I am writing this post because you, the borrowers/homeowner should know more about RESPA (Real Estate Settlement Procedures Act Regulation X ) and how it affects your home loan. Furthermore, I want to make you aware, in laymen’s terms, (let’s skip all the mumbo-jumbo mortgage lending talk) how easy it is to be violated when you don’t know your rights.
What you should know about RESPA, but they won’t tell you is this. When you’re shopping for a loan, you need to be know immediately all the costs of that loan. None of the fees should be hidden.
What I have often seen so many loan officers hide are the escrow impound costs.
Escrow Impound Costs
The escrow impound fees are property taxes, hazard insurance, private mortgage insurance (pmi) and maybe flood insurance. (NOTE: the only way your loan will not have escrow impounds is if your loan has a loan to value of less than 80% purchase or refinance).
Why do they hide this…because they know that your fees will increase by almost one third. In order for them to beat their competition, they will not disclose these fees to you and will lead you to believe their fees are lower. Thereby winning your business and fattening their pockets. Therefore, always ask if the escrow fees are included in the closing costs on the GFE.
The Loan Application and Other Disclosures
Upon taking your personal information such as, credit, income, employment, liabilities, assets , your loan officer/lender has a time limit of 3 days to provide you with a
written loan application, unless they have met face to face with you , then you should receive it immediately,
Special Information Booklet (only if you are purchasing a home), and
a mortgage servicing disclosure statement.
Affiliated Business Arrangement
In addition, if your loan officer/lender refers or requires you to use a specific service provider, such as, title, escrow, credit card company, etc. in which they have some ownership or beneficial interest, they must supply you with an Affiliated Business Arrangement (AfBA) disclosure that apprises you of this information.
However, there tends to be some “gray” area to this clause that says this:
“Except in cases where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender’s interest in the transaction, the referring party may not require the consumer to use the particular provider being referred.”
HUD 1 Settlement Statement
The HUD 1 Settlement Statement is given to you at the end or closing of the loan process. The statement clearly discloses all the costs of the loan and compares the GFE to the HUD 1 to ensure that the costs were the same from beginning to end.
Section 8 RESPA Prohibits Kickbacks, Referral and Unearned Fees
Did you know that Section 8 of RESPA forbids your lender, title and escrow, appraiser, and other parties to the transaction from receiving referral fees, kickbacks and unearned fees (fees that are collected by parties to the transaction that have not performed any work, duties, or services)?
Violation of this act will be fined $10,000 and imprisoned up to one year. In a private lawsuit the victim could receive an amount 3 times the amount of the charge paid for the service.
Section 9 RESPA Prohibits Required Title Insurance
It is astonishing to me to learn of the uninformed real estate industry professionals that proceed with insisting that the Seller requires the right to name escrow and title as a condition of the sale. Section 9 of the RESPA Act specifically and clearly “prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.” Buyers may sue a Seller 3 times the amount of the title charges.
Section 10 Escrow Impound Account Limits
RESPA prohibits lenders from charging excessive fees for escrow impounds of property taxes, hazard insurance, and PMI. A lender may only charge 1/12 of the monthly total annual amount to be paid during the year. However, when any of the fees are increased the lender has the right to require payment for any shortage in the account but must not exceed 1/6 of the total disbursement for the year.
If you would like more information on RESPA, please click the following link: