What the heck is RESPA and why should I care?

Does anyone know what RESPA is?  I have to know so that I don't break any laws and lose my real estate license.  I get information and training but that doesn't help home buyers very much, often by the time I even meet them they have already met with a lender.  Consumers who never heard of  RESPA don't know the rules and they don't know if a lender, Realtor or closer are breaking them.

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are

  1. to help consumers become better shoppers for settlement services and
  2. to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Simple enough yet complicated.  This year the Feds have rolled out a new Good Faith Estimate form that everyone likes to call a GFE, shorter I know but the words "good, faith & estimate" are more meaningful.  They mean that when you meet with a lender you can get a good faith estimate of what your total costs on a home loan will be and you can compare the costs of two or more loans.  Now they have to use a special form and their estimates have to be pretty close to what the actual costs come out to be and the Good Faith Estimate has sections that match up to the HUD-1.

What is a HUD-1?  it is a government form that is used at settlement and settlement is when you close on a house.  it means you settle up, you sign a bunch of papers that mean you will make mortgage payments and you get the keys to your house, all on the same day. 

Here is a section from the good faith estimate form:


If you click on the graphic you can see if better. The form spells it all out pretty well as long as the borrower understands that the monthly payment will probably include 1/12th of the property taxes for the year and 1/12th of the home owners insurance.  The actual house payment will be higher than what shows up on this part of the estimate. 

The new Hud-1 still looks like it was made by the IRS but it has been improved a little.  It is now possible to match up some sections on the settlement statement with sections on the good faith estimate.

This is all well and good as long as the borrower understands it all.  If they don't it doesn't do much.  Reading up on RESPA and having an understanding of what to expect from a lender or a closer is a good idea but most people don't know anything about it. 

The best source of information is through the Federal Government and they have pages of information on the internet. 

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