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Question: We continually hear about the importance of the “Settlement Service Provider” in originating residential mortgage loans. But it seems sometimes that almost everybody involved in a loan transaction is such a company. Is there a list that we can go by to determine who is and who is not a Settlement Service Provider?
There is a list of sorts, in RESPA, but it is not meant to be exhaustive. RESPA provides quite a broad definition of a settlement service, starting with the meaning of a “Settlement Service.” That is, whoever provides a settlement service is obviously a settlement service provider. With regards to your language of “loan transaction,” in context, this is a process, called a “settlement,” or a “closing,” or “escrow,” that has procedures for executing legally binding documents relating to a lien on a property that is subject to a federally related mortgage loan.
Any provider of a settlement service is, mutatis mutandis, a settlement service provider. The following list is a guide, certainly not meant to be exclusive, that forms a basis for RESPA’s broad way of defining a settlement service. [24 CFR § 3500.2(b)]
1. Origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of such loans);
2. Rendering of services by a mortgage broker (including counseling, taking of applications, obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender);
3. Provision of any services related to the origination, processing or funding of a federally related mortgage loan;
4. Provision of title services, including title searches, title examinations, abstract preparation, insurability determinations, and the issuance of title commitments and title insurance policies;
5. Rendering of services by an attorney;
6. Preparation of documents, including notarization, delivery, and recordation;
7. Rendering of credit reports and appraisals;
8.Rendering of inspections, including inspections required by applicable law or any inspections required by the sales contract or mortgage documents prior to transfer of title;
9. Conducting of settlement by a settlement agent and any related services;
10. Provision of services involving mortgage insurance;
11. Provision of services involving hazard, flood, or other casualty insurance or homeowner's warranties;
12. Provision of services involving mortgage life, disability, or similar insurance designed to pay a mortgage loan upon disability or death of a borrower, but only if such insurance is required by the lender as a condition of the loan;
13. Provision of services involving real property taxes or any other assessments or charges on the real property;
14. Rendering of services by a real estate agent or real estate broker; and
15. Provision of any other services for which a settlement service provider requires a borrower or seller to pay.
Jonathan Foxx is president and managing director of Lenders Compliance Group and Brokers Compliance Group, mortgage risk management firms devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or e-mail at firstname.lastname@example.org.