B. B agrees to refer purchasers of the completed homes in the 
subdivision to A for the purchase of settlement services in 
connection with the sale of individual lots by B.
    Comments: The rendering of services by A to B at little or no 
charge constitutes a thing of value given by A to B in return for 
the referral of settlement services business, and both A and B are 
in violation of section 8 of RESPA.
    2. Facts: B, a lender, encourages persons who receive federally 
related mortgage loans from it to employ A, an attorney, to perform 
title searches and related settlement services in connection with 
their transaction. B and A have an understanding that in return for 
the referral of this business A provides legal services to B or B's 
officers or employees at abnormally low rates or for no charge.
    Comments: Both A and B are in violation of section 8 of RESPA. 
Similarly, if an attorney gives a portion of his or her fees to 
another attorney, a lender, a real estate broker or any other 
provider of settlement services, who had referred prospective 
clients to the attorney, section 8 would be violated by both 
persons.
    3. Facts: A, a real estate broker, obtains all necessary 
licenses under state law to act as a title insurance agent. A refers 
individuals who are purchasing homes in transactions in which A 
participates as a broker to B, an unaffiliated title company, for 
the purchase of title insurance services. A performs minimal, if 
any, title services in connection with the issuance of the title 
insurance policy (such as placing an application with the title 
company). B pays A a commission (or A retains a portion of the title 
insurance premium) for the transactions or alternatively B receives 
a portion of the premium paid directly from the purchaser.
    Comments: The payment of a commission or portion of the title 
insurance premium by B to A, or receipt of a portion of the payment 
for title insurance under circumstances where no substantial 
services are being performed by A, is a violation of section 8 of 
RESPA. It makes no difference whether the payment comes from B or 
the purchaser. The amount of the payment must bear a reasonable 
relationship to the services rendered. Here A really is being 
compensated for a referral of business to B.
    4. Facts: A is an attorney who, as a part of his legal 
representation of clients in residential real estate transactions, 
orders and reviews title insurance policies for his clients. A 
enters into a contract with B, a title company, to be an agent of B 
under a program set up by B. Under the agreement, A agrees to 
prepare and forward title insurance applications to B, to re-examine 
the preliminary title commitment for accuracy and if he chooses to 
attempt to clear exceptions to the title policy before closing. A 
agrees to assume liability for waiving certain exceptions to title, 
but never exercises this authority. B performs the necessary title 
search and examination work, determines insurability of title, 
prepares documents containing substantive information in title 
commitments, handles closings for A's clients and issues title 
policies. A receives a fee from his client for legal services and an 
additional fee for his title agent ``services'' from the client's 
title insurance premium to B.
    Comments: A and B are violating section 8 of RESPA. Here, A's 
clients are being double billed because the work A performs as a 
``title agent'' is that which he already performs for his client in 
his capacity as an attorney. For A to receive a separate payment as 
a title agent, A must perform necessary core title work and may not 
contract out the work. To receive additional compensation as a title 
agent for this transaction, A must provide his client with core 
title agent services for which he assumes liability, and which 
includes at a minimum, the evaluation of the title search to 
determine insurability of the title, and the issuance of a title 
commitment where customary, the clearance of underwriting 
objections, and the actual issuance of the policy or policies on 
behalf of the title company. A may not be compensated for the mere 
re-examination of work performed by B. Here, A is not performing 
these services and may not be compensated as a title agent under 
section 8(c)(1)(B). Referral fees or splits of fees may not be 
disguised as title agent commissions when the core title agent work 
is not performed. Further, because B created the program and gave A 
the opportunity to collect fees (a thing of value) in exchange for 
the referral of settlement service business, it has violated section 
8 of RESPA.
    5. Facts: A, a ``mortgage originator,'' receives loan 
applications, funds the loans with its own money or with a wholesale 
line of credit for which A is liable, and closes the loans in A's 
own name. Subsequently, B, a mortgage lender, purchases the loans 
and compensates A for the value of the loans, as well as for any 
mortgage servicing rights.
    Comments: Compensation for the sale of a mortgage loan and 
servicing rights constitutes a secondary market transaction, rather 
than a referral fee, and is beyond the scope of section 8 of RESPA. 
For purposes of section 8, in determining whether a bona fide 
transfer of the loan obligation has taken place, the Bureau examines 
the real source of funding, and the real interest of the named 
settlement lender.
    6. Facts. A, a credit reporting company, places a facsimile 
transmission machine (FAX) in the office of B, a mortgage lender, so 
that B can easily transmit requests for credit reports and A can 
respond. A supplies the FAX machine at no cost or at a reduced 
rental rate based on the number of credit reports ordered.
    Comments: Either situation violates section 8 of RESPA. The FAX 
machine is a thing of value that A provides in exchange for the 
referral of business from B. Copying machines, computer terminals, 
printers, or other like items which have general use to the 
recipient and which are given in exchange for referrals of business 
also violate RESPA.
    7. Facts: A, a real estate broker, refers title business to B, a 
company that is a licensed title agent for C, a title insurance 
company. A owns more than 1% of B. B performs the title search and 
examination, makes determinations of insurability, issues the 
commitment, clears underwriting objections, and issues a policy of 
title insurance on behalf of C, for which C pays B a commission. B 
pays annual dividends to its owners, including A, based on the 
relative amount of business each of its owners refers to B.
    Comments: The facts involve an affiliated business arrangement. 
The payment of a commission by C to B is not a violation of section 
8 of RESPA if the amount of the commission constitutes reasonable 
compensation for the services performed by B for C. The payment of a 
dividend or the giving of any other thing of value by B to A that is 
based on the amount of business referred to B by A does not meet the 
affiliated business agreement exemption provisions and such actions 
violate section 8. Similarly, if the amount of stock held by A in B 
(or, if B were a partnership, the distribution of partnership 
profits by B to A) varies based on the amount of business referred 
or expected to be referred, or if B retained any funds for 
subsequent distribution to A where such funds were generally in 
proportion to the amount of business A referred to B relative to the 
amount referred by other owners, such arrangements would violate 
section 8. The exemption for controlled business arrangements would 
not be available because the payments here would not be considered 
returns on ownership interests. Further, the required disclosure of 
the affiliated business arrangement and estimated charges have not 
been provided.
    8. Facts: Same as illustration 7, but B pays annual dividends in 
proportion to the amount of stock held by its owners, including A, 
and the distribution of annual dividends is not based on the amount 
of business referred or expected to be referred.
    Comments: If A and B meet the requirements of the affiliated 
business arrangement exemption there is not a violation of RESPA. 
Since the payment is a return on ownership interests, A and B will 
be exempt from section 8 if (1) A also did not require anyone to use 
the services of B, and (2) A disclosed its ownership interest in B 
on a separate disclosure form and provided an estimate of B's 
charges to each person referred by A to B (see Appendix D of this 
part), and (3) B makes no payment (nor is there any other thing of 
value exchanged) to A other than dividends.
    9. Facts: A, a franchisor for franchised real estate brokers, 
owns B, a provider of settlement services. C, a franchisee of A, 
refers business to B.
    Comments: This is an affiliated business arrangement. A, B and C 
will all be exempt from section 8 if C discloses its franchise 
relationship with the owner of B on a

