RESPA when you buy again: servicing transfers, escrow cushions and affiliated title

Expect your conforming loan to be sold and serviced elsewhere within months; RESPA limits the escrow cushion to two months, requires transfer notices, and bans the referral fees hidden inside “preferred lender” arrangements.

The transfer you can almost count on

Conforming loans are built to be sold. The originator delivers the note to Fannie Mae or Freddie Mac and often sells the servicing rights separately, so a move-up borrower routinely mails the second or third payment to a company that did not exist on the closing documents. Regulation X requires the old servicer to notify you at least 15 days before the transfer date and the new one within 15 days after (a combined notice is allowed), and payments sent to the old address within 60 days of the transfer cannot be treated as late. The Servicing Disclosure Statement you signed at application tells you whether the lender intends to keep servicing; a disclosure that says “we may assign, sell or transfer” is the norm, not a warning sign.

Escrow on a bigger house

Property taxes on a move-up purchase are frequently reassessed after the sale, and the initial escrow account is set up on the seller’s old bill. RESPA caps the cushion at one-sixth of annual disbursements — two months — and requires an initial escrow statement within 45 days of settlement and an annual analysis after that. When the reassessment arrives, the shortage is spread over 12 months or more, which is why the payment on a conventional loan can jump in year two even with a fixed rate. Ask for the escrow analysis method and estimate the post-sale tax bill yourself; the escrow waiver many lenders offer at 80% LTV or lower usually carries a small pricing adjustment.

Builder and brokerage “preferred lenders”

Repeat buyers purchasing new construction often face an incentive — closing-cost credits or a rate buydown — conditioned on using the builder’s affiliated lender and title company. Section 8 of RESPA does not ban the incentive, but it requires an Affiliated Business Arrangement disclosure showing the ownership relationship and typical charges, and it prohibits requiring you to use a particular title agent (lender-required title is a common exception area; state rules vary). Compare the affiliated lender’s Loan Estimate net of the credit against an outside lender’s; a credit that is offset by a higher rate or inflated title fees is the classic structure regulators look at.

Kickbacks and the fees you can question

Any fee for which no service is performed, and any payment for a referral, is prohibited. On a conventional loan the usual suspects are marketing-services agreements between real estate brokerages and lenders and duplicated processing or “administration” charges. You can request an itemized statement of settlement charges, and the Closing Disclosure must match what was actually paid.

What to check

• Read the Servicing Disclosure Statement at application and keep both transfer notices; a misdirected payment in the first 60 days cannot be reported late.
• Estimate the reassessed property tax on the new home before closing — the escrow cushion is capped at two months, so a shortage shows up in year two.
• Demand the Affiliated Business Arrangement disclosure when a builder or brokerage incentive is tied to “their” lender or title company.
• An escrow waiver at 80% LTV or below is usually available on a conforming loan, often for a small price adjustment.

Frequently asked questions

My conforming loan was transferred twice in a year — is that legal?

Yes, and it is common for loans sold to Fannie Mae or Freddie Mac. Each transfer requires notices from both servicers within the 15-day windows, and the terms of your note cannot change. What you should check is that escrow balances and payment history carried over correctly, and that any payment mailed during the 60-day grace window was credited.

Can a builder make its incentive depend on using its own lender?

Generally it can condition a credit on using an affiliated lender, provided the affiliated business disclosure is given and the lender is not required to use a specific title company you pay for. What RESPA forbids is a payment for the referral itself. Compare the affiliated offer against an outside Loan Estimate, credit included.

The rule in full: Real Estate Settlement Procedures Act (RESPA) and Regulation X. The borrower profile: Conventional loan borrowers. Related guides: Conventional loan requirements: credit, down payment, DTI, reserves, property · Conforming loan limits: how the FHFA number works and what happens above it · Closing costs explained: what is negotiable, what is not · Earnest money explained: how much, who holds it, and how you lose it.

Other federal rules for conventional loan borrowers

TILA / Reg Z · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · HPA / PMI · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation

RESPA for other borrowers

First-time buyers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Rural buyers · Condo & second home · Refinancing