Checking RESPA Answers

Filling out the Good Faith Estimate and the HUD-1s is a lot like math exercises in elementary school. The difference is that if you get a less than perfect paper in elementary school, you get a lesser grade. If you prepare a less than perfect HUD-1, you get a violation.

Mistakes happen. In school, it was only the class nerd who got straight "A"s. Now we all need to work to that standard. We deal with real life and there will be an occasional mistake. The challenge for compliance management is twofold: prevent as many mistakes as possible and find and fix the mistakes that happen anyway.

With RESPA, the industry has less than clear guidance but severe consequences for mistakes and errors of interpretation. This means that procedures need to be clear and precise. Training has to be excellent. And it also means that, like the children of Lake Wobegon, all lending staff should be above average.

Training and procedures are essential, but so is the tail end of the process. The RESPA compliance program must be wrapped up with good monitoring and audit techniques that identify and catch the types of mistakes that happen and the practices that HUD thinkers and examiners are considering to be violations.

Monitoring and auditing for mistakes (or violations) on the GFE and the HUD-1 must go beyond a review of information on the face of the document. The compliance accuracy of a HUD-1 depends on more than whether the clerical work is correct. It depends on whether the correct information was picked up from source documents. Monitoring and audits should check the source documents to verify the accuracy of the disclosures. In addition, there should be regular reviews of market costs to verify that the GFE is in fact made in good faith and that settlement service providers are charging fair prices.

In your compliance monitoring and auditing of RESPA disclosure requirements on GFEs and HUD-1s, consider including the following steps.

Compliance Monitoring For RESPA Violations

Maintain a settlement service cost file. Have designated lending staff review settlement service costs on a quarterly or semi-annual basis. This should include a review of prices charged by settlement service providers that you use as well as several other settlement service providers in the same market. In your audit, verify that the information is updated regularly.
In reviewing GFE's for accuracy, compare costs disclosed on the GFE to the costs identified for the same settlement service in that market. Frequent deviations on GFEs from documented costs on the HUD-1 mean that something is getting out of line. Either the GFE figures should be updated or you should be shopping for a new, less expensive service provider.
Compare costs disclosed, line by line, to the final costs entered on the HUD-1. If you find a pattern of deviations for any line item, take steps to correct the entry on future GFEs. This change may be the result of market cost increases that should be reflected on the GFE. Or the change may be the result of a service provider who charges more than the going market rate. Identify the cause and take steps to correct it.
On HUD-1's, identify the charges for specific services. Pull original bills and/or payment records to service providers, including credit bureaus, appraisers, and any other services contracted by the financial institution.
Verify public fees and charges, including recording fees, filing fees, and taxes. For taxes, verify billing and payment dates. An annual call to local government offices should provide you with this information.
Review the procedure for purchasing and placing title insurance. Compare the bills with costs disclosed on both the GFEs and the HUD-1s.
Review GFEs to be sure that all required settlement service providers are identified and that the disclosures are complete. Compare the costs disclosed on the GFEs with the final bills from those required service providers.