[[Page 79009]]

separate disclosure form and provides an estimate of B's charges to 
each person referred to B (see Appendix D of this part) and C does 
not require anyone to use B's services and A gives no thing a value 
to C under the franchise agreement (such as an adjusted level of 
franchise payment based on the referrals), and B makes no payments 
to A other than dividends representing a return on ownership 
interest (rather than, e.g., an adjusted level of payment being 
based on the referrals). Nor may B pay C anything of value for the 
referral.
    10. Facts: A is a real estate broker who refers business to its 
affiliate title company B. A makes all required written disclosures 
to the homebuyer of the arrangement and estimated charges and the 
homebuyer is not required to use B. B refers or contracts out 
business to C who does all the title work and splits the fee with B. 
B passes its fee to A in the form of dividends, a return on 
ownership interest.
    Comments: The relationship between A and B is an affiliated 
business arrangement. However, the affiliated business arrangement 
exemption does not provide exemption between an affiliated entity, 
B, and a third party, C. Here, B is a mere ``shell'' and provides no 
substantive services for its portion of the fee. The arrangement 
between B and C would be in violation of section 8(a) and (b). Even 
if B had an affiliate relationship with C, the required exemption 
criteria have not been met and the relationship would be subject to 
section 8.
    11. Facts: A, a mortgage lender is affiliated with B, a title 
company, and C, an escrow company and offers consumers a package of 
mortgage title and escrow services at a discount from the prices at 
which such services would be sold if purchased separately. Neither 
A, B, nor C requires consumers to purchase the services of their 
sister companies and each company sells such services separately and 
as part of the package. A also pays its employees (e.g., loan 
officers, secretaries, etc.) a bonus for each loan, title insurance 
or closing that A's employees generate for A, B, or C respectively. 
A pays such employee bonuses out of its own funds and receives no 
payments or reimbursements for such bonuses from B or C. At or 
before the time that customers are told by A or its employees about 
the services offered by B and C and/or the package of services that 
is available, the customers are provided with an affiliated business 
disclosure form.
    Comments: A's selling of a package of settlement services at a 
discount to a settlement service purchaser does not violate section 
8 of RESPA. A's employees are making appropriate affiliated business 
disclosures and since the services are available separately and as 
part of a package, there is not ``required use'' of the additional 
services. A's payments of bonuses to its employees for the referral 
of business to A or A's affiliates, B and C, are exempt from section 
8 under Sec.  1024.14(g)(1). However, if B or C reimbursed A for any 
bonuses that A paid to its employees for referring business to B or 
C, such reimbursements would violate section 8. Similarly, if B or C 
paid bonuses to A's employees directly for generating business for 
them, such payments would violate section 8.
    12. Facts. A is a mortgage broker who provides origination 
services to submit a loan to a Lender for approval. The mortgage 
broker charges the borrower a uniform fee for the total origination 
services, as well as a direct up-front charge for reimbursement of 
credit reporting, appraisal services or similar charges.
    Comment. The mortgage broker's fee must be itemized in the Good 
Faith Estimate and on the HUD-1 Settlement Statement. Other charges 
which are paid for by the borrower and paid in advance are listed as 
P.O.C. on the HUD-1 Settlement Statement, and reflect the actual 
provider charge for such services. Also, any other fee or payment 
received by the mortgage broker from either the lender or the 
borrower arising from the initial funding transaction, including a 
servicing release premium or yield spread premium, is to be noted on 
the Good Faith Estimate and listed in the 800 series of the HUD-1 
Settlement Statement.
    13. Facts. A is a dealer in home improvements who has 
established funding arrangements with several lenders. Customers for 
home improvements receive a proposed contract from A. The proposal 
requires that customers both execute forms authorizing a credit 
check and employment verification, and frequently, execute a dealer 
consumer credit contract secured by a lien on the customer's 
(borrower's) 1- to 4-family residential property. Simultaneously 
with the completion and certification of the home improvement work, 
the note is assigned by the dealer to a funding lender.
    Comments. The loan that is assigned to the funding lender is a 
loan covered by RESPA, when a lien is placed on the borrower's 1- to 
4-family residential structure. The dealer loan or consumer credit 
contract originated by a dealer is also a RESPA-covered transaction, 
except when the dealer is not a ``creditor'' under the definition of 
``federally related mortgage loan'' in Sec.  1024.2. The lender to 
whom the loan will be assigned is responsible for assuring that the 
lender or the dealer delivers to the borrower a Good Faith Estimate 
of closing costs consistent with Regulation X, and that the HUD-1 or 
HUD-1A Settlement Statement is used in conjunction with the 
settlement of the loan to be assigned. A dealer who, under Sec.  
1024.2, is covered by RESPA as a creditor is responsible for the 
Good Faith Estimate of Closing Costs and the use of the appropriate 
settlement statement in connection with the loan.

Appendix C to Part 1024--Instructions for Completing Good Faith 
Estimate (GFE) Form

    The following are instructions for completing the GFE required 
under section 5 of RESPA and 12 CFR 1024.7 of the Bureau 
regulations. The standardized form set forth in this Appendix is the 
required GFE form and must be provided exactly as specified; 
provided, however, preparers may replace HUD's OMB approval number 
listed on the form with the Bureau's OMB approval number when they 
reproduce the GFE form. The instructions for completion of the GFE 
are primarily for the benefit of the loan originator who prepares 
the form and need not be transmitted to the borrower(s) as an 
integral part of the GFE. The required standardized GFE form must be 
prepared completely and accurately. A separate GFE must be provided 
for each loan where a transaction will involve more than one 
mortgage loan.

General Instructions

    The loan originator preparing the GFE may fill in information 
and amounts on the form by typewriter, hand printing, computer 
printing, or any other method producing clear and legible results. 
Under these instructions, the ``form'' refers to the required 
standardized GFE form. Although the standardized GFE is a prescribed 
form, Blocks 3, 6, and 11 on page 2 may be adapted for use in 
particular loan situations, so that additional lines may be inserted 
there, and unused lines may be deleted.
    All fees for categories of charges shall be disclosed in U.S. 
dollar and cent amounts.

Specific Instructions

Page 1

    Top of the Form--The loan originator must enter its name, 
business address, telephone number, and email address, if any, on 
the top of the form, along with the applicant's name, the address or 
location of the property for which financing is sought, and the date 
of the GFE.
    ``Purpose.''--This section describes the general purpose of the 
GFE as well as additional information available to the applicant.
    ``Shopping for your loan.''--This section requires no loan 
originator action.
    ``Important dates.''--This section briefly states important 
deadlines after which the loan terms that are the subject of the GFE 
may not be available to the applicant. In Line 1, the loan 
originator must state the date and, if necessary, time until which 
the interest rate for the GFE will be available. In Line 2, the loan 
originator must state the date until which the estimate of all other 
settlement charges for the GFE will be available. This date must be 
at least 10 business days from the date of the GFE. In Line 3, the 
loan originator must state how many calendar days within which the 
applicant must go to settlement once the interest rate is locked. In 
Line 4, the loan originator must state how many calendar days prior 
to settlement the interest rate would have to be locked, if 
applicable.
    ``Summary of your loan''--In this section, for all loans the 
loan originator must fill in, where indicated:
    (i) The initial loan amount;
    (ii) The loan term; and
    (iii) The initial interest rate.
    The loan originator must fill in the initial monthly amount owed 
for principal, interest, and any mortgage insurance. The amount 
shown must be the greater of: (1) The required monthly payment for 
principal and interest for the first regularly scheduled payment, 
plus any monthly mortgage insurance payment; or (2) the accrued 
interest for the first regularly scheduled payment, plus any monthly 
mortgage insurance payment.

[[Page 79010]]

    The loan originator must indicate whether the interest rate can 
rise, and, if it can, must insert the maximum rate to which it can 
rise over the life of the loan. The loan originator must also 
indicate the period of time after which the interest rate can first 
change.
    The loan originator must indicate whether the loan balance can 
rise even if the borrower makes payments on time, for example in the 
case of a loan with negative amortization. If it can, the loan 
originator must insert the maximum amount to which the loan balance 
can rise over the life of the loan. For Federal, state, local, or 
tribal housing programs that provide payment assistance, any 
repayment of such program assistance should be excluded from 
consideration in completing this item. If the loan balance will 
increase only because escrow items are being paid through the loan 
balance, the loan originator is not required to check the box 
indicating that the loan balance can rise.
    The loan originator must indicate whether the monthly amount 
owed for principal, interest, and any mortgage insurance can rise 
even if the borrower makes payments on time. If the monthly amount 
owed can rise even if the borrower makes payments on time, the loan 
originator must indicate the period of time after which the monthly 
amount owed can first change, the maximum amount to which the 
monthly amount owed can rise at the time of the first change, and 
the maximum amount to which the monthly amount owed can rise over 
the life of the loan. The amount used for the monthly amount owed 
must be the greater of: (1) The required monthly payment for 
principal and interest for that month, plus any monthly mortgage 
insurance payment; or (2) the accrued interest for that month, plus 
any monthly mortgage insurance payment.
    The loan originator must indicate whether the loan includes a 
prepayment penalty, and, if so, the maximum amount that it could be.
    The loan originator must indicate whether the loan requires a 
balloon payment and, if so, the amount of the payment and in how 
many years it will be due.
    ``Escrow account information.''--The loan originator must 
indicate whether the loan includes an escrow account for property 
taxes and other financial obligations. The amount shown in the 
``Summary of your loan'' section for ``Your initial monthly amount 
owed for principal, interest, and any mortgage insurance'' must be 
entered in the space for the monthly amount owed in this section.
    ``Summary of your settlement charges.''--On this line, the loan 
originator must state the Adjusted Origination Charges from subtotal 
A of page 2, the Charges for All Other Settlement Services from 
subtotal B of page 2, and the Total Estimated Settlement Charges 
from the bottom of page 2.

