Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) is a federal law that regulates mortgage lending practices, requiring lenders to provide clear disclosures about settlement costs and prohibiting kickbacks between service providers. RESPA is why you receive the Loan Estimate within 3 days of applying and the Closing Disclosure 3 days before closing.
RESPA was enacted in 1974 and has been updated multiple times, most significantly by the Dodd-Frank Act in 2010. Its core requirements: lenders must provide a Loan Estimate within 3 business days of receiving a loan application; lenders must provide a Closing Disclosure at least 3 business days before closing; lenders cannot pay kickbacks or referral fees to settlement service providers.
The anti-kickback provisions under RESPA Section 8 are particularly important. A lender cannot pay a real estate agent for steering borrowers to their mortgage services, and a title company cannot pay a fee to an agent for referrals. These rules are designed to prevent consumers from being steered to overpriced services due to hidden financial relationships between referral sources.
If you believe a RESPA violation occurred—for example, if you suspect your real estate agent received undisclosed compensation for referring you to a specific lender—you can file a complaint with the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov. Violations can result in civil penalties and borrower compensation.
Key Takeaway
The Real Estate Settlement Procedures Act (RESPA) is a federal law that regulates mortgage lending practices, requiring lenders to provide clear disclosures about settlement costs and prohibiting kickbacks between service providers. RESPA is why you receive the Loan Estimate within 3 days of applying and the Closing Disclosure 3 days before closing.
Related Terms
Frequently Asked Questions
Undisclosed kickbacks between lenders, title companies, real estate agents, and other settlement service providers that could inflate your closing costs. It also ensures you receive clear cost disclosures before committing to a loan.
Some fees are fixed (lender fees cannot increase), some can increase up to 10%, and others like prepaid interest can change. If charges exceed RESPA tolerances, the lender must reimburse you. This is called a 'cures' requirement.
The Consumer Financial Protection Bureau (CFPB) is the primary federal enforcer. State attorneys general also have enforcement authority. Consumers can file complaints directly at consumerfinance.gov.
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