Real Estate Settlement Procedures Act (RESPA) Reform

The goal of RESPA is more informed customers – The objective of the many new government requirements that relate to home financing is to provide information that can help every home buyer or owner make better home financing decisions.  

RESPA Reform was enacted by the U.S. Department of Housing and Urban Development (HUD) with the intent to help protect borrowers applying for home financing by standardizing the industry and:

* providing for a more thorough explanation and disclosure of key loan terms and settlement charges [via revisions to the Good Faith Estimate (GFE) and Settlement Statement (HUD-1)];

* including a side-by-side chart (on the new page 3 of the HUD-1) to help compare the estimated charges shown on the GFE with the actual charges at closing;

* and requiring that fees not increase between issuance of the GFE and closing except under limited circumstances.

For example:

Home Valuation Code of Conduct (HVCC) – ensures that borrowers have sufficient notice of appraisal content and promotes the accuracy of appraisals by shielding appraisers from undue influence;

HERA Mortgage Disclosure Improvement Act (MDIA) – protects borrowers by making them more informed and confident in their home financing choices by specifying timing in regard to initial disclosures, fee collection and final disclosures; and RESPA Reform (the most recent government requirement) – intends to help borrowers avoid surprises at closing by placing tolerance levels on all charges for services associated with obtaining the mortgage where the vendor is not borrower-selected.

The impacts: changes to the transaction – Certainly, the May 2009, HVCC and the July 2009, HERA MDIA requirements may both impact the loan closing timeline. RESPA Reform may also influence the timeline and certainly has many process impacts for lenders, settlement agents and attorneys. However, the transaction experience for the consumer and other parties should remain relatively unchanged.

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