Exploring RESPA

  • January 12, 2015

We hear the acronym RESPA referenced frequently throughout the mortgage loan process. But what does it mean and why is it important?
RESPA stands for Real Estate Settlement Procedure Act and was first passed in 1974. Since then it has been amended often to keep up with the fluctuations in the housing market and mortgage process. This Act is enforced by the CFPB (Consumer Financial Protection Bureau) and was developed to ensure consumers throughout the nation have access to more helpful information about the costs of obtaining a mortgage loan.
RESPA was established to shed light on companies and organizations involved in the financial realm of buying and selling real estate and their interactions with consumers. In the past, some companies got caught up in providing undisclosed kickbacks to each other thereby inflating the costs of real estate transactions. For example, a consumer would be told they must use a specific appraisal company to appraise the home they bid on. The appraisal company would charge a higher fee to this consumer and give the extra money back to the person who brought them the business. With RESPA in place, consumers are protected from unlawful dealings between financial companies that would raise the price of his or her obtaining a mortgage loan.
The goal is to make obtaining mortgage financing clearer and cheaper for consumers by providing necessary information in easy-to-understand language and explanations. While the details of the Act are vast and deep, the most important thing to understand is that as a consumer, you have the right to see exactly what the costs of obtaining a mortgage loan are and where your money is going when buying a home.

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