Real Estate Settlement Procedures Act or RESPA is a
statute that has been formulated for consumer protection. This act was
first passed in 1974. The main objective of Real Estate Settlement
Procedures Act is to abolish referral fees & kickbacks which
unnecessarily raise costs of some specific settlement services. The other
objective of this act is to protect the consumers from the predatory
practices of settlement service providers like realtors, lenders, and
title insurers.
According to the rules of Real Estate
Settlement Procedures Act (RESPA) the borrowers must receive
disclosures at different times. This act also forbids practices that
raise the expenses involved in settlement services. The
borrowers will get disclosures that are correlated to the costs
associated with escrow account practices, settlement, and outlining of
lender servicing.
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Loans covered under RESPA This act covers
loans such as property improvement loans, refinance loans, purchase
loans, assumptions and equity lines of credit.  Â
Disclosures required under RESPA Borrowers
are entitled to receive the following disclosers at various stages of
real estate settlement. 1. Disclosures at the time of loan
application: At the time of loan application, the lenders are required to
provide a special information booklet. The consumers will get information
about various real estate settlement services from this booklet. The
borrowers will also get a Good Faith Estimate (GFE) of settlement costs
and Mortgage Servicing Disclosure Statement. 2. Disclosures at
settlement: The borrowers will receive the Initial Escrow Statement which
shows the insurance premiums, estimated taxes and other charges that have
to be paid from the escrow account during the first twelve months of the
loan. Â 3. Disclosures after settlement: Lenders are required to
provide Annual Escrow Statement to the borrowers once a year. The annual
escrow account statement sum up all escrow account deposits and payments
during the year. They might also receive a Servicing Transfer Statement.
4. Disclosures before closing occurs: The borrowers will receive
an Affiliated Business Arrangement (AFBA) disclosure. They are also
entitled to receive HUD-1 Settlement Statement. This disclosure shows
charges that the borrowers and sellers have to pay in connection with the
settlement. Summary: RESPA or Real Estate Settlement Procedures Act
protects consumers from the exploitation of the settlement service
providers and eradicates kickbacks and referral fees that increase costs
of some specific settlement services.