The Real Estate Services Procedures Act (RESPA) covers mortgages made to the purchasers of residential dwellings. The RESPA statute will also apply if you are refinancing your home. The statute is essentially a consumer protection law. The U.S. Department of Housing and Urban Development is responsible for enforcing RESPA.
Purpose of RESPA and Its General Requirements
The purpose of RESPA is to prevent home buyers from being overcharged for the services required in the process of purchasing a home and at the closing. In finance and legal circles, the closing is referred to as the settlement. After applying for a loan, RESPA requires lenders to make disclosures about the charges and fees that the borrower can expect at closing. RESPA forbids service providers from requiring the consumer to use specific companies for services and the act also forbids kickbacks and payments for services not rendered for the benefit of the consumer.
Good Faith Estimates
It is a RESPA violation if lenders do not make the required disclosures. Lenders who are financing residential purchases are required to give the consumer a special information booklet with information about the services that will be needed at closing. A lender must prepare and give the consumer good faith estimates of the anticipated closings costs. The lender must also disclose whether it intends to sell the loan to another entity for servicing.
Kickbacks and Unearned Fees
It is a RESPA violation if any of the service providers that help in closing the loan pay each other kickbacks and unearned fees. In many real estate transactions, the consumer needs and pays for the services of a realtor, a mortgage broker, a surveyor, a home inspector, an appraiser, an attorney, a lender, the lender's underwriter and a title company. It is prohibited for any of these parties to share undisclosed fees. One of the abuses that this helps to prevent is a system where a realtor insists that a potential purchaser use a particular bank or appraiser in order to receive a kickback.
It is a RESPA violation if the lender does not make the proper disclosures at settlement. The lender is required to prepare and issue to the borrower a complete accounting of the closing costs. This is in the form of a settlement statement called the HUD-1 form. Lenders usually maintain an escrow account for the borrower's real estate taxes and homeowner's insurance premiums. The lender must prepare and deliver to the borrower an initial escrow statement that itemizes these expenses for the first year of the loan.