Page 2

    ``Understanding your estimated settlement charges.''--This 
section details 11 settlement cost categories and amounts associated 
with the mortgage loan. For purposes of determining whether a 
tolerance has been met, the amount on the GFE should be compared 
with the total of any amounts shown on the HUD-1 in the borrower's 
column and any amounts paid outside closing by or on behalf of the 
borrower.

``Your Adjusted Origination Charges''

    Block 1, ``Our origination charge.''--The loan originator must 
state here all charges that all loan originators involved in this 
transaction will receive, except for any charge for the specific 
interest rate chosen (points). A loan originator may not separately 
charge any additional fees for getting this loan, including for 
application, processing, or underwriting. The amount stated in Block 
1 is subject to zero tolerance, i.e., the amount may not increase at 
settlement.
    Block 2, ``Your credit or charge (points) for the specific 
interest rate chosen.''--For transactions involving mortgage 
brokers, the mortgage broker must indicate through check boxes 
whether there is a credit to the borrower for the interest rate 
chosen on the loan, the interest rate, and the amount of the credit, 
or whether there is an additional charge (points) to the borrower 
for the interest rate chosen on the loan, the interest rate, and the 
amount of that charge. Only one of the boxes may be checked; a 
credit and charge cannot occur together in the same transaction.
    For transactions without a mortgage broker, the lender may 
choose not to separately disclose in this block any credit or charge 
for the interest rate chosen on the loan; however, if this block 
does not include any positive or negative figure, the lender must 
check the first box to indicate that ``The credit or charge for the 
interest rate you have chosen'' is included in ``Our origination 
charge'' above (see Block 1 instructions above), must insert the 
interest rate, and must also insert ``0'' in Block 2. Only one of 
the boxes may be checked; a credit and charge cannot occur together 
in the same transaction.
    For a mortgage broker, the credit or charge for the specific 
interest rate chosen is the net payment to the mortgage broker from 
the lender (i.e., the sum of all payments to the mortgage broker 
from the lender, including payments based on the loan amount, a flat 
rate, or any other computation, and in a table funded transaction, 
the loan amount less the price paid for the loan by the lender). 
When the net payment to the mortgage broker from the lender is 
positive, there is a credit to the borrower and it is entered as a 
negative amount in Block 2 of the GFE. When the net payment to the 
mortgage broker from the lender is negative, there is a charge to 
the borrower and it is entered as a positive amount in Block 2 of 
the GFE. If there is no net payment (i.e., the credit or charge for 
the specific interest rate chosen is zero), the mortgage broker must 
insert ``0'' in Block 2 and may check either the box indicating 
there is a credit of ``0'' or the box indicating there is a charge 
of ``0''.
    The amount stated in Block 2 is subject to zero tolerance while 
the interest rate is locked, i.e., any credit for the interest rate 
chosen cannot decrease in absolute value terms and any charge for 
the interest rate chosen cannot increase. (Note: An increase in the 
credit is allowed since this increase is a reduction in cost to the 
borrower. A decrease in the credit is not allowed since it is an 
increase in cost to the borrower.)
    Line A, ``Your Adjusted Origination Charges.''--The loan 
originator must add the numbers in Blocks 1 and 2 and enter this 
subtotal at highlighted Line A. The subtotal at Line A will be a 
negative number if there is a credit in Block 2 that exceeds the 
charge in Block 1. The amount stated in Line A is subject to zero 
tolerance while the interest rate is locked.
    In the case of ``no cost'' loans, where ``no cost'' refers only 
to the loan originator's fees, Line A must show a zero charge as the 
adjusted origination charge. In the case of ``no cost'' loans where 
``no cost'' encompasses third party fees as well as the upfront 
payment to the loan originator, all of the third party fees listed 
in Block 3 through Block 11 to be paid for by the loan originator 
(or borrower, if any) must be itemized and listed on the GFE. The 
credit for the interest rate chosen must be large enough that the 
total for Line A will result in a negative number to cover the third 
party fees.

