Real Estate Settlements and Procedures Act (RESPA)
RESPA stands for Real Estate Settlement Procedures Act, a federal law that was passed in 1974 to protect consumers during the home buying process.
The key provisions of RESPA include:
Disclosure Requirements: RESPA requires lenders to provide borrowers with a good faith estimate (GFE) of the loan costs within three days of receiving the loan application. The GFE includes information about the loan's interest rate, closing costs, and other fees.
Prohibition of Kickbacks: RESPA prohibits lenders from giving or receiving any kickbacks or referral fees for business referrals. This includes any payments or gifts given to real estate agents, mortgage brokers, or other settlement service providers.
Escrow Accounts: RESPA requires lenders to establish escrow accounts for borrowers to pay property taxes, homeowner's insurance, and other fees. The lender must provide an annual statement showing the amount paid into the account and the disbursements made.
Limits on Closing Costs: RESPA limits the amount that lenders can charge borrowers for certain services related to the mortgage loan. This includes fees for loan origination, appraisal, credit reports, and other settlement services.
Right to Choose Service Providers: RESPA gives borrowers the right to choose their own settlement service providers, such as title companies, appraisers, and home inspectors. The lender cannot require the borrower to use a particular provider.
Special Information Booklets: RESPA requires lenders to provide borrowers with a special information booklet that explains the settlement process, including the costs involved and the borrower's rights.
Overall, RESPA is designed to ensure that borrowers have access to important information about their mortgage loan and are protected from predatory lending practices.