RESPA - Real Estate Settlement Practices Act

The definition of mortgage term: Real Estate Settlement Practices Act

A federal law passed in 1974 to protect the borrower and seller by requiring full disclosure of the terms of the transaction at closing. This law was passed because several lenders, title insurance companies, and real estate agents were providing "kickbacks" to each-other with out disclosing them to borrowers. and example of a kick back is a lender advertising a very low interest rate but requiring borrowers to get title insurance from a specific company with an inflated cost. The title insurance company would the "kickback" a portion of the fee to the lender.
The RESPA prohibits kickbacks and now requires lenders to provide a Good Faith Estimate early on in the application process, with all approximate cost of the loan, and a HUD-1 at closing, disclosing the specifics of the loan and to whom all fees will be paid. RESPA restricted the amount the fees can increase to 10% between the GFE and the HUD-1. RESPA also prohibits any increase in the origination fees.

 

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