RESPA for physician loans: relationship requirements, affiliated title and escrow waivers

RESPA does not stop a bank from requiring a checking account for its doctor loan, but it does regulate referral fees, affiliated settlement providers and escrow accounting on that same loan. Those are the provisions to check.

A deposit account is not a settlement service

The most common question about physician programs is whether the bank can condition the loan on opening a checking account with direct deposit. RESPA restricts “required use” of affiliated settlement services — title, appraisal, escrow, closing, survey, homeowners insurance placed at closing. A deposit relationship is a banking product, not a settlement service, so the requirement is permitted, and Reg Z separately allows a rate discount tied to it as long as it is disclosed. Where the line gets crossed is when the same lender also steers you to its affiliated title company or insurance agency with a fee or a worse rate if you decline. That is the required-use prohibition, and it applies in full to a portfolio jumbo loan from an FDIC-insured bank, which is a federally related mortgage loan.

The affiliated business disclosure, and when to expect it

If the bank refers you to a title agency, an insurance agency or a closing attorney it owns or shares ownership with, it must hand you the affiliated business arrangement disclosure at or before the referral, listing the ownership interest and an estimate of the charges, and stating that you are free to shop. For physicians relocating across state lines, the referral usually arrives by email from the loan officer with the title order already opened; read the disclosure before the order is placed, because the LE tolerance rules treat affiliate title charges as zero-tolerance items that cannot rise later, which is one reason lenders like to lock them in early.

Who may be paid for sending you to the bank

Hospital recruiters, physician relocation services and medical-society “preferred lender” lists are the referral channels for this product. Section 8 of RESPA bars anyone from giving or receiving a thing of value for referring settlement-service business, and a mortgage loan is itself a settlement service. A medical association may accept a flat sponsorship that is not tied to loans closed; a recruiter may not accept a per-loan payment. If a referral source cannot say how it is compensated, assume the relationship is priced into your loan and get a second quote outside the channel.

Escrow accounts: waived, required or mis-sized

Many doctor loans waive tax and insurance escrows, often for a fee or a pricing adjustment. Where an escrow account does exist, Reg X limits the cushion to one sixth of annual disbursements, requires an initial escrow statement within 45 days of closing and an annual analysis, and requires refunds of surpluses above $50. With a $20,000 property tax bill, a mis-sized cushion is real money. Note the interaction with flood insurance: even on a loan with waived escrows, a regulated lender must generally escrow flood premiums when the home sits in a special flood hazard area.

Banks market physician loans as loans they keep, but servicing may still move to a subservicer. RESPA requires a transfer notice at least 15 days before the effective date and a 60-day grace period during which a payment sent to the old servicer cannot be treated as late.

What to check

• Separate the deposit requirement (permitted) from any affiliated title, insurance or closing requirement (prohibited as required use) and decline the latter freely.
• Ask for the affiliated business disclosure before any title or insurance order is placed, and compare the affiliate’s quote with an independent one.
• If a recruiter, relocation firm or association referred you, ask how that referral is compensated; per-loan payments would be a Section 8 problem.
• If escrows are waived, plan the tax payments yourself; if they exist, check the initial escrow statement against the one-sixth cushion limit.

Frequently asked questions

Can a bank require me to open a checking account to get a doctor loan?

Generally yes. RESPA’s required-use rule covers affiliated settlement services such as title or insurance, not deposit products. The bank may condition the program or a rate discount on an account with direct deposit, provided the terms are disclosed. It may not, however, require you to use its affiliated title company or penalize you for shopping elsewhere.

Does RESPA apply to a jumbo physician mortgage held by the bank?

Yes. RESPA applies to federally related mortgage loans, which include first liens on a one-to-four-family residence made by a federally insured depository institution, regardless of loan size and regardless of whether the bank keeps the loan. The business-purpose and vacant-land exemptions do not cover a primary-residence purchase.

The rule in full: Real Estate Settlement Procedures Act (RESPA) and Regulation X. The borrower profile: Physicians and licensed professionals. Related guides: Jumbo loans: requirements, rates and how they differ from conforming · PMI for first-time buyers: what it costs and how to get rid of 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 physicians and licensed professionals

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 · Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Heroes · Rural buyers · Condo & second home · Refinancing