Truth in Real Estate Lending Laws
One of the purposes of RESPA is to help consumers become better shoppers for settlement services. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.
Good Faith Estimate of Settlement Costs.
RESPA requires that, when you apply for a loan, the lender or mortgage broker give you a Good Faith Estimate of closing service charges you will likely have to pay. If you do not get this Good Faith Estimate when you apply, the lender or mortgage broker must mail or deliver it to you within the next three business days.
One of the purposes of RESPA is to help consumers become better shoppers for settlement services. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.
Be aware that the amounts listed on the Good Faith Estimate are only estimates. Actual costs may vary. Changing market conditions can affect prices. Remember that the lender's estimate is not a guarantee. Keep your Good Faith Estimate so you can compare it with the final settlement costs and ask the lender questions about any changes.
Servicing Disclosure Statement.
RESPA requires the lender or mortgage broker to tell you in writing, when you apply for a loan or within the next three business days, whether it expects that someone else will be servicing your loan (collecting your payments).
Affiliated Business Arrangements. Sometimes, several businesses that offer closing services are owned or controlled by a common corporate parent. These businesses are known as "Other Services." When a lender, real estate broker, or other participant in your closing refers you to an affiliate for a escrow service (such as when a real estate broker refers you to a mortgage broker affiliate), RESPA requires the referring party to give you an Affiliated Business Arrangement Disclosure. This form will remind you that you are generally not required, with certain exceptions, to use the affiliate and are free to shop for other providers.
HUD-1 Settlement Statement. One business day before the escrow closing, you have the right to inspect the HUD-1 Closing Statement. This statement itemizes the services provided to you and the fees charged to you. This form is filled out by the escrow company who will conduct the closing. Be sure you have the name, address, and telephone number of the escrow company if you wish to inspect this form. The fully completed HUD-1  Closing Statement generally must be delivered or mailed to you at or before the closing. In cases where there is no settlement meeting, the escrow agent will mail you the HUD-1 after closing, and you have no right to inspect it one day before escrow closes.
Escrow Account Operation & Disclosures. Your lender may require you to establish an escrow or impound account to insure that your taxes and insurance premiums are paid on time. If so, you will probably have to pay an initial amount at the close of escrow to start the account and an additional amount with each month’s regular payment. Your escrow account payments may include a "cushion" or an extra amount to ensure that the lender has enough money to make the payments when due. RESPA limits the amount of the cushion to a maximum of two months of escrow payments.
At close of escrow or within the next 45 days, the person servicing your loan must give you an initial escrow account statement. That form will show all of the payments which are expected to be deposited into the escrow account and all of the disbursements which are expected to be made from the escrow account during the year ahead. Your lender or service provider will review the escrow account annually and send you a disclosure each year which shows the prior year’s activity and any adjustments necessary in the escrow payments that you will make in the forthcoming year.
CriticismsHowever, critics say that kickbacks still occur. For example, lenders often provide captive insurance to the title insurance companies they work with, which critics say is essentially a kickback mechanism. Others counter that economically the transaction is a zero sum game, where if the kickback were forbidden, a lender would simply charge higher prices. One of the core elements of the debate is the fact that customers overwhelmingly go with the default service providers associated with a lender or a realtor, even though they sign documents explicitly stating that they can choose to use any service provider. Some say that if the profits of the service providers were truly excessive or if the price of the services were excessively inflated because of illegal or quasi-legal kickbacks, then at some point non-affiliated service providers would attempt to target consumers directly with lower prices to entice them to choose the unaffiliated provider.
There have been various proposals to modify the Real Estate Settlement Procedures Act. One proposal is to change the "open architecture" system currently in place, where a customer can choose to use any service provider for each service, to one where the services are bundled, but where the realtor or lender must pay directly for all other costs. Under this system, lenders, who have more buying power, would more aggressively seek the lowest price for real estate settlement services.
Suggested Reading
|
