Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video discusses determining whether or not your loan is subject to the Real Estate Settlement Procedures Act (RESPA). For course credit toward renewing your NMLS license, visit

Changed circumstances

In 2015, the Truth in Lending Act (TILA) / Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID) rule replaced the Good Faith Estimate (GFE) and initial TILA Disclosure with the Loan Estimate form for most closed-end consumer mortgages secured by real property. It also replaced the final TILA Disclosure and HUD-1 Settlement Statement with the Closing Disclosure. [12 Code of Federal Regulations §1026.19(e)-(f)]

Part of the reason for the change was to clarify the repetitive information on the multiple disclosures given to mortgage consumers. The other reason was to curb unethical practices that some loan originators practiced under the less stringent GFE disclosure rules.

Prior to the 2010 changes in the GFE disclosure rules, loan originators were able to simply redisclose the GFE without much restraint on what was able to change from the initial disclosure to the revised disclosure. In some cases, loan originators lowballed their cost estimates for business, and then ratcheted up the costs after the applicant was well into the process: a classic bait-and-switch. This misuse of the GFE completely circumvented its purpose of providing mortgage consumers with information used to shop lenders and mortgage products.

United States Code under Regulation X requires that each person who makes a federally related mortgage loan shall disclose to each person who applies for the loan, at the time of application for the loan, whether the servicing of the loan may be assigned, sold or transferred to any other person at any other time while the loan is outstanding. [12 CFR § 1024.33(a)]

In 2010, the Department of Housing and Urban Development (HUD), the government agency in charge of Reg X at the time, instituted new regulations which restricted how much a GFE could change from initial disclosure to revision.

Under the 2010 GFE rules, the terms disclosed in the GFE had to be available for at least ten business days from when the GFE is provided. The following charges were exempt from this requirement:

  • the interest rate;
  • charges and terms dependent on the interest rate;
  • the adjusted origination charges; and
  • per diem interest. [12 CFR §1024.7(c)]

At settlement, the following amounts included on the GFE could not change:

  • the origination charge;
  • if the interest rate was locked, the credit or charge for the interest rate chosen;
  • if the interest rate was locked, the adjusted origination charge; and
  • transfer taxes. [12 CFR §1024.7(e)(1)]

The loan originator was bound, within the tolerances listed above, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE was provided to the borrower. The following were allowable reasons for revising the GFE:

  • changed circumstances affecting settlement costs;
  • changed circumstances affecting the loan;
  • borrower-requested changes; or
  • a lock or re-lock of the interest rate on the loan resulting in a change in:
    • the charge or credit for the interest rate chosen;
    • the adjusted origination charges;
    • per diem interest; or
    • loan terms related to the interest rate. [12 CFR §1024.7(f)]

Revised GFEs were to be provided to the borrower within three business days of:

  • receiving the information sufficient to establish changed circumstances, in the case of changed circumstances;
  • the borrower’s request, in the case of a borrower-requested change; and
  • the interest rate lock, in the case of a lock or re-lock. [12 CFR §1024.7(f)]

For transactions in which the interest rate is locked for a specific period of time, the creditor must provide the rate lock disclosure in addition to a statement that the interest rate, any points, and any lender credits may change unless the interest rate has been locked, and the date and time (including the applicable time zone) at which estimated closing costs expire. [12 CFR §1026.37(a)(13)(ii)]

The reason for providing a revised GFE had to be documented by the loan originator, and retained for no fewer than three years after settlement. A loan originator could cure the tolerance violation by reimbursing the borrower any excess fees within 30 calendar days after settlement. [12 CFR §1024.7(f), (i)]


However, the new TRID disclosures compel disclosure of the Loan Estimate as soon as six pieces of the borrower’s information are known:

  • the consumer’s name;
  • the consumer’s income;
  • the consumer’s Social Security number, to obtain a credit report;
  • the property address;
  • an estimate of the value of the property; and
  • the mortgage loan amount sought. [12 CFR §1026.2(a)(3)]

Thus, while a loan originator can still control when they ask for these pieces of information, as soon as they have all six pieces, they are required to provide the Loan Estimate. From that point, Reg Z sets forth specific types of changes which allow for a revised Loan Estimate.

Note, a creditor is prohibited from requiring a consumer to submit documents verifying information related to the consumer’s application before providing a Loan Estimate of the required Reg Z disclosures. [12 CFR § 1026.19(e)(2)(iii)]

Under Reg Z’s Loan Estimate, changed circumstances include:

  • an extraordinary event beyond the control of any interested party, e.g., war or natural disaster;
  • an unexpected event specific to the consumer or transaction, e.g., the creditor provides an estimate of title insurance costs, but the title insurer goes out of business;
  • a change or inaccuracy in the information the consumer provided, upon which the creditor relied when preparing the Loan Estimate form, e.g., the consumer indicated their income was $90,000 but an underwriter determines the income is only $80,000; and
  • new information specific to the consumer or transaction, e.g., a boundary claim is filed against the property, affecting its value. [12 CFR §1026.19(e)(3)(iv)(A)]

If a changed circumstance affects settlement costs, tolerances, there are borrower-requested changes, or there are interest rate dependent charges and terms, the loan originator must provide a revised Loan Estimate within 3 days of receiving information sufficient to establish changed circumstances. [12 CFR § 1024.7]

