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RESPA: Where in the Regulation is that Signature Requirement?
HUD has published in final form the revised requirements for exempting referrals to a service provider with which the lender has a controlled business arrangement. In addition, HUD has published a revised form for this notice, which is Appendix D to Part 3500. The revised notice contains space for the customer to sign indicating that s/he has received the disclosure and understands the information in it: "I/we have read this disclosure form, and understand that [referring party] is referring me/us to purchase the above-described settlement services from [provider receiving referrals], and may receive a financial or other benefit of this referral."
In the Federal Register Document, the explanatory report that is published with the new rule, HUD states that obtaining the customer's signature is a requirement. However, the regulation itself does not contain any reference to a signature requirement. It lists the specific elements of information that must be included in the notice and states that the referring party must provide a notice "in the format of the Controlled Business Arrangement Disclosure Statement set forth in Appendix D of this part." This language doesn't make clear whether Appendix D is a model form or a required form.
The Good Faith Estimate model form (Appendix C to the regulation) also contains a space for the applicant's signature. Like the controlled business arrangement, the regulation itself makes no specific mention of a signature requirement. The regulation lists the information that the estimate must include (3500.7(c)) and does not mention a signature requirement. However, the rule for the good faith estimate is slightly different from that in 3500.15 because it describes the Appendix C model form as "a suggested good faith estimate form." 3500.7(d) This appears to mean that the borrower's signature is not a requirement because the creditor can use its own format and nowhere is a signature explicitly required.
There is also some confusion about whether signatures are required on the HUD-1. The regulation explicitly states that the settlement service 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,… the HUD-1 may be utilized… Alternatively the form HUD-1A may be used for these transactions." 3500.8(a) There is no permission here to make adjustments to the HUD-1 or HUD-1A form, although in borrower-only transactions, the settlement agent has a choice of forms.
Now it gets interesting. The model form for the HUD-1A has a signature line, however the model HUD-1 does not. What, then, is the requirement? The needed guidance comes in 3500.9(a)(7) which permits inclusion of a signature line on the HUD-1. Section 3500.9 contains a list of other modifications that may be made to the HUD-1.
As a practical matter, including a signature is good documentation. Moreover, it is usually easy to obtain signatures on a closing document.
Signature requirements are an important technique for ensuring that disclosures are given to consumers. That's generally why these requirements get put in regulations. Many creditors also impose their own signature requirements as a method of documenting their own compliance. This can be a good control to ensure that staff follows procedures. The drawback to this is that internally imposed requirements tend to take on a life of their own. If you have such requirements, be sure that they are understood to be a compliance control and are limited to their intended purpose. You don't want it to end up as a "violation" on your internal audit!
|HUD Booklet ||Within 3 days of taking an application ||No|
|Good Faith Estimate ||Within 3 days of taking an application ||No requirement in Reg. but model form has a signature line|
|Required Service Provider ||Include on Good Faith Estimate or as soon as requirement is known ||No|
|Controlled Business Arrangement Referral ||Before referral is made ||Yes|
|HUD-1 or HUD-1A ||At closing [Note: customer has right to review it one day before closing] ||No|
|Initial Escrow Notice ||On HUD-1 or within 45 days ||No|
|Annual Escrow Statement ||At least every 12 months ||No|
|Short Year Escrow Notice ||Less than 12 months; used to adjust escrow accounting cycle ||No|
|Loan Servicing Disclosure ||When application is taken ||Yes, each applicant must sign|
|Servicing Transfer Notice ||Seller: at least 15 days before effective date of transferPurchaser: at least 15 days after effective date of transfer ||No|
Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 11, 7/96
- Check your loan disclosure forms to determine which forms contain space for the applicant's signature acknowledging receipt of the disclosure.
- Review the HUD-1 and HUD-1A forms your bank is using. Compare them to the model form in Regulation X. If there are any differences, check 3500.9 to determine whether the differences are permitted.
- Review the instructions for lenders and loan clerks, including all procedures, to determine that required signature procedures are explicitly mentioned.
- Audit a sample of loan files to verify that signatures are collected and that the dates with the signatures are appropriate. Be sure to include some files from each branch.
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