In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, a law that sought to overhaul the nation’s financial regulatory system. The sweeping legislation is more than 2,300 pages long and contains hundreds of provisions that will bring the largest overhaul the financial services sector has seen since the Great Depression.
Title X of the Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB). The creation of a new regulatory agency to oversee RESPA was a significant change. It was not, however, the only change Dodd-Frank made to RESPA. It also contained a number of RESPA amendments as illustrated below.
Changes to RESPA
Section 1061(b)(7) transfers RESPA’s regulatory authority from the U.S. Department of Housing and Urban Development (HUD) to the CFPB.
Section 1463(a) of the Dodd-Frank Act amended RESPA by setting forth a number of servicer prohibitions. According to the act, servicers of federally related mortgage loans will not:
- Obtain force-placed hazard insurance unless there is a reasonable basis to believe the borrower has failed to comply with the loan contract’s requirements to maintain property insurance;
- Charge fees for responding to valid qualified written requests (QWR);
- Fail to take timely action to respond to a borrower’s requests to correct errors relating to allocation of payments, final balance for purposes of paying off the loan, or avoiding foreclosure, or other standard servicer’s duties;
- Fail to respond within 10 business days to a request from a borrower to provide the identity, address and other relevant contact information about the owner or assignee of the loan; or
- Fail to comply with any other regulation mandated by the CFPB.
Under Section 1463, mortgage loan servicers must meet certain criteria in order to obtain force-placed insurance. They must provide a written notice to the borrower before placing the force-placed insurance on the property. The notice must contain specific information, which the act lays out.
Section 1463 of the Dodd-Frank Act amended RESPA Section 6 by adding new subsections.
Section 6(K)(1)(A) provides that “A servicer cannot obtain force-placed hazard insurance unless there is a reasonable basis to believe the borrower has failed to comply with the loan contract’s requirements to maintain property insurance.”
Section 6(K)(2) defines force-placed insurance as “hazard insurance coverage obtained by a servicer of a federally related mortgage when the borrower has failed to maintain or renew hazard insurance on such property as required of the borrower under the terms of the mortgage.”
Section 6(l) provides the factors that must be met before a servicer may obtain force-placed insurance. The borrower must receive written notice about the insurance. The servicer must also send a second written notice at least 30 days after mailing the first notice. Lastly, the servicer must not have received information from the borrower that hazard insurance had been secured. The borrower may demonstrate that hazard insurance exists by sending written confirmation to the servicer. If insurance is already in place, the servicer must terminate the force-placed insurance and refund the borrower the amount of the force-placed insurance paid when other insurance was in place.
The law also provides that all charges related to force-placed insurance must be bona fide and reasonable.
Penalty amounts and response times
Dodd-Frank also increases penalty amounts for RESPA violations and decreases response times to QWRs. RESPA currently states that a servicer must acknowledge a QWR in 20 days and provide a detailed response to the QWR in 60 days. Section 1463(c) of the Dodd-Frank Act mandates that the 20 days be decreased to five and the 60 days be decreased to 30. However, Dodd-Frank allows for a 15-day extension of the 30 days detailed response time if the servicer notifies the borrower of the extension and the reason for the delay.
The act also requires mortgage loan servicers to respond within 10 business days to a request from a borrower to provide the identity, address, and other relevant contact information about the owner or assignee of the loan.
Section 1463(b) amends RESPA Section 2605(f), increasing the penalty amounts for a RESPA violation. RESPA Section 2605(f)(1)(B) and (2)(B) allow $1,000 in statutory damages for a “pattern or practice of noncompliance.” Dodd-Frank Section 1463(b) increases that amount to $2,000.
RESPA Section 2605(f)(2)(B)(i) states the total amount of statutory damages in a class action may not exceed the lesser of $500,000 or one percent of the net worth of the servicer. Dodd-Frank Section 1463(b) increases the $500,000 to $1 million.
Administration of escrow accounts
Section 1463(d) of the Dodd-Frank Act amends RESPA Section 2605(g), which pertains to the administration of escrow accounts. Dodd-Frank adds new language stating that the servicer has 20 days after a loan is paid off to return the balance in the escrow account to the borrower. The lender also has the option of crediting that amount for a new mortgage loan to the borrower with the same lender.
Uniform settlement statement
Section 1475 of the Dodd-Frank Act amends RESPA Section 2603, which pertains to the uniform settlement statement. The act adds language stating that the statement may include a disclosure of a fee paid directly to an appraisal management company (AMC) and the administration fee charged by the company, when the appraisal is conducted by an AMC.
Mortgage information booklet
Dodd-Frank Section 1450 amends RESPA Section 2604 by updating the contents of the mortgage information booklet required under RESPA and when it should be distributed to consumers.