Real Estate Settlement Procedures Act Respa Regulation X
The Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 by the U.S. Congress to protect homebuyers and homeowners from unscrupulous practices by lenders, mortgage brokers, and settlement service providers. The regulation that implements RESPA is known as Regulation X.
What is Regulation X?
Regulation X is a set of rules that govern the way lenders and mortgage brokers conduct business with borrowers during the home buying and mortgage settlement process. The regulation is enforced by the Consumer Financial Protection Bureau (CFPB), which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Regulation X mandates that lenders and mortgage brokers provide borrowers with a detailed disclosure of settlement costs at the time of loan application or within three business days of application. The disclosure, known as the Loan Estimate, outlines all the fees and charges associated with the loan, including interest rates, closing costs, and prepayment penalties.
What are the key provisions of Regulation X?
Regulation X has several key provisions that aim to protect consumers from abusive and discriminatory practices by lenders and mortgage brokers. Here are some of the key provisions:
Prohibition against kickbacks and referral fees
Regulation X prohibits lenders and mortgage brokers from paying kickbacks or referral fees to settlement service providers, such as real estate agents or appraisers, in exchange for referrals or business. This provision ensures that consumers receive fair and competitive prices for settlement services.
Requirement to provide a Loan Estimate
Regulation X requires lenders and mortgage brokers to provide borrowers with a Loan Estimate within three business days of loan application. The Loan Estimate is a standardized form that outlines all the fees and charges associated with the loan, including interest rates, closing costs, and prepayment penalties. The form helps borrowers understand the true cost of the loan and compare offers from different lenders.
Requirement to provide a Closing Disclosure
Regulation X requires lenders and mortgage brokers to provide borrowers with a Closing Disclosure at least three business days before the loan settlement. The Closing Disclosure is a standardized form that outlines all the fees and charges associated with the loan settlement, including the loan amount, interest rate, closing costs, and prepaid items. The form helps borrowers ensure that they are getting the loan they were promised and that there are no surprises at settlement.
Limitation on escrow accounts
Regulation X limits the amount of money that lenders can require borrowers to put into an escrow account for taxes and insurance. The limit is based on the borrower's monthly mortgage payment and ensures that borrowers are not overcharged for these services.
Conclusion
The Real Estate Settlement Procedures Act (RESPA) Regulation X is an important set of rules that protect homebuyers and homeowners from abusive and discriminatory practices by lenders and mortgage brokers. The regulation ensures that consumers receive fair and competitive prices for settlement services and that they understand the true cost of their loans. By following the rules of Regulation X, lenders and mortgage brokers can build trust with their customers and help them achieve their dreams of homeownership.