Notes

Real Estate Settlement Procedures Act (RESPA)


First, the Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate. Similar to those forms, the new Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying, and must be provided to consumers no later than the third business day after they submit a loan application.

Second, the HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms) have been combined into another new form, the Closing Disclosure, which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan.

Third, creditors must provide a copy of the special information booklet to consumers who apply for a consumer credit transaction secured by real property, except in certain circumstances. The special information booklet is required pursuant to Section 5 of RESPA (12 U.S.C. 2604) and is published by the Bureau to help consumers applying for federally related mortgage loans understand real estate transactions. The Settlement Cost Booklet must be given to the borrower within three days of applying for a loan.

The final rule applies to most closed-end consumer mortgages. It does not apply to home equity lines of credit (HELOCs), reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land). The final rule also does not apply to loans made by persons who are not considered "creditors."

RESPA also requires that any time the closing agent refers a borrower to a firm with which the lender is affiliated the lender must inform the borrower of the connection through an Affiliate Business Arrangement (AFBA) disclosure stating the relationship and that the buyer need not use affiliated firms. For example, if the borrower is referred to an appraiser whose firm is owned by the owners of the lender's firm, the lender must inform the borrower.

In addition to the above requirements, RESPA also contains several prohibitions for transactions that involve federally related mortgage loans. These regulations apply to transactions involving the purchase of a one-to-four family home:
First, no party (such as a seller, lender or servicer) may give or accept a fee or anything else of value for the referral of a closing service.

Second, no party may charge a fee for a service that is not actually performed, nor may it split an earned fee with another party that has not performed or helped to perform the service for which the fee was charged.

Third, the seller may not require as a condition of sale that the borrower use a specific title insurance company.