RESPA Disclosures

What are RESPA Disclosures? They are disclosures that break down the costs associated with the settlement, describe servicing and escrow account practices, and gives the customer information about the settlement service providers. RESPA stands for Real Estate Settlement Procedures Act.

RESPA requires the lenders or brokers give the customer a Good Faith Estimate of settlement service charges, of a loan application. Customers are suppose to receive this GFE within 3 business days from application date. Remember that these costs are estimates and are not guaranteed costs.

RESPA also requires the lenders or brokers to explain in writing if the loan will be service retained or service released. This is called the Servicing Disclosure Statement.

RESPA requires a referring party to give customers an Affiliated Business Arrangement Disclosure, if that business or company is owned or controlled by a common corporate parent that offer settlement services. So when lenders, brokers, or other participants in a settlement refers customers to an affiliate for a settlement service, the referring party must give customers an Affiliated Business Arrangement Disclosure.

Before a settlement, customers have the right to inspect the HUD-1 Settlement Statement. This is an itemized statement of services provided and fees charged to the customer. The HUD-1 Settlement Statement is completed by the settlement agent who conducts the settlement.

Finally, the lender may require the customer to establish an escrow or impound account to make sure real estate taxes and homeowner insurance premiums are paid currently. In this case, the customer usually has to pay an initial amount at the settlement to start the account plus an additional amount with each month's regular payment. Some escrow account require a cushion to ensure the lender has enough money to make the payments when due. RESPA limits the amount of cushion to a maximum of 2 months of escrow payments.