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RESPA Mortgage Law Overview

RESPA Mortgage Law Overview

  • Great Mortgage IdeaPlease note that many elements of RESPA were incorporated into, or replaced by, the TILA-RESPA Integrated Disclosure Rule (TRID) that became effective October 3rd, 2015.  TRID is the primary rule that governs the mortgage process and dictates the disclosure documents lenders are required to provide to borrowers.   We provide the RESPA overview below for your reference
  • The mortgage process is regulated by a law called the Real Estate Settlement Procedures Act of 1974, also known as RESPA.  From the borrower's standpoint, the most important thing to know about RESPA is that it requires lenders to disclose certain information to borrowers about costs, fees and interest rates before moving forward with the mortgage process.  RESPA was designed to help borrowers select the mortgage that is right for them and to protect them from getting ripped off by lenders.

    RESPA was implemented to provide borrowers with more up-front information on key mortgage terms before borrowers select a lender.  RESPA is supposed to help borrowers avoid a "bait and switch" by lenders -- when the lender promises one set of terms at the beginning of the mortgage process but then delivers another, less attractive set of terms, such as a higher interest rate or closing costs, when the mortgage is finalized.

    RESPA requires that lenders provide borrowers an extensive amount of information and numerous documents before borrowers select a lender for their mortgage and when their mortgage closes. The four documents below are the most important for borrowers to understand and review when they get a mortgage.  According to RESPA regulations, lenders are required to provide the Good Faith Estimate, Truth-in-Lending Statement and HUD-1 Statement to borrowers.  Lenders are not required to provide the Lenders Fee Worksheet by law but typically provide it if borrowers request it.

    • Good Faith Estimate: Outlines the key terms of a mortgage including interest rate and closing costs.  A lender must provide a Good Faith Estimate at the time the borrower submits a loan application
    • Truth-in-Lending Statement: Outlines important mortgage costs and features such as the Annual Percentage Rate (APR), Finance Charge and the Total of Payments you will make over the life of the loan including principal and interest.  Provided by the lender to the borrower at the same time as the Good Faith Estimate
    • HUD-1 Statement Overview: A standardized form that lists the final, actual terms and costs of your mortgage, including your interest rate, points and all one-time fees.  RESPA requires the settlement agent to issue estimated HUD-1 Statement to the borrower at least one day prior to the closing of the loan
    • Lender Fees Worksheet: Although it is not required by RESPA, you should ask lenders for a Lender Fees Worksheet, which provides a detailed breakdown of all the costs and expenses associated with a mortgage

    You should request the Good Faith Estimate , Truth-in-Lending Statement and Lender Fees Worksheet when you interview lenders and compare mortgage proposals. If a lender is unwilling to provide these documents at the time you submit a mortgage application or request a mortgage proposal, this raises a red flag and you should contact other lenders.  If used properly, these documents are highly valuable tools for borrowers to review mortgage proposals and negotiate the best terms for their mortgage.  Borrowers should review the HUD-1 prior to mortgage closing to confirm they are receiving the mortgage terms that the lender committed to at the beginning of the process.

  • Great Mortgage IdeaFREEandCLEAR recommends that you compare mortgage proposals from at least four lenders
  • Lenders may require you to submit a loan application in order to receive these documents.  This requires a little extra effort on your part (and the lender's part) but it is well worth it if you can improve the terms of your mortgage.  Submitting a loan application to a lender and receiving documents such as the Good Faith Estimate does not mean that you are required to work with that lender.  It means that you are gathering information to allow you to make an informed decision about your mortgage.  Lenders must provide borrowers with certain RESPA disclosure items, including the Good Faith Estimate, within three days of submitting the application.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current Mortgage Rates as of December 11, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • Sources

    RESPA: https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/real-estate-settlement-procedures-act-respa-examination-procedures/

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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