RESPA, Why Is This Good For You?

Starting with the New Year, RESPA has been completely changed. What is RESPA you may ask?

RESPA is The Real Estate Settlement Procedures Act (RESPA).

Why should you care?

Because RESPA is what looks out for you, the consumer.

RESPA has kind of taken it on the chin a little bit over the past few years because consumers, like you, have complained that there was nobody looking out for them. And, to some degree, that was a correct assessment.

But, in January, all of that changes. RESPA had an overhaul. This overhaul has many lenders and title companies upset, it struck a nerve. That is how you can tell that this appears to be good legislation.

The changes all revolve around full up front disclosure. Nice huh?! How do they do this?

To start with, there is a massive over haul with the closing statement. Or what we REALTORs call a HUD-1. This new HUD-1 will now look the same no matter what bank, title company or closing agency is closing the transaction. By changing the HUD-1 closing statement and making it uniform, it will help on the full disclosure part.

The big changes though come on that full disclosure, which starts all of the way back at the "Good Faith Estimate". You see, this has been a problem for a while now. There was no accountability for a lender when giving you that first initial estimate of what it is going to cost you to get the loan for the house you are buying.

This initial Good Faith Estimate can only vary at closing by 10% or less. Now that may sound like a lot, but it really is not. A typical closing may have closing costs in the area of $4,800 which means a variance of only $480. This is where the new HUD-1 comes into play.

The new HUD-1 will show side by side what your good faith estimate was and what your actual amounts are. It also has to spell out everything that the title company is charging, which cannot vary in price either, which is causing some title companies to go to a flat fee per transaction charge. The new HUD-1 goes into way more detail that will even show you the yield spread that a mortgae broker is getting in profit from your transaction. Now that is disclosure!

Also, right on the new HUD-1, you will see what your monthly payment is and your interest rate. It will state whether or not you have an adjustable rate mortgage or a balloon payment or a pre-payment penalty. And, as usual, it will show what the REALOTRs are charging.

The only real variance of significance that can effect your closing costs are costs that you will be in control of, like inspection costs. Those are allowed to not be disclosed on the initial good faith estimate simply because there is no way to determine how much those are going to be until later in the process.