``Your Charges for All Other Settlement Services''

    There is a 10 percent tolerance applied to the sum of the prices 
of each service listed in Block 3, Block 4, Block 5, Block 6, and 
Block 7, where the loan originator requires the use of a particular 
provider or the borrower uses a provider selected or identified by 
the loan originator. Any services in Block 4, Block 5, or Block 6 
for which the borrower selects a provider other than one identified 
by the loan originator are not subject to any tolerance and, at 
settlement, would not be included in the sum of the charges on which 
the 10 percent tolerance is based. Where a loan originator permits a 
borrower to shop for third party settlement services, the loan 
originator must provide the borrower with a written list of 
settlement services providers at the time of the GFE, on a separate 
sheet of paper.
    Block 3, ``Required services that we select.''--In this block, 
the loan originator must identify each third party settlement 
service required and selected by the loan originator (excluding 
title services), along with the estimated price to be paid to the 
provider of each service. Examples of such third party settlement 
services might include provision of credit reports, appraisals, 
flood checks, tax services, and any upfront mortgage insurance 
premium. The loan originator must identify the specific required 
services and provide an estimate of the price of each service. Loan 
originators are also required to add the individual charges 
disclosed in this block and place that total in the column of this 
block. The charge shown in this block is subject to an overall 10 
percent tolerance as described above.
    Block 4, ``Title services and lender's title insurance.''--In 
this block, the loan originator must state the estimated total 
charge for third party settlement service providers for all closing 
services, regardless of whether the providers are selected or paid 
for by the borrower, seller, or loan originator. The loan originator 
must also include any lender's title insurance premiums, when 
required, regardless of whether the provider is selected or paid for 
by the borrower, seller, or loan originator. All fees for title 
searches,

[[Page 79011]]

examinations, and endorsements, for example, would be included in 
this total. The charge shown in this block is subject to an overall 
10 percent tolerance as described above.
    Block 5, ``Owner's title insurance.''--In this block, for all 
purchase transactions the loan originator must provide an estimate 
of the charge for the owner's title insurance and related 
endorsements, regardless of whether the providers are selected or 
paid for by the borrower, seller, or loan originator. For non-
purchase transactions, the loan originator may enter ``NA'' or ``Not 
Applicable'' in this Block. The charge shown in this block is 
subject to an overall 10 percent tolerance as described above.
    Block 6, ``Required services that you can shop for.''--In this 
block, the loan originator must identify each third party settlement 
service required by the loan originator where the borrower is 
permitted to shop for and select the settlement service provider 
(excluding title services), along with the estimated charge to be 
paid to the provider of each service. The loan originator must 
identify the specific required services (e.g., survey, pest 
inspection) and provide an estimate of the charge of each service. 
The loan originator must also add the individual charges disclosed 
in this block and place the total in the column of this block. The 
charge shown in this block is subject to an overall 10 percent 
tolerance as described above.
    Block 7, ``Government recording charge.''--In this block, the 
loan originator must estimate the state and local government fees 
for recording the loan and title documents that can be expected to 
be charged at settlement. The charge shown in this block is subject 
to an overall 10 percent tolerance as described above.
    Block 8, ``Transfer taxes.''--In this block, the loan originator 
must estimate the sum of all state and local government fees on 
mortgages and home sales that can be expected to be charged at 
settlement, based upon the proposed loan amount or sales price and 
on the property address. A zero tolerance applies to the sum of 
these estimated fees.
    Block 9, ``Initial deposit for your escrow account.''--In this 
block, the loan originator must estimate the amount that it will 
require the borrower to place into a reserve or escrow account at 
settlement to be applied to recurring charges for property taxes, 
homeowner's and other similar insurance, mortgage insurance, and 
other periodic charges. The loan originator must indicate through 
check boxes if the reserve or escrow account will cover future 
payments for all tax, all hazard insurance, and other obligations 
that the loan originator requires to be paid as they fall due. If 
the reserve or escrow account includes some, but not all, property 
taxes or hazard insurance, or if it includes mortgage insurance, the 
loan originator should check ``other'' and then list the items 
included.
    Block 10, ``Daily interest charges.''--In this block, the loan 
originator must estimate the total amount that will be due at 
settlement for the daily interest on the loan from the date of 
settlement until the first day of the first period covered by 
scheduled mortgage payments. The loan originator must also indicate 
how this total amount is calculated by providing the amount of the 
interest charges per day and the number of days used in the 
calculation, based on a stated projected closing date.
    Block 11, ``Homeowner's insurance.''--The loan originator must 
estimate in this block the total amount of the premiums for any 
hazard insurance policy and other similar insurance, such as fire or 
flood insurance that must be purchased at or before settlement to 
meet the loan originator's requirements. The loan originator must 
also separately indicate the nature of each type of insurance 
required along with the charges. To the extent a loan originator 
requires that such insurance be part of an escrow account, the 
amount of the initial escrow deposit must be included in Block 9.
    Line B, ``Your Charges for All Other Settlement Services.''--The 
loan originator must add the numbers in Blocks 3 through 11 and 
enter this subtotal in the column at highlighted Line B.
    Line A+B, ``Total Estimated Settlement Charges.''--The loan 
originator must add the subtotals in the right-hand column at 
highlighted Lines A and B and enter this total in the column at 
highlighted Line A+B.

