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Thursday, October 16, 2014

Defining a Settlement Service Provider

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
President & Managing Director
Lenders Compliance Group