RESPA requires mortgage lenders to provide borrowers with certain information about their loan.
Congress enacted the Real Estate Settlement Procedures Act in 1974 to "help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services," according to the U.S. Department of Housing and Urban Development. This statute requires mortgage lenders and loan-servicing companies to make certain disclosures to borrowers at specific times during and after the loan process.
At Application
When borrowers apply for real estate loans, lenders must give them a special information booklet. It provides borrowers basic information about shopping for a home loan and various real estate closing, or settlement, services and costs. RESPA also requires lenders to send borrowers a Good Faith Settlement of Costs disclosure form within three days of the application date. It provides an estimate of the costs that borrowers will likely pay at closing, such as loan origination fees and government recording costs. If the lender expects that another company will service the loan, it must give the borrower a Servicing Disclosure Statement. This form notifies borrowers that their lender will not be the company collecting their monthly mortgage payments.
Before Closing
RESPA requires mortgage lenders to make two additional disclosures to borrowers before the loan's closing date. If a lender or a real estate brokerage firm refers a borrower to one of its affiliated companies for any settlement service related to the loan, it must give the borrower an Affiliated Business Arrangement Disclosure. This form discloses the relationship between the two parties and alerts borrowers that they may choose to use other companies for any closing service. In most cases, the lender must provide a HUD-1 Settlement Statement one day before the closing meeting. This form is the final settlement statement for the loan. It itemizes all of the loan's closing services and fees.
After Closing
To guarantee on-time payment of property taxes and insurance premiums, the lender may require borrowers to set up an escrow account. The total monthly mortgage payment will include an additional payment into an escrow account, which holds funds for the lender or loan-servicing company to pay the taxes and insurance premiums when due. RESPA requires the lender or loan-servicing company to give the borrower an initial escrow account statement at the settlement meeting or within 45 days after closing. The statement shows all of the payments the loan servicer expects to credit to the escrow account and all of the expenditures it expects to make from the account during the next year.
Annual and Special-Case Disclosures
The lender or loan servicer must also send the borrower an annual escrow statement that shows all escrow account activity during the previous year. The form must also notify borrowers of any increase or decrease in their monthly escrow payment that the lender or loan servicer needs to make in order to pay taxes and insurance premiums during the next year. RESPA also requires a loan-servicing company to send a Servicing Transfer Statement to a borrower when it sells or assigns a loan's servicing rights to another loan servicer.
