RESPA - Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act is a consumer
protection statute. One of its purposes is to help consumers become better shoppers
for settlement services. Another purpose is to eliminate kickbacks
and referral fees that can unfairly increase the costs of settlement
services. RESPA requires that borrowers receive disclosures, all
at various times. Certain disclosures spell out the costs related
to the settlement, describe business relationships between settlement
service providers and outline lender servicing and escrow account
details and practices.
RESPA generally covers loans secured with a mortgage placed on one - to - four
family residential properties. These include most purchase loans, refinances,
assumptions, equity lines of credit and property improvement loans. HUD's
Office of Consumer and Regulatory Affairs, Interstate Land Sales - RESPA Division is responsible for enforcing RESPA.
Disclosures at the time of loan application -
When borrowers apply for a loan, the following are what the mortgage broker/lender
should provide.
- Good Faith Estimate - (GFE) of settlement costs, which lists the charges
the buyer is likely to pay at settlement. This is only an estimate; the actual
charges may differ. If a lender requires the borrower to use a particular
settlement provider, the lender must disclose this requirement on the GFE.
As the actual amount may change after the GFE is provided to the borrower,
the numbers are usually very close. Its important to make sure you provide
them with all the information they asked for, debts etc., in order to ensure
that the GFE is as accurate as possible. But remember that changing market
conditions can affect the final costs as well.
- A Mortgage Servicing Disclosure Statement, which discloses to the borrower
whether the lender intends to service the loan or transfer it to another
lender. This statement also includes information about how to service any
complaints you may have.
- If the borrowers do not receive these documents at the time of application,
the lender must mail them within three business days of receiving the loan
application. However if the loan is denied, RESPA does not require the lender
to provide these documents.
Disclosures before closing occurs -
-
Controlled business arrangement or sometimes called an Affiliated
business arrangement. This is when a lender, real estate broker, or a participant in your
settlement refers you to an affiliate for a settlement service. This can happen
when a real estate agent refers you to a mortgage affiliate. When this occurs,
RESPA requires the referring party to provide you with an Affiliated Business
Arrangement Disclosure. This form will remind you that you are generally not
required, with some exceptions, to use the affiliate and are free to look for
another provider.
Disclosures at settlement -
The HUD-1 settlement statement shows the actual settlement costs of the loan
transaction. Separate forms may be prepared for the borrower and the seller.
It is not the practice that the borrower and seller attend the settlement,
the HUD-1 should be mailed as soon as possible after settlement.
- The Initial Escrow Statement itemizes the estimated taxes, insurance premiums
and other charges anticipated to pay from the escrow account in the first
twelve months of the loan. It will list for you the escrow payment amount
and any "cushion" that
they require. Most times this statement is provided at the closing/settlement,
the lender has 45 days from closing to deliver it.
- Loan services must provide to borrowers an Annual
Escrow Statement once
a year. This summarizes the escrow payments for the year, and informs you
of any shortages or surpluses in the account and what their course of action
is going to be.
|
More Helpful Tips
|
