RESPA (Real Estate Settlement and Procedures Act)
The Real Estate and Settlement Procedures Act (RESPA) was designed for consumer protection and has been in existance since 1974. Its main purposes are to assist consumers in shopping for settlement services and prevent “kickbacks” and referral fees that may unnecessarily increase the costs of settlement services. RESPA requires certain disclosures to be received in a timely fashion.
RESPA does not apply to all mortgages as it is limited to residential mortgages secured by a one-to-four family (single family, duplex, etc.) property. These types of home loans cover most purchases, refinances, assuptions, home improvement loans, and equity lines of credit.
What does RESPA do for you?
RESPA is designed to help protect consumers and assist them in shopping for settlement services. It does so in the following ways…
- RESPA requires that certain disclosures be delivered to you at various times. These disclosures include the Good Faith Estimate (GFE) and Truth-in-Lending (TIL), among others. These documents are designed to show you the costs associated with closing (settling) your mortgage, outline servicing and escrow account practices, and describe any business relationships between settlement services providers.
- Additionally, RESPA prohibits certain practices, such as referral fees, that may unnecessarily increase the cost of settlement services. Specifically, Section 8 of RESPA prohibits a person from giving or receiving anything of value for the referral of settlement services of a covered home loan. It also prohibits anyone from receiving any part of a charge for a service that was not performed. Section 9 of RESPA takes it further and prohibits any home seller from requiring the home buyer to purchase title insurance from any particular provider.
The US Department of Housing and Urban Development (HUD) has put in place a reform to RESPA that will add some additional protections. This RESPA reform requires lenders to comply by January 1, 2010.
