Monday, June 9, 2014 - Article by: Justin Fitzhugh - Nations Lending Corporation -
The Real Estate Settlement Procedures Act, RESPA, is intended to help borrowers evaluate the costs of a acquiring a mortgage, and to prevent the charge of unnecessary fees and/or imposition of third party services. This rule requires us lenders, or your loan officer, to provide you with a Good Faith Estimate and a preliminary HUD-1 disclosure form when you apply for a loan, and with a Final HUD-1 disclosure form and Final Truth in Lending Disclosure Statement when you close your mortgage. The origin of RESPA goes back to 1974. The Act was made into law in response to abuse from companies associated with the buying and selling of real estate.
Before the law was enacted, companies involved in the real estate business would give kickbacks to one another. These kickbacks were undisclosed to the consumer, and often, imposed a third party service or product as a requirement to access lower interest rates. You probably heard the term bait-and-switch before. For instance, a lender would advertise a 7 percent interest rate, but require the borrower to use a certain home or title insurance provider. Then the imposed service provider would charge outrageous fees for their service, and the consumer had to choose between getting the low interest rate or go somewhere to get the national average rate (yes, it is only recently that we see rates below 5 percent). Once the law was enacted, many schemes were intended to get around the technical aspects of the rule, like affiliating with the third party service. But then, the rules were amended, and lenders cannot demand a borrower uses an affiliated company in order to provide a benefit when transacting the acquisition of a mortgage. In short, today, RESPA prohibits we impose an unnecessary service, or force you to use a certain provider with some exceptions. This law also prohibits that we give or receive kickbacks in connection to the settlement of a real estate transaction, as you can imagine, this causes conflict of interest.
In the past, HUD was responsible for the enforcement of RESPA. Today, the Consumer Financial Protection Bureau is in charge, and whenever you have a complain, you can reported here: https://help.consumerfinance.gov/app/mortgage/ask
Recently, the CFPB updated the rules that regulate us, and the fines and penalties for violations are enough of a deterrent for us to service you at our best. And yet, still there are companies out there who try to dodge the rule, but with the CFPB in charge, more often than not, they will be in trouble.
Just last week, the CFPB penalized the largest Alabama realty company with half million dollars for providing inadequate disclosures about its affiliation to the title insurance company it promoted.(1) The fine is because the company failed to comply with the disclosure-related provisions of RESPA. Although the company provided home buyers with a disclosure that indicated closing and title services were performed by an affiliate, get this, the disclosure was not in the format required by the law. The problem was the disclosure did not use CAPITAL LETTERS to highlight the fact that consumers could obtain services from other providers, and the statement was hidden among other statements. Furthermore, the disclosure included marketing statements touting the benefit and value of the affiliated entities, namely, that the service provider was in a unique position to provide you with exceptional value and service.
Oh well, what is half a million dollars to Warren Buffett and the Berkshire Hathaway fund, owner of the Alabama Realty company.(2) The point is that RESPA is intended to protect you, and prevent us from imposing the services of a third party, or affiliated, provider. Today, the government is with you, more than you know. So its good you stop by to read about this Act. Today you are better equipped to choose a mortgage expert to help you with your mortgage needs.
If you are curious about this law, you can read it here: http://www.law.cornell.edu/uscode/text/12/chapter-27
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