What Is RESPA?
In the early 2000s, mortgage lenders were loaning money loosely, causing the housing industry to suffer in late 2008. As a result, the United States government put RESPA into effect. This set of laws essentially protects borrowers, or homebuyers, from predatory lending practices. Take a look at your rights as a buyer and questions you can ask your lender.
RESPA Is An Important Acronym
Short for the Federal Real Estate Settlement Procedures Act, RESPA gives lenders guidelines on their behavior when it comes to offering mortgage loan information. They cannot create a “bait and switch” position. For example, they offer you a $200,000 loan at 6 percent, but after exorbitant fees are added, the amount is suddenly $250,000 at 6.25 percent. In this era of full transparency on the part of the lender, all borrowers have a right to know about their final costs upfront, before they agree to a contract.
Fees They Must Disclose
Closing costs often amount to several thousand dollars, depending on the property’s value. Borrowers must be notified in advance of the closing costs so there are no surprises. Fees that tend to add up, including notary fees, escrow setup charges and loan processing amounts, should be itemized for the borrower during the loan approval process. These fees cannot change substantially by the end of the loan funding process.
Lenders must also disclose any close relationships with other individual entities involved on the loan. For example, an appraiser that works for a lender’s sister company must have that information brought up to the borrower. Inflated property values used to be an issue when appraisers worked closely with lenders. Borrowers should have a well-rounded view of the people that are working and funding their loan to feel they have a fair transaction.
Local Counseling Information
If you are uncertain about your lender’s disclosure habits, talk to a local counselor directly involved with the RESPA program. This program is directed by HUD, or the United States Department of Housing and Urban Development. Contact HUD at 1-800-569-4287 or look over housing guidelines at www.hud.gov. They can help you understand your rights and if you are being treated unfairly.
Report any lenders that are not working faithfully under RESPA. Although frustrating, it is better to find a new lender, and start the loan process over, if RESPA’s guidelines are being ignored. You do not want to be a victim of high fees and hidden charges.
