Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
RESPA also prohibits certain practices that increase the cost of settlement services. Section 8 of RESPA prohibits a person from giving or accepting any thing of value for referrals of settlement service business related to a federally related mortgage loan. It also prohibits a person from giving or accepting any part of a charge for services that are not performed. Section 9 of RESPA prohibits home sellers from requiring home buyers to purchase title insurance from a particular company.
RESPA required disclosures:
At the time of loan application
When borrowers apply for a mortgage loan, mortgage brokers and/or lenders must give the borrowers:
1. a Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only) and
2. a Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use a particular settlement provider, then the lender must disclose this requirement on the GFE.
3. a Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.
RESPA requires lenders to give prospective borrowers a booklet on "the nature and costs of real estate settlement services" and a good faith estimate of likely settlement costs. Then, at closing, the borrower and seller receive a settlement sheet (the "HUD-1"), which itemizes the costs paid in connection with the purchase of the home. RESPA also prohibits both giving and receiving anything between providers of settlement for the referral of business.
RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.
If the borrowers don't get these documents at the time of application, the lender must mail them within three business days of receiving the loan application.
If the lender turns down the loan within three days, however, then RESPA does not require the lender to provide these documents.
The RESPA statute does not provide an explicit penalty for the failure to provide the Special Information Booklet, Good Faith Estimate or Mortgage Servicing Statement. However, bank regulators may choose to impose penalties on lenders who fail to comply with federal law.
RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. HUD's Office of RESPA and Interstate Land Sales is responsible for enforcing RESPA.
The Real Estate Settlement Procedures Act (RESPA), enacted by Congress In 1974 to address problems in the real estate settlement process. Numerous amendments and revisions have been made to RESPA during the last 30 years. The Department of Housing and Urban Development is empowered to enforce and promulgate the rules and regulations of RESPA. The statutes of RESPA applies only to 1 to 4 family homes. It does not govern transactions involving apartment and commercial buildings.
The disclosures RESPA requires lenders and others to give you estimates that make it easier to analyze loans and services. Some disclosures outline typical costs and servicing policies, others force settlement participants to disclose affiliations.
When you apply for a loan, the lender or mortgage broker is required to give you a Good Faith Estimate of the loan-related expenses that will be due at closing. The estimate must be mailed or given to you within three days of your loan application unless the lender turns down your application during that period.
RESPA was intended to provide consumers with information about their real estate mortgage transaction and the costs associated with it to forbid specific practices, such as referral fees between settlement service providers, that result in higher costs and reduced service to consumers. Mandates the disclosure of all closing costs, lender servicing and escrow account practices, business relationships between closing service providers and other parties to the transaction. The RESPA statute covers mortgage loans on one-to-four family residential dwellings. Including most purchase loans, assumptions, refinances, home improvement loans, and (HELOC) equity lines of credit.
RESPA was intended to provide basic consumer protection, for the prevention of kickbacks and insuring proper disclosures.
These laws were enacted to protect the consumer against predatory lending.
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