What is the Real Estate Settlement Procedures Act (RESPA)?
The Real Estate Settlement Procedures Act (RESPA) is a federal law that was enacted to protect consumers in the mortgage lending process by requiring lenders to provide certain disclosures and information to borrowers. The main objective of RESPA is to help consumers become better shoppers for settlement services, and to eliminate kickbacks and referral fees that increase the cost of settling a mortgage.
Some of the key provisions of RESPA include:
- Good Faith Estimate TIL: Lenders are required to provide borrowers with a good faith estimate of all settlement costs within three days of receiving a loan application. This estimate must include the costs for items such as title insurance, appraisal fees, and recording fees. It is called a Truth-in-Lending disclosure.
- Lender's Credit Disclosure: Lenders are required to provide borrowers with a HUD-1 Settlement Statement, which itemizes all of the charges and credits associated with the sale of a property, at least one day before the closing of the loan.
- Prohibition of kickbacks and referral fees: RESPA prohibits the payment of kickbacks or referral fees for the referral of settlement service business. This means that lenders, title companies, and real estate agents cannot pay or receive money or anything of value for referring business to each other.
- Servicing of loans: Lenders are required to provide borrowers with information about the servicing of their loans, including the name and address of the loan servicer, the borrower's rights and responsibilities, and information about the loan's payment history.
RESPA applies to most closed-end consumer credit transactions that are secured by a mortgage, deed of trust, or other equivalent consensual security interest on a consumer's principal dwelling.