3.3- What are the prohibitions, limitations and exemptions set by RESPA


RESPA is applicable to all "Federally Related Mortgage Loans". These are (other than temporary loans), including refinancings, that satisfy the two criteria:

(1) The loan is secured by a first or subordinate lien on residential real property, located within a State, upon which either:

(a) A one-to-four family structure is located or is to be constructed using proceeds of the loan (including individual units of condominiums and cooperatives); or

(b) A manufactured home is located or is to be constructed using proceeds of the loan.

(2) The loan falls within one of the following categories:

(a) Loan made by a lender, creditor, dealer
(b) Loans made or insured by an agency of the federal government
(c) Loans made in connection with a housing or urban development program administered by an agency of the federal government
(d) Loans made and intended to be sold by the originating lender or creditor to FNMA. GNMA, or FHLMC (or its successors)
(e) Loans that are the subject of a home equity conversion mortgage or reverse mortgage issued by a lender or creditor subject to the regulation.

Certain transactions are exempt from coverage:

(1) A Loan primarily for business, commercial or agricultural purposes

(2) A temporary loan such as a construction loan unless the loan is used as or may be converted to permanent financing by the same financial institution or is used to finance transfer of title to the first user of the property. If the lender issues a commitment for permanent financing, it is covered by the regulation.

(3) Any construction loan with a term of two years or more is covered by the regulation, unless it is made to a bona fide contractor. Bridge or Swing loans are not covered by the regulation.

(4) A loan secured by vacant or unimproved property where n proceeds of the loan will be used to construct a one-to-four family residential structure. If the proceeds will be used to locate a manufactured home or construct a structure within two years from the date of settlement, the loan is covered.

(5) An assumption, unless the mortgage instruments require lender approval for the assumption and the lender approves the assumption

(6) A conversion of a loan to different terms which 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) A bona fide transfer of a loan obligation in the secondary market however, the mortgage servicing requirement still apply. Mortgage Broker transactions that are table funded (the loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds) are not secondary market transactions and therefore are covered by RESPA. Similarly, neither the creation of a dealer loan or consumer credit contract, nor the first assignment of such loan or contract to a lender, is a secondary market transaction.


There are also partial exemptions for certain Mortgage Loans. Most closed end mortgage loans are exempt from the requirement to provide the Good Faith Estimate, HUD-1 settlement statement, and application servicing disclosure requirements. Instead, these loans are subject to disclosure, timing, and other requirements under TILA and Regulation Z. Specifically, the aforementioned provisions do not apply to a federally related mortgage loan that:

(1) Is subject to the special disclosure (TILA-RESPA Integrated Disclosure) requirements for certain consumer credit transactions secured by real property set forth in Regulation Z.

(2) Is subject to the partial exemption, i.e certain no-interest loans secured by subordinate liens made for the purpose of down payment or similar home buyer assistance, property rehabilitation, energy efficiency or foreclosure avoidance or prevention.