The Real Estate Settlement Procedures Act (RESPA) is another consumer protection statute designed to stop lenders from charging illegal fees that make mortgages more expensive.

RESPA forces Lenders to provide borrowers with accurate disclosures of the closing costs, lender practices, and relationships among the companies that provide services before, during and after closing. RESPA also prohibits kickbacks and referrals fees. RESPA covers loans secured with a mortgage placed on a one-to-four family residential property.

The Real Estate Settlement Procedures Act is a federal law that was initially passed by Congress in the 1970s. The act is designed to protect consumers from disreputable lending practices in the writing of mortgages.

Purposes of the Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act has two main purposes:

  • To assist purchasers in becoming more savvy in shopping for settlement services;
  • To do away with extra costs that might unnecessarily increase some settlement services charges. The act specifically targets referral fees and kickbacks.

What the Real Estate Settlement Procedures Act does

Although Real Estate Settlement Procedures Act has been altered somewhat through subsequent federal action, the basic rules of the law require that:

  • Certain disclosures be given to borrowers — Real Estate Settlement Procedures Act demands that lenders provide borrowers with disclosures about the costs associated with settling a real estatetransaction.
  • Borrowers receive a Good Faith Estimate — This specific disclosure lists all the charges a buyer is likely to face paying at the time of closing.
  • Plans on holding the mortgage be given out — A Mortgage Service Disclosure Statement is required under the Real Estate Settlement Procedures Act. This tells a borrower if the lender intends to hold the note or sell it to another lender.

Real Estate Settlement Procedures Act protections also include regulations about escrow account and accountability and a number of other facets that help ensure borrowers understand what they are getting into with a particular loan.