RESPA requires that borrowers receive disclosures at various times in
the transaction process. 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.
Specifically, when a borrower applies for a loan, HUD requires mortgage brokers and/or lenders to:
- Give the borrower a Special Information Booklet containing consumer
information regarding various real estate settlement services. (Required
for purchase transactions only).
- A Good Faith Estimate (GFE) of settlement costs, which lists
the charges the buyer is likely to pay at settlement. This is only an
estimate and the actual charges may differ. If a lender requires the
borrower to use of a particular settlement provider, then the lender
must disclose this requirement on the GFE.
- A Mortgage Servicing Disclosure Statement, which discloses to
the borrower whether the lender intends to service the loan or transfer
it to another lender. It also provides information about complaint
resolution. If the lender fails to give the borrower these documents at
the time the borrower applies for the loan, the lender must mail them
within three business days of receiving the loan application.
All of the charges imposed on borrowers and sellers in connection
with the real estate settlement must be disclosed on a HUD-1 Settlement
Statement and presented to the buyer at the closing – or one day prior
to the closing. The HUD-1 also allows for adjustments or proration of
expenses paid for the property over time, for example – water bills, tax
bills, homeowner association fees, condominium fees and other
assessments. All closing costs are represented on this statement to
identify the bottom line paid for the property by the buyer and the
bottom line received by the seller.
Disclosures before the closing/settlement
According
to RESPA, all Affiliated Business Arrangements (AfBA) must be disclosed
to the consumer. An AfBA is an arrangement in which a person who is in a
position to refer business in connection with a real estate transaction
has an ownership interest in a provider of settlement services and such
person refers or influences the selection of that provider. The
referring party must give the AfBA disclosure to the consumer at or
prior to the time of referral. The disclosure must describe the business
arrangement that exists between the two providers and give the borrower
an estimate of the second provider's charges.
Except in cases
where a lender refers a borrower to an attorney, credit reporting agency
or real estate appraiser to represent the lender's interest in the
transaction, the referring party may not require the consumer to use the
particular provider being referred.
Disclosures at settlement
The
Initial Escrow Statement itemizes the estimated taxes, insurance
premiums and other charges anticipated to be paid from the escrow
account during the first twelve months of the loan. It lists the escrow
payment amount and any required cushion. An Annual Escrow Statement must
be also delivered to the borrower once a year.
Disclosures after settlement
Besides
the Annual Escrow Statement, RESPA requires a Servicing Transfer
Statement to be sent to the consumer if the loan servicer sells or
assigns the servicing rights to a borrower's loan to another loan
servicer. The loan servicer must notify the borrower 15 days before the
effective date of the loan transfer. The notice must include the name
and address of the new servicer, toll-free telephone numbers, and the
date the new servicer will begin accepting payments.