RESPA stands for the Real Estate Settlement Procedures Act. It is a federal law passed in 1974 to deal with abusive practices in the real estate settlement services industry. Prior to the passage of RESPA, many parties, including lenders, mortgage brokers, attorneys and appraisers, were making payments to outside parties through fees for customer referrals, which took the form of fee splitting, kickbacks, or referral fees. This led to higher costs for the consumer. In 2011, RESPA began being administered by the Consumer Financial Protection Bureau.
RESPA places restrictions on businesses in the mortgage services industry by prohibiting anyone involved in a federally-related mortgage loan from giving or receiving referral fees or kickbacks. However, lenders are still allowed to pay a mortgage broker a fee for performing loan origination services, if they are legitimate services. All fees, however, must be disclosed on the Good Faith Estimate, and the settlement statement (HUD-1), and they must be reasonable.
Therefore, if you are in the mortgage business, you should take steps to make sure your loans comply with RESPA. When borrowers apply for a mortgage, they must be given a Special Information Book, a Good Faith Estimate, and a Mortgage Servicing Disclosure Statement. At settlement, the HUD-1 and the Initial Escrow Statement must be provided. Loan servicers must also deliver an Annual Escrow Statement to borrowers.
RESPA rules are complicated, and businesses involved in the mortgage industry must be compliant with RESPA.
If you are in New York and you are interested in learning more about RESPA and whether you are RESPA-compliant, call the Rochester, New York Real Estate Attorneys at Friedman & Ranzenhofer, PC at 585-484-7432. We will be happy to talk you through the issues involved.
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