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The United States Department of Housing and Urban Development (HUD) helps consumers buy homes and ensures fair lending practices. HUD introduced the Real Estate Settlement Procedures Act (RESPA) to help control and explain home loan closing costs. Under RESPA, all loan applicants must receive a detailed list and explanation of all closing costs connected to a home loan.
This list is known as a good faith estimate. It includes all loan settlement costs. The goal of the estimate is to avoid any last minute, surprise expenses and make consumers aware of the true cost of a home loan. The Real Estate Settlement Procedures Act also outlaws any commissions, referrals fees, and kickbacks charged as inflated closing costs.
By requiring a full listing of closing costs, the Real Estate Settlement Procedures Act allows consumers to make a fair comparison of all loan options available to them. The act helps HUD fulfill its mission of providing community members the information they need to become successful homeowners. RESPA also mandates fair treatment of all loan applicants, regardless of race.
Under The Real Estate Settlement Procedures Act, a lender cannot accept anything of value in exchange for referring business to a service provider. This helps control closing costs charged by title insurance companies, realtors, home inspectors, appraisers, and others. Additionally, the seller is not able to require a buyer to purchase title insurance from a specific insurance company under RESPA.
Other disclosures required by The Real Estate Settlement Procedures Act include a consumer booklet explaining closing costs and a mortgage servicing disclosure statement. This document explains if the lender will handle the loan or subcontract the loan servicing to another financial institution. The lender must provide these disclosures, along with the good faith estimate, within three days of the loan application date. These disclosures are not required if the lender declines the application before the end of the three day period.
Loans for one to four family homes are regulated by RESPA. These loans include first mortgages, refinance loans, home improvement loans, and home equity lines of credit. A special HUD department, the Office of RESPA and Interstate Land Sales, enforces RESPA requirements.
The Real Estate Settlement Procedures Act was first passed in the United States in 1974. The act has since been updated several times by the U.S. Congress. The latest revision was in November 2008. These changes became effective 1 January 2010.