RESPA
- Real
Estate Settlement Procedures Act
This is the law that protects consumers from abuses during the residential
real estate purchase and loan process and enables them to be better informed
shoppers by requiring disclosure of costs of settlement services.
The following is an outtake for those who like all those legal writings for
the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing
Administration (FHA) which administer several regulatory programs to ensure
equity and efficiency in the sale of housing.
One of these programs, under the Real Estate Settlement Procedures Act (RESPA),
applies to almost all mortgage loans and mortgage companies, not just FHA-insured
mortgages.
RESPA’s
purposes are
- to help consumers get
fair settlement services by requiring that key service costs be disclosed
in advance,
- to protect consumers
by eliminating kickbacks and referral fees that would unnecessarily increase
the costs of settlement services, and
- to further protect
consumers by prohibiting certain practices that increase the cost of settlement
services.
RESPA protects consumers
by mandating a series of disclosures that prevent unethical practices by mortgage
companies and that provide consumers with the information to choose the real
estate settlement services most suited to their needs.
The disclosures must take place at various times throughout the settlement
process:
Disclosures at the time of loan application.
When a potential homebuyer
applies for a mortgage loan, the buyer must receive:
- a Special Information
Booklet, which contains consumer information on various real estate settlement
services;
- a Good Faith Estimate
of settlement costs, which lists the charges the buyer is likely to pay
at settlement and states whether the buyer is required to use a particular
settlement service; and
- a Mortgage Servicing
Disclosure Statement, which tells the buyer whether the loan will be kept
or transferred for servicing, and also gives information about how the
buyer can resolve complaints.
RESPA does not specify penalties when these three items are not provided,
but bank regulators can impose penalties.
Disclosures
before settlement (closing) occurs.
- An Affiliated Business
Arrangement Disclosure is required whenever a settlement service refers
a buyer to a firm with which the service has any kind of business connection,
such as common ownership. The service usually cannot require the buyer
to use a connected firm.
- A preliminary copy
of a HUD-1 Settlement Statement is required if the borrower requests it
24 hours before closing.
This form gives estimates of all settlement charges that will need to
be paid, both by buyer and seller.
Disclosures
at settlement.
- The HUD-1 Settlement
Statement is required to show the actual charges at settlement.
- An Initial Escrow
Statement is required at closing or within 45 days of closing.
This itemizes the estimated taxes, insurance premiums, and other charges
that will need to be paid from the escrow account during the first year
of the loan.
Disclosures
after settlement.
- An Annual Escrow
Loan Statement must be delivered by the servicer to the borrower. This
statement summarizes all escrow account deposits and payments during the
past year. It also notifies the borrower of any shortages or surpluses
in the account and tells the borrower how these can be paid or refunded.
- A Servicing Transfer
Statement is required if the servicer transfers the servicing rights for
a loan to another servicer.
Along
with these disclosures, RESPA protects consumers by prohibiting several other
practices:
- Kickbacks, fee-splitting,
and unearned fees: Anyone is prohibited from giving or accepting a fee,
kickback, or any thing of value in exchange for referrals of settlement
service business involving a federally related mortgage loan, which covers
almost every loan made for residential property.
RESPA also prohibits fee-splitting and receiving unearned fees for services
not actually performed.
Violations of these RESPA provisions can be punished with criminal and
civil penalties.
- Seller-required title
insurance: A seller is prohibited from requiring a homebuyer to use a
particular title insurance company. A buyer can sue a seller who violates
this provision.
- Limits on escrow
accounts: A limit is set on the amount that a borrower is required to
put into an escrow account to pay taxes, hazard insurance, and other property
charges.
RESPA does not require an escrow account on borrowers, but some government
loan programs or mortgage companies may require an escrow account.
During the course of the loan, RESPA prohibits charging excessive amounts
for the escrow account.
And each year, the borrower must be notified of any escrow account shortage
and return any excess of $50 or more.
|
|
|
DailyInterest.com is brought to you courtesy of Scott Campbell of
egazing, inc
please contact me by email at scott @ dailyinterest.com
If you shop online, be sure to visit our shopping site at www.egazing.com
to find deals and coupons for the stores you love to shop at and |
DailyInterest.com
- guide to Home Mortgage Loan Advice & Education for refinancing and purchasing
All Information located here is Copyright © 2002 - 2005
Home Loan
Programs Tips
and Learning Library About
Us Market Trends &
Rates
