How Regulations X and Z Impact Real Estate Attorneys

Real estate transactions involving residential lending are regulated to protect consumers from predatory lending practices. The Real Estate Settlement Regulations Procedures Act (RESPA) is an implementation of Regulation X by the US Department of Housing and Urban Development (HUD). The Truth in Lending Act (TILA) is the Federal Reserve Board’s implementation of Regulation Z. Together, TILA and RESPA govern the majority of transactions that a real estate attorney may handle.

While these regulations primarily direct how lenders and settlement agents proceed, the attorney on the matter must also be well-versed in these regulations to ensure each transaction adheres to Federal guidelines. Regulations X and Z have been used to implement RESPA and TILA Real Estate Settlement Procedures Act and the Truth in Lending Act for decades. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended those rules, specifically the rules on the servicers’ obligations.

The Dodd-Frank Act is another federal regulation that directs compliance rules and forms. It further defines rules and timelines including disclosures to consumers when applying for and closing a residential mortgage loan. It restricts banks from trading with their own funds (Volcker Rule), heightens monitoring of systemic risk, tightens regulation of financial products, and provides other consumer protection initiatives.

These disclosures, developed in more recent years, apply to most closed-end consumer credit transactions secured by real property. The Dodd-Frank Act is updated periodically and provides extensive guidance regarding compliance.

Here’s a basic breakdown:

Regulation X

Reg X implements RESPA and covers important topics, including:

1. Prohibition on kickbacks and unearned fees
2. Mortgage origination and servicing disclosures
3. Affiliated business arrangements
4. Title insurance
5. Escrow accounts
6. List of homeownership counseling organizations
7. Mortgage loan servicing requirements
8. Force-placed insurance
9. Mortgage loan servicing error resolution and borrower information requests
10. Loss mitigation

Regulation Z

Reg Z amended the rules governing the scope, timing, content, and format of disclosures to consumers regarding interest rate adjustments to variable-rate transactions, including:

1. Disclosure by lenders of essential loan terms including interest rates, fees, and length of loans
2. Requirement that lenders provide periodic statements for residential mortgage loans
3. Requirement for mortgage servicers to promptly credit the mortgagor's payment(s)
4. Requirement for mortgage servicers to promptly respond to payoff requests

Dodd-Frank

The Dodd-Frank Act specifically clarifies the following:

1. Servicer’s obligations to correct errors asserted by borrowers
2. Servicer’s requirements and obligations to respond when information is requested by borrowers
3. Protections to borrowers in connection with force-placed insurance
4. Servicer’s obligations to provide information about loss mitigation options to delinquent borrowers
5. Establish policies and procedures for providing delinquent borrowers with continuity of contact with servicer personnel
6. Requires servicers to evaluate borrowers’ applications for available loss mitigation options

How the Regulations Affect Real Estate Attorneys

Regulations X and Z impact the servicers of mortgages and home loans, banks and lenders. Real estate attorneys may be affected alongside these regulated entities. If you, the attorney, as part of the representation of your client, are facilitating the closing or reviewing the documents for your client before the closing, pay special attention to the Closing Disclosure Forms and Loan Estimates.

TILA - RESPA Integrated Disclosure (TRID) is supposed to make the loan terms and related costs more transparent for consumers. Real estate attorneys must make sure the documents are delivered and received within the statutory timeframes and that they clearly contain the information required by the laws. More importantly, closing agents must ensure that the client understands their obligations under the loan terms, as well as all aspects of the transaction.

Keeping good notes and records of what was discussed during the life of the transaction and at closing will be helpful if the client returns months or years later with questions regarding the transaction. These tips are general legal good practice, especially in fast-paced, short-lived files such as residential real estate transactions.

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