New RESPA Rule, Effective January 1, 2010

As of January 1, 2010, Century 21 Mortgage, Century 21 M&M Real Estate Agents and all of the mortgage and real estate professionals (nation-wide) have a new final RESPA Rule established by HUD “To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.”

The Real Estate Settlement Procedures Act, (known as RESPA) was originally passed in the U.S. Congress in 1974. It was created to stop the practice of inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics which facilitated kickbacks to lenders, realtors, construction companies and title insurance companies.

For example:

Someone applies for a loan advertised by the lender at the 5% interest rate, then in the process, the borrower is told that they must use a certain title insurance company chosen by the lender for which the fee is $5,000 (whereas the normal rate is only $1,000). That title company then pays the lender $4000 (in kickbacks).

RESPA made this practice illegal. The intent of the law was to make the costs of the services clear to the borrower, so as to allow price competition due to consumer demand and drive down the costs of the services by parties involved in the real estate transactions.

However, the kickbacks still occurred in new and more subtle forms, so as of January 1, 2010, we have a new (and final) Rule prescribed by RESPA. This new Rule requires the use of two forms; the new Good Faith Estimate (GFE) of settlement charges and HUD-1 Settlement Statement.

Simply put, the GFE clearly discloses key loan terms and closing costs. And, closing agents are required to provide borrowers with the new HUD-1 that clearly compares consumers’ final and estimated costs.

Dave Will, Century 21 Mortage - call (916)300-9697

Dave Wills, Century 21 Mortgage Consultant from the Sacramento area says, “Basically you can’t argue with RESPA, they have always intended to be fair and their actions are for the benefit of the consumer. The most positive aspect (of this Rule) is that it creates uniformity and consistency in the information from lenders to the consumers, and that is never a bad thing.”

Wills further states “The nice thing about working for Century 21 Mortgage is that I have never had to worry, we always deliver in the end, the exact same thing we quoted to them (the borrower) in the first place.”

John Melo, Century 21 M & M CEO says,  “whenever customers are protected with up front disclosures everyone wins! Less chance of criminal activity by unscrupulous loan agents…”

In the final analysis, these new forms (the GFE and HUD-1) were implemented to help borrowers understand and shop for mortgages. The final result should be; better mortgage products, lower interest rates and lower settlement charges for borrowers.

For more information go to – RESPA, Real Estate Settlement Procedures Act and feel free to start a discussion in the Comment Box below, or visit our Facebook Group – Northern California Real Estate News & Views, and click on the Discussion tab.

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