Market Reports

RESPA Reform Summary

What Do You Need to Know About RESPA Reform?

Before we talk about RESPA reform, you should know that these acts collectively govern a broad range of activities in the lending industry, which includes lending for real estate (mortgages):

• The Real Estate Settlement Procedures Act (RESPA) prohibits abusive practices by lenders that increase costs. These prohibitions include kickbacks and referral fees and require advance disclosure of settlement service costs (what it is going to cost you to close on your property purchase).
• The Truth-in-Lending Act (TILA) requires disclosure of the cost of credit (what the true cost to borrow money is) to the consumer. Also requires disclosure of the terms of repayment.
• The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending.
• The Fair Credit Reporting Act (FCRA) regulates the collection, distribution, and use of consumer information, which includes consumer credit information.

As of January 1st, 2010, RESPA reforms have been implemented. Below I have re-printed (with permission) a very brief overview of what this means to you, the borrower of funds to purchase real estate:

Why the changes?

• To educate the buyer
• To encourage shopping
• To increase competition, thereby reducing costs for buyer

This is a response to the many abuses by sub-prime lenders and others who sold loans that were not in the best interest of the buyer.

No differentiation between buyer, lender, or seller fees:

• The Good Faith Estimate is not a statement of how much to bring to closing.
• The “Estimate of Closing Costs” will show how much to bring to closing.

Down-payment will not show on Good Faith Estimate, nor will seller-paid closing costs.

Once the loan is registered and rate is locked, the Good Faith Estimate is a binding document.

Finally – A standard form used by all lenders

• No more “hidden” fees
• No more different names for different fees

Any changes to sales price, seller contributions, etc., that you may renegotiate will require the Good Faith Estimate be recalculated and re-sent to buyer. This must be finalized three days prior to closing to avoid delays.

Marie Funston | Sr. Mortgage Advisor | (512) 750-7270
9442 N Capital of Texas Hwy., Suite 1-600
Austin, TX 78759
Fax: (512) 343-1224
Marie@austinmortgageadvisor.com
(re-printed with Marie’s permission)