What is RESPA?

What is RESPA? The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. 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 purposes of RESPA are to help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

RESPA Requirements: 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.

Required Disclosures at Loan Application:

• A Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only)
• 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.
• 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.

If the borrower does not get these documents at the time of application, the lender must mail them within three business days of receiving the loan application. However, if the lender turns down the loan within three days, then RESPA does not require the lender to provide these documents.

The U.S. Department of Housing and Urban Development (HUD) recently announced changes to RESPA/Regulation X that will be effective with new first mortgage applications received on or after January 1, 2010. The new regulations are intended to provide a better understanding of the settlement charges associated with a loan transaction.

Upcoming changes to RESPA Regulations: 

• Good Faith Estimate (GFE) and HUD Settlement Statement (HUD-1) Forms. Redesigned and with substantial changes, the GFE and HUD-1 forms will standardize how fees are disclosed—making it easier for borrowers to compare offers between lenders. The GFE and HUD-1 will also be aligned to provide even greater transparency for borrowers when comparing settlement charges at closing.
• Settlement Service Provider List. Lenders will be required to provide the borrower with a Settlement Service Provider List that includes service provider names. This pertains to any service where a settlement service is required but the borrower can select a provider—for example: title, pest and septic inspections.
• Fee Tolerances. In an effort to improve the accuracy of the settlement charge information provided to borrowers, new restrictions will be placed on lenders regarding how and when fees disclosed on the GFE may change. Changes to settlement charges between the final GFE and HUD-1 will be limited based on three categories of “fee tolerance”. The guidelines for these tolerance categories are set forth on the new GFE form.

 Information regarding upcoming RESPA changes was provided by Linda Melucci, Bank of America. Still confused about RESPA or have questions about the loan process? Feel free to contact Linda at 480-620-1302 or linda.melucci@bankofamerica.com.