Page 3

``Instructions''

    ``Understanding which charges can change at settlement.''--This 
section informs the applicant about which categories of settlement 
charges can increase at closing, and by how much, and which 
categories of settlement charges cannot increase at closing. This 
section requires no loan originator action.
    ``Using the tradeoff table.''--This section is designed to make 
borrowers aware of the relationship between their total estimated 
settlement charges on one hand, and the interest rate and resulting 
monthly payment on the other hand. The loan originator must complete 
the left hand column using the loan amount, interest rate, monthly 
payment figure, and the total estimated settlement charges from page 
1 of the GFE. The loan originator, at its option, may provide the 
borrower with the same information for two alternative loans, one 
with a higher interest rate, if available, and one with a lower 
interest rate, if available, from the loan originator. The loan 
originator should list in the tradeoff table only alternative loans 
for which it would presently issue a GFE based on the same 
information the loan originator considered in issuing this GFE. The 
alternative loans must use the same loan amount and be otherwise 
identical to the loan in the GFE. The alternative loans must have, 
for example, the identical number of payment periods; the same 
margin, index, and adjustment schedule if the loans are adjustable 
rate mortgages; and the same requirements for prepayment penalty and 
balloon payments. If the loan originator fills in the tradeoff 
table, the loan originator must show the borrower the loan amount, 
alternative interest rate, alternative monthly payment, the change 
in the monthly payment from the loan in this GFE to the alternative 
loan, the change in the total settlement charges from the loan in 
this GFE to the alternative loan, and the total settlement charges 
for the alternative loan. If these options are available, an 
applicant may request a new GFE, and a new GFE must be provided by 
the loan originator.
    ``Using the shopping chart.''--This chart is a shopping tool to 
be provided by the loan originator for the borrower to complete, in 
order to compare GFEs.
    ``If your loan is sold in the future.''--This section requires 
no loan originator action.
BILLING CODE 4810-AM-P

[[Page 79012]]

[GRAPHIC] [TIFF OMITTED] TR20DE11.006

[[Page 79013]]

[GRAPHIC] [TIFF OMITTED] TR20DE11.007

[[Page 79014]]

[GRAPHIC] [TIFF OMITTED] TR20DE11.008

[[Page 79015]]

Appendix D to Part 1024

Affiliated Business Arrangement Disclosure Statement Format Notice

To:--------------------------------------------------------------------
From:------------------------------------------------------------------
 (Entity Making Statement)
Property:--------------------------------------------------------------
Date:------------------------------------------------------------------

    This is to give you notice that [referring party] has a business 
relationship with [settlement services provider(s)]. [Describe the 
nature of the relationship between the referring party and the 
provider(s), including percentage of ownership interest, if 
applicable.] Because of this relationship, this referral may provide 
[referring party] a financial or other benefit.
    [A.] Set forth below is the estimated charge or range of charges 
for the settlement services listed. You are NOT required to use the 
listed provider(s) as a condition for [settlement of your loan on] 
[or] [purchase, sale, or refinance of] the subject property. THERE 
ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH 
SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU 
ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE 
SERVICES.

[provider and settlement service]--------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[charge or range of charges]-------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

    [B.] Set forth below is the estimated charge or range of charges 
for the settlement services of an attorney, credit reporting agency, 
or real estate appraiser that we, as your lender, will require you 
to use, as a condition of your loan on this property, to represent 
our interests in the transaction.

[provider and settlement service]--------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[charge or range of charges]-------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

ACKNOWLEDGMENT

    I/we have read this disclosure form, and understand that 
referring party is referring me/us to purchase the above-described 
settlement service(s) and may receive a financial or other benefit 
as the result of this referral.
-----------------------------------------------------------------------
Signature

[INSTRUCTIONS TO PREPARER:] [Use paragraph A for referrals other 
than those by a lender to an attorney, a credit reporting agency, or 
a real estate appraiser that a lender is requiring a borrower to use 
to represent the lender's interests in the transaction. Use 
paragraph B for those referrals to an attorney, credit reporting 
agency, or real estate appraiser that a lender is requiring a 
borrower to use to represent the lender's interests in the 
transaction. When applicable, use both paragraphs. Specific timing 
rules for delivery of the affiliated business disclosure statement 
are set forth in 12 CFR 1024.15(b)(1) of Regulation X). These 
INSTRUCTIONS TO PREPARER should not appear on the statement.]

Appendix E to Part 1024--Arithmetic Steps

I. Example Illustrating Aggregate Analysis

Assumptions

Disbursements:

$360 for school taxes disbursed on September 20
$1,200 for county property taxes:
$500 disbursed on July 25
$700 disbursed on December 10

Cushion: One-sixth of estimated annual disbursements

Settlement: May 15

First Payment: July 1

                      Step 1--Initial Trial Balance
------------------------------------------------------------------------
                                                       Aggregate
                                              --------------------------
                                                 pmt      disb     bal
------------------------------------------------------------------------
Jun..........................................        0        0        0
Jul..........................................      130      500     -370
Aug..........................................      130        0     -240
Sep..........................................      130      360     -470
Oct..........................................      130        0     -340
Nov..........................................      130        0     -210
Dec..........................................      130      700     -780
Jan..........................................      130        0     -650
Feb..........................................      130        0     -520
Mar..........................................      130        0     -390
Apr..........................................      130        0     -260
May..........................................      130        0     -130
Jun..........................................      130        0        0
------------------------------------------------------------------------

                     Step 2--Adjusted Trial Balance
       [Increase monthly balances to eliminate negative balances]
------------------------------------------------------------------------
                                                       Aggregate
                                              --------------------------
                                                 pmt      disb     bal
------------------------------------------------------------------------
Jun..........................................        0        0      780
Jul..........................................      130      500      410
Aug..........................................      130        0      540
Sep..........................................      130      360      310
Oct..........................................      130        0      440
Nov..........................................      130        0      570
Dec..........................................      130      700        0
Jan..........................................      130        0      130
Feb..........................................      130        0      260
Mar..........................................      130        0      390
Apr..........................................      130        0      520
May..........................................      130        0      650
Jun..........................................      130        0      780
------------------------------------------------------------------------

