Real Estate Settlement Procedures Act Overview

RESPA (Real Estate Settlement Procedures Act) Summary

• Purpose: Protect consumers in federally related residential real estate transactions (1-4 family homes) ensuring fair and honest treatment from service providers. Covers purchase loans, refinances, and HELOCs.

• Exclusions: Business/commercial/agricultural loans, temporary loans (construction loans under two years excluded), bridge/swing loans, loans on vacant land, loan assumptions without lender approval, loan modifications without new note, bona fide secondary market transactions.

• Covered Entities: Real estate brokers/agents, mortgage lenders/brokers, title companies, home warranty providers, insurance agents, appraisers, inspectors, and other service providers related to closings (flood certification, tax services).

• Excluded Entities: Home improvement contractors, movers, other providers not paid at settlement.

• Disclosure Requirements: Lenders must provide accurate, timely disclosures regarding settlement costs and the process.

  • Good Faith Estimate (GFE): Replaced by Loan Estimate (LE) under TRID, required within 3 business days of loan application. Minimum application includes borrower's name, income, SSN, property address, value, and loan amount.
  • HUD Special Information Booklet: Replaced by CFPB Homebuyer's Toolkit (for purchase transactions only).
  • Mortgage Servicing Disclosure: Lender's intent about servicing.
  • Affiliated Business Disclosure: Information relating to lenders/affiliated businesses.
  • Closing Disclosure (CD): Replaced by HUD-1 Settlement Statement, required 3 business days prior to closing.
  • Initial Escrow Account Disclosure: Provided after initial closing disclosures.

• Prohibited Practices: Kickbacks, unearned fees, requiring specific title insurance, charging for required federal disclosures.

• Mortgage Broker Definition: A person/entity (not a lender employee) acting as an intermediary between lender and borrower for federally related mortgages (includes loan correspondents and exclusive agents).

• Foreclosure and Servicing Practices: Loan servicers cannot require excessively large escrow accounts. Borrowers can make Qualified Written Requests for information/error correction. Servicers must acknowledge within 5 days and respond within 30 days. Servicer must contact borrower, provide delinquency notices, follow a loss mitigation policy, and investigate alleged errors within timeframes. Foreclosure may not initiate on loans 120 days or less delinquent.

• Servicing Transfers: RESPA provides processes, disclosures, and timeframes for transferring servicing.

• Additional Requirements: State or particular transaction requirements may apply. Loan originators also acting as real estate agents must disclose. Mortgage brokers must disclose they are not lenders. Discount points are bona fide if they reduce interest rate.