RESPA's purpose, the loans it covers, and the definition of mortgage broker

Why RESPA exists

The Real Estate Settlement Procedures Act (RESPA), implemented by Regulation X, protects consumers in the residential settlement process. Its purposes include timely advance disclosure of settlement costs, eliminating kickbacks and referral fees that unnecessarily increase settlement costs, reducing required escrow deposits, and modernizing land-title recordkeeping. It does not promise the lowest interest rate. See 12 U.S.C. § 2601.

Which loans qualify?

Start with a federally related mortgage loan: a first or subordinate lien on qualifying one-to-four-family residential real property, together with a qualifying lender or federal connection. Refinances can qualify, as can individual condominium and cooperative units and qualifying manufactured-home transactions. A government guarantee is not necessary: a lender whose deposits are federally insured can supply the connection. Other routes include federal assistance, intended sale to specified housing-market institutions, and a qualifying creditor making or investing in more than $1 million in residential real estate loans annually. See 12 U.S.C. § 2602 and 12 C.F.R. § 1024.2.

Then check exemptions under 12 C.F.R. § 1024.5. Credit primarily for business, commercial, or agricultural purposes is exempt. Temporary financing generally is exempt, but construction financing that converts to permanent financing with the same lender is not exempt on that basis. Bridge loans are exempt. Vacant-land loans generally are exempt unless proceeds will fund construction or placement of a structure or manufactured home within two years. An assumption requiring and receiving lender approval is covered; an assumption for which the lender has no express approval right is exempt. A conversion permitted by the original instrument without a new note is exempt.

Coverage is not a promise that every Regulation X provision applies: some transactions have partial exemptions, including loans subject to the integrated disclosure requirements.

Who is the mortgage broker?

Under 12 C.F.R. § 1024.2, a mortgage broker is a person other than a lender's employee who provides origination services and acts between borrower and lender in a federally related mortgage loan. Origination services include applications, processing, underwriting, funding, and related administration. A broker can close in its own name in a table-funded transaction and still be a broker. In that arrangement, the lender is the person to whom the obligation is initially assigned at or after settlement. Table-funded broker transactions are not bona fide secondary-market transfers. A genuine secondary-market transfer generally is exempt, subject to the servicing exception in 12 C.F.R. § 1024.5(b)(7).