Real Estate Settlement Procedures Act
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| Long title | Real Estate Settlement Procedures Act of 1974 |
|---|---|
| Acronyms (colloquial) | RESPA |
| Enacted by | the 93rd United States Congress |
| Effective | Dec. 22, 1974 |
| Citations | |
| Public law | P.L. 93-533 |
| Statutes at Large | 88 Stat. 1724 |
| Codification | |
| Titles amended | 12 |
| U.S.C. sections created | 2601-2617 |
| Legislative history | |
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| Major amendments | |
| P.L. 94-205, 89 Stat. 1157 (1976) | |
Passed by the United States Congress in 1974 and codified as Title 12, Chapter 27 of the United States Code, 12 U.S.C. §§ 2601–2617, the main objective of the Real Estate Settlement Procedures Act (RESPA) was to protect homeowners by assisting them in becoming better educated while shopping for real estate services, and eliminating kickbacks and referral fees which add unnecessary costs to settlement services. RESPA requires lenders and servicers to provide borrowers with pertinent and timely disclosures regarding the nature and costs of a real estate settlement process. RESPA was also designed to prohibit abusive practices such as kickbacks and referral fees, the practice of dual tracking, and imposes limitations on the use of escrow accounts.
RESPA was enacted in 1974 and was originally administered by the Department of Housing and Urban Development (HUD). In 2011, the consumer financial protection bureau (CFPB), created under the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, assumed the enforcement and rulemaking authority over RESPA. On December31, 2013, the CFPB published final rules implementing provisions of the Dodd-Frank Act, which direct the CFPB to publish a single, integrated disclosure for mortgage transactions, which included mortgage disclosure requirements under the truth in lending Act (TILA) and sections 4 and 5 of RESPA. As a result, Regulation Z now houses the integrated forms, timing, and related disclosure requirements for most closed-end consumer mortgage loans.
It was created because various companies associated with the buying and selling of real estate, such as lenders, real estate agents, construction companies and title insurance companies were often engaging in providing undisclosed kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.
For example, a lender advertising a home loan might have advertised the loan with a 5% interest rate, but then when one applies for the loan one is told that one must use the lender's affiliated title insurance company and pay $5,000 for the service, whereas the normal rate is $1,000. The title company would then have paid $4,000 to the lender. This was made illegal, in order to make prices for the services clear so as to allow price competition by consumer demand and to thereby drive down prices.
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