FCA Info Memo - RESPA Amendments

Informational Memorandum
Subject:	RESPA Amendments
Date of Memorandum:	03/18/1997
Expiration Date:
Office:	OE
Signed By:	Siefkes, Roger for R.Smith
FCA Contact Person:	Holland, Tom
Contact Phone:	703-883-4484
List of Attachments:	Five Separate Issuances

March 18, 1997

To: The Chief Executive Officer
All Farm Credit System Institutions

From: Roland E. Smith, Director /s/ Roger G. Siefkes for
Office of Examination

Subject: Informational Memorandum--Real Estate Settlement Procedures Act Amendments

The Farm Credit Administration (FCA) is distributing five separate issuances from the Department of Housing and Urban Development (HUD) that address regulatory amendments to Regulation X, which implements the Real Estate Settlement and Procedures Act of 1974 (RESPA). The purpose of RESPA is to provide borrowers pertinent and timely disclosures regarding the nature and costs of real estate settlements.

The amendments primarily address employer-employee payments, computer loan origination services, other related issues, and reflect statutory changes that occurred in 1996 that impacted certain features of the covered subjects. Although the following summaries highlight the general content of each issuance, you should refer to the attached Federal Register (FR) copies to independently determine how the changes impact your operations.

A. 61 FR 29238, June 7, 1996, Final Rule. This rule was to have become effective October 7, 1996 (see discussion below for changes to the effective date). Among other things, the rule:

1. Withdrew the general RESPA exemption for an employer's payments to its own employees for referral activities.

2. Introduced more narrow exemptions for an employer's payments to its managerial employees and to employees who don't perform settlement services in any transaction.

3. Added exemption language clarifying that an employer's payments to "bona fide" employees for generating business for the employer were permissible.

4. Revised certain controlled business disclosure requirements.

5. Withdrew exemptions for payments by borrowers for computer loan origination (CLO) services.

6. Issued three HUD policy statements dealing with CLO systems, sham controlled business arrangements, and office space, lockouts, and retaliation.

B. 61 FR 41944, August 12, 1996, Correction and Revision of 61 FR 29238. This included a technical revision to Appendix D, "Controlled Business Arrangement Disclosure Statement Format," and a correction to the "Paperwork Reduction Act Statement" in the preamble to the June 7, 1996 rule.

C. 61 FR 51782, October 4, 1996, Notice of Delay of Effectiveness. This issuance notified readers that the "Economic Growth and Regulatory Paperwork Reduction Act of 1996" (signed into law on September 30, 1996) delayed the effective date of the June 7, 1996 rule (originally scheduled for October 7, 1996). This issuance indicated an effective time schedule would be provided within 30 days, noted that the entire June 7, 1996 rule was delayed, but noted that Appendix D, "Controlled Business Arrangement Disclosure Statement Format," that was issued on August 12, 1996, could be used on an optional basis.

D. 61 FR 56624, November 4, 1996, Notice of Time Schedule for Establishing Effective Date of Rule. This issuance notified readers that, within 15 days, HUD would publish a final rule that would make effective those provisions of the June 7, 1996 rule that were delayed by the "Economic Growth and Regulatory Paperwork Reduction Act of 1996."

E. 61 FR 58472, November 15, 1996, Final Rule. This rule implements parts of the June 7, 1996 rule to be effective January 14, 1997. Among other things, this rule:

1. Withdrew the CLO exemption that existed at 24 CFR 3500.14(g)(1)(viii), and eliminated the CLO Fee Disclosure Form (Appendix E).

2. Noted that general employer referral payments to its employees remained permissible.

3. Noted that the more narrowly defined employer-employee payments identified in the June 7, 1996 rule remained delayed, but would become effective on or soon after the legally permissible date (as defined in the "Economic Growth and Regulatory Paperwork Reduction Act of 1996") of July 31, 1997. The delayed payment exemptions include:

a. the exemption for payments to managerial employees,

b. the exemption for payments to employees who don't perform settlement services in any transaction, and

c. the clarification that employer payments to "bona fide" employees for generating business for the employer are permissible.

4. Made effective the "Controlled Business Arrangement Disclosure Statement Format" published as Appendix D on August 12, 1996,

but

redesignated it as "Affiliated Business Arrangement Disclosure Statement Format."

5. Amended RESPA to conform its exemptions for business, commercial, and agricultural loans to the exemptions of such loans under the Truth in Lending Act (TILA). The changes:

a. eliminated RESPA coverage for 1-4 family residential properties used by individuals for rental purposes;

b. referred to TILA for interpretation of applicability of coverage for business, commercial, or agricultural purpose loans; and

c. withdrew RESPA Interpretive Rule 1995-1, published February 27, 1995, (60 FR 10762) that affirmed RESPA coverage for 1-4 family residential rental properties.

6. Deleted a definition of "Federally related mortgage loan" that had been published on March 26, 1996 (61 FR 13232), reverting to the definition that existed prior to that issuance.

7. Amended Appendix B "Illustrations of Requirements of RESPA."

8. Removed Appendix E "CLO Fee Disclosure."

9. Redesignated Appendix F, "Arithmetic Steps" as Appendix E.

10. Removed Appendix N "HUD-1 Aggregate Accounting Adjustment Example."

The FCA strongly encourages the appropriate members of your staff to become familiar with applicable portions of these documents. If you have questions regarding this document or similar previous documents, please call Jerry Erickson in the Office of Examination at (703) 883-4483.

Attachments