A lender shall provide all applicants for a federally related mortgage loan with a loan estimate of the amount of, or range of charges for the specific settlement services the borrower is likely to incur in connection with the settlement within three days from the date of the loan application. [12 CFR § 1024.7(a)] [12 § CFR 1026.19(f)]

A revised Loan Estimate may only be provided if:

  • a changed circumstance affects the consumer’s eligibility for the terms applied for, or the value of the property;
  • the consumer requests a change to the credit terms;
  • the interest rate was not locked when the Loan Estimate was provided, and locking the rate causes the points or lender credits to change;
  • the consumer indicates the intent to proceed with the transaction more than ten business days after the Loan Estimate was provided; or
  • the loan is a new construction loan, and settlement is delayed more than 60 calendar days, as long as the original Loan Estimate states that the creditor may issue a revised disclosure 60 days before loan consummation. [12 CFR §1026.19(e)(3)(iv)]

Creditors may not issue revisions to a Loan Estimate due to technical errors, miscalculations or underestimations of charges — whether the creditor is making the disclosure, or a mortgage broker is making a disclosure on the creditor’s behalf. [12 CFR §1026.19(e)(3)(iv)]

Items that were disclosed on the Loan Estimate (LE) under “Services You Can Shop For” are also to be disclosed under “Services Borrower Did Not Shop For” since the borrower is provided a written list of settlement service providers and the borrower selects a service provider from that written list. [12 CFR § 1026.38(f)(2)]

The lender is required to provide accurate closing cost details and information for both these sections. [12 CFR § 1026.38(f)(3)]

Credits are required to provide applicants with a Loan Estimate disclosing the amount of or range of charges the applicant in likely to incur at settlement within 3 days from the date of application. [12 CFR §1026.19(e)]

Revised Loan Estimates must be given to the borrower no later than four business days before consummation, or placed in mail no later than three business days after the creditor receives information sufficient to justify a revision. [12 CFR §1029.19(e)(4)(ii)]

Additionally, seven business days must pass between delivering or mailing the Loan Estimate (or revised Loan Estimate) before the loan may close. [12 CFR §1029.19(e)(1)(iii)(B)]

If the amounts paid by the borrower at consummation exceed the amounts in the Loan Estimate or the set tolerances, the excess is to be refunded to the borrower within 60 days of consummation. If the creditor cures a tolerance violation by providing a refund to the consumer, the creditor must deliver or place in the mail a corrected Closing Disclosure that reflects the refund no later than 60 calendar days after consummation. [12 CFR §1026.19(f)(2)(v)]

Kickbacks and unearned fees

Kickbacks are fees improperly paid to transaction agents who render no service beyond the act of referring when they are already providing another service in a transaction for a fee.

Kickbacks to brokers, in the form of referral or split fees or other indirect benefits (e.g., space rent, paid vacations, dividends, equipment) used to steer or capture business, navigate the homebuyer away from legitimate competition. These are the activities Reg X seeks to prevent, by prohibiting:

  • fees or other financial/economic benefits for referring the homebuyer or seller to a service provider such as a mortgage lender, MLO, escrow or title company; and
  • split fees between providers, other than for valuable provider services actually performed for the share of the fee received. [12 CFR §1024.14(b)-(c)]

Duplicate fees or charges for which no nominal services are performed constitute an unearned fee. High fees alone are not proof of a RESPA violation, but the Consumer Financial Protection Bureau (CFPB) will investigate high fees to determine when they are the result of an unlawful referral or kickback scheme. The value of any additional business garnered from the referral scheme is not a consideration when determining the kickback’s prohibition. [12 CFR §1024.14]

No person in a transaction which includes the origination of a consumer mortgage, including brokers, agents or other third-party service providers, may give or accept a kickback or any other thing of value for advising a homebuyer, seller or owner participating in the transaction to employ a particular service provider pursuant to an agreement or understanding, oral or otherwise. [12 CFR § 1024.14]

Note that the act of referring is not a service, and no service provider, such as a transaction agent, may collect a fee for a referral. Additionally, lenders are required to provide an Affiliated Business Arrangement disclosure form at the time of referral, or at the time of loan application, that discloses the ownership and financial interest between the parties and provides an estimate of the charges generally made by the service provider. [12 CFR § 1024.15(b)(1)]

An exception exists for broker solicitation of sellers and buyers as clients for transactions that may include a consumer mortgage origination. Fees paid by a broker for referring buyers and sellers to a real estate broker or agent are allowable when paid by a real estate broker to:

  • one of their employees, such as a finder they retain; or
  • another real estate broker (whose agent may have referred a prospective client to the broker paying the referral fee). [12 CFR §1024.14]

Another type of unlawful kickback comes in the form of an otherwise legitimate settlement service charge, when it is split between:

  • a person who provides a specific closing settlement service, say, title insurance, escrow or an MLO service; and
  • a person who does not render any significant part of the service provider’s services, say, a real estate broker or their agents.

The split of a settlement service charge with any person who has not provided a significant portion of the other provider’s service in exchange for the split is unlawful.

Companies engaging in unlawful kickbacks and unearned fees may result in a referral to the Non-Depository Supervisory Committee for a multi-state enforcement action.