                   Step 3--Trial Balance With Cushion
------------------------------------------------------------------------
                                                       Aggregate
                                              --------------------------
                                                 pmt      disb     bal
------------------------------------------------------------------------
Jun..........................................        0        0     1040
Jul..........................................      130      500      670
Aug..........................................      130        0      800
Sep..........................................      130      360      570
Oct..........................................      130        0      700
Nov..........................................      130        0      830
Dec..........................................      130      700      260
Jan..........................................      130        0      390
Feb..........................................      130        0      520
Mar..........................................      130        0      650
Apr..........................................      130        0      780
May..........................................      130        0      910
Jun..........................................      130        0     1040
------------------------------------------------------------------------

II. Example Illustrating Single-Item Analysis

Assumptions

Disbursements:

$360 for school taxes disbursed on September 20
$1,200 for county property taxes:
$500 disbursed on July 25
$700 disbursed on December 10

Cushion: One-sixth of estimated annual disbursements

Settlement: May 15

First Payment: July 1

                                                              Step 1--Initial Trial Balance
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Single-item
                                       -----------------------------------------------------------------------------------------------------------------
                                                                 Taxes                                                 School taxes
                                       -----------------------------------------------------------------------------------------------------------------
                                               pmt                disb               bal                pmt                disb               bal
--------------------------------------------------------------------------------------------------------------------------------------------------------
June..................................                  0                  0                  0                  0                  0                  0
July..................................                100                500               -400                 30                  0                 30
August................................                100                  0               -300                 30                  0                 60
September.............................                100                  0               -200                 30                360               -270
October...............................                100                  0               -100                 30                  0               -240
November..............................                100                  0                  0                 30                  0               -210

[[Page 79016]]

 
December..............................                100                700               -600                 30                  0               -180
January...............................                100                  0               -500                 30                  0               -150
February..............................                100                  0               -400                 30                  0               -120
March.................................                100                  0               -300                 30                  0                -90
April.................................                100                  0               -200                 30                  0                -60
May...................................                100                  0               -100                 30                  0                -30
June..................................                100                  0                  0                 30                  0                  0
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                             Step 2--Adjusted Trial Balance
                                               [Increase monthly balances to eliminate negative balances]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Single-item
                                       -----------------------------------------------------------------------------------------------------------------
                                                                 Taxes                                                 School taxes
                                       -----------------------------------------------------------------------------------------------------------------
                                               pmt                disb               bal                pmt                disb               bal
--------------------------------------------------------------------------------------------------------------------------------------------------------
Jun...................................                  0                  0                600                  0                  0                270
Jul...................................                100                500                200                 30                  0                300
Aug...................................                100                  0                300                 30                  0                330
Sep...................................                100                  0                400                 30                360                  0
Oct...................................                100                  0                500                 30                  0                 30
Nov...................................                100                  0                600                 30                  0                 60
Dec...................................                100                700                  0                 30                  0                 90
Jan...................................                100                  0                100                 30                  0                120
Feb...................................                100                  0                200                 30                  0                150
Mar...................................                100                  0                300                 30                  0                180
Apr...................................                100                  0                400                 30                  0                210
May...................................                100                  0                500                 30                  0                240
Jun...................................                100                  0                600                 30                  0                270
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                           Step 3--Trial Balance With Cushion
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Single-item
                                       -----------------------------------------------------------------------------------------------------------------
                                                                 Taxes                                                 School taxes
                                       -----------------------------------------------------------------------------------------------------------------
                                               pmt                disb               bal                pmt                disb               bal
--------------------------------------------------------------------------------------------------------------------------------------------------------
Jun...................................                  0                  0                800                  0                  0                330
Jul...................................                100                500                400                 30                  0                360
Aug...................................                100                  0                500                 30                  0                390
Sep...................................                100                  0                600                 30                360                 60
Oct...................................                100                  0                700                 30                  0                 90
Nov...................................                100                  0                800                 30                  0                120
Dec...................................                100                700                200                 30                  0                150
Jan...................................                100                  0                300                 30                  0                180
Feb...................................                100                  0                400                 30                  0                210
Mar...................................                100                  0                500                 30                  0                240
Apr...................................                100                  0                600                 30                  0                270
May...................................                100                  0                700                 30                  0                300
Jun...................................                100                  0                800                 30                  0                330
--------------------------------------------------------------------------------------------------------------------------------------------------------

Appendix MS-1 to Part 1024

    [Sample language; use business stationery or similar heading]
    [Date]

SERVICING DISCLOSURE STATEMENT NOTICE TO FIRST LIEN MORTGAGE LOAN 
APPLICANTS: THE RIGHT TO COLLECT YOUR MORTGAGE LOAN PAYMENTS MAY BE 
TRANSFERRED

    You are applying for a mortgage loan covered by the Real Estate 
Settlement Procedures Act (RESPA) (12 U.S.C. 2601 et seq.). RESPA 
gives you certain rights under Federal law. This statement describes 
whether the servicing for this loan may be transferred to a 
different loan servicer. ``Servicing'' refers to collecting your 
principal, interest, and escrow payments, if any, as well as sending 
any monthly or annual statements, tracking account balances, and 
handling other aspects of your loan. You will be given advance 
notice before a transfer occurs.

Servicing Transfer Information

    [We may assign, sell, or transfer the servicing of your loan 
while the loan is outstanding.]
    [or]
    [We do not service mortgage loans of the type for which you 
applied. We intend to assign, sell, or transfer the servicing of 
your mortgage loan before the first payment is due.]
    [or]

[[Page 79017]]

    [The loan for which you have applied will be serviced at this 
financial institution and we do not intend to sell, transfer, or 
assign the servicing of the loan.]
    [INSTRUCTIONS TO PREPARER: Insert the date and select the 
appropriate language under ``Servicing Transfer Information.'' The 
model format may be annotated with further information that 
clarifies or enhances the model language.]

Appendix MS-2 to Part 1024

[Sample language; use business stationery or similar heading]

NOTICE OF ASSIGNMENT, SALE, OR TRANSFER OF SERVICING RIGHTS

    You are hereby notified that the servicing of your mortgage 
loan, that is, the right to collect payments from you, is being 
assigned, sold or transferred from -------------------- to --------
------------ effective --------------------.
    The assignment, sale or transfer of the servicing of the 
mortgage loan does not affect any term or condition of the mortgage 
instruments, other than terms directly related to the servicing of 
your loan.
    Except in limited circumstances, the law requires that your 
present servicer send you this notice at least 15 days before the 
effective date of transfer, or at closing. Your new servicer must 
also send you this notice no later than 15 days after this effective 
date or at closing. [In this case, all necessary information is 
combined in this one notice].
    Your present servicer is --------------------. If you have any 
question relating to the transfer of servicing from your present 
servicer call -------------------- [enter the name of an individual 
or department here] between ---- a.m. and ---- p.m. on the following 
days --------------------.
    This is a [toll-free] or [collect call] number.
    Your new servicer will be --------------------.
    The business address for your new servicer is:
-----------------------------------------------------------------------

--------------------------------------------------------------------
-------------- .

    The [toll-free] [collect call] telephone number of your new 
servicer is --------------------. If you have any question relating 
to the transfer of servicing to your new servicer call ------------
-------- [enter the name of an individual or department here] at --
------------------ [toll free or collect call telephone number] 
between ---- a.m. and ---- p.m. on the following days --------------
------.
    The date that your present servicer will stop accepting payments 
form you is --------------------. The date that your new servicer 
will start accepting payments from you is --------------------. Send 
all payments due on or after that date to your new servicer.
    [Use the paragraph if appropriate; otherwise omit.] The transfer 
of servicing rights may affect the term of or the continued 
availability of mortgage life or disability insurance or any other 
type of optional insurance in the following manner:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
--------------------

and you should take the following action to maintain coverage:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
--------------------.

    You should also be aware of the following information, which is 
set out in more detail in Section 6 of the Real Estate Settlement 
Procedures Act (RESPA) (12 U.S.C. 2605):
    During the 60-day period following the effective date of the 
transfer of the loan servicing, a loan payment received by your old 
servicer before its due date may not be treated by the new loan 
servicer as late, and a late fee may not be imposed on you.
    Section 6 of RESPA (12 U.S.C. 2605) gives you certain consumer 
rights. If you send a ``qualified written request'' to your loan 
servicer concerning the servicing of your loan, your servicer must 
provide you with a written acknowledgment within 20 Business Days of 
receipt of your request. A ``qualified written request'' is a 
written correspondence, other than notice on a payment coupon or 
other payment medium supplied by the servicer, which includes your 
name and account number, and your reasons for the request. [If you 
want to send a ``qualified written request'' regarding the servicing 
of your loan, it must be sent to this address:

--------------------------------------------------------------------
------------ ]

    Not later than 60 Business Days after receiving your request, 
your servicer must make any appropriate corrections to your account, 
and must provide you with a written clarification regarding any 
dispute. During this 60-Business Day period, your servicer may not 
provide information to a consumer reporting agency concerning any 
overdue payment related to such period or qualified written request. 
However, this does not prevent the servicer from initiating 
foreclosure if proper grounds exist under the mortgage documents.
    A Business Day is a day on which the offices of the business 
entity are open to the public for carrying on substantially all of 
its business functions.
    Section 6 of RESPA also provides for damages and costs for 
individuals or classes of individuals in circumstances where 
servicers are shown to have violated the requirements of that 
section. You should seek legal advice if you believe your rights 
have been violated.

[INSTRUCTIONS TO PREPARER: Delivery means placing the notice in the 
mail, first class postage prepaid, prior to 15 days before the 
effective date of transfer (transferor) or prior to 15 days after 
the effective date of transfer (transferee). However, this notice 
may be sent not more than 30 days after the effective date of the 
transfer of servicing rights if certain emergency business 
situations occur. See 12 CFR Sec.  1024.21(d)(1)(ii). ``Lender'' may 
be substituted for ``present servicer'' where appropriate. These 
instructions should not appear on the format.]
-----------------------------------------------------------------------
PRESENT SERVICER
[Signature not required]
-----------------------------------------------------------------------
Date

[and][or]
-----------------------------------------------------------------------
FUTURE SERVICER
[Signature not required]
-----------------------------------------------------------------------
Date

    Dated: October 24, 2011.
Alastair M. Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the 
Treasury.
[FR Doc. 2011-31722 Filed 12-19-11; 8:45 am]
BILLING CODE 4810-